<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 1994
SECURITIES ACT FILE NO. 33-18720
INVESTMENT COMPANY ACT FILE NO. 811-5395
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 9 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 10 /X/
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
MERRILL LYNCH GLOBAL
CONVERTIBLE FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CO
se
DE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
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 FUND: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD MERRILL LYNCH ASSET MANAGEMENT
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, NEW JERSEY 08543-9011
ATTENTION: THOMAS R. SMITH, JR.
</TABLE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on October 21, 1994 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) 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.
------------------------
The Registrant has registered an indefinite number of its Class A and Class
B shares under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. The notice required by such rule for the
Registrant's most recent fiscal year was filed on December 20, 1993.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- -------------- ------------------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page...................................... Cover Page
Item 2. Synopsis........................................ Fee Table
Item 3. Condensed Financial Information................. Financial Highlights; Performance Data
Item 4. General Description of Registrant............... Cover Page; Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund.......................... Fee Table; Management of the Fund; Inside Back
Cover Page
Item 5A. Management's Discussion of Fund Performance..... Not Applicable
Item 6. Capital Stock and Other Securities.............. Cover Page; Additional Information
Item 7. Purchase of Securities Being Offered............ Cover Page; Merrill Lynch Select Pricing(Service
Mark) System; Fee Table; Alternative Sales
Arrangements; Purchase of Shares; Shareholder
Services; Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase........................ Merrill Lynch Select Pricing(Service Mark)
System; Fee Table; Alternative Sales
Arrangements; Purchase of Shares; Redemption
of Shares
Item 9. Pending Legal Proceedings....................... Not Applicable
PART B
Item 10. Cover Page...................................... Cover Page
Item 11. Table of Contents............................... Back Cover Page
Item 12. General Information and History................. Not Applicable
Item 13. Investment Objectives and Policies.............. Investment Objective and Policies
Item 14. Management of the Fund.......................... Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities.................................... Management of the Fund; Additional Information
Item 16. Investment Advisory and Other Services.......... Management of the Fund; Purchase of Shares;
General Information
Item 17. Brokerage Allocation and Other Practices........ Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities.............. General Information
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered................................. Purchase of Shares; Redemption of Shares;
Determination of Net Asset Value; Shareholder
Services
Item 20. Tax Status...................................... Dividends, Distributions and Taxes
Item 21. Underwriters.................................... Purchase of Shares
Item 22. Calculation of Performance Data................. Performance Data
Item 23. Financial Statements............................ Financial Statements
PART C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
OCTOBER 21, 1994
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Global Convertible Fund, Inc. (the 'Fund') is a mutual fund
seeking to provide shareholders with high total return by investing primarily in
an internationally diversified portfolio of convertible debt securities,
convertible preferred stocks and 'synthetic' convertible securities consisting
of a combination of debt securities or preferred stock and warrants or options.
The investment philosophy of the Fund is based on the belief that the
characteristics of convertible securities make them appropriate investments for
an investment company seeking a high total return from capital appreciation and
investment income. There can be no assurance that the investment objective of
the Fund will be realized.
------------------------
Pursuant to the Merrill Lynch Select Pricing(Service Mark) 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
System permits an investor to choose the method of purchasing shares that the
investor believes is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other relevant
circumstances. See 'Merrill Lynch Select Pricing(Service Mark) System' on page
3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the 'Distributor'), P.O. Box 9011, Princeton, New Jersey 08543-9011 [(609)
282-2800], or from securities dealers which have entered into selected dealer
agreements with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ('Merrill Lynch'). The minimum initial purchase is $1,000 and the
minimum subsequent purchase is $50, except that for retirement plans the minimum
initial purchase is $100 and the minimum subsequent purchase is $1. Merrill
Lynch may charge its customers a processing fee (presently $4.85) for confirming
purchases and repurchases. Purchases and redemptions directly through the Fund's
transfer agent are not subject to the processing fee. See 'Purchase of Shares'
and 'Redemption of Shares'.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus is a concise statement of information about the Fund that is
relevant to making an investment in the Fund. This Prospectus should be retained
for future reference. A statement containing additional information about the
Fund, dated October 21, 1994 (the 'Statement of Additional Information'), has
been filed with the Securities and Exchange Commission and is available, without
charge, by calling or by writing the Fund at the above telephone number or
address. The Statement of Additional Information is hereby incorporated by
reference into this Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT--MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION>
CLASS A(A) CLASS B(B) CLASS C(C) CLASS D(C)
---------- -------------------- -------------- ----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge Imposed
on Purchases (as a
percentage of offering
price).................... 5.25%(d) None None 5.25%(d)
Sales Charge Imposed on
Dividend Reinvestments.... None None None None
Deferred Sales Charge (as a
percentage of original
purchase price or
redemption proceeds,
whichever is lower)....... None(e) 4.0% during the 1.0% for one None(e)
first year, year
[decreasing 1.0%
annually to 0.0%
after the fourth
year]
Exchange Fee................ None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)(F):
Investment Advisory
Fees(g)................... 0.65% 0.65% 0.65% 0.65%
12b-1 Fees(h):
Account Maintenance
Fees.................... None 0.25% 0.25% 0.25%
Distribution Fees......... None 0.75% 0.75% None
(Class B shares
convert to Class D
shares automatically
after approximately
eight years and
cease being subject
to distribution
fees)
Other Expenses:
Custodial Fees............ 0.10% 0.10% 0.10% 0.10%
Shareholder Servicing
Costs(i)................ 0.09% 0.13% 0.09% 0.13%
Other..................... 1.38% 1.38% 1.38% 1.38%
---------- -------------------- -------------- ----------
Total Other Expenses.... 1.57% 1.61% 1.61% 1.57%
---------- -------------------- -------------- ----------
TOTAL FUND OPERATING
EXPENSES...................... 2.22% 3.26% 3.26% 2.47%
---------- -------------------- -------------- ----------
---------- -------------------- -------------- ----------
</TABLE>
- ------------------
<TABLE>
<S> <C>
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and investment programs. See
'Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class D
Shares'--page 26.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See 'Purchase of Shares-- Deferred Sales
Charge Alternatives--Class B and Class C Shares'--page 27.
(c) Prior to the date of this Prospectus, the Fund has not offered its Class C
or Class D shares to the public.
(d) Reduced for purchases of $25,000 and over. Class A or Class D purchases of
$1,000,000 or more may not be subject to an initial sales charge. See
'Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class D
Shares'--page 26.
(e) Class A and Class D shares are not subject to a contingent deferred sales
charge ('CDSC'), except that purchases of $1,000,000 or more which may not
be subject to an initial sales charge may instead be subject to a CDSC of
1.0% of amounts redeemed within the first year after purchase.
(f) Information for Class A and Class B shares is stated for the fiscal year
ended October 31, 1993. Information under 'Other Expenses' for Class C and
Class D shares is estimated for the fiscal year ending October 31, 1994.
(g) See 'Management of the Fund--Management and Advisory Arrangements'--page
22.
(h) See 'Purchase of Shares--Distribution Plans'--page 30.
(i) See 'Management of the Fund--Transfer Agency Services'--page 23.
</TABLE>
2
<PAGE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE
PERIOD OF:
----------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment
including the maximum $52.50 initial
sales charge (Class A and Class D
shares only) and assuming (1) the
Total Fund Operating Expenses for each
class set forth above; (2) a 5% annual
return throughout the periods and (3)
redemption at the end of the period:
Class A............................ $ 74 $ 118 $ 165 $ 295
Class B............................ $ 73 $ 120 $ 170 $ 339
Class C............................ $ 43 $ 100 $ 170 $ 356
Class D............................ $ 76 $ 125 $ 177 $ 318
An investor would pay the following
expenses on the same $1,000 investment
assuming no redemption at the end of
the period:
Class A............................ $ 74 $ 118 $ 165 $ 295
Class B............................ $ 33 $ 100 $ 170 $ 339
Class C............................ $ 33 $ 100 $ 170 $ 356
Class D............................ $ 76 $ 125 $ 177 $ 318
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission ('Commission') regulations. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL
RATE OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATE OF RETURN MAY BE MORE OR LESS
THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and Class C shareholders
who hold their shares for an extended period of time may pay more in Rule 12b-1
distribution fees than the economic equivalent of the maximum front-end sales
charge permitted under the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. ('NASD'). Merrill Lynch may charge its customers a
processing fee (presently $4.85) for confirming purchases and repurchases.
Purchases and redemptions directly through the Fund's transfer agent are not
subject to the processing fee. See 'Purchase of Shares' and 'Redemption of
Shares'.
MERRILL LYNCH SELECT PRICING(SERVICE MARK) SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(Service Mark) System. The shares of each class may be purchased at a
price equal to the next determined net asset value per share subject to the
sales charges and ongoing fee arrangements described below. Shares of Class A
and Class D are sold to investors choosing the initial sales charge
alternatives, and shares of Class B and Class C are sold to investors choosing
the deferred sales charge alternatives. The Merrill Lynch Select Pricing System
is used by more than 50 mutual funds advised by Merrill Lynch Asset Management,
L.P. ('MLAM' or the 'Manager') or an affiliate of MLAM, Fund Asset Management,
L.P. ('FAM'). Funds advised by MLAM or FAM are referred to herein as
'MLAM-advised mutual funds'.
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
3
<PAGE>
the expenses of the ongoing account maintenance fees and Class B and Class C
shares bear the expenses of the ongoing distribution fees and the additional
incremental transfer agency costs resulting from the deferred sales charge
arrangements. The deferred sales charges and account maintenance fees that are
imposed on Class B and Class C shares, as well as the account maintenance fees
that are imposed on the Class D shares, will be imposed directly against those
classes and not against all assets of the Fund, and, accordingly, such charges
will 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 will be calculated in the same manner at the same time and
will differ only to the extent that account maintenanance 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 deferred sales charges with respect to the Class B and Class C
shares in that the sales charges 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 following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing System, followed
by a more detailed description of each class and a discussion of the factors
that investors should consider in determining the method of purchasing shares
under the Merrill Lynch Select Pricing System that the investor believes is the
most beneficial under his particular circumstances. More detailed information as
to each class of shares is set forth under 'Purchase of Shares'.
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
<S> <C> <C> <C> <C>
A Maximum 5.25% No No No
initial sales
charge(2)(3)
B CDSC for a period of 0.25% 0.75% B shares convert
4 years, at to D shares
a rate of 4.0% automatically
during the first after
year, decreasing approximately
1.0% annually to eight years(4)
0.0%
C 1.0% CDSC for one 0.25% 0.75% No
year
D Maximum 5.25% 0.25% No No
initial sales
charge(3)
</TABLE>
(Footnotes on following page)
4
<PAGE>
- ------------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. Contingent deferred sales charges ('CDSCs') are imposed
if the redemption occurs within the applicable CDSC time period. The charge
will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed.
(2) Offered only to eligible investors. See 'Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors'.
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year. See 'Class
A' and 'Class D' below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period applicable
to the Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period for
the shares acquired.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares.
Investors that currently own Class A shares in a shareholder account
are entitled to purchase additional Class A shares in that account.
Other eligible investors include certain retirement plans and
participants in certain investment programs. In addition, Class A
shares will be offered to directors and employees of Merrill Lynch &
Co., Inc. and its subsidiaries (the term 'subsidiaries' when used
herein with respect to Merrill Lynch & Co., Inc. includes FAM, the
Manager and certain other entities directly or indirectly wholly-owned
and controlled by Merrill Lynch & Co., Inc.), and to members of the
Boards of MLAM-advised mutual funds. The maximum initial sales charge
is 5.25%, which is reduced for purchases of $25,000 and over. Purchases
of $1,000,000 or more may not be subject to an initial sales charge,
but if the initial sales charge is waived such purchases will be
subject to a CDSC of 1.0% if the shares are redeemed within one year
after purchase. Sales charges are also reduced under a right of
accumulation which takes into account the investor's holdings of all
classes of all MLAM-advised mutual funds. See 'Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D Shares'.
Class B: Class B shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25%, an
ongoing distribution fee of 0.75% of the Fund's average net assets
attributable to the Class B shares, and a CDSC if they are redeemed
within four years of purchase. Approximately eight years after
issuance, Class B shares will convert automatically into Class D shares
of the Fund, which are subject to an account maintenance fee but no
distribution fee; Class B shares of certain other MLAM-advised mutual
funds into which exchanges may be made convert into Class D shares
automatically after approximately ten years. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual
fund, the conversion period applicable to the Class B shares acquired
in the exchange will apply, and the holding period for the shares
exchanged will be tacked onto the holding period for the shares
acquired. Automatic conversion of Class B shares into Class D shares
will occur at least once a month on the basis of the relative net asset
values of the shares of the two classes on the conversion date, without
the imposition of any sales load, fee or other charge. Conversion of
Class B shares to Class D shares will not be deemed a purchase or sale
of the shares for Federal income tax purposes. Shares purchased through
reinvestment of dividends on Class B shares also will convert
automatically to Class D shares. The conversion period for dividend
reinvestment shares and for certain retirement plans is modified as
described under
5
<PAGE>
'Purchase of Shares--Deferred Sales Charge Alternatives--Class B and
Class C Shares--Conversion of Class B Shares to Class D Shares'.
Class C: Class C shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75% of the Fund's average net assets
attributable to the Class C shares. Class C shares are also subject to
a CDSC if they are redeemed within one year of purchase. Although Class
C shares are subject to a 1.0% CDSC for only one year (as compared to
four years for Class B), Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject
to distribution fees that will be imposed on Class C shares for an
indefinite period subject to annual approval by the Fund's Board of
Trustees and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Fund's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. Purchases of $1,000,000 or more may not be subject
to an initial sales charge but if the initial sales charge is waived
such purchases will be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. The schedule of initial sales
charges and reductions for Class D shares is the same as the schedule
for Class A shares. Class D shares also will be issued upon conversion
of Class B shares as described above under 'Class B'. See 'Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D Shares'.
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing System that the investor believes is most beneficial under his
particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because of the account maintenance fee imposed
on Class D shares. Investors qualifying for significantly reduced initial sales
charges may find the initial sales charge alternative particularly attractive
because similar sales charge reductions are not available with respect to the
deferred sales charges imposed in connection with purchases of Class B or Class
C shares. Investors not qualifying for reduced initial sales charges who expect
to maintain their investment for an extended period of time also may elect to
purchase Class A or Class D shares, because over time the accumulated ongoing
account maintenance and distribution fees on Class B or Class C shares may
exceed the initial sales charge and, in the case of Class D shares, the account
maintenance fee. Although some investors that previously purchased Class A
shares may no longer be eligible to purchase Class A shares of other
MLAM-advised mutual funds, those previously purchased Class A shares, together
with Class B, Class C and Class D share holdings, will count toward a right of
accumulation which may qualify the investor for reduced initial sales charges on
new initial sales charge purchases. In addition, the ongoing Class B and Class C
account maintenance and distribution fees will cause Class B and Class C shares
to have higher expense ratios, pay lower dividends and have lower total returns
than the initial sales charge shares. The ongoing Class D account maintenance
fees will cause Class D shares to have a higher expense ratio, pay lower
dividends and have a lower total return than Class A shares.
6
<PAGE>
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. The deferred sales charge alternatives may be particularly appealing to
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account maintenance fees and
distribution fees; however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return is realized on the
additional funds initially invested in Class B or Class C shares. In addition,
Class B shares will be converted into Class D shares of the Fund after a
conversion period of approximately eight years, and thereafter investors will be
subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. Investors in Class B shares
should take into account whether they intend to redeem their shares within the
CDSC period and, if not, whether they intend to remain invested until the end of
the conversion period and thereby take advantage of the reduction in ongoing
fees resulting from the conversion into Class D shares. Other investors,
however, may elect to purchase Class C shares if they determine that it is
advantageous to have all their assets invested initially and they are uncertain
as to the length of time they intend to hold their assets in MLAM-advised mutual
funds. Although Class C shareholders are subject to a shorter CDSC period at a
lower rate, they forego the Class B conversion feature, making their investment
subject to account maintenance and distribution fees for an indefinite period of
time. In addition, while both Class B and Class C distribution fees are subject
to the limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See 'Purchase of Shares--Limitations on the Payment of Deferred
Sales Charges'.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below, with the exception of the six
months ended April 30, 1994, has been audited in conjunction
with the annual audits of the financial statements of the Fund by Deloitte &
Touche LLP, independent auditors. Financial statements for the year ended
October 31, 1993 and the independent auditors' report thereon are included in
the Statement of Additional Information. Unaudited financial statements for the
six months ended April 30, 1994 are included in the Statement of Additional
Information. Financial information is not presented for Class C or Class D
shares since no shares of those classes are publicly issued as of the date of
this Prospectus. Further information about the performance of the Fund is
contained in the Fund's most recent annual report to shareholders which may be
obtained, without charge, by calling or by writing the Fund at the telephone
number or address on the front cover of this Prospectus.
The following per share data and ratios have been derived from information
provided in the Financial Statements:
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------------------------------- ------------------------------------------
FOR THE FOR THE
SIX SIX
MONTHS MONTHS
ENDED ENDED
APRIL 30, FOR THE YEAR ENDED OCTOBER 31, APRIL 30, FOR THE YEAR ENDED OCTOBER 31,
----------------------------------------------------- -------------------------------
1994 1993 1992 1991 1990 1989+ 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
INCREASE (DECREASE)
IN NET ASSET VALUE
PER SHARE OPERATING
PERFORMANCE:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............. $ 11.08 $ 9.79 $ 9.39 $ 8.37 $ 9.95 $ 9.97 $ 11.13 $ 9.84 $ 9.44 $ 8.39
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Investment
income--net...... .18 .23 .21 .25 .38 .39 .11 .13 .12 .18
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions--net... (.29) 1.45 .68 1.22 (1.11) .21 (.27) 1.46 .67 1.20
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from
investment
operations......... (.11) 1.68 .89 1.47 (.73) .60 (.16) 1.59 .79 1.38
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less dividends and
distributions:
Investment
income--net...... (.22) (.23) (.25) (.37) (.42) (.45) (.16) (.14) (.15) (.25)
Realized gain on
investments--net... (.09) (.16) (.24) (.08) (.43) (.17) (.09) (.16) (.24) (.08)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total dividends and
distributions...... (.31) (.39) (.49) (.45) (.85) (.62) (.25) (.30) (.39) (.33)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset value, end
of period.......... $ 10.66 $ 11.08 $ 9.79 $ 9.39 $ 8.37 $ 9.95 $ 10.72 $ 11.13 $ 9.84 $ 9.44
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT
RETURN:**
Based on net asset
value per
share............ (1.03)%# 17.64% 10.00% 18.09% (7.86)% 6.29%# (1.43)%# 16.45% 8.77% 16.79%
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
RATIOS TO AVERAGE
NET ASSETS:
Expenses, excluding
distribution fees
and net of
reimbursement.... 1.66%* 2.22% 2.47% 2.47% 2.39% 1.77%* 1.68%* 2.26% 2.49% 2.50%
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Expenses, net of
reimbursement.... 1.66%* 2.22% 2.47% 2.47% 2.39% 1.77%* 2.68%* 3.26% 3.49% 3.50%
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Expenses........... 1.66%* 2.22% 2.86% 2.87% 2.39% 1.77%* 2.68%* 3.26% 3.96% 3.88%
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Investment
income--net........ 2.95%* 2.36% 2.61% 3.16% 4.55% 5.62%* 1.93%* 1.32% 1.53% 2.25%
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Supplemental Data:
Net assets, end of
period (in
thousands)....... $5,497 $4,557 $2,283 $448 $162 $194 $36,510 $29,831 $13,975 $14,973
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Portfolio
turnover......... 18.51% 26.02% 4.91% 18.02% 22.76% 15.91% 18.51% 26.02% 4.91% 18.02%
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31,
-------------------------------
1990 1989 1988++
--------- --------- ---------
INCREASE (DECREASE)
IN NET ASSET VALUE
PER SHARE OPERATING
PERFORMANCE:
<S> <C> <C> <C>
Net asset value,
beginning of
period............. $ 9.95 $ 9.94 $ 10.00
--------- --------- ---------
Investment
income--net...... .29 .37 .27
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions--net... (1.10) .17 (.10)
--------- --------- ---------
Total from
investment
operations......... (.81) .54 .17
--------- --------- ---------
Less dividends and
distributions:
Investment
income--net...... (.32) (.36) (.23)
Realized gain on
investments--net... (.43) (.17) --
--------- --------- ---------
Total dividends and
distributions...... (.75) (.53) (.23)
--------- --------- ---------
Net asset value, end
of period.......... $ 8.39 $ 9.95 $ 9.94
--------- --------- ---------
--------- --------- ---------
TOTAL INVESTMENT
RETURN:**
Based on net asset
value per
share............ (8.68)% 5.58% 1.70%#
--------- --------- ---------
--------- --------- ---------
RATIOS TO AVERAGE
NET ASSETS:
Expenses, excluding
distribution fees
and net of
reimbursement.... 2.41% 1.63% 1.48%*
--------- --------- ---------
--------- --------- ---------
Expenses, net of
reimbursement.... 3.41% 2.63% 2.48%*
--------- --------- ---------
--------- --------- ---------
Expenses........... 3.41% 2.97% 2.60%*
--------- --------- ---------
--------- --------- ---------
Investment
income--net........ 3.51% 3.62% 3.74%*
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DATA:
Net assets, end of
period (in
thousands)....... $18,296 $30,813 $41,232
--------- --------- ---------
--------- --------- ---------
Portfolio
turnover......... 22.76% 15.91% 20.24%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
+ Class A shares commenced operations on November 4, 1988.
++ Class B shares commenced operations on February 26, 1988.
* Annualized.
** Total investment returns exclude the effects of sales loads.
# Aggregate total investment return.
8
<PAGE>
SPECIAL CONSIDERATIONS
As a global fund, the Fund may invest in United States and foreign
securities. Investments in securities of foreign entities and securities
denominated in foreign currencies involve risks not typically involved in
domestic investment, including fluctuations in foreign exchange rates, future
foreign political and economic developments, and the possible imposition of
exchange controls or other foreign or United States governmental laws or
restrictions applicable to such investments. Since the Fund may invest in
securities denominated or quoted in currencies other than the United States
dollar, changes in foreign currency exchange rates may affect the value of
investments in the portfolio and the unrealized appreciation or depreciation of
investments insofar as United States investors are concerned. Changes in foreign
currency exchange rates relative to the U.S. dollar will affect the U.S. dollar
value of the Fund's assets denominated in that currency and the Fund's yield on
such assets. Foreign currency exchange rates are determined by forces of supply
and demand on the foreign exchange markets. These forces are, in turn, affected
by the international balance of payments and other economic and financial
conditions, government intervention, speculation, and other factors. Moreover,
individual foreign economies may differ favorably or unfavorably from the United
States economy in such respects as growth of national product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign financial
instrument than about a United States instrument, and foreign entities may not
be subject to accounting, auditing and financial reporting standards and
requirements comparable to those of United States entities. In addition, certain
foreign investments may be subject to foreign withholding taxes. See 'Taxes'.
Foreign financial markets, while growing in volume, have, for the most part,
substantially less volume than United States markets, and securities of many
foreign companies are less liquid and their prices more volatile than securities
of comparable domestic companies. The foreign markets also have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of such portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Costs associated with transactions in foreign
securities are generally higher than with transactions in United States
securities. There is generally less government supervision and regulation of
exchanges, financial institutions and issuers in foreign countries than there is
in the United States.
The operating expense ratio of the Fund can be expected to be higher than
that of an investment company investing exclusively in United States securities
since the expenses of the Fund, such as custodial costs, are higher.
The Fund may engage in various portfolio strategies to seek to increase its
return through the use of options on portfolio securities and to hedge its
portfolio against movements in the equity markets, interest rates and exchange
rates between currencies by the use of options, futures and options thereon.
Utilization of options and futures transactions involves the risk of imperfect
correlation in movements in the price of options and futures
9
<PAGE>
and movements in the price of the securities, interest rates or currencies which
are the subject of the hedge. There can be no assurance that a liquid secondary
market for options and futures contracts will exist at any specific time. See
'Investment Objective and Policies--Portfolio Strategies Involving Options and
Futures'. The Fund may also purchase call options and stock index call options
as an element of synthetic convertible securities. See 'Investment Objective and
Policies--Convertible Securities'.
The Fund has established no rating criteria for the convertible securities
and other debt securities in which it may invest, and such securities may not be
rated at all for creditworthiness. Securities rated in the medium to lower
rating categories of nationally recognized statistical rating organizations are
predominately speculative with respect to the capacity to pay interest and repay
principal in accordance with the terms of the security and generally involve a
greater volatility of price than securities in higher rating categories. The
Fund does not intend to purchase debt securities that are in default.
The Fund may borrow up to 20% of its total assets taken at market value,
but only from banks as a temporary measure for extraordinary or emergency
purposes including to meet redemptions or to settle securities transactions. The
Fund will not purchase securities while borrowings are outstanding except (a) to
honor prior commitments or (b) to exercise subscription rights where outstanding
borrowings have been obtained exclusively for settlements of other securities
transactions. The purchase of securities while borrowings are outstanding will
have the effect of leveraging the Fund. Such leveraging increases the Fund's
exposure to capital risk and borrowed funds are subject to interest costs that
will reduce net income.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek high total return from a
combination of capital appreciation and investment income. The Fund will seek to
achieve its objective by investing primarily in an internationally diversified
portfolio of convertible debt securities, convertible preferred stocks and
'synthetic' convertible securities consisting of a combination of debt
securities or preferred stock and warrants or options. Under normal
circumstances, the Fund will invest at least 65% of its total assets in
convertible securities and 80% of its assets in convertible securities and
synthetic convertible securities of at least three different countries including
the United States. The investment objective described in this paragraph is a
fundamental policy of the Fund and may not be changed without the approval of
the holders of a majority of the Fund's outstanding voting securities.
The convertible securities to be held by the Fund include any corporate
debt security or preferred stock that may be converted into underlying shares of
common stock. The common stock underlying convertible securities may be issued
by a different entity than the issuer of the convertible securities. Convertible
securities entitle the holder to receive interest payments paid on corporate
debt securities or the dividend preference on a preferred stock until such time
as the convertible security matures or is redeemed or until the holder elects to
exercise the conversion privilege. 'Synthetic' convertible securities, as such
term is used herein, are created by combining separate securities which possess
the two principal characteristics of a true convertible security and the right
to acquire equity securities. See 'Convertible Securities' below for additional
information concerning convertible securities and synthetic convertible
securities eligible for purchase by the Fund.
The Fund believes that the characteristics of convertible securities make
them appropriate investments for an investment company seeking a high total
return from capital appreciation and investment income. These characteristics
include the potential for capital appreciation as the value of the underlying
common stock increases, the relatively high yield received from dividend or
interest payments as compared to common stock dividends and decreased risks of
decline in value relative to the underlying common stock due to their fixed
10
<PAGE>
income nature. As a result of the conversion feature, however, the interest rate
or dividend preference on a convertible security is generally less than would be
the case if the securities were issued in nonconvertible form.
Although the Fund may invest in securities denominated in any currency that
are convertible into common stocks of companies located throughout the world, it
is expected that a majority of its assets will be invested in securities
denominated in United States dollars, currencies of Pacific Basin countries
(such as Japan, Australia, Hong Kong and Singapore), and currencies of Western
European countries (such as the United Kingdom, Germany, the Netherlands,
Switzerland, Sweden, France, Italy, Belgium, Norway, Denmark, Austria and Spain)
and convertible into equity securities of United States, Pacific Basin or
Western European corporations. To the extent the Fund acquires synthetic
convertible securities, it is expected that the debt securities or preferred
stock will principally be denominated in United States dollars, Pacific Basin
currencies or Western European currencies and the warrants or options will
principally be exercisable to purchase equity securities of United States,
Pacific Basin or Western European issuers.
Under normal circumstances, the Fund may invest up to 20% of its assets in
other types of securities including equity securities and nonconvertible debt
securities of United States and non-United States issuers.
The Fund has established no rating criteria for the debt securities in
which it may invest and such securities may not be rated at all for
creditworthiness. Securities rated in the medium to lower rating categories of
nationally recognized statistical rating organizations and unrated securities of
comparable quality are predominantly speculative with respect to the capacity to
pay interest and repay principal in accordance with the terms of the security
and generally involve a greater volatility of price than securities in higher
rating categories. See the Statement of Additional Information for additional
information regarding ratings of debt securities. In purchasing such securities,
the Fund will rely on the Manager's judgment, analysis and experience in
evaluating the creditworthiness of an issuer of such securities. The Manager
will take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management and regulatory matters. The Fund
does not intend to purchase debt securities that are in default or which the
Manager believes will be in default.
The Fund reserves the right as a temporary defensive measure to hold money
market securities, including repurchase agreements and purchase and sale
contracts, of United States and non-United States issuers, or cash (foreign
currencies or United States dollars), in such proportions as in the opinion of
the Manager prevailing market, economic or political conditions warrant. The
Fund has established no rating criteria for money market securities that it may
hold as a defensive measure. For this purpose, investments made for defensive
purposes will be maintained only during periods in which the Manager determines
that economic or financial conditions are adverse for holding or being fully
invested in convertible and synthetic convertible securities of United States
and non-United States issuers. A portion of the portfolio normally will be held
in dollars or dollar-denominated money market securities, including repurchase
agreements and purchase and sale contracts, to provide for possible redemptions.
In evaluating proposed investments, the Manager will seek to maximize the
total return on the Fund's portfolio in terms of United States dollars. In this
regard, the Manager will consider factors that relate both to various securities
markets and to specific securities traded in those markets. In evaluating
markets, the Manager will consider such factors as the condition and growth
potential of various economies and securities markets, currency and taxation
factors (including the applicability and rate of withholding taxes) and other
pertinent financial, social, national and political factors. In analyzing
convertible securities, the Manager will consider both
11
<PAGE>
the yield on the convertible security and the potential capital appreciation
that is offered by the underlying common stock. There can be no assurance that
the Fund will achieve its investment objective.
CONVERTIBLE SECURITIES
Set forth below is additional information concerning traditional
convertible securities and 'synthetic' convertible securities.
Convertible securities are issued and traded in a number of securities
markets. For the past several years, the principal markets have been the United
States, the Euromarket and Japan. Issuers during this period have included major
corporations domiciled in the United States, Japan, France, Switzerland, Canada
and the United Kingdom. Since the Fund will invest a substantial portion of its
assets in the United States market and the Euromarket, where convertible bonds
have been primarily denominated in the United States dollar, it is expected that
ordinarily a substantial portion of the convertible securities held by the Fund
will be denominated in United States dollars. However, the underlying equity
securities typically will be quoted in the currency of the country where the
issuer is domiciled. With respect to convertible securities denominated in a
currency different from that of the underlying equity securities, the conversion
price may be based on a fixed exchange rate established at the time the security
is issued. As a result, fluctuations in the exchange rate between the currency
in which the debt security is denominated and the currency in which the share
price is quoted will affect the value of the convertible security. As described
below, the Fund is authorized to enter into foreign currency hedging
transactions in which it may seek to reduce the impact of such fluctuations.
Apart from currency considerations, the value of convertible securities is
influenced by both the yield of nonconvertible securities of comparable issuers
and by the value of the underlying common stock. The value of a convertible
security viewed without regard to its conversion feature (i.e., strictly on the
basis of its yield) is sometimes referred to as its 'investment value.' To the
extent interest rates change, the investment value of the convertible security
typically will fluctuate. However, at the same time, the value of the
convertible security will be influenced by its 'conversion value,' which is the
market value of the underlying common stock that would be obtained if the
convertible security were converted. Conversion value fluctuates directly with
the price of the underlying common stock. If, because of a low price of the
common stock, the conversion value is substantially below the investment value
of the convertible security, the price of the convertible security is governed
principally by its investment value.
To the extent the conversion value of a convertible security increases to a
point that approximates or exceeds its investment value, the price of the
convertible security will be influenced principally by its conversion value. A
convertible security will sell at a premium over the conversion value to the
extent investors place value on the right to acquire the underlying common stock
while holding a fixed income security. The yield and conversion premium of
convertible securities issued in Japan and the Euromarket are frequently
determined at levels that cause the conversion value to affect their market
value more than the securities' investment value.
Holders of convertible securities have a claim on the assets of the issuer
prior to the common stockholders but may be subordinated to similar
non-convertible securities of the same issuer. A convertible security may be
subject to redemption at the option of the issuer at a price established in the
charter provision, indenture or other governing instrument pursuant to which the
convertible security was issued. If a convertible security held by the Fund is
called for redemption, the Fund will be required to redeem the security, convert
it into the underlying common stock or sell it to a third party. Certain
convertible debt securities may provide a put option to the holder
12
<PAGE>
which entitles the holder to cause the security to be redeemed by the issuer at
a premium over the stated principal amount of the debt security.
As indicated above, 'synthetic' convertible securities, for purposes of
this Prospectus, are created by combining separate securities that possess the
two principal characteristics of a true convertible security, i.e., fixed income
('fixed-income component') and the right to acquire equity securities
('convertibility component'). The fixed-income component is achieved by
investing in nonconvertible fixed income securities such as nonconvertible
bonds, preferred stocks and money market instruments. The convertibility
component is achieved by investing in warrants, exchanges or NASDAQ listed call
options or stock index call options granting the holder the right to purchase a
specified quantity of securities within a specified period of time at a
specified price or to receive cash in the case of stock index options.
A warrant is an instrument issued by a corporation that gives a holder the
right to subscribe to a specified amount of capital stock at a set price for a
specified period of time. Warrants involve the risk that the price of the
security underlying the warrant may not exceed the exercise price of the warrant
and the warrant may expire without any value. The Fund has not established any
limits on the purchase of warrants in connection with the creation of synthetic
convertible securities. See 'Portfolio Strategies Involving Options and Futures'
for a discussion of call options and stock index call options.
The synthetic convertible security differs from the true convertible
security in several respects. Unlike a true convertible security, which is a
single security having a unitary market value, a synthetic convertible security
is comprised of two or more separate securities, each with its own market value.
Therefore, the 'market value' of a synthetic convertible security is the sum of
the values of its fixed-income component and its convertibility component. For
this reason, the values of a synthetic convertible security and a true
convertible security will respond differently to market fluctuations.
More flexibility is possible in the assembly of a synthetic convertible
security than in the purchase of a convertible security. While synthetic
convertible securities may be selected where the two components represent one
issuer or are issued by a single issuer, thus making the synthetic convertible
security similar to the true convertible security, the character of a synthetic
convertible security allows the combination of components representing distinct
issuers, when management believes that such a combination would better promote
the Fund's investment objective. A synthetic convertible security also is a more
flexible investment in that its two components may be purchased separately. For
example, the Fund may purchase a warrant for inclusion in a synthetic
convertible security but temporarily hold short-term investments while
postponing the purchase of a corresponding bond pending development of more
favorable market conditions.
A holder of a synthetic convertible security faces the risk of a decline in
the price of the stock or the level of the index involved in the convertibility
component, causing a decline in the value of the call option or warrant. Should
the price of the stock fall below the exercise price and remain there throughout
the exercise period, the entire amount paid for the call option or warrant would
be lost. Since a synthetic convertible security includes the fixed-income
component as well, the holder of a synthetic convertible security also faces the
risk that interest rates will rise, causing a decline in the value of the
fixed-income instrument.
Debt securities with attached equity warrants have been issued in the
United States, the Euromarket and Japan. These securities have been sold with
detachable warrants in the United States, Europe and Japan. In Japan, however,
warrant bonds (the term used to refer to these securities) were only issued with
non-detachable warrants prior to December 1986. Eurobonds with warrants have
been denominated in several currencies, including the
13
<PAGE>
United States dollar, Japanese yen, German mark, Dutch guilder and British
pound. However, the exercise price of the warrants is typically expressed in the
currency of the country where the issuer is domiciled.
OTHER FACTORS
While it is the policy of the Fund generally not to engage in trading for
short-term gains, the Manager will effect portfolio transactions without regard
to holding period, if, in its judgment, such transactions are advisable in the
light of a change in circumstances of a particular company or within a
particular industry or in the general market, economic or financial conditions.
PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES
The Fund may engage in various portfolio strategies to seek to increase its
return through the use of options on portfolio securities and to hedge its
portfolio against movements in the equity markets, interest rates and exchange
rates between currencies. This use of options and futures transactions is in
addition to the Fund's ability to purchase call options and stock index call
options as an element of synthetic convertible securities. The Fund has
authority to write (i.e., sell) covered call options on its portfolio
securities, purchase put and call options on securities and engage in
transactions in stock index options, stock index futures and financial futures,
and related options on such futures. The Fund may also deal in forward foreign
exchange transactions and foreign currency options and futures, and related
options on such futures. Each of these portfolio strategies is described below.
Although certain risks are involved in options and futures transactions (as
discussed below in 'Risk Factors in Options and Futures Transactions'), the
Manager believes that, because the Fund will (i) write only covered call options
on portfolio securities, (ii) in connection with the formation of synthetic
convertible securities, purchase call options or stock index call options only
as an element of synthetic convertibles, and (iii) engage in other options and
futures transactions only for hedging purposes, the options and futures
portfolio strategies of the Fund will not subject the Fund to the risks
frequently associated with the speculative use of options and futures
transactions. While the Fund's use of hedging strategies is intended to reduce
the volatility of the net asset value of Fund shares, the Fund's net asset value
will fluctuate. There can be no assurance that the Fund's hedging transactions
will be effective. Furthermore, the Fund will only engage in hedging activities
from time to time and may not necessarily be engaging in hedging activities when
movements in the equity markets, interest rates or currency exchange rates
occur. Reference is made to the Statement of Additional Information for further
information concerning these strategies.
Writing Covered Call Options. The Fund is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter into
closing purchase transactions with respect to certain of such options. A covered
call option is an option where the Fund in return for a premium gives another
party a right to buy specified securities owned by the Fund at a specified
future date and price set at the time of the contract. The principal reason for
writing call options is to attempt to realize, through the receipt of premiums,
a greater return than would be realized on the securities alone. By writing
covered call options, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying security above the
option exercise price. In addition, the Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects a
closing purchase transaction. A closing purchase transaction cancels out the
Fund's position as the writer of an option by means of an offsetting purchase of
an identical option prior to the expiration of the option it has written.
Covered call options serve as a partial hedge against the price of the
underlying security declining. The Fund may not write covered call options in
underlying securities in an amount exceeding 15% of the market value of its
total assets.
14
<PAGE>
Purchasing Options. The Fund is authorized to purchase put options to
hedge against a decline in the market value of its securities. By buying a put
option the Fund has a right to sell the underlying security at the exercise
price, thus limiting the Fund's risk of loss through a decline in the market
value of the security until the put option expires. The amount of any
appreciation in the value of the underlying security will be partially offset by
the amount of the premium paid for the put option and any related transaction
costs. Prior to its expiration, a put option may be sold in a closing sale
transaction and profit or loss from the sale will depend on whether the amount
received is more or less than the premium paid for the put option plus the
related transaction costs. A closing sale transaction cancels out the Fund's
position as the purchaser of an option by means of an offsetting sale of an
identical option prior to the expiration of the option it has purchased. In
certain circumstances, the Fund may purchase call options on securities held in
its portfolio on which it has written call options or on securities which it
intends to purchase or, as discussed above, as an element of synthetic
convertible securities. The Fund will not purchase options on securities
(including options purchased as an element of synthetic convertible securities)
if, as a result of such purchase, the aggregate cost of all outstanding options
on securities held by the Fund would exceed 5% of the market value of the Fund's
total assets.
Stock Index Options and Futures and Financial Futures. The Fund is
authorized to engage in transactions in stock index options and futures and
financial futures, and related options on such futures. In addition to the
purchase of stock index call options as an element of synthetic convertible
securities as discussed above, the Fund may purchase or write call options and
purchase put options on stock indexes to hedge against the risks of market-wide
stock price movements in the securities in which the Fund invests. The
effectiveness of the hedge will depend on the degree of diversification of the
Fund's portfolio and the sensitivity of the securities comprising the portfolio
to factors influencing the market as a whole. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund will realize a gain or loss on the purchase
or sale of an option on an index depends upon movements in the level of prices
in the stock market generally or in an industry or market segment rather than
movements in the price of a particular stock. Currently, stock index options
traded include the S&P 100 Index, the S&P 500 Index, the NYSE Composite Index,
the AMEX Market Value Index, the National Over-the-Counter Index, the FT Index
and other standard, broadly based stock market indices in the United States and
in foreign countries.
The Fund may also purchase and sell stock index futures contracts and
financial futures contracts ('futures contracts') as a hedge against adverse
changes in the market value of its portfolio securities and interest rates, as
described below. A futures contract is an agreement between two parties which
obligates the purchaser of the futures contract to buy and the seller of a
futures contract to sell a security for a set price on a future date. Unlike
most other futures contracts, a stock index futures contract does not require
actual delivery of securities, but results in cash settlement based upon the
difference in value of the index between the time the contract was entered into
and the time of its settlement. The Fund may effect transactions in stock index
futures contracts in connection with equity securities in which it invests and
in financial futures contracts in securities issued or guaranteed by the
government of any country which is a member of the Organization for Economic
Cooperation and Development, United States government and agency securities and
corporate debt securities. Transactions by the Fund in stock index futures and
financial futures are subject to limitations as described below under
'Restrictions on the Use of Futures Transactions'.
The Fund may sell stock index futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of the
Fund's securities portfolio that might otherwise result. When the Fund is not
fully invested in the securities markets and anticipates a significant market
advance, it may purchase stock index futures in order to gain rapid market
exposure that may in part or entirely offset increases in the cost of
15
<PAGE>
securities that the Fund intends to purchase. As such purchases are made, an
equivalent amount of stock index futures contracts will be terminated by
offsetting sales. The Fund does not consider purchases of futures contracts to
be a speculative practice under these circumstances. It is anticipated that, in
a substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, whether the long
position is the purchase of a stock index futures contract or the purchase of a
call option on a stock index future, but under unusual circumstances (e.g., the
Fund experiences a significant amount of redemptions), a long futures position
may be terminated without the corresponding purchase of securities.
The Fund may sell financial futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of debt securities which may be held by the Fund will
fall, thus reducing the net asset value of the Fund. However, as interest rates
rise, the value of the Fund's short position in the futures contract will also
tend to increase, thus offsetting all or a portion of the depreciation in the
market value of the Fund's investments which are being hedged. While the Fund
will incur commission expenses in selling and closing out futures positions,
these commissions are generally less than the transaction expenses which would
have been incurred had the Fund sold portfolio securities in order to reduce its
exposure to increases in interest rates. The Fund also may purchase financial
futures contracts in anticipation of a decline in interest rates when it is not
fully invested in a particular market in which it intends to make investments to
gain market exposure that may in part or entirely offset an increase in the cost
of securities it intends to purchase. It is anticipated that, in a substantial
majority of these transactions, the Fund will purchase securities upon
termination of the futures contract.
The Fund also has authority to purchase and write call and put options on
futures contracts in connection with its hedging activities. Generally, these
strategies are utilized under the same market and market sector conditions
(i.e., conditions relating to specific types of investments) in which the Fund
enters into futures transactions. The Fund may purchase put options or write
call options on futures contracts rather than selling the underlying futures
contract in anticipation of a decrease in the market value of a security or an
increase in interest rates. Similarly, the Fund may purchase call options, or
write put options on futures contracts, as a substitute for the purchase of such
futures to hedge against the increased cost resulting from an increase in the
market value or a decline in interest rates of securities which the Fund intends
to purchase.
The Fund may engage in options and futures transactions on exchanges and in
options in the over-the-counter markets ('OTC options'). In general,
exchange-traded contracts are third-party contracts (i.e., performance of the
parties' obligations is guaranteed by an exchange or clearing corporation) with
standardized strike prices and expiration dates. OTC options transactions are
two-party contracts with price and terms negotiated by the buyer and seller. See
'Restrictions on OTC Options' below for information as to restrictions on the
use of OTC options.
Foreign Currency Hedging. The Fund has authority to deal in forward
foreign exchange among currencies of the different countries in which it will
invest and multinational currency units as a hedge against possible variations
in the foreign exchange rates among these currencies. This is accomplished
through contractual agreements to purchase or sell a specified currency at a
specified future date (up to one year) and price set at the time of the
contract. The Fund's dealings in forward foreign exchange will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward foreign currency with
respect to specific receivables or payables of the Fund accruing in connection
with the purchase and sale of its portfolio securities, the sale and redemption
of shares of the Fund or the payment of dividends and distributions by the Fund.
Position hedging is the sale of forward foreign currency with respect to
portfolio
16
<PAGE>
security positions denominated or quoted in such foreign currency. The Fund will
not speculate in foreign forward exchange. The Fund will not attempt to hedge
all of its foreign portfolio positions. The Fund may not commit more than 15% of
its total assets to position hedging contracts. Hedging against a decline in the
value of a currency does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value of the hedged
currency should rise. Moreover, it may not be possible for the Fund to hedge
against a devaluation that is so generally anticipated that the Fund is not able
to contract to sell the currency at a price above the devaluation level it
anticipates.
The Fund is also authorized to purchase or sell listed or over-the-counter
foreign currency options, foreign currency futures and related options on
foreign currency futures as a short or long hedge against possible variations in
foreign exchange rates. Such transactions may be effected with respect to hedges
on non-U.S. dollar denominated securities owned by the Fund, sold by the Fund
but not yet delivered, or committed or anticipated to be purchased by the Fund.
As an illustration, the Fund may use such techniques to hedge the stated value
in United States dollars of an investment in a yen denominated security. In such
circumstances, for example, the Fund may purchase a foreign currency put option
enabling it to sell a specified amount of yen for dollars at a specified price
by a future date. To the extent the hedge is successful, a loss in the value of
the yen relative to the dollar will tend to be offset by an increase in the
value of the put option. To offset, in whole or in part, the cost of acquiring
such a put option, the Fund may also sell a call option which, if exercised,
requires it to sell a specified amount of pounds for dollars at a specified
price by a future date (a technique called a 'straddle'). By selling such call
option in this illustration, the Fund gives up the opportunity to profit without
limit from increases in the relative value of the yen to the dollar. The Manager
believes that 'straddles' of the type which may be utilized by the Fund
constitute hedging transactions and are consistent with the policies described
above.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the right to
buy or sell a currency at a fixed price on a future date (with exchange-traded
contracts and OTC options having the characteristics described above). A futures
contract on a foreign currency is an agreement between two parties to buy and
sell a specified amount of a currency for a set price on a future date. Futures
contracts and options on futures contracts are traded on boards of trade of
futures exchanges. The Fund will not speculate in foreign currency options,
futures or related options. Accordingly, the Fund will not hedge a currency
substantially in excess of the market value of securities that it has committed
or anticipates to purchase that are denominated in such currency, and in the
case of securities that have been sold by the Fund but not yet delivered, the
proceeds thereof in its denominated currency. The Fund may not incur potential
net liabilities of more than 20% of its total assets from foreign currency
options, futures or related options.
Restrictions on the Use of Futures Transactions. Under regulations of the
Commodity Futures Trading Commission ('CFTC'), the futures trading activities
described herein will not result in the Fund being deemed to be a 'commodity
pool', as defined under such regulations, provided that the Fund adheres to
certain restrictions. In particular, the Fund may purchase and sell futures
contracts and options thereon (i) only for bona fide hedging purposes, and (ii)
for non-hedging purposes, if the aggregate initial margins and premiums required
to establish positions in such contracts and options does not exceed 5% of the
liquidation value of the Fund's portfolio assets after taking into account
unrealized profits and unrealized losses on any such contracts and options.
(However, as stated above, the Fund intends to engage in options and futures
transactions only for hedging purposes.) Margin deposits may consist of cash or
securities acceptable to the broker and the relevant contract market.
17
<PAGE>
When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash and cash equivalents will be
deposited in a segregated account with the Fund's Custodian so that the amount
so segregated, plus the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contract, thereby
insuring that the use of such futures is unleveraged.
Restrictions on OTC Options. The Fund will engage in OTC options,
including over-the-counter foreign currency options and options on foreign
currency futures, only with member banks of the Federal Reserve System and
primary dealers in United States Government securities or with affiliates of
such banks or dealers that have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
The Fund will acquire only those OTC options for which the Manager believes the
Fund can receive on each business day at least two independent bids or offers
(one of which will be from an entity other than a party to the option).
The staff of the Securities and Exchange Commission (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
(including OTC options on futures contracts) if, as a result of such
transactions, the sum of the market value of OTC options currently outstanding
that are held by the Fund, the market value of the underlying securities covered
by OTC call options currently outstanding that were sold by the Fund and margin
deposits on the Fund's existing OTC options on futures contracts exceed 10% of
the net assets of the Fund, taken at market value, together with all other
assets of the Fund that 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 security 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 Directors of the Fund without the
approval of the Fund's shareholders. However, the Fund will not change or modify
this policy prior to the change or modification by the Commission staff of its
position.
Risk Factors in Options and Futures Transactions. Utilization of options
and futures transactions to hedge the portfolio involves the risk of imperfect
correlation in movements in the price of options and futures and movements in
the price of the securities, interest rates or currencies that are the subject
of the hedge. If the price of the options or futures moves more or less than the
price of the subject of the hedge, the Fund will experience a gain or loss which
will not be completely offset by movements in the price of the subject of the
hedge. The successful use of options and futures also depends on the Manager's
ability to predict correctly price movements in the market involved in a
particular options or futures transaction.
The Fund intends to enter into options and futures transactions on an
exchange or in the over-the-counter market, only if there appears to be a liquid
secondary market for such options or futures or, in the case of over-the-counter
transactions, the Manager believes the Fund can receive on each business day at
least two independent bids or offers. However, there can be no assurance that a
liquid secondary market will exist at any specific time. Thus, it may not be
possible to close an options or futures position. The inability to close options
and futures positions also could have an adverse impact on the Fund's ability to
hedge effectively its portfolio.
18
<PAGE>
There is also the risk of loss by the Fund of margin deposits or collateral in
the event of bankruptcy of a broker with whom the Fund has an open position in
an option, a futures contract or related option.
The exchanges on which the Fund intends to conduct options transactions
have generally established limitations governing the maximum number of call or
put options on the same underlying security or currency (whether or not covered)
that may be written by a single investor, whether acting alone or in concert
with others (regardless of whether such options are written on the same or
different exchanges or are held or written on one or more accounts or through
one or more brokers). 'Trading limits' are imposed on the maximum number of
contracts that any person may trade on a particular trading day. The Manager
does not believe that these trading and position limits will have any adverse
impact on the portfolio strategies for hedging the Fund's portfolio.
OTHER INVESTMENT POLICIES AND PRACTICES
Portfolio Transactions. In executing portfolio transactions, the Fund
seeks to obtain the best net results, taking into account such factors as price
(including the applicable brokerage commissions or dealer spread), size of
order, difficulty of execution, operation facilities of the firm involved and
the firm's risk in positioning a block of securities. While the Fund generally
seeks reasonably competitive commission rates, the Fund does not necessarily pay
the lowest commission or spread available. The Fund contemplates that,
consistent with its policy of obtaining the best net results, it will place
orders for transactions with a number of brokers and dealers, including Merrill
Lynch, an affiliate of the Manager. Subject to obtaining the best price and
execution, brokers who provide supplemental investment research to the Fund 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
Manager and the expenses of the Manager will not necessarily be reduced as a
result of the receipt of such supplemental information. See 'Management of the
Fund--Management and Advisory Arrangements'. In addition, consistent with the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.,
the Manager 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.
It is expected that the majority of the shares of the Fund will be sold by
Merrill Lynch.
The Fund anticipates that its brokerage transactions involving securities
of companies domiciled in countries other than the United States will be
conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the United States, although the Fund will
endeavor to achieve the best net results in effecting such transactions.
Repurchase Agreements. The Fund may invest in money market securities
pursuant to repurchase agreements. Repurchase agreements may be entered into
only with a member bank of the Federal Reserve System or primary dealer
in United States Government securities or an affiliate thereof. Under such
agreements, the bank or primary dealer or an affiliate thereof agrees, upon
entering into the contract, to repurchase the security at a mutually agreed upon
time and price, thereby determining the yield during the term of the agreement.
This results in a fixed rate of return insulated from market fluctuations during
such period. In the case of repurchase agreements, the prices at which the
trades are conducted do not reflect accrued interest on the underlying
obligation. Such agreements usually cover short periods, such as under one week.
Repurchase agreements may be construed to be collateralized loans by the
purchaser to the seller secured by the securities transferred to the purchaser.
In the case of a repurchase agreement, 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. In
the event of default by the seller under a repurchase agreement construed to
19
<PAGE>
be a collateralized loan, the underlying securities are not owned by the Fund
but only constitute 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 disposition of the collateral. In the event of a
default under such a repurchase agreement, instead of the contractual fixed
rate, the rate of return to the Fund shall be dependent upon intervening
fluctuations of the market value of such security and the accrued interest on
the security. In such event, the Fund would have rights against the seller for
breach of contract with respect to any losses arising from market fluctuations
following the failure of the seller to perform. The Fund may not invest more
than 10% of its net assets in repurchase agreements maturing in more than seven
days.
Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio with a value not exceeding 33 1/3% of its total
assets to banks, brokers and other financial institutions and receive collateral
in cash or securities issued or guaranteed by the United States Government. Such
collateral will be maintained at all times in an amount equal to at least 100%
of the current market value of the loaned securities. This limitation is a
fundamental policy, and it may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, as defined in
the Investment Company Act. During the period of such a loan, the Fund receives
the income on the loaned securities and either receives the income on the
collateral or other compensation, i.e., negotiated loan premium or fee, for
entering into the loan and thereby increases its yield. In the event that the
borrower defaults on its obligation to return borrowed securities, because of
insolvency or otherwise, the Fund could experience delays and costs in gaining
access to the collateral and could suffer a loss to the extent that the value of
the collateral falls below the market value of the borrowed securities.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
Among the more significant restrictions, the Fund may not:
-- Invest in the securities of any one issuer if, immediately after
and as a result of such investment, the value of the holdings of the Fund
in the securities of such issuer exceeds 5% of the Fund's total assets,
taken at market value, except that such restriction shall not apply to
securities issued or guaranteed by the Government of the United States or
any of its agencies or instrumentalities or, with respect to 25% of the
Fund's total assets, to securities issued or guaranteed by the government
of any country which is a member of the Organization for Economic
Cooperation and Development or any such country's agencies or
instrumentalities or supranational institutions or organizations.
-- Invest in the securities of any single issuer if, immediately
after and as a result of such investment, the Fund owns more than 10% of
the outstanding voting securities of such issuer.
Other fundamental policies include policies which limit investments in
securities which cannot be readily resold because of legal or contractual
restrictions or which are not otherwise readily marketable, if, regarding all
such securities, more than 10% of the Fund's net assets, taken at market value,
would be invested in such securities. While the Fund will not purchase illiquid
securities in an amount exceeding 10% of its net assets, the Fund may purchase,
without regard to that limitation, securities that are not registered under the
Securities Act of 1933, as amended (the 'Securities Act'), but that can be
offered and sold to 'qualified institutional buyers'
20
<PAGE>
under Rule 144A under the Securities Act, provided that the Fund's Board of
Directors continuously determines, based on the trading markets for the specific
Rule 144A security, that it is liquid. The Board of Directors may adopt
guidelines and delegate to the Manager the daily function of determining and
monitoring liquidity of restricted securities. The Board of Directors, however,
will retain sufficient oversight and be ultimately responsible for the
determinations.
Since it is not possible to predict with assurance exactly how the market
for restricted securities sold and offered under Rule 144A will develop, the
Board of Directors will carefully monitor the Fund's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information. 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
restricted securities.
Nothing in the foregoing investment restrictions shall be deemed to
prohibit the Fund from purchasing the securities of any issuer pursuant to the
exercise of subscription rights distributed to the Fund by the issuer, except
that no such purchase may be made if as a result the Fund will no longer be a
diversified investment company as defined in the Investment Company Act or will
fail to meet the diversification requirements of the Internal Revenue Code of
1986, as amended (the 'Code').
Also, the Fund may not invest more than 25% of its total assets (taken at
market value at the time of each investment) in the securities of issuers in any
particular industry. Among other restrictions, the Fund may not borrow amounts
in excess of 20% of its total assets taken at market value (including the amount
borrowed), and then only from banks as a temporary measure for extraordinary or
emergency purposes including to meet redemptions or to settle securities
transactions. The Fund will not purchase securities while borrowings are
outstanding except (a) to honor prior commitments or (b) to exercise
subscription rights where outstanding borrowings have been obtained exclusively
for settlements of other securities transactions. The purchase of securities
while borrowings are outstanding will have the effect of leveraging the Fund.
Such leveraging or borrowings increase the Fund's exposure to capital risk and
borrowed funds are subject to interest costs which will reduce net income. Other
fundamental policies include policies which (i) limit the Fund's authority to
mortgage, pledge, hypothecate or in any manner transfer as security for
indebtedness any securities owned or held by the Fund so as not to exceed 10% of
assets (collateral arrangements with respect to options and futures transactions
are not deemed to be a pledge of assets); and (ii) limit investments in
securities which cannot be readily resold because of legal or contractual
restrictions or which are not otherwise readily marketable, including repurchase
agreements and purchase and sale contracts maturing in more than seven days, if,
regarding all such securities, more than 10% of its net assets, taken at market
value, would be invested in such securities. Although not a fundamental policy,
the Fund will include OTC options and the securities underlying such options in
calculating the amount of its total assets subject to the limitation set forth
in clause (ii) above. However, as discussed above, the Fund may treat the
securities it uses as cover for written OTC options as liquid, and, therefore,
will be excluded from this restriction, provided it follows a specified
procedure. The Fund will not change or modify this policy prior to the change or
modification by the Commission staff of its position regarding OTC options, as
discussed above.
The Board of Directors of the Fund, at a meeting held on August 3, 1994,
approved certain changes to the fundamental and non-fundamental investment
restrictions of the Fund. These changes were proposed in connection with the
creation of a set of standard fundamental and non-fundamental investment
restrictions that would be adopted, subject to shareholder approval, by all of
the non-money market mutual funds advised by MLAM or FAM. The proposed uniform
investment restrictions are designed to provide each of these funds,
21
<PAGE>
including the Fund, with as much investment flexibility as possible under the
Investment Company Act and applicable state securities regulations, help promote
operational efficiencies and facilitate monitoring of compliance. The investment
objective and policies of the Fund will be unaffected by the adoption of the
proposed investment restrictions.
The full text of the proposed investment restrictions is set forth under
'Investment Objective and Policies-- Current Investment Restrictions--Proposed
Uniform Investment Restrictions' in the Statement of Additional Information.
Shareholders of the Fund are currently considering whether to approve the
proposed revised investment restrictions. If such shareholder approval is
obtained, the Fund's current investment restrictions will be replaced by the
proposed restrictions, and the Fund's Prospectus and Statement of Additional
Information will be supplemented to reflect such change.
MANAGEMENT OF THE FUND
DIRECTORS
The Directors of the Fund consist of six individuals, five of whom are not
'interested persons' of the Fund as defined in the Investment Company Act. The
Directors 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.
The Directors are:
ARTHUR ZEIKEL*--President and Chief Investment Officer of the Manager
and Fund Asset Management, L.P. ('FAM'); President and Director of
Princeton Services, Inc.; Executive Vice President of Merrill Lynch & Co.,
Inc.; Executive Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ('Merrill Lynch'); Director of the Distributor.
KENNETH S. AXELSON--Former Executive Vice President and Director, J.C.
Penney Company, Inc.
HERBERT I. LONDON--John M. Olin Professor of Humanities, New York
University.
ROBERT R. MARTIN--Chairman, WTC Industries, Inc. and former Chairman
and Chief Executive Officer, Kinnard Investments, Inc.
JOSEPH L. MAY--Attorney in private practice.
ANDRE F. PEROLD--Professor, Harvard Business School.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Fund's manager is Merrill Lynch Asset Management, L.P. (the 'Manager'),
which is owned and controlled by Merrill Lynch & Co., Inc. ('ML&Co.'), a
financial services holding company acts as manager to the Fund and provides the
Fund with management and investment advisory services. The Manager, or an
affiliate of the Manager, Fund Asset Management, L.P. ('FAM'), acts as the
investment adviser for more than 100 registered investment companies. The
Manager also offers portfolio management and portfolio analysis services to
individuals and institutions. As of August 31, 1994, the Manager and FAM had a
total of approximately
- ------------------
* Interested person, as defined by the Investment Company Act, of the Fund.
22
<PAGE>
$165.7 billion in investment company and other portfolio assets under
management, including accounts of certain affiliates of the Manager.
The management agreement with the Manager (the 'Management Agreement')
provides that, subject to the direction of the Directors of the Fund, the
Manager is responsible for the actual management of the Fund's portfolio. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Manager, subject to review by the Directors. The Manager provides
the portfolio manager for the Fund who considers analyses from various sources
(including brokerage firms with which the Fund does business), makes the
necessary decisions, and places transactions accordingly. The Manager also is
obligated to provide administrative services necessary for the operation of the
Fund and all of the office space, facilities, equipment and necessary personnel
for management of the Fund.
Harry E. Dewdney is the Portfolio Manager of the Fund. Mr. Dewdney has been
a Vice President and Portfolio Manager of the Manager since 1986. From 1978 to
1986, he was Senior Vice President of the International Trading and Foreign
Exchange Department of Prescott, Ball & Turben, Inc.
The Fund pays the Manager a monthly fee at the annual rate of 0.65% of the
average daily net assets of the Fund. For the year ended October 31, 1993 the
fee paid by the Fund to the Manager was $139,948 (based upon average net assets
of approximately $21.6 million). Of this amount, none was reimbursed by the
Manager to the Fund pursuant to certain operating expense limitations. In
addition, the Management Agreement obligates the Fund to pay certain expenses
incurred in its operations including, among other things, the management fee,
legal and audit fees, registration fees, unaffiliated Directors' fees and
expenses, custodian and transfer fees, accounting costs, the costs of issuing
and redeeming shares and certain of the costs of printing proxies, shareholder
reports, prospectuses and statements of additional information distributed to
shareholders. Accounting services are provided to the Fund by the Manager and
the Fund reimburses the Manager for its costs in connection with such services.
For the year ended October 31, 1993, the Fund reimbursed the Manager $49,224 for
accounting services. For the year ended October 31, 1993, the annualized ratio
of total expenses, net of distribution fees, to average net assets was 2.22% for
the Class A shares and 2.26% for the Class B shares; no Class C or Class D
shares had been issued during that year.
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the 'Transfer Agent'), which is a
wholly-owned subsidiary of ML&Co., Inc., 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 Fund pays the Transfer
Agent a fee of $11.00 per Class A or Class D shareholder account and $14.00 per
Class B or Class C shareholder account and the Transfer Agent is entitled to
reimbursement from the Fund for out-of-pocket expenses incurred by the Transfer
Agent under the Transfer Agency Agreement. For the year ended October 31, 1993,
the Fund paid the Transfer Agent $28,221 pursuant to the Transfer Agency
Agreement for providing transfer agency services.
23
<PAGE>
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the 'Distributor'), an affiliate of
the Manager and an affiliate of Merrill Lynch, acts as the distributor of the
shares of the Fund. Class A and Class B shares of the Fund are offered
continuously for sale by the Distributor and other eligible securities dealers
(including Merrill Lynch). Shares of the Fund may be purchased from securities
dealers or by mailing a purchase order directly to the Transfer Agent. The
minimum initial purchase is $1,000 and the minimum subsequent purchase is $50,
except for retirement plans, the minimum initial purchase is $100, and the
minimum subsequent purchase is $1.
The Fund is offering its shares in four classes, at a public offering price
equal to the next determined net asset value per share plus sales charges which
imposed either at the time of purchase or on a deferred basis, depending upon
the class of shares selected by the investor under the Merrill Lynch Select
Pricing System, as described below. The applicable offering price for purchase
orders is based upon the net asset value of the Fund next determined after
receipt of the purchase order by the Distributor. As to purchase orders received
by securities dealers prior to 4:15 P.M., New York time, which includes orders
received after the determination of the net asset value on the previous day, the
applicable offering price will be based on the net asset value determined as of
4:15 P.M. on the day the orders are placed with the Distributor, provided the
orders are received by the Distributor prior to 4:30 P.M., New York time, on
that day. If the purchase orders are not received by the Distributor prior to
4:30 P.M., New York time, such orders shall be deemed received on the next
business day. 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. Any order may be rejected by the Distributor or the Fund. 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 $4.85) to confirm a sale of shares to such customers.
Purchases directly through the Fund's Transfer Agent are not subject to the
processing fee.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing System, which permits each investor to choose the method of purchasing
shares that the investor believes is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares and other
relevant circumstances. Shares of Class A and Class D are sold to investors
choosing the initial sales charge alternatives and shares of Class B and Class C
are sold to investors choosing the deferred sales charge alternatives. Investors
should determine whether under their particular circumstances it is more
advantageous to incur an initial sales charge or to have the entire initial
purchase price invested in the Fund with the investment thereafter being subject
to a contingent deferred sales charge and ongoing distribution fees. A
discussion of the factors that investors should consider in determining the
method of purchasing shares under the Merrill Lynch Select Pricing System is set
forth under 'Merrill Lynch Select Pricing System' on page 3.
Each Class A, Class B, Class C and Class D share of the Fund represents
identical interests 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, 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
deferred sales charges 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, will be imposed directly against those classes and not against
all assets of the Fund and, accordingly, such charges will 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 will be
calculated in the same manner at the same time and will differ
24
<PAGE>
only to the extent that account maintenance and distribution fees and any
incremental transfer agency costs relating to a particular class are borne
exclusively by that class. Class B, Class C and Class D shares each have
exclusive voting rights with respect to the Rule 12b-1 distribution plan adopted
with respect to such class pursuant to which account maintenance and/or
distribution fees are paid. See 'Distribution Plans' below. Each class has
different exchange privileges. See 'Shareholder Services--Exchange Privilege'.
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in that
the sales charges 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. Investors are advised that
only Class A and Class D shares may be available for purchase through securities
dealers, other than Merrill Lynch, which are eligible to sell shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(Service Mark)
System.
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
- ----- ------------------------- ----------- ------------ -------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial No No No
sales charge(2)(3)
B CDSC for a period of 0.25% 0.75% B shares convert to
4 years, at a rate D shares
of 4.0% during the first automatically
year, after
decreasing 1.0% annually approximately
to 0.0% eight years(4)
C 1.0% CDSC for one year 0.25% 0.75% No
D Maximum 5.25% initial 0.25% No No
sales charge(3)
</TABLE>
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs may be imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See 'Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors'.
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period applicable
to the Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period for
the shares acquired.
25
<PAGE>
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible
to purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternative is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below:
<TABLE>
<CAPTION>
DISCOUNT TO
SALES CHARGE AS SELECTED DEALERS
SALES CHARGE AS PERCENTAGE* OF AS PERCENTAGE OF
PERCENTAGE OF THE NET AMOUNT THE OFFERING
AMOUNT OF PURCHASE OFFERING PRICE INVESTED PRICE
- ------------------------------------------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
Less than $25,000..................................... 5.25% 5.54% 5.00%
$25,000 but less than $50,000......................... 4.75 4.99 4.50
$50,000 but less than $100,000........................ 4.00 4.16 3.75
$100,000 but less than $250,000....................... 3.00 3.09 2.75
$250,000 but less than $1,000,000..................... 2.00 2.04 1.80
$1,000,000 and over**................................. 0.00 0.00 0.00
</TABLE>
- ------------------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived in Class A and Class D purchases of
$1,000,000 or more made on or after October 21, 1994. If the sales charge is
waived, such purchases will be subject to a CDSC of up to 1.0% if the shares are
redeemed within one year after purchase. Class A purchases made prior to October
21, 1994 may be subject to a CDSC if the shares are redeemed within one year of
purchase at the following rates: 0.75% on purchases of $1,000,000 to $2,500,000;
0.40% on purchases of $2,500,001 to $3,500,000; 0.25% on purchases of $3,500,001
to $5,000,000; and 0.20% on purchases of more than $5,000,000 in lieu of paying
an initial sales charge. The charge will be assessed as an amount equal to the
lesser of the proceeds of redemption or the cost of the shares being redeemed. A
sales charge of 0.75% will be charged on purchases of $1 million or more of
Class A or Class D shares by certain 401(k) plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act. For the
fiscal year ended December 31, 1993, the Distributor received no CDSCs with
respect to redemptions within one year after purchase of Class A shares
purchased subject to front-end sales charge waivers. For the six months ended
April 30, 1994, the Distributor received CDSCs of approximately $.08, all of
which was paid to Merrill Lynch, with respect to redemptions within one year
after purchase of Class A shares purchased subject to front-end sales charge
waivers.
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 in a
shareholder account, including participants in the Merrill Lynch
Blueprint(Service Mark) Program, are entitled to purchase additional Class A
shares 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
26
<PAGE>
provided that the program has $3 million or more initially invested in
MLAM-advised mutual funds. Also eligible to purchase Class A shares at net asset
value are participants in certain investment programs including TMA(Service
Mark) Managed Trusts to which Merrill Lynch Trust Company provides discretionary
trustee services and certain purchases made in connection with the Merrill Lynch
Mutual Fund Adviser program. In addition, Class A shares will be offered at net
asset value to ML & Co. and its subsidiaries and their directors and employees
and to members of the Boards of MLAM-advised investment companies, including the
Fund. Certain persons who acquired shares of certain MLAM-advised closed-end
funds 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 set forth in the Statement of Additional
Information are met. For example, Class A shares of the Fund and certain other
MLAM-advised mutual funds are offered at net asset value to shareholders of
Merrill Lynch Senior Floating Rate Fund, Inc. who wish to reinvest the net
proceeds from a sale of certain of their shares of common stock of Merrill Lynch
Senior Floating Rate Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges also
may be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A
investors as set forth above under 'Eligible Class A Investors'.
Class D shares are offered at net asset value, without a sales charge, to
an investor who has a business relationship with a Merrill Lynch financial
consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participate in the Merrill Lynch
Blueprint(Service Mark) Program.
Additional information concerning these reduced initial sales charges,
including information regarding investments by Employee Sponsored Retirement or
Savings Plans, is set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year CDSC,
while Class C shares are subject only to a one year 1.0% CDSC. On the other
hand, approximately eight years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those shares, are automatically converted into Class D shares of the Fund and
thereafter will be subject to lower continuing fees. See 'Conversion of Class B
Shares to Class D Shares' below. Both Class B and Class C shares are subject to
an account maintenance fee of 0.25% of net assets and Class B and Class C shares
are subject to distribution fees of
27
<PAGE>
0.75% of net assets as discussed below under 'Distribution Plans'. The proceeds
from the account maintenance fees are used to compensate Merrill Lynch for
providing continuing account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See 'Distribution
Plans' below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution related
services to the 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 dealers' 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. Approximately eight years after issuance, Class B shares will
convert automatically into Class D shares of the Fund, which are subject to an
account maintenance fee but no distribution fee; Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange will
apply, and the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See 'Limitations on
the Payment of Deferred Sales Charges' below. The proceeds from the ongoing
account maintenance fee are used to compensate Merrill Lynch for providing
continuing account maintenance activities. 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.
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. 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 charge will be assessed on shares derived from reinvestment of
dividends or capital gains distributions. For the year ended October 31, 1993
the Distributor received CDSCs of $23,432 with respect to redemptions of Class B
shares, all of which was paid to Merrill Lynch.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B
CDSC AS A
PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
- ------------------------------------------------------------------------------- ---------------------------
<S> <C>
0-1............................................................................ 4.0%
1-2............................................................................ 3.0%
2-3............................................................................ 2.0%
3-4............................................................................ 1.0%
4 and thereafter............................................................... None
</TABLE>
28
<PAGE>
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. Therefore, it will be assumed that the redemption
is first of shares until such time as the CDSC is no longer applicable or shares
acquired pursuant to reinvestment of dividends or distributions and then of
shares held longest during the four-year period. The charge will not be applied
to dollar amounts representing an increase in the net asset value since the time
of purchase. A transfer of shares from a shareholder's account to another
account will be assumed to be made in the same order as a redemption.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the charge 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 CDSC is waived
on redemptions of shares following the death or disability (as defined in the
Code) of a shareholder.
The Class B CDSC also is waived on redemptions of shares by certain
eligible 401(a) and eligible 401(k) plans and in connection with certain group
plans placing orders through the Merrill Lynch Blueprint(Service Mark) Program.
The Class B CDSC is also waived for any Class B shares which are purchased by an
eligible 401(a) plan which are rolled over into a Merrill Lynch or Merrill Lynch
Trust Company custodied IRA and held in such account at the time of redemption.
The Class B CDSC also is waived for any Class B shares which are purchased by a
Merrill Lynch rollover IRA that was funded by a rollover from a terminated
401(k) plan managed by the MLAM Private Portfolio Group and held in such account
at the time of redemption. Additional information concerning the waiver of the
Class B CDSC is set forth in the Statement of Additional Information.
Contingent Deferred Sales Charges--Class C Shares. Class C shares which
are redeemed within one year after purchase may be subject to a 1.0% CDSC
charged as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed
on increases in net asset value above the initial purchase price. In addition,
no Class C CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
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. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the 'Conversion Period'), Class B Shares will be converted automatically
into Class D shares of the 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 values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of
29
<PAGE>
Class B shares to Class D shares will not be deemed a purchase or sale of the
shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the 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.
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.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a ten-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ('Class B Retirement Plans').
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of the
appropriate funds. Subsequent to such conversion, that Class B Retirement Plan
will be sold Class D shares of the appropriate funds at net asset value.
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
'Distribution Plan') with respect to the account maintenance and/or distribution
fees paid by the Fund to the Distributor with respect to such classes. The Class
B and Class C Distribution Plans provide for the payment of account maintenance
fees and distribution fees, and the Class D Distribution Plan provides for the
payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the 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.
The Distribution Plans for Class B and Class C shares each provide 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
30
<PAGE>
0.75% 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. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Fund in that the deferred sales charges provide for the financing
of the distribution of the Fund's Class B and Class C shares.
Prior to July 6, 1993, the Fund paid the Distributor an ongoing
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
average daily net assets of the Class B shares of the Fund under a distribution
plan previously adopted by the Fund (the 'Prior Plan') to compensate the
Distributor and Merrill Lynch for providing account maintenance and
distribution-related activities and services to Class B shareholders. The fee
rate payable and the services provided under the Prior Plan are identical to the
aggregate fee rate payable and the services provided under the Class B
Distribution Plan, the difference being that the account maintenance and
distribution services have been unbundled. For the fiscal year ended October 31,
1993, the Fund paid the Distributor $47,442 for the account maintenance fee and
$142,328 for the distribution fee pursuant to the Prior Plan and the Class B
Distribution Plan. The Fund did not begin to offer shares of Class C or Class D
publicly until the date of this Prospectus. Accordingly, no payments have been
made pursuant to the Class C or Class D Distribution Plans prior to the date of
this Prospectus.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a 'fully allocated accrual' basis and quarterly on a 'direct expense and
revenue/cash' basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, 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, 1993, the last date at which fully allocated data is available, the fully
allocated accrual revenues incurred by the Distributor and Merrill Lynch
exceeded fully allocated accrual expenses for such period by approximately
$312,000 (.99% of Class B net assets at that date). As of July, 1994 direct cash
revenues for the period since the commencement of operations exceeded direct
cash expenses by $1,239,172 (3.2% of Class B net assets at that date).
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with the Class B, Class C and Class D shares, and there is no
assurance that the Directors of the Fund will approve the continuance of the
Distribution Plans from year to year. However, the Distributor intends to seek
annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in
31
<PAGE>
connection with the account maintenance and/or distribution of each class of
shares separately. The initial sales charges, the account maintenance fee, the
distribution fee and/or the CDSCs received with respect to one class will not be
used to subsidize the sale of shares of another class. Payments of the
distribution fee on Class B shares will terminate upon conversion of those Class
B shares into Class D shares as set forth under 'Deferred Sales Charge
Alternatives--Class B and Class C Shares--Conversion of Class B Shares to Class
D Shares'.
Limitations on the Payment of Deferred Sales Charges. The maximum sales
charge rule in the Rules of Fair Practice 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 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 payments in excess of the amount payable
under the NASD formula will not be made.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares of the Fund on receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC which may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive on redemption all dividends
declared through the date of redemption. The value of shares at the time of
redemption may be more or less than the shareholder's cost, depending on the
market value of the securities held by the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Fund's Transfer Agent, Financial Data Services, Inc., Transfer
Agency Mutual Fund Operations, P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to
Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, 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.
The notice in either event requires the signature(s) of all persons in
32
<PAGE>
whose name(s) the shares are registered, signed exactly as such name(s)
appear(s) on the Transfer Agent's register or on the certificate, as the case
may be. The signature(s) on the redemption request must be guaranteed by an
'eligible guarantor institution' as such term is defined in Rule 17Ad-15 under
the Securities Exchange Act of 1934, 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 (except as provided below).
At various times, the Fund may be requested to redeem shares for which it
has not yet received good payment. 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 or certified check drawn on a United States bank) has been
collected for the purchase of such shares. Normally, this delay will not exceed
10 days.
REPURCHASE
The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund will normally accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request for
repurchase is received by the dealer prior to the regular close of business on
the New York Stock Exchange on the day received and is received by the Fund from
such dealer not later than 4:30 P.M., New York time, on the same day. Dealers
have the responsibility of submitting such repurchase requests to the Fund not
later than 4:30 P.M., New York time, in order to obtain that day's closing
price.
These repurchase arrangements are for the convenience of shareholders and
do not involve a charge by the Fund (other than any applicable CDSC. However,
securities firms which do not have selected dealer agreements with the
Distributor may impose a charge on the shareholder for transmitting the notice
of repurchase to the Fund. Merrill Lynch may charge its customers a processing
fee (presently $4.85) to confirm a repurchase of shares. Redemptions directly
through the Fund's 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 affect adversely shareholders seeking redemption through the
repurchase procedure. However, a shareholder whose order for repurchase is
rejected by the Fund may redeem shares as set forth above.
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A shares have a one-time
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 without 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. The reinstatement privilege is a one-time privilege and may be
exercised by the Class A or Class D shareholder only the first time such
shareholder makes a redemption.
33
<PAGE>
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in shares of the Fund. Certain of such
services are not available to investors who place orders for the Fund through
the Merrill Lynch Blueprint(Service Mark) Program. Full details as to each of
such services and instructions as to how to participate in the various plans and
services, or 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. Included in such services are the following:
Investment Account. Each shareholder whose account (an 'Investment
Account') is maintained at the Transfer Agent has an Investment Account and will
receive statements, at least quarterly, from the Transfer Agent. These quarterly
statements will serve as transaction confirmations for automatic investment
purchases and the reinvestment of ordinary incomes, dividends and long-term
capital gain distributions. These statements will also show any other activity
in the account since the preceding statement. Shareholders will receive separate
transaction confirmations for each purchase or sale transaction other than
automatic investment purchases and the reinvestments of ordinary income
dividends and long-term capital gains distributions. Shareholders may make
additions to their Investment Accounts at any time by mailing a check directly
to the Transfer Agent. Shareholders may also maintain their accounts through
Merrill Lynch. Upon the transfer of shares out of a Merrill Lynch brokerage
account, an Investment Account in the transferring shareholder's name may be
opened at the Transfer Agent. Shareholders considering transferring their Class
A or Class D shares from Merrill Lynch to another brokerage firm or financial
institution should be aware that, if the firm to which the Class A or Class D
shares are to be transferred will not take delivery of shares of the 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 such shareholder must continue to maintain an Investment Account
at the Transfer Agent for those Class A or Class D shares. Shareholders
interested in transferring their Class B or Class C shares from Merrill Lynch
and who do not wish to have an Investment Account maintained for such shares at
the Transfer Agent may request their new brokerage firm to maintain such shares
in an account registered in the name of the brokerage firm for the benefit of
the shareholder at the Transfer Agent. Shareholders considering transferring a
tax-deferred retirement account such as an individual retirement account from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the retirement account is to be transferred will not
take delivery of shares of the Fund, a shareholder either must redeem the shares
(paying any applicable CDSC) so that the cash proceeds can be transferred to the
account at the new firm, or such shareholder must continue to maintain a
retirement account at Merrill Lynch for those shares.
Exchange Privilege. Shareholders of each class of shares of the Fund each
have an exchange privilege with certain other MLAM-advised mutual funds. There
is currently no limitation on the number of times a shareholder may exercise the
exchange privilege. The exchange privilege may be modified or terminated in
accordance with the rules of the Commission.
Under the Merrill Lynch Select Pricing System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
his account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second MLAM-advised
mutual fund, and the shareholder does not hold Class A shares of the second fund
in his 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
34
<PAGE>
shares also may be exchanged for Class A shares of a second MLAM-advised mutual
fund at any time as long as, at the time of the exchange, the shareholder holds
Class A shares of the second fund in the account in which the exchange is made
or is otherwise eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares will be exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Fund which are subject to a CDSC will be exchangeable on the
basis of relative net asset value per share without the payment of any CDSC that
might otherwise be due upon redemption of the shares of the Fund. For purposes
of computing the CDSC that may be payable upon a disposition of the shares
acquired in the exchange, the holding period for the previously owned shares of
the Fund is 'tacked' to the holding period of the newly acquired shares of the
other Fund.
Class A, Class B, Class C and Class D shares also will be exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the 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. 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 shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes. For further information, see 'Shareholder Services--Exchange
Privilege' in the Statement of Additional Information.
The Fund's exchange privilege is modified with respect to purchases of
Class A and Class D shares under the Merrill Lynch Mutual Fund Adviser ('MFA')
program. First, the initial allocation of assets is made under the MFA program.
Then, any subsequent exchange under the MFA program of Class A or Class D shares
of a MLAM-advised mutual fund for Class A or Class D shares of the Fund will be
made solely on the basis of the relative net asset values of the shares being
exchanged. Therefore, there will not be a charge for any difference between the
sales charge previously paid on the shares of the other MLAM-advised mutual fund
and the sales charge payable on the shares of the Fund being acquired in the
exchange under the MFA program.
Automatic Reinvestment of Dividends and Capital Gains Distributions. All
dividends and capital gains distributions are reinvested automatically in full
and fractional shares of the Fund, without a sales charge, at the net asset
value per share next determined on the ex-dividend date of such dividend or
distribution. A shareholder may at any time, by written notification or by
telephone (1-800-MER-FUND) to the Transfer Agent, elect to have subsequent
dividends or capital gains distributions, or both, paid in cash, rather than
reinvested, in which event payment will be mailed on or about the payment date.
Cash payments also can be directly deposited to the
35
<PAGE>
shareholder's bank account. No CDSC will be imposed upon redemption of shares
issued as a result of the automatic reinvestment of dividends or capital gains
distributions.
Systematic Withdrawal Plans. A Class A or Class D shareholder may elect to
receive systematic withdrawal payments from his Investment Account through
automatic payment by check or through automatic payment by direct deposit to his
bank account on either a monthly or quarterly basis. A Class A shareholder whose
shares are held within a CMA(Registered), CBA(Registered) or Retirement Account
may elect to have shares redeemed on a monthly, bimonthly, quarterly, semiannual
or annual basis through the Systematic Redemption Program, subject to certain
conditions.
Automatic Investment Plans. Regular additions of shares may be made to an
investor's Investment Account by pre-arranged charges of $50 or more to his
regular bank account. Investors who maintain CMA(Registered) accounts may
arrange to have periodic investments made in the Fund in their CMA(Registered)
account or in certain related accounts in amounts of $100 or more through the
CMA(Registered) Automated Investment Program.
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'). If it 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 which 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.
Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as 'ordinary income dividends') are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in futures and options)
('capital gain dividends') are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund shares.
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).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. 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 ordinary income dividends or capital gain
dividends. A portion of the Fund's ordinary income dividends may be eligible for
the dividends received deduction allowed to corporations under the Code, if
certain requirements are met. If the Fund pays a dividend in January which was
declared in the previous October, November or December to shareholders of record
on a specified date in one of such months, then such dividend will be treated
for tax purposes as being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% U.S. withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the U.S.
withholding tax.
36
<PAGE>
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 U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. 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. If more than 50% in value of the Fund's 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 U.S. income tax returns as gross income, treat such proportionate shares
as taxes paid by them, and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against their
U.S. income taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax 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
U.S. 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.
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.
Under Code Section 988, foreign currency gains or losses from certain debt
instruments, certain forward contracts, from futures contracts that are not
'regulated futures contracts' and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the 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 any distributions made before the losses were
realized but in the same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing the basis of each shareholder's Fund
shares and resulting in a capital gain for any shareholder who received a
distribution greater than the shareholder's tax basis in Fund shares (assuming
the shares were held as a capital asset).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon the purchase of the new shares in the absence
of the exchange privilege. Instead, such sales charge will be treated as an
amount paid for the new shares.
37
<PAGE>
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 beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative 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 U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A and Class B shares in accordance with formulas specified
by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any 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 will be computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including any CDSC that would be applicable to a
complete redemption of the investment at the end of the specified period such as
in the case of Class B and Class C shares and the maximum sales charge in the
case of Class A and Class D shares. Dividends paid by the Fund with respect to
Class A and Class B shares, to the extent any dividends are paid, will be
calculated in the same manner at the same time on the same day and will be in
the same amount, except that account maintenance and distribution charges and
any incremental transfer agency costs relating to each class of shares will be
borne exclusively by that class. The Fund will include performance data for all
classes of shares of the Fund in any advertisement or information including
performance data of the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return and (2) the maximum applicable sales charges will not
be included with respect to annual or annualized rates of return calculations.
Aside from the impact on the performance data calculations of including or
excluding the maximum applicable sales charges, actual annual or annualized
total return data generally will be lower than average annual total return data
since the average annual rates of return reflect compounding; aggregate total
38
<PAGE>
return data generally will be higher than average annual total return data since
the aggregate rates of return reflect compounding over a longer period of time.
In advertisements distributed to investors whose purchases are subject to
reduced sales charges in the case of Class A shares or waiver of the CDSC in the
case of Class B shares (such as investors in certain retirement plans), the
performance data may take into account the reduced, and not the maximum, sales
charge or may not take into account the CDSC and therefore may reflect greater
total return since, due to the reduced sales charges or waiver of the CDSC, a
lower amount of expenses is deducted. See 'Purchase of Shares'. 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.
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 that of the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average or
performance data published by Lipper Analytical Services, Inc. and Morningstar
Publications, Inc. ('Morningstar'). 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 representative of the Fund's relative
performance for any future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all its net investment income.
Dividends from such net investment income are paid quarterly. All net realized
long-or short-term capital gains, if any, are distributed to the Fund's
shareholders at least annually. From time to time, the Fund may declare a
special distribution at or about the end of the calendar year in order to comply
with a Federal income tax requirement that certain percentages of its ordinary
income and capital gains be distributed during the calendar year. Certain gains
or losses attributable to foreign currency gains or losses from certain forward
contracts may increase or decrease the amount of the Fund's income available for
distribution to shareholders. If such losses exceed other income during a
taxable year, (a) the Fund would not be able to make any ordinary dividend
distributions, and (b) distributions made before the losses were realized would
be recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's tax basis in the Fund shares for
Federal income tax purposes. See 'Taxes'. If in any fiscal year, the Fund has
net income from certain foreign currency transactions, such income will be
distributed annually. Dividends may be reinvested automatically in shares of the
Fund at net asset value. Shareholders may elect in writing to receive any such
dividends or distributions, or both, in cash. Dividends and distributions are
taxable to shareholders as discussed under 'Taxes' whether they are reinvested
in shares of the Fund or received in cash.
39
<PAGE>
The per share dividends and distributions on each class of shares will be
reduced as a result of any account maintenance, distribution and transfer agency
fees applicable with respect to such class of shares. See 'Additional
Information--Determination of Net Asset Value'.
DETERMINATION OF NET ASSET VALUE
The net asset value of shares of all classes of the Fund is determined by
the Manager once daily at 4:15 P.M., New York time, on each day during which the
New York Stock Exchange is open for trading. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or dealers
on the day of valuation. The net asset value per share is computed by dividing
the value of the securities held by the Fund plus any cash or other assets
(including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time, rounded to the nearest cent. Expenses, including the
fees payable to the Manager and the Distributor, are accrued daily.
The per share net asset value of Class A shares generally will be higher
than the per share net asset value of shares of other classes, reflecting the
daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to the Class B and Class C shares
and the daily expense accruals of the account maintenance fees applicable with
respect to Class D shares; moreover, the per share net asset value of Class D
shares generally will be higher than the per share net asset value of Class B
and Class C shares, reflecting the daily expense accruals of the distribution
and higher transfer agency fees applicable with respect to Class B and Class C
shares. It is expected, however, that the per share net asset value of the four
classes will tend to converge immediately after the payment of dividends or
distributions, which will differ by approximately the amount of the expense
accrual differential between the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Directors as the
primary market. Securities traded in the over-the-counter market are valued at
the most recent available bid price in the over-the-counter market prior to the
time of valuation. Securities traded on a stock exchange and the over-
the-counter market will be valued according to the broadest and most
representative market. Options that are traded on exchanges are valued at their
last sale price as of the close of such exchanges or, if there are no sales,
then the price is the last available bid price.
Where there is no market quotation on securities or options, fair market
value will be determined in good faith by or under the direction of the Fund's
Directors. Such valuations and procedures will be reviewed periodically by the
Directors.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on October 22, 1987. It has an
authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock, each of which consists of 100,000,000 shares. Shares of Class A,
Class B, Class C and Class D Common Stock represent an interest 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 related to the
40
<PAGE>
account maintenance associated with such shares, and Class B and Class C shares
bear certain expenses, related to distribution of such shares. Each Class has
exclusive voting rights with respect to matters relating to account maintenance
and distribution expenditures, as applicable. See 'Purchase of Shares'. The Fund
has received an order from the Commission permitting the issuance and sale of
multiple classes of Common Stock. The Directors of the Fund may classify and
reclassify the shares of the Fund into additional classes of Common Stock at a
future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Fund does not intend to
hold meetings of shareholders in any year in which the Investment Company Act of
1940 does not require shareholders to act upon any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent accountants. Also, the by-laws of the Fund require that a special
meeting of shareholders be held upon the written request of at least 10% of the
outstanding shares of the Fund entitled to vote at such meeting. Voting rights
for Directors are not cumulative. Shares issued are fully paid and
non-assessable and have no preemptive rights. Shares have the conversion rights
described in this Prospectus. Each share of Common Stock is entitled to
participate equally in dividends and distributions declared by the Fund and in
the net assets of the Fund upon liquidation or dissolution after satisfaction of
outstanding liabilities except, as noted above, the Class B, Class C and Class D
shares bear certain additional expenses.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Financial Data Services, Inc.
Attn: TAMFO
P.O. Box 45289
Jacksonville, Florida 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this
please call your Merrill Lynch financial consultant or Financial Data Services,
Inc. at 800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
41
<PAGE>
[This page intentionally left blank]
42
<PAGE>
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.--AUTHORIZATION FORM (PART 1)
- -------------------------------------------------------------------------------
Note: This form may not be used for purchases through the Merrill Lynch
Blueprint(Service Mark) Program. You may request a Merrill Lynch
Blueprint(Service Mark) Program application by calling toll free (800)
637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class C shares
[_] Class D shares
of Merrill Lynch Global Convertible Fund, Inc. and establish an Investment
Account as described in the Prospectus. In the event that I am not eligible to
purchase Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $ . . . . . . payable to Financial Data Services,
Inc., as an initial investment (minimum $1,000). I understand that this
purchase will be executed at the applicable offering price next to be
determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of paper
if necessary.)
<TABLE>
<S> <C>
1....................................................... 4.......................................................
2....................................................... 5.......................................................
3....................................................... 6.......................................................
</TABLE>
Name .........................................................................
First Name Initial Last Name
Name of Co-Owner (if any) ....................................................
First Name Initial Last Name
Address ...............................
....................................
(Zip Code)
<TABLE>
<S> <C>
Occupation .......................................... Name and Address of Employer ........................
...................................................... .....................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Ordinary Income Long-Term Capital Gains
Dividends
Select [_] Reinvest Select [_] Reinvest
One: [_] Cash One: [_] Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [_] Check or
[_] Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Global Convertible Fund, Inc. Authorization Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE) [_] checking [_] savings
Name on your Account ..........................................................
Bank Name .....................................................................
Bank Number ........................................... Account Number ......
Bank Address ..................................................................
I agree that this authorization will remain in effect until I provide written
notification to Financial Data Services, Inc. amending or terminating this
service.
Signature of Depositor ........................................................
Signature of Depositor ................... Date ..............................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS
APPLICATION.
43
<PAGE>
- --------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER INDENTIFICATION NUMBER
[_][_][_] [_][_] [_][_][_][_]
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed in the Prospectus under
"Additional Information--Taxes") either because I have not been notified that I
am subject thereto as a result of a failure to report all interest or dividends,
or the Internal Revenue Service ("IRS") has notified me that I am no longer
subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
<TABLE>
<S> <C>
...................................................... .....................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND D SHARES ONLY (SEE TERMS AND CONDITIONS IN
THE STATEMENT OF ADDITIONAL INFORMATION)
Dear Sir/Madam:
.............................. , 19 ......
Date of initial purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Global Convertible Fund, Inc. or any other investment company with an
initial sales charge or deferred sales charge for which Merrill Lynch Funds
Distributor, Inc. acts as distributor over the next 13 month period which will
equal or exceed:
[_] $25,000 [_] $50,000 [_] $100,000
[_] $250,000 [_] $1,000,000
Each purchase will be made at the then reduced offering price applicable to the
amount checked above, as described in the Merrill Lynch Global Convertible Fund,
Inc. Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Global Convertible Fund, Inc. held as security.
<TABLE>
<S> <C>
By.................................................... .....................................................
Signature of Owner Signature of Co-Owner
(If registered in joint parties, both must sign)
</TABLE>
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
<TABLE>
<S> <C>
(1) Name.............................................. (2) Name.............................................
Account Number........................................ Account Number.......................................
</TABLE>
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp.
This form when completed should be mailed to:
Merrill Lynch Global Convertible Fund, Inc.
c/o Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
P.O. Box 45289
Jacksonville, Florida 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the Distributor of any purchases made under a Letter of Intention or Systematic
Withdrawal Plan. We guarantee the shareholder's signature.
...............................................................................
Dealer Name and Address
By..............................................................................
Authorized Signature of Dealer
[_][_][_] [_][_][_][_] .....................
Branch-Code F/C No. F/C Last Name
[_][_][_] [_][_][_][_][_]
Dealer's Customer Account No.
44
<PAGE>
- -------------------------------------------------------------------------------
MERRILL LYNCH GLOBAL CONVERTIBLEFUND, INC.--AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
Note: This form is required to apply for the Systematic Withdrawal or Automatic
Investment Plans only.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
Name of Owner .......................................
[_][_][_] [_][_] [_][_][_][_]
Social Security No.
or Taxpayer Identification No.
Name of Co-Owner (if any) ...........................
Address .............................................
......................................................
Account Number ......................................
(if existing account)
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of [_] Class A or [_] Class D shares in Merrill Lynch Global
Convertible Fund, Inc. at cost or current offering price. Withdrawals to be
made either (check one) [_] Monthly on the 24th day of each month, or [_]
Quarterly on the 24th day of March, June, September and December. If the 24th
falls on a weekend or holiday, the next succeeding business day will be
utilized. Begin systematic withdrawal on ............. (month), or as soon as
possible thereafter.
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK
ONE): [_] $ ......... or [_] ......... % of the current value of [_] Class A
or [_] Class D shares in the account.
SPECIFY WITHDRAWAL METHOD: [_] check or [_] direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a) I hereby authorize payment by check
[_] as indicated in Item 1.
[_] to the order of .....................................................
Mail to (check one)
[_] the address indicated in Item 1.
[_] Name (please print) ..................................................
Address ..................................................................
......................................................................
Signature of Owner ....................... Date ..............................
Signature of Co-Owner (if any) .................................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO MY BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO FINANCIAL DATA SERVICES, INC. AMENDING OR TERMINATING
THIS SERVICE.
Specify type of account (check one): [_] checking [_] savings
Name on your account ..........................................................
Bank Name ......................................................................
Bank Number ........................................... Account Number ......
Bank Address ..................................................................
...............................................................................
Signature of Depositor ................... Date ..............................
Signature of Depositor ........................................................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHALL ACCOMPANY THIS APPLICATION.
45
<PAGE>
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Financial Data Services, Inc. draw an automated
clearing house ("ACH") debit on my checking account as described below each
month to purchase (choose one)
[_] Class A shares [_] Class B shares [_] Class C shares
[_] Class D shares
of Merrill Lynch Global Convertible Fund, Inc., subject to the terms set forth
below. In the event that I am not eligible to purchase Class A shares, I
understand that Class D shares will be purchased.
FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Global Convertible Fund, Inc. as indicated below:
Amount of each check or ACH debit $ ........................................
Account Number .............................................................
Please date and invest ACH debits on the 20th of each month beginning
............................. or as soon thereafter as possible.
(month)
I agree that you are preparing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such debit. If I change banks or desire to terminate or
suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroneous ACH debits of my bank
account or purchases of fund shares including liquidating shares of the Fund and
credit my bank account. I further agree that if a debit is not honored upon
presentation, Financial Data Services, Inc. is authorized to discontinue
immediately the Automatic Investment Plan and to liquidate sufficient shares
held in my account to offset the purchase made with the dishonored debit.
.................... ..............................
Date Signature of Depositor
...............................
Signature of Depositor
(If joint account, both must
sign)
AUTHORIZATION TO
HONOR ACH DEBITS
DRAWN BY FINANCIAL DATA SERVICES, INC.
To ....................................................................... Bank
(Investor's Bank)
Bank Address ..................................................................
City ............ State ............ Zip Code ...............................
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Financial Data
Services, Inc., I agree that your rights in respect to each such debit shall be
the same as if it were a check drawn on you and signed personally by me. This
authority is to remain in effect until revoked by me in writing. Until you
receive such notice, you shall be fully protected in honoring any such debit. I
further agree that if any such debit be dishonored, whether with or without
cause and whether intentionally or inadvertently, you shall be under no
liability.
.................... ..............................
Date Signature of Depositor
.................... ..............................
Bank Account Number Signature of Depositor
(If joint account, both must
sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
46
<PAGE>
MANAGER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
CUSTODIAN
State Street Bank and Trust Company
One Heritage Drive
Palmer Building
North Quincy, Massachusetts 02171
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE MANAGER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table........................................ 2
Merrill Lynch Select Pricing(Service Mark)
System......................................... 3
Financial Highlights............................. 8
Special Considerations........................... 9
Investment Objective and Policies................ 10
Management of the Fund........................... 22
Directors...................................... 22
Management and Advisory
Arrangements................................ 22
Transfer Agency Services....................... 23
Purchase of Shares............................... 24
Initial Sales Charge Alternatives--Class A and
Class D Shares.............................. 26
Deferred Sales Charge Alternatives-- Class B
and Class C Shares.......................... 27
Distribution Plans............................. 30
Limitations on the Payment of Deferred Sales
Charges..................................... 32
Redemption of Shares............................. 32
Redemption..................................... 32
Repurchase..................................... 33
Reinstatement Privilege--Class A and Class D
Shares...................................... 33
Shareholder Services............................. 34
Taxes............................................ 36
Performance Data................................. 38
Additional Information........................... 39
Dividends and Distributions.................... 39
Determination of Net Asset Value............... 40
Organization of the Fund....................... 40
Shareholder Reports............................ 41
Shareholder Inquiries.......................... 41
Authorization Form............................... 43
</TABLE>
Code # 10665-1094
<PAGE>
[LOGO]
MERRILL LYNCH
GLOBAL CONVERTIBLE
FUND, INC.
[ART]
Prospectus
October 21, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
----------------------
Merrill Lynch Global Convertible Fund, Inc. (the 'Fund') is a mutual fund
seeking to provide shareholders with high total return by investing primarily in
an internationally diversified portfolio of convertible debt securities,
convertible preferred stocks and 'synthetic' convertible securities consisting
of a combination of debt securities or preferred stock and warrants or options.
The investment philosophy of the Fund is based on the belief that the
characteristics of convertible securities make them appropriate investments for
an investment company seeking a high total return from capital appreciation and
investment income. There can be no assurance that the investment objective of
the Fund will be realized.
Pursuant to the Merrill Lynch Select Pricing(Service Mark) 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(Service Mark) System permits an investor to choose the method of
purchasing shares that the investor believes is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the shares and
other relevant circumstances.
----------------------
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated October
21, 1994 (the 'Prospectus'), which has been filed with the Securities and
Exchange Commission and can be obtained, without charge, by calling or by
writing the Fund at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
----------------------
MERRILL LYNCH ASSET MANAGEMENT--MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
----------------------
The date of this Statement of Additional Information is October 21, 1994.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek high total return from a
combination of capital appreciation and investment income. The Fund will seek to
achieve its objective by investing primarily in an internationally diversified
portfolio of convertible debt securities, convertible preferred stocks and
'synthetic' convertible securities consisting of a combination of debt
securities or preferred stock and warrants or options. Reference is made to
'Investment Objective and Policies' in the Prospectus for a discussion of the
investment objective and policies of the Fund.
While the Fund generally does not expect to engage in trading for
short-term gains, it will effect portfolio transactions without regard to
holding period if, in its management's judgment, such transactions are advisable
in light of a change in circumstances of a particular company or within a
particular industry or in general market, economic or financial conditions.
Accordingly, while the Fund anticipates that its annual turnover rate should not
exceed 100% under normal conditions, it is impossible to predict portfolio
turnover rates. The portfolio turnover rate is calculated by dividing the lesser
of the Fund's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of all securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of the securities in the
portfolio during the year. For the years ended October 31, 1992 and 1993, the
portfolio turnover rates were 4.91% and 26.02%, respectively.
PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES
Reference is made to the discussion under the caption 'Investment Objective
and Policies--Portfolio Strategies Involving Options and Futures' in the
Prospectus for information with respect to various portfolio strategies
involving options and futures. The Fund may seek to increase its return through
the use of options on portfolio securities and to hedge its portfolio against
movements in the equity markets, interest rates and exchange rates between
currencies. This use of options and futures transactions is in addition to the
Fund's ability to purchase call options and stock index call options as an
element of synthetic convertible securities. The Fund has authority to write
(i.e., sell) covered call options on its portfolio securities, purchase put and
call options on securities and engage in transactions in stock index options,
stock index futures and financial futures, and related options on such futures.
The Fund may also deal in forward foreign exchange transactions and foreign
currency options and futures, and related options on such futures. Each of such
portfolio strategies is described in the Prospectus. Although certain risks are
involved in options and futures transactions (as discussed in the Prospectus and
below), Merrill Lynch Asset Management, L.P. ('MLAM' or the 'Manager') believes
that, because the Fund will (i) write only covered call options on portfolio
securities, (ii) in connection with the formation of synthetic convertible
securities, purchase only call options or stock index call options as an element
of synthetic convertibles, and (iii) engage in other options and futures
transactions only for hedging purposes, the options and futures portfolio
strategies of the Fund will not subject the Fund to the risk frequently
associated with the speculative use of options and futures transactions. While
the Fund's use of hedging strategies is intended to reduce the volatility of the
net asset value of Fund shares, the Fund's net asset value will fluctuate. There
can be no assurance that the Fund's hedging transactions will be effective. The
following is further information relating to portfolio strategies involving
options and futures the Fund may utilize.
Writing Covered Call Options. The Fund is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter into
closing purchase transactions with respect to certain of such options. A covered
call option is an option where the Fund, in return for a premium, gives another
party a right to buy specified securities owned by the Fund at a specified
future date and price set at the time of the contract. The
2
<PAGE>
principal reason for writing call options is to attempt to realize, through the
receipt of premiums, a greater return than would be realized on the securities
alone. By writing covered call options, the Fund gives up the opportunity, while
the option is in effect, to profit from any price increase in the underlying
security above the option exercise price. In addition, the Fund's ability to
sell the underlying security will be limited while the option is in effect
unless the Fund effects a closing purchase transaction. A closing purchase
transaction cancels out the Fund's position as the writer of an option by means
of an offsetting purchase of an identical option prior to the expiration of the
option it has written. Covered call options serve as a particular hedge against
the price of the underlying security declining. The Fund may not write covered
call options on underlying securities in an amount exceeding 15% of the market
value of its total assets.
The writer of a covered call option has no control over when he may be
required to sell his securities since he may be assigned an exercise notice at
any time prior to the termination of his obligation as a writer. If an option
expires unexercised, the writer realizes a gain in the amount of the premium.
Such a gain, of course, may be offset by a decline in the market value of the
underlying security during the option period. If a call option is exercised, the
writer realizes a gain or loss from the sale of the underlying security.
Options referred to herein and in the Fund's Prospectus may be options
issued by The Options Clearing Corporation (the 'Clearing Corporation'), which
are currently traded on the Chicago Board Options Exchange, American Stock
Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange or New York Stock
Exchange. Options referred to herein and in the Fund's Prospectus may also be
options traded on foreign securities exchanges such as the London Stock Exchange
and the Amsterdam Stock Exchange. An option position may be closed out only on
an exchange that provides a secondary market for an option of the same series.
If a secondary market does not exist, it might not be possible to effect closing
transactions in particular options, with the result, in the case of a covered
call option, that the Fund will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
the Clearing Corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by the Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The Fund may also enter into over-the-counter call option transactions
('OTC options'), which are two party contracts with price and terms negotiated
between the buyer and seller. The Fund will only enter into over-the-counter
option transactions with respect to portfolio securities for which management
believes the Fund can receive on each business day at least two independent bids
or offers (one of which will be from an entity other than a party to the
option). The staff of the Securities and Exchange Commission (the 'Commission')
has taken the position that OTC options and the assets used as cover for written
OTC options are illiquid securities.
Purchasing Options. The Fund may purchase put options to hedge against a
decline in the market value of its equity holdings. By buying a put, the Fund
has a right to sell the underlying security at the exercise price, thus limiting
the Fund's risk of loss through a decline in the market value of the security
until the put option expires.
3
<PAGE>
The amount of any appreciation in the value of the underlying security will be
offset partially by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be sold in
a closing sale transaction; profit or loss from the sale will depend on whether
the amount received is more or less than the premium paid for the put option
plus the related transaction cost. A closing sale transaction cancels out the
Fund's position as the purchaser of an option by means of an offsetting sale of
an identical option prior to the expiration of the option it has purchased. In
certain circumstances, the Fund may purchase call options on securities held in
its portfolio on which it has written call options or on securities which it
intends to purchase or, as discussed above, as an element of synthetic
convertible securities. The Fund may purchase either exchange traded options or
OTC options. The Fund will not purchase options on securities if, as a result of
such purchase, the aggregate cost of all outstanding options on securities held
by the Fund would exceed 5% of the market value of the Fund's total assets.
Stock Index Options and Futures and Financial Futures. As described in the
Prospectus, the Fund is authorized to engage in transactions in stock index
options and futures and financial futures, and related options on such futures.
Set forth below is further information concerning futures transactions.
A futures contract is an agreement between two parties to buy and sell a
security or, in the case of an index-based futures contract, to make and accept
a cash settlement for a set price on a future date. A majority of transactions
in futures contracts, however, do not result in the actual delivery of the
underlying instrument or cash settlement, but are settled through liquidation,
i.e., by entering into an offsetting transaction. Futures contracts and options
on futures contracts are traded on boards of trade which have been designated
'contracts markets' for the trading thereof by the Commodity Futures Trading
Commission ('CFTC').
The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is generally about 5% of the contract amount, must be
deposited with the broker. This amount is known as 'initial margin' and
represents a 'good faith' deposit assuring the performance of both the purchaser
and seller under the futures contract. Subsequent payments to and from the
broker, called 'variation margin', are required to be made on a daily basis as
the price of the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
'mark to the market'. At any time prior to the settlement date of the futures
contract, the position may be closed out by taking an opposite position which
will operate to terminate the position, in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker and the purchaser realizes a loss or gain.
In addition, a nominal commission is paid on each completed sale transaction.
An order has been obtained from the Commission exempting the Fund from the
provisions of Section 17(f) and Section 18(f) of the Investment Company Act of
1940, as amended (the 'Investment Company Act') in connection with its strategy
of investing in futures contracts. Section 17(f) relates to the custody of
securities and other assets of an investment company and may be deemed to
prohibit certain arrangements between the Fund and commodities brokers with
respect to initial and variation margin. Section 18(f) of the Investment Company
Act prohibits an open-end investment company such as the Fund from issuing a
'senior security' other than a borrowing from a bank. The staff of the
Commission has in the past indicated that a futures contract may be a 'senior
security' under the Investment Company Act.
4
<PAGE>
Foreign Currency Hedging. Generally, the foreign exchange transactions of
the Fund will be conducted on a spot, i.e., cash basis at the spot rate for
purchasing or selling currency prevailing in the foreign exchange market. This
rate under normal market conditions differs from the prevailing exchange rate in
an amount generally less than 0.15% of one percent due to the costs of
converting from one currency to another. However, the Fund has authority to deal
in forward foreign exchange among currencies of the different countries in which
it will invest as a hedge against possible variations in the foreign exchange
rate among these currencies. This is accomplished through contractual agreements
to purchase or sell a specified currency at a specified future date and price
set at the time of the contract. The Fund's dealings in forward foreign exchange
will be limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward foreign
currency with respect to specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio securities, the sale
and redemption of shares of the Fund or the payment of dividends and
distributions by the Fund. Position hedging is the sale of forward foreign
currency with respect to portfolio security positions denominated or quoted in
such foreign currency. The Fund will not speculate in forward foreign exchange.
The Fund may not position hedge with respect to the currency of a particular
country to an extent greater than the aggregate market value (at the time of
making such sale) of the securities held in its portfolio denominated or quoted
in that particular foreign currency. If the Fund enters into a position hedging
transaction, its custodian bank will place cash or liquid debt securities in a
separate account of the Fund in an amount equal to the value of the Fund's total
assets committed to the consummation of such forward contract. If the value of
the securities placed in the separate account declines, additional cash or
securities will be placed in the account so that the value of the account will
equal the amount of the Fund's commitment with respect to such contracts. The
Fund will not attempt to hedge all of its foreign portfolio positions and will
enter into such transactions only to the extent, if any, deemed appropriate by
the Manager. The Fund will not enter into a position hedging commitment if, as a
result thereof, the Fund would have more than 15% of the value of its total
assets committed to such contracts. The Fund will not enter into a forward
contract with a term of more than one year.
The Fund is also authorized to purchase or sell listed or over-the-counter
foreign currency options, foreign currency futures and related options on
foreign currency futures as a short or long hedge against possible variations in
foreign exchange rates. Such transactions may be effected with respect to hedges
on non-U.S. dollar denominated securities owned by the Fund, sold by the Fund
but not yet delivered, or committed or anticipated to be purchased by the Fund.
As an illustration, the Fund may use such techniques to hedge the stated value
in United States dollars of an investment in a yen denominated security. In such
circumstances, for example, the Fund may purchase a foreign currency put option
enabling it to sell a specified amount of Japanese yen for dollars at a
specified price by a future date. To the extent the hedge is successful, a loss
in the value of the yen relative to the dollar will tend to be offset by an
increase in the value of the put option. To offset, in whole or part, the cost
of acquiring such a put option, the Fund may also sell a call option which, if
exercised, requires it to sell a specified amount of yen for dollars at a
specified price by a future date (a technique called a 'straddle'). By selling
such call option in this illustration, the Fund gives up the opportunity to
profit without limit from increases in the relative value of the yen to the
dollar. The Manager believes that 'straddles' of the type which may be utilized
by the Fund constitute hedging transactions and are consistent with the policies
described above.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a
5
<PAGE>
price above the devaluation level it anticipates. The cost to the Fund of
engaging in foreign currency transactions varies with such factors as the
currencies involved, the length of the contract period and the market conditions
then prevailing. Since transactions in foreign currency exchange usually are
conducted on a principal basis, no fees or commissions are involved.
Risk Factors in Options and Futures Transactions. Utilization of futures
transactions involves the risk of imperfect correlation in movements in the
prices of futures contracts and movements in the price of the underlying
security which is the subject of the hedge. If the price of the futures contract
moves more or less than the price of the underlying security, the Fund will
experience a gain or loss which will not be completely offset by movements in
the price of the underlying security which is the subject of the hedge. The
successful use of options and futures also depends on the Manager's ability to
predict correctly price movements in the market involved in a particular options
or futures transaction.
Prior to exercise or expiration, an exchange-traded option position can
only be terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange for call or put options of the same
series. The Fund will enter into an option or futures transaction on an exchange
only if there appears to be a liquid secondary market for such options or
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular call or put option or futures contract at any specified
time. Thus, it may not be possible to close an option or futures position. The
Fund will acquire only over-the-counter options for which management believes
the Fund can receive on each business day at least two independent bids or
offers (one of which will be from an entity other than a party to the option).
In the case of a futures position or an option on a futures position written by
the Fund in the event of adverse price movements, the Fund would continue to be
required to make daily cash payments of variation margin. In such situations, if
the Fund has insufficient cash, it may have to sell portfolio securities to meet
daily variation margin requirements at a time when it may be disadvantageous to
do so. In addition, the Fund may be required to take or make delivery of the
security underlying futures contracts it holds. The inability to close options
and futures positions also could have an adverse impact on the Fund's ability to
hedge effectively its portfolio. There is also the risk of loss by the Fund of
margin deposits in the event of bankruptcy of a broker with whom the Fund has an
open position in a futures contract or related option.
The exchanges on which the Fund intends to conduct options transactions
have generally established limitations governing the maximum number of call or
put options on the same underlying security or currency (whether or not covered)
which may be written by a single investor, whether acting alone or in concert
with others (regardless of whether such options are written on the same or
different exchanges or are held or written on one or more accounts or through
one or more brokers). 'Trading limits' are imposed on the maximum number of
contracts which any person may trade on a particular trading day. An exchange
may order the liquidation of positions found to be in violation of these limits
and it may impose other sanctions or restrictions. The Manager does not believe
that these trading and position limits will have any adverse impact on the
portfolio strategies for hedging the Fund's portfolio.
OTHER INVESTMENT POLICIES AND PRACTICES
Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or primary dealer or an affiliate
thereof in U.S. Government securities. Under such agreements, the bank or
primary dealer or an affiliate thereof agrees, upon entering into the contract,
to repurchase the security at a mutually agreed upon
6
<PAGE>
time and price, thereby determining the yield during the term of the agreement.
This results in a fixed rate of return insulated from market fluctuations during
such period. In the case of repurchase agreements, the prices at which the
trades are conducted do not reflect the accrued interest on the underlying
obligations. 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, 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. 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 only constitute 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. In the
event of a default under such a repurchase agreement, instead of the contractual
fixed rate of return, the rate of return to the Fund will depend on intervening
fluctuations of the market value of such security and the accrued interest on
the security. In such event, the Fund would have rights against the seller for
breach of contract with respect to any losses arising from market fluctuations
following the failure of the seller to perform.
Lending of Portfolio Securities. Subject to investment restriction (9)
below, the Fund may lend securities from its portfolio to approved borrowers and
receive therefor collateral in cash or securities issued or guaranteed by the
United States Government. Such collateral will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. The purpose of such loans is to permit the borrower to use such
securities for delivery to purchasers when such borrower has sold short. If cash
collateral is received by the Fund, it is invested in short-term money market
securities, and a portion of the yield received in respect of such investment is
retained by the Fund. Alternatively, if securities are delivered to the Fund as
collateral, the Fund and the borrower negotiate a rate for the loaned premium to
be received by the Fund for lending its portfolio securities. In either event,
the total yield on the Fund's portfolio is increased by loans of its portfolio
securities. The Fund will have the right to regain record ownership of loaned
securities to exercise beneficial rights such as voting rights, subscription
rights and rights to dividends, interest or other distributions. Such loans are
terminable at any time. The Fund may pay reasonable finder's, administrative and
custodial fees in connection with such loans.
High Yield Securities. The Fund has established no rating criteria for
debt securities in which it may invest. Therefore, the Fund may invest in
convertible and, to a limited extent, non-convertible debt securities either (a)
which are rated BBB or better by Standard & Poor's Corporation ('S&P') or Baa or
better by Moody's Investor Service ('Moody's') or which, in the Manager's
judgment, possess similar credit characteristics ('investment grade securities')
or (b) which are rated BB or lower by S&P or Ba or lower by Moody's or which, in
the Manager's judgment, possess similar credit characteristics ('high yield
securities', also commonly referred to as 'junk bonds'). The Manager considers
the ratings assigned by S&P or Moody's as one of several factors in its
independent credit analysis of issuers.
Issuers of high yield securities may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally are greater
than is the case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of high yield
securities may be more likely to experience financial stress, especially if such
issuers are highly leveraged. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations also may be adversely affected by
specific issuer developments, or the issuer's inability to meet specific
projected business
7
<PAGE>
forecasts, or the unavailability of additional financing. The risk of loss due
to default by the issuer is significantly greater for the holders of high yield
securities because such securities may be unsecured and may be subordinated to
other credits of the issuer.
High yield securities frequently have call or redemption features that
would permit an issuer to repurchase the security from the Fund. If a call were
exercised by the issuer during a period of declining interest rates, the Fund
likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Fund and dividends to
shareholders.
The Fund may have difficulty disposing of certain high yield securities
because there may be a thin trading market for such securities. Because not all
dealers maintain markets in all high yield securities, the secondary trading
market for high yield securities is generally not as liquid as the secondary
market for higher rated securities. Reduced secondary market liquidity may have
an adverse impact on market price and the Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
securities, particularly in a thinly traded market. Factors adversely affecting
the market value of high yield securities are likely to adversely affect the
Fund's net asset value. In addition, the Fund may incur additional expenses to
the extent it is required to seek recovery upon a default on a portion holding
or participate in the restructuring of the obligation.
CURRENT INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions and policies relating to
the investment of its assets and its activities, which are fundamental policies
and may not be changed without the approval of the holders of 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 shares represented at
a meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares). The Fund may not:
(1) (a) Invest in the securities of any one issuer if, immediately after
and as a result of such investment, the value of the holdings of the Fund in the
securities of such issuer exceeds 5% of the Fund's total assets, taken at market
value, except that such restriction shall not apply to securities issued or
guaranteed by the Government of the United States or any of its agencies or
instrumentalities or, with respect to 25% of the Fund's total assets, to
securities issued or guaranteed by the government of any country which is a
member of the Organization for Economic Cooperation and Development or any such
countries' agencies or instrumentalities or supranational institutions or
organizations.
(b) Invest in the securities of any single issuer if, immediately after
and as a result of such investment, the Fund owns more than 10% of the
outstanding voting securities of such issuer.
Nothing in the foregoing investment restrictions shall be deemed to
prohibit the Fund from purchasing the securities of any issuer pursuant to the
exercise of subscription rights distributed to the Fund by the issuer, except
that no such purchase may be made if as a result the Fund will no longer be a
diversified investment company as defined in the Investment Company Act or fail
to meet the diversification requirements of the Internal Revenue Code of 1986,
as amended (the 'Code').
8
<PAGE>
(2) Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry.
(3) Make investments for the purpose of exercising control or management.
(4) Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by the Fund, (ii)
5% of the Fund's total assets, taken at market value, would be invested in any
one such company, or (iii) 10% of the Fund's total assets, taken at market
value, would be invested in such securities.
(5) Purchase or sell real estate; provided that the Fund may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
(6) Purchase any securities on margin, except that the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities. (The deposit or payment by the Fund of initial or
variation margin in connection with futures or related options transactions is
not considered the purchase of a security on margin.)
(7) Make short sales of securities or maintain a short position.
(8) Make loans to other persons (except as provided in (9) below);
provided, that for purposes of this restriction an investment in repurchase
agreements and purchase and sale contracts shall not be deemed to be the making
of a loan.
(9) Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value; provided that such loan shall be made in accordance with
the guidelines set forth in the Prospectus and this Statement of Additional
Information.
(10) Issue senior securities, borrow money or pledge its assets in excess
of 20% of its total assets taken at market value (including the amount borrowed)
and then only from a bank as a temporary measure for extraordinary or emergency
purposes including to meet redemptions or to settle securities transactions.
Usually only 'leveraged' investment companies may borrow in excess of 5% of
their assets; however, the Fund will not borrow to increase income but only to
meet redemption requests or to settle securities transactions which may
otherwise require untimely dispositions of Fund securities. The Fund will not
purchase securities while borrowings are outstanding except (a) to honor prior
commitments or (b) to exercise subscription rights where outstanding borrowings
have been obtained exclusively for settlements of other securities transactions.
The purchase of securities while borrowings are outstanding will have the effect
of leveraging the Fund. Such leveraging increases the Fund's exposure to capital
risk and borrowed funds are subject to interest costs which will reduce net
income. (See restriction (11) below regarding the exclusion from this
restriction of arrangements with respect to options, futures contracts and
options on futures contracts).
(11) Mortgage, pledge, hypothecate or in any manner transfer for
indebtedness any securities owned by or held by the Fund except as may be
necessary in connection with borrowings mentioned in (10) above, and then such
mortgaging, pledging or hypothecating may not exceed 10% of its total assets,
taken at market value. (For the purpose of this restriction and restriction (10)
above, collateral arrangements with respect to the writing of options, futures
contracts, options on futures contracts, and collateral arrangements with
respect to initial and
9
<PAGE>
variation margin are not deemed to be a pledge of assets, and neither such
arrangements nor the purchase and sale of options, futures or related options
are deemed to be the issuance of a senior security).
(12) Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which are not otherwise readily marketable,
including repurchase agreements and purchase and sale contracts maturing in more
than seven days, if, regarding all such securities, more than 10% of its net
assets, taken at market value, would be invested in such securities.
(13) Act as an underwriter of securities, except to the extent that the
Fund may technically be deemed an underwriter when investing in repurchase
agreements and purchase and sale contracts or insofar as the Fund may be deemed
an underwriter under the Securities Act of 1933, as amended (the 'Securities
Act') in selling portfolio securities.
(14) Purchase or sell interests in oil, gas or other mineral exploration or
development programs except that the Fund may invest in securities issued by
companies that engage in oil, gas or other mineral exploration or development
activities.
Additional investment restrictions adopted by the Fund, which may be
changed by the Directors, provide that the Fund may not:
(i) Invest in warrants except for the purpose of creating a synthetic
convertible security if at the time of acquisition its investments in warrants,
excluding those purchased for the purpose of creating a synthetic convertible
security, valued at the lower of cost or market value, would exceed 5% of the
Fund's net assets; included within such limitation, but not to exceed 2% of the
Fund's net assets, are warrants which are not listed on the New York or American
Stock Exchange. For purposes of this restriction, warrants acquired by the Fund
in units or attached to securities may be deemed to be without value.
(ii) Purchase or sell commodities or commodity contracts, except that the
Fund may deal in forward foreign exchange between currencies of the different
countries in which it may invest and purchase and sell currency options, stock
index futures, financial futures and currency futures contracts and related
options on such futures.
(iii) Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operations, if more than 5%
of its total assets would be invested in such securities.
(iv) Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent described in the Fund's Prospectus
and in this Statement of Additional Information, as amended from time to time.
10
<PAGE>
(v) Purchase or retain the securities of any issuer, if those individual
Directors, officers and directors of the Fund, the Manager or any subsidiary
thereof each owning beneficially more than 1/2 of 1% of the securities or such
issuer own in the aggregate more than 5% of the securities of such issuer.
(vi) Purchase or sell OTC options and the securities underlying such
options if, as a result of such transactions, such options, together with all
other illiquid securities or securities which are not readily marketable, exceed
10% of the net assets of the Fund, taken at market value except that with
respect to OTC options sold by the Fund to primary U.S. Government securities
dealers who agree that the Fund may repurchase such options at a predetermined
price (which may be based upon a formula), the Fund will treat as illiquid an
amount equal to the repurchase price less the amount by which the option is
in-the-money.
The Fund will not change or modify the policy described in clause (vi)
above prior to the change or modification by the Commission staff of its
position regarding OTC options.
In addition, the Fund has undertaken with a State Securities Commission
that it will not invest in real estate limited partnerships or in oil, gas or
other mineral leases.
Portfolio securities of the Fund generally may not be purchased from, sold
or loaned to the Manager or its affiliates or any of their directors, officers
or employees, acting as principal.
With respect to investment restriction (12) above, while the Fund will not
purchase illiquid securities in an amount exceeding 10% of its net assets, the
Fund may purchase, without regard to that limitation, securities that are not
registered under the Securities Act, but that can be offered and sold to
'qualified institutional buyers' under Rule 144A under the Securities Act,
provided that the Fund's Board of Directors continuously determines, based on
the trading markets for the specific rule 144A security, that it is liquid. The
Board of Directors may adopt guidelines regarding such securities which may be
held by the Fund and delegate to the Manager the daily function of determining
and monitoring liquidity of such securities. The Board of Directors, however,
will retain oversight and is ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how this market
for restricted securities sold and offered under Rule 144A will develop, the
Board of Directors will carefully monitor the Fund's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers became for a time uninterested in purchasing these
securities.
The investment restrictions set forth in (1) above contain an exception
that permits the Fund to purchase securities pursuant to the exercise of
subscription rights, subject to the condition that such purchase will not result
in the Fund ceasing to be a diversified investment company. Japanese and
European corporations frequently issue additional capital stock by means of
subscription rights offerings to existing shareholders at a price substantially
below the market price of the shares. The failure to exercise such rights would
result in the Fund's interest in the issuing company being diluted. The market
for such rights is not developed and, accordingly, the Fund may not always
realize full value on the sale of rights. Therefore, the exception applies in
cases where the limits set forth in the investment restrictions in the
Prospectus would otherwise be exceeded by exercising rights or have already been
exceeded as a result of fluctuations in the market value of the Fund's portfolio
securities with the result that the Fund would otherwise be forced either to
sell securities at a time when it might not otherwise have done so, or to forego
exercising the rights.
11
<PAGE>
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ('Merrill Lynch') with the Fund, the Fund is prohibited from
engaging in certain transactions involving such firm or its affiliates except
for brokerage transactions permitted under the Investment Company Act involving
only usual and customary commissions or transactions permitted pursuant to an
exemptive order under the Investment Company Act. See 'Portfolio Transactions
and Brokerage'. Without such an exemptive order, the Fund is prohibited from
engaging in portfolio transactions with Merrill Lynch or its affiliates acting
as principal and from purchasing securities in public offerings that are not
registered under the Securities Act in which such firms or any of its affiliates
participate as an underwriter or dealer.
Proposed Uniform Investment Restrictions. As discussed in the Prospectus
under 'Investment Objective and Policies--Other Investment Policies and
Practices--Investment Restrictions', the Board of Directors of the Fund has
approved the replacement of the Fund's existing investment restrictions with the
fundamental and non-fundamental investment restrictions set forth below. These
uniform investment restrictions have been proposed for adoption by all of the
non-money market mutual funds advised by MLAM or its affiliate, Fund Asset
Management, L.P. ('FAM'). The investment objective and policies of the Fund will
be unaffected by the adoption of the proposed investment restrictions.
Shareholders of the Fund are currently considering whether to approve the
proposed revised investment restrictions. If such shareholder approval is
obtained, the Fund's current investment restrictions will be replaced by the
proposed restrictions, and the Fund's Prospectus and Statement of Additional
Information will be supplemented to reflect such change.
Under the proposed fundamental investment restrictions, the Fund may not:
1. Make any investment inconsistent with the Fund's classification as
a diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
3. Make investments for the purpose of exercising control or
management.
4. 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 interest therein or issued by companies which
invest in real estate or interests therein.
5. 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 and 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 Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. 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 borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such
12
<PAGE>
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 its Prospectus and
Statement of Additional Information, as they may be amended from time to
time, in connection with hedging transactions, short sales, when-issued and
forward commitment transactions and similar investment strategies.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the 'Securities Act'), in selling portfolio securities.
9. 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 Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
Under the proposed non-fundamental investment restrictions, the Fund may
not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales 'against the box'.
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund
has otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws of any
state in which the Fund's shares are registered or qualified for sale
require a lower limitation, the Fund will observe such limitation. As of
the date hereof, therefore, the Fund will not invest more than 10% of its
total assets in securities which are subject to this investment restriction
(c). Securities purchased in accordance with Rule 144A under the Securities
Act (a 'Rule 144A security') and determined to be liquid by the Fund's
Board of Directors are not subject to the limitations set forth in this
investment restriction (c). Notwithstanding the fact that the Board may
determine that a Rule 144A security is liquid and not subject to
limitations set forth in this investment restriction (c), the State of Ohio
does not recognize Rule 144A securities as securities that are free of
restrictions as to resale. To the extent required by Ohio law, the Fund
will not invest more than 5% of its total assets in securities of issuers
that are restricted as to disposition, including Rule 144A securities.
d. Invest in warrants if, at the time of acquisition, its investments
in warrants, valued at the lower of cost or market value, would exceed 5%
of the Fund's net assets; included within such limitation, but not to
exceed 2% of the Fund's net assets, are warrants which are not listed on
the New York Stock Exchange or American Stock Exchange or a major foreign
exchange. For purposes of this restriction, warrants acquired by the Fund
in units or attached to securities may be deemed to be without value.
13
<PAGE>
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Fund's total assets would be invested in such securities.
This restriction shall not apply to mortgage-backed securities,
asset-backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
f. Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, the officers and general
partner of the Manager, the directors of such general partner or the
officers and directors of any subsidiary thereof each owning beneficially
more than one-half of one percent of the securities of such issuer own in
the aggregate more than 5% of the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs,
except that the Fund may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Fund's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
i. Notwithstanding fundamental investment restriction (7) above,
borrow amounts in excess of 20% of its total assets, taken at market value
(including the amount borrowed), and then only from banks as a temporary
measure for extraordinary or emergency purposes including to meet
redemptions or to settle Securities transactions. In addition, the Fund
will not purchase securities while borrowings are outstanding except (a) to
honor prior commitments or (b) to exercise subscription rights where
outstanding borrowings have been obtained exclusively for settlements of
other securities transactions.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive officer and Director is P.O. Box
9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL--President and Director (1)(2)--President of the Manager
(which term as used herein includes its corporate predecessors) since 1977 and
Chief Investment Officer thereof since 1976; President of FAM (which term as
used herein includes its corporate predecessors) and Chief Investment Officer
thereof since 1977; President and Director of Princeton Services, Inc.
('Princeton Services') since 1993; Executive Vice President of Merrill Lynch &
Co., Inc. ('ML & Co.') since 1990; Executive Vice President of Merrill Lynch
since 1990 and Senior Vice President thereof from 1985 to 1990; Director of
Merrill Lynch Funds Distributor, Inc. (the 'Distributor').
KENNETH S. AXELSON--Director (2)--75 Jameson Point Road, Rockland, Maine
04841. Executive Vice President and Director, J.C. Penney Company, Inc. until
1982; Director, UNUM Corporation, Protection Mutual Insurance Company, and,
until 1994, Grumman Corporation and Zurn Industries, Inc. and, until 1992,
Central Maine Power Company and Key Trust Company of Maine; Trustee, The Chicago
Dock and Canal Trust.
14
<PAGE>
HERBERT I. LONDON--Director (2)--113-115 University Place, New York, New
York 10003. Dean, Gallatin Division of New York University from 1978 to 1993 and
Director from 1975 to 1976; Professor, New York University since 1973; John M.
Olin Professor of Humanities, New York University since 1993; Distinguished
Fellow, Herman Kahn Chair, Hudson Institute from 1984 to 1985; Trustee, Hudson
Naval Institute since 1980; Overseer, Center for Naval Analyses; Director, Damon
Corporation since 1991.
ROBERT R. MARTIN--Director (2)--513 Grand Hill, St. Paul, Minnesota 55102.
Chairman and Chief Executive Officer, Kinnard Investments, Inc. from 1990 to
1993; Executive Vice President, Dain Bosworth from 1974 to 1989; Director,
Carnegie Capital Management from 1977 to 1985 and Chairman thereof in 1979;
Director, Securities Industry Association from 1981 to 1982 and Public
Securities Association from 1979 to 1980; Chairman of the Board, WTC Industries,
Inc. since 1994; Trustee, Northland College since 1992.
JOSEPH L. MAY--Director (2)--424 Church Street, Suite 2000, Nashville,
Tennessee 37219. Attorney in private practice since 1984; President, May and
Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to 1983; Vice
President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The May
Corporation (personal holding company) from 1972 to 1983; Director, Signal
Apparel Co. from 1972 to 1989.
ANDRE F. PEROLD--Director (2)--Morgan Hall, Soldiers Field, Boston,
Massachusetts 02136. Professor, Harvard Business School and Associate Professor
from 1983 to 1989; Trustee, The Common Fund, since 1989; Director, Quantec
Limited since 1991 and Teknekron Software Systems since 1994.
TERRY K. GLENN--Executive Vice President (1)(2)--Executive Vice President
of the Manager and FAM since 1983; Executive Vice President and Director of
Princeton Services since 1993; President of the Distributor since 1986 and
Director thereof since 1991.
N. JOHN HEWITT--Senior Vice President (1)(2)--Senior Vice President of the
MLAM and FAM since 1980; Manager of FAM's Fixed Income Mutual Fund and Insurance
Portfolio Groups since 1980; Senior Vice President of Princeton Services since
1993.
HARRY E. DEWDNEY--Vice President and Portfolio Manager(1)--Vice President
and Portfolio Manager of the Manager since 1986; Senior Vice President of the
International Trading and Foreign Exchange Department of Prescott, Ball &
Turben, Inc. from 1978 to 1986.
DONALD C. BURKE--Vice President (1)(2)--Vice President and Director of
Taxation of MLAM since 1990; Employee of Deloitte & Touche LLP from 1981 to
1990.
GERALD M. RICHARD--Treasurer (1)(2)--Senior Vice President and Treasurer of
the Manager and FAM since 1984; Vice President of the Distributor since 1981 and
Treasurer thereof since 1984; Senior Vice President and Treasurer of Princeton
Services since 1993.
MARK B. GOLDFUS--Secretary (1)(2)--Vice President of the Manager and FAM
since 1985.
- ------------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a trustee, director or officer of certain other
investment companies for which the Manager or FAM acts as investment adviser
or manager.
15
<PAGE>
At September 30, 1994, the officers and Directors of the Fund as a group
(12 persons) owned an aggregate of less than 1% of the outstanding shares of
common stock of ML & Co., and owned an aggregate of less than 1% of the
outstanding shares of the Fund.
Pursuant to the terms of the management agreement with the Fund, the
Manager pays all compensation of officers and employees of the Fund as well as
the fees of all Directors who are affiliated persons of ML & Co. or
its subsidiaries. The Fund pays each Director not affiliated with ML & Co. or
its affililates an annual fee of $10,000 plus $1,000 for each meeting of the
Board attended. The Fund also pays each member of the Audit and Nominating
Committee, which consists of the unaffiliated Directors, an annual fee of $2,000
plus $500 for each meeting attended. The Fund reimburses each unaffiliated
Director for his out-of-pocket expenses relating to attendance at Board and
Committee meetings. For the year ended October 31, 1993, fees and expenses paid
to the nonaffiliated Directors aggregated $36,395.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to 'Management of the Fund--Management and Advisory
Arrangements' in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.
Securities may be held by, or be appropriate investments for, other funds
or investment advisory clients for which the Manager or its affiliates act as an
adviser. Because of different objectives or other factors, a particular security
may be bought for one or more clients when one or more clients are selling the
same security. If purchases or sales of securities by the Manager for the Fund
or other funds for which it acts as investment adviser or for its advisory
clients arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. To the extent that transactions on
behalf of more than one client of the Manager or its affiliates during the same
period may increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price.
The Fund has entered into a management agreement with the Manager (the
'Management Agreement'). As discussed in the Prospectus, the Manager receives
for its services to the Fund monthly compensation at the annual rate of 0.65% of
the average daily net assets of the Fund. For the years ended October 31, 1991,
1992 and 1993 the fees paid by the Fund to the Manager aggregated $111,800,
$97,038 and $139,948 respectively.
The State of California imposes limitations on the expenses of the Fund. At
the date of this Statement of Additional Information, these annual expense
limitations require that the Manager reimburse the Fund in an amount necessary
to prevent the aggregate ordinary operating expenses of the Fund (excluding
interest, taxes, distribution fees, brokerage fees and commissions and
extraordinary charges such as litigation costs) from exceeding 2.5% of the
Fund's first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets and 1.5% of the remaining average daily net
assets. The Manager's obligation to reimburse the Fund is limited to the amount
of the management fee. Expenses not covered by this limitation are interest,
taxes, brokerage commissions and other items such as extraordinary legal
expenses. No payment will be made to the Manager during any fiscal year that
will cause such expenses to exceed the most restrictive expense limitation at
the time of such payment. For the year ended October 31, 1991, $65,687 was
reimbursed to the Fund pursuant to such operating expense limitations. For the
year ended October 31, 1992, $69,907 was reimbursed to the Fund pursuant to such
operating expense limitations.
The Management Agreement obligates the Manager 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
16
<PAGE>
economic research, trading and investment management of the Fund, as well as the
fees of all Directors 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 and
prospectuses and statements of additional information (except to the extent paid
by the Distributor), charges of the custodian, any sub-custodian and transfer
agent, expenses of redemption of shares, Commission fees, expenses of
registering the shares under Federal, state or foreign laws, fees and expenses
of nonaffiliated Directors, accounting and pricing costs (including the daily
calculation 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 to the Fund by
the Manager and the Fund reimburses the Manager for its costs in connection with
such services on a semi-annual basis. For the year ended October 31, 1993, the
Fund paid the Manager $49,224 for such services. As required by the Fund's
Distribution Agreement, the Distributor will pay the promotional expenses of the
Fund in connection with the offering of shares of the Fund. Certain expenses
will be financed by the Fund pursuant to a Distribution Plan in compliance with
Rule 12b-1 under the Investment Company Act. See 'Purchase of Shares--
Distribution Plans'.
The Manager is a limited partnership, the partners of which are ML & Co.,
Merrill Lynch Investment Management, Inc. and Princeton Services, Inc.
Duration and Termination. Unless earlier terminated as described herein,
the Management Agreement will remain in effect from year to year if approved
annually (a) by the Board of Directors or by a majority of the outstanding
shares of the Fund and (b) by a majority of the Directors 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 thereto
or by the vote of the shareholders of the Fund.
PURCHASE OF SHARES
Reference is made to 'Purchase of Shares' in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(Service Mark) System: Class A and Class D shares are sold to investors
choosing the initial sales charge alternatives, and Class B and Class C shares
are sold to investors choosing the deferred sales charge alternatives. Each
Class A, Class B, Class C and Class D share of the 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, 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. Class B, Class C
and Class D shares each have exclusive voting rights with respect to the Rule
12b-1 distribution plan adopted with respect to such class pursuant to which
account maintenance and/or distribution fees are paid. Each class has different
exchange privileges. See 'Shareholder Services--Exchange Privilege'.
The Merrill Lynch Select Pricing(Service Mark) System is used by more than
50 mutual funds advised by MLAM or its affiliate, FAM. Funds advised by MLAM or
the Investment Adviser are referred to herein as 'MLAM-advised mutual funds'.
17
<PAGE>
The Fund has entered into 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 the Class A and Class B 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 Management Agreement
described above.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
The gross sales charges for the sale of Class A shares for the fiscal year
ended October 31, 1991 were $8,386, of which the Distributor received $572 and
Merrill Lynch received $7,814. The gross sales charges for the sale of Class A
shares for the fiscal year ended October 31, 1992 were $32,899, of which the
Distributor received $1,040 and Merrill Lynch received $31,859. The gross sales
charges for the sale of Class A shares for the fiscal year ended October 31,
1993 were $52,964, of which the Distributor received $5,201 and Merrill Lynch
received $47,763.
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 spouse and their children under the age
21 years purchasing shares for his 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 which 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 or an investment advisor.
Closed-End Fund Investment Option. Class A shares of the Fund and other
MLAM-advised mutual funds ('Eligible Class A Shares') are offered at net asset
value to shareholders of certain closed-end funds advised by the Manager or FAM
who purchased such closed-end fund shares prior to October 21, 1994 and wish to
reinvest the net proceeds of 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 MLAM-advised mutual
funds ('Eligible Class D Shares'), if the following conditions are met. First,
the sale 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
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.
18
<PAGE>
Class A shares of the Fund are offered at net asset value to shareholders of
Merrill Lynch Senior Floating Rate Fund (formerly known as Merrill Lynch Prime
Fund, Inc.) ('Senior Floating Rate Fund') who wish to reinvest the net proceeds
from a sale of certain of their shares of common stock of Senior Floating Rate
Fund in shares of the Fund. In order to exercise this investment option, Senior
Floating Rate Fund shareholders must sell their Senior Floating Rate Fund shares
to the Senior Floating Rate Fund in connection with a tender offer conducted by
the Senior Floating Rate Fund and reinvest the proceeds immediately in the Fund.
This investment option is available only with respect to the proceeds of Senior
Floating Rate Fund shares as to which no Early Withdrawal Charge as defined in
the prospectus is applicable. Purchase orders from Senior Floating Rate Fund
shareholders wishing to exercise this investment option will be accepted only on
the day that the related Senior Floating Rate Fund tender offer terminates and
will be effected at the net asset value of the Fund at such day.
REDUCED INITIAL SALES CHARGE
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 other MLAM-advised mutual funds. For any such right
of accumulation to be made available, the Distributor must be provided at the
time of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing, or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of the Fund or of
any other MLAM-advised mutual funds made within a 13-month period starting with
the first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Fund's transfer agent. The Letter of Intention is
not available to employee benefit plans for which Merrill Lynch provides plan
participant recordkeeping services. The Letter of Intention is not a binding
obligation to purchase any amount of Class A or Class D shares; however, its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A and Class
D shares of the Fund and of other MLAM-advised mutual funds presently held, at
cost or maximum offering price (whichever is higher), on the date of the first
purchase under the Letter of Intention, may be included as a credit toward the
completion of such Letter, but the reduced sales charge applicable to the amount
covered by such Letter will be applied only to new purchases. If the total
amount of shares does not equal the amount stated in the Letter of Intention
(minimum of $25,000), the investor will be notified and must pay, within 20 days
of the expiration of such Letter, the difference between the shares charge on
the Class A or Class D shares purchased at the reduced rate and the sales charge
applicable to the sales actually purchased through the Letter. Class A or Class
D shares equal to at least five percent of the intended amount will be held in
escrow during the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If during the
term of such Letter, a
19
<PAGE>
purchase brings the total amount invested to an amount equal to or in excess of
the amount indicated in the Letter, the purchaser will be entitled on that
purchase and subsequent purchases to the reduced percentage sales charge which
would be applicable to a single purchase equal to the total dollar value of the
Class A shares then being purchased under such Letter, but there will be no
retroactive reduction of the sales charges on any previous purchase. The value
of any shares redeemed or otherwise disposed of by the purchaser prior to
termination or completion of the Letter of Intention will be deducted from the
total purchases made under such Letter. An exchange from a MLAM-advised money
market fund into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intention from the Fund.
Merrill Lynch Blueprint(Service Mark) Program. Class D shares of the Fund
are offered to participants in the Merrill Lynch Blueprint(Service Mark) 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.
Blueprint is directed to small investors, group IRAs and participants in certain
affinity groups such as credit unions and trade associations. Investors placing
orders to purchase Class A or Class D shares of the Fund through Blueprint will
acquire the Class A 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
1/2 of 1% for corporate or group IRA programs placing orders to purchase their
Class A or D shares through Blueprint. Services, including the exchange
privilege, available to Class A and D investors through Blueprint, however, may
differ from those available to other investors in Class A or 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 ('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
Merrill Lynch Directed IRA Rollover Program Service Agreement.
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(Service Mark)
Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMA(Service Mark) Managed Trusts. Class A shares are offered to
TMA(Service Mark) Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services at net asset value.
Employer Sponsored Retirement and Savings Plans. Class A and Class D
shares are offered at net asset value to employer sponsored retirement or
savings plans, such as tax qualified retirement plans within the meaning of
Section 401(a) of the Code, deferred compensation plans within the meaning of
Sections 403(b) and 457 of the Code, other deferred compensation arrangements,
Voluntary Employee Benefits Association plans, and non-qualified After Tax
Savings and Investment programs, maintained on the Merrill Lynch Group
Employee Services system, herein referred to as 'Employer Sponsored Retirement
or Savings Plans', provided
20
<PAGE>
the plan has accumulated $20 million or more in MLAM-advised mutual funds (in
the case of Class A shares) or $5 million or more in MLAM-advised mutual funds
(in the case of Class D shares). Class D shares may be offered at net asset
value to new Employer Sponsored Retirement or Savings Plans, provided the plan
has $3 million or more initially invested in MLAM-advised mutual funds. Assets
of Employer Sponsored Retirement or Savings Plans sponsored by the same sponsor
or an affiliated sponsor may be aggregated. Class A and Class D shares also are
offered at net asset value to Employer Sponsored Retirement or Savings Plans
that have at least 1,000 employees eligible to participate in the plan (in the
case of Class A shares) or between 500 and 999 employees eligible to participate
in the plan (in the case of Class D shares). Employees eligible to participate
in Employer Sponsored Retirement or Savings Plans of the same sponsoring
employer or its affiliates may be aggregated. Tax qualified retirement plans
within the meaning of Section 401(a) of the Code meeting any of the foregoing
requirements and which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a wide
range of investments including individual corporate equities and other
securities in addition to mutual fund shares) by the Merrill Lynch
Blueprint(Service Mark) Program, are offered Class A shares at a price equal to
net asset value per share plus a reduced sales charge of 0.50%. Any Employer
Sponsored Retirement or Savings Plan which does not meet the above described
qualifications to purchase Class A shares at net asset value has the option of
(i) purchasing Class A shares at the sales charge schedule and possible CDSC
schedule disclosed in the Prospectus if it is otherwise eligible to purchase
Class A shares, (ii) purchasing Class D shares at the initial sales charge and
possible CDSC schedule disclosed in the Prospectus, or (iii) if the Employer
Sponsored Retirement or Savings Plan meets the specified requirements,
purchasing Class B shares with a waiver of the CDSC upon redemption, or if the
Employer Sponsored Retirement or Savings Plan does not qualify to purchase Class
B shares with a waiver of the CDSC upon redemption, purchasing Class C shares at
the CDSC schedule disclosed in the Prospectus. The minimum initial and
subsequent purchase requirements are waived in connection with all the
above-referenced Employer Sponsored Retirement or Savings Plans.
Purchase Privilege of Certain Persons. Directors of the Fund, members of
the Boards of other MLAM-advised investment companies, directors and employees
of ML & Co. and its subsidiaries (the term 'subsidiaries', when used herein with
respect to Merrill Lynch & Co., Inc., includes FAM, the Manager and certain
other entities directly or indirectly wholly-owned and controlled by Merrill
Lynch & Co., Inc.), 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.
Class D shares of the Fund will be offered at net asset value, without a
sales charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied. First, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis. Second, the investor also must establish that such redemption had been
made within 60 days prior to the investment in the 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 will be offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: First, the investor must
21
<PAGE>
advise Merrill Lynch that they will purchase Class D shares of the Fund with
proceeds from the redemption of such shares of other mutual funds and that such
shares have been outstanding for a period of no less than six months. Second,
such purchase of Class D shares must be made within 60 days after the redemption
and the proceeds from the redemption must be maintained in the interim in cash
or a money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a personal holding company or a public or private investment company. The value
of the assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible adverse tax consequences to the Fund which
might result from an acquisition of assets having net unrealized appreciation
which is disproportionately higher at the time of acquisition than the realized
or unrealized appreciation of the 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 which (i) meet the
investment objective 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.
DISTRIBUTION PLANS
Reference is made to 'Purchase of Shares--Distribution Plan' 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.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Directors shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each Distribution Plan, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Fund and its related class of shareholders. Each
Distribution Plan further provides that so long as the Distribution Plan remains
in effect, the selection and nomination of Directors who are not 'interested
persons' of the Fund, as defined in the Investment Company Act (the '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 a reasonable likelihood
that such Distribution Plan will benefit the Fund and its related class of
shareholders. The 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 Class B voting securities of the
Fund. A Distribution Plan cannot be amended to increase materially the amount to
be spent by the Fund the approval of the related class of shareholders, and all
material amendments are required to be approved by the vote of Directors,
including a
22
<PAGE>
majority of the Independent Directors who have no direct or indirect financial
interest in such Distribution Plan, cast in person at a meeting called for that
purpose. Rule 12b-1 further requires that the Fund preserve copies of each
Distribution Plan and any report made pursuant to such plan for a period of not
less than six years from the date of such Distribution Plan or such report, the
first two years in an easily accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ('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 of 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 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 April 30, 1994
with respect to the Class B shares of the Fund indicating the maximum allowable
payments that can be made under the NASD maximum sales charge rule and the
Distributor's voluntary maximum for the period February 26, 1988 (commencement
of the public offering of Class B shares) to April 30, 1994. Since Class C
shares of the Fund had not been publicly issued prior to the date of this
Statement of Additional Information, information concerning Class C shares is
not yet provided below.
23
<PAGE>
DATA CALCULATED AS OF APRIL 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALLOWABLE
ELIGIBLE AGGREGATE INTEREST ON
GROSS SALES UNPAID
SALES(1) CHARGES BALANCE(2)
-------------- ------------ -----------
<S> <C> <C> <C>
Under NASD Rule as
Adopted.............. $ 70,936 $ 4,433 $ 1,440
Under Distributor's
Voluntary Waiver..... $ 70,936 $ 4,433 $ 355
<CAPTION>
ANNUAL
DISTRIBUTION
AMOUNTS FEE AT
MAXIMUM PREVIOUSLY AGGREGATE CURRENT
AMOUNT PAID TO UNPAID NET ASSET
PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
Under NASD Rule as
Adopted.............. $ 5,873 $ 1,850 $ 4,023 $ 274
Under Distributor's
Voluntary Waiver..... $ 4,788 $ 1,850 $ 2,938 $ 274
</TABLE>
- ------------------
(1) Purchase price of all eligible Class B shares sold since February 26, 1988
(commencement of the public offering of Class B shares) other than shares
acquired through dividend reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0% as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made prior to July 6, 1993 under a prior plan at
the 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 'Purchase of Shares-- Distribution Plans' in the Prospectus.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the voluntary maximum or the NASD maximum.
REDEMPTION OF SHARES
Reference is made to 'Redemption of Shares' in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended only for periods during which trading on the New
York Stock Exchange is restricted as determined by the Commission or such
exchange is closed (other than customary weekend and holiday closings), for any
period during which an emergency exists, as defined by the Commission, as a
result of which disposal of portfolio securities or determination of the net
asset value of the 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 costs, depending on the market value of the securities held by the
Fund at such time.
DEFERRED SALES CHARGES--CLASS B SHARES
As discussed in the Prospectus under 'Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares', while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived on redemptions of Class B shares in connection with certain
post-retirement withdrawals from an Individual Retirement Account ('IRA') or
other retirement plan or on redemption of Class B shares following the death or
disability of a Class B shareholder. Redemptions for which the waiver applies
are: (a) any partial or complete redemption in connection with a distribution
following retirement under a tax-deferred retirement plan or attaining age
59 1/2 in the case of an IRA or other retirement plan, or part of a series of
equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) or any redemption resulting from the tax-free return of an
excess contribution to an IRA; or (b) any
24
<PAGE>
partial or complete redemption following the death or disability (as defined in
the Code) of a Class B shareholder (including one who owns the Class B shares as
joint tenant with his or her spouse), provided the redemption is requested
within one year of the death or initial determination of disability. For the
years ended October 31, 1991, 1992 and 1993, the Distributor received contingent
deferred sales charges of $48,125, $12,562 and $23,432, respectively, all of
which was paid to Merrill Lynch.
Merrill Lynch Blueprint(Service Mark) Program. Class B shares are offered
to certain participants in Blueprint. Blueprint is directed to small investors
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 by members of such
affinity groups. Services, including the exchange privilege, available to Class
B investors through Blueprint, however, may differ from those available to other
Class B investors. Orders for purchases and redemptions of Class B shares of the
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(Service Mark)
Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Retirement Plans. Any Retirement Plan which does not meet the
qualifications to purchase Class A or Class D shares at net asset value has the
option of purchasing Class A or Class D shares at the sales charge schedule
disclosed in the Prospectus, or if the Retirement Plan meets the following
requirements, then it may purchase Class B shares with a waiver of the CDSC upon
redemption. The CDSC is waived for any Eligible 401(k) Plan redeeming Class B
shares. 'Eligible 401(k) Plan' is defined as a retirement plan qualified under
Section 401(k) of the Code with a salary reduction feature offering a menu of
investments to plan participants. The CDSC is also waived for redemptions from
401(a) plans qualified under the Code, provided, however, such plan has the same
or an affiliated sponsoring employer as an Eligible 401(k) Plan purchasing Class
B shares of MLAM-advised mutual funds ('Eligible 401(a) Plan'). Other
tax-qualified retirement plans within the meaning of Section 401(a) and 403(b)
of the Code which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a menu of
investments) by independent administration firms contracted through Merrill
Lynch also may purchase Class B shares with a waiver of the CDSC. The CDSC is
waived for any Class B shares which are purchased by an Eligible 401(k) Plan or
Eligible 401(a) Plan and are rolled over into a Merrill Lynch or Merrill Lynch
Trust Company custodied Individual Retirement Account and held in such account
at the time of redemption. The Class B CDSC also is waived for any Class B
shares which are purchased by a Merrill Lynch rollover IRA that was funded by a
rollover from a terminated 401(k) plan managed by the MLAM Private Portfolio
Group and held in such account at the time of redemption. The minimum initial
and subsequent purchase requirements are waived in connection with all the above
referenced Retirement Plans.
25
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for making the Fund's portfolio decisions,
placing the Fund's brokerage business, evaluating the reasonableness of
brokerage commissions and negotiating the amount of any commissions paid,
subject to a policy established by the Fund's Directors and officers. The Fund
has no obligation to deal with any broker or group of brokers in the execution
of transactions in portfolio securities. Orders for transactions in portfolio
securities are placed for the Fund with a number of brokers and dealers,
including Merrill Lynch. In placing orders, it is the policy of the Fund to
obtain the most favorable net results, taking into account various factors,
including price, commissions, if any, size of the transaction and difficulty of
execution. Where practicable, the Manager surveys a number of brokers and
dealers in connection with proposed portfolio transactions and selects the
broker or dealer that offers the Fund best price and execution or other services
which are of benefit to the Fund. Securities firms also may receive brokerage
commissions on transactions including covered call options written by the Fund
and the sale of underlying securities upon the exercise of such options. In
addition, consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and policies established by the Directors of the
Fund, the Manager 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.
The Fund does not use any particular broker or dealer, and brokers who
provide supplemental investment research to the Manager may receive orders for
transactions by the Fund. Such supplemental research services ordinarily consist
of assessments and analyses of the business or prospects of a company, industry
or economic sector. Information so received will be in addition to and not in
lieu of the services required to be performed by the Manager under the
Management Agreement. If in the judgment of the Manager the Fund will be
benefited by supplemental research services, the Manager is authorized to pay
brokerage commissions to a broker furnishing such services which are in excess
of commissions that another broker may have charged for effecting the same
transaction. The expenses of the Manager will not necessarily be reduced as a
result of the receipt of such supplemental information, and the Manager may use
such information in servicing its other accounts.
The Fund anticipates that its brokerage transactions involving securities
of companies domiciled in countries other than the United States will be
conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions are generally higher than in the United States, although the Fund
will endeavor to achieve the best net results in effecting its portfolio
transactions. There is generally less governmental supervision and regulation of
foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Fund in the form of American
Depositary Receipts (ADRs) or European Depositary Receipts (EDRs) or other
securities convertible into foreign equity securities. ADRs and EDRs may be
listed on stock exchanges, or traded in over-the-counter markets in the United
States or Europe, as the case may be. ADRs, like other securities traded in the
United States, will be subject to negotiated commission rates.
The Fund invests in certain securities traded in the over-the-counter
market and, where possible, deals directly with the dealers who make a market in
the securities involved, except in those circumstances in which better prices
and execution are available elsewhere. Under the Investment Company Act, persons
affiliated with the Fund are prohibited from dealing with the Fund as principal
in the purchase and sale of securities. Since transactions in the
over-the-counter market usually involve transactions with dealers acting as
principal for their own accounts, affiliated persons of the Fund, including
Merrill Lynch, will not serve as the Fund's dealer in such
26
<PAGE>
transactions. However, affiliated persons of the Fund may serve as its broker in
over-the-counter transactions conducted on an agency basis. For the year ended
October 31, 1993, the Fund paid $32,896, none of which was paid to Merrill Lynch
for effecting transactions in which the Fund paid brokerage commissions.
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 in United States dollars, the Fund intends to manage its portfolio so as
to give reasonable assurance that it will be able to obtain United States
dollars to the extent necessary to meet anticipated redemptions. Under present
conditions, it is not believed that these considerations will have any
significant effect on its portfolio strategy.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the United States national securities exchanges from
executing transactions for their affiliates and institutional accounts which
they manage unless the member (i) has obtained prior express authorization from
the account to effect such transactions, (ii) at least annually furnishes the
account with a statement of 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.
For the year ended October 31, 1991, Merrill Lynch effected no portfolio
transactions pursuant to such contract. For the year ended October 31, 1992,
Merrill Lynch engaged in no portfolio transactions pursuant to such contract.
For the year ended October 31, 1993, Merrill Lynch effected no portfolio
transactions pursuant to such contract.
The Directors of the Fund have considered the possibility of recapturing
for the benefit of the Fund brokerage commissions, dealer spreads and other
expenses of possible portfolio transactions, such as underwriting commissions,
by conducting such portfolio transactions through affiliated entities, including
Merrill Lynch. For example, brokerage commissions received by Merrill Lynch
could be offset against the management fee paid by the Fund to the Manager.
After considering all factors deemed relevant, the Directors made a
determination not to seek such recapture. The Directors will reconsider this
matter from time to time.
DETERMINATION OF NET ASSET VALUE
Reference is made to 'Additional Information--Determination of Net Asset
Value' in the Prospectus concerning the determination of net asset value.
The net asset value of the shares of the Fund is determined once daily
Monday through Friday at 4:15 P.M., New York time, following the close of
trading on the New York Stock Exchange. The New York Stock Exchange is not open
on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Any assets or liabilities
initially expressed in terms of non-U.S. dollar currencies are translated into
U.S. dollars at the prevailing market rates as quoted by one or more banks or
dealers on the day of valuation. The net asset value is computed by dividing the
value of the securities held by the Fund plus any cash or other assets
(including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time.
27
<PAGE>
Expenses, including the fees payable to the Manager, are accrued daily. The per
share net asset value of the Class B, Class C and Class D shares generally will
be lower than the per share net asset value of the Class A shares, reflecting
the daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to the Class B and Class C shares
and the daily expense accruals of the account maintenance fees applicable with
respect to the Class D shares; moreover, the per share net asset value of the
Class B and Class C shares generally will be lower than the per share net asset
value of its Class D shares reflecting the daily expense accruals of the
distribution fees and higher transfer agency fees applicable with respect to the
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 immediately
after the payment of dividends or distributions, which will differ by
approximately the amount of the expense accrual differential between the
classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Directors as the
primary market. Securities traded in the over-the-counter market are valued at
the most recent bid price in the over-the-counter market prior to the time of
valuation. Securities traded on a stock exchange and the over-the-counter market
will be valued according to the broadest and most representative market. Options
that are traded on exchanges are valued at their last sale price as of the close
of such exchanges or, if there are no sales, then the price is the last
available bid price.
Where there is no market quotation on securities or options, fair market
value will be determined in good faith by or under the direction of the Fund's
Directors. Such valuations and procedures will be reviewed periodically by the
Directors.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designated to facilitate investment in its shares. Full details as to each of
such services and copies of the various plans described below can be obtained
from the Fund, the Distributor or Merrill Lynch.
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 showing any reinvestments of dividends and capital gains
distributions and any other activity in the account since the previous
statement. Shareholders will receive separate transaction confirmations for each
purchase or sale transaction other than the automatic investment purchase and
the reinvestment of ordinary income dividends and long-term capital gain
distributions. 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 so that the cash proceeds can
be transferred to the account at the new firm or such shareholder must continue
to maintain an Investment Account at the Transfer Agent for those Class A or
Class D shares. Shareholders interested in transferring their Class B or Class C
shares from Merrill Lynch and who do not wish to have an Investment Account
maintained for such shares at the Transfer Agent may request their new brokerage
firm to maintain such shares in an account registered in the name of the
brokerage firm for the benefit of the
28
<PAGE>
shareholder. If the new brokerage firm is willing to accommodate the shareholder
in this manner, the shareholder must request that he be issued certificates for
his shares, and then must turn the certificates over to the new firm for
re-registration as described in the preceding sentence. Shareholders may make
additions to their Investment Account at any time by mailing a check directly to
the Transfer Agent.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an Investment
Account may be requested by shareholders directly from the Transfer Agent.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer, or by mail directly to the Transfer Agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Automatic Investment Plan whereby the Fund is authorized through
pre-authorized checks or automated clearing house debits of $50 or more to
charge the regular bank account of the shareholder on a regular basis to provide
systematic additions to the Investment Account of such shareholder.
Alternatively, investors who maintain CMA(Registered) accounts may arrange to
have periodic investments made in the Fund, in their CMA(Registered) accounts or
in certain related accounts in amounts of $100 or more ($1 for retirement
accounts) through the CMA(Registered) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically additionally in 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 ex-dividend date of the dividend or distribution. Shareholders may elect
in writing to receive either their dividends or capital gains distributions, or
both, in cash, in which event payment will be mailed or direct deposited on or
about the payment date.
Shareholders may, at any time, notify the Transfer Agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or capital gains distributions reinvested in shares of the Fund or vice
versa and, commencing ten days after the receipt by the Transfer Agent of such
notice, those instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
Class A or Class D shares of the 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 Class A or Class D shares with such a value of $10,000 or
more.
At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's account to
provide the withdrawal payment specified by the shareholder. The shareholder may
specify either a dollar amount or a percentage of the value of his Class A or
Class D shares. Redemptions will be made at net asset value as determined at the
normal close of business on the New York
29
<PAGE>
Stock Exchange (currently 4:00 P.M., New York City time) on the 24th day of each
month or the 24th day of the last month of each quarter, whichever is
applicable. If the New York Stock Exchange is not open for business on such
date, the Class A or Class D shares will be redeemed at the close of business on
or about the following business day. The check for the withdrawal payment will
be mailed, or the direct deposit 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 Class A or Class D shares in the
Investment Account are reinvested automatically in the Class A or Class D
shares. A Shareholder's Systematic Withdrawal Plan may be terminated at any
time, without charge or penalty, by the shareholder, the Fund, the Fund's
transfer agent or the Distributor. Withdrawal payments should not be considered
as dividends, yield or income. Each withdrawal is a taxable event. If periodic
withdrawals continuously exceed reinvested dividends, the shareholder's original
investment may be reduced correspondingly. Purchases of additional Class A or
Class D shares concurrent with withdrawals are ordinarily disadvantageous to the
shareholder because of sales charges and tax liabilities. The Fund will not
knowingly accept purchase orders for Class A or Class D shares of the Fund from
investors who maintain a Systematic Withdrawal Plan unless such purchase is
equal to at least one year's scheduled withdrawals or $1,200, whichever is
greater. Periodic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.
A Class A or Class D shareholder whose shares are held within a
CMA(Registered), CBA(Registered) or Retirement Account may elect to have shares
redeemed on a monthly, bimonthly, quarterly, semiannual or annual basis through
the Systematic Redemption Program. The minimum fixed dollar amount redeemable is
$25. The proceeds of systematic redemptions will be posted to the shareholder's
account five business days after the date the shares are redeemed. Monthly
systematic redemptions will be made at net asset value on the first Monday of
each month, bimonthly systematic redemptions will be made at net asset value on
the first Monday of every other month, and quarterly, semiannual or annual
redemptions are made at net asset value on the first Monday of months selected
at the shareholder's option. If the first Monday of the month is a holiday, the
redemption will be processed at net asset value on the next business day. The
Systematic Redemption Program is not available if Company shares are being
purchased within the account pursuant to the Automatic Investment Program. For
more information on the Systematic Redemption Program, eligible shareholders
should contact their Financial Consultant.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Fund and in certain of the other mutual funds sponsored by Merrill Lynch as well
as in other securities. Merrill Lynch charges an initial establishment fee and
an annual custodial fee for each account. Information with respect to these
plans is available upon request from Merrill Lynch. The minimum initial purchase
to establish any such plan is $100, and the minimum subsequent purchase is $1.
Capital gains and income received in each of the plans referred to above
are exempt from Federal taxation until distributed from the plans. Investors
considering participation in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan.
30
<PAGE>
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds listed below. Under the Merrill
Lynch Select Pricing System, Class A shareholders may exchange Class A shares of
the Fund for Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second fund in his account in which
the exchange is made at the time of the exchange or is otherwise eligible to
purchase Class A shares of the second fund. If the Class A shareholder wants to
exchange Class A shares for shares of a second MLAM-advised mutual fund, but
does not hold Class A shares of the second fund in his account at the time of
the exchange and is not otherwise eligible to acquire Class A shares of the
second fund, the shareholder will receive Class D shares of the second fund as a
result of the exchange. Class D shares also may be exchanged for Class A shares
of a second MLAM-advised mutual fund at any time as long as, at the time of the
exchange, the shareholder holds Class A shares of the second fund in the account
in which the exchange is made or is otherwise eligible to purchase Class A
shares of the second fund. Class B, Class C and Class D shares will be
exchangeable with shares of the same class of other MLAM-advised mutual funds.
For purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period for the previously owned
shares of the Fund is 'tacked' to the holding period of the newly acquired
shares of the other Fund as more fully described below. Class A, Class B, Class
C and Class D shares also will be exchangeable for shares of certain
MLAM-advised money market funds specifically designated below as available for
exchange by holders of Class A, Class B, Class C or Class D shares. Shares with
a net asset value of at least $100 are required to qualify for the exchange
privilege, and any shares utilized in an exchange must have been held by the
shareholder for 15 days. It is contemplated that the exchange privilege may be
applicable to other new mutual funds whose shares may be distributed by the
Distributor.
Exchanges of Class A or Class D shares outstanding ('outstanding Class A or
Class D shares') for Class A or Class D shares of another MLAM-advised mutual
fund ('new Class A or Class D shares') are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D 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-loan basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A and Class D shares of the Fund generally will be
exchanged into the Class A or Class D shares of the other funds or into shares
of the Class A and Class D money market funds without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
('outstanding Class B or Class C shares') offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively ('new Class B or
Class C shares'), of another MLAM-advised mutual fund 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
31
<PAGE>
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 shares of the fund from
which the exchange has been made. For purposes of computing the sales load that
may be payable on a disposition of the new Class B or Class C shares, the
holding period for the outstanding Class B or Class C shares is 'tacked' to the
holding period of the new Class B or Class C shares. For example, an investor
may exchange Class B shares of the Fund for those of Merrill Lynch Special Value
Fund ('Special Value Fund') after having held the Fund's Class B shares for two
and a half years. The 2% sales charge that generally would apply to 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 contingent deferred sales load due on this redemption, since by 'tacking' the
two and a half year holding period of the Fund's Class B shares to the three
year holding period for the Special Value Fund Class B shares, the investor will
be deemed to have held the new Class B shares for more than five years.
Shareholders also may exchange shares of the Fund into shares of a money
market fund advised by the Manager or its affiliates, but the period of time
that Class B or Class C shares are held in a money market fund will not count
towards satisfaction of the holding period requirement for purposes of reducing
the CDSC or with respect to Class B shares, towards satisfaction of the
conversion period. However, shares of a money market fund which were acquired as
a result of an exchange for Class B or Class C shares of a fund may, in turn, be
exchanged back into Class B or Class C shares, respectively, of any fund
offering such shares, in which event the holding period for Class B or Class C
shares of the fund will be aggregated with previous holding periods for purposes
of reducing the CDSC. Thus, for example, an investor may exchange Class B shares
of the Fund for shares of Merrill Lynch Institutional Fund after having held the
Fund Class B shares for two and a half years and three years later decide to
redeem the shares of Merrill Lynch Institutional Fund ('Institutional Fund') for
cash. At the time of this redemption, the 2% CDSC that would have been due had
the Class B shares of the Fund been redeemed for cash rather than exchanged for
shares of Institutional Fund will be payable. If, instead of such redemption the
shareholder exchanged such shares for Class B shares of a fund which the
shareholder continued to hold for an additional two and a half years, any
subsequent redemption will not incur a CDSC.
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made are as follows:
Funds Issuing Class A, Class B, Class C and Class D Shares:
<TABLE>
<S> <C>
MERRILL LYNCH ADJUSTABLE RATE SECURITIES
FUND, INC............................................. High current income consistent with a policy of limiting
the degree of fluctuation in net asset value of fund
shares resulting from movements in interest rates
through investment primarily in a portfolio of
adjustable rate securities.
MERRILL LYNCH AMERICAS INCOME FUND, INC................. A high level of current income, consistent with prudent
investment risk, by investing primarily in debt
securities denominated in a currency of a country
located in the Western Hemisphere (i.e., North and
South America and the surrounding waters).
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
MERRILL LYNCH ARIZONA LIMITED MATURITY MUNICIPAL BOND
FUND.................................................. A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal and Arizona income taxes as is
consistent with prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade Arizona Municipal
Bonds.
MERRILL LYNCH ARIZONA MUNICIPAL BOND FUND............... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from Federal
and Arizona income taxes as is consistent with prudent
investment management.
MERRILL LYNCH ARKANSAS MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from Federal
and Arkansas income taxes as is consistent with
prudent investment management.
MERRILL LYNCH ASSET GROWTH FUND, INC.................... High total investment return, consistent with prudent
risk, from investment in United States and foreign
equity, debt and money market securities, the
combination of which will be varied both with respect
to types of securities and markets in response to
changing market and economic trends.
MERRILL LYNCH ASSET INCOME FUND, INC.................... A high level of current income through investment
primarily in United States fixed income securities.
MERRILL LYNCH BALANCED FUND FOR INVESTMENT
AND RETIREMENT........................................ As high a level of total investment return as is
consistent with a relatively low level of risk through
investment in common stock and other types of
securities, including fixed income securities and
convertible securities.
MERRILL LYNCH BASIC VALUE FUND, INC..................... Capital appreciation and, secondarily, income through
investments in securities, primarily equities, that
are undervalued and therefore represent basic
investment value.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL
BOND FUND............................................. A portfolio of Merrill Lynch California Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
Federal and California income taxes as is consistent
with prudent investment management through investment
in a portfolio primarily of insured California
Municipal Bonds.
MERRILL LYNCH CALIFORNIA LIMITED MATURITY
MUNICIPAL BOND FUND................................... A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal and California income taxes as is
consistent with prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade California
Municipal Bonds.
MERRILL LYNCH CALIFORNIA MUNICIPAL BOND FUND............ A portfolio of Merrill Lynch California Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and
California income taxes as is consistent with prudent
investment management.
MERRILL LYNCH CAPITAL FUND, INC......................... The highest total investment return consistent with
prudent risk through a fully managed investment policy
utilizing equity, debt and convertible securities.
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal
Series, a series fund, whose objective is to provide
as high a level of income exempt from Federal and
Colorado income taxes as is consistent with prudent
investment management.
MERRILL LYNCH CONNECTICUT MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from Federal
and Connecticut income taxes as is consistent with
prudent investment management.
MERRILL LYNCH CORPORATE BOND FUND, INC.................. Current income from three separate diversified
portfolios of fixed income securities.
MERRILL LYNCH DEVELOPING CAPITAL MARKETS
FUND, INC............................................. Long-term appreciation through investment in securities,
principally equities, of issuers in countries having
smaller capital markets.
MERRILL LYNCH DRAGON FUND, INC.......................... Capital appreciation primarily through investment in
equity and debt securities of issuers domiciled in
</TABLE>
34
<PAGE>
<TABLE>
<S> <C>
developing countries located in Asia and the Pacific
Basin.
MERRILL LYNCH EUROFUND.................................. Capital appreciation primarily through investment in
equity securities of corporations domiciled in Europe.
MERRILL LYNCH FEDERAL SECURITIES TRUST.................. High current return through investments in U.S.
Government and Government agency securities, including
GNMA mortgage-backed certificates and other
mortgage-backed Government securities.
MERRILL LYNCH FLORIDA LIMITED MATURITY MUNICIPAL BOND
FUND.................................................. A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal income taxes as is consistent with
prudent investment management while serving to offer
shareholders the opportunity to own securities exempt
from Florida intangible personal property taxes
through investment in a portfolio primarily of
intermediate-term investment grade Florida Municipal
Bonds.
MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND............... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from Federal
income taxes as is consistent with prudent investment
management while seeking to offer shareholders the
opportunity to own securities exempt from Florida
intangible personal property taxes.
MERRILL LYNCH FUND FOR TOMORROW, INC.................... Long-term growth through investment in a portfolio of
good quality securities, primarily common stock,
potentially positioned to benefit from demographic and
cultural changes as they affect consumer markets.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.............. Long-term growth through investment in a diversified
portfolio of equity securities placing particular
emphasis on companies that have exhibited an
above-average growth rate in earnings.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC............... High total investment return, consistent with prudent
risk, through a fully managed investment policy
utilizing United States and foreign equity, debt and
money market securities, the combination of which
</TABLE>
35
<PAGE>
<TABLE>
<S> <C>
will be varied from time to time both with respect to
the types of securities and markets in response to
changing market and economic trends.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT............................................ High total investment return from investment in
government and corporate bonds denominated in various
currencies and multinational currency units.
MERRILL LYNCH GLOBAL HOLDINGS, INC.
(residents of Arizona must meet investor suitability
standards)............................................ The highest total investment return consistent with
prudent risk through worldwide investment in an
internationally diversified portfolio of securities.
MERRILL LYNCH GLOBAL RESOURCES TRUST.................... Long-term growth and protection of capital from
investment in securities of domestic and foreign
companies that possess substantial natural resource
assets.
MERRILL LYNCH GLOBAL SMALLCAP FUND, INC................. Long-term growth of capital by investing primarily in
equity securities of issuers with relatively small
market capitalizations located in various foreign
countries and in the United States.
MERRILL LYNCH GLOBAL UTILITY FUND, INC.................. Capital appreciation and current income through
investment of at least 65% of its total assets in
equity and debt securities issued by domestic and
foreign companies which are primarily engaged in the
ownership or operation of facilities used to generate,
transmit or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH GROWTH FUND FOR INVESTMENT
AND RETIREMENT........................................ Growth of capital and, secondarily, income from
investment in a diversified portfolio of equity
securities placing principal emphasis on those
securities which management of the fund believes to be
undervalued.
MERRILL LYNCH HEALTHCARE FUND, INC.
(residents of Wisconsin must meet investor suitability
standards)............................................ Capital appreciation through worldwide investment in
equity securities of companies that derive or are
expected to derive a substantial portion of their
sales from products and services in healthcare.
MERRILL LYNCH INTERNATIONAL EQUITY FUND................. Capital appreciation and, secondarily, income by
investing in a diversified portfolio of equity
</TABLE>
36
<PAGE>
<TABLE>
<S> <C>
securities of issuers located in countries other than
the United States.
MERRILL LYNCH LATIN AMERICA FUND, INC................... Capital appreciation by investing primarily in Latin
American equity and debt securities.
MERRILL LYNCH MARYLAND MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from Federal
and Maryland income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MASSACHUSETTS LIMITED MATURITY
MUNICIPAL BOND FUND................................... A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal and Massachusetts income taxes as
is consistent with prudent investment management
through investment in a portfolio primarily of
intermediate-term investment grade Massachusetts
Municipal Bonds.
MERRILL LYNCH MASSACHUSETTS MUNICIPAL
BOND FUND............................................. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from Federal
and Massachusetts income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MICHIGAN LIMITED MATURITY MUNICIPAL BOND
FUND.................................................. A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide a high level of income exempt
from Federal and Michigan income taxes as is
consistent with prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade Michigan Municipal
Bonds.
MERRILL LYNCH MICHIGAN MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from Federal
and Michigan income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MINNESOTA MUNICIPAL BOND FUND............. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
Federal and Minnesota personal income taxes as is
consistent with prudent investment management.
MERRILL LYNCH MUNICIPAL BOND FUND, INC.................. Tax-exempt income from three separate diversified
portfolios of municipal bonds.
MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND.......... Currently the only portfolio of Merrill Lynch Municipal
Series Trust, a series fund, whose objective is to
provide as high a level as possible of income exempt
from Federal income taxes by investing in investment
grade obligations with a dollar weighted average
maturity of five to twelve years.
MERRILL LYNCH NEW JERSEY LIMITED MATURITY MUNICIPAL BOND
FUND.................................................. A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal and New Jersey income taxes as is
consistent with prudent investment management through
a portfolio primarily of intermediate-term investment
grade New Jersey Municipal Bonds.
MERRILL LYNCH NEW JERSEY MUNICIPAL BOND FUND............ A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from Federal
and New Jersey income taxes as is consistent with
prudent investment management.
MERRILL LYNCH NEW MEXICO MUNICIPAL BOND FUND............ A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from Federal
and New Mexico income taxes as is consistent with
prudent investment managment.
MERRILL LYNCH NEW YORK LIMITED MATURITY MUNICIPAL BOND
FUND.................................................. A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal, New York State and New York City
income taxes as is consistent with prudent investment
management through investment in a portfolio primarily
of intermediate-term grade New York Municipal Bonds.
MERRILL LYNCH NEW YORK MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
provide as high a level of income exempt from Federal,
New York State and New York City income taxes as is
consistent with prudent investment management.
MERRILL LYNCH NORTH CAROLINA MUNICIPAL
BOND FUND............................................. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from Federal
and North Carolina income taxes as is consistent with
prudent investment management.
MERRILL LYNCH OHIO MUNICIPAL BOND FUND.................. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from Federal
and Ohio income taxes as is consistent with prudent
investment management.
MERRILL LYNCH OREGON MUNICIPAL BOND FUND................ A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from Federal
and Oregon income taxes as is consistent with prudent
investment management.
MERRILL LYNCH PACIFIC FUND, INC......................... Capital appreciation by investing in equity securities
of corporations domiciled in Far Eastern and Western
Pacific countries, including Japan, Australia, Hong
Kong and Singapore.
MERRILL LYNCH PENNSYLVANIA LIMITED MATURITY MUNICIPAL
BOND FUND............................................. A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal and Pennsylvania income taxes as
is consistent with prudent investment management
through investment in a portfolio of intermediate-term
investment grade Pennsylvania Municipal Bonds.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND
FUND.................................................. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from Federal
and Pennsylvania personal income taxes as is
consistent with prudent investment management.
MERRILL LYNCH PHOENIX FUND, INC......................... Long-term growth of capital by investing in equity and
fixed income securities, including tax-exempt
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
securities, of issuers in weak financial condition or
experiencing poor operating results believed to be
undervalued relative to the current or prospective
condition of such issuer.
MERRILL LYNCH SHORT-TERM GLOBAL INCOME
FUND, INC............................................. As high a level of current income as is consistent with
prudent investment management from a global portfolio
of high quality debt securities denominated in various
currencies and multinational currency units and having
remaining maturities not exceeding three years.
MERRILL LYNCH SPECIAL VALUE FUND, INC................... Long-term growth of capital from investments in
securities, primarily common stocks, of relatively
small companies believed to have special investment
value and emerging growth companies regardless of
size.
MERRILL LYNCH STRATEGIC DIVIDEND FUND................... Long-term total return from investment in dividend
paying common stocks which yield more than Standard &
Poor's 500 Composite Stock Price Index.
MERRILL LYNCH TECHNOLOGY FUND, INC...................... Capital appreciation through worldwide investment in
equity securities of companies that derive or are
expected to derive a substantial portion of their
sales from products and services in technology.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND................. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from Federal
income taxes as is consistent with prudent investment
management by investing primarily in a portfolio of
long-term, investment grade obligations issued by the
State of Texas, its political subdivisions, agencies
and instrumentalities.
MERRILL LYNCH UTILITY INCOME FUND, INC.................. High current income through investment in equity and
debt securities issued by companies which are
primarily engaged in the ownership or operation of
facilities used to generate, transmit or distribute
electricity, telecommunications, gas or water.
MERRILL LYNCH WORLD INCOME FUND, INC.................... High current income by investing in a global portfolio
of fixed income securities denominated in various
currencies, including multinational currencies.
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
Class A Share Money Market Funds:
MERRILL LYNCH READY ASSETS TRUST........................ Preservation of capital, liquidity and the highest
possible current income consistent with the foregoing
objectives from the short-term money market securities
in which the Trust invests.
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
(available only if the exchange occurs within certain
retirement plans)..................................... Currently the only portfolio of Merrill Lynch Retirement
Series Trust, a series fund, whose objectives are
current income, preservation of capital and liquidity
available from investing in a diversified portfolio of
short-term money market securities.
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES................ Preservation of capital, current income and liquidity
available from investing in direct obligations of the
U.S. Government and repurchase agreements relating to
such securities.
MERRILL LYNCH U.S. TREASURY MONEY FUND.................. Preservation of capital, liquidity and current income
through investment exclusively in a diversified
portfolio of short-term marketable securities which
are direct obligations of the U.S. Treasury.
Class B, Class C and Class D Share Money Market Funds:
MERRILL LYNCH GOVERNMENT FUND........................... A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income consistent with liquidity and security
of principal from investment in securities issued or
guaranteed by the U.S. Government, its agencies and
instrumentalities and in repurchase agreements secured
by such obligations.
MERRILL LYNCH INSTITUTIONAL FUND........................ A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
maximum current income consistent with liquidity and
the maintenance of a high quality portfolio of money
market securities.
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND............. A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income exempt from Federal income taxes,
preservation of capital and liquidity available from
investing in a diversified portfolio of short-term,
high quality municipal bonds.
</TABLE>
41
<PAGE>
<TABLE>
<S> <C>
MERRILL LYNCH TREASURY FUND............................. A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income consistent with liquidity and security
of principal from investment in direct obligations of
the U.S. Treasury and up to 10% of its total assets in
repurchase agreements secured by such obligations.
</TABLE>
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their
Merrill Lynch financial consultant, who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of the other funds described above
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The 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 offering of
their shares to the general public at any time and thereafter may resume such
offering from time to time. The exchange privilege is available only to U.S.
shareholders in states where the exchange legally may be made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all its net investment income, if any.
Dividends from such net investment income will be paid quarterly. All net
realized long-or short-term capital gains, if any, will be distributed to the
Fund's shareholders annually. From time to time, the Fund may declare a special
distribution at or about the end of the calendar year in order to comply with a
Federal income tax requirement that certain percentages of its ordinary income
and capital gains be distributed during the calendar year. If in any fiscal
year, the Fund has net income from certain foreign currency transactions, such
income will be distributed annually. See 'Shareholder Services--Automatic
Reinvestment of Dividends and Capital Gains Distributions' for information
concerning the manner in which dividends and distributions may be reinvested
automatically in shares of the Fund. Shareholders may elect in writing to
receive any such dividends or distributions, or both, in cash. Dividends and
distributions are taxable to shareholders, as discussed below, whether they are
reinvested in shares of the Fund or received in cash. The per share dividends on
each class of shares will be reduced as a result of any account maintenance,
distribution and transfer agency fees applicable with respect to such class of
shares. See 'Determination of Net Asset Value'.
42
<PAGE>
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. If it 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.
Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as 'ordinary income dividends') are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in futures and options)
('capital gain dividends') are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund shares.
Any loss upon the sale or exchange of Fund shares held for six months or less,
however, will be treated as long-term capital loss to the extent of any capital
gain dividends received by the shareholder. Distributions in excess of the
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).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. 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 ordinary income or capital gain dividends. A
portion of the Fund's ordinary income dividends may be eligible for the
dividends received deduction allowed to corporations under the Code, if certain
requirements are met. For this purpose, the Fund will allocate dividends
eligible for the dividends received deduction among the Class A, Class B, Class
C and Class D shareholders according to a method (which it believes is
consistent with the Securities and Exchange Commission exemptive order
permitting the issuance and sale of multiple classes of stock) that is based on
the gross income allocable to Class A, Class B, Class C and Class D shareholders
during the taxable year, or such other method as the Internal Revenue Service
may prescribe. If the Fund pays a dividend in January which was declared in the
previous October, November or December to shareholders of record on a specified
date in one of such months, then such dividend will be treated for tax purposes
as being paid by the Fund and received by its shareholders on December 31 of the
year in which such dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% U.S. withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the U.S.
withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ('backup withholding'). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the 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.
43
<PAGE>
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. If more than 50% in value of
the Fund's 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
in computing their taxable incomes or, alternatively, use them as foreign tax
credits against their United States income taxes. The Fund will report annually
to its shareholders the amount per share of such withholding taxes. No
deductions for foreign taxes, however, may be claimed by noncorporate
shareholders who do not itemize deductions. A shareholder that is a nonresident
alien individual or a foreign corporation may be subject to U.S. withholding tax
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 U.S. tax for the
foreign taxes treated as having been paid by such shareholder. 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 similar to
that described above for the allocation of dividends eligible for the dividends
received deduction.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon the purchase of the new shares in the absence
of the exchange privilege. Instead, such sales charge will be treated as an
amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income and
capital gains in the manner necessary to avoid imposition of the 4% excise tax,
there can be no assurance that sufficient amounts of the 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.
The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ('high yield securities'), as described in the Prospectus. Some of
these high yield securities may be purchased at a discount and may therefore
cause the Fund to accrue income
44
<PAGE>
before amounts due under the obligations are paid. In addition, a portion of the
interest payments on such high yield securities may be treated as dividends for
Federal income tax purposes and will be eligible for the dividends received
deduction allowed to domestic corporations under the Code.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may write, purchase or sell options, futures or 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. 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 transactions in options and futures contracts. Under
Section 1092, the Fund may be required to postpone recognition for tax purposes
of losses incurred in certain closing transactions in options and futures
contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income may be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the Fund
may be restricted in effecting closing transactions within three months after
entering into an option or futures contract.
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 stocks, 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, futures, or 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 foreign 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 futures contracts that are not 'regulated
futures contracts' and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the 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
45
<PAGE>
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 any distributions made before the
losses were realized but in the same taxable year would be recharacterized as a
return of capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares. 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 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 U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective shareholders. From time to time, the Fund may include the Fund's
Morningstar risk-adjusted performance ratings in advertisements or supplemental
sales literature. Total return figures are based on the Fund's historical
performance and are not intended to indicate future performance. Average annual
total return is determined separately for Class A, Class B, and Class C and
Class D shares in accordance with formulas specified by the Commission.
Average annual total 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.
46
<PAGE>
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and
(2) the maximum applicable sales charges will not be included with respect to
annual or annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum applicable
sales charges, actual annual or annualized total return data generally will be
lower than average annual total data since the average rates of return reflect
compounding of return; aggregate total return data generally will be higher than
average annual total return data since the aggregate rates of return reflect
compounding over a longer period of time.
Set forth below is total return information for the Class A and Class B
shares of the Fund for the periods indicated. Since Class C and Class D shares
have not been issued prior to the date of this Statement of Additional
Information, performance information concerning Class C and Class D shares is
not yet provided.
<TABLE>
<CAPTION>
CLASS A SHARES* CLASS B SHARES
-------------------------------- ----------------------------------
REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A
HYPOTHETICAL HYPOTHETICAL
EXPRESSED AS A $1,000 EXPRESSED AS A $1,000
PERCENTAGE BASED INVESTMENT AT PERCENTAGE BASED INVESTMENT AT
ON A HYPOTHETICAL THE END OF ON A HYPOTHETICAL THE END OF THE
PERIOD $1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT PERIOD
- ------------------------------------------------- ----------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended April 30, 1994.................... (0.47)% $ 995.30 0.04% $ 1,000.40
Five Years Ended April 30, 1994.................. 6.14% $ 1,347.10 6.19% $ 1,350.10
Inception (February 26, 1988) to
April 30, 1994................................. 5.96% $ 1,429.80
November 4, 1988 to April 30, 1994............... 6.37% $ 1,403.30
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Six Months Ended April 30, 1994.................. (1.03)% $ 989.70 (1.43)% $ 985.70
Year Ended October 31, 1993...................... 17.64% $ 1,176.40 16.45% $ 1,164.50
1992............................................. 10.00% $ 1,100.00 8.77% $ 1,087.70
1991............................................. 18.09% $ 1,180.90 16.79% $ 1,167.90
1990............................................. (7.86)% $ 921.40 (8.68)% $ 913.20
1989............................................. 5.58% $ 1,055.80
Inception (February 26, 1988) to October 31,
1988........................................... 1.70% $ 1,017.00
November 4, 1988 to October 31, 1989............. 6.29% $ 1,062.90
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
CLASS A SHARES* CLASS B SHARES
-------------------------------- ----------------------------------
REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A
HYPOTHETICAL HYPOTHETICAL
EXPRESSED AS A $1,000 EXPRESSED AS A $1,000
PERCENTAGE BASED INVESTMENT AT PERCENTAGE BASED INVESTMENT AT
ON A HYPOTHETICAL THE END OF ON A HYPOTHETICAL THE END OF THE
PERIOD $1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT PERIOD
- ------------------------------------------------- ----------------- ------------- ----------------- ---------------
AGGREGATE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception (February 26, 1988) to April 30,
1994........................................... 42.98% $1,429.80
November 4, 1988 to April 30, 1994............... 40.33% $1,403.30
30 days ended April 30, 1994..................... 2.60% Yield 1.69%
</TABLE>
- ------------------
* Information as to Class A shares is presented for the period November 4, 1988
to April 30, 1994. Prior to November 4, 1988, no Class A shares were publicly
issued.
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'
and 'Redemption of Shares', respectively, 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 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.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on October 22, 1987. It has an
authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock, each of which consists of 100,000,000 shares. Class A, Class B,
Class C and Class D Common Stock represent an interest in the same assets of the
Fund and are identical in all respects except that the Class B, Class C and
Class D shares bear certain expenses related to the account maintenance and/or
distribution of such shares and have exclusive voting rights with respect to
matters relating to such expenditures. The Fund has received an order from the
Commission permitting the issuance and sale of multiple classes of Common Stock.
The Board of Directors of the Fund may classify and reclassify the shares of the
Fund into additional classes of Common Stock at a future date.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held and will vote on the election of
Directors and any other matter submitted to a shareholder vote. The Fund does
not intend to hold meetings of shareholders in any year in which the Investment
Company Act does not require shareholders to act upon any of the following
matters: (i) election of Directors; (ii) approval of an investment advisory
agreement; (iii) approval of a distribution agreement; and (iv) ratification of
selection of independent accountants. Generally, under Maryland law, a meeting
of shareholders may be called for any purpose on the written request of the
holders of at least 25% of the outstanding shares of the Fund. Voting rights for
Directors
48
<PAGE>
are not cumulative. Shares issued are fully paid and non-assessable and have no
preemptive rights. Redemption and conversion rights are discussed elsewhere
herein and in the Prospectus. Each share of Class B Common Stock is entitled to
participate equally in dividends and distributions declared by the Fund and in
the net assets of the Fund upon liquidation or dissolution after satisfaction of
outstanding liabilities. Stock certificates will be issued by the Transfer Agent
only on specific request. Certificates for fractional shares are not issued in
any case.
The Manager provided the initial capital for the Fund by purchasing 10,000
shares for $100,000. Such shares were acquired for investment and can only be
disposed by redemption. The organizational expenses of the Fund were paid by the
Fund and are being amortized over a period not exceeding five years. The
proceeds realized by the Manager upon redemption of any of such shares will be
reduced by the proportionate amount of the unamortized organizational expenses
which the number of shares redeemed bears to the number of shares initially
purchased.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A and
Class B shares of the Fund based on the current offering period value of the
Fund's net assets and number of shares outstanding as of April 30, 1994, is set
forth below. Information is not provided for Class C and Class D shares since no
Class C and Class D shares were publicly offered prior to the date of this
Statement of Additional Information.
TABLE
<TABLE>
<CAPTION>
CLASS A CLASS B
------------ -------------
<S> <C> <C>
Net Assets............................................................... $ 5,496,634 $ 36,510,326
------------ -------------
------------ -------------
Number of Shares Outstanding............................................. 515,434 3,406,157
------------ -------------
------------ -------------
Net Asset Value Per Share (net assets divided by number of shares
outstanding)........................................................... $ 10.66 $ 10.72
Shares Charge (for Class A shares: 5.25% of offering price (5.54% of net
asset value per share))*............................................... 0.59 **
------------ -------------
Offering Price........................................................... $ 11.25 $ 10.72
------------ -------------
------------ -------------
</TABLE>
- ------------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B shares are not subject to an initial sales charge but may be subject
to a contingent deferred sales charge on redemption of shares. See 'Purchase
of Shares--Deferred Sales Charge Alternative--Class B and Class C Shares' in
the Prospectus.
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 ratification by the Fund's shareholders. The
independent auditors are responsible for auditing the annual financial
statements of the Fund.
49
<PAGE>
CUSTODIAN
State Street Bank and Trust Company, One Heritage Drive, Palmer Building,
North Quincy, Massachusetts 02171, acts as the Custodian of the Fund's assets.
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, 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 'Management of the Fund-Transfer
Agency Services' in the Prospectus.
LEGAL COUNSEL
Brown & Wood, 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 October 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.
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 of 1933 and the
Investment Company Act, to which reference is hereby made.
------------------
Under a separate agreement, Merrill Lynch & Co., Inc. 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 Merrill Lynch & Co.,
Inc., under certain conditions, the use of any other name it might assume in the
future, with respect to any corporation organized by Merrill Lynch & Co., Inc.
To the knowledge of the Fund, no person owned beneficially 5% or more of
the Fund's shares on September 30, 1994.
50
<PAGE>
APPENDIX
RATINGS OF DEBT SECURITIES
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ('MOODY'S') CORPORATE RATINGS
Aaa Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge'. Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa Bonds which are rated AA are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated BAA are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated BA are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and therefore not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated CA represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic rating
classification from AA through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
51
<PAGE>
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The term 'commercial paper' as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representations as to whether such commercial paper is by any other definition
'commercial paper' or is exempt from registration under the Securities Act of
1933, as amended.
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries
-- High rates of return on funds employed
-- Conservative capitalization structures with moderate reliance on
debt and ample asset protection
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation
-- Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its Commercial Paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within parentheses
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment. Moody's makes no representation and gives no opinion on the
legal validity or enforceability of any support arrangement. You are cautioned
to review with your counsel any questions regarding particular support
arrangements.
52
<PAGE>
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
Because of the fundamental differences between preferred stocks and bonds,
a variation of the bond rating symbols is being used in the quality ranking of
preferred stocks. The symbols, presented below, are designed to avoid comparison
with bond quality in absolute terms. It should always be borne in mind that
preferred stocks occupy a junior position to bonds within a particular capital
structure and that these securities are rated within the universe of preferred
stocks.
Preferred stock rating symbols and their definitions are as follows:
aaa An issue which is rated 'AAA' is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa An issue which is rated 'AA' is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a An issue which is rated 'A' is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the 'aaa'
and 'aa' classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa An issue which is rated 'BAA' is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
ba An issue which is rated 'BA' is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b An issue which is rated 'B' generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa An issue which is rated 'CAA' is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
ca An issue which is rated 'CA' is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual payment.
c This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each rating
classification from 'AA' through 'B' in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S ('STANDARD & POOR'S') CORPORATE
DEBT RATINGS
A Standard & Poor's corporate or municipal rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
53
<PAGE>
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other reasons.
The ratings are based, in varying degrees, on the following considerations:
(1) likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA Debt rated AAA has the highest rating assigned by Standard and Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded, on balance, as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BB or BB-rating.
CCC Debt rated CCC has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
54
<PAGE>
The CCC rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied B or B-rating.
CC The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC-debt rating. The C rating may be used
to cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.
CI The rating CI is reserved for income bonds on which no interest is
being paid.
D Debt rated D is in payment default. The D rating category is also used
when interest payments or principal repayments are not made on the date due even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
PLUS (+) or MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing with the major
ratings categories.
Provisional ratings: The letter 'p' indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.
L The letter 'L' indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit collateral is
insured by the Federal Savings & Loan Insurance Corp. or the Federal Deposit
Insurance Corp. and interest is adequately collateralized.
* Continuance of the rating is contingent upon Standard & Poor's receipt of
an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.
NR Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Debt Obligations of Issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ('AAA', 'AA', 'A', 'BBB', commonly known as 'investment grade'
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments may impose certain
ratings or other standards for obligations eligible for investment by savings
banks, trust companies, insurance companies and fiduciaries generally.
55
<PAGE>
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from 'A-1' for the
highest quality obligations to 'D' for the lowest. These categories are as
follows:
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.
A-3 Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
B Issues rated 'B' are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS
A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the bond rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
The preferred stock ratings are based on the following considerations:
I. Likelihood of payment-capacity and willingness of the issuer to
meet the timely payment of preferred stock dividends and any applicable
sinking fund requirements in accordance with the terms of the obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
AAA This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
56
<PAGE>
AA A preferred stock issue rated 'AA' also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated 'AAA'.
A An issue rated 'A' is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB An issue rated 'BBB' is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead a weakened capacity to make payments for a preferred stock
in this category than for issues in the 'A' category.
BB B CCC Preferred stock rated 'BB', 'B', and 'CCC' are regarded, on
balance, as predominately speculative with respect to the issuer's capacity to
pay preferred stock obligations. 'BB' indicates the lowest degree of speculation
and 'CCC' the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC The rating 'CC' is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C A preferred stock rated 'C' is a non-paying issue.
D A preferred stock rated 'D' is a non-paying issue with the issuer in
default on debt instruments.
NR indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
PLUS (+) or MINUS (-): To provide more detailed indications of preferred
stock quality, the ratings from 'AA' to 'CCC' may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
The preferred stock ratings are not a recommendation to purchase or sell a
security, inasmuch as market price is not considered in arriving at the rating.
Preferred stock ratings are wholly unrelated to Standard & Poor's earnings and
dividend rankings for common stocks.
The ratings are based on current information furnished to Standard & Poor's
by the issuer, and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information.
57
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Global Convertible Fund, Inc. as
of October 31, 1993, the related statements of operations for the year then
ended and changes in net assets for each of the years in the two-year period
then ended, and the financial highlights for each of the years in the five-year
period ended October 31, 1993. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1993, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Global
Convertible Fund, Inc. as of October 31, 1993, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 8, 1993
58
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in US dollars)
Shares Value Percent of
Industries Held Convertible Preferred Stocks Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
NORTH AMERICA
United States
Automotive 3,000 Goodrich (B.F.) Company, $3.50 Pfd., Series D $ 164,550 $ 156,000 0.45%
Parts
Chemicals 20,000 Ashland Oil Inc., $6.25 Pfd. 1,065,800 1,247,500 3.63
Data 20,000 UNISYS Corp., $3.75 Pfd., Series A 1,233,875 952,500 2.77
Processing
Food/Beverage/ 15,000 ConAgra Inc., Class E 526,200 483,750 1.41
Tobacco &
Household
Forest 15,000 Federal Paper Board Co., $2.875 Pfd. 732,450 731,250 2.13
Products/ 5,000 James River Corp. of Virginia, $3.375 Pfd., Series K 223,000 225,625 0.65
Paper & ----------- ---------- ------
Packaging 955,450 956,875 2.78
Metals & 10,000 USX Corp., $3.25 Pfd. 505,800 552,500 1.61
Mining 15,000 Wheeling-Pittsburgh Corp., Series K 768,537 993,750 2.89
----------- ---------- ------
1,274,337 1,546,250 4.50
Miscellaneous 20,000 Glendale Federal Savings Bank, 8.75% Non-Cumulative
Preferred Stock, Series E 500,000 515,000 1.50
Total Investments in United States
Convertible Preferred Stocks 5,720,212 5,857,875 17.04
<CAPTION>
Face
Amount Convertible Bonds
<S> <C> <C> <C> <C> <C> <C>
Canada
Oil & Related US$ 700,000 Amoco Canada Petro Co., Ltd., 7.375% due 9/01/2013 843,500 861,000 2.50
Total Investments in Canadian Convertible Bonds 843,500 861,000 2.50
United States 250,000 Zenith Electronics Corp., 6.25% due 4/01/2011 196,875 173,125 0.50
Appliances &
Household
Durables
Building & 500,000 Masco Corp., 5.25% due 2/15/2012 436,250 500,000 1.45
Construction
Chemicals 550,000 Witco Corp., 5.50% due 3/15/2012 471,500 588,500 1.71
Computer 500,000 Cray Research, Inc., 6.125% due 2/01/2011 510,000 437,500 1.27
Services
</TABLE>
59
<PAGE>
Merrill Lynch Global Convertible Fund, Inc., October 31, 1993
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
Face Value Percent of
Industries Amount Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
NORTH AMERICA (concluded)
United States
(concluded)
Electronics US$ 1,400,000 Texas Instruments, Inc., 2.75% due 9/29/2002 $ 1,361,125 $ 1,424,500 4.14%
Food & 750,000 American Brands Inc., 5.75% due 4/11/2005 877,500 866,250 2.52
Beverage
Forest 500,000 Mead Corp., 6.75% due 9/15/2012 474,750 522,500 1.52
Products/
Paper &
Packaging
Leisure 400,000 Eastman Kodak Co., 6.375% due 7/01/2001 421,000 494,000 1.44
Machinery 600,000 Trimas Corp., 5.00% due 8/01/2003 603,750 660,000 1.92
Metals & 300,000 USX Corp., 7.00% due 6/15/2017 285,600 289,500 0.84
Mining
Multi-Industry 600,000 Ogden Corp., 5.75% due 10/20/2002 559,500 570,000 1.66
Natural Gas 500,000 Consolidated Natural Gas Co., 7.25% due 12/15/2015 606,250 587,500 1.71
Oil & Related 1,600,000 Pennzoil Co., 4.75% due 10/01/2003 1,614,625 1,624,000 4.72
Real Estate 500,000 Rockefeller Center Properties, Inc., 8.00%
due 12/31/2000 520,000 490,000 1.43
Retail Stores 750,000 Home Depot Inc., 4.50% due 2/15/1997 873,750 909,375 2.65
Textiles 250,000 Fieldcrest Cannon, Inc., 6.00% due 3/15/2012 160,000 207,500 0.60
Total Investments in United States
Convertible Bonds 9,972,475 10,344,250 30.08
Total Investments in North American Securities 16,536,187 17,063,125 49.62
<CAPTION>
Shares
Held Common Stocks
<S> <C> <C> <C> <C> <C> <C>
PACIFIC BASIN
Japan
Financial 10,000 Daiwa Securities Co., Ltd. 109,055 128,406 0.37
Services 10,000 Nikko Securities Co., Ltd. 91,790 109,931 0.32
6,000 Nomura Securities Co., Ltd. 94,803 110,300 0.32
10,000 Yamaichi Securities Co., Ltd. 94,005 71,132 0.21
----------- ---------- ------
389,653 419,769 1.22
Machinery 20,000 Shimadzu Corp. 156,900 131,178 0.38
5,000 Sodick Co., Ltd. 94,250 35,751 0.11
----------- ---------- ------
251,150 166,929 0.49
Total Investments in Japanese Common Stocks 640,803 586,698 1.71
<CAPTION>
Face
Amount Convertible Bonds
<S> <C> <C> <C> <C> <C> <C>
Australia US$ 750,000 Lend Lease Finance International, 4.75%
Banking due 6/01/2003 848,437 879,375 2.56
Total Investments in Australian Convertible Bonds 848,437 879,375 2.56
Japan Yen 15,000,000 No. 2 Mazda Motors, Ltd., 1.70% due 3/31/1998 131,050 128,176 0.37
Automotive
Banking 50,000,000 No. 3 Bank of Tokyo, Ltd., 1.30% due 9/30/1994 502,107 509,007 1.48
Building & 25,000,000 No. 2 Nichiei Construction Co., Ltd., 1.50%
Construction due 4/30/1999 195,234 228,637 0.67
25,000,000 No. 2 Nichiei Construction Co., Ltd., 1.70%
due 10/31/2002 261,132 245,035 0.71
</TABLE>
60
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
20,000,000 No. 4 Sekisui House, Ltd., 1.60% due 7/31/1996 160,119 179,400 0.52
----------- ---------- ------
616,485 653,072 1.90
Business 50,000,000 No. 8 SECOM, 4.20% due 9/30/1994 520,105 524,249 1.52
Services
Chemicals 20,000,000 No. 6 Sekisui Plastic Co., Ltd., 2.00% due 9/29/2000 217,190 206,928 0.60
Computer 5,000,000 No. 5 CSK Corp., 3.80% due 3/19/1999 38,344 46,559 0.13
Services 5,000,000 No. 6 CSK Corp., 3.90% due 3/20/2001 38,344 46,790 0.14
----------- ---------- ------
76,688 93,349 0.27
Electronics 15,000,000 No. 2 Kyushu Matsushita Electric Co., Inc., 1.50%
due 3/31/1999 158,941 152,425 0.44
Food & 15,000,000 No. 4 Asahi Breweries, Ltd., 2.10% due 10/21/1997 138,779 133,995 0.39
Household 35,000,000 No. 3 Itoham Foods, Inc., 1.80% due 2/28/2003 336,922 302,309 0.88
Products 45,000,000 No. 4 Kikkoman, 1.60% due 12/29/2000 468,167 455,196 1.32
30,000,000 No. 6 Meiji Milk Products, 2.10% due 9/30/2002 303,887 290,993 0.85
35,000,000 No. 2 Skylark Co., Ltd., 1.60% due 6/28/1996 305,539 326,559 0.95
----------- ---------- ------
1,553,294 1,509,052 4.39
Health & 15,000,000 No. 2 Dai-Ichi Kogyo Seiyaku Co., Ltd., 2.00%
Personal Care due 3/31/1997 162,367 137,182 0.40
15,000,000 No. 3 EISAI Co., Ltd., 4.20% due 3/31/1998 183,945 171,824 0.50
----------- ---------- ------
346,312 309,006 0.90
Leisure 30,000,000 No. 2 Tokyo Dome Co., Ltd., 1.70% due 1/31/1997 303,458 266,051 0.77
15,000,000 No. 1 Yamaha Corp., 1.40% due 3/31/1997 150,737 130,254 0.38
----------- ---------- ------
454,195 396,305 1.15
Machinery 15,000,000 No. 1 Shibuya Kogyo Co., Ltd., 2.10% due 6/28/1996 128,413 132,610 0.39
15,000,000 No. 2 Sumitomo Precision Products Co., Ltd., 2.00%
due 9/30/1997 130,739 128,868 0.37
----------- ---------- ------
259,152 261,478 0.76
Metal & 25,000,000 No. 2 Godo Steel Co., Ltd., 2.60% due 3/29/2002 256,657 250,115 0.73
Mining
Multi- 40,000,000 No. 4 Sony Corp., 1.40% due 3/31/2005 278,956 327,021 0.95
Industry
Oil & Related 20,000,000 No. 4 Nippon Oil Co., Ltd., 1.70% due 3/31/2003 147,642 162,587 0.47
Real Estate 15,000,000 No. 12 Mitsui Real Estate Development Co., Ltd.,
1.40% due 9/30/2003 148,558 123,880 0.36
Transportation 30,000,000 No. 4 All Nippon Airways Co., Ltd., 1.80%
due 3/31/2003 254,706 243,326 0.71
50,000,000 No. 6 Yamato Transport Co. Ltd., 1.70% due 9/30/2002 539,151 518,245 1.51
----------- ---------- ------
793,857 761,571 2.22
Total Investments in Japanese Convertible Bonds 6,461,189 6,368,221 18.51
Total Investments in Pacific Basin Securities 7,950,429 7,834,294 22.78
</TABLE>
61
<PAGE>
Merrill Lynch Global Convertible Fund, Inc., October 31, 1993
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
WESTERN EUROPE
United Kingdom
Business 71,944 Saatchi & Saatchi Co., PLC $ 217,005 $ 196,739 0.57%
Services
Total Investments in United Kingdom Common Stocks 217,005 196,739 0.57
<CAPTION>
Face
Amount Convertible Bonds
<S> <C> <C> <C> <C> <C> <C>
France
Leisure Ffr 4,200,000 Euro Disney SCA, 6.75% due 10/01/2001 686,298 649,561 1.89
Total Investments in French Convertible Bonds 686,298 649,561 1.89
Switzerland
Banking US$ 700,000 CS Holdings, 4.875% due 11/19/2002 890,750 1,011,500 2.94
Total Investments in Swiss Convertible Bonds 890,750 1,011,500 2.94
United
Kingdom
Business Pound
Services Sterling 500,000 Hanson Trust PLC, 9.50% due 1/31/2006 869,996 902,866 2.63
Food & 500,000 Allied-Lyons PLC, 6.75% due 7/07/2008 817,944 828,557 2.41
Beverage 250,000 Northern Foods PLC, 6.75% due 8/08/2008 379,400 378,052 1.10
----------- ----------- ------
1,197,344 1,206,609 3.51
Oil &
Related 800,000 Elf Enterprise Finance, 8.75% due 6/27/2006 1,258,880 1,287,049 3.74
Transpor- 300,000 P&O Steam Navigation Co., 7.25% due 5/19/2003 477,653 479,299 1.39
tation
Total Investments in United Kingdom
Convertible Bonds 3,803,873 3,875,823 11.27
Total Investments in Western European Securities 5,597,926 5,733,623 16.67
<CAPTION>
Short-Term Securities
<S> <C> <C> <C> <C> <C> <C>
United States
Commercial
Paper* US$ 628,000 General Electric Capital Corp., 2.93% due 11/01/1993 627,898 627,898 1.83
US Government
Obligations* 2,500,000 US Treasury Bills, 3.00% due 1/13/1994 2,484,375 2,484,219 7.22
Total Investments in Short-Term Securities 3,112,273 3,112,117 9.05
Total Investments $33,196,815 33,743,159 98.12
===========
Unrealized Appreciation on Forward Foreign Exchange Contracts** 87,944 0.26
Other Assets Less Liabilities 557,447 1.62
----------- ------
Net Assets $34,388,550 100.00%
=========== ======
<FN>
*Commercial Paper and US Treasury Bills are traded on a discount basis;
the interest rates shown are the discount rates paid at the time of purchase
by the Fund.
**Forward foreign exchange contract as of October 31, 1993 is as follows:
Expiration
Foreign Currency Sold Date Appreciation
Yen 250,000,000 January 1993 $87,944
Total (US$ Commitment--$2,398,312) $87,944
=======
</TABLE>
See Notes to Financial Statements.
62
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of October 31, 1993
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$33,196,815) (Note 1a) $33,743,159
Cash 307
Unrealized appreciation on forward foreign exchange contracts (Note 1b) 87,944
Foreign demand deposits (Note 1b) 66,675
Receivables:
Interest $309,180
Capital shares sold 302,034
Dividends 4,861 616,075
--------
Prepaid registration fees and other assets (Note 1f) 52,516
-----------
Total assets 34,566,676
-----------
Liabilities: Payables:
Capital shares redeemed 56,842
Distributor (Note 2) 24,808
Investment adviser (Note 2) 18,471 100,121
--------
Accrued expenses and other liabilities 78,005
-----------
Total liabilities 178,126
-----------
Net Assets: Net assets $34,388,550
===========
Net Assets Class A Common Stock, $0.10 par value, 100,000,000 shares authorized $ 41,141
Consist of: Class B Common Stock, $0.10 par value, 100,000,000 shares authorized 267,946
Paid-in capital in excess of par 33,072,579
Undistributed investment income--net 71,580
Undistributed realized capital gains on investments and foreign
currency transactions--net 303,814
Unrealized appreciation on investments and foreign currency
transactions--net 631,490
-----------
Net assets $34,388,550
===========
Net Asset Value: Class A--Based on net assets of $4,557,201 and 411,407 shares outstanding $ 11.08
===========
Class B--Based on net assets of $29,831,349 and 2,679,466 shares outstanding $ 11.13
===========
</TABLE>
See Notes to Financial Statements.
63
<PAGE>
Merrill Lynch Global Convertible Fund, Inc., October 31, 1993
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended October 31, 1993
<S> <C> <C> <C>
Investment Interest and discount earned (net of $7,703 foreign withholding tax) $ 760,353
Income Dividends (net of $113 foreign withholding tax) 226,615
(Notes 1d & 1e): ----------
Total investment income 986,968
----------
Expenses: Distribution fees--Class B (Note 2) 189,770
Investment advisory fees (Note 2) 139,948
Printing and shareholder reports 82,325
Professional fees 69,351
Accounting services (Note 2) 49,224
Registration fees (Note 1f) 47,493
Directors' fees and expenses 36,395
Transfer agent fees--Class B (Note 2) 25,426
Custodian fees 19,660
Amortization of organization expenses (Note 1f) 8,247
Transfer agent fees--Class A (Note 2) 2,795
Other 5,527
----------
Total expenses 676,161
----------
Investment income--net 310,807
----------
Realized & Realized gain from:
Unrealized Gain on Investments--net $ 280,656
Investments & Foreign currency transactions 23,158 303,814
----------
Foreign Currency
Transactions--Net Change in unrealized appreciation/depreciation on:
(Notes 1b, 1e & 3): Investments--net 2,442,681
Foreign currency transactions 64,039 2,506,720
---------- ----------
Net realized and unrealized gain on investments and foreign
currency transactions 2,810,534
----------
Net Increase in Net Assets Resulting from Operations $3,121,341
==========
</TABLE>
See Notes to Financial Statements.
64
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1993 1992
<S> <C> <C> <C>
Operations: Investment income--net $ 310,807 $ 187,183
Realized gain on investments and foreign currency transactions--net 303,814 310,130
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net 2,506,720 750,722
----------- -----------
Net increase in net assets resulting from operations 3,121,341 1,248,035
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (59,079) (18,134)
Shareholders Class B (236,220) (231,397)
(Note 1g): Realized gain on investments--net:
Class A (37,814) (11,283)
Class B (223,267) (368,072)
----------- -----------
Net decrease in net assets resulting from dividends and distributions
to shareholders (556,380) (628,886)
----------- -----------
Capital Share Net increase in net assets derived from capital share transactions 15,565,778 217,975
Transactions ----------- -----------
(Note 4):
Net Assets: Total increase in net assets 18,130,739 837,124
Beginning of year 16,257,811 15,420,687
----------- -----------
End of year* $34,388,550 $16,257,811
=========== ===========
<FN>
*Undistributed investment income--net $ 71,580 $ 56,072
=========== ===========
</TABLE>
See Notes to Financial Statements.
65
<PAGE>
Merrill Lynch Global Convertible Fund, Inc., October 31, 1993
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
For the
Period
The following per share data and ratios have been derived Nov. 4,
from information provided in the financial statements. For the Year Ended 1988++ to
October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Net asset value beginning of period $ 9.79 $ 9.39 $ 8.37 $ 9.95 $ 9.97
Performance: ------- ------- ------- ------- -------
Investment income--net .23 .21 .25 .38 .39
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net++++ 1.45 .68 1.22 (1.11) .21
------- ------- ------- ------- -------
Total from investment operations 1.68 .89 1.47 (.73) .60
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.23) (.25) (.37) (.42) (.45)
------- ------- ------- ------- -------
Realized gain on investments--net (.16) (.24) (.08) (.43) (.17)
------- ------- ------- ------- -------
Total dividends and distributions (.39) (.49) (.45) (.85) (.62)
------- ------- ------- ------- -------
Net asset value, end of period $ 11.08 $ 9.79 $ 9.39 $ 8.37 $ 9.95
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 17.64% 10.00% 18.09% (7.86%) 6.29%+++
Return:** ======= ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement 2.22% 2.47% 2.47% 2.39% 1.77%*
Net Assets: ======= ======= ======= ======= =======
Expenses 2.22% 2.86% 2.87% 2.39% 1.77%*
======= ======= ======= ======= =======
Investment income--net 2.36% 2.61% 3.16% 4.55% 5.62%*
======= ======= ======= ======= =======
Supplemental Data: Net assets, end of period (in thousands) $ 4,557 $ 2,283 $ 448 $ 162 $ 194
======= ======= ======= ======= =======
Portfolio turnover 26.02% 4.91% 18.02% 22.76% 15.91%
======= ======= ======= ======= =======
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Net asset value beginning of period $ 9.84 $ 9.44 $ 8.39 $ 9.95 $ 9.94
Performance: ------- ------- ------- ------- -------
Investment income--net .13 .12 .18 .29 .37
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net++++ 1.46 .67 1.20 (1.10) .17
------- ------- ------- ------- -------
Total from investment operations 1.59 .79 1.38 (.81) .54
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.14) (.15) (.25) (.32) (.36)
Realized gain on investments--net (.16) (.24) (.08) (.43) (.17)
------- ------- ------- ------- -------
Total dividends and distributions (.30) (.39) (.33) (.75) (.53)
------- ------- ------- ------- -------
Net asset value, end of period $ 11.13 $ 9.84 $ 9.44 $ 8.39 $ 9.95
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 16.45% 8.77% 16.79% (8.68%) 5.58%
Return:** ======= ======= ======= ======= =======
66
<PAGE>
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratios to Average Expenses, excluding distribution fees and net of
Net Assets: reimbursement 2.26% 2.49% 2.50% 2.41% 1.63%
======= ======= ======= ======= =======
Expenses, net of reimbursement 3.26% 3.49% 3.50% 3.41% 2.63%
======= ======= ======= ======= =======
Expenses 3.26% 3.96% 3.88% 3.41% 2.97%
======= ======= ======= ======= =======
Investment income--net 1.32% 1.53% 2.25% 3.51% 3.62%
======= ======= ======= ======= =======
Supplemental Data: Net assets, end of period (in thousands) $29,831 $13,975 $14,973 $18,296 $30,813
======= ======= ======= ======= =======
Portfolio turnover 26.02% 4.91% 18.02% 22.76% 15.91%
======= ======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Foreign currency transaction amounts have been reclassified to
conform with 1993 presentation.
+++Aggregate total investment return.
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Global Convertible Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end management investment company. The Fund
offers both Class A and Class B Shares. Class A Shares are sold
with a front-end sales charge. Class B Shares may be subject to a
contingent deferred sales charge. Both classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B Shares bear certain
expenses related to the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are
traded on stock exchanges are valued at the last sale price on the
exchange on which such securities are traded as of the close of
business on the day the securities are being valued or, lacking any
sales, at the last available bid price. Securities traded in the over-
the-counter market are valued at the last available quoted bid price
in the over-the-counter market prior to the time of valuation. In
cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated by or under the
authority of the Fund's Directors as the primary market. Securities
traded both in the over-the-counter market and on a stock exchange
are valued based upon the prices or quotes obtained from the broadest
and most representative market. Short-term securities are valued at
amortized cost which approximates market. Options which are traded on
exchanges are valued at their last sale price as of the close of such
exchanges or, lacking any sales, at the last available bid price.
Securities for which market quotations are not readily available are
valued at their fair value as determined in good faith by or under
the direction of the Fund's Directors.
(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing
when recognized. Assets and liabilities denominated in foreign
currencies are valued at the exchange rate at the end of the
period. Foreign currency transactions are the result of settling
(realized) or valuing (unrealized) such transactions expressed in
foreign currencies into US dollars. Realized and unrealized gains
or losses from investments include the effects of foreign
exchange rates on investments.
The Fund is authorized to enter into forward foreign exchange
contracts as a hedge against either specific transactions or
portfolio positions. Such contracts are not entered on the Fund's
records. However, the effect on operations income is recorded from
the date the Fund enters into such contracts. Premium or discount is
amortized over the life of the contracts.
(c) Options--The Fund can write covered call options and purchase
put options. When the Fund writes an option, an amount equal to
the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written.
When a security is sold through an exercise of an option, the
related premium received (or paid) is deducted from (or added to) the
basis of the security sold. When an option expires (or the Fund enters
into a closing transaction), the Fund realizes a gain or loss on the
option to the extent of the premiums received or paid (or gain or loss
to the extent the cost of the closing transaction exceeds the premium
paid or received).
Written and purchased options are non-income producing
investments.
67
<PAGE>
Merrill Lynch Global Convertible Fund, Inc., October 31, 1993
NOTES TO FINANCIAL STATEMENTS (concluded)
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no Federal income tax provision
is required. Under the applicable foreign tax law, a withholding tax
may be imposed on interest, dividends, and capital gains at various rates.
(e) Security transactions and investment income--Security transactions
are recorded on the dates the transactions are entered into (the
trade dates). Dividend income is recorded on the ex-dividend date,
except that if the ex-dividend date has passed, certain dividends from
foreign securities are recorded as soon as the Fund is informed of the
ex-dividend date. Interest income (including amortization of discount) is
recognized on the accrual basis. Realized gains and losses on security
transactions are determined on the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by the
Fund are recorded on the ex-dividend dates.
(h) Reclassifications--Certain 1992 amounts have been reclassified to
conform to the 1993 presentation.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management ("MLAM"). MLAM is the name under
which Merrill Lynch Investment Management, Inc. ("MLIM") does
business. MLIM is an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc. The Fund also has a Distribution Agreement and
a Distribution Plan with Merrill Lynch Funds Distributor, Inc.
("MLFD" or "Distributor"), a wholly-owned subsidiary of MLIM.
MLAM is responsible for the management of the Fund's portfolio
and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee at the annual rate
of 0.65% of the average daily value of the Fund's net assets.
Certain of the states in which the shares of the Fund are
qualified for sale impose limitations on the expenses of the
Fund. The most restrictive annual expense limitation requires
that the Investment Adviser reimburse the Fund to the extent the
Fund's expenses (excluding interest, taxes, distribution
fees, brokerage fees and commissions, and extraordinary items)
exceed 2.5% of the Fund's first $30 million of average daily net
assets, 2.0% of the Fund's next $70 million of average daily net
assets, and 1.5% of the average daily net assets in excess thereof.
MLAM's obligation to reimburse the Fund is limited to the amount of
the management fee.
No fee payment will be made to MLAM during any fiscal year that
will cause such expenses to exceed the most restrictive expense
limitation at the time of such payment.
The Fund has adopted a Plan of Distribution (the "Plan") pursuant
to Rule 12b-1 under the Investment Company Act of 1940, pursuant
to which MLFD receives a fee from the Fund at the end of each month
at an annual rate of 1.0% of the average daily net assets of the
Class B Shares of the Fund. This fee is to compensate the Distributor
for the services it provides and the expenses borne by the Distributor
under the Distribution Agreement. As authorized by the Plan, the
Distributor has entered into an agreement with Merrill Lynch, Pierce,
Fenner & Smith Inc. ("MLPF&S"), an affiliate of MLIM, which provides
for the compensation of MLPF&S for providing distribution-related
services to the Fund. For the year ended October 31, 1993, MLFD earned
$189,770 under the Plan, all of which was paid to MLPF&S pursuant
to the Agreement.
For the year ended October 31, 1993, MLFD earned underwriting
discounts of $5,201, and MLPF&S earned dealer concessions of
$47,763 on sales of the Fund's Class A Shares.
MLPF&S received contingent deferred sales charges of $23,432 for
the sale of Class B Shares.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
Merrill Lynch & Co., Inc., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
68
<PAGE>
Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, MLPF&S, FDS, MLFD, and/or Merrill Lynch & Co., Inc.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the year ended October 31, 1993 were $21,208,852
and $4,198,557, respectively.
Net realized and unrealized gains (losses) as of October 31, 1993
were as follows:
Realized Unrealized
Gains Gains (Losses)
Long-term investments $280,619 $546,500
Short-term investments 37 (156)
Foreign currency transactions 23,158 (2,798)
Forward foreign exchange contracts -- 87,944
-------- --------
Total $303,814 $631,490
======== ========
As of October 31, 1993, net unrealized appreciation for Federal
income tax purposes aggregated $546,344, of which $1,463,353
related to appreciated securities and $917,009 related to
depreciated securities. At October 31, 1993, the aggregate cost
of investments for Federal income tax purposes was $33,196,815.
4. Capital Share Transactions:
Net increase in net assets derived from capital share
transactions were $15,565,778 and $217,975 for the years ended
October 31, 1993 and October 31, 1992, respectively.
Transactions in capital shares for Class A and Class B were as
follows:
Class A Shares for the Year Dollar
Ended October 31, 1993 Shares Amount
Shares sold 344,076 $ 3,672,869
Shares issued to shareholders in
reinvestment of dividends and
distributions 7,421 74,878
--------- -----------
Total issued 351,497 3,747,747
Shares redeemed (173,369) (1,757,328)
--------- -----------
Net increase 178,128 $ 1,990,419
========= ===========
Class A Shares for the Year Dollar
Ended October 31, 1992 Shares Amount
Shares sold 264,681 $ 2,546,941
Shares issued to shareholders in
reinvestment of dividends and
distributions 2,040 18,618
--------- -----------
Total issued 266,721 2,565,559
Shares redeemed (81,135) (761,771)
--------- -----------
Net increase 185,586 $ 1,803,788
========= ===========
Class B Shares for the Year Dollar
Ended October 31, 1993 Shares Amount
Shares sold 1,924,389 $20,699,900
Shares issued to shareholders in
reinvestment of dividends and
distributions 33,583 338,734
--------- -----------
Total issued 1,957,972 21,038,634
Shares redeemed (698,109) (7,463,275)
--------- -----------
Net increase 1,259,863 $13,575,359
========= ===========
Class B Shares for the Year Dollar
Ended October 31, 1992 Shares Amount
Shares sold 511,719 $ 4,895,980
Shares issued to shareholders in
reinvestment of dividends and
distributions 43,019 388,354
--------- -----------
Total issued 554,738 5,284,334
Shares redeemed (720,408) (6,870,147)
--------- -----------
Net decrease (165,670) $(1,585,813)
========= ===========
69
<PAGE>
The following semi-annual financial statements for the Fund for the period
ended April 30, 1994 are unaudited.
These unaudited interim financial statements reflect all adjustments which
are, in the opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of normal recurring
nature.
70
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in US dollars)
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C>
NORTH AMERICA
United States
Chemicals 5,000 Dow Chemical Co. $ 314,725 $ 313,750 0.75%
10,000 Witco Corp. 290,600 292,500 0.69
----------- ----------- -------
605,325 606,250 1.44
Foods 10,000 Archer-Daniels-Midland Co. 240,075 230,000 0.55
Forest Products/ 20,000 Federal Paper Board Co. 451,250 425,000 1.01
Paper & Packaging 7,000 International Paper Co. 469,490 456,750 1.09
----------- ----------- -------
920,740 881,750 2.10
Metals & Mining 20,000 Wheeling-Pittsburg Corp. 332,450 330,000 0.79
Oil & Related 10,000 Exxon Corp. 615,700 628,750 1.50
Pharmaceuticals 10,000 Merck & Co. 298,200 296,250 0.70
Total Investments in United States Common Stocks 3,012,490 2,973,000 7.08
<CAPTION>
Convertible Preferred Stocks
<S> <C> <C> <C> <C> <C>
Canada
Oil & Gas Producers 10,000 Occidental Petroleum Corp., Pfd., Series A 500,700 452,500 1.08
Total Investments in Canadian
Convertible Preferred Stocks 500,700 452,500 1.08
United States
Automotive Parts 3,000 Goodrich (B.F.) Company, $3.50 Pfd. 164,550 150,000 0.36
Chemicals 20,000 Ashland Oil Inc., $6.25 Pfd. 1,065,800 1,280,000 3.05
Data Processing 20,000 UNISYS Corp., $3.75 Pfd., Series A 1,233,875 797,500 1.90
Food/Beverage/ 30,000 ConAgra Inc., Pfd., Class E 998,025 922,500 2.20
Tobacco & Household
Forest Products/ 10,000 Federal Paper Board Co., Pfd. 489,550 450,000 1.07
Paper & Packaging 5,000 James River Corp. of Virginia, $3.375 Pfd., Series K 223,000 198,125 0.47
----------- ----------- -------
712,550 648,125 1.54
Metals & Mining 10,000 USX Corp., $3.25 Pfd. 505,800 500,000 1.19
5,000 Wheeling-Pittsburg Corp., Series K 256,650 300,000 0.71
----------- ----------- -------
762,450 800,000 1.90
Transportation 20,000 Delta Airlines, Inc. 1,010,350 980,000 2.33
Total Investments in United States
Convertible Preferred Stocks 5,947,600 5,578,125 13.28
<CAPTION>
Face
Amount Convertible Bonds
<S> <C> <C> <C> <C> <C> <C>
Canada
Oil & Related US$ 1,000,000 Amoco Canada Petro Co., Ltd., 7.375% due 9/01/2013 1,199,000 1,150,000 2.74
Total Investments in Canadian Convertible Bonds 1,199,000 1,150,000 2.74
</TABLE>
71
<PAGE>
Merrill Lynch Global Convertible Fund, Inc., April 30, 1994
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
Face Value Percent of
Industries Amount Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
NORTH AMERICA
(concluded)
United States
Building &
Construction US$ 500,000 Masco Corp., 5.25% due 2/15/2012 $ 436,250 $ 450,000 1.07%
Computer Services 500,000 Cray Research, Inc., 6.125% due 2/01/2011 510,000 425,000 1.01
Electronics 1,700,000 Texas Instruments, Inc., 2.75% due 9/29/2002 1,673,875 1,755,250 4.18
Food & Beverage 1,000,000 American Brands Inc., 5.75% due 4/11/2005 1,167,500 1,145,000 2.72
Forest Products/ 500,000 Mead Corp., 6.75% due 9/15/2012 474,750 492,500 1.17
Paper & Packaging
Leisure 400,000 Eastman Kodak Co., 6.375% due 7/01/2001 421,000 412,000 0.98
Metals & Mining 1,200,000 Homestake Mining Co., 5.50% due 6/23/2000 1,257,000 1,254,000 2.99
300,000 USX Corp., 7.00% due 6/15/2017 285,600 261,000 0.62
----------- ----------- -------
1,542,600 1,515,000 3.61
Multi-Industry 1,000,000 Ogden Corp., 5.75% due 10/20/2002 935,500 860,000 2.04
Natural Gas 500,000 Consolidated Natural Gas Co., 7.25% due 12/15/2015 606,250 507,500 1.21
Oil & Related 1,600,000 Pennzoil Co., 4.75% due 10/01/2003 1,614,625 1,440,000 3.43
Real Estate 500,000 Rockefeller Center Properties, Inc., 8.00% due
12/31/2000 520,000 445,000 1.06
Retail Stores 1,250,000 Home Depot Inc., 4.50% due 2/15/1997 1,453,750 1,406,250 3.35
Textiles 250,000 Fieldcrest Cannon, Inc., 6.00% due 3/15/2012 160,000 222,500 0.53
Total Investments in United States
Convertible Bonds 11,516,100 11,076,000 26.36
Total Investments in North American Securities 22,175,890 21,229,625 50.54
<CAPTION>
Shares
PACIFIC BASIN Held Common Stocks
<S> <C> <C> <C> <C> <C> <C>
Japan
Financial Services 10,000 Daiwa Securities Co., Ltd. 109,055 156,235 0.37
10,000 ++Nikko Securities Co., Ltd. 91,790 119,878 0.29
6,000 Nomura Securities Co., Ltd. 94,803 130,294 0.31
10,000 ++Yamaichi Securities Co., Ltd. 94,005 84,013 0.20
----------- ----------- -------
389,653 490,420 1.17
Machinery 20,000 Shimadzu Corp. 156,900 135,010 0.32
5,000 ++Sodick Co., Ltd. 94,250 41,761 0.10
----------- ----------- -------
251,150 176,771 0.42
Total Investments in Japanese Common Stocks 640,803 667,191 1.59
<CAPTION>
Face
Amount Convertible Bonds
<S> <C> <C> <C> <C> <C> <C>
Australia
Banking US$ 750,000 Lend Lease Finance International, 4.75% due
6/01/2003 848,437 828,750 1.97
Total Investments in Australian Convertible Bonds 848,437 828,750 1.97
</TABLE>
72
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Japan
Automotive yen 15,000,000 No. 2 Mazda Motors, Ltd., 1.70% due 3/31/1998 131,050 136,779 0.33
Banking 30,000,000 No. 2 Bank of Tokyo, Ltd., 1.30% due 9/30/1994 301,264 299,204 0.71
Building &
Construction 25,000,000 No. 2 Nichiei Construction Co., Ltd., 1.50%
due 4/30/1999 195,234 227,474 0.54
25,000,000 No. 5 Nichiei Construction Co., Ltd., 1.70%
due 10/31/2002 261,132 254,495 0.61
----------- ----------- -------
456,366 481,969 1.15
Business Services 50,000,000 No. 8 SECOM, 4.20% due 9/30/1994 520,105 517,834 1.23
Chemicals 20,000,000 No. 6 Sekisui Plastic Co., Ltd., 2.00% due 9/29/2000 217,190 210,278 0.50
Computer Services 5,000,000 No. 5 CSK Corp., 3.80% due 3/19/1999 38,344 49,376 0.12
5,000,000 No. 6 CSK Corp., 3.90% due 3/20/2001 38,344 49,376 0.12
----------- ----------- -------
76,688 98,752 0.24
Electronics 50,000,000 No. 7 Fujitsu Ltd., 4.30% due 9/29/1995 505,414 516,852 1.23
15,000,000 No. 2 Kyushu Matsushita Electric Co., Inc., 1.50%
due 3/31/1999 158,941 161,099 0.38
50,000,000 No. 11 Sharp Corp., 1.50% due 9/30/1998 504,281 571,386 1.36
----------- ----------- -------
1,168,636 1,249,337 2.97
Food & Household 15,000,000 No. 4 Asahi Breweries, Ltd., 2.10% due 10/21/1997 138,779 140,169 0.33
Products 35,000,000 No. 3 Itoham Foods, Inc., 1.80% due 2/28/2003 336,922 299,548 0.71
45,000,000 No. 4 Kikkoman, 1.60% due 12/29/2000 468,167 458,092 1.09
30,000,000 No. 6 Meiji Milk Products, 2.10% due 9/30/2002 303,887 291,834 0.69
35,000,000 No. 2 Skylark Co., Ltd., 1.60% due 6/28/1996 305,539 370,738 0.88
----------- ----------- -------
1,553,294 1,560,381 3.70
Health &
Personal Care 15,000,000 No. 2 Dai-Ichi Kogyo Seiyaku Co., Ltd., 2.00%
due 3/31/1997 162,367 143,412 0.34
15,000,000 No. 3 EISAI Co., Ltd., 4.20% due 3/31/1998 183,945 171,268 0.41
----------- ----------- -------
346,312 314,680 0.75
Leisure 50,000,000 No. 4 Canon Co., 1.20% due 12/20/2005 553,669 564,999 1.35
30,000,000 No. 2 Tokyo Dome Co., Ltd., 1.70% due 1/31/1997 303,458 281,812 0.67
----------- ----------- -------
857,127 846,811 2.02
Metals & Mining 25,000,000 No. 2 Godo Steel Co., Ltd., 2.60% due 3/29/2002 256,657 250,565 0.60
Multi-Industry 30,000,000 No. 5 Asahi Glass Co., Ltd., 1.90% due 12/26/2008 294,461 320,723 0.76
40,000,000 No. 4 Sony Corp., 1.40% due 3/31/2005 278,956 371,819 0.89
----------- ----------- -------
573,417 692,542 1.65
Oil & Related 20,000,000 No. 4 Nippon Oil Co., Ltd., 1.70% due 3/31/2003 147,642 166,257 0.40
Real Estate 15,000,000 No. 12 Mitsui Real Estate Development Co., Ltd.,
1.40% due 9/30/2003 148,558 127,493 0.30
Transportation 30,000,000 No. 4 All Nippon Airways Co., Ltd., 1.00%
due 3/31/2004 312,259 321,313 0.77
50,000,000 No. 6 Yamato Transport Co., Ltd., 1.70% due 9/30/2002 539,151 552,226 1.31
----------- ----------- -------
851,410 873,539 2.08
Total Investments in Japanese Convertible Bonds 7,605,716 7,826,421 18.63
Total Investments in Pacific Basin Securities 9,094,956 9,322,362 22.19
</TABLE>
73
<PAGE>
Merrill Lynch Global Convertible Fund, Inc., April 30, 1994
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C>
WESTERN EUROPE
United Kingdom
Business Services 71,944 Saatchi & Saatchi Co., PLC $ 217,005 $ 140,604 0.33%
Total Investments in United Kingdom
Common Stocks 217,005 140,604 0.33
<CAPTION>
Face
Amount Convertible Bonds
<S> <C> <C> <C> <C> <C> <C>
France
Leisure Ffr 4,200,000 Euro Disney SCA, 6.75% due 10/01/2001 686,297 613,055 1.46
Total Investments in French Convertible Bonds 686,297 613,055 1.46
Switzerland
Banking US$ 700,000 CS Holdings, 4.875% due 11/19/2002 890,750 918,750 2.19
Total Investments in Swiss Convertible Bonds 890,750 918,750 2.19
United Kingdom
Business Services Pound 500,000 Hanson Trust PLC, 9.50% due 1/31/2006 869,996 874,912 2.08
Ster-
ling
Food & Beverage 500,000 Allied-Lyons PLC, 6.75% due 7/07/2008 817,944 808,631 1.92
550,000 Northern Foods PLC, 6.75% due 8/08/2008 867,775 797,837 1.90
----------- ----------- -------
1,685,719 1,606,468 3.82
Oil & Related 800,000 EE Finance, 8.75% due 6/27/2006 1,258,880 1,212,000 2.89
Transportation 300,000 P&O Steam Navigation Co., 7.25% due 5/19/2003 477,653 528,356 1.26
Total Investments in United Kingdom
Convertible Bonds 4,292,248 4,221,736 10.05
Total Investments in Western European
Securities 6,086,300 5,894,145 14.03
<CAPTION>
Face
Amount Short-Term Securities
<S> <C> <C> <C> <C> <C> <C>
United States
Commercial Paper* US$ 322,000 General Electric Capital Corp., 3.53% due 5/02/1994 321,937 321,937 0.77
US Government & US Treasury Bills:
Agency Obli- 1,000,000 3.37% due 5/05/1994 999,532 996,162 2.37
gations* 3,500,000 3.50% due 5/12/1994 3,495,917 3,495,917 8.32
----------- ----------- -------
4,495,449 4,492,079 10.69
Total Investments in Short-Term Securities 4,817,386 4,814,016 11.46
Total Investments $42,174,532 41,260,148 98.22
===========
Unrealized Depreciation on Forward Foreign Exchange Contracts** (66,036) (0.16)
Other Assets Less Liabilities 812,848 1.94
----------- -------
Net Assets $42,006,960 100.00%
=========== =======
</TABLE>
74
<PAGE>
++Non-income producing security.
*Commercial Paper and certain US Government & Agency Obligations are traded
on a discount basis; the interest rates shown are the discount rates paid
at the time of purchase by the Fund.
**Forward foreign exchange contracts as of April 30, 1994 are as follows:
Unrealized
Foreign Currency Sold Expiration Date Depreciation
yen 300,000,000 June 1994 $(48,607)
yen 150,000,000 July 1994 (17,429)
Total Unrealized Depreciation--Net on Forward Foreign
Exchange Contracts (US$ Commitment--$4,370,673) $(66,036)
========
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of April 30, 1994
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $42,174,532) (Note 1a) $41,260,148
Cash 529
Receivables:
Securities sold $ 401,996
Interest 336,681
Capital shares sold 305,787
Dividends 9,562 1,054,026
-----------
Prepaid expenses and other assets (Note 1f) 43,855
-----------
Total assets 42,358,558
-----------
Liabilities: Unrealized depreciation on forward foreign exchange contracts (Note 1b) 66,036
Payables:
Capital shares redeemed 142,348
Distributor (Note 2) 28,547
Investment adviser (Note 2) 21,358 192,253
-----------
Accrued expenses and other liabilities 93,309
-----------
Total liabilities 351,598
-----------
Net Assets: Net assets $42,006,960
===========
Net Assets Class A Common Stock, $0.10 par value, 100,000,000 shares authorized $ 51,543
Consist of: Class B Common Stock, $0.10 par value, 100,000,000 shares authorized 340,616
Paid-in capital in excess of par 42,059,371
Overdistributed investment income--net (106,940)
Undistributed realized capital gains on investments and foreign currency transactions--net 640,173
Unrealized depreciation on investments and foreign currency transactions--net (977,803)
-----------
Net assets $42,006,960
===========
Net Asset Class A--Based on net assets of $5,496,634 and 515,434 shares outstanding $ 10.66
Value: ===========
Class B--Based on net assets of $36,510,326 and 3,406,157 shares outstanding $ 10.72
===========
</TABLE>
See Notes to Financial Statements.
75
<PAGE>
Merrill Lynch Global Convertible Fund, Inc., April 30, 1994
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1994
<S> <C> <C> <C>
Investment Interest and discount earned (net of $5,738 foreign withholding tax) $ 640,894
Income Dividends (net of $534 foreign withholding tax) 239,296
(Notes 1d & 1e): -----------
Total investment income 880,190
-----------
Expenses: Distribution fees--Class B (Note 2) $ 166,308
Investment advisory fees (Note 2) 124,187
Printing and shareholder reports 45,991
Professional fees 31,616
Registration fees (Note 1f) 29,719
Accounting services (Note 2) 29,057
Directors' fees and expenses 22,742
Transfer agent fees--Class B (Note 2) 19,160
Custodian fees 12,061
Transfer agent fees--Class A (Note 2) 2,364
Other 2,830
-----------
Total expenses 486,035
-----------
Investment income--net 394,155
===========
Realized & Realized gain from:
Unrealized Gain Investments--net $ 602,967
(Loss) on Foreign currency transactions--net 13,934 616,901
Investments & -----------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (1,460,728)
(Notes 1b, 1d & 3): Foreign currency transactions--net (148,565) (1,609,293)
----------- -----------
Net realized and unrealized loss on investments and foreign currency transactions (992,392)
-----------
Net Decrease in Net Assets Resulting from Operations $ (598,237)
===========
</TABLE>
See Notes to Financial Statements.
76
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the Year
Months Ended Ended
Increase (Decrease) in Net Assets: April 30, 1994 Oct. 31, 1993
<S> <C> <C> <C>
Operations: Investment income--net $ 394,155 $ 310,807
Realized gain on investments and foreign currency transactions--net 616,901 303,814
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net (1,609,293) 2,506,720
----------- -----------
Net increase (decrease) in net assets resulting from operations (598,237) 3,121,341
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (95,927) (59,079)
Shareholders Class B (476,748) (236,220)
(Note 1g): Realized gain on investments--net:
Class A (36,293) (37,814)
Class B (244,249) (223,267)
----------- -----------
Net decrease in net assets resulting from dividends and distributions
to shareholders (853,217) (556,380)
----------- -----------
Capital Share Net increase in net assets derived from capital share transactions 9,069,864 15,565,778
Transactions ----------- -----------
(Note 4):
Net Assets: Total increase in net assets 7,618,410 18,130,739
Beginning of period 34,388,550 16,257,811
----------- -----------
End of period* $42,006,960 $34,388,550
=========== ===========
<FN>
*Undistributed (overdistributed) investment income--net $ (106,940) $ 71,580
=========== ===========
</TABLE>
See Notes to Financial Statements.
77
<PAGE>
Merrill Lynch Global Convertible Fund, Inc., April 30, 1994
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements. For the Six
Months Ended For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: April 30, 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.08 $ 9.79 $ 9.39 $ 8.37 $ 9.95
Operating ------- ------- ------- ------- -------
Performance: Investment income--net .18 .23 .21 .25 .38
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net (.29) 1.45 .68 1.22 (1.11)
------- ------- ------- ------- -------
Total from investment operations (.11) 1.68 .89 1.47 (.73)
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.22) (.23) (.25) (.37) (.42)
Realized gain on investments--net (.09) (.16) (.24) (.08) (.43)
------- ------- ------- ------- -------
Total dividends and distributions (.31) (.39) (.49) (.45) (.85)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.66 $ 11.08 $ 9.79 $ 9.39 $ 8.37
======= ======= ======= ======= =======
Total Investment Based on net asset value per share (1.03%)++ 17.64% 10.00% 18.09% (7.86%)
Return:** ======= ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement 1.66%* 2.22% 2.47% 2.47% 2.39%
Net Assets: ======= ======= ======= ======= =======
Expenses 1.66%* 2.22% 2.86% 2.87% 2.39%
======= ======= ======= ======= =======
Investment income--net 2.95%* 2.36% 2.61% 3.16% 4.55%
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $5,497 $ 4,557 $ 2,283 $ 448 $ 162
Data: ======= ======= ======= ======= =======
Portfolio turnover 18.51% 26.02% 4.91% 18.02% 22.76%
======= ======= ======= ======= =======
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements. For the Six
Months Ended For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: April 30, 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.13 $ 9.84 $ 9.44 $ 8.39 $ 9.95
Operating ------- ------- ------- ------- -------
Performance: Investment income--net .11 .13 .12 .18 .29
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net (.27) 1.46 .67 1.20 (1.10)
------- ------- ------- ------- -------
Total from investment operations (.16) 1.59 .79 1.38 (.81)
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.16) (.14) (.15) (.25) (.32)
Realized gain on investments--net (.09) (.16) (.24) (.08) (.43)
------- ------- ------- ------- -------
Total dividends and distributions (.25) (.30) (.39) (.33) (.75)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.72 $ 11.13 $ 9.84 $ 9.44 $ 8.39
======= ======= ======= ======= =======
</TABLE>
78
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total Investment Based on net asset value per share (1.43%)++ 16.45% 8.77% 16.79% (8.68%)
Return:** ======= ======= ======= ======= =======
Ratios to Average Expenses, excluding distribution fees and net
Net Assets: of reimbursement 1.68%* 2.26% 2.49% 2.50% 2.41%
======= ======= ======= ======= =======
Expenses, net of reimbursement 2.68%* 3.26% 3.49% 3.50% 3.41%
======= ======= ======= ======= =======
Expenses 2.68%* 3.26% 3.96% 3.88% 3.41%
======= ======= ======= ======= =======
Investment income--net 1.93%* 1.32% 1.53% 2.25% 3.51%
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $36,510 $29,831 $13,975 $14,973 $18,296
Data: ======= ======= ======= ======= =======
Portfolio turnover 18.51% 26.02% 4.91% 18.02% 22.76%
======= ======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Aggregate total investment returns.
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Global Convertible Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end management investment company. The Fund
offers both Class A and Class B Shares. Class A Shares are sold
with a front-end sales charge. Class B Shares may be subject to a
contingent deferred sales charge. Both classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B Shares bear
certain expenses related to the account maintenance fee and
distribution fee of such shares and have exclusive voting rights
with respect to matters relating to such account maintenance
distribution expenditures. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are
traded on stock exchanges are valued at the last sale price on
the exchange on which such securities are traded as of the close
of business on the day the securities are being valued or,
lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last
available quoted bid price in the over-the-counter market prior
to the time of valuation. In cases where securities are traded on
more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Fund's Directors as
the primary market. Securities traded both in over-the-counter
market and on a stock exchange are valued based upon the prices
or quotes obtained from the broadest and most representative
market. Short-term securities are valued at amortized cost, which
approximates market. Options which are traded on exchanges are
valued at their last sale price as of the close of such exchanges
or, lacking any sales, at the last available bid price.
Securities for which market quotations are not readily available
are valued at their fair value as determined in good faith by or
under the direction of the Fund's Directors.
(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing
when recognized. Assets and liabilities denominated in foreign
currencies are valued at the exchange rate at the end of the
period. Foreign currency transactions are the result of settling
(realized) or valuing (unrealized) such transactions expressed in
foreign currencies into US dollars. Realized and unrealized gains
or losses from investments include the effects of foreign
exchange rates on investments.
The Fund is authorized to enter into forward foreign exchange
contracts as a hedge against either specific transactions or
portfolio positions. Such contracts are not entered on the Fund's
records. However, the effect on operations is recorded from the
date the Fund enters into such contracts. Premium or discount is
amortized over the life of the contracts.
79
<PAGE>
Merrill Lynch Global Convertible Fund, Inc., April 30, 1994
NOTES TO FINANCIAL STATEMENTS (concluded)
The Fund may also purchase or sell listed or over-the-counter
foreign currency options, foreign currency futures and related
options on foreign currency futures as a short or long hedge
against possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges on non-US
dollar-denominated securities owned by the Fund, sold by the Fund
but not yet delivered, or committed or anticipated to be
purchased by the Fund.
(c) Options--The Fund can write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an
asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value
of the option written.
When a security is sold through an exercise of an option, the
related premium received (or paid) is deducted from (or added to)
the basis of the security sold. When an option expires (or the
Fund enters into a closing transaction), the Fund realizes a gain
or loss on the option to the extent of the premiums received or
paid (or gain or loss to the extent the cost of the closing
transaction exceeds the premium paid or received).
Written and purchased options are non-income producing
investments.
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required. Under the applicable foreign tax law,
a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Dividend income is recorded on
the ex-dividend date, except that if the ex-dividend date has
passed, certain dividends from foreign securities are recorded as
soon as the Fund is informed of the ex-dividend date. Interest
income (including amortization of discount) is recognized on the
accrual basis. Realized gains and losses on security transactions
are determined on the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are
charged to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions
paid by the Fund are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). Effective January
1, 1994, the investment advisory business of MLAM was reorganized
from a corporation to a limited partnership. Both prior to and
after the reorganization, ultimate control of MLAM was vested
with Merrill Lynch & Co., Inc. ("ML & Co."). The general partner
of MLAM is Princeton Services, Inc., an indirect wholly-owned
subsidiary of Merrill Lynch & Co. The limited partners are ML &
Co. and Merrill Lynch Investment Management, Inc. ("MLIM"), which
is also an indirect wholly-owned subsidiary of ML & Co. The Fund
has also entered into a Distribution Agreement and a Distribution
Plan with Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), a wholly-owned subsidiary of MLIM.
MLAM is responsible for the management of the Fund's portfolio
and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee at the annual rate
of 0.65% of the average daily value of the Fund's net assets.
Certain of the states in which the shares of the Fund are
qualified for sale impose limitations on the expenses of the
Fund. The most restrictive annual expense limitation requires
that the Investment Adviser reimburse the Fund to the extent the
Fund's expenses (excluding interest, taxes, distribution fees,
brokerage fees and commissions, and extraordinary items) exceed
2.5% of the Fund's first $30 million of average daily net assets,
2.0% of the Fund's next $70 million of average daily net assets,
and 1.5% of the average daily net assets in excess thereof.
MLAM's obligation to reimburse the Fund is limited to the amount
of the management fee.
No fee payment will be made to MLAM during any fiscal year that
will cause such expenses to exceed the most restrictive expense
limitation at the time of such payment.
Pursuant to a distribution plan (the "Distribution Plan") adopted
by the Fund in accordance with Rule 12b-1 under the Investment
Company Act, the Fund pays the Distributor ongoing account
maintenance and distribution fees which are accrued daily and
paid monthly at the annual rates of 0.25% and 0.75%,
respectively, of the average daily net assets of the Class B
Shares of the Fund. Pursuant to a sub-agreement with the
Distributor, Merrill Lynch also provides account maintenance and
distribution service to the Fund. The ongoing account maintenance
fee compensates the Distributor and Merrill Lynch for providing
account maintenance services to Class B shareholders. As
authorized by the Plan, the Distributor has entered into an
agreement with Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), an affiliate of MLIM, which provides for the
compensation of MLPF&S for providing distribution-related
services to the
80
<PAGE>
Fund. For the six months ended April 30, 1994, MLFD earned $166,308
under the Plan, all of which was paid to MLPF&S pursuant to the agreement.
For the six months ended April 30, 1994, MLFD earned underwriting
discounts of $1,588, and MLPF&S earned dealer concessions of
$17,859 on sales of the Fund's Class A Shares.
MLPF&S received contingent deferred sales charges of $22,031 for
the sale of Class B Shares and $1,090 in commissions on the
execution of portfolio security transactions for the Fund during
the period.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, MLPF&S, FDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the six months ended April 30, 1994 were
$12,593,605 and $5,924,233, respectively.
Net realized and unrealized gains (losses) as of April 30, 1994
were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 603,233 $ (911,014)
Short-term investments (266) (3,370)
Foreign currency transactions 20,782 2,617
Forward foreign exchange contracts (6,848) (66,036)
---------- -----------
Total $ 616,901 $ (977,803)
========== ===========
As of April 30, 1994, net unrealized depreciation for Federal
income tax purposes aggregated $914,384, of which $1,020,774
related to appreciated securities and $1,935,158 related to
depreciated securities. At April 30, 1994, the aggregate cost of
investments for Federal income tax purposes was $42,174,532.
4. Capital Share Transactions:
Net increase in net assets derived from capital share
transactions were $9,069,864 and $15,565,778 for the six months
ended April 30, 1994 and the year ended October 31, 1993,
respectively.
Transactions in capital shares for Class A and Class B were as
follows:
Class A Shares for the Six Months Dollar
Ended April 30, 1994 Shares Amount
Shares sold 190,483 $ 2,076,542
Shares issued to shareholders in
reinvestment of dividends and
distributions 9,850 104,545
---------- -----------
Total issued 200,333 2,181,087
Shares redeemed (96,306) (1,044,479)
---------- -----------
Net increase 104,027 $ 1,136,608
========== ===========
Class A Shares for the Year Dollar
Ended October 31, 1993 Shares Amount
Shares sold 344,076 $ 3,672,869
Shares issued to shareholders in
reinvestment of dividends and
distributions 7,421 74,878
---------- -----------
Total issued 351,497 3,747,747
Shares redeemed (173,369) (1,757,328)
---------- -----------
Net increase 178,128 $ 1,990,419
========== ===========
Class B Shares for the Six Months Dollar
Ended April 30, 1994 Shares Amount
Shares sold 1,070,403 $11,743,371
Shares issued to shareholders in
reinvestment of dividends and
distributions 52,288 510,610
---------- -----------
Total issued 1,122,691 12,253,981
Shares redeemed (396,000) (4,320,725)
---------- -----------
Net increase 726,691 $ 7,933,256
========== ===========
Class B Shares for the Year Dollar
Ended October 31, 1993 Shares Amount
Shares sold 1,924,389 $20,699,900
Shares issued to shareholders in
reinvestment of dividends and
distributions 33,583 338,734
---------- -----------
Total issued 1,957,972 21,038,634
Shares redeemed (698,109) (7,463,275)
---------- -----------
Net increase 1,259,863 $13,575,359
========== ===========
81
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies................ 2
Management of the Fund........................... 14
Directors and Officers......................... 14
Management and Advisory
Arrangements................................ 16
Purchase of Shares............................... 17
Redemption of Shares............................. 24
Portfolio Transactions and Brokerage............. 26
Determination of Net Asset Value................. 27
Shareholder Services............................. 28
Dividends, Distributions and Taxes............... 42
Performance Data................................. 46
General Information.............................. 48
Description of Shares.......................... 48
Computation of Offering Price Per Share........ 49
Independent Auditors........................... 49
Custodian...................................... 50
Transfer Agent................................. 50
Legal Counsel.................................. 50
Reports to Shareholders........................ 50
Additional Information......................... 50
Appendix......................................... 51
Independent Auditors' Report..................... 58
Financial Statements (audited)................... 59
Financial Statements (unaudited)................. 70
</TABLE>
Code #10666-1094
[LOGO]
MERRILL LYNCH
GLOBAL CONVERTIBLE
FUND, INC.
[ART]
Statement of
Additional Information
October 21, 1994
Distributor:
Merrill Lynch Funds
Distributor, Inc.
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents fair
and accurate narrative descriptions of graphic and image material omitted from
this EDGAR Submission File due to ASCII-incompatibility and cross-references
this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for the six months ended April 30, 1994
(unaudited) and for each of the periods in the six-year period ended
October 31, 1993 (audited).
Contained in Part B:
Schedules of Investments as of October 31, 1993 (audited) and as of
April 30, 1994 (unaudited).
Statements of Assets and Liabilities as of October 31, 1993
(audited) and as of April 30, 1994 (unaudited).
Statements of Operations for the year ended October 31, 1993
(audited) and for the six months ended April 30, 1994 (unaudited).
Statements of Changes in Net Assets for the years ended October 31,
1993 and 1992 (audited) and for the six months ended April 30, 1994
(unaudited).
Financial Highlights for the six months ended April 30, 1994
(unaudited) and for each of the periods in the five-year period ended
October 31, 1993 (audited).
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------------
<S> <C>
1
-- Articles of Incorporation of the Registrant.(a)
2
-- By-Laws of Registrant.(e)
3
-- None.
4
-- Portions of the Articles of Incorporation and the By-Laws of the Registrant defining the rights
of holders of shares of the Registrant.(h)
5 (a) -- Management Agreement between Registrant and Merrill Lynch Asset Management, Inc.(c)
(b) -- Supplement to Management Agreement between the Registrant and Merrill Lynch Asset Management,
L.P.
6 (a)(1) -- Class A Shares Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor,
Inc.(e)
(a)(2) -- Form of Revised Class A Shares Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.
6 (b) -- Class B Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor,
Inc.(e)
(c) -- Form of Class C Shares Distribution Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc.
(d) -- Form of Class D Shares Distribution Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc.
(e) -- Letter Agreement between the Fund and Merrill Lynch Funds Distributor, Inc. dated September 15,
1993, in connection with the Merrill Lynch Mutual Fund Adviser program.(i)
7
-- None.
8
-- Custody Agreement between Registrant and State Street Bank and Trust Company.(e)
9 (a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between
Registrant and Merrill Lynch Financial Data Service, Inc. (now known as Financial Data Services,
Inc.).(c)
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------------
<S> <C>
(b) -- Agreement between Merrill Lynch & Co., Inc. and the Registrant relating to use by Registrant of
Merrill Lynch name.(e)
10
-- None.
11
-- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
12
-- None.
13
-- Certificate of Merrill Lynch Asset Management, Inc.(e)
14 (a) -- Prototype Individual Retirement Account Plan, Simplified Employee Pension Plan and Corporate
Individual Retirement Account Plan available from Merrill Lynch, Pierce, Fenner & Smith
Incorporated.(c)
(b) -- Prototype Merrill Lynch Tax-Deferred Basic(Trademark) Retirement Plan available from Merrill
Lynch, Pierce, Fenner & Smith Incorporated.(d)
15 (a) -- Form of proposed Distribution Plan of the Registrant and Distribution Plan Sub-Agreement.(e)
(b) -- Amended and Restated Class B Distribution Plan of the Registrant and Amended and Restated Class B
Shares Distribution Plan Sub-Agreement.(i)
(c) -- Form of Class C Shares Distribution Plan and Class C Shares Distribution Plan Sub-Agreement of
the Registrant.
(d) -- Form of Class D Shares Distribution Plan and Class D Shares Distribution Plan Sub-Agreement of
the Registrant.
16 (a) -- Schedule for computation of each performance quotation for Class A shares provided in the
Registration Statement in response to Item 22.(g)
(b) -- Schedule for computation of each performance quotation for Class B shares provided in the
Registration Statement in response to Item 22.(f)
17 (a) -- Financial Data Schedule the Six Months Ended April 30, 1994 relating to Class A shares.
(b) -- Financial Data Schedule the year Ended October 31, 1993 relating to Class A shares.
(c) -- Financial Data Schedule the Six Months Ended April 30, 1994 relating to Class B shares.
(d) -- Financial Data Schedule the year Ended October 31, 1993 relating to Class B shares.
</TABLE>
- ------------------
(a) Filed on November 20, 1987 as an exhibit to the Registrant's Registration
Statement under the Securities Act of 1933.
(b) Incorporated by reference to Exhibit 14 to Post-Effective Amendment No. 3 to
the Registration Statement under the Securities Act of 1933 on Form N-1
(File No. 2-60836) of Merrill Lynch Special Value Fund, Inc., filed on July
11, 1979.
(c) Incorporated by reference to Exhibit 14 to Pre-Effective Amendment No. 1 to
the Registration Statement under the Securities Act of 1933 on Form N-1
(File No. 2-74584) of Merrill Lynch Retirement Series Trust, filed on
January 26, 1982.
(d) Incorporated by reference to Exhibit 14 to Post-Effective Amendment No. 3 to
the Registration Statement under the Securities Act of 1933 on Form N-1A
(File No. 2-74584) of Merrill Lynch Retirement Series Trust, filed December
29, 1983.
(e) Filed on January 25, 1988 as an Exhibit to the Registrant's Registration
Statement under the Securities Act of 1933.
(f) Filed on October 11, 1988 as an Exhibit to Post-Effective Amendment No. 2 to
the Registrant's Registration Statement under the Securities Act of 1933.
(g) Filed on February 27, 1990 as an Exhibit to Post-Effective Amendment No. 4
to the Registrant's Registration Statement under the Securities Act of 1933.
(h) Reference is made to Article V, Article VI (Section 3), Article VII, Article
VIII and Article X of the Registrant's Articles of Incorporation, previously
filed as Exhibit (1), to the Registration Statement; and to
C-2
<PAGE>
Article II, Article III (sections 1, 3, 5, 6, and 17), Article VI, Article
VII, Article XIII and Article XIV of the Registrant's By-Laws previously
filed as Exhibit (2) to the Registration Statement.
(i) Filed on February 24, 1994 as an Exhibit to Post-Effective Amendment No. 8
to the Registrant's Registration Statement under the Securities Act of 1933.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT.
The Registrant is not controlled by or under common control with any
person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AT
TITLE OF CLASS SEPTEMBER 30, 1994
- ---------------------------------------------------------------------------------------------- ------------------
<S> <C>
Class A shares of Common Stock, par value $0.10 per share..................................... 15
Class B shares of Common Stock, par value $0.10 per share..................................... 81
Class C shares of Common Stock, par value $0.10 per share..................................... 0
Class D shares of Common Stock, par value $0.10 per share..................................... 0
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's Bylaws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Class A, Class B, Class C and Class D
Distribution Agreements.
Insofar as the conditional advancing of indemnification moneys for actions
based on 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 on receipt of a written promise by,
or on behalf of, the recipient to repay that amount of the advance which exceeds
the amounts to which it is ultimately determined that he is entitled to receive
from the Registrant by reason of indemnification; and (iii) (a) such promise
must be secured by a surety bond, other suitable insurance or an equivalent form
of security which assures that any repayments may be obtained by the Registrant
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) a majority of a quorum
of the Registrant's disinterested, non-party Directors, or an independent legal
counsel in a written opinion, shall determine, based on 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 Distribution
Agreements relating to the securities being offered hereby, the Registrant
agrees to indemnify the Distributor and each person, if any, who controls the
Distributor within the meaning of the Securities Act of 1933, as amended (the
'1933 Act'), against certain types of civil liabilities arising in connection
with the Registration Statement or Prospectus and Statement of Additional
Information.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to Directors, officers and controlling persons of the Registrant
and the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer, or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
C-3
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF MANAGER.
Merrill Lynch Asset Management, L.P. (doing business as Merrill Lynch Asset
Management (the 'Manager' or 'MLAM')) also acts as investment adviser for the
following investment companies: Convertible Holdings, Inc., Merrill Lynch
Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc.,
Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc.,
Merrill Lynch Balanced Fund for Investment and Retirement, Merrill Lynch Capital
Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch
Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth
Fund, Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill Lynch Global Bond
Fund for Investment and Retirement, Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund,
Inc., Merrill Lynch Growth Fund for Investment and Retirement, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch High Income Municipal Bond Fund, Inc.,
Merrill Lynch Institutional Intermediate Fund, Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets
Trust, Merrill Lynch Retirement Series Trust, Merrill Lynch Senior Floating
Rate, Fund, Inc., 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
Utility Income Fund, Inc., and Merrill Lynch Variable Series Funds, Inc. Fund
Asset Management, L.P. ('FAM'), an affiliate of the Manager, acts as the
investment adviser for the following investment companies: Apex Municipal Fund,
Inc., 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., Corporate High Yield Fund, Inc.,
Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Financial
Institutions Series Trust, Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill
Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond Fund,
Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Municipal Series Trust, Merrill
Lynch Multi-State Limited Maturity 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., MuniAssets
Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund Accumulation Program,
Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc.,
MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest Florida
Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc.,
MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania Insured Fund,
MuniYield Arizona Fund, Inc., MuniYield Arizona Fund II, 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
Insured Fund II, 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 New York Insured Fund III, Inc., MuniYield Pennsylvania Fund,
MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High
Income Portfolio, Inc., Senior High Income Portfolio II, Inc., Senior Strategic
Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York
Holdings, Inc. and Worldwide DollarVest Fund, Inc. The address of each of these
investment companies is P.O. Box 9011, Princeton, New Jersey 08543-9011, except
that the address of Merrill Lynch Funds for Institutions Series and Merrill
Lynch Institutional Intermediate Fund is One Financial Center, 15th Floor,
Boston, Massachusetts 02111-2646. The address of the Manager, FAM, Merrill Lynch
Funds Distributor, Inc. ('MLFD') and Princeton Service, Inc. ('Princeton
Services') is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address
of Merrill Lynch, Pierce, Fenner & Smith Incorporated ('Merrill Lynch') and
Merrill Lynch & Co. Inc. ('ML & Co.') is World Financial Center, North Tower,
250 Vesey Street, New York, New York 10281. The address of Financial Data
Services, Inc. is 4800 Deerlake Drive East, Jacksonville, Florida 32246-6484.
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, 1992 for his or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard
is Treasurer and Mr. Glenn is Executive Vice President of substantially all
of the investment companies described in the preceding
paragraph and Messrs. Durnin,
C-4
<PAGE>
Giordano, Monagle, Harvey, Kirstein and Ms. Griffin are
directors, trustees or officers of one or more of such companies.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
- --------------------------- --------------------------- ------------------------------------------------------
<S> <C> <C>
ML & Co.................... Limited Partner Financial Services Holding Company
Merrill Lynch Investment
Management, Inc.......... Limited Partner Investment Advisory Services;
Limited Partner of FAM
Princeton Services......... General Partner General Partner of FAM
Arthur Zeikel.............. President President of FAM; President and Director of Princeton
Services; Director of MLFD; Executive Vice President
of ML & Co.; Executive Vice President of Merrill
Lynch
Terry K. Glenn............. Executive Vice President Executive Vice President of FAM; Executive Vice
President and Director of Princeton Services;
President and Director of MLFD; Director of
Financial Data Services, Inc. ('FDS'); President of
Princeton Administrators, L.P.
Bernard J. Durnin.......... Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Vincent R. Giordano........ Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Elizabeth Griffin.......... Senior Vice President Senior Vice President of FAM
Norman R. Harvey........... Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
N. John Hewitt............. Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Philip L. Kirstein......... Senior Vice President, Senior Vice President, General Counsel and Secretary
General Counsel and of FAM; Senior Vice President, General Counsel,
Secretary Director and Secretary of Princeton Services;
Director of MLFD
Ronald M. Kloss............ Senior Vice President and Senior Vice President and Controller of FAM; Senior
Controller Vice President and Controller of Princeton Services
Stephen M.M. Miller........ Senior Vice President Executive Vice President of Princeton Administrators,
L.P.; Senior Vice President of Princeton Services
Joseph T. Monagle, Jr...... Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
- --------------------------- --------------------------- ------------------------------------------------------
<S> <C> <C>
Gerald M. Richard.......... Senior Vice President and Senior Vice President and Treasurer of FAM; Senior
Treasurer Vice President and Treasurer of Princeton Services;
Vice President and Treasurer of MLFD
Richard L. Rufener......... Senior Vice President Vice President of MLFD; Senior Vice President of
Princeton Services
Ronald L. Welburn.......... Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Anthony Wiseman............ Senior Vice President Senior Vice President of Princeton Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant. MLFD acts as
the principal underwriter for each of the investment companies referred to in
the first paragraph of Item 28 except Apex Municipal Fund, Inc., CBA Money Fund,
CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, Convertible Holdings, Inc., The
Corporate Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc.,
Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., MuniAssets
Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund Accumulation Program,
Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc.,
MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest Florida
Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc.,
MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania Insured Fund,
MuniYield Arizona Fund, MuniYield Arizona Fund II, 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 Insured Fund II,
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 New York Insured Fund III, Inc., MuniYield Pennsylvania Fund,
MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High
Income Portfolio, Inc., Senior High Income Portfolio II, Inc., Senior Strategic
Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork
Holdings, Inc. and Worldwide Dollar Vest Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Crook,
Aldrich, Breen, Graczyk, Wasel and Fatseas is One Financial Center, 15th Floor,
Boston, Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
NAME MLFD REGISTRANT
- ------------------------------------------------------ --------------------------- ---------------------------
<S> <C> <C>
Terry K. Glenn........................................ President and Director Executive Vice President
Arthur Zeikel......................................... Director President and Director
Philip L. Kirstein.................................... Director None
William E. Aldrich.................................... Senior Vice President None
Robert W. Crook....................................... Senior Vice President None
Kevin P. Boman........................................ Vice President None
Michael J. Brady...................................... Vice President None
William M. Breen...................................... Vice President None
Sharon Creveling...................................... Vice President and None
Assistant Treasurer
Mark A. DeSario....................................... Vice President None
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
NAME MLFD REGISTRANT
- ------------------------------------------------------ --------------------------- ---------------------------
<S> <C> <C>
James T. Fatseas...................................... Vice President None
Stanley Graczyk....................................... Vice President None
Debra W. Landsman-Yaros............................... Vice President None
Michelle T. Lau....................................... Vice President None
Gerald M. Richard..................................... Vice President and Treasurer
Treasurer
Richard L. Rufener.................................... Vice President None
Salvatore Venezia..................................... Vice President None
William Wasel......................................... Vice President None
Robert Harris......................................... Secretary None
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
thereunder will be maintained at the offices of the Registrant and its Custodian
and Transfer Agent.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption 'Management of the
Fund--Management and Advisory Arrangements' 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 32. UNDERTAKINGS.
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF
THE REQUIREMENTS FOR EFFECTIVENESS OF THIS POST-EFFECTIVE AMENDMENT TO ITS
REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933
AND HAS DULY CAUSED THIS AMENDMENT TO THE 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 12TH DAY OF OCTOBER 1994.
MERRILL LYNCH GLOBAL CONVERTIBLE FUND,
INC.
(Registrant)
By /s/ ARTHUR ZEIKEL
(ARTHUR ZEIKEL, PRESIDENT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------- --------------------------------- -------------------
<C> <S> <C>
/s/ ARTHUR ZEIKEL President and Director (Principal October 12, 1994
- ------------------------------------------------ Executive Officer)
(ARTHUR ZEIKEL)
/s/ GERALD M. RICHARD Treasurer (Principal Financial October 12, 1994
- ------------------------------------------------ and Accounting Officer)
(GERALD M. RICHARD)
KENNETH S. AXELSON* Director
- ------------------------------------------------
(KENNETH S. AXELSON)
HERBERT I. LONDON* Director
- ------------------------------------------------
(HERBERT I. LONDON)
ROBERT R. MARTIN* Director
- ------------------------------------------------
(ROBERT R. MARTIN)
JOSEPH L. MAY* Director
- ------------------------------------------------
(JOSEPH L. MAY)
ANDRE F. PEROLD* Director
- ------------------------------------------------
(ANDRE F. PEROLD)
/s/ARTHUR ZEIKEL
*By -------------------------------------------- October 12, 1994
(ARTHUR ZEIKEL, ATTORNEY-IN-FACT)
</TABLE>
C-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------------
<S> <C>
5 (b) -- Supplement to Management Agreement between the Registrant and Merrill Lynch Asset Management,
L.P.
6 (a)(2) -- Form of Revised Class A Shares Distribution Agreement between the Registrant and Merrill Lynch
Funds Distributor, Inc.
(c) -- Form of Class C Shares Distribution Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc.
(d) -- Form of Class D Shares Distribution Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc.
11
-- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
15 (c) -- Form of Class C Shares Distribution Plan and Class C Shares Distribution Plan Sub-Agreement of
the Registrant.
(d) -- Form of Class D Shares Distribution Plan and Class D Shares Distribution Plan Sub-Agreement of
the Registrant.
17 (a) -- Financial Data Schedule for Class A shares for the fiscal
year ended October 31, 1993.
(b) -- Financial Data Schedule for Class A shares for the six
months ended April 30, 1994.
(c) -- Financial Data Schedule for Class B shares for the fiscal
year ended October 31, 1993.
(d) -- Financial Data Schedule for Class B shares for the six
months ended April 30, 1994.
</TABLE>
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
WITH
FUND ASSET MANAGEMENT
As of January 1, 1994 Fund Asset Management was reorganized as a
limited partnership, formally known as Fund Asset Management,
L.P. ("FAM"). The general partner of FAM is Princeton Services,
Inc. and the limited partners are Fund Asset Management, Inc. and
Merrill Lynch & Co, Inc. Pursuant to Rule 202(a)(1)-1 under the
Investment Advisors Act of 1940 and Rule 2a-6 under the
Investment Company Act of 1940 such reorganization did not
constitute an assignment of this investment advisory agreement
since it did not involve a change of control or management of the
investment adviser. Pursuant to the requirements of Section 205
of the Investment Advisers Act of 1940, however, Fund Asset
Management hereby supplements this investment advisory agreement
by undertaking to advise you of any change in the membership of
the partnership within a reasonable time after any such change
occurs.
By /s/ Arthur Zeikel
-----------------
Dated: January 3, 1994
CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of October 1994 between
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC., a Maryland
corporation (the "Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR,
INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), as an
open-end investment company, and it is affirmatively in the
interest of the Fund to offer its shares for sale continuously;
and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either
directly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
of the Class A shares of common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby
appoints the Distributor as the principal underwriter and distri-
butor of the Fund to sell Class A shares of common stock in the
Fund (sometimes herein referred to as "Class A shares") to
eligible investors (as defined below) and hereby agrees during
the term of this Agreement to sell Class A shares of the Fund to
the Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as prin-
cipal underwriter and distributor, except that:
(a) The Fund may, upon written notice to the Distributor,
from time to time designate other principal underwriters and dis-
tributors of Class A shares with respect to areas other than the
United States as to which the Distributor may have expressly
waived in writing its right to act as such. If such designation
is deemed exclusive, the right of the Distributor under this
Agreement to sell Class A shares in the areas so designated shall
terminate, but this Agreement shall remain otherwise in full
effect until terminated in accordance with the other provisions
hereof.
(b) The exclusive right granted to the Distributor to pur-
chase Class A shares from the Fund shall not apply to Class A
shares issued in connection with the merger or consolidation of
any other investment company or personal holding company with the
Fund or the acquisition by purchase or otherwise of all (or sub-
stantially all) the assets or the outstanding Class A shares of
any such company by the Fund.
(c) Such exclusive right also shall not apply to Class A
shares issued by the Fund pursuant to reinvestment of dividends
or capital gains distributions.
(d) Such exclusive right also shall not apply to Class A
shares issued by the Fund pursuant to any conversion, exchange or
reinstatement privilege afforded redeeming shareholders or to any
other Class A shares as shall be agreed between the Fund and the
Distributor from time to time.
Section 3. Purchase of Class A shares from the Fund.
(a) The Distributor shall have the right to buy from the
Fund the Class A shares needed, but not more than the Class A
shares needed (except for clerical errors in transmission) to
fill unconditional orders for Class A shares of the Fund placed
with the Distributor by eligible investors or securities dealers.
Investors eligible to purchase Class A shares shall be those
persons so identified in the currently effective prospectus and
statement of additional information of the Fund (the "prospectus"
and "statement of additional information", respectively) under
the Securities Act of 1933, as amended (the "Securities Act"),
relating to such Class A shares ("eligible investors"). The
price which the Distributor shall pay for the Class A shares so
purchased from the Fund shall be the net asset value, determined
as set forth in Section 3(d) hereof, used in determining the
public offering price on which such orders were based.
(b) The Class A shares are to be resold by the Distributor
to eligible investors at the public offering price, as set forth
in Section 3(c) hereof, or to securities dealers having
agreements with the Distributor upon the terms and conditions set
forth in Section 7 hereof.
(c) The public offering price(s) of the Class A shares,
i.e., the price per share at which the Distributor or selected
dealers may sell Class A shares to eligible investors, shall be
the public offering price as set forth in the prospectus and
statement of additional information relating to such Class A
shares, but not to exceed the net asset value at which the
Distributor is to purchase the Class A shares, plus a sales
charge not to exceed 5.25% of the public offering price (5.54% of
the net amount invested), subject to reductions for volume
purchases. Class A shares may be sold to certain Directors,
officers and employees of the Fund, directors and employees of
Merrill Lynch & Co., Inc. and its subsidiaries, and to certain
other persons described in the prospectus and statement of
additional information, without a sales charge or at a reduced
sales charge, upon terms and conditions set forth in the
prospectus and statement of additional information. If the
public offering price does not equal an even cent, the public
offering price may be adjusted to the nearest cent. All payments
to the Fund hereunder shall be made in the manner set forth in
Section 3(f).
(d) The net asset value of Class A shares shall be deter-
mined by the Fund or any agent of the Fund in accordance with the
method set forth in the prospectus and statement of additional
information of the Fund and guidelines established by the
Directors.
(e) The Fund shall have the right to suspend the sale of
its Class A shares at times when redemption is suspended pursuant
to the conditions set forth in Section 4(b) hereof. The Fund
shall also have the right to suspend the sale of its Class A
shares if trading on the New York Stock Exchange shall have been
suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some
other event, which, in the judgment of the Fund, makes it
impracticable or inadvisable to sell the Class A shares.
(f) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class A shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund
will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class A shares from
eligible investors. The Fund (or its agent) will confirm orders
upon their receipt, will make appropriate book entries and, upon
receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts or certificates for such Class A shares
pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds. The
Distributor agrees to cause such payment and such instructions to
be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class A shares by
the Fund.
(a) Any of the outstanding Class A shares may be tendered
for redemption at any time, and the Fund agrees to repurchase or
redeem the Class A shares so tendered in accordance with its
obligations as set forth in Article VII of its Articles of
Incorporation, as amended from time to time, and in accordance
with the applicable provisions set forth in the prospectus and
statement of additional information. The price to be paid to
redeem or repurchase the Class A shares shall be equal to the net
asset value calculated in accordance with the provisions of
Section 3(d) hereof, less any contingent deferred sales charge
("CDSC"), redemption fee or other charge(s), if any, set forth in
the prospectus and statement of additional information of the
Fund. All payments by the Fund hereunder shall be made in the
manner set forth below. The redemption or repurchase by the Fund
of any of the Class A shares purchased by or through the Distri-
butor will not affect the sales charge secured by the Distributor
or any selected dealer in the course of the original sale, except
that if any Class A shares are tendered for redemption or repur-
chase within seven business days after the date of the confirma-
tion of the original purchase, the right to the sales charge
shall be forfeited by the Distributor and the selected dealer
which sold such Class A shares.
The Fund shall pay the total amount of the redemption price
as defined in the above paragraph pursuant to the instructions of
the Distributor in New York Clearing House funds on or before the
seventh business day subsequent to its having received the notice
of redemption in proper form. The proceeds of any redemption of
shares shall be paid by the Fund as follows: (i) any applicable
CDSC shall be paid to the Distributor, and (ii) the balance shall
be paid to or for the account of the shareholder, in each case in
accordance with the applicable provisions of the prospectus and
statement of additional information.
(b) Redemption of Class A shares or payment may be
suspended at times when the New York Stock Exchange is closed,
when trading on said Exchange is suspended, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange
Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Dis-
tributor may reasonably request for use in connection with the
distribution of Class A shares of the Fund, and this shall in-
clude, upon request by the Distributor, one certified copy of all
financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor
such number of copies of the prospectus and statement of addi-
tional information as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to
any necessary approval of the Class A shareholders, all necessary
action to fix the number of authorized Class A shares and such
steps as may be necessary to register the same under the Securi-
ties Act, to the end that there will be available for sale such
number of Class A shares as the Distributor may reasonably be
expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its Class
A shares for sale under the securities laws of such states as the
Distributor and the Fund may approve. Any such qualification may
be withheld, terminated or withdrawn by the Fund at any time in
its discretion. As provided in Section 8(c) hereof, the expense
of qualification and maintenance of qualification shall be borne
by the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports
of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort
to effect sales of Class A shares of the Fund but shall not be
obligated to sell any specific number of Class A shares. The
services of the Distributor to the Fund hereunder are not to be
deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other in-
vestment companies so long as the performance of its obligations
hereunder is not impaired thereby.
(b) In selling the Class A shares of the Fund, the Distri-
butor shall use its best efforts in all respects duly to conform
with the requirements of all Federal and state laws relating to
the sale of such securities. Neither the Distributor nor any
selected dealer, as defined in Section 7 hereof, nor any other
person is authorized by the Fund to give any information or to
make any representations, other than those contained in the
registration statement or related prospectus and statement of
additional information and any sales literature specifically
approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of
sales to eligible investors and selected dealers, the collection
of amounts payable by eligible investors and selected dealers on
such sales, and the cancellation of unsettled transactions, as
may be necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into
selected dealers agreements with securities dealers of its choice
("selected dealers") for the sale of Class A shares and fix
therein the portion of the sales charge which may be allocated to
the selected dealers; provided that the Fund shall approve the
forms of agreements with dealers and the dealer compensation set
forth therein. Class A shares sold to selected dealers shall be
for resale by such dealers only at the public offering price(s)
set forth in the prospectus and statement of additional
information. The form of agreement with selected dealers to be
used during the continuous offering of the Class A shares is
attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer
and sell Class A shares only to such selected dealers as are mem-
bers in good standing of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required regis-
tration statements and/or prospectuses and statements of
additional information under the Investment Company Act, the
Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy
materials to Class A shareholders (including but not limited to
the expense of setting in type any such registration statements,
prospectuses, statements of additional information, annual or
interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses
associated with payments of sales commissions to financial con-
sultants. In addition, after the prospectuses, statements of
additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs
and expenses of printing and distributing any copies thereof
which are to be used in connection with the offering of Class A
shares to selected dealers or eligible investors pursuant to this
Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by
the Distributor or furnished by it for use by selected dealers in
connection with the offering of the Class A shares for sale to
eligible investors and any expenses of advertising incurred by
the Distributor in connection with such offering.
(c) The Fund shall bear the cost and expenses of qualifi-
cation of the Class A shares for sale pursuant to this Agreement
and, if necessary or advisable in connection therewith, of quali-
fying the Fund as a broker or dealer in such states of the United
States or other jurisdictions as shall be selected by the Fund
and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distri-
butor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by
reason of any person acquiring any Class A shares, which may be
based upon the Securities Act, or on any other statute or at com-
mon law, on the ground that the registration statement or related
prospectus and statement of additional information, as from time
to time amended and supplemented, or an annual or interim report
to shareholders of the Fund, includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was
made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of
the Distributor; provided, however, that in no case (i) is the
indemnity of the Fund in favor of the Distributor and any such
controlling persons to be deemed to protect such Distributor or
any such controlling persons thereof against any liability to the
Fund or its security holders to which the Distributor or any such
controlling persons would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the per-
formance of their duties or by reason of the reckless disregard
of their obligations and duties under this Agreement; or (ii) is
the Fund to be liable under its indemnity agreement contained in
this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be,
shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information
of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor
or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund
of any such claim shall not relieve it from any liability which
it may have to the person against whom such action is brought
otherwise than on account of its indemnity agreement contained in
this paragraph. The Fund will be entitled to participate at its
own expense in the defense or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but if
the Fund elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or
defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the
Distributor or such controlling person or persons, defendant or
defendants in the suit shall bear the fees and expenses of any
additional counsel retained by them, but in case the Fund does
not elect to assume the defense of any such suit, it will reim-
burse the Distributor or such controlling person or persons, de-
fendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Fund shall
promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its officers or
Directors in connection with the issuance or sale of any of the
Class A shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Directors and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage or expense described in the foregoing indemnity contained
in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on
behalf of the Distributor for use in connection with the
registration statement or related prospectus and statement of
additional information, as from time to time amended, or the
annual or interim reports to Class A shareholders. In case any
action shall be brought against the Fund or any person so
indemnified, in respect of which indemnity may be sought against
the Distributor, the Distributor shall have the rights and duties
given to the Fund, and the Fund and each person so indemnified
shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program. In
connection with the Merrill Lynch Mutual Fund Adviser Program,
the Distributor and its affiliate, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, are authorized to offer and sell shares of
the Fund, as agent for the Fund, to participants in such program.
The terms of this Agreement shall apply to such sales, including
terms as to the offering price of shares, the proceeds to be paid
to the Fund, the duties of the Distributor, the payment of
expenses and indemnification obligations of the Fund and the
Distributor.
Section 11. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above
written and shall remain in force until September 30, 1995 and
thereafter, but only for so long as such continuance is
specifically approved at least annually by (i) the Directors or
by the vote of a majority of the outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors
who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose
of voting on such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Directors or by vote of a majority
of the outstanding voting securities of the Fund, or by the Dis-
tributor, on sixty days' written notice to the other party. This
Agreement shall automatically terminate in the event of its
assignment.
The terms "vote of a majority of the outstanding voting
securities", "assignment", "affiliated person" and "interested
person", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 12. Amendments of this Agreement. This Agreement
may be amended by the parties only if such amendment is specifi-
cally approved by (i) the Directors or by the vote of a majority
of outstanding voting securities of the Fund and (ii) by the vote
of a majority of those Directors of the Fund who are not parties
to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such
approval.
Section 13. Governing Law. The provisions of this
Agreement shall be construed and interpreted in accordance with
the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any
of the provisions herein, conflict with the applicable provisions
of the Investment Company Act, the latter shall control.
Section 14. This Agreement supersedes the prior
Distribution Agreement entered into by the parties hereto with
respect to the Class A shares of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
By ----------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By ----------------------------------------
Title:
EXHIBIT A
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
CLASS A SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Merrill Lynch Global Convertible Fund,
Inc., a Maryland corporation (the "Fund"), pursuant to which it
acts as the distributor for the sale of Class A shares of common
stock, par value $0.10 per share (herein referred to as "Class A
shares"), of the Fund and as such has the right to distribute
Class A shares of the Fund for resale. The Fund is an open-end
investment company registered under the Investment Company Act of
1940, as amended, and its Class A shares are registered under the
Securities Act of 1933, as amended. You have received a copy of
the Class A shares Distribution Agreement (the "Distribution
Agreement") between ourself and the Fund and reference is made
herein to certain provisions of such Distribution Agreement. The
terms "Prospectus" and "Statement of Additional Information" used
herein refer to the prospectus and statement of additional
information, respectively, on file with the Securities and
Exchange Commission which is part of the most recent effective
registration statement pursuant to the Securities Act of 1933, as
amended. We offer to sell to you, as a member of the Selected
Dealers Group, Class A shares of the Fund for resale to investors
identified in the Prospectus and Statement of Additional
Information as eligible to purchase Class A shares ("eligible
investors") upon the following terms and conditions:
1. In all sales of these Class A shares to eligible
investors, you shall act as dealer for your own account and in no
transaction shall you have any authority to act as agent for the
Fund, for us or for any other member of the Selected Dealers
Group, except in connection with the Merrill Lynch Mutual Fund
Adviser program and such other special programs as we from time
to time agree, in which case you shall have authority to offer
and sell shares, as agent for the Fund, to participants in such
program.
2. Orders received from you will be accepted through us
only at the public offering price applicable to each order, as
set forth in the current Prospectus and Statement of Additional
Information of the Fund. The procedure relating to the handling
of orders shall be subject to Section 5 hereof and instructions
which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor
or the Fund in the sole discretion of either. The minimum
initial and subsequent purchase requirements are as set forth in
the current Prospectus and Statement of Additional Information of
the Fund.
3. The sales charges for sales to eligible investors,
computed as percentages of the public offering price and the
amount invested, and the related discount to Selected Dealers are
as follows:
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
- ------------------ -------------- -------------- -----------
Less than $25,000...... 5.25% 5.54% 5.00%
$25,000 but less
than $50,000.......... 4.75% 4.99% 4.50%
$50,000 but less
than $100,000......... 4.00% 4.16% 3.75%
$100,000 but less
than $250,000......... 3.00% 3.09% 2.75%
$250,000 but less
than $1,000,000....... 2.00% 2.04% 1.80%
$1,000,000 and over**.. 0.00% 0.00% 0.00%
___________________
* Rounded to the nearest one-hundredth percent.
** Initial sales charges will be waived for certain classes of offerees as
set forth in the current Prospectus and Statement of Additional Information
of the Fund. Such purchases may be subject to a contingent deferred sales
charge as set forth in the current Prospectus and Statement of Additional
Information.
The term "purchase" refers to a single purchase by an individual,
or to concurrent purchases, which in the aggregate are at least equal to
the prescribed amounts, by an individual, his spouse and their children
under the age of 21 years purchasing Class A shares for his or their own
account and to single purchases by a trustee or other fiduciary
purchasing Class A 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 of 1940, as amended, but does not
include purchases by any such company which has not been in existence
for at least six months or which has no purpose other than the purchase
of Class A shares of the Fund or Class A 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.
The reduced sales charges are applicable through a right of
accumulation under which certain eligible investors are permitted to
purchase Class A shares of the Fund 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
Class A, Class B, Class C and Class D shares of the Fund and of any
other investment company with an initial sales charge for which the
Distributor acts as the distributor. For any such right of accumulation
to be made available, the Distributor must be provided at the time of
purchase, by the purchaser or you, with sufficient information to permit
confirmation of qualification, and acceptance of the purchase order is
subject to such confirmation.
The reduced sales charges are applicable to purchases aggregating
$25,000 or more of Class A shares or of Class D shares of any other
investment company with an initial sales charge for which the
Distributor acts as the distributor made through you within a
thirteen-month period starting with the first purchase pursuant to a
Letter of Intention in the form provided in the Prospectus. A purchase
not originally made pursuant to a Letter of Intention may be included
under a subsequent letter executed within 90 days of such purchase if
the Distributor is informed in writing of this intent within such 90-day
period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made
pursuant to the terms of the Letter of Intention.
You agree to advise us promptly at our request as to amounts of any
sales made by you to eligible investors qualifying for reduced sales
charges. Further information as to the reduced sales charges pursuant
to the right of accumulation or a Letter of Intention is set forth in
the Prospectus and Statement of Additional Information.
4. You shall not place orders for any of the Class A shares
unless you have already received purchase orders for such Class A shares
at the applicable public offering prices and subject to the terms hereof
and of the Distribution Agreement. You agree that you will not offer or
sell any of the Class A shares except under circumstances that will
result in compliance with the applicable Federal and state securities
laws and that in connection with sales and offers to sell Class A shares
you will furnish to each person to whom any such sale or offer is made a
copy of the Prospectus and, if requested, the Statement of Additional
Information (as then amended or supplemented) and will not furnish to
any person any information relating to the Class A shares of the Fund
which is inconsistent in any respect with the information contained in
the Prospectus and Statement of Additional Information (as then amended
or supplemented) or cause any advertisement to be published in any
newspaper or posted in any public place without our consent and the
consent of the Fund.
5. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Fund for Class A shares of the Fund to be
resold by us to you subject to the applicable terms and conditions
governing the placement of orders by us set forth in Section 3 of the
Distribution Agreement and subject to the compensation provisions of
Section 3 hereof and (ii) to tender Class A shares directly to the Fund
or its agent for redemption subject to the applicable terms and
conditions set forth in Section 4 of the Distribution Agreement.
6. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding:
e.g., by a change in the "net asset value" from that used in determining
the offering price to your customers.
7. If any Class A shares sold to you under the terms of this
Agreement are repurchased by the Fund or by us for the account of the
Fund or are tendered for redemption within seven business days after the
date of the confirmation of the original purchase by you, it is agreed
that you shall forfeit your right to, and refund to us, any discount
received by you on such Class A shares.
8. No person is authorized to make any representations concerning
Class A shares of the Fund except those contained in the current
Prospectus and Statement of Additional Information of the Fund and in
such printed information subsequently issued by us or the Fund as
information supplemental to such Prospectus and Statement of Additional
Information. In purchasing Class A shares through us you shall rely
solely on the representations contained in the Prospectus and Statement
of Additional Information and supplemental information above mentioned.
Any printed information which we furnish you other than the Fund's
Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no
liability or responsibility to you in these respects unless expressly
assumed in connection therewith.
9. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if
requested, the Statement of Additional Information at or prior to the
time of offering or sale and you agree thereafter to deliver to such
purchasers copies of the annual and interim reports and proxy
solicitation materials of the Fund. You further agree to endeavor to
obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim
reports and proxy solicitation materials of the Fund will be supplied to
you in reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Class A shares entirely or to
certain persons or entities in a class or classes specified by us. Each
party hereto has the right to cancel this agreement upon notice to the
other party.
11. We shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the continuous
offering. We shall be under no liability to you except for lack of good
faith and for obligations expressly assumed by us herein. Nothing
contained in this paragraph is intended to operate as, and the
provisions of this paragraph shall not in any way whatsoever constitute,
a waiver by you of compliance with any provision of the Securities Act
of 1933, as amended, or of the rules and regulations of the Securities
and Exchange Commission issued thereunder.
12. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any sales
in the United States, we both hereby agree to abide by the Rules of Fair
Practice of such Association.
13. Upon application to us, we will inform you as to the states in
which we believe the Class A shares have been qualified for sale under,
or are exempt from the requirements of, the respective securities laws
of such states, but we assume no responsibility or obligation as to your
right to sell Class A shares in any jurisdiction. We will file with the
Department of State in New York a Further State Notice with respect to
the Class A shares, if necessary.
14. All communications to us should be sent to the address below.
Any notice to you shall be duly given if mailed or telegraphed to you at
the address specified by you below.
15. Your first order placed pursuant to this Agreement for the
purchase of Class A shares of the Fund will represent your acceptance of
this Agreement.
16. This Agreement supersedes any prior Selected Dealers Agreement
entered into by the parties hereto with respect to the Class A shares of
the Fund.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By ---------------------------------
(Authorized Signature)
Please return one signed copy
of this agreement to:
[MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011]
Accepted:
Firm Name: [Merrill Lynch, Pierce, Fenner & Smith Inc.]
--------------------------------------------
By: ---------------------------------------------------
Address: [800 Scudders Mill Road]
------------------------------
[Plainsboro, New Jersey 08536]
----------------------------------------
Date: , 1994
----------------------------------
CLASS C SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the __ day of October 1994, between
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC., a Maryland
corporation (the "Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR,
INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), as an
open-end investment company, and it is affirmatively in the in-
terest of the Fund to offer its shares for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either direct-
ly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
of the Fund's Class C shares in order to promote the growth of
the Fund and facilitate the distribution of its Class C shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby
appoints the Distributor as the principal underwriter and
distributor of the Fund to sell Class C shares of common stock in
the Fund (sometimes herein referred to as "Class C shares") to
the public and hereby agrees during the term of this Agreement to
sell shares of the Fund to the Distributor upon the terms and
conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as prin-
cipal underwriter and distributor of the Class C shares, except
that:
(a) The Fund may, upon written notice to the Distributor,
from time to time designate other principal underwriters and
distributors of Class C shares with respect to areas other than
the United States as to which the Distributor may have expressly
waived in writing its right to act as such. If such designation
is deemed exclusive, the right of the Distributor under this
Agreement to sell Class C shares in the areas so designated shall
terminate, but this Agreement shall remain otherwise in full
effect until terminated in accordance with the other provisions
hereof.
(b) The exclusive right granted to the Distributor to
purchase Class C shares from the Fund shall not apply to Class C
shares of the Fund issued in connection with the merger or conso-
lidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise
of all (or substantially all) the assets or the outstanding Class
C shares of any such company by the Fund.
(c) Such exclusive right also shall not apply to Class C
shares issued by the Fund pursuant to reinvestment of dividends
or capital gains distributions.
(d) Such exclusive right also shall not apply to Class C
shares issued by the Fund pursuant to any conversion, exchange or
reinstatement privilege afforded redeeming shareholders or to any
other Class C shares as shall be agreed between the Fund and the
Distributor from time to time.
Section 3. Purchase of Class C Shares from the Fund.
(a) It is contemplated that the Fund will commence an
offering of its Class C shares, and thereafter the Distributor
shall have the right to buy from the Fund the Class C shares
needed, but not more than the Class C shares needed (except for
clerical errors in transmission) to fill unconditional orders for
Class C shares of the Fund placed with the Distributor by
eligible investors or securities dealers. Investors eligible to
purchase Class C shares shall be those persons so identified in
the currently effective prospectus and statement of additional
information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act
of 1933, as amended (the "Securities Act"), relating to such
Class C shares. The price which the Distributor shall pay for the
Class C shares so purchased from the Fund shall be the net asset
value, determined as set forth in Section 3(c) hereof.
(b) The Class C shares are to be resold by the Distributor
to investors at net asset value, as set forth in Section 3(c)
hereof, or to securities dealers having agreements with the Dis-
tributor upon the terms and conditions set forth in Section 7
hereof.
(c) The net asset value of Class C shares of the Fund shall
be determined by the Fund or any agent of the Fund in accordance
with the method set forth in the prospectus and statement of
additional information and guidelines established by the Board of
Directors.
(d) The Fund shall have the right to suspend the sale of
its Class C shares at times when redemption is suspended pursuant
to the conditions set forth in Section 4(b) hereof. The Fund
shall also have the right to suspend the sale of its Class C
shares if trading on the New York Stock Exchange shall have been
suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some
other event, which, in the judgment of the Fund, makes it imprac-
ticable or inadvisable to sell the Class C shares.
(e) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class C shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund
will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class C shares. The Fund
(or its agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts or
certificates for such Class C shares pursuant to the instructions
of the Distributor. Payment shall be made to the Fund in New
York Clearing House funds. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the
Fund (or its agent).
Section 4. Repurchase or Redemption of Class C Shares by
the Fund.
(a) Any of the outstanding Class C shares may be tendered
for redemption at any time, and the Fund agrees to repurchase or
redeem the Class C shares so tendered in accordance with its
obligations as set forth in Article VII of its Articles of
Incorporation, as amended from time to time, and in accordance
with the applicable provisions set forth in the prospectus and
statement of additional information of the Fund. The price to be
paid to redeem or repurchase the Class C shares shall be equal to
the net asset value calculated in accordance with the provisions
of Section 3(c) hereof, less any contingent deferred sales charge
("CDSC"), redemption fee or other charge(s), if any, set forth in
the prospectus and statement of additional information of the
Fund. All payments by the Fund hereunder shall be made in the
manner set forth below.
The Fund shall pay the total amount of the redemption price
as defined in the above paragraph pursuant to the instructions of
the Distributor on or before the seventh business day subsequent
to its having received the notice of redemption in proper form.
The proceeds of any redemption of shares shall be paid by the
Fund as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the balance shall be paid to or for the
account of the shareholder, in each case in accordance with the
applicable provisions of the prospectus and statement of
additional information.
(b) Redemption of Class C shares or payment may be sus-
pended at times when the New York Stock Exchange is closed, when
trading on said Exchange is suspended, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange
Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class C shares of the Fund, and this shall in-
clude, upon request by the Distributor, one certified copy of all
financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor
such number of copies of its prospectus and statement of addi-
tional information as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to
any necessary approval of the shareholders, all necessary action
to fix the number of authorized shares and such steps as may be
necessary to register the same under the Securities Act to the
end that there will be available for sale such number of Class C
shares as the Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its Class
C shares for sale under the securities laws of such states as the
Distributor and the Fund may approve. Any such qualification may
be withheld, terminated or withdrawn by the Fund at any time in
its discretion. As provided in Section 8(c) hereof, the expense
of qualification and maintenance of qualification shall be borne
by the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports
of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort
to effect sales of Class C shares of the Fund but shall not be
obligated to sell any specific number of shares. The services of
the Distributor to the Fund hereunder are not to be deemed exclu-
sive and nothing herein contained shall prevent the Distributor
from entering into like arrangements with other investment com-
panies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class C shares of the Fund, the Distri-
butor shall use its best efforts in all respects duly to conform
with the requirements of all Federal and state laws relating to
the sale of such securities. Neither the Distributor nor any se-
lected dealer, as defined in Section 7 hereof, nor any other
person is authorized by the Fund to give any information or to
make any representations, other than those contained in the
registration statement or related prospectus and statement of
additional information and any sales literature specifically
approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of
sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales,
and the cancellation of unsettled transactions, as may be neces-
sary to comply with the requirements of the National Association
of Securities Dealers, Inc. (the "NASD"), as such requirements
may from time to time exist.
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice
("selected dealers") for the sale of Class C shares; provided,
that the Fund shall approve the forms of agreements with dealers.
Class C shares sold to selected dealers shall be for resale by
such dealers only at net asset value determined as set forth in
Section 3(c) hereof. The form of agreement with selected dealers
to be used during the continuous offering of the shares is
attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer
and sell Class C shares only to such selected dealers that are
members in good standing of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required
registration statements and/or prospectuses and statements of
additional information under the Investment Company Act, the
Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy
materials to Class C shareholders (including but not limited to
the expense of setting in type any such registration statements,
prospectuses, statements of additional information, annual or
interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses
associated with payments of sales commissions to financial con-
sultants. In addition, after the prospectuses, statements of
additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs
and expenses of printing and distributing any copies thereof
which are to be used in connection with the offering of Class C
shares to selected dealers or investors pursuant to this
Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by
the Distributor or furnished by it for use by selected dealers in
connection with the offering of the Class C shares for sale to
the public and any expenses of advertising incurred by the Dis-
tributor in connection with such offering. It is understood and
agreed that so long as the Fund's Class C Shares Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act
remains in effect, any expenses incurred by the Distributor here-
under may be paid from amounts recovered by it from the Fund
under such Plan.
(c) The Fund shall bear the cost and expenses of qualifi-
cation of the Class C shares for sale pursuant to this Agreement
and, if necessary or advisable in connection therewith, of quali-
fying the Fund as a broker or dealer in such states of the United
States or other jurisdictions as shall be selected by the Fund
and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distri-
butor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by
reason of any person acquiring any Class C shares, which may be
based upon the Securities Act, or on any other statute or at
common law, on the ground that the registration statement or
related prospectus and statement of additional information, as
from time to time amended and supplemented, or an annual or
interim report to Class C shareholders of the Fund, includes an
untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make
the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, in-
formation furnished to the Fund in connection therewith by or on
behalf of the Distributor; provided, however, that in no case
(i) is the indemnity of the Fund in favor of the Distributor and
any such controlling persons to be deemed to protect such
Distributor or any such controlling persons thereof against any
liability to the Fund or its security holders to which the
Distributor or any such controlling persons would otherwise be
subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of their duties or by reason of the
reckless disregard of their obligations and duties under this
Agreement; or (ii) is the Fund to be liable under its indemnity
agreement contained in this paragraph with respect to any claim
made against the Distributor or any such controlling persons,
unless the Distributor or such controlling persons, as the case
may be, shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been
served upon the Distributor or such controlling persons (or after
the Distributor or such controlling persons shall have received
notice of such service on any designated agent), but failure to
notify the Fund of any such claim shall not relieve it from any
liability which it may have to the person against whom such
action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled
to participate at its own expense in the defense or, if it so
elects, to assume the defense of any suit brought to enforce any
such liability, but if the Fund elects to assume the defense,
such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or
persons, defendant or defendants in the suit. In the event the
Fund elects to assume the defense of any such suit and retain
such counsel, the Distributor or such controlling person or
persons, defendant or defendants in the suit shall bear the fees
and expenses, as incurred, of any additional counsel retained by
them, but in case the Fund does not elect to assume the defense
of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the
suit, for the reasonable fees and expenses, as incurred, of any
counsel retained by them. The Fund shall promptly notify the
Distributor of the commencement of any litigation or proceedings
against it or any of its officers or Directors in connection with
the issuance or sale of any of the Class C shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Directors and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage or expense, as incurred, described in the foregoing indem-
nity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Fund in writing by
or on behalf of the Distributor for use in connection with the
registration statement or related prospectus and statement of
additional information, as from time to time amended, or the
annual or interim reports to shareholders. In case any action
shall be brought against the Fund or any person so indemnified,
in respect of which indemnity may be sought against the Distri-
butor, the Distributor shall have the rights and duties given to
the Fund, and the Fund and each person so indemnified shall have
the rights and duties given to the Distributor by the provisions
of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program. In
connection with the Merrill Lynch Mutual Fund Adviser Program,
the Distributor and its affiliate, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, are authorized to offer and sell shares of
the Fund, as agent for the Fund, to participants in such program.
The terms of this Agreement shall apply to such sales, including
terms as to the offering price of shares, the proceeds to be paid
to the Fund, the duties of the Distributor, the payment of
expenses and indemnification obligations of the Fund and the
Distributor.
Section 11. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first
above written and shall remain in force until September 30, 1995
and thereafter, but only for so long as such continuance is
specifically approved at least annually by (i) the Directors or
by the vote of a majority of the outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors
who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose
of voting on such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Directors or by vote of a majority
of the outstanding voting securities of the Fund, or by the
Distributor, on sixty days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
The terms "vote of a majority of the outstanding voting
securities", "assignment", "affiliated person" and "interested
person", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 12. Amendments of this Agreement. This Agreement
may be amended by the parties only if such amendment is specifi-
cally approved by (i) the Directors or by the vote of a majority
of outstanding voting securities of the Fund and (ii) by the vote
of a majority of those Directors of the Fund who are not parties
to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such
approval.
Section 13. Governing Law. The provisions of this Agree-
ment shall be construed and interpreted in accordance with the
laws of the State of New York as at the time in effect and the
applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any
of the provisions herein, conflict with the applicable provisions
of the Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
By ----------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By ----------------------------------------
Title:
EXHIBIT A
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
CLASS C SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Merrill Lynch Global Convertible Fund,
Inc., a Maryland corporation (the "Fund"), pursuant to which it
acts as the distributor for the sale of Class C shares of common
stock, par value $0.10 per share (herein referred to as the
"Class C shares"), of the Fund and as such has the right to
distribute Class C shares of the Fund for resale. The Fund is an
open-end investment company registered under the Investment
Company Act of 1940, as amended, and its Class C shares being
offered to the public are registered under the Securities Act of
1933, as amended. You have received a copy of the Class C Shares
Distribution Agreement (the "Distribution Agreement") between
ourself and the Fund and reference is made herein to certain
provisions of such Distribution Agreement. The terms "Prospec-
tus" and "Statement of Additional Information" as used herein
refer to the prospectus and statement of additional information,
respectively, on file with the Securities and Exchange Commission
which is part of the most recent effective registration statement
pursuant to the Securities Act of 1933, as amended. We offer to
sell to you, as a member of the Selected Dealers Group, Class C
shares of the Fund upon the following terms and conditions:
1. In all sales of these Class C shares to the public, you
shall act as dealer for your own account and in no transaction
shall you have any authority to act as agent for the Fund, for us
or for any other member of the Selected Dealers Group, except in
connection with the Merrill Lynch Mutual Fund Adviser program and
such other special programs as we from time to time agree, in
which case you shall have authority to offer and sell shares, as
agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us
only at the public offering price applicable to each order, as
set forth in the current Prospectus and Statement of Additional
Information of the Fund. The procedure relating to the handling
of orders shall be subject to Section 4 hereof and instructions
which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor
or the Fund in the sole discretion of either. The minimum ini-
tial and subsequent purchase requirements are as set forth in the
current Prospectus and Statement of Additional Information of the
Fund.
3. You shall not place orders for any of the Class C shares
unless you have already received purchase orders for such Class C
shares at the applicable public offering prices and subject to
the terms hereof and of the Distribution Agreement. You agree
that you will not offer or sell any of the Class C shares except
under circumstances that will result in compliance with the
applicable Federal and state securities laws and that in
connection with sales and offers to sell Class C shares you will
furnish to each person to whom any such sale or offer is made a
copy of the Prospectus and, if requested, the Statement of Addi-
tional Information (as then amended or supplemented) and will not
furnish to any person any information relating to the Class C
shares of the Fund which is inconsistent in any respect with the
information contained in the Prospectus and Statement of Addi-
tional Information (as then amended or supplemented) or cause any
advertisement to be published in any newspaper or posted in any
public place without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to
place orders directly with the Fund for Class C shares of the
Fund to be resold by us to you subject to the applicable terms
and conditions governing the placement of orders by us set forth
in Section 3 of the Distribution Agreement and (ii) to tender
Class C shares directly to the Fund or its agent for redemption
subject to the applicable terms and conditions set forth in Sec-
tion 4 of the Distribution Agreement.
5. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such with-
holding: e.g., by a change in the "net asset value" from that
used in determining the offering price to your customers.
6. No person is authorized to make any representations
concerning Class C shares of the Fund except those contained in
the current Prospectus and Statement of Additional Information of
the Fund and in such printed information subsequently issued by
us or the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing Class C
shares through us you shall rely solely on the representations
contained in the Prospectus and Statement of Additional Informa-
tion and supplemental information above mentioned. Any printed
information which we furnish you other than the Fund's Prospec-
tus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not
the responsibility of the Fund, and you agree that the Fund shall
have no liability or responsibility to you in these respects
unless expressly assumed in connection therewith.
7. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if
requested, the Statement of Additional Information at or prior to
the time of offering or sale and you agree thereafter to deliver
to such purchasers copies of the annual and interim reports and
proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional
copies of the Prospectus and Statement of Additional Information,
annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon re-
quest.
8. We reserve the right in our discretion, without notice,
to suspend sales or withdraw the offering of Class C shares
entirely or to certain persons or entities in a class or classes
specified by us. Each party hereto has the right to cancel this
Agreement upon notice to the other party.
9. We shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the
continuous offering. We shall be under no liability to you
except for lack of good faith and for obligations expressly
assumed by us herein. Nothing contained in this paragraph is
intended to operate as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of
compliance with any provision of the Securities Act of 1933, as
amended, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
10. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any
sales in the United States, we both hereby agree to abide by the
Rules of Fair Practice of such Association.
11. Upon application to us, we will inform you as to the
states in which we believe the Class C shares have been qualified
for sale under, or are exempt from the requirements of, the
respective securities laws of such states, but we assume no
responsibility or obligation as to your right to sell Class C
shares in any jurisdiction. We will file with the Department of
State in New York a Further State Notice with respect to the
Class C shares, if necessary.
12. All communications to us should be sent to the address
below. Any notice to you shall be duly given if mailed or tele-
graphed to you at the address specified by you below.
13. Your first order placed pursuant to this Agreement for
the purchase of Class C shares of the Fund will represent your
acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By ----------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
[MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011]
Accepted:
Firm Name: [Merrill Lynch, Pierce, Fenner & Smith Inc.]
------------------------------------------------
By: -------------------------------------------------------
Address: [800 Scudders Mill Road]
--------------------------------------------------
[Plainsboro, New Jersey 08536]
-----------------------------------------------------------
Date: , 1994
-----------------------------------------------------
CLASS D SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of October 1994 between
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC., a Maryland
corporation (the "Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR,
INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), as an
open-end investment company, and it is affirmatively in the
interest of the Fund to offer its shares for sale continuously;
and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either
directly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
of the Class D shares of common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby
appoints the Distributor as the principal underwriter and distri-
butor of the Fund to sell Class D shares of common stock in the
Fund (sometimes herein referred to as "Class D shares") to the
public and hereby agrees during the term of this Agreement to
sell Class D shares of the Fund to the Distributor upon the terms
and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as prin-
cipal underwriter and distributor, except that:
(a) The Fund may, upon written notice to the Distributor,
from time to time designate other principal underwriters and dis-
tributors of Class D shares with respect to areas other than the
United States as to which the Distributor may have expressly
waived in writing its right to act as such. If such designation
is deemed exclusive, the right of the Distributor under this
Agreement to sell Class D shares in the areas so designated shall
terminate, but this Agreement shall remain otherwise in full
effect until terminated in accordance with the other provisions
hereof.
(b) The exclusive right granted to the Distributor to pur-
chase Class D shares from the Fund shall not apply to Class D
shares issued in connection with the merger or consolidation of
any other investment company or personal holding company with the
Fund or the acquisition by purchase or otherwise of all (or sub-
stantially all) the assets or the outstanding Class D shares of
any such company by the Fund.
(c) Such exclusive right also shall not apply to Class D
shares issued by the Fund pursuant to reinvestment of dividends
or capital gains distributions.
(d) Such exclusive right also shall not apply to Class D
shares issued by the Fund pursuant to any conversion, exchange or
reinstatement privilege afforded redeeming shareholders or to any
other Class D shares as shall be agreed between the Fund and the
Distributor from time to time.
Section 3. Purchase of Class D Shares from the Fund.
(a) It is contemplated that the Fund will commence an
offering of its Class D shares, and thereafter the Distributor
shall have the right to buy from the Fund the Class D shares
needed, but not more than the Class D shares needed (except for
clerical errors in transmission) to fill unconditional orders for
Class D shares of the Fund placed with the Distributor by
eligible investors or securities dealers. Investors eligible to
purchase Class D shares shall be those persons so identified in
the currently effective prospectus and statement of additional
information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act
of 1933, as amended (the "Securities Act"), relating to such
Class D shares. The price which the Distributor shall pay for the
Class D shares so purchased from the Fund shall be the net asset
value, determined as set forth in Section 3(d) hereof, used in
determining the public offering price on which such orders were
based.
(b) The Class D shares are to be resold by the Distributor
to investors at the public offering price, as set forth in Sec-
tion 3(c) hereof, or to securities dealers having agreements
with the Distributor upon the terms and conditions set forth in
Section 7 hereof.
(c) The public offering price(s) of the Class D shares,
i.e., the price per share at which the Distributor or selected
dealers may sell Class D shares to the public, shall be the
public offering price as set forth in the prospectus and
statement of additional information relating to such Class D
shares, but not to exceed the net asset value at which the
Distributor is to purchase the Class D shares, plus a sales
charge not to exceed 5.25% of the public offering price (5.54% of
the net amount invested), subject to reductions for volume
purchases. Class D shares may be sold to certain Directors,
officers and employees of the Fund, directors and employees of
Merrill Lynch & Co., Inc. and its subsidiaries, and to certain
other persons described in the prospectus and statement of
additional information, without a sales charge or at a reduced
sales charge, upon terms and conditions set forth in the
prospectus and statement of additional information. If the
public offering price does not equal an even cent, the public
offering price may be adjusted to the nearest cent. All payments
to the Fund hereunder shall be made in the manner set forth in
Section 3(f).
(d) The net asset value of Class D shares shall be deter-
mined by the Fund or any agent of the Fund in accordance with the
method set forth in the prospectus and statement of additional
information of the Fund and guidelines established by the
Directors.
(e) The Fund shall have the right to suspend the sale of
its Class D shares at times when redemption is suspended pursuant
to the conditions set forth in Section 4(b) hereof. The Fund
shall also have the right to suspend the sale of its Class D
shares if trading on the New York Stock Exchange shall have been
suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some
other event, which, in the judgment of the Fund, makes it
impracticable or inadvisable to sell the Class D shares.
(f) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class D shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund
will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class D shares. The Fund
(or its agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts or
certificates for such Class D shares pursuant to the instructions
of the Distributor. Payment shall be made to the Fund in New
York Clearing House funds. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the
Fund (or its agent).
Section 4. Repurchase or Redemption of Class D Shares by
the Fund.
(a) Any of the outstanding Class D shares may be tendered
for redemption at any time, and the Fund agrees to repurchase or
redeem the Class D shares so tendered in accordance with its
obligations as set forth in Article VII of its Articles of
Incorporation, as amended from time to time, and in accordance
with the applicable provisions set forth in the prospectus and
statement of additional information. The price to be paid to
redeem or repurchase the Class D shares shall be equal to the net
asset value calculated in accordance with the provisions of
Section 3(d) hereof, less any contingent deferred sales charge
("CDSC"), redemption fee or other charge(s), if any, set forth in
the prospectus and statement of additional information of the
Fund. All payments by the Fund hereunder shall be made in the
manner set forth below. The redemption or repurchase by the Fund
of any of the Class D shares purchased by or through the Distri-
butor will not affect the sales charge secured by the Distributor
or any selected dealer in the course of the original sale, except
that if any Class D shares are tendered for redemption or repur-
chase within seven business days after the date of the confirma-
tion of the original purchase, the right to the sales charge
shall be forfeited by the Distributor and the selected dealer
which sold such Class D shares.
The Fund shall pay the total amount of the redemption price
as defined in the above paragraph pursuant to the instructions of
the Distributor in New York Clearing House funds on or before the
seventh business day subsequent to its having received the notice
of redemption in proper form. The proceeds of any redemption of
shares shall be paid by the Fund as follows: (i) any applicable
CDSC shall be paid to the Distributor, and (ii) the balance shall
be paid to or for the account of the shareholder, in each case in
accordance with the applicable provisions of the prospectus and
statement of additional information.
(b) Redemption of Class D shares or payment may be
suspended at times when the New York Stock Exchange is closed,
when trading on said Exchange is suspended, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange
Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Dis-
tributor may reasonably request for use in connection with the
distribution of Class D shares of the Fund, and this shall in-
clude, upon request by the Distributor, one certified copy of all
financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor
such number of copies of the prospectus and statement of addi-
tional information as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to
any necessary approval of the Class D shareholders, all necessary
action to fix the number of authorized Class D shares and such
steps as may be necessary to register the same under the Securi-
ties Act, to the end that there will be available for sale such
number of Class D shares as the Distributor may reasonably be
expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its Class
D shares for sale under the securities laws of such states as the
Distributor and the Fund may approve. Any such qualification may
be withheld, terminated or withdrawn by the Fund at any time in
its discretion. As provided in Section 8(c) hereof, the expense
of qualification and maintenance of qualification shall be borne
by the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports
of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort
to effect sales of Class D shares of the Fund but shall not be
obligated to sell any specific number of Class D shares. The
services of the Distributor to the Fund hereunder are not to be
deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other in-
vestment companies so long as the performance of its obligations
hereunder is not impaired thereby.
(b) In selling the Class D shares of the Fund, the Distri-
butor shall use its best efforts in all respects duly to conform
with the requirements of all Federal and state laws relating to
the sale of such securities. Neither the Distributor nor any
selected dealer, as defined in Section 7 hereof, nor any other
person is authorized by the Fund to give any information or to
make any representations, other than those contained in the
registration statement or related prospectus and statement of
additional information and any sales literature specifically
approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of
sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales,
and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into
selected dealers agreements with securities dealers of its choice
("selected dealers") for the sale of Class D shares and fix
therein the portion of the sales charge which may be allocated to
the selected dealers; provided that the Fund shall approve the
forms of agreements with dealers and the dealer compensation set
forth therein. Class D shares sold to selected dealers shall be
for resale by such dealers only at the public offering price(s)
set forth in the prospectus and statement of additional
information. The form of agreement with selected dealers to be
used during the continuous offering of the Class D shares is
attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer
and sell Class D shares only to such selected dealers as are mem-
bers in good standing of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required regis-
tration statements and/or prospectuses and statements of
additional information under the Investment Company Act, the
Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy
materials to Class D shareholders (including but not limited to
the expense of setting in type any such registration statements,
prospectuses, statements of additional information, annual or
interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses
associated with payments of sales commissions to financial con-
sultants. In addition, after the prospectuses, statements of
additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs
and expenses of printing and distributing any copies thereof
which are to be used in connection with the offering of Class D
shares to selected dealers or investors pursuant to this
Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by
the Distributor or furnished by it for use by selected dealers in
connection with the offering of the Class D shares for sale to
the public and any expenses of advertising incurred by the
Distributor in connection with such offering. It is understood
and agreed that so long as the Fund's Class D Shares Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act
remains in effect, any expenses incurred by the Distributor
hereunder in connection with account maintenance activities may
be paid from amounts recovered by it from the Fund under such
plan.
(c) The Fund shall bear the cost and expenses of qualifi-
cation of the Class D shares for sale pursuant to this Agreement
and, if necessary or advisable in connection therewith, of quali-
fying the Fund as a broker or dealer in such states of the United
States or other jurisdictions as shall be selected by the Fund
and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distri-
butor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by
reason of any person acquiring any Class D shares, which may be
based upon the Securities Act, or on any other statute or at com-
mon law, on the ground that the registration statement or related
prospectus and statement of additional information, as from time
to time amended and supplemented, or an annual or interim report
to shareholders of the Fund, includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was
made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of
the Distributor; provided, however, that in no case (i) is the
indemnity of the Fund in favor of the Distributor and any such
controlling persons to be deemed to protect such Distributor or
any such controlling persons thereof against any liability to the
Fund or its security holders to which the Distributor or any such
controlling persons would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the per-
formance of their duties or by reason of the reckless disregard
of their obligations and duties under this Agreement; or (ii) is
the Fund to be liable under its indemnity agreement contained in
this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be,
shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information
of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor
or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund
of any such claim shall not relieve it from any liability which
it may have to the person against whom such action is brought
otherwise than on account of its indemnity agreement contained in
this paragraph. The Fund will be entitled to participate at its
own expense in the defense or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but if
the Fund elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or
defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the
Distributor or such controlling person or persons, defendant or
defendants in the suit shall bear the fees and expenses of any
additional counsel retained by them, but in case the Fund does
not elect to assume the defense of any such suit, it will reim-
burse the Distributor or such controlling person or persons, de-
fendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Fund shall
promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its officers or
Directors in connection with the issuance or sale of any of the
Class D shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Directors and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage or expense described in the foregoing indemnity contained
in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on
behalf of the Distributor for use in connection with the
registration statement or related prospectus and statement of
additional information, as from time to time amended, or the
annual or interim reports to Class D shareholders. In case any
action shall be brought against the Fund or any person so
indemnified, in respect of which indemnity may be sought against
the Distributor, the Distributor shall have the rights and duties
given to the Fund, and the Fund and each person so indemnified
shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program. In
connection with the Merrill Lynch Mutual Fund Adviser Program,
the Distributor and its affiliate, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, are authorized to offer and sell shares of
the Fund, as agent for the Fund, to participants in such program.
The terms of this Agreement shall apply to such sales, including
terms as to the offering price of shares, the proceeds to be paid
to the Fund, the duties of the Distributor, the payment of
expenses and indemnification obligations of the Fund and the
Distributor.
Section 11. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above
written and shall remain in force until September 30, 1995 and
thereafter, but only for so long as such continuance is
specifically approved at least annually by (i) the Directors or
by the vote of a majority of the outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors
who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose
of voting on such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Directors or by vote of a majority
of the outstanding voting securities of the Fund, or by the Dis-
tributor, on sixty days' written notice to the other party. This
Agreement shall automatically terminate in the event of its
assignment.
The terms "vote of a majority of the outstanding voting
securities", "assignment", "affiliated person" and "interested
person", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 12. Amendments of this Agreement. This Agreement
may be amended by the parties only if such amendment is specifi-
cally approved by (i) the Directors or by the vote of a majority
of outstanding voting securities of the Fund and (ii) by the vote
of a majority of those Directors of the Fund who are not parties
to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such
approval.
Section 13. Governing Law. The provisions of this
Agreement shall be construed and interpreted in accordance with
the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any
of the provisions herein, conflict with the applicable provisions
of the Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
By ----------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By ----------------------------------------
Title:
EXHIBIT A
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
CLASS D SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Merrill Lynch Global Convertible
Fund, Inc., a Maryland corporation (the "Fund"), pursuant to
which it acts as the distributor for the sale of Class D shares
of common stock, par value $0.10 per share (herein referred to as
"Class D shares"), of the Fund and as such has the right to
distribute Class D shares of the Fund for resale. The Fund is an
open-end investment company registered under the Investment
Company Act of 1940, as amended, and its Class D shares being
offered to the public are registered under the Securities Act of
1933, as amended. You have received a copy of the Class D Shares
Distribution Agreement (the "Distribution Agreement") between
ourself and the Fund and reference is made herein to certain
provisions of such Distribution Agreement. The terms
"Prospectus" and "Statement of Additional Information" used
herein refer to the prospectus and statement of additional
information, respectively, on file with the Securities and
Exchange Commission which is part of the most recent effective
registration statement pursuant to the Securities Act of 1933, as
amended. We offer to sell to you, as a member of the Selected
Dealers Group, Class D shares of the Fund upon the following
terms and conditions:
1. In all sales of these Class D shares to the public, you
shall act as dealer for your own account and in no transaction
shall you have any authority to act as agent for the Fund, for us
or for any other member of the Selected Dealers Group, except in
connection with the Merrill Lynch Mutual Fund Adviser program and
such other special programs as we from time to time agree, in
which case you shall have authority to offer and sell shares, as
agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us
only at the public offering price applicable to each order, as
set forth in the current Prospectus and Statement of Additional
Information of the Fund. The procedure relating to the handling
of orders shall be subject to Section 5 hereof and instructions
which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor
or the Fund in the sole discretion of either. The minimum
initial and subsequent purchase requirements are as set forth in
the current Prospectus and Statement of Additional Information of
the Fund.
3. The sales charges for sales to the public, computed as
percentages of the public offering price and the amount invested,
and the related discount to Selected Dealers are as follows:
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
- ------------------ -------------- -------------- -----------
Less than $25,000...... 5.25% 5.54% 5.00%
$25,000 but less
than $50,000.......... 4.75% 4.99% 4.50%
$50,000 but less
than $100,000......... 4.00% 4.16% 3.75%
$100,000 but less
than $250,000......... 3.00% 3.09% 2.75%
$250,000 but less
than $1,000,000....... 2.00% 2.04% 1.80%
$1,000,000 and over**.. 0.00% 0.00% 0.00%
___________________
* Rounded to the nearest one-hundredth percent.
** Initial sales charges will be waived for certain classes of offerees as
set forth in the current Prospectus and Statement of Additional Information
of the Fund. Such purchases may be subject to a contingent deferred sales
charge as set forth in the current Prospectus and Statement of Additional
Information.
The term "purchase" refers to a single purchase by an individual,
or to concurrent purchases, which in the aggregate are at least equal to
the prescribed amounts, by an individual, his spouse and their children
under the age of 21 years purchasing Class D shares for his or their own
account and to single purchases by a trustee or other fiduciary
purchasing Class D 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 of 1940, as amended, but does not
include purchases by any such company which has not been in existence
for at least six months or which has no purpose other than the purchase
of Class D shares of the Fund or Class D 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.
The reduced sales charges are applicable through a right of
accumulation under which eligible investors are permitted to purchase
Class D shares of the Fund 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 Class A,
Class B, Class C and Class D shares of the Fund and of any other
investment company with an initial sales charge for which the
Distributor acts as the distributor. For any such right of accumulation
to be made available, the Distributor must be provided at the time of
purchase, by the purchaser or you, with sufficient information to permit
confirmation of qualification, and acceptance of the purchase order is
subject to such confirmation.
The reduced sales charges are applicable to purchases aggregating
$25,000 or more of Class A shares or of Class D shares of any other
investment company with an initial sales charge for which the
Distributor acts as the distributor made through you within a
thirteen-month period starting with the first purchase pursuant to a
Letter of Intention in the form provided in the Prospectus. A purchase
not originally made pursuant to a Letter of Intention may be included
under a subsequent letter executed within 90 days of such purchase if
the Distributor is informed in writing of this intent within such 90-day
period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made
pursuant to the terms of the Letter of Intention.
You agree to advise us promptly at our request as to amounts of any
sales made by you to the public qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the
right of accumulation or a Letter of Intention is set forth in the
Prospectus and Statement of Additional Information.
4. You shall not place orders for any of the Class D shares
unless you have already received purchase orders for such Class D shares
at the applicable public offering prices and subject to the terms hereof
and of the Distribution Agreement. You agree that you will not offer or
sell any of the Class D shares except under circumstances that will
result in compliance with the applicable Federal and state securities
laws and that in connection with sales and offers to sell Class D shares
you will furnish to each person to whom any such sale or offer is made a
copy of the Prospectus and, if requested, the Statement of Additional
Information (as then amended or supplemented) and will not furnish to
any person any information relating to the Class D shares of the Fund
which is inconsistent in any respect with the information contained in
the Prospectus and Statement of Additional Information (as then amended
or supplemented) or cause any advertisement to be published in any
newspaper or posted in any public place without our consent and the
consent of the Fund.
5. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Fund for Class D shares of the Fund to be
resold by us to you subject to the applicable terms and conditions
governing the placement of orders by us set forth in Section 3 of the
Distribution Agreement and subject to the compensation provisions of
Section 3 hereof and (ii) to tender Class D shares directly to the Fund
or its agent for redemption subject to the applicable terms and
conditions set forth in Section 4 of the Distribution Agreement.
6. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding:
e.g., by a change in the "net asset value" from that used in determining
the offering price to your customers.
7. If any Class D shares sold to you under the terms of this
Agreement are repurchased by the Fund or by us for the account of the
Fund or are tendered for redemption within seven business days after the
date of the confirmation of the original purchase by you, it is agreed
that you shall forfeit your right to, and refund to us, any discount
received by you on such Class D shares.
8. No person is authorized to make any representations concerning
Class D shares of the Fund except those contained in the current
Prospectus and Statement of Additional Information of the Fund and in
such printed information subsequently issued by us or the Fund as
information supplemental to such Prospectus and Statement of Additional
Information. In purchasing Class D shares through us you shall rely
solely on the representations contained in the Prospectus and Statement
of Additional Information and supplemental information above mentioned.
Any printed information which we furnish you other than the Fund's
Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no
liability or responsibility to you in these respects unless expressly
assumed in connection therewith.
9. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if
requested, the Statement of Additional Information at or prior to the
time of offering or sale and you agree thereafter to deliver to such
purchasers copies of the annual and interim reports and proxy
solicitation materials of the Fund. You further agree to endeavor to
obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim
reports and proxy solicitation materials of the Fund will be supplied to
you in reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Class D shares entirely or to
certain persons or entities in a class or classes specified by us. Each
party hereto has the right to cancel this agreement upon notice to the
other party.
11. We shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the continuous
offering. We shall be under no liability to you except for lack of good
faith and for obligations expressly assumed by us herein. Nothing
contained in this paragraph is intended to operate as, and the
provisions of this paragraph shall not in any way whatsoever constitute,
a waiver by you of compliance with any provision of the Securities Act
of 1933, as amended, or of the rules and regulations of the Securities
and Exchange Commission issued thereunder.
12. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any sales
in the United States, we both hereby agree to abide by the Rules of Fair
Practice of such Association.
13. Upon application to us, we will inform you as to the states in
which we believe the Class D shares have been qualified for sale under,
or are exempt from the requirements of, the respective securities laws
of such states, but we assume no responsibility or obligation as to your
right to sell Class D shares in any jurisdiction. We will file with the
Department of State in New York a Further State Notice with respect to
the Class D shares, if necessary.
14. All communications to us should be sent to the address below.
Any notice to you shall be duly given if mailed or telegraphed to you at
the address specified by you below.
15. Your first order placed pursuant to this Agreement for the
purchase of Class D shares of the Fund will represent your acceptance of
this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By ----------------------------------
(Authorized Signature)
Please return one signed copy
of this agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: Merrill Lynch, Pierce, Fenner & Smith Inc.
By: -------------------------------------------------
Address: 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Date: , 1994
--------------
<PAGE>
EXHIBIT 11(A)
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Global Convertible Fund, Inc.:
We consent to the use in Post-Effective Amendment No. 9 to Registration
Statement No. 33-18720 of our report dated December 8, 1993 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption 'Financial Highlights'
appearing in the Prospectus, which also is a part of such Registration
Statement.
Deloitte & Touche LLP
Princeton, New Jersey
October 10, 1994
CLASS C DISTRIBUTION PLAN
OF
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the ___ day of October 1994, by
and between Merrill Lynch Global Convertible Fund, Inc., a
Maryland corporation (the "Fund"), and Merrill Lynch Funds
Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end
investment company registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business
of selling shares of investment companies either directly to
purchasers or through other securities dealers; and
WHEREAS, the Fund proposes to enter into a Class C Shares
Distribution Agreement with MLFD, pursuant to which MLFD will act
as the exclusive distributor and representative of the Fund in
the offer and sale of Class C shares of common stock, par value
$0.10 per share (the "Class C shares"), of the Fund to the
public; and
WHEREAS, the Fund desires to adopt this Class C Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account
maintenance fee and a distribution fee to MLFD with respect to
the Fund's Class C shares; and
WHEREAS, the Directors of the Fund have determined that
there is a reasonable likelihood that adoption of the Plan will
benefit the Fund and its shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby
agrees to the terms of, the Plan in accordance with Rule 12b-1
under the Investment Company Act on the following terms and
conditions:
1. The Fund shall pay MLFD an account maintenance fee under
the Plan at the end of each month at the annual rate of 0.25% of
average daily net assets of the Fund relating to Class C shares
to compensate MLFD and securities firms with which MLFD enters
into related agreements pursuant to Paragraph 3 hereof ("Sub-
Agreements") for providing account maintenance activities with
respect to Class C shareholders of the Fund. Expenditures under
the Plan may consist of payments to financial consultants for
maintaining accounts in connection with Class C shares of the
Fund and payment of expenses incurred in connection with such
account maintenance activities including the costs of making
services available to shareholders including assistance in
connection with inquiries related to shareholder accounts.
2. The Fund shall pay MLFD a distribution fee under the
Plan at the end of each month at the annual rate of 0.75% of
average daily net assets of the Fund relating to Class C shares
to compensate MLFD and securities firms with which MLFD enters
into related Sub-Agreements for providing sales and promotional
activities and services. Such activities and services will
relate to the sale, promotion and marketing of the Class C shares
of the Fund. Such expenditures may consist of sales commissions
to financial consultants for selling Class C shares of the Fund,
compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising
expenditures related to the Fund and the costs of preparing and
distributing promotional materials. The distribution fee may
also be used to pay the financing costs of carrying the
unreimbursed expenditures described in this Paragraph 2. Payment
of the distribution fee described in this Paragraph 2 shall be
subject to any limitations set forth in any applicable regulation
of the National Association of Securities Dealers, Inc.
3. The Fund hereby authorizes MLFD to enter into
Sub-Agreements with certain securities firms ("Securities
Firms"), including Merrill Lynch, Pierce, Fenner & Smith
Incorporated, to provide compensation to such Securities Firms
for activities and services of the type referred to in Paragraphs
1 and 2 hereof. MLFD may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and
services. Such Sub-Agreement shall provide that the Securities
Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting require-
ments set forth in Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of
Directors, and the Directors shall review, at least quarterly, a
written report complying with the requirements of Rule 12b-1
regarding the disbursement of the account maintenance fee and the
distribution fee during such period.
5. This Plan shall not take effect until it has been
approved by a vote of at least a majority, as defined in the
Investment Company Act, of the outstanding Class C voting securi-
ties of the Fund.
6. This Plan shall not take effect until it has been
approved, together with any related agreements, by votes of a
majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the
Fund, as defined in the Investment Company Act, and have no
direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the "Rule 12b-1
Directors"), cast in person at a meeting or meetings called for
the purpose of voting on the Plan and such related agreements.
7. The Plan shall continue in effect for so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in Paragraph 6.
8. The Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of
the outstanding Class C voting securities of the Fund.
9. The Plan may not be amended to increase materially the
rate of payments provided for herein unless such amendment is
approved by at least a majority, as defined in the Investment
Company Act, of the outstanding Class C voting securities of the
Fund, and by the Directors of the Fund in the manner provided for
in Paragraph 6 hereof, and no material amendment to the Plan
shall be made unless approved in the manner provided for approval
and annual renewal in Paragraph 6 hereof.
10. While the Plan is in effect, the selection and nomina-
tion of Directors who are not interested persons, as defined in
the Investment Company Act, of the Fund shall be committed to the
discretion of the Directors who are not interested persons.
11. The Fund shall preserve copies of the Plan and any
related agreements and all reports made pursuant to Paragraph 4
hereof, for a period of not less than six years from the date of
the Plan, or the agreements or such report, as the case may be,
the first two years in an easily accessible place.
IN WITNESS WHEREOF, the parties hereto have executed this
Distribution Plan as of the date first above written.
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
By_____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the __ day of October 1994, by and
between Merrill Lynch Funds Distributor, Inc., a Delaware corpo-
ration ("MLFD"), and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, a Delaware corporation ("Securities Firm").
W I T N E S S E T H :
WHEREAS, MLFD has entered into an agreement with Merrill
Lynch Global Convertible Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the exclusive distributor
for the sale of Class C shares of common stock, par value $0.10
per share (the "Class C shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class C
Shares Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "Act"),
pursuant to which MLFD receives an account maintenance fee from
the Fund at the annual rate of 0.25% of average daily net assets
of the Fund relating to Class C shares for account maintenance
activities related to Class C shares of the Fund and a
distribution fee from the Fund at the annual rate of 0.75% of
average daily net assets of the Fund relating to Class C shares
for providing sales and promotional activities and services
related to the distribution of Class C shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain
account maintenance activities and sales and promotional
activities and services for the Fund's Class C shareholders and
the Securities Firm is willing to perform such activities and
services;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance
activities and services with respect to the Class C shares of the
Fund and incur expenditures in connection with such activities
and services of the types referred to in Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional
activities and services with respect to the sale of the Class C
shares of the Fund, and incur distribution expenditures, of the
types referred to in Paragraph 2 of the Plan.
3. As compensation for its activities and services
performed under this Agreement, MLFD shall pay the Securities
Firm an account maintenance fee and a distribution fee at the end
of each calendar month in an amount agreed upon by the parties
hereto.
4. The Securities Firm shall provide MLFD, at least
quarterly, such information as reasonably requested by MLFD to
enable MLFD to comply with the reporting requirements of Rule
12b-1 regarding the disbursement of the account maintenance fee
and the distribution fee during such period referred to in
Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been
approved by votes of a majority of both (a) the Directors of the
Fund and (b) those Directors of the Fund who are not "interested
persons" of the Fund, as defined in the Act, and have no direct
or indirect financial interest in the operation of the Plan, this
Agreement or any agreements related to the Plan or this Agreement
(the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on this Agreement.
6. This Agreement shall continue in effect for as long as
such continuance is specifically approved at least annually in
the manner provided for approval of the Plan in Paragraph 6.
7. This Agreement shall automatically terminate in the
event of its assignment or in the event of the termination of the
Plan or any amendment to the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By_____________________________________
Title:
CLASS D DISTRIBUTION PLAN
OF
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the __ day of October 1994, by
and between Merrill Lynch Global Convertible Fund, Inc., a
Maryland corporation (the "Fund"), and Merrill Lynch Funds
Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H :
WHEREAS, the Fund is engaged in business as an open-end
investment company registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business
of selling shares of investment companies either directly to
purchasers or through other securities dealers; and
WHEREAS, the Fund proposes to enter into a Class D Shares
Distribution Agreement with MLFD, pursuant to which MLFD will act
as the exclusive distributor and representative of the Fund in
the offer and sale of Class D shares of common stock, par value
$0.10 per share (the "Class D shares"), of the Fund to the
public; and
WHEREAS, the Fund desires to adopt this Class D Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account main-
tenance fee to MLFD with respect to the Fund's Class D shares;
and
WHEREAS, the Directors of the Fund have determined that
there is a reasonable likelihood that adoption of the Plan will
benefit the Fund and its shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby
agrees to the terms of, the Plan in accordance with Rule 12b-1
under the Investment Company Act on the following terms and
conditions:
1. The Fund shall pay MLFD an account maintenance fee under
the Plan at the end of each month at the annual rate of 0.25% of
average daily net assets of the Fund relating to Class D shares
to compensate MLFD and securities firms with which MLFD enters
into related agreements ("Sub-Agreements") pursuant to Paragraph
2 hereof for providing account maintenance activities with
respect to Class D shareholders of the Fund. Expenditures under
the Plan may consist of payments to financial consultants for
maintaining accounts in connection with Class D shares of the
Fund and payment of expenses incurred in connection with such
account maintenance activities including the costs of making
services available to shareholders including assistance in
connection with inquiries related to shareholder accounts.
2. The Fund hereby authorizes MLFD to enter into
Sub-Agreements with certain securities firms ("Securities
Firms"), including Merrill Lynch, Pierce, Fenner & Smith
Incorporated, to provide compensation to such Securities Firms
for activities of the type referred to in Paragraph 1. MLFD may
reallocate all or a portion of its account maintenance fee to
such Securities Firms as compensation for the above-mentioned
activities. Such Sub-Agreement shall provide that the Securities
Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting
requirements set forth in Paragraph 3 hereof.
3. MLFD shall provide the Fund for review by the Board of
Directors, and the Directors shall review, at least quarterly, a
written report complying with the requirements of Rule 12b-1
regarding the disbursement of the account maintenance fee during
such period.
4. This Plan shall not take effect until it has been
approved by a vote of at least a majority, as defined in the
Investment Company Act, of the outstanding Class D voting securi-
ties of the Fund.
5. This Plan shall not take effect until it has been
approved, together with any related agreements, by votes of a
majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the
Fund, as defined in the Investment Company Act, and have no
direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the "Rule 12b-1
Directors"), cast in person at a meeting or meetings called for
the purpose of voting on the Plan and such related agreements.
6. The Plan shall continue in effect for so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in Paragraph 5.
7. The Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of
the outstanding Class D voting securities of the Fund.
8. The Plan may not be amended to increase materially the
rate of payments provided for in Paragraph 1 hereof unless such
amendment is approved by at least a majority, as defined in the
Investment Company Act, of the outstanding Class D voting
securities of the Fund, and by the Directors of the Fund in the
manner provided for in Paragraph 5 hereof, and no material
amendment to the Plan shall be made unless approved in the manner
provided for approval and annual renewal in Paragraph 5 hereof.
9. While the Plan is in effect, the selection and nomina-
tion of Directors who are not interested persons, as defined in
the Investment Company Act, of the Fund shall be committed to the
discretion of the Directors who are not interested persons.
10. The Fund shall preserve copies of the Plan and any
related agreements and all reports made pursuant to Paragraph 3
hereof, for a period of not less than six years from the date of
the Plan, or the agreements or such report, as the case may be,
the first two years in an easily accessible place.
IN WITNESS WHEREOF, the parties hereto have executed this
Distribution Plan as of the date first above written.
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
By_____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
CLASS D SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the ___ day of October 1994, by and
between Merrill Lynch Funds Distributor, Inc. a Delaware corpo-
ration ("MLFD"), and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, a Delaware corporation ("Securities Firm").
W I T N E S S E T H :
WHEREAS, MLFD has entered into an agreement with Merrill
Lynch Global Convertible Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the exclusive distributor
for the sale of Class D shares of common stock, par value $0.10
per share (the "Class D shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class D
Shares Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "Act"),
pursuant to which MLFD receives an account maintenance fee from
the Fund at the annual rate of 0.25% of average daily net assets
of the Fund relating to Class D shares for providing account
maintenance activities and services with respect to Class D
shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain
account maintenance activities and services, including assistance
in connection with inquiries related to shareholder accounts, for
the Fund's Class D shareholders and the Securities Firm is
willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance
activities and services with respect to the Class D shares of the
Fund and incur expenditures in connection with such activities
and services, of the types referred to in Paragraph 1 of the
Plan.
2. As compensation for its services performed under this
Agreement, MLFD shall pay the Securities Firm a fee at the end of
each calendar month in an amount agreed upon by the parties
hereto.
3. The Securities Firm shall provide MLFD, at least
quarterly, such information as reasonably requested by MLFD to
enable MLFD to comply with the reporting requirements of Rule
12b-1 regarding the disbursement of the fee during such period
referred to in Paragraph 3 of the Plan.
4. This Agreement shall not take effect until it has been
approved by votes of a majority of both (a) the Directors of the
Fund and (b) those Directors of the Fund who are not "interested
persons" of the Fund, as defined in the Act, and have no direct
or indirect financial interest in the operation of the Plan, this
Agreement or any agreements related to the Plan or this Agreement
(the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on this Agreement.
5. This Agreement shall continue in effect for as long as
such continuance is specifically approved at least annually in
the manner provided for approval of the Plan in Paragraph 5.
6. This Agreement shall automatically terminate in the
event of its assignment or in the event of the termination of the
Plan or any amendment to the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By_____________________________________
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
<PERIOD-END> APR-30-1994
<INVESTMENTS-AT-COST> 42174532
<INVESTMENTS-AT-VALUE> 41260148
<RECEIVABLES> 1054026
<ASSETS-OTHER> 44384
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42358558
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 351598
<TOTAL-LIABILITIES> 351598
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42451530
<SHARES-COMMON-STOCK> 515434
<SHARES-COMMON-PRIOR> 411407
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 106940
<ACCUMULATED-NET-GAINS> 640173
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (977803)
<NET-ASSETS> 5496634
<DIVIDEND-INCOME> 239296
<INTEREST-INCOME> 640894
<OTHER-INCOME> 0
<EXPENSES-NET> 486035
<NET-INVESTMENT-INCOME> 394155
<REALIZED-GAINS-CURRENT> 616901
<APPREC-INCREASE-CURRENT> (1609293)
<NET-CHANGE-FROM-OPS> (598237)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 95927
<DISTRIBUTIONS-OF-GAINS> 36293
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 190483
<NUMBER-OF-SHARES-REDEEMED> 96306
<SHARES-REINVESTED> 9850
<NET-CHANGE-IN-ASSETS> 7618410
<ACCUMULATED-NII-PRIOR> 71580
<ACCUMULATED-GAINS-PRIOR> 303814
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 124187
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 486035
<AVERAGE-NET-ASSETS> 4963389
<PER-SHARE-NAV-BEGIN> 11.08
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> (.29)
<PER-SHARE-DIVIDEND> .22
<PER-SHARE-DISTRIBUTIONS> .09
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.66
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1993
<PERIOD-START> NOV-01-1992
<PERIOD-END> OCT-31-1993
<INVESTMENTS-AT-COST> 33196815
<INVESTMENTS-AT-VALUE> 33743159
<RECEIVABLES> 616075
<ASSETS-OTHER> 207442
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34566676
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 178126
<TOTAL-LIABILITIES> 178126
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33381666
<SHARES-COMMON-STOCK> 411407
<SHARES-COMMON-PRIOR> 233279
<ACCUMULATED-NII-CURRENT> 71580
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 303814
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 631490
<NET-ASSETS> 4557201
<DIVIDEND-INCOME> 226615
<INTEREST-INCOME> 760353
<OTHER-INCOME> 0
<EXPENSES-NET> 676161
<NET-INVESTMENT-INCOME> 310807
<REALIZED-GAINS-CURRENT> 303814
<APPREC-INCREASE-CURRENT> 2506720
<NET-CHANGE-FROM-OPS> 3121341
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 59079
<DISTRIBUTIONS-OF-GAINS> 37814
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 344076
<NUMBER-OF-SHARES-REDEEMED> 173369
<SHARES-REINVESTED> 7421
<NET-CHANGE-IN-ASSETS> 18130739
<ACCUMULATED-NII-PRIOR> 56072
<ACCUMULATED-GAINS-PRIOR> 261081
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 139948
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 676161
<AVERAGE-NET-ASSETS> 2560356
<PER-SHARE-NAV-BEGIN> 9.79
<PER-SHARE-NII> .23
<PER-SHARE-GAIN-APPREC> 1.45
<PER-SHARE-DIVIDEND> .23
<PER-SHARE-DISTRIBUTIONS> .16
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.08
<EXPENSE-RATIO> 2.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
<PERIOD-END> APR-30-1994
<INVESTMENTS-AT-COST> 42174532
<INVESTMENTS-AT-VALUE> 41260148
<RECEIVABLES> 1054026
<ASSETS-OTHER> 44384
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42358558
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 351598
<TOTAL-LIABILITIES> 351598
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42451530
<SHARES-COMMON-STOCK> 3406157
<SHARES-COMMON-PRIOR> 2679466
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 106940
<ACCUMULATED-NET-GAINS> 640173
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (977803)
<NET-ASSETS> 36510326
<DIVIDEND-INCOME> 239296
<INTEREST-INCOME> 640894
<OTHER-INCOME> 0
<EXPENSES-NET> 486035
<NET-INVESTMENT-INCOME> 394155
<REALIZED-GAINS-CURRENT> 616901
<APPREC-INCREASE-CURRENT> (1609293)
<NET-CHANGE-FROM-OPS> (598237)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 476748
<DISTRIBUTIONS-OF-GAINS> 244249
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1070403
<NUMBER-OF-SHARES-REDEEMED> 396000
<SHARES-REINVESTED> 52288
<NET-CHANGE-IN-ASSETS> 7618410
<ACCUMULATED-NII-PRIOR> 71580
<ACCUMULATED-GAINS-PRIOR> 303814
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 124187
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 486035
<AVERAGE-NET-ASSETS> 33352972
<PER-SHARE-NAV-BEGIN> 11.13
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> (.27)
<PER-SHARE-DIVIDEND> .16
<PER-SHARE-DISTRIBUTIONS> .09
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.72
<EXPENSE-RATIO> 2.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1992
<PERIOD-END> OCT-31-1993
<INVESTMENTS-AT-COST> 33196815
<INVESTMENTS-AT-VALUE> 33743159
<RECEIVABLES> 616075
<ASSETS-OTHER> 207442
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34566676
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 178126
<TOTAL-LIABILITIES> 178126
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33381666
<SHARES-COMMON-STOCK> 2679466
<SHARES-COMMON-PRIOR> 1419603
<ACCUMULATED-NII-CURRENT> 71580
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 303814
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 631490
<NET-ASSETS> 29831349
<DIVIDEND-INCOME> 226615
<INTEREST-INCOME> 760353
<OTHER-INCOME> 0
<EXPENSES-NET> 676161
<NET-INVESTMENT-INCOME> 310807
<REALIZED-GAINS-CURRENT> 303814
<APPREC-INCREASE-CURRENT> 2506720
<NET-CHANGE-FROM-OPS> 3121341
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 236220
<DISTRIBUTIONS-OF-GAINS> 223267
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1924389
<NUMBER-OF-SHARES-REDEEMED> 698109
<SHARES-REINVESTED> 33583
<NET-CHANGE-IN-ASSETS> 18130739
<ACCUMULATED-NII-PRIOR> 56072
<ACCUMULATED-GAINS-PRIOR> 261081
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 139948
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 676161
<AVERAGE-NET-ASSETS> 19029176
<PER-SHARE-NAV-BEGIN> 9.84
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 1.46
<PER-SHARE-DIVIDEND> .14
<PER-SHARE-DISTRIBUTIONS> .16
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.13
<EXPENSE-RATIO> 3.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
