<PAGE> 1
As filed with the Securities and Exchange Commission on February 27, 1996.
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. 11 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 12 /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 CODE (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)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
---------------------
The Registrant has registered an indefinite number of its 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 27, 1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
- --------- ---------------------------------------
<S> <C> <C>
PART A
1. Cover Page............................. Cover Page
2. Synopsis............................... Fee Table
3. Condensed Financial Information........ Financial Highlights; Performance Data
4. General Description of Registrant...... Cover Page; Investment Objective and
Policies; Additional Information
5. Management of the Fund................. Fee Table; Management of the Fund;
Inside Back Cover Page
5A. Management's Discussion of Fund
Performance.......................... Not Applicable
6. Capital Stock and Other Securities..... Cover Page; Merrill Lynch Select
PricingSM System; Additional
Information
7. Purchase of Securities Being Offered... Cover Page; Merrill Lynch Select
PricingSM System; Fee Table; Purchase
of Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
8. Redemption or Repurchase............... Merrill Lynch Select PricingSM System;
Fee Table; Purchase of Shares;
Redemption of Shares
9. Pending Legal Proceedings.............. Not Applicable
PART B
10. Cover Page............................. Cover Page
11. Table of Contents...................... Back Cover Page
12. General Information and History........ Additional Information
13. Investment Objective and Policies...... Investment Objective and Policies
14. Management of the Fund................. Management of the Fund
15. Control Persons and Principal Holders
of Securities........................ Management of the Fund; Additional
Information
16. Investment Advisory and Other
Services............................. Management of the Fund; Purchase of
Shares; General Information
17. Brokerage Allocation and Other
Practices............................ Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities..... General Information
19. Purchase, Redemption and Pricing of
Securities Being Offered............. Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services
20. Tax Status............................. Dividends, Distributions and Taxes
21. Underwriters........................... Purchase of Shares
22. Calculation of Performance Data........ Performance Data
23. Financial Statements................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE> 3
PROSPECTUS
FEBRUARY 27, 1996
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. For more information on the Fund's investment
objective and policies, see "Investment Objective and Policies" on page 10.
------------------------
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares and other relevant circumstances.
See "Merrill Lynch Select Pricing(SM) System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081
[(609)282-2800], or from 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 February 27, 1996 (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> 4
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 CLASS D
----------- -------------------------------- ------------ -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price).... 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments.......................... None None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption 1.0% for
proceeds, whichever is lower).......... None(d) 4.0% during the first year, one year None(d)
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):
Investment Advisory Fees(e)............ 0.65% 0.65% 0.65% 0.65%
12b-1 Fees(f):
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....................... 0.04% 0.04% 0.04% 0.04%
Shareholder Servicing Costs(g)....... 0.31% 0.30% 0.34% 0.30%
Other................................ 0.38% 0.38% 0.38% 0.38%
----- ----- ----- -----
Total Other Expenses............. 0.73% 0.72% 0.76% 0.72%
----- ----- ----- -----
Total Fund Operating Expenses............ 1.38% 2.37% 2.41% 1.62%
===== ===== ===== =====
</TABLE>
- ---------------
(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 25.
(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) Reduced for purchases of $25,000 and over. Class A and 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 25.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more which
may not be subject to an initial sales charge will instead be subject to a
CDSC of 1.0% of amounts redeemed within the first year after purchase.
(e) See "Management of the Fund -- Management and Advisory Arrangements" -- page
21.
(f) See "Purchase of Shares -- Distribution Plans" -- page 31.
(g) See "Management of the Fund -- Transfer Agency Services" -- page 23.
2
<PAGE> 5
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment including the maximum $52.50 initial sales
charge (Class A and Class D shares only) and assuming
(1) the Total 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.............................................. $ 66 $ 94 $ 124 $210
Class B.............................................. $ 64 $ 94 $ 127 $252*
Class C.............................................. $ 34 $ 75 $ 129 $275
Class D.............................................. $ 68 $ 101 $ 136 $235
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of
the period:
Class A.............................................. $ 66 $ 94 $ 124 $210
Class B.............................................. $ 24 $ 74 $ 127 $252*
Class C.............................................. $ 24 $ 75 $ 129 $275
Class D.............................................. $ 68 $ 101 $ 136 $235
</TABLE>
- ---------------
* Assumes conversion to Class D shares approximately eight years after purchase.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the 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(SM) SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D
are sold to investors choosing the initial sales charge alternatives, and
shares of Class B and Class C are sold to investors choosing the deferred
sales charge alternatives. The Merrill Lynch Select Pricing(SM) System is used
by more than 50 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 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
3
<PAGE> 6
imposed on Class B and Class C shares, as well as the account maintenance fees
that are imposed on the Class D shares, are imposed directly against those
classes and not against all assets of the 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 maintenance and distribution fees
and any incremental transfer agency costs relating to a particular class are
borne exclusively by that class. Each class has different exchange privileges.
See "Shareholder Services -- Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the 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(SM) System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing(SM) System that the investor
believes is the most beneficial under his particular circumstances. More
detailed information as to each class of shares is set forth under "Purchase of
Shares".
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial No No No
sales charge(2)(3)
- -------------------------------------------------------------------------------------------------
B CDSC for a period of 4 0.25% 0.75% B shares convert to
years, D shares automatically
at a rate of 4.0% during after approximately
the first year, decreasing eight years(4)
1.0%
annually to 0.0%
- -------------------------------------------------------------------------------------------------
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. 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 CDSC of 1.0% if redeemed within one
year. See "Class A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the 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
4
<PAGE> 7
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 Merrill Lynch & Co., Inc. ("ML & Co.") and its subsidiaries
(the term "subsidiaries" when used herein with respect to ML & Co.
includes FAM, the Manager and certain other entities directly or
indirectly wholly-owned and controlled by ML & Co.), and their
directors and employees and to members of the Boards of MLAM-advised
mutual funds. The maximum initial sales charge 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 may 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, as well as 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, as will the Class D account
maintenance fee of the acquired fund upon the conversion, 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 "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 and higher account
maintenance fees that will be imposed on Class C shares for an
indefinite period subject to annual approval by the Fund's Board of
Directors 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 may 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
5
<PAGE> 8
conversion of Class B shares as described above under "Class B". See
"Purchase of Shares -- Initial Sales Charge Alternatives -- Class A
and Class D Shares".
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing(SM) System that the investor believes is most beneficial under his
particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative particularly
attractive because similar sales charge reductions are not available with
respect to the deferred sales charges imposed in connection with purchases of
Class B or Class C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or
Class C shares may exceed the initial sales charge and, in the case of Class D
shares, the account maintenance fee. Although some investors 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.
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".
6
<PAGE> 9
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Fund by
Deloitte & Touche LLP, independent auditors. Audited financial statements for
the year ended October 31, 1995 and the independent auditors' report thereon are
included in the Statement of Additional Information. 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 Fund's audited Financial Statements:
<TABLE>
<CAPTION>
CLASS A
----------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
----------------------------------------
1995 1994 1993 1992
------- ------ ------ ------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................................. $ 10.75 $11.08 $ 9.79 $ 9.39
------- ------ ------ ------
Investment income--net................................................................ .42 .33 .23 .21
Realized and unrealized gain (loss) on investments and foreign currency
transactions--net.................................................................... .11 (.27) 1.45 .68
------- ------ ------ ------
Total from investment operations...................................................... .53 .06 1.68 .89
------- ------ ------ ------
Less dividends and distributions:
Investment income--net............................................................... (.46) (.30) (.23) (.25)
Realized gain on investments--net.................................................... (.11) (.09) (.16) (.24)
------- ------ ------ ------
Total dividends and distributions..................................................... (.57) (.39) (.39) (.49)
------- ------ ------ ------
Net asset value, end of period........................................................ $ 10.71 $10.75 $11.08 $ 9.79
======= ====== ====== ======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.................................................... 5.10% 0.61% 17.64% 10.00%
======= ====== ====== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account maintenance and distribution fees and net of
reimbursement........................................................................ 1.38% 1.66% 2.22% 2.47%
======= ====== ====== ======
Expenses, net of reimbursement........................................................ 1.38% 1.66% 2.22% 2.47%
======= ====== ====== ======
Expenses.............................................................................. 1.38% 1.66% 2.22% 2.86%
======= ====== ====== ======
Investment income--net................................................................ 4.03% 2.97% 2.36% 2.61%
======= ====== ====== ======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).............................................. $23,634 $7,850 $4,557 $2,283
======= ====== ====== ======
Portfolio turnover.................................................................... 101.12% 38.04% 26.02% 4.91%
======= ====== ====== ======
<CAPTION>
1991 1990 1989+
------ ------ ------
<S> <C<C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................................. $ 8.37 $ 9.95 $ 9.97
------ ------ ------
Investment income--net................................................................ .25 .38 .39
Realized and unrealized gain (loss) on investments and foreign currency
transactions--net.................................................................... 1.22 (1.11) .21
------ ------ ------
Total from investment operations...................................................... 1.47 (.73) .60
------ ------ ------
Less dividends and distributions:
Investment income--net............................................................... (.37) (.42) (.45)
Realized gain on investments--net.................................................... (.08) (.43) (.17)
------ ------ ------
Total dividends and distributions..................................................... (.45) (.85) (.62)
------ ------ ------
Net asset value, end of period........................................................ $ 9.39 $ 8.37 $ 9.95
====== ====== ======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.................................................... 18.09% (7.86)% 6.29%#
====== ====== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account maintenance and distribution fees and net of
reimbursement........................................................................ 2.47% 2.39% 1.77%*
====== ====== ======
Expenses, net of reimbursement........................................................ 2.47% 2.39% 1.77%*
====== ====== ======
Expenses.............................................................................. 2.87% 2.39% 1.77%*
====== ====== ======
Investment income--net................................................................ 3.16% 4.55% 5.62%*
====== ====== ======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).............................................. $ 448 $ 162 $ 194
====== ====== ======
Portfolio turnover.................................................................... 18.02% 22.76% 15.91%
====== ====== ======
</TABLE>
- ------------------------
+ Class A shares commenced operations on November 4, 1988.
* Annualized.
** Total investment returns exclude the effects of sales loads.
# Aggregate total investment return.
7
<PAGE> 10
FINANCIAL HIGHLIGHTS (CONCLUDED)
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988+++
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET
VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.............................. $ 10.80 $ 11.13 $ 9.84 $ 9.44 $ 8.39 $ 9.95 $ 9.94 $ 10.00
------- ------- ------- ------- ------- ------- ------- -------
Investment income--net............... .37 .21 .13 .12 .18 .29 .37 .27
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net................... .05 (.25) 1.46 .67 1.20 (1.10) .17 (.10)
------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations..... .42 (.04) 1.59 .79 1.38 (.81) .54 .17
------- ------- ------- ------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net.............. (.34) (.20) (.14) (.15) (.25) (.32) (.36) (.23)
Realized gain on investments--net... (.11) (.09) (.16) (.24) (.08) (.43) (.17) --
------- ------- ------- ------- ------- ------- ------- -------
Total dividends and distributions.... (.45) (.29) (.30) (.39) (.33) (.75) (.53) (.23)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period....... $ 10.77 $ 10.80 $ 11.13 $ 9.84 $ 9.44 $ 8.39 $ 9.95 $ 9.94
======= ======= ======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share... 4.01% (0.37)% 16.45% 8.77% 16.79% (8.68)% 5.58% 1.70%#
======= ======= ======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account
maintenance and distribution fees
and net of reimbursement............ 1.37% 1.69% 2.26% 2.49% 2.50% 2.41% 1.63% 1.48%*
======= ======= ======= ======= ======= ======= ======= =======
Expenses, net of reimbursement....... 2.37% 2.69% 3.26% 3.49% 3.50% 3.41% 2.63% 2.48%*
======= ======= ======= ======= ======= ======= ======= =======
Expenses............................. 2.37% 2.69% 3.26% 3.96% 3.88% 3.41% 2.97% 2.60%*
======= ======= ======= ======= ======= ======= ======= =======
Investment income--net............... 2.95% 1.95% 1.32% 1.53% 2.25% 3.51% 3.62% 3.74%*
======= ======= ======= ======= ======= ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).......................... $58,660 $53,121 $29,831 $13,975 $14,973 $18,296 $30,813 $41,232
======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover................... 101.12% 38.04% 26.02% 4.91% 18.02% 22.76% 15.91% 20.24%
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
CLASS C CLASS D
-------------------- --------------------
FOR THE FOR THE
FOR THE PERIOD FOR THE PERIOD
YEAR OCT. 21, YEAR OCT. 21,
ENDED 1994+ TO ENDED 1994+ TO
OCT. 31, OCT. 31, OCT. 31, OCT. 31,
1995 1994++ 1995 1994++
-------- -------- -------- --------
<S> <C<C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET
VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.............................. $10.81 $10.74 $10.76 $10.69
------ ----- ------ -----
Investment income--net............... .36 -- .42 --
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net................... .05 .07 .09 .07
------ ----- ------ -----
Total from investment operations..... .41 .07 .51 .07
------ ----- ------ -----
Less dividends and distributions:
Investment income--net.............. (.36) -- (.44) --
Realized gain on investments--net... (.11) -- (.11) --
------ ----- ------ -----
Total dividends and distributions.... (.47) -- (.55) --
------ ----- ------ -----
Net asset value, end of period....... $10.75 $10.81 $10.72 $10.76
====== ===== ====== =====
TOTAL INVESTMENT RETURN:**
Based on net asset value per share... 3.89% 0.65%# 4.87% 0.65%#
====== ===== ====== =====
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account
maintenance and distribution fees
and net of reimbursement............ 1.41% 4.64%* 1.37% 4.88%*
====== ===== ====== =====
Expenses, net of reimbursement....... 2.41% 5.64%* 1.62% 5.13%*
====== ===== ====== =====
Expenses............................. 2.41% 5.64%* 1.62% 5.13%*
====== ===== ====== =====
Investment income--net............... 2.99% (1.74)%* 3.79% (1.24)%*
====== ===== ====== =====
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).......................... $4,598 $ 203 $3,499 $ 179
====== ===== ====== =====
Portfolio turnover................... 101.12% 38.04% 101.12% 38.04%
====== ===== ====== =====
</TABLE>
- ------------------------
+ Class C shares and Class D shares commenced operations on October 21, 1994.
++ Based on average shares outstanding during the period.
+++ Class B shares commenced operations on February 26, 1988.
* Annualized.
** Total investment returns exclude the effects of sales loads.
# Aggregate total investment return.
8
<PAGE> 11
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
9
<PAGE> 12
and futures 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.
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, i.e., fixed
income 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
income nature. As a result of the conversion feature, however, the interest rate
or dividend preference on
10
<PAGE> 13
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
11
<PAGE> 14
consider both 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.
The table below shows the average monthly dollar-weighted market value, by
Standard & Poor's Ratings Group ("S&P") rating category, of the convertible
securities held by the Fund during the fiscal year ended October 31, 1995:
<TABLE>
<CAPTION>
%
TOTAL
RATING ASSETS
-------------------------------------------------------------------- ------
<S> <C>
AAA................................................................. 16.828%
AA.................................................................. 4.820
A................................................................... 17.000
BBB................................................................. 14.341
BAA................................................................. 0.000
BB.................................................................. 5.598
BA.................................................................. 0.000
B................................................................... 1.278
C................................................................... 0.000
Not Rated*.......................................................... 27.902
------
87.767%
======
</TABLE>
- ---------------
* Convertible securities which are not rated by S&P. Such bonds may be rated by
nationally recognized statistical rating organizations other than S&P, or may
not be rated by any of such organizations. With respect to the percentage of
the Fund's assets invested in such securities, the Fund's Manager believes
that 1.216% are of comparable quality to obligations rated AAA, 5.461% are of
comparable quality to obligations rated AA, 10.801% are of comparable quality
to obligations rated A, 0.537% are of comparable quality to obligations rated
BBB, 3.928% are of comparable quality to obligations rated BAA, 3.722% are of
comparable quality to obligations rated BA, 0.767% are of comparable quality
to obligations rated B and 1.47% are of comparable quality to obligations
rated C. This determination is based on the Manager's own internal evaluation
and does not necessarily reflect how such securities would be rated by S&P if
it were to rate the securities.
For a description of the above referenced ratings, see the appendix to the
Statement of Additional Information. The Fund has established no rating criteria
for the securities in which it may invest and such securities may not be rated
at all for creditworthiness. The above percentages are for the fiscal year ended
October 31, 1995; the rating composition of the portfolio of the Fund may vary
over time.
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
12
<PAGE> 15
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 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.
13
<PAGE> 16
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 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.
14
<PAGE> 17
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.
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
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<PAGE> 18
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 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
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<PAGE> 19
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 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
17
<PAGE> 20
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 such 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.
When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, it will maintain an amount of cash, cash
equivalents (e.g., high grade commercial paper and daily tender adjustable
notes) or short-term high-grade fixed-income securities in a segregated account
with the Fund's
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<PAGE> 21
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.
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<PAGE> 22
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 a 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 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 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
20
<PAGE> 23
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
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 in repurchase agreements maturing in more than seven
days if such investments, together with the Fund's other illiquid investments,
would exceed 15% (10% to the extent required by certain state laws) of the
Fund's total assets.
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. 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 borrow amounts in
excess of 33 1/3% of its total assets taken at market value (including the
amount borrowed), and an additional 5% of its total assets for temporary
purposes. As a non-fundamental restriction, the Fund is further limited and 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.
Investors are referred to the Statement of Additional Information for a
complete description of such restrictions and policies.
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.
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<PAGE> 24
The Directors are:
ARTHUR ZEIKEL* -- President of MLAM and FAM; President and Director of
Princeton Services, Inc.; Executive Vice President of Merrill Lynch & Co., Inc.
("ML & Co."); Director of Merrill Lynch Funds Distributor, Inc.
JAMES H. BODURTHA -- Chairman and Chief Executive Officer, China Enterprise
Management Corporation.
HERBERT I. LONDON -- John M. Olin Professor of Humanities, Gallatin
Division of New York University.
ROBERT R. MARTIN -- Director, WTC Industries, Inc.
JOSEPH L. MAY -- Attorney in private practice.
ANDRE F. PEROLD -- Professor, Harvard Business School.
- ---------------
*Interested person, as defined by the Investment Company Act, of the Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager, which is an affiliate of FAM and is owned and controlled by ML
& Co., a financial services holding company, acts as the Manager for the Fund
and provides the Fund with management and investment advisory services. The
Manager or FAM acts as the investment adviser for more than 130 other registered
investment companies. The Manager also offers portfolio management and portfolio
analysis services to individuals and institutions. As of January 31, 1996, the
Manager and FAM had a total of approximately $196.4 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, 1995 the
fee paid by the Fund to the Manager was $779,627 (based upon average net assets
of approximately $119.9 million). Of this amount, none was reimbursed by the
Manager to the Fund pursuant to certain operating expense limitations. At
January 31, 1996, the net assets of the Fund aggregated approximately $68.6
million. At this asset level, the annual management fee would aggregate
$446,136. 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
22
<PAGE> 25
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, 1995, the Fund
reimbursed the Manager $47,336 for accounting services. For the year ended
October 31, 1995, the ratio of total expenses, excluding account maintenance and
distribution fees, to average net assets was 1.38% for Class A shares, 1.37% for
Class B shares, 1.41% for Class C shares and 1.37% for Class D shares.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-l of the Investment Company Act which incorporates the Code of Ethics of the
Manager (together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Manager and, as described below,
impose additional, more onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Manager preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Manager include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security which at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Manager.
Furthermore, the Codes provide for trading "blackout periods" which prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund in the same (or equivalent) security (15 or 30 days depending upon the
transaction).
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), which
is a wholly-owned subsidiary of ML & Co., acts as the Fund's Transfer Agent
pursuant to a transfer agency, dividend disbursing agency and shareholder
servicing agency agreement (the "Transfer Agency Agreement"). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the 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, 1995,
the Fund paid the Transfer Agent $372,353 pursuant to the Transfer Agency
Agreement for providing transfer agency services. At January 31, 1996, the Fund
had 4,483 Class A shareholder accounts, 7,892 Class B shareholder accounts, 882
Class C shareholder accounts and 413 Class D shareholder accounts. At this level
of accounts, the annual fee payable to the Transfer Agent would aggregate
approximately $176,692, plus miscellaneous and out-of-pocket expenses.
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
the Manager, FAM and Merrill Lynch, acts as the distributor of the shares of the
Fund. 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
23
<PAGE> 26
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
are 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
PricingSM 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 the close of business on the New York Stock
Exchange (generally, 4:00 P.M., New York time), which includes orders received
after the close of business on the previous day, the applicable offering price
will be based on the net asset value determined as of 15 minutes after the close
of business on the New York Stock Exchange on that day, provided the Distributor
in turn receives the order from the securities dealer prior to 30 minutes after
the close of business on the New York Stock Exchange on that day. If the
purchase orders are not received by the Distributor prior to 30 minutes after
the close of business on the New York Stock Exchange, 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
PricingSM 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 PricingSM System is
set forth under "Merrill Lynch Select PricingSM 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 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
24
<PAGE> 27
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(SM) System.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial No No No
sales charge(2)(3)
- -------------------------------------------------------------------------------------------------
B CDSC for a period of 4 0.25% 0.75% B shares convert to
years, D shares automatically
at a rate of 4.0% during after approximately
the first year, decreasing eight years(4)
1.0%
annually to 0.0%
- -------------------------------------------------------------------------------------------------
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 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 "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 may be subject to a 1.0% CDSC if redeemed within one
year.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the 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.
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.
25
<PAGE> 28
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>
SALES CHARGE DISCOUNT TO
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 on Class A and Class D purchases of
$1,000,000 or more made on or after October 21, 1994 (the date Class D shares
were initially offered to the public). If the sales charge is waived in
connection with a purchase of $1,000,000 or more, such purchases will be subject
to a CDSC of 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 Employer Sponsored Retirement or Savings Plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act of 1933,
as amended (the "Securities Act"). For the year ended October 31, 1995, the Fund
sold 4,429,386 Class A shares for aggregate net proceeds of $47,904,765. The
gross sales charges for the sale of Class A shares of the Fund for that year
were $19,530, of which $1,587 and $17,943 were received by the Distributor and
Merril Lynch, respectively. For the year ended October 31, 1995, 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 year
ended October 31, 1995, the Fund sold 593,147 Class D shares for aggregate net
proceeds of $6,348,782. The gross sales charges for the sale of Class D shares
of the Fund for that year were $62,513, of which $4,666 and $57,847 were
received by the Distributor and Merrill Lynch, respectively. For the year ended
October 31, 1995, the Distributor received no CDSCs with respect to redemptions
within one year after purchase of Class D 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(SM)
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 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
26
<PAGE> 29
TMA(SM) 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 are
offered at net asset value to ML & Co. and its subsidiaries and their directors
and employees and to members of the Boards of MLAM-advised investment companies,
including the Fund. Certain persons who acquired shares of certain MLAM-advised
closed-end funds in their initial offerings who wish to reinvest the net
proceeds from a sale of their closed-end fund shares of common stock in shares
of the Fund also may purchase Class A shares of the Fund if certain conditions
set forth in the Statement of Additional Information are met. In addition,
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 pursuant to a tender offer conducted by Merrill
Lynch Senior Floating Rate Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No 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 A and Class D shares are offered at net asset value to certain
employer sponsored retirement or savings plans and to Employee Access
Accounts(SM) available through employers which provide such plans.
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 of the Fund are offered at net asset value to shareholders
of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income
Municipal Bond Fund, Inc. who wish to reinvest the net proceeds from a sale of
certain of their shares of common stock pursuant to tender offers conducted by
those funds in shares of the Fund.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint(SM) Program.
Additional information concerning these reduced initial sales charges,
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.
27
<PAGE> 30
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 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, 1995,
the Distributor received CDSCs of $329,050 with respect to redemptions of Class
B shares, all of which was paid to Merrill Lynch.
28
<PAGE> 31
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B
CDSC AS A
YEAR SINCE PERCENTAGE OF
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>
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 a CDSC because of dividend reinvestment. With respect to
the remaining 40 shares, the charge is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase). The CDSC is waived on
redemptions of shares following the death or disability (as defined in the Code)
of a shareholder.
In the event that Class B shares are exchanged by certain retirement plans
for Class A shares in connection with a transfer to the Merrill Lynch Mutual
Fund Adviser ("MFA") program, the time period that such Class A shares are held
in the MFA program will be included in determining the holding period of Class B
shares reacquired upon termination of participation in the MFA program (see
"Shareholder Services -- Exchange Privilege").
The Class B CDSC is waived on redemptions of shares following the death or
disability (as defined in the Code) of a shareholder. Additional information
concerning the waiver of the Class B CDSC is set forth in the Statement of
Additional Information.
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(SM) 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.
29
<PAGE> 32
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. For the year ended October 31, 1995,
the Distributor received CDSCs of $3,929 with respect to redemptions of Class C
shares, all of which were paid to Merrill Lynch.
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 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
30
<PAGE> 33
("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 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.
For the fiscal year ended October 31, 1995, the Fund paid the Distributor
$220,340 for the account maintenance fees and $661,018 for the distribution fees
pursuant to the Class B Distribution Plan. For the fiscal year ended October 31,
1995, the Fund paid the Distributor account maintenance fees of $13,618 and
distribution fees of $40,855 under the Class C Distribution Plan. For the fiscal
year ended October 31, 1995, the Fund paid the Distributor account maintenance
fees of $8,311 under the Class D Distribution Plan. At January 31, 1996, the net
assets of the Fund subject to the Class B Distribution Plan aggregated
approximately $47.1 million. At this asset level, the annual fee payable
pursuant to the Class B Distribution Plan would aggregate $471,091. At January
31, 1996, the net assets of the Fund subject to the Class C Distribution Plan
aggregated approximately $3.4 million. At this asset level, the annual fee
payable pursuant to the Class C Distribution Plan would aggregate $34,041. At
January 31, 1996, the net assets of the Fund subject to the Class D Distribution
Plan aggregated approximately $3.0 million. At this asset level, the annual fee
payable pursuant to the Class D Distribution Plan would aggregate $7,506.
31
<PAGE> 34
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, 1994, the last date at which fully allocated data is available, the fully
allocated accrual expenses incurred by the Distributor and Merrill Lynch
exceeded fully allocated accrual revenues for such period by approximately
$460,000 (0.57% of Class B net assets at that date). As of October 31, 1995
direct cash revenues for the period since the commencement of operations
exceeded direct cash expenses by $2,160,740 (3.68% of Class B net assets at that
date). As of October 31, 1995, for Class C shares, direct cash revenues for the
period since the commencement of operations exceeded direct cash expenses by
$23,145 (0.50% of Class C 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 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
32
<PAGE> 35
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, Merrill Lynch Financial Data Services,
Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests
delivered other than by mail should be delivered to Merrill Lynch Financial Data
Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Proper notice of redemption in the case of shares deposited with the Transfer
Agent may be accomplished by a written letter requesting redemption. Proper
notice of redemption in the case of shares for which certificates have been
issued may be accomplished by a written letter as noted above accompanied by
certificates for the shares to be redeemed. The notice in either event requires
the signature(s) of all persons in whose name(s) the shares are registered,
signed exactly as such name(s) appear(s) on the Transfer Agent's register 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, Federal funds 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 (generally, 4:00 P.M., New York time) on the day
received and is received by the Fund from such dealer not later than 30
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minutes after the close of business on the New York Stock Exchange on the same
day. Dealers have the responsibility of submitting such repurchase requests to
the Fund not later than 30 minutes after the close of business on the New York
Stock Exchange 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 or Class D 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.
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 BlueprintSM 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 income 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 reinvestment 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
automatically 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
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<PAGE> 37
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.
[/R]
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(SM) 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 shares also may
be exchanged for Class A shares of a second MLAM-advised mutual fund at any time
as long as, at the time of the exchange, the shareholder holds Class A shares of
the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Fund which are subject to a CDSC are exchangeable on the
basis of relative net asset value per share without the payment of any CDSC that
might otherwise be due upon redemption of the shares of the 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 are exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of
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<PAGE> 38
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 by non-retirement plan investors under the MFA
program. First, the initial allocation of assets is made under the MFA program.
Then, any subsequent exchange under the MFA program of Class A or Class D shares
of a MLAM-advised mutual fund for Class A or Class D shares of the Fund will be
made solely on the basis of the relative net asset values of the shares being
exchanged. Therefore, there will not be a charge for any difference between the
sales charge previously paid on the shares of the other MLAM-advised mutual fund
and the sales charge payable on the shares of the Fund being acquired in the
exchange under the MFA program.
Automatic Reinvestment of Dividends and Capital Gains Distributions. All
dividends and capital gains distributions are reinvested automatically in full
and fractional shares of the 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 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. Alternatively, Class A
shareholder whose shares are held within a CMA(R), CBA(R) or Retirement Account
may elect to have shares redeemed on a monthly, bimonthly, quarterly, semiannual
or annual basis through the 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(R) accounts may arrange to have
periodic investments made in the Fund in their CMA(R) account or in certain
related accounts in amounts of $100 or more through the CMA(R) 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.
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<PAGE> 39
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in 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 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 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.
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
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<PAGE> 40
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 all or a portion of distributions made before
the losses were realized but in the same taxable year would be recharacterized
as a return of capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than 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.
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, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on 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.
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<PAGE> 41
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, Class B, Class C and Class D shares in accordance with
formulas specified by the Commission.
Average annual total return quotations for the specified periods 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
all 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
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 and Class D shares or waiver of the
CDSC in the case of Class B or Class C 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
39
<PAGE> 42
the Fund's Morningstar risk-adjusted performance ratings in advertisements or
supplemental sales literature. As with other performance data, performance
comparisons should not be considered indicative of the Fund's relative
performance for any future period.
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 income
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 income 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.
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, 15 minutes after the close of business on the New York
Stock Exchange (generally, 4:00 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
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<PAGE> 43
value of the four classes will tend to converge (although not necessarily meet)
immediately after the payment of dividends or distributions, which will differ
by approximately the amount of the expense accrual differential between the
classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Directors as the
primary market. Securities traded in the over-the-counter market are valued at
the last 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. The
amount of the premium received by the Fund when it writes a call option will be
recorded on the Fund's books as an asset and equivalent liability. The amount of
the liability shall be subsequently valued to reflect the current market value
of the option written, based upon the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased by the Fund
shall be valued at their last sale price in the case of exchange-traded options
or, in the case of options traded in the over-the-counter market, the last bid
price. Other investments, including futures contracts and related options, shall
be stated at market value.
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 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
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
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<PAGE> 44
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:
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
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 Merrill Lynch 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.
42
<PAGE> 45
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC. -- AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT(SM) PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT(SM)
PROGRAM APPLICATION BY CALLING TOLL FREE (800) 637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch Global 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 Merrill Lynch Financial
Data Services, Inc., as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of paper
if necessary.)
1. ................................. 4. .................................
2. ................................. 5. .................................
3. ................................. 6. .................................
Name............................................................................
First Name Initial Last Name
Name of Co-Owner (if any).......................................................
First Name Initial Last Name
Address.........................................................................
(Zip Code)
Occupation .............................................
Name and Address of Employer............................
........................................................
........................................................
........................................................
Signature of Owner
........................................................
Signature of Co-Owner (if any)
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Ordinary Income Dividends Long-Term Capital Gains
- -------------------------------- ---------------------------------
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 Merrill Lynch Financial Data Services, Inc. amending or
terminating this service.
Signature of Depositor..........................................................
Signature of Depositor ...................................... Date..............
(if joint account, both must sign)
NOTE: If direct deposit to bank account is selected, your blank, unsigned check
marked "VOID" or a deposit slip from your savings account should accompany this
application.
43
<PAGE> 46
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC. -- AUTHORIZATION FORM
(PART 1) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
--------------------------
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed in the Prospectus under
"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.
.............................................................
Signature of Owner
.............................................................
Signature of Co-Owner (if any)
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION -- CLASS A AND D SHARES ONLY (See terms and conditions in
the Statement of Additional Information)
......................, 19 . . . .
Date of initial purchase
Dear Sir/Madam:
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Global 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.
By:..............................................................
Signature of Owner
...............................................................
Signature of Co-Owner
(If registered in joint parties, both must sign)
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
(1) Name ...................................................
Account Number ............................................
(2) Name....................................................
Account Number..............................................
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp
- --------------------------------------------------------
- --------------------------------------------------------
This form when completed should be mailed to:
Merrill Lynch Global Convertible Fund, Inc.
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the Distributor of any purchases 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> 47
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC. -- AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR AUTOMATIC
INVESTMENT PLANS ONLY.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
(PLEASE PRINT)
Name of Owner...................................................................
First Name Initial Last Name
Name of Co-Owner (if any).......................................................
First Name Initial Last Name
Address.........................................................................
................................................................................
(Zip Code)
- ------------------------------------
- ------------------------------------
Social Security No.
or Taxpayer Identification No.
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 N 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> 48
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC. -- AUTHORIZATION FORM
(PART 2) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described below
each month to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch Global 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.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Global 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, Merrill Lynch Financial Data Services, Inc. is authorized to
discontinue immediately the Automatic Investment Plan and to liquidate
sufficient shares held in my account to offset the purchase made with the
dishonored debit.
................. .......................................
Date Signature of Depositor
.......................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS DRAWN BY
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
To..........................................................................Bank
(Investor's Bank)
Bank Address....................................................................
City............................................ State .......... Zip ..........
As a convenience to me, I hereby request and authorize you to pay and charge
to my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc. I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
................. .......................................
Date Signature of Depositor
................. .......................................
Bank Account Signature of Depositor
Number (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> 49
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 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE> 50
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE 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(SM) System... 3
Financial Highlights...................... 7
Special Considerations.................... 9
Investment Objective and Policies......... 10
Convertible Securities.................. 12
Other Factors........................... 14
Portfolio Strategies Involving Options
and Futures........................... 15
Other Investment Policies and
Practices............................. 20
Investment Restrictions................. 21
Management of the Fund.................... 21
Directors............................... 21
Management and Advisory Arrangements.... 22
Code of Ethics.......................... 23
Transfer Agency Services................ 23
Purchase of Shares........................ 23
Initial Sales Charge
Alternatives -- Class A and Class D
Shares................................ 25
Deferred Sales Charge Alternatives --
Class B and Class C Shares............ 27
Distribution Plans...................... 31
Limitations on the Payment of Deferred
Sales Charges......................... 32
Redemption of Shares...................... 33
Redemption.............................. 33
Repurchase.............................. 33
Reinstatement Privilege -- Class A and
Class D Shares........................ 34
Shareholder Services...................... 34
Taxes..................................... 36
Performance Data.......................... 39
Additional Information.................... 40
Dividends and Distributions............. 40
Determination of Net Asset Value........ 40
Organization of the Fund................ 41
Shareholder Reports..................... 42
Shareholder Inquiries................... 42
Authorization Form........................ 43
Code # 10665-0296
</TABLE>
[MERRILL LYNCH LOGO]
MERRILL LYNCH
GLOBAL CONVERTIBLE
FUND, INC.
PROSPECTUS
February 27, 1996
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE> 51
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(SM) System, the Fund offers
four classes of shares each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances.
-------------------------
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
February 27, 1996 (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 February 27, 1996.
<PAGE> 52
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.
Generally, the Fund does not purchase securities for short-term trading
profits. However, the Fund may dispose of securities without regard to the time
they have been held when such action, for defensive or other reasons, appears
advisable to the Manager. As a result of the investment policies described in
the Prospectus, under certain market conditions the Fund's portfolio turnover
may be higher than that of other investment companies; however, it is extremely
difficult to predict portfolio turnover rates with any degree of accuracy.
Higher portfolio turnover may contribute to higher transactional costs and
negative tax consequences, such as an increase in capital gain dividends or in
ordinary income dividends of accrued market discount, as well as greater
difficulty meeting the requirement for qualification as a regulated investment
company that less than 30% of its gross income be derived from the sale or other
disposition of securities held for less than three months. See "Dividends,
Distributions and Taxes." The portfolio turnover rate is calculated by dividing
the lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of all securities 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,
1994 and 1995, the portfolio turnover rates were 38.04% and 101.12%,
respectively. High portfolio turnover involves corresponding greater transaction
costs in the form of dealer spending and brokerage commissions, which are borne
directly by the Fund. Such turnover also has certain tax consequences for the
Fund.
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
2
<PAGE> 53
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 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
3
<PAGE> 54
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. 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
4
<PAGE> 55
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.
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
5
<PAGE> 56
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 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.
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<PAGE> 57
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 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
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 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. 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 Investors Service, Inc. ("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
7
<PAGE> 58
generally are greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, issuers of high yield securities may be more likely to experience
financial stress, especially if such issuers are highly leveraged. During such
periods, such issuers may not have sufficient revenues to meet their interest
payment obligations. The issuer's ability to service its debt obligations also
may be adversely affected by specific issuer developments, or the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing. The risk of loss due to default by the issuer is
significantly greater for the holders of high yield securities because such
securities may be unsecured and may be subordinated to other 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.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of fundamental and non-fundamental
restrictions and policies relating to the investment of its assets and its
activities. The fundamental policies set forth below may not be changed without
the approval of the holders of a majority of the Fund's outstanding voting
securities (which for this purpose and under the Investment Company Act means
the lesser of (i) 67% of the Fund's shares represented at a meeting at which
more than 50% of the outstanding shares of the Fund are represented or (ii) more
than 50% of the Fund's outstanding shares). The Fund may not:
1. 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 at the
time of each investment, in the securities of issuers in any particular
industry (excluding the U.S. Government and its agencies and
instrumentalities). For purposes of this restriction, states,
municipalities and their political subdivisions are not considered part of
any industry.
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.
8
<PAGE> 59
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, 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 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 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).
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<PAGE> 60
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.
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.
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.
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<PAGE> 61
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
Information about the Directors, executive officers and portfolio manager
of the Fund, including their ages and their principal occupations for at least
the last five years, is set forth below. Unless otherwise noted, the address of
each executive officer and Director is P.O. Box 9011, Princeton, New Jersey
08543-9011.
ARTHUR ZEIKEL (63) -- President and Director(1)(2) -- President of the
Manager (which term as used herein includes its corporate predecessors) since
1977; President of Fund Asset Management, L.P. ("FAM") (which term as used
herein includes its corporate predecessors); President and Director of Princeton
Services, Inc. ("Princeton Services") since 1993; Executive Vice President of
Merrill Lynch & Co., Inc. ("ML & Co.") since 1990; Director of Merrill Lynch
Funds Distributor, Inc. ("MLFD" or the "Distributor").
JAMES H. BODURTHA (51) -- Trustee(2) -- 124 Long Pond Road, Plymouth,
Massachusetts 02360. Chairman and Chief Executive Officer, China Enterprise
Management Corporation since 1993; Chairman, Berkshire Corporation since 1980;
Partner, Squire, Sanders & Dempsey from 1980 to 1993.
HERBERT I. LONDON (56) -- Director(2) -- 113-115 University Place, New
York, New York 10003. Dean, Gallatin Division of New York University from 1978
to 1993; John M. Olin Professor of Humanities, New York University since 1993
and Professor thereof since 1980; Distinguished Fellow, Herman Kahn Chair,
Hudson Institute from 1984 to 1985; Trustee, Hudson Naval Institute since 1980;
Overseer, Center for Naval Analyses from 1983 to 1993; Director, Damon
Corporation since 1991.
ROBERT R. MARTIN (68) -- Director(2) -- 513 Grand Hill, St. Paul, Minnesota
55102. Director, WTC Industries, Inc. since 1994 and Chairman thereof in 1994;
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; Trustee, Northland College since 1992.
JOSEPH L. MAY (66) -- 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 (43) -- Director(2) -- Morgan Hall, Soldiers Field, Boston,
Massachusetts 02163. Professor, Harvard Business School since 1989 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 (55) -- 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 (61) -- 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.
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<PAGE> 62
HARRY E. DEWDNEY (67) -- 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 (35) -- 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 (46) -- 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 (49) -- Secretary(1)(2) -- Vice President of the Manager
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.
At October 31, 1995, 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.
COMPENSATION OF DIRECTORS
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
affiliates an annual fee of $5,000 plus $500 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 $1,000 plus $250
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, 1995, fees and expenses paid to the
nonaffiliated Directors aggregated $46,681.
The following table sets forth for the fiscal year ended October 31, 1995,
compensation paid by the Fund to the non-affiliated Directors and, for the
calendar year ended December 31, 1995, the aggregate compensation paid by all
investment companies (including the Fund) advised by MLAM and its affiliate, FAM
("MLAM/FAM Advised Funds"), to the non-affiliated Directors.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR FROM FUND AND
AGGREGATE RETIREMENT BENEFITS MLAM/FAM ADVISED
NAME OF COMPENSATION ACCRUED AS PART FUNDS PAID TO
DIRECTOR FROM FUND OF FUND EXPENSE DIRECTORS(1)
- ------------------------------------------- ------------ ------------------- ----------------
<S> <C> <C> <C>
James H. Bodurtha.......................... $3,250 None $157,500*
Herbert I. London.......................... 9,000 None 157,500
Robert R. Martin........................... 9,000 None 157,500
Joseph L. May.............................. 9,000 None 157,500
Andre F. Perold............................ 9,000 None 157,500
</TABLE>
- ---------------
* $157,500 represents the amount Mr. Bodurtha would have received if he had
been a Director for the entire calendar year December 31, 1995. Mr. Bodurtha
was elected to the Fund's Board of Directors effective June 23, 1995.
(1) In addition to the Fund, the Directors serve on the boards of other MLAM/FAM
Advised Funds as follows: Mr. Bodurtha (46 funds); Mr. London (46 funds);
Mr. Martin (46 funds); Mr. May (46 funds); and Mr. Perold (46 funds). For
purposes of this table, each series of a series investment company is
treated as a separate fund.
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<PAGE> 63
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, the Fund as
well as 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, 1993,
1994 and 1995, the fees paid by the Fund to the Manager aggregated $139,948,
$285,526 and $779,627, 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 years ended October 31, 1993, 1994 and 1995
the Fund was not reimbursed 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 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 nonrecurring 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, 1995, the
Fund paid the
13
<PAGE> 64
Manager $47,336 for such services. As required by the Fund's Distribution
Agreement, the Distributor will pay the promotional expenses of the Fund
incurred in connection with the offering of shares of the Fund. Certain expenses
in connection with the account maintenance and distribution of Class B and Class
C shares 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 -- Deferred Sales Charge Alternatives -- Class B and Class C
shares -- Distribution Plans".
ML & Co. and Princeton Services are "controlling persons" of the Manager as
defined under the 1940 Act because of their ownership of its voting securities
or their power to exercise a controlling influence over its management or
policies. The Manager is a limited partnership, the partners of which are ML &
Co. and Princeton Services.
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.
ALTERNATIVE SALES ARRANGEMENTS
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(SM) 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(SM) System is used by more than 50 mutual
funds advised by the Manager or its affiliate, FAM. Funds advised by the Manager
or FAM are referred to herein as "MLAM-advised mutual funds".
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 each class of shares of the Fund. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and investors.
The Distributor also pays for other
14
<PAGE> 65
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, 1994 were $24,608, of which the Distributor received $2,045
and Merrill Lynch received $22,563. The gross sales charges for the sale of
Class A shares for the year ended October 31, 1995 were $19,530, of which the
Distributor received $1,587 and Merrill Lynch received $17,943. The gross sales
charges for the sale of Class D shares for the period October 21, 1994
(commencement of operations) to October 31, 1994 were $4,122, of which the
Distributor received $325 and Merrill Lynch received $3,797. The gross sales
charges for the sale of Class D shares for the year ended October 31, 1995 were
$62,513, of which the Distributor received $4,666 and Merrill Lynch received
$57,847.
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
of 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 (the date
the Merrill Lynch Select Pricing System commenced operations) 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.
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and
15
<PAGE> 66
Merrill Lynch High Income Municipal Bond Fund, Inc. will receive Class D shares
of the Fund. In order to exercise this investment option, a shareholder of one
of the above-referenced continuously offered closed-end funds (an "eligible
fund") must sell his or her shares of common stock of the eligible fund (the
"eligible shares") back to the fund in connection with a tender offer conducted
by the eligible fund and reinvest the proceeds immediately in the designated
class of shares of the Fund. This investment option is available only with
respect to eligible shares as to which no Early Withdrawal Charge or CDSC (each
as defined in the eligible fund's prospectus) is applicable. Purchase orders
from eligible fund shareholders wishing to exercise this investment option will
be accepted only on the day that the related tender offer terminates and will be
effected at the net asset value of the designated class of the Fund on such day.
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 sales charge on the
Class A or Class D shares purchased at the reduced rate and the sales charge
applicable to the sales actually
16
<PAGE> 67
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 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.
Employee Access Accounts(SM). Class A or Class D shares are offered at net
asset value to Employee Access Accounts available through employers that provide
employer sponsored retirement or savings plans that are eligible to purchase
such shares at net asset value. The initial minimum for such accounts is $500,
except that the initial minimum for shares purchased for such accounts pursuant
to the Automatic Investment Program is $50.
Merrill Lynch Blueprint(SM) Program. Class D shares of the Fund are
offered to participants in the Merrill Lynch Blueprint(SM) Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares of
the Fund may purchase additional Class A shares of the Fund through Blueprint.
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(SM) Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
17
<PAGE> 68
TMASM Managed Trusts. Class A shares are offered to TMASM Managed Trusts
to which Merrill Lynch Trust Company provides discretionary trustee services at
net asset value plus a reduced sales charge of 0.50% of the offering price,
which is 0.50% of the net amount invested.
Purchase Privilege of Certain Persons. Directors of the Fund, members of
the Boards of other MLAM-advised investment companies, ML & Co. and its
subsidiaries (the term "subsidiaries", when used herein with respect to ML &
Co., includes FAM, the Manager and certain other entities directly or indirectly
wholly owned and controlled by ML & Co.) and their directors and employees, and
any trust, pension, profit-sharing or other benefit plan for such persons, may
purchase Class A shares of the Fund at net asset value.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that 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; and 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 are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and the shares of
such other fund were subject to a sales charge either at the time of purchase or
on a deferred basis; and second, such purchase of Class D shares must be made
within 60 days after such notice.
Class D shares of the Fund are also offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: first, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Fund with proceeds from the redemption of shares
of such other mutual fund and that such shares have been outstanding for a
period of no less than six months; and second, such purchase of Class D shares
must be made within 60 days after the redemption and the proceeds from the
redemption must be maintained in the interim in cash or a money market fund.
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
18
<PAGE> 69
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.
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based on
the number of employees or number of employees eligible to participate in the
plan, the aggregate amount invested by the plan in specified investments and/or
the services provided by Merrill Lynch to the plan. Certain other plans may
purchase Class B shares with a waiver of the CDSC upon redemption, based on
similar criteria. Such Class B shares will convert into Class D shares
approximately ten years after the plan purchases the first share of any
MLAM-advised mutual fund. Minimum purchase requirements may be waived or varied
for such plans. Additional information regarding purchases by employer-sponsored
retirement or savings plans and certain other arrangements is available toll-
free from Merrill Lynch Business Financial Services at (800) 237-7777.
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 related class of voting
securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholders, and all material amendments are required to be
approved by the vote of Directors, including a majority of the Independent
Directors who have no direct or indirect financial interest in 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.
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<PAGE> 70
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 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 payment in excess of the amount payable
under the NASD formula will not be made.
The following table sets forth comparative information as of October 31,
1995 with respect to the Class B shares and Class C shares of the Fund
indicating the maximum allowable payments that can be made under the NASD
maximum sales charge rule and, with respect to the Class B shares, the
Distributor's voluntary maximum for the period February 26, 1988 (commencement
of operations) to October 31, 1995.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF OCTOBER 31, 1995
----------------------------------------------------------------------------------------------
ANNUAL
ALLOWABLE ALLOWABLE AMOUNTS DISTRIBUTION
ELIGIBLE AGGREGATE INTEREST ON MAXIMUM PREVIOUSLY AGGREGATE FEE AT CURRENT
GROSS SALES UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
---------- ---------- ----------- -------- -------------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Class B Shares
Under NASD Rule as Adopted..... $ 98,734 $ 6,171 $ 2,095 $ 8,266 $ 3,035 $ 5,231 $ 440
Under Distributor's Voluntary
Waiver....................... $ 98,734 $ 6,171 $ 494 $ 6,665 $ 3,035 $ 3,630 $ 440
Class C Shares
Under NASD Rule as Adopted..... $ 8,456 $ 529 $ 30 $ 559 $ 45 $ 514 $ 34
</TABLE>
- ---------------
(1) Purchase price of all eligible Class B shares sold since February 26, 1988
(commencement of operations) and of all eligible Class C shares sold since
October 21, 1994 (commencement of operations) other than shares acquired
through dividend reinvestment and the exchange privilege. Purchase price of
all eligible Class C shares sold since October 21, 1994 commencement of
operations) 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 for Class B shares 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 (with respect to Class B shares) or
the NASD maximum (with respect to Class B and Class C shares).
21
<PAGE> 71
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 AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares", while Class B shares
redeemed within four years of purchase are subject to a CDSC under most
circumstances, the charge is waived on redemptions of Class B shares in
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 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, 1994 and 1995, the Distributor
received CDSCs of $55,082 and $329,050, respectively, with respect to
redemptions of Class B shares, all of which was paid to Merrill Lynch. For the
fiscal period October 21, 1994 (commencement of operations for Class C shares)
to October 31, 1994, the Distributor received no CDSCs with respect to Class C
shares. For the year ended October 31, 1995, the Distributor received CDSCs of
$3,929 with respect to redemptions of Class C shares, all of which were paid to
Merrill Lynch.
The CDSC is also waived for any Class B shares that were acquired and held
at the time of redemption by Employee Access Accounts available through
employers that provide Eligible 401(k) Plans. The initial minimum for such
accounts of $500, except that the initial minimum for shares purchased for such
accounts pursuant to the Automatic Investment Program is $50.
Merrill Lynch Blueprint(SM) 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
21
<PAGE> 72
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 BlueprintSM Program, P.O. Box 30441, New Brunswick, New Jersey
08989-0441.
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
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<PAGE> 73
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 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, 1995, the Fund paid $181,779, $4,200 or 2.31% of which was paid to
Merrill Lynch for effecting 1.05% of the aggregate dollar amount of 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, 1995, Merrill Lynch effected one portfolio
transaction pursuant to such contract aggregating $704,200.
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.
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<PAGE> 74
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 all classes of the Fund is determined
once daily Monday through Friday, 15 minutes after the close of business on the
New York Stock Exchange (generally, 4:00 P.M. New York time), on each day during
which the New York Stock Exchange is open for trading. 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.
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 higher 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 (although not necessarily meet) immediately after the payment
of dividends or distributions, which will differ by approximately the amount of
the expense accrual differentials between the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Directors as the
primary market. Securities traded in the over-the-counter market are valued at
the last 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. The
amount of the premium received by the Fund when it writes a call option will be
recorded on the Fund's books as an asset and equivalent liability. The amount of
the liability shall be subsequently valued to reflect the current market value
of the option written, based upon the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased by the Fund
shall be valued at their last sale price in the case of exchange-traded options
or, in the case of options traded in the over-the-counter market, the last bid
price. Other investments, including futures contracts and related options, shall
be stated at market value.
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.
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<PAGE> 75
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 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.
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. 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.
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 Fund's 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. The
Fund's Automatic Investment Plan is not available to shareholders whose shares
are held in brokerage accounts with Merrill Lynch. Alternatively, investors who
maintain CMA(R) accounts may arrange to have periodic investments made in the
Fund, in their CMA(R) accounts or in certain related accounts in amounts of $100
or more ($1 for retirement accounts) through the CMA(R) Automated Investment
Program.
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<PAGE> 76
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
ordinary income 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. Cash
payments also can be direct deposited to the shareholder's bank account.
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 in the form of payments by check or through automatic
payment by direct deposit to such shareholder's bank account on either a monthly
or quarterly basis as provided below. Quarterly withdrawals are available for
shareholders who have acquired 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 15
minutes after the close of business on the New York Stock Exchange (generally,
4:00 P.M., New York time) on the 24th day of each month or the 24th day of the
last month of each quarter, whichever is applicable. If 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(R),
CBA(R) 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
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<PAGE> 77
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 CMA(R)/CBA(R)
Systematic Redemption Program is not available if Fund shares are being
purchased within the account pursuant to the CMA(R)/CBA(R) Automatic Investment
Program. For more information on the CMA(R)/CBA(R) 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.
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(SM) 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 are exchangeable
with shares of the same class of other MLAM-advised mutual funds. For purposes
of computing the CDSC that may be payable upon a disposition of the shares
acquired in the exchange, the holding period for the previously owned shares of
the 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 are 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.
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<PAGE> 78
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, of another
MLAM-advised mutual fund ("new Class B or Class C shares") on the basis of
relative net asset value per Class B or Class C share, without the payment of
any CDSC that might otherwise be due on redemption of the outstanding shares.
Class B shareholders of the Fund exercising the exchange privilege will continue
to be subject to the Fund's CDSC schedule if such schedule is higher than the
CDSC schedule relating to the new Class B shares acquired through use of the
exchange privilege. In addition, Class B shares of the Fund acquired through use
of the exchange privilege will be subject to the Fund's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the Class B or Class C
shares of the fund from which the exchange has been made. For purposes of
computing the 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 or Class C shares of the Fund for
those of Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after
having held the Fund's Class B shares for two and a half years. The 2% CDSC that
generally would apply to redemption would not apply to the exchange. Three years
later the investor may decide to redeem the Class B shares of Special Value Fund
and receive cash. There will be no CDSC due on this redemption, since by
"tacking" the two and a half year holding period of 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
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<PAGE> 79
("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:
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).
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
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<PAGE> 80
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 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 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
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<PAGE> 81
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 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 bene-
31
<PAGE> 82
fit 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 FUNDAMENTAL
VALUE PORTFOLIO
(AVAILABLE ONLY FOR
EXCHANGES BY CERTAIN
INDIVIDUAL RETIREMENT
ACCOUNTS FOR WHICH MERRILL
LYNCH ACTS AS CUSTODIAN AND
BY CERTAIN CBA(R) ACCOUNTS
AND CMA(R) SUB-ACCOUNTS).... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide capital appreciation and income
by investing in securities, with at least 65%
of the portfolio's assets being invested in
equities.
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 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.
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MERRILL LYNCH GLOBAL
OPPORTUNITY PORTFOLIO
(AVAILABLE ONLY FOR
EXCHANGES BY CERTAIN
INDIVIDUAL RETIREMENT
ACCOUNTS FOR WHICH MERRILL
LYNCH ACTS AS CUSTODIAN AND
BY CERTAIN CBA(R) ACCOUNTS
AND CMA(R) SUB-ACCOUNTS).... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a high total investment return
through an investment policy utilizing United
States and foreign equity, debt and money
market securities, the combination of which
will vary depending upon changing market and
economic trends.
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 GROWTH
OPPORTUNITY PORTFOLIO
(AVAILABLE ONLY FOR
EXCHANGES BY CERTAIN
INDIVIDUAL RETIREMENT
ACCOUNTS FOR WHICH MERRILL
LYNCH ACTS AS CUSTODIAN AND
BY CERTAIN CBA(R) ACCOUNTS
AND CMA(R) SUB-ACCOUNTS).... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to seek long-term growth of capital by
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<PAGE> 84
investing in a portfolio of equity securities
placing particular emphasis on companies that
have exhibited above-average growth rates in
earnings.
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 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
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<PAGE> 85
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 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 management.
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<PAGE> 86
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 investment 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 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.
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<PAGE> 87
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 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 QUALITY
BOND PORTFOLIO
(AVAILABLE ONLY FOR
EXCHANGES BY CERTAIN
INDIVIDUAL RETIREMENT
ACCOUNTS FOR WHICH MERRILL
LYNCH ACTS AS CUSTODIAN AND
BY CERTAIN CBA(R) ACCOUNTS
AND CMA(R) SUB-ACCOUNTS).... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a high level of current income
through investment in a diversified portfolio
of debt obligations, such as corporate bonds
and notes, convertible securities, preferred
stocks and governmental obligations.
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.
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<PAGE> 88
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 U.S. GOVERNMENT
SECURITIES PORTFOLIO
(AVAILABLE ONLY FOR
EXCHANGES BY CERTAIN
INDIVIDUAL RETIREMENT
ACCOUNTS FOR WHICH MERRILL
LYNCH ACTS AS CUSTODIAN AND
BY CERTAIN CBA(R) ACCOUNTS
AND CMA(R) SUB-ACCOUNTS).... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a 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 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.
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.
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<PAGE> 89
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.
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.
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<PAGE> 90
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".
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 or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in futures and options) ("capital gain
dividends") are taxable to shareholders as long-term capital gains, regardless
of the length of time the shareholder has owned Fund shares. Any loss upon the
sale or exchange of Fund shares held for six months or
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<PAGE> 91
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 rule permitting the
issuance and sale of multiple classes of stock) that is based on the gross
income allocable to Class A, Class B, Class C and Class D shareholders during
the taxable year, or such other method as the Internal Revenue Service may
prescribe. If the 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 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.
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. 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
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<PAGE> 92
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. 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 minimize imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition of
the tax. In such event, the Fund will be liable for the tax only on the amount
by which it does not meet the foregoing distribution requirements.
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 previously described. Some of these
high yield securities may be purchased at a discount and may therefore cause the
Fund to accrue income 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; in such case, if the
issuer of such high yield securities is a domestic corporation, dividend
payments by the Fund 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 and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year. Unless
such contract is a forward foreign exchange contract, or is a non-equity option
or a regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code Section
988 (as described below), gain
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<PAGE> 93
or loss from Section 1256 contracts will be 60% long-term and 40% short-term
capital gain or loss. Application of these rules to Section 1256 contracts held
by the Fund may alter the timing and character of distributions to shareholders.
The mark-to-market rules outlined above, however, will not apply to certain
transactions entered into by the Fund solely to reduce the risk of changes in
price or interest or currency exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The Fund
may, nonetheless, elect to treat the gain or loss from certain forward foreign
exchange contracts as capital. In this case, gain or loss realized in connection
with a forward foreign exchange contract that is a Section 1256 contract will be
characterized as 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Fund's sales of securities and transactions in options, futures
and forward foreign exchange contracts. Under Section 1092, the Fund may be
required to postpone recognition for tax purposes of losses incurred in certain
sales of securities and certain closing transactions in options, futures and
forward foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income 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 gains or losses will increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders as
ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary income dividend distributions, and all or a portion of
distributions made before the losses were realized but in the same taxable year
would be recharacterized as a return of capital to shareholders, thereby
reducing the basis of each shareholder's Fund shares, and resulting in a capital
gain for any shareholder who received a distribution greater than such
shareholder's basis in Fund shares (assuming the
43
<PAGE> 94
shares were held as a capital asset). These rules and the mark-to-market rules
described above, however, will not apply to certain transactions entered into by
the Fund solely to reduce the risk of currency fluctuations with respect to its
investments.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on 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, Class C and Class D
shares in accordance with formulas specified by the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, 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 return data since the average rates of return
44
<PAGE> 95
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 in the tables below is total return information for the Class A,
Class B, Class C and Class D shares of the Fund for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES* CLASS B SHARES
------------------------------------------ ------------------------------------------
EXPRESSED AS A REDEEMABLE VALUE EXPRESSED AS A REDEEMABLE VALUE
PERCENTAGE BASED OF A HYPOTHETICAL PERCENTAGE BASED OF A HYPOTHETICAL
ON A HYPOTHETICAL $1,000 INVESTMENT AT ON A HYPOTHETICAL $1,000 INVESTMENT AT
PERIOD $1,000 INVESTMENT THE END OF THE PERIOD $1,000 INVESTMENT THE END OF THE PERIOD
- ---------------------------- ----------------- --------------------- ----------------- ---------------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended
October 31, 1995.......... (0.42)% $ 995.80 0.02% $1,000.20
Five Years Ended
October 31, 1995.......... 8.89% $1,530.90 8.92% $1,533.00
Inception (February 26,
1988) to October 31,
1995...................... 5.45% $1,503.20
Inception (November 4, 1988)
to October 31, 1995....... 5.96% $1,499.30
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES* CLASS B SHARES
------------------------------------------ ------------------------------------------
EXPRESSED AS A REDEEMABLE VALUE EXPRESSED AS A REDEEMABLE VALUE
PERCENTAGE BASED OF A HYPOTHETICAL PERCENTAGE BASED OF A HYPOTHETICAL
ON A HYPOTHETICAL $1,000 INVESTMENT AT ON A HYPOTHETICAL $1,000 INVESTMENT AT
PERIOD $1,000 INVESTMENT THE END OF THE PERIOD $1,000 INVESTMENT THE END OF THE PERIOD
- ---------------------------- ----------------- --------------------- ----------------- ---------------------
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Year Ended October 31,
1995...................... 5.10% $1,051.00 4.01% $1,040.10
1994...................... 0.61% $1,006.10 (0.37)% $ 996.30
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
Inception (November 4, 1988)
to October 31, 1989....... 6.29% $1,062.90
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES* CLASS B SHARES
------------------------------------------ ------------------------------------------
EXPRESSED AS A REDEEMABLE VALUE EXPRESSED AS A REDEEMABLE VALUE
PERCENTAGE BASED OF A HYPOTHETICAL PERCENTAGE BASED OF A HYPOTHETICAL
ON A HYPOTHETICAL $1,000 INVESTMENT AT ON A HYPOTHETICAL $1,000 INVESTMENT AT
PERIOD $1,000 INVESTMENT THE END OF THE PERIOD $1,000 INVESTMENT THE END OF THE PERIOD
- ---------------------------- ----------------- --------------------- ----------------- ---------------------
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception (February 26,
1988) to October 31,
1995...................... 50.32% $1,503.20
Inception (November 4, 1988)
to October 31, 1995....... 49.93% $1,499.30
<CAPTION>
YIELD
<S> <C> <C> <C> <C>
30 days ended
October 31, 1995.......... 2.32% 1.34%
</TABLE>
45
<PAGE> 96
<TABLE>
<CAPTION>
CLASS C SHARES** CLASS D SHARES**
------------------------------------------ ------------------------------------------
EXPRESSED AS A REDEEMABLE VALUE EXPRESSED AS A REDEEMABLE VALUE
PERCENTAGE BASED OF A HYPOTHETICAL PERCENTAGE BASED OF A HYPOTHETICAL
ON A HYPOTHETICAL $1,000 INVESTMENT AT ON A HYPOTHETICAL $1,000 INVESTMENT AT
PERIOD $1,000 INVESTMENT THE END OF THE PERIOD $1,000 INVESTMENT THE END OF THE PERIOD
- ---------------------------- ----------------- --------------------- ----------------- ---------------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended October 31,
1995...................... 2.90% $1,029.00 (0.63)% $ 993.70
Inception (October 21, 1994)
to October 31, 1995....... 4.44% $1,045.70 0.02% $1,000.20
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES** CLASS D SHARES**
------------------------------------------ ------------------------------------------
EXPRESSED AS A REDEEMABLE VALUE EXPRESSED AS A REDEEMABLE VALUE
PERCENTAGE BASED OF A HYPOTHETICAL PERCENTAGE BASED OF A HYPOTHETICAL
ON A HYPOTHETICAL $1,000 INVESTMENT AT ON A HYPOTHETICAL $1,000 INVESTMENT AT
PERIOD $1,000 INVESTMENT THE END OF THE PERIOD $1,000 INVESTMENT THE END OF THE PERIOD
- ---------------------------- ----------------- --------------------- ----------------- ---------------------
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended October 31,
1995...................... 3.89% $1,038.90 4.87% $1,048.70
Inception (October 21, 1994)
to October 31, 1994....... 0.65% $1,006.50 0.65% $1,006.50
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES** CLASS D SHARES**
------------------------------------------ ------------------------------------------
EXPRESSED AS A REDEEMABLE VALUE EXPRESSED AS A REDEEMABLE VALUE
PERCENTAGE BASED OF A HYPOTHETICAL PERCENTAGE BASED OF A HYPOTHETICAL
ON A HYPOTHETICAL $1,000 INVESTMENT AT ON A HYPOTHETICAL $1,000 INVESTMENT AT
PERIOD $1,000 INVESTMENT THE END OF THE PERIOD $1,000 INVESTMENT THE END OF THE PERIOD
- ---------------------------- ----------------- --------------------- ----------------- ---------------------
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception (October 21, 1994)
to October 31, 1995....... 4.57% $1,045.70 0.02% $1,000.20
<CAPTION>
YIELD
<S> <C> <C> <C> <C>
30 days ended
October 31, 1995.......... 1.36% 2.02%
</TABLE>
- ---------------
* Information as to Class A shares is presented for the period November 4, 1988
(commencement of operations) to October 31, 1995. Prior to November 4, 1988,
no Class A shares were publicly issued.
** Information as to Class C and Class D shares is presented for the period
October 21, 1994 (commencement of operations) to October 31, 1995. Prior to
October 21, 1994, no Class C or Class D shares have been 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 waiver
of the CDSC and therefore may reflect greater total return since, due to the
reduced sales charges or the waiver of sales charges, a lower amount of expenses
is deducted.
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
46
<PAGE> 97
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 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 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, Class C and Class
D 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, Class
B, Class C and Class D shares of the Fund based on the value of the Fund's net
assets and number of shares outstanding on October 31, 1995, is calculated as
set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net Assets.............................. $23,633,829 $58,659,692 $4,598,551 $3,499,306
========== ========== ========= =========
Number of Shares Outstanding............ 2,206,197 5,446,237 427,738 326,365
========== ========== ========= =========
Net Asset Value Per Share (net assets
divided by number of shares
outstanding).......................... $10.71 $10.77 $10.75 $10.72
Shares Charge (for Class A and Class D
shares: 5.25% of offering price (5.54%
of net asset value per share))*....... 0.59 ** ** 0.59
---- ---- ---- ----
Offering Price.......................... $11.30 $10.77 $10.75 $11.31
====== ====== ====== ======
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption of shares. See "Purchase of
Shares -- Deferred Sales Charge Alternative -- Class B and Class C Shares"
in the Prospectus.
47
<PAGE> 98
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400,
has been selected as the independent auditors of the Fund. The independent
auditors are responsible for auditing the annual financial statements of the
Fund.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 351, Boston, Massachusetts
02101, 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
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Fund's Transfer Agent. The
Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts. See
"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 January 16, 1996.
48
<PAGE> 99
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
49
<PAGE> 100
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 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
50
<PAGE> 101
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.
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
51
<PAGE> 102
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 RATINGS GROUP ("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.
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.
52
<PAGE> 103
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.
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.
53
<PAGE> 104
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.
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.
54
<PAGE> 105
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.
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 Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
CCC 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.
55
<PAGE> 106
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.
56
<PAGE> 107
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, 1995, the related statements of operations for the year then
ended and changes in net assets for each of the years in the two-year period
then ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial highlights are
the responsibility of the 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, 1995, by correspondence with the custodian and broker. 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, 1995, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated period in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
December 4, 1995
57
<PAGE> 108
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
LATIN Shares Value Percent of
AMERICA Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Mexico Utilities--Communications 20,000 Telefonos de Mexico, S.A. de C.V.
(TELMEX) (ADR) (a) $ 756,200 $ 550,000 0.61%
Total Investments in Latin American
Securities 756,200 550,000 0.61
NORTH
AMERICA
United States Metals & Mining 10,000 WHX Corp. 179,350 103,750 0.11
Retail Stores 70,741 Home Depot, Inc. 3,249,362 2,635,102 2.92
Total Investments in United States
Common Stocks 3,428,712 2,738,852 3.03
Convertible Preferred Stocks
Canada Oil & Gas Producers 25,000 Occidental Petroleum Corp., Pfd.,
Series A 1,371,600 1,412,500 1.56
Total Investments in Canadian
Convertible Preferred Stocks 1,371,600 1,412,500 1.56
United States Chemicals 20,000 Ashland Oil Inc., $6.75 Pfd. 1,065,800 1,095,000 1.21
Data Processing 20,000 UNISYS Corp., $3.75 Pfd., Series A 1,233,875 550,000 0.61
Food/Beverage/
Tobacco & Household 30,000 ConAgra Inc., Pfd., Class E 998,025 1,177,500 1.30
Insurance 25,000 American General Corp., Pfd. 1,306,729 1,293,750 1.43
25,000 St. Paul Companies, Inc., Pfd. 1,307,892 1,350,000 1.49
----------- ----------- -------
2,614,621 2,643,750 2.92
Metals & Mining 50,000 USX Corp., $3.25 Pfd. 2,413,750 2,362,500 2.61
35,500 WHX Corp., Pfd. 1,630,980 1,566,438 1.73
20,000 WHX Corp., Pfd. B 1,000,150 840,000 0.93
----------- ----------- -------
5,044,880 4,768,938 5.27
Real Estate
Investment Trust 50,000 Merry Land & Investment Company,
Inc., Pfd. 1,261,637 1,368,750 1.52
Transportation 20,000 Delta Airlines, Inc., $3.50 Pfd. C 1,010,350 1,107,500 1.23
Total Investments in United States
Convertible Preferred Stocks 13,229,188 12,711,438 14.06
</TABLE>
58
<PAGE> 109
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
NORTH AMERICA Face Value Percent of
(concluded) Industries Amount Convertible Bonds Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United States Automobile Parts US$ 3,010,000 The Pep Boys--Manny, Moe & Jack, 4%
due 9/01/1999 $ 2,938,775 $ 2,829,400 3.13%
Building & 3,050,000 Masco Corp., 5.25% due 2/15/2012 2,678,000 2,828,875 3.13
Construction
Chemicals 1,950,000 Ashland Oil Inc., 6.75% due 7/01/2014 1,914,000 1,930,500 2.13
Computer Services 500,000 Cray Research, Inc., 6.125% due 2/01/2011 510,000 388,125 0.43
Environmental 3,250,000 Browning-Ferris Industries, Inc., 6.25%
Control due 8/15/2012 3,246,250 3,233,750 3.58
Industrial 2,000,000 Rouse Co., 5.75% due 7/23/2002 1,699,000 1,940,000 2.15
Insurance 2,000,000 Aegon N.V., 4.75% due 11/01/2004 2,420,250 2,685,000 2.97
Leisure 3,289,850 Time Warner Inc., 8.75% due 1/10/2015 3,405,412 3,425,556 3.79
Machine 2,500,000 Cooper Industries, Inc., 7.05% due
Diversified 1/01/2015 2,572,500 2,525,000 2.79
Metals & Mining 2,000,000 Homestake Mining Co., 5.50% due 6/23/2000 2,044,250 2,000,000 2.21
2,000,000 USX Corp., 7% due 6/15/2017 1,823,850 1,875,000 2.08
----------- ----------- -------
3,868,100 3,875,000 4.29
Natural Gas 3,200,000 Consolidated Natural Gas Co., 7.25%
due 12/15/2015 3,180,750 3,328,000 3.68
Oil & Related 3,000,000 Pennzoil Co., 4.75% due 10/01/2003 2,814,750 2,827,500 3.13
Transportation 2,200,000 Alaska Air Group, Inc., 6.50% due 6/15/2005 2,284,750 2,040,500 2.26
Total Investments in United States
Convertible Bonds 33,532,537 33,857,206 37.46
Total Investments in
North American Securities 51,562,037 50,719,996 56.11
PACIFIC Shares
BASIN Held Common Stocks
Hong Kong Utilities--Electric 70,000 Shandong Huaneng Power Company Ltd.
(ADR) (a) 704,200 560,000 0.62
Total Investments in Hong Kong
Common Stocks 704,200 560,000 0.62
Japan Financial Services 10,000 Daiwa Securities Co., Ltd. 109,055 117,647 0.13
10,000 Nikko Securities Co., Ltd. 91,790 93,530 0.10
10,000 Yamaichi Securities Co., Ltd. 94,005 52,549 0.06
----------- ----------- -------
294,850 263,726 0.29
Machinery 20,000 Shimadzu Corp. 156,900 111,373 0.13
Trading 50,000 Marubeni Corp. 241,883 244,118 0.27
Total Investments in Japanese
Common Stocks 693,633 619,217 0.69
Face
Amount Convertible Bonds
Hong Kong Food & Beverage US$ 2,000,000 Dairy Farms International Holdings Ltd.,
6.50% due 5/10/2049 1,977,000 1,505,000 1.67
</TABLE>
59
<PAGE> 110
<TABLE>
<S> <S> <C> <S> <C> <C> <C>
Real Estate 3,500,000 Wharf Capital Ltd., 5% due 7/15/2000 3,640,000 3,718,750 4.11
Total Investments in Hong Kong
Convertible Bonds 5,617,000 5,223,750 5.78
Japan Auto & Truck YEN 50,000,000 No. 2 Toyota Motor Corp., 1.20%
due 1/28/1998 572,731 522,059 0.58
Chemicals 100,000,000 No. 6 Sumitomo Chemical Co., 1.20%
due 9/29/2006 1,042,946 1,160,784 1.28
Electronics 30,000,000 No. 3 Matsushita Electric Industrial Co.,
1.40% due 9/30/1996 362,443 313,235 0.35
50,000,000 No. 5 Matsushita Electric Industrial Co.,
1.30% due 3/29/2002 513,387 505,882 0.56
50,000,000 No. 6 Matsushita Electric Industrial Co.,
1.40% due 3/31/2004 568,638 505,392 0.56
75,000,000 No. 11 Sharp Corp., 1.50% due 9/30/1998 803,237 792,647 0.88
----------- ----------- -------
2,247,705 2,117,156 2.35
Food & Beverage 100,000,000 No. 9 Asahi Breweries, Ltd., 0.95%
due 12/26/2002 1,114,675 996,079 1.10
50,000,000 No. 1 Sanyo Coco-Cola Bottling, Inc.,
0.90% due 6/30/2003 522,384 480,882 0.53
50,000,000 No. 3 Sapporo Breweries, Ltd., 1.20%
due 12/18/2009 525,379 488,235 0.54
----------- ----------- -------
2,162,438 1,965,196 2.17
Industrial 50,000,000 No. 4 NGK Spark Plug Co., Ltd., 1.30%
due 3/29/2002 534,324 544,118 0.60
90,000,000 No. 3 Sony Corp., 1.40% due 9/30/2003 1,061,745 943,235 1.05
----------- ----------- -------
1,596,069 1,487,353 1.65
Leisure 50,000,000 No. 5 Canon Co., 1% due 12/20/2002 639,008 588,235 0.65
Machinery 100,000,000 No. 8 Matsushita Electric Works, Ltd.,
2.70% due 5/31/2002 1,228,409 1,119,608 1.24
30,000,000 No. 9 NEC Corp., 1.90% due 3/30/2001 380,163 405,000 0.45
30,000,000 No. 2 Nippondenso Co., Ltd., 1.20%
due 12/26/1997 337,449 317,353 0.35
----------- ----------- -------
1,946,021 1,841,961 2.04
Pharmaceuticals 80,000,000 No. 3 Sankyo Co., Ltd., 0.70% due
3/30/2001 872,081 852,549 0.94
Retail Stores 30,000,000 No. 4 Best Denki Co., Ltd., 1.90%
due 2/28/2002 311,038 319,706 0.35
50,000,000 No. 1 Taiyo Company Ltd., 2.50% due
2/28/2002 594,601 509,314 0.56
----------- ----------- -------
905,639 829,020 0.91
Transportation 50,000,000 No. 6 Keihan Electric Railway Co., Ltd.,
1% due 3/31/2003 539,009 480,882 0.53
50,000,000 No. 1 Nankai Electric Railway Co., Ltd.,
2.70% due 3/30/2001 593,306 523,529 0.58
50,000,000 No. 6 Yamato Transport Co., Ltd., 1.70%
due 9/30/2002 539,151 531,863 0.59
----------- ----------- -------
1,671,466 1,536,274 1.70
Total Investments in Japanese
Convertible Bonds 13,656,104 12,900,587 14.27
Total Investments in Pacific
Basin Securities 20,670,937 19,303,554 21.36
</TABLE>
60
<PAGE> 111
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
WESTERN Shares Value Percent of
EUROPE Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C>
United Kingdom Business Services 71,944 ++Cordiant PLC (Ordinary) (b) $ 217,005 $ 98,988 0.11%
Total Investments in United Kingdom
Common Stocks 217,005 98,988 0.11
Face Amount Convertible Bonds
France Auto & Truck Ffr 10,000 Peugeot S.A., 2% due 1/01/2001 (Units) 1,851,331 1,979,732 2.19
Leisure 4,200,000 Euro Disney SCA, 6.75% due 10/01/2001 686,297 733,954 0.81
Pharmaceuticals 7,000 Sanofi S.A., 4% due 1/01/2000 (Units) 498,434 523,083 0.58
Total Investments in French
Convertible Bonds 3,036,062 3,236,769 3.58
United Kingdom Business Pound 1,000,000 Hanson Trust PLC, 9.50% due 1/31/2006 1,651,296 1,593,361 1.76
Services Sterling
Food & Pound 1,000,000 Allied-Lyons PLC, 6.75% due 7/07/2008 1,676,191 1,526,148 1.69
Beverage Sterling
US$ 1,500,000 Grand Metropolitan PLC, 6.50% due
1/31/2000 1,612,500 1,695,000 1.88
Pound 550,000 Northern Foods PLC, 6.75% due 8/08/2008 867,775 726,304 0.80
Sterling ----------- ----------- -------
4,156,466 3,947,452 4.37
Oil & 1,200,000 EE Finance, 8.75% due 6/27/2006 1,860,229 1,878,822 2.08
Related
Total Investments in United Kingdom
Convertible Bonds 7,667,991 7,419,635 8.21
Total Investments in Western European
Securities 10,921,058 10,755,392 11.90
Face Amount Short-Term Securities
United States Commercial Paper* US$ 4,068,000 General Electric Capital Corp., 5.85%
due 11/01/1995 4,068,000 4,068,000 4.50
US Government & US Treasury Bills:
Agency Obligations* 2,500,000 5.18% due 11/16/1995 2,494,604 2,494,604 2.76
1,733,000 5.20% due 11/16/1995 1,729,245 1,729,245 1.91
----------- ----------- -------
4,223,849 4,223,849 4.67
Total Investments in Short-Term Securities 8,291,849 8,291,849 9.17
Total Investments $92,202,081 89,620,791 99.15
===========
Unrealized Appreciation on Forward Foreign Exchange Contracts** 193,435 0.21
Other Assets Less Liabilities 577,152 0.64
----------- -------
Net Assets $90,391,378 100.00%
=========== =======
<FN>
++Non-income producing security.
(a)American Depositary Receipts (ADR).
(b)Formerly Saatchi & Saatchi Co., PLC.
*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 October 31, 1995 are as follows:
<CAPTION>
Unrealized
Appreciation
(Depreciation)
Foreign Currency Sold Expiration Date (Note 1c)
<S> <S> <C>
Frf 2,500,000 December 1995 $ (786)
YEN 500,000,000 November 1995 194,221
Total Unrealized Appreciation--Net on Forward Foreign
Exchange Contracts (US$ Commitment--$5,623,096) $193,435
========
See Notes to Financial Statements.
</TABLE>
61
<PAGE> 112
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of October 31, 1995
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$92,202,081) (Note 1a) $ 89,620,791
Unrealized appreciation on forward foreign exchange contracts (Note 1c) 193,435
Cash 544
Receivables:
Interest $ 809,769
Capital shares sold 201,129
Dividends 14,167 1,025,065
-----------
Prepaid expenses (Note 1f) 29,297
------------
Total assets 90,869,132
------------
Liabilities: Payables:
Capital shares redeemed 267,863
Distributor (Note 2) 59,158
Investment adviser (Note 2) 53,838 380,859
------------
Accrued expenses and other liabilities 96,895
------------
Total liabilities 477,754
------------
Net Assets: Net assets $ 90,391,378
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized $ 220,620
Consist of: Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 544,624
Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 42,774
Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 32,636
Paid-in capital in excess of par 87,164,944
Undistributed investment income--net 931,245
Undistributed realized capital gains on investments and foreign currency
transactions--net 3,843,618
Unrealized depreciation on investments and foreign currency transactions--net (2,389,083)
------------
Net assets $ 90,391,378
============
Net Asset Class A--Based on net assets of $23,633,829 and 2,206,197 shares outstanding $ 10.71
Value: ============
Class B--Based on net assets of $58,659,692 and 5,446,237 shares outstanding $ 10.77
============
Class C--Based on net assets of $4,598,551 and 427,738 shares outstanding $ 10.75
============
Class D--Based on net assets of $3,499,306 and 326,365 shares outstanding $ 10.72
============
See Notes to Financial Statements.
</TABLE>
62
<PAGE> 113
<TABLE>
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1995
<S> <C> <C> <C>
Investment Interest and discount earned (net of $20,462 foreign withholding tax) $ 5,414,906
Income Dividends (net of $726 foreign withholding tax) 991,934
(Notes 1d & 1e): ------------
Total income 6,406,840
------------
Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 881,358
Investment advisory fees (Note 2) 779,627
Transfer agent fees--Class B (Note 2) 277,707
Printing and shareholder reports 151,132
Registration fees (Note 1f) 99,085
Professional fees 94,953
Transfer agent fees--Class A (Note 2) 66,621
Account maintenance and distribution fees--Class C (Note 2) 54,473
Accounting services (Note 2) 47,336
Directors' fees and expenses 46,681
Custodian fees 42,370
Transfer agent fees--Class C (Note 2) 18,499
Transfer agent fees--Class D (Note 2) 9,526
Account maintenance fees--Class D (Note 2) 8,311
Pricing fees 4,654
Other 6,938
------------
Total expenses 2,589,271
------------
Investment income--net 3,817,569
------------
Realized & Realized gain from:
Unrealized Gain Investments--net 3,843,632
(Loss) on Foreign currency transactions--net 756,724 4,600,356
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (1,499,846)
(Notes 1b, 1c, Foreign currency transactions--net 313,800 (1,186,046)
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign currency transactions 3,414,310
------------
Net Increase in Net Assets Resulting from Operations $ 7,231,879
============
See Notes to Financial Statements.
</TABLE>
63
<PAGE> 114
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <C> <C> <C>
Operations: Investment income--net $ 3,817,569 $ 914,075
Realized gain on investments and foreign currency transactions--net 4,600,356 806,359
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net (1,186,046) (1,834,527)
------------ ------------
Net increase (decrease) in net assets resulting from operations 7,231,879 (114,093)
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (983,944) (148,368)
Shareholders Class B (2,414,489) (616,538)
(Note 1g): Class C (162,116) --
Class D (132,498) --
Realized gain on investments--net:
Class A (133,107) (36,309)
Class B (832,533) (244,353)
Class C (20,618) --
Class D (14,017) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (4,693,322) (1,045,568)
------------ ------------
Capital Share Net increase in net assets derived from capital share transactions 26,499,640 28,124,292
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase in net assets 29,038,197 26,964,631
Beginning of year 61,353,181 34,388,550
------------ ------------
End of year* $ 90,391,378 $ 61,353,181
============ ============
<FN>
*Undistributed investment income--net (Note 1h) $ 931,245 $ 220,749
============ ============
See Notes to Financial Statements.
</TABLE>
64
<PAGE> 115
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements. For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.75 $ 11.08 $ 9.79 $ 9.39 $ 8.37
Operating ---------- --------- -------- -------- --------
Performance: Investment income--net .42 .33 .23 .21 .25
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .11 (.27) 1.45 .68 1.22
---------- --------- -------- -------- --------
Total from investment operations .53 .06 1.68 .89 1.47
---------- --------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.46) (.30) (.23) (.25) (.37)
Realized gain on investments--net (.11) (.09) (.16) (.24) (.08)
---------- --------- -------- -------- --------
Total dividends and distributions (.57) (.39) (.39) (.49) (.45)
---------- --------- -------- -------- --------
Net asset value, end of year $ 10.71 $ 10.75 $ 11.08 $ 9.79 $ 9.39
========== ========= ======== ======== ========
Total Investment Based on net asset value per share 5.10% 0.61% 17.64% 10.00% 18.09%
Return:** ========== ========= ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.38% 1.66% 2.22% 2.47% 2.47%
Net Assets: ========== ========= ======== ======== ========
Expenses 1.38% 1.66% 2.22% 2.86% 2.87%
========== ========= ======== ======== ========
Investment income--net 4.03% 2.97% 2.36% 2.61% 3.16%
========== ========= ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 23,634 $ 7,850 $ 4,557 $ 2,283 $ 448
Data: ========== ========= ======== ======== ========
Portfolio turnover 101.12% 38.04% 26.02% 4.91% 18.02%
========== ========= ======== ======== ========
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements. For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.80 $ 11.13 $ 9.84 $ 9.44 $ 8.39
Operating ---------- --------- -------- -------- --------
Performance: Investment income--net .37 .21 .13 .12 .18
Realized and unrealized gain (loss) on
investments and foreign currency transactions--net .05 (.25) 1.46 .67 1.20
---------- --------- -------- -------- --------
Total from investment operations .42 (.04) 1.59 .79 1.38
---------- --------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.34) (.20) (.14) (.15) (.25)
Realized gain on investments--net (.11) (.09) (.16) (.24) (.08)
---------- --------- -------- -------- --------
Total dividends and distributions (.45) (.29) (.30) (.39) (.33)
---------- --------- -------- -------- --------
Net asset value, end of year $ 10.77 $ 10.80 $ 11.13 $ 9.84 $ 9.44
========== ========= ======== ======== ========
Total Investment Based on net asset value per share 4.01% (.37%) 16.45% 8.77% 16.79%
Return:** ========== ========= ======== ======== ========
Ratios to Average Expenses, excluding account maintenance and
Net Assets: distribution fees and net of reimbursement 1.37% 1.69% 2.26% 2.49% 2.50%
========== ========= ======== ======== ========
Expenses, net of reimbursement 2.37% 2.69% 3.26% 3.49% 3.50%
========== ========= ======== ======== ========
</TABLE>
65
<PAGE> 116
<TABLE>
<S> <S> <C> <C> <C> <C> <C>
Expenses 2.37% 2.69% 3.26% 3.96% 3.88%
========== ========= ======== ======== ========
Investment income--net 2.95% 1.95% 1.32% 1.53% 2.25%
========== ========= ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 58,660 $ 53,121 $ 29,831 $ 13,975 $ 14,973
Data: ========== ========= ======== ======== ========
Portfolio turnover 101.12% 38.04% 26.02% 4.91% 18.02%
========== ========= ======== ======== ========
<CAPTION>
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
Oct. 31, Oct. 31, Oct. 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1995 1994++++ 1995 1994++++
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.81 $ 10.74 $ 10.76 $ 10.69
Operating -------- -------- -------- --------
Performance: Investment income--net .36 -- .42 --
Realized and unrealized gain on investments and
foreign currency transactions--net .05 .07 .09 .07
-------- -------- -------- --------
Total from investment operations .41 .07 .51 .07
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.36) -- (.44) --
Realized gain on investments--net (.11) -- (.11) --
-------- -------- -------- --------
Total distributions and distributions (.47) -- (.55) --
-------- -------- -------- --------
Net asset value, end of period $ 10.75 $ 10.81 $ 10.72 $ 10.76
======== ======== ======== ========
Total Investment Based on net asset value per share 3.89% .65%+++ 4.87% .65%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, excluding account maintenance and
Net Assets: distribution fees 1.41% 4.64%* 1.37% 4.88%*
======== ======== ======== ========
Expenses 2.41% 5.64%* 1.62% 5.13%*
======== ======== ======== ========
Investment income--net 2.99% (1.74%)* 3.79% (1.24%)*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 4,598 $ 203 $ 3,499 $ 179
Data: ======== ======== ======== ========
Portfolio turnover 101.12% 38.04% 101.12% 38.04%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
66
<PAGE> 117
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 four
classes of shares under the Merrill Lynch Select Pricing SM System.
Shares of Class A and Class D are sold with a front-end sales charge.
Shares of Class B and Class C may be subject to a contingent deferred
sales charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain expenses
related to the account maintenance of such shares, and Class B and
Class C Shares also bear certain expenses related to the distribution
of such shares. Each class has exclusive voting rights with respect
to matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at the
last available bid price. Securities traded in the over-the-counter
market are valued at the last available bid price prior to the time of
valuation. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated
by or under the authority of the Board of Directors as the primary
market. Securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broad-
est and most representative market. Options written are valued
at the last sale price in the case of exchange-traded options or,
in the case of options traded in the over-the-counter market, the
last asked price. Options purchased are valued at the last sale price
in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. Short-
term securities are valued at amortized cost, which approximates
market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets
for which market value quotations are not available are valued at
their fair value as determined in good faith by or under the direction
of the Fund's Board of Directors.
(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing
when recognized. Assets and liabilities denominated in foreign
currencies are valued at the exchange rate at the end of the period.
Foreign currency transactions are the result of settling (realized)
or valuing (unrealized) 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.
(c) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on opera-
tions is recorded from the date the Fund enters into such contracts.
Premium or discount is amortized over the life of the contracts.
* Foreign currency options and futures--The Fund may also purchase
or sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign exchange
rates. Such transactions may be effected with respect to hedges on
non-US dollar denominated securities owned by the Fund, sold by
the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures con-
tracts for the purpose of hedging the market risk on existing securi-
ties or the intended purchase of securities. Futures contracts are
contracts for delayed delivery of securities at a specific future date
and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected.
Pursuant to the contract, the Fund agrees to receive from or pay
to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as
variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time
it was closed.
* Options--The Fund is authorized to write 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 purchased or sold through an exercise of
67
<PAGE> 118
an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted
from (or added to) the proceeds of the security sold. When an
option expires (or the Fund enters into a closing transaction), the
Fund realizes a gain or loss on the option to the extent of the
premiums received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing
investments.
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends, and capital
gains at various rates.
(e) Security transactions and investment income--Security trans-
actions 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 divi-
dends from foreign securities are recorded as soon as the Fund is
informed of the ex-dividend date. Interest income (including amor-
tization 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) Reclassification--Generally accepted accounting principles
require that certain differences between undistributed net realized
capital gains for financial reporting and tax purposes, if permanent,
be reclassified to undistributed net investment income. Accord-
ingly, current year's permanent book/tax differences of $585,974
have been reclassified from undistributed net realized capital gains
to undistributed net investment income. These reclassifications have
no effect on net assets or net asset values per share.
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"). The general
partner of MLAM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with Merrill Lynch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the 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 MLAM 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 the distribution plans ("the Distribution Plans") adopted
by the Fund in accordance with Rule 12b-1 under the Investment
Company Act of 1940, the Fund pays the Distributor ongoing account
maintenance and distribution fees. The fees are accrued daily and
paid monthly at annual rates based upon the average daily net
assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance
services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for
providing shareholder and distribution-related services to Class B
and Class C shareholders.
68
<PAGE> 119
NOTES TO FINANCIAL STATEMENTS (concluded)
For the year ended October 31, 1995, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $1,587 $17,943
Class D $4,666 $57,847
For the year ended October 31, 1995, MLPF&S received contingent
deferred sales charges of $329,050 and $3,929 relating to transactions
in Class B and Class C Shares, respectively.
In addition, MLPF&S received $4,200 in commissions on the execu-
tion of portfolio security transactions for the Fund for the year
ended October 31, 1995.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1995 were $126,341,654 and
$95,552,264, respectively.
Net realized and unrealized gains (losses) as of October 31, 1995
were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 3,844,159 $(2,581,290)
Short-term investments (527) --
Foreign currency transactions 1,037,678 (1,228)
Forward foreign exchange contracts (280,954) 193,435
----------- -----------
Total $ 4,600,356 $(2,389,083)
=========== ===========
As of October 31, 1995, net unrealized depreciation for Federal
income tax purposes aggregated $2,581,290, of which $1,954,618
related to appreciated securities and $4,535,908 related to depreciated
securities. At October 31, 1995, the aggregate cost of investments
for Federal income tax purposes was $92,202,081.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $26,499,640 and $28,124,292 for the years ended October 31,
1995 and October 31, 1994, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 4,429,386 $47,904,765
Shares issued to shareholders in reinvest-
ment of dividends and distributions 91,827 983,674
----------- -----------
Total issued 4,521,213 48,888,439
Shares redeemed (3,044,979) (33,329,139)
----------- -----------
Net increase 1,476,234 $15,559,300
=========== ===========
Class A Shares for the Year Dollar
Ended October 31, 1994 Shares Amount
Shares sold 552,279 $ 5,969,087
Shares issued to shareholders in reinvest-
ment of dividends and distributions 13,838 147,006
----------- -----------
Total issued 566,117 6,116,093
Shares redeemed (247,561) (2,665,037)
----------- -----------
Net increase 318,556 $ 3,451,056
=========== ===========
Class B Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 7,306,514 $77,802,488
Shares issued to shareholders in
reinvestment of dividends
and distributions 244,737 2,595,029
----------- -----------
Total issued 7,551,251 80,397,517
Automatic conversion of shares (159,520) (1,700,100)
Shares redeemed (6,861,967) (75,080,334)
----------- -----------
Net increase 529,764 $ 3,617,083
=========== ===========
Class B Shares for the Year Dollar
Ended October 31, 1994 Shares Amount
Shares sold 3,053,210 $33,198,057
Shares issued to shareholders in
reinvestment of dividends
and distributions 62,480 619,865
----------- -----------
Total issued 3,115,690 33,817,922
Shares redeemed (878,683) (9,525,443)
----------- -----------
Net increase 2,237,007 $24,292,479
=========== ===========
69
<PAGE> 120
Class C Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 1,012,755 $10,768,784
Shares issued to shareholders in
reinvestment of dividends
and distributions 13,905 149,071
----------- -----------
Total issued 1,026,660 10,917,855
Shares redeemed (617,701) (6,780,755)
----------- -----------
Net increase 408,959 $ 4,137,100
=========== ===========
Class C Shares for the Period
October 21, 1994++ to Dollar
October 31, 1994 Shares Amount
Shares sold 18,780 $ 202,593
Shares redeemed (1) (11)
----------- -----------
Net increase 18,779 $ 202,582
=========== ===========
[FN]
++Commencement of Operations.
Class D Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 593,147 $ 6,348,782
Automatic conversion of shares 160,026 1,700,100
Shares issued to shareholders in
reinvestment of dividends
and distributions 10,076 107,975
----------- -----------
Total issued 763,249 8,156,857
Shares redeemed (453,469) (4,970,700)
----------- -----------
Net increase 309,780 $ 3,186,157
=========== ===========
Class D Shares for the Period Dollar
October 21, 1994++ to October 31, 1994 Shares Amount
Shares sold 16,586 $ 178,186
Shares redeemed (1) (11)
----------- -----------
Net increase 16,585 $ 178,175
=========== ===========
[FN]
++Commencement of Operations.
70
<PAGE> 121
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies... 2
Portfolio Strategies Involving
Options and Futures............ 2
Other Investment Policies and
Practices...................... 7
Investment Restrictions............. 8
Management of the Fund.............. 11
Directors and Officers............ 11
Compensation of Directors......... 12
Management and Advisory
Arrangements................... 13
Purchase of Shares.................. 14
Redemption of Shares................ 21
Portfolio Transactions and
Brokerage......................... 22
Determination of Net Asset Value.... 24
Shareholder Services................ 25
Dividends, Distributions and
Taxes............................. 40
Performance Data.................... 44
General Information................. 46
Description of Shares............. 46
Computation of Offering Price Per
Share.......................... 47
Independent Auditors.............. 48
Custodian......................... 48
Transfer Agent.................... 48
Legal Counsel..................... 48
Reports to Shareholders........... 48
Additional Information............ 48
Appendix............................ 49
Independent Auditors' Report........ 57
Financial Statements................ 58
</TABLE>
Code #10666-0296
(LOGO)
MERRILL LYNCH
GLOBAL CONVERTIBLE
FUND, INC.
STATEMENT OF
ADDITIONAL
INFORMATION
February 27, 1996
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE> 122
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
graphic paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<PAGE> 123
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
Contained in Part A:
Financial Highlights for each of the periods in the eight-year period
ended October 31, 1995.
Contained in Part B:
Schedule of Investments as of October 31, 1995.
Statement of Assets and Liabilities as of October 31, 1995.
Statement of Operations for the year ended October 31, 1995.
Statements of Changes in Net Assets for each of the years in the
two-year period ended October 31, 1995.
Financial Highlights for each of the periods in the five-year period
ended October 31, 1995.
(B) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------- ----------------------------------------------------------------------------------
<S> <C> <C>
1 (a) -- Articles of Incorporation of the Registrant.(e)
(b) -- Amendment to Articles of Incorporation, dated November 16, 1987.(e)
(c) -- Amendment to Articles of Incorporation, dated October 19, 1994.(e)
(d) -- Articles Supplementary to Articles of Incorporation, dated October 19, 1994.(e)
2 -- By-Laws of the Registrant.(a)
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.(b)
5 (a) -- Management Agreement between the Registrant and Merrill Lynch Asset Management,
L.P.(a)
(b) -- Supplement to Management Agreement between the Registrant and Merrill Lynch Asset
Management, L.P.(d)
6 (a) -- Form of Revised Class A Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc. (including Form of Selected Dealers
Agreement).(d)
(b) -- Class B Distribution Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. (including Selected Dealers Agreement).(a)
(c) -- Form of Class C Shares Distribution Agreement between the Registrant and Merrill
Lynch Funds Distributor, Inc. (including Form of Selected Dealers Agreement).(d)
(d) -- Form of Class D Shares Distribution Agreement between the Registrant and Merrill
Lynch Funds Distributor, Inc. (including Form of Selected Dealers Agreement).(d)
(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.(c)
7 -- None.
8 -- Custody Agreement between Registrant and State Street Bank and Trust Company.(a)
9 (a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between Registrant and Merrill Lynch Financial Data Services, Inc.(a)
(b) -- Agreement between Merrill Lynch & Co., Inc. and the Registrant relating to use by
Registrant of Merrill Lynch name.(a)
10 -- None.
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
12 -- None.
13 -- Certificate of Merrill Lynch Asset Management, L.P.(a)
</TABLE>
C-1
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------- ----------------------------------------------------------------------------------
<S> <C>
14 -- None.
15 (a) -- Amended and Restated Class B Distribution Plan of the Registrant and Amended and
Restated Class B Shares Distribution Plan Sub-Agreement.(c)
(b) -- Form of Class C Shares Distribution Plan and Class C Shares Distribution Plan
Sub-Agreement of the Registrant.(d)
(c) -- Form of Class D Shares Distribution Plan and Class D Shares Distribution Plan
Sub-Agreement of the Registrant.(d)
16 (a) -- Schedule for computation of each performance quotation for Class A shares provided
in the Registration Statement in response to Item 22.(a)
(b) -- Schedule for computation of each performance quotation for Class B shares provided
in the Registration Statement in response to Item 22.(a)
(c) -- Schedule for computation of each performance quotation for Class C shares provided
in the Registration Statement in response to Item 22.(e)
(d) -- Schedule for computation of each performance quotation for Class D shares provided
in the Registration Statement in response to Item 22.(e)
17 (a) -- Financial Data Schedule for the Year Ended October 31, 1995 relating to Class A
shares.
(b) -- Financial Data Schedule for the Year Ended October 31, 1995 relating to Class B
shares.
(c) -- Financial Data Schedule for the Year Ended October 31, 1995 relating to Class C
shares.
(d) -- Financial Data Schedule for the Year Ended October 31, 1995 relating to Class D
shares.
18 -- Merrill Lynch Select Pricing(SM) System Plan Pursuant to Rule 18f-3(f)
</TABLE>
- ---------------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") phase-in requirements.
(b) Reference is made to Article V, Article VI (Section 3), Article VII, Article
VIII and Article X of the Registrant's Articles of Incorporation, as
amended, filed as Exhibit 1 with Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A under the Securities Act of
1933, as amended (the "Registration Statement"); and to 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, filed as Exhibit 2 with
Post-Effective Amendment No. 11 to the Registration Statement.
(c) 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.
(d) Filed on October 13, 1994 as an Exhibit to Post-Effective Amendment No. 9 to
the Registrant's Registration Statement under the Securities Act of 1933.
(e) Filed on February 24, 1995 as an Exhibit to Post-Effective Amendment No. 10
to the Registrant's Registration Statement under the Securities Act of 1933.
(f) Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of Merrill Lynch New York Municipal Bond
Fund of Merrill Lynch Multi-State Municipal Series Trust filed on January
25, 1996.
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.
C-2
<PAGE> 125
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS
TITLE OF CLASS AT JANUARY 31, 1996
- ------------------------------------------------------------------------ ------------------------
<S> <C>
Class A shares of Common Stock, par value $0.10 per share............... 4,483
Class B shares of Common Stock, par value $0.10 per share............... 7,892
Class C shares of Common Stock, par value $0.10 per share............... 882
Class D shares of Common Stock, par value $0.10 per share............... 413
</TABLE>
- ---------------
* The number of holders includes holders of record plus beneficial owners, whose
shares are held of record by Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
ITEM 27. INDEMNIFICATION
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.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF MANAGER
Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager") acts as the
investment adviser for the following open-end companies: Merrill Lynch
Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc.,
Merrill Lynch Asset Builders Program, Inc., Merrill Lynch Asset Growth Fund,
Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Capital Fund, Inc.,
Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund,
Inc., Merrill Lynch EuroFund, Merrill Lynch
C-3
<PAGE> 126
Fundamental Growth Fund, Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill
Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill
Lynch Global 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 Institutional Intermediate Fund, Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch
Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement
Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global
Income Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch
Technology Fund, Inc., Merrill Lynch U.S.A. Government Reserves, Merrill Lynch
U.S. Treasury Money Fund, Merrill Lynch Utility Income Fund, Inc., and Merrill
Lynch Variable Series Funds, Inc. and the following closed-end investment
companies: Convertible Holdings, Inc., Merrill Lynch High Income Municipal Bond
Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Manager, acts as
the investment adviser for the following open-end investment companies: CBA
Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., Financial Institutions Series Trust, Merrill
Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust,
Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal Series
Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund,
Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund,
Inc. and The Municipal Fund Accumulation Program, Inc.; and the following
closed-end investment companies: Apex Municipal Fund, 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.,
Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, 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 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 DollarVest Fund, Inc.
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
October 31, 1993 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.
Giordano, Harvey, Hewitt, Kirstein and Monagle are directors, trustees or
officers of one or more of such companies.
Officers and Partners of MLAM are set forth as follows:
<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;
Limited Partner of FAM
Princeton Services............. General Partner General Partner of FAM
</TABLE>
C-4
<PAGE> 127
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------------- ------------------------- -----------------------------------
<S> <C> <C>
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 MLFDS; President of
Princeton Administrators, L.P.
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
General Counsel and Counsel and Secretary of FAM;
Secretary Senior Vice President, General
Counsel, Director and Secretary
of Princeton Services; Director
of MLFD
Ronald M. Kloss................ Senior Vice President and Senior Vice President and
Controller Controller of FAM; Senior Vice
President and Controller of
Princeton Services
Richard L. Reller.............. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Joseph T. Monagle, Jr.......... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Gerald M. Richard.............. Senior Vice President and Senior Vice President and Treasurer
Treasurer of FAM; Senior Vice President and
Treasurer of Princeton Services;
Vice President and Treasurer of
MLFD
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 FAM;
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 open-end investment companies referred
to in the first two paragraphs of Item 28 except CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA
Tax-Exempt Fund, CMA Treasury Fund, Convertible Holdings, Inc., The Corporate
Fund Accumulation Program, Inc., MuniAssets Fund, Inc., and The Municipal Fund
Accumulation Program, Inc., and MLFD also acts as the principal underwriter for
the following closed-end investment companies: Merrill Lynch High Income
Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund, Inc.
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<PAGE> 128
(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. Aldrich,
Brady, Breen, Crook, Fatseas, and Wasel is One Financial Center, 15th Floor,
Boston, Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(3)
(2) POSITION(S) AND
(1) POSITIONS AND OFFICES OFFICE(S)
NAME WITH MLFD WITH 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
James T. Fatseas........................... Vice President None
Debra W. Landsman-Yaros.................... Vice President None
Michelle T. Lau............................ Vice President None
Gerald M. Richard.......................... Vice President and Treasurer
Treasurer
Salvatore Venezia.......................... Vice President None
William Wasel.............................. Vice President None
Robert Harris.............................. Secretary None
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
thereunder will be maintained at the offices of the Registrant, 800 Scudders
Mill Road, Plainsboro, New Jersey 08536, and Merrill Lynch Financial Data
Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
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.
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<PAGE> 129
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 the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the Township of Plainsboro, and
State of New Jersey, on the 26th day of February 1996.
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>
SIGNATURES TITLE DATE
- ----------------------------------- ---------------------------------- ------------------
<S> <C> <C>
/s/ ARTHUR ZEIKEL President and Director (Principal February 26, 1996
- ----------------------------------- Executive Officer)
(Arthur Zeikel)
/s/ GERALD M. RICHARD Treasurer (Principal Financial and February 26, 1996
- ----------------------------------- Accounting Officer)
(Gerald M. Richard)
JAMES H. BODURTHA* Director
- -----------------------------------
(James H. Bodurtha)
HERBERT I. LONDON* Director
- -----------------------------------
(Herbert I. London)
ROBERT R. MARTIN* Director
- -----------------------------------
(Robert R. Martin)
JOSEPH L. Director
MAY*
- -----------------------------------
(Joseph L. May)
ANDRE F. Director
PEROLD*
- -----------------------------------
(Andre F. Perold)
*By: /s/ ARTHUR ZEIKEL February 26, 1996
------------------------------
(Arthur Zeikel,
Attorney-in-Fact)
</TABLE>
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<PAGE> 130
POWER OF ATTORNEY
The undersigned Director of Merrill Lynch Global Convertible Fund, Inc.
(the "Fund") hereby authorizes Arthur Zeikel, Terry K. Glenn and Gerald M.
Richard, or any of them, as attorney-in-fact, to sign on his behalf, in the
capacity stated below, any amendments to the Registration Statement (including
post-effective amendments) on Form N-1A of the Fund, and to file the same, with
all exhibits thereto, with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------- ------------------------- ------------------
<S> <C> <C>
/s/ JAMES H. Director February 26, 1996
BODURTHA
- --------------------------------------------
(JAMES H. BODURTHA)
</TABLE>
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<PAGE> 131
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<S> <C>
2 -- By-Laws of the Registrant.(a)
5 (a) -- Management Agreement between the Registrant and Merrill Lynch Asset
Management, L.P.(a)
6 (b) -- Class B Distribution Agreement between the Registrant and Merrill Lynch
Funds Distributor, Inc. (including Selected Dealers Agreement).(a)
8 -- Custody Agreement between Registrant and State Street Bank and Trust
Company.(a)
9 (a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between Registrant and Merrill Lynch Financial Data Services,
Inc.(a)
(b) -- Agreement between Merrill Lynch & Co., Inc. and the Registrant relating to
use by Registrant of Merrill Lynch name.(a)
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
13 -- Certificate of Merrill Lynch Asset Management, L.P.(a)
16 (a) -- Schedule for computation of each performance quotation provided in the
Registration Statement in response to Item 22 relating to Class A Shares.(a)
(b) -- Schedule for computation of each performance quotation provided in the
Registration Statement in response to Item 22 relating to Class B Shares.(a)
17 (a) -- Financial Data Schedule for Class A shares for the fiscal year ended October
31, 1995.
(b) -- Financial Data Schedule for Class B shares for the fiscal year ended October
31, 1995.
(c) -- Financial Data Schedule for Class C shares for the fiscal year ended October
31, 1995.
(d) -- Financial Data Schedule for Class D shares for the fiscal year ended October
31, 1995.
</TABLE>
- ---------------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") phase-in requirements.
<PAGE> 1
EX-99.2
BY-LAWS
OF
MERRILL LYNCH CONVERTIBLE FUND, INC.
ARTICLE I
offices
Section 1. Principal Office. The principal office of the
Corporation shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal
executive office of the Corporation shall be at 800 Scudders Mill.
Road, Plainsboro, New Jersey 08536.
Section 3. Other Offices. The Corporation may have such
other offices in such places as the Board of Directors may from
time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. The Corporation shall not be
required to hold an annual meeting of its stockholders in any
year in which none of the following is required to be acted on by
the holders of any class of capital stock under the Investment
Company Act of 1940, as amended: (a) election of directors,
(b) approval of the corporation's investment advisory agreement
with respect to a particular class of capital stock;
<PAGE> 2
(c) ratification of the selection of independent public
accountants; and (d) approval of the Corporation's distribution
agreement with respect to a particular class of capital stock.
In the event that the Corporation shall be required to hold an
annual meeting of stockholders by the Investment Company Act of
1940, as amended, such meeting shall be held: (a) at a date and
time set by the Board of Directors in accordance with the
Investment Company Act of 1940, as amended, if the purpose of the
meeting is to elect directors or to approve an investment
advisory agreement or distribution agreement; and (b) on a date
fixed by the board of directors during the month of
(i) in the fiscal year immediately following the fiscal year in
which independent accountants were appointed if the purpose of
the meeting is to ratify the selection of such independent
accountants, or (ii) in any fiscal year if any annual meeting is
to be held for any reason other than as specified in the
foregoing. Any stockholders' meeting held in accordance with the
preceding sentence shall for all purposes constitute the annual
meeting of stockholders for the fiscal year of the Corporation in
which the meeting is held. At any such meeting, the stockholders
shall elect directors to hold the offices of any directors who
have held office for more than one year or who have been elected
by the board of directors to fill vacancies which result from any
cause.
<PAGE> 3
Section 2. Special Meetings. Special meetings of the
stockholders, unless otherwise provided by law or by the Articles
of Incorporation, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, or on the
written request of the holders of the outstanding capital stock
of the Corporation entitled to vote at such meeting to the extent
permitted by Maryland law and the Investment Company Act of 1940,
as amended.
Section 3. Place of Meetings. Meetings of stockholders
shall be held at such place within the United States as the Board
of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of
the place, date and time of the holding of each stockholders'
meeting and, if the meeting is a special meeting, the purpose or
purposes of the meeting, shall be given personally or by mail,
not less than ten nor more than ninety days before, the date of
such meeting, to each stockholder entitled to vote at such
meeting and to each other stockholder entitled to notice of the
meeting. Notice by mail shall be deemed to be duly given when
deposited in the United States mail addressed to the stockholder
at his address as it appears on the records of the Corporation,
with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived
by any stockholder who shall attend such meeting in person or by
Proxy, or who shall, either before or after the meeting, submit a
-3-
<PAGE> 4
signed waiver of notice which is filed with the records of the
meeting. When a meeting is adjourned to another time and place,
unless the Board of Directors, after the adjournment, shall fix a
new record date for an adjourned meeting, or the adjournment is
for more than one hundred and twenty days after the original
record date, notice of such adjourned meeting need not be given
if the time and place to which the meeting shall be adjourned
we announced at the meeting at which the adjournment is taken.
Section 5. Quorum. At all meetings of the stockholders,
the holders of a majority of the shares of stock of the Corpora-
tion entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for the transaction of any
business, except as otherwise provided by statute or by the
Articles of Incorporation. In the absence of a quorum no busi-
ness may be transacted, except that the holders of a majority of
the shares of stock present in person or by proxy and entitled to
vote may adjourn the meeting from time to time, without notice
other than announcement thereat except as otherwise required by
these By-Laws, until the holders of the requisite amount
of shares of stock shall be so present. At any such adjourned
meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as
originally called. The absence from any meeting, in person or by
proxy, of holders of the number of shares of stock of the Corpo-
ration in excess of a majority thereof which may be required by
-4-
<PAGE> 5
the laws of the State of Maryland, the Investment Company Act of
1940, as amended, or other applicable statute, the Articles of
Incorporation, or these By-Laws, for action upon any given matter
shall not prevent action at such meeting upon any other matter or
matters which may properly come before the meeting, if there
shall be present thereat, in person or by proxy, holders of the
number of shares of stock of the Corporation required for action
in respect of such other matter or matters.
Section 6. Organization. -At each meeting of the stock-
holders, the Chairman of the Board (if one has been designated by
the Board), or in his absence or inability to act, the President,
or in the absence or inability to act of the Chairman of the
Board and the President, a Vice President, shall act as chairman
of the meeting. The Secretary, or in his absence or inability to
act, any person appointed by the chairman of the meeting, shall
act as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all
meetings of the stockholders shall be as determined by the chair-
man of the meeting.
Section 8. Voting. Except as otherwise provided by statute
or the Articles of Incorporation, each holder of record of shares
of stock of the Corporation having voting power shall be entitled
at each meeting of the stockholders to one vote for every share
of such stock standing in his name on the record of stockholders
of the Corporation as of the record date determined pursuant to
-5-
<PAGE> 6
section 9 of this Article or if such record date shall not have
been so fixed, then at the later of (i) the close of business on
the day on which notice of the meeting is mailed or (ii) the
thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stock-
holders may authorize another person or persons to act for him by
a proxy signed by such stockholder or his attorney-in-fact. No
proxy shall be valid after the expiration of eleven months from
the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that
it is irrevocable and where an irrevocable proxy is permitted by
law. Except as otherwise provided by statute, the Articles of
Incorporation or these By-Laws, any corporate action to be taken
by vote of the stockholders shall be authorized by a majority of
the total votes cast at a meeting of stockholders by the holders
of shares present in person or represented by proxy and entitled
to vote on such action.
If a vote shall be taken on any question other than the
election of directors, which shall be by written ballot., then
unless required by statute or these By-Laws, or determined by the
chairman of the meeting to be advisable, any such vote need not
be by ballot. On a vote by ballot, each ballot shall be signed
by the stockholder voting, or by his proxy, if there be such
proxy, and shall state the number of shares voted.
-6-
<PAGE> 7
Section 9. Fixing of Record Date. The Board of Directors
may set a record date for the purpose of determining stockholders
entitled to vote at any meeting of the stockholders. The record
date, which may not be prior to the close of business on the day
the record date is fixed, shall be not more than ninety nor less
than ten days before the date of the meeting of the stockholders.
All persons who were holders of record of shares at such time,
and no others, shall be entitled to vote at such meeting and any
adjournment thereof.
Section 10. Inspectors. The Board may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at
such meeting or any adjournment thereof. If the inspectors shall
not be so appointed or if any of them shall fail to appear or
act, the chairman of the meeting may, and on the request of any
stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties,,
shall take and sign an oath to execute faithfully the duties of
inspector at such meeting with strict impartiality and according
to the best of his ability. The inspectors shall determine the
number of shares outstanding and the voting power of each, the
number of shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result,
-7-
<PAGE> 8
and do such acts as are proper to conduct the election or vote
with fairness to all stockholders. On request of the chairman of
the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certifi-
cate of any fact found by them. No director or candidate for the
office of director shall act as inspector of an election of
directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting.
Except as otherwise provided by statute or the Articles of Incor-
poration, any action required to be taken at any meeting of
stockholders, or any action which may be taken at any meeting of
such stockholders, may be taken without a meeting, without prior
notice and without a vote, if the following are filed with the
records of stockholders meetings: (i) a unanimous written
consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and (ii) a written
waiver of any right to dissent signed by each stockholder
entitled to notice of the meeting but not entitled to vote
thereat.
ARTICLE III
Board of Directors
Section 1. General Powers Except.
Section 1. General Powers. Except as otherwise provided in
the Articles of Incorporation, the business and affairs of the
-8-
<PAGE> 9
Corporation shall be managed under the direction of the Board of
Directors. All powers of the Corporation may be exercised by or
under authority of the Board of Directors except as conferred on
or reserved to the stockholders by law or by the Articles of
Incorporation or these By-Laws.
Section 2. Number of Directors. The number of directors
shall be fixed from time to time by resolution of the Board of
Directors adopted by a majority of the Directors then in office;
provided, however, that the number of directors shall in no event
be less than three nor more than fifteen except that the Corpora-
tion may have two directors if there is no stock outstanding, or
so long as there are less than three stockholders. Any vacancy
created by an increase in Directors may be filled in accordance
with Section 6 of this Article III. No reduction in the number
of directors shall have the effect of removing any director from
office prior to the expiration of his term unless such director
is specifically removed pursuant to Section 5 of this Article III
at the time of such decrease. Directors need not be stock-
holders.
Section 3. Election and Term of Directors. Directors shall
be elected annually, by written ballot at the annual meeting of
stockholders or a special meeting held for that purpose;
provided, however, that if no annual meeting of the stockholders
of the Corporation is required to be held in a particular year
Pursuant to Section 1 of Article II of these By-Laws, Directors
-9-
<PAGE> 10
shall be elected at the next annual meeting held. The term of
office of each director shall be from the time of his election
and qualification until the election of directors next succeeding
his election and until his successor shall have been elected and
shall have qualified, or until his death, or until he shall have
resigned, or have been removed as hereinafter provided in these
By-Laws, or as otherwise provided by statute or the Articles of
incorporation.
Section 4. Resignation. A director of the Corporation may
resign at any time by giving written notice of his resignation to
the Board or the Chairman of the Board or the President or the
Secretary. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective
shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any director of the
Corporation may be removed by the stockholders by a vote of a
majority of the votes entitled to be cast for the election of
directors.
Section 6. Vacancies. Any vacancies in the Board, whether
arising from death, resignation, removal, an increase in the
number of directors or any other cause, shall be filled by a vote
of the majority of the Board of Directors then in office even
though such majority is less than a quorum, provided that no
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<PAGE> 11
vacancies shall be filled by action of the remaining directors,
if after the filling of said vacancy or vacancies, less than
two-thirds of the directors then holding office shall have been
elected by the stockholders of the Corporation. In the event
that at any time there is a vacancy in any office of a director
which vacancy may not be filled by the remaining directors, a
special meeting of the stockholders shall be held as promptly as
possible and in any event within sixty days, for the purpose of
filling said vacancy or vacancies. Any directors elected or
appointed to fill a vacancy shall hold office only until the next
annual meeting of stockholders of the Corporation and until a
successor shall have been chosen and qualifies or until his
earlier resignation or removal.
Section 7. Place of Meetings. Meetings of the Board may be
held at such place as the Board may from time to time determine
or as shall be specified in the notice of such meeting.
Section 8. Regular Meetings. Regular meetings of the Board
may be held without notice at such time and place as may be
determined by the Board of Directors.
Section 9. Special Meetings. Special meetings of the Board
may be called by two or more directors of the Corporation or by
the Chairman of the Board or the President.
Section 10. Telephone Meetings. Members of the Board of
Directors or of any committee thereof may participate in a
meeting by means of a conference telephone or similar
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communications equipment if all persons participating in the
meeting can hear each other at the same time. subject to the
provisions of the Investment Company Act of 1940, as amended,
participation in a meeting by these means constitutes presence in
person at the meeting.
Section 11. Notice of Special Meetings. Notice of each
special meeting of the Board shall be given by the Secretary as
hereinafter provided, in which notice shall be stated the time
and place of the meeting. Notice of each such meeting shall be
delivered to each director, either personally or by telephone or
any standard form of telecommunication, at least twenty-four
hours before the time at which such meeting is to be held, or by
first-class mail, postage prepaid, addressed to him at his resi-
dence or usual place of business, at least three days before the
day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any
special meeting need not be given to any director who shall,
either before or after the meeting, sign a written waiver of
notice which is filed with the records of the meeting or who
shall attend such meeting. Except as otherwise specifically
required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less
than two, of the members of the entire Board shall be present in
person at any meeting of the Board in order to constitute a
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<PAGE> 13
quorum for the transaction of business at such meeting, and
except as otherwise expressly required by statute, the Articles
of Incorporation, these By-Laws, the Investment Company Act of
1940, as amended, or other applicable statute, the act of a
majority of the directors present at any meeting at which a
quorum is present shall be the act of the Board. In the absence
of a quorum at any meeting of the Board, a majority of the
directors present thereat may adjourn such meeting to another
time and place until a quorum shall be present thereat. Notice
of the time and place of any such adjourned meeting shall be
given to the directors who were not present at the time of the
adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other
directors. At any adjourned meeting at which a quorum is
present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 14. Organization. The Board may, by resolution
adopted by a majority of the entire Board, designate a Chairman
of the Board, who shall preside at each meeting of the Board. In
the absence or inability of the Chairman of the Board to preside
at a meeting, the President, or, in his absence or inability to
act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside
thereat. The Secretary (or, in his absence or inability to act,
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any person appointed by the Chairman) shall act as secretary of
the meeting and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a
Meeting. Subject to the provisions of the Investment Company Act
of 1940, as amended, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes
of the proceedings of the Board or committee.
Section 16. Compensation. Directors may receive compensa-
tion for services to the Corporation in their capacities as
directors or otherwise in such manner and in such amounts as may
be fixed from time to time by the Board.
Section 17. Investment Policies. It shall be the duty of
the Board of Directors to ensure that the purchase, sale, reten-
tion and disposal of portfolio securities and the other invest-
ment practices of the Corporation are at all times consistent
with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as
recited in the current Prospectus and Statement of Additional
Information of the Corporation included in the Registration
Statement of the Corporation, as filed from time to time with the
Securities and Exchange Commission and as required by the
InVestment Company Act of 1940, as amended. The Board, however,
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<PAGE> 15
may delegate the duty of management of the assets and the
administration of its day to day operations to an individual or
corporate management company and/or investment adviser pursuant
to a written contract or contracts which have obtained the
requisite approvals, including the requisite approvals of
renewals thereof, of the Board of Directors and/or the stock-
holders of the Corporation in accordance with the provisions of
the Investment Company Act of 1940, as amended.
ARTICLE IV
Committees
Section 1. Executive Committee. The Board may, by resolu-
tion adopted by a majority of the entire board, designate an
Executive Committee consisting of two or more of the directors of
the corporation, which committee shall have and may exercise all
the powers and authority of the Board with respect to all matters
other than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles
of Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving
on the Board or on any committee of the Board, including the
Executive Committee;
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<PAGE> 16
(d) the approval or termination of any contract with an
investment adviser manager or principal underwriter, as such
terms are defined in the Investment Company Act of 1940, as
amended, or the taking of any other action required to be taken
by the Board of Directors by the Investment Company Act of 1940,
as amended;
(e) the amendment or repeal of these By-Laws or the adop-
tion of new By-Laws;
(f) the amendment or repeal of any resolution of the Board
which by its terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capi-
tal stock of the Corporation; and
(h) the approval of any merger or share exchange which does
not require stockholder approval.
The Executive Committee shall keep written minutes of its
proceedings and shall report such minutes to the Board. All such
proceedings shall be subject to revision or alteration by the
Board; provided, however, that third parties shall not be preju-
diced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of
Directors may from time to time, by resolution adopted by a
majority of the whole Board, designate one or more other commit-
tees of the Board, each such committee to consist of two or more
directors and to have such powers and duties as the Board of
Directors may, by resolution, prescribe.
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<PAGE> 17
Section 3. General. One-third, but not less than two, of
the members of any committee shall be present in person at any
meeting of such commmittee in order to constitute a quorum for the
transaction of business at such meeting, and the act of a major-
ity present shall be the act of such committee. The Board may
designate a chairman of any committee and such chairman or any
two members of any committee may fix the time and place of its
meetings unless the Board shall otherwise provide. In the
absence or disqualification of any member of any committee, the
member or members thereof present at any meeting and not disqual-
ified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors
to act at the meeting in the place of any such absent or disqual-
ified member. The Board shall have the power at any time to
change the membership of any committee, to fill all vacancies, to
designate alternate members to replace any absent or disqualified
member, or to dissolve any such committee. Nothing herein shall
be deemed to prevent the Board from appointing one or more com-
mittees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such
committee shall have or may exercise any authority or power of
the Board in the management of the business or affairs of the
Corporation.
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<PAGE> 18
ARTICLE V
Officers, Aqents and Employees
Section 1. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer,
each of whom shall be elected by the Board of Directors. The
Board of Directors may elect one or more Vice Presidents and may
also appoint such other officers, agents and employees as it may
deem necessary or proper. Any two or more offices may be held by
the same person, except the offices of President and Vice Presi-
dent, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity. Such officers shall be
elected by the Board of Directors each year at a meeting of the
Board of Directors, each to hold office for the ensuing year and
until his successor shall have been duly elected and shall have
qualified, or until his death, or until he shall have resigned,
or have been removed, as hereinafter provided in these By-Laws.
The Board may from time to time elect, or delegate to the
President the power to appoint, such officers (including one or
more Assistant Vice Presidents, one or more Assistant Treasurers
and one or more Assistant Secretaries) and such agents, as may be
necessary or desirable for the business of the Corporation. Such
other officers and agents shall have such duties and shall hold
their offices for such terms as may be prescribed by the Board or
by the appointing authority.
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<PAGE> 19
Section 2. Resignations. Any officer of the Corporation
may resign at any time by giving written notice of his resigna-
tion to the Board, the Chairman of the Board, the President or
the Secretary. Any such resignation shall take effect at the
time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any
officer, agent or employee of the Corporation may be removed by
the Board of Directors with or without cause at any time, and the
Board may delegate such power of removal as to agents and
employees not elected or appointed by the Board of Directors.
Such removal shall be without prejudice to such person's contract
rights, if any, but the appointment of any person as an officer,
agent or employee of the Corporation shall not of itself create
contract rights.
Section 4. vacancies. A vacancy in any office, whether
arising from death, resignation, removal or any other cause, may
be filled for the unexpired portion of the term of the office
which shall be vacant, in the manner prescribed in these By-Laws
for the regular election or appointment to such office.
Section 5. Compensation. The compensation of the officers
of the Corporation shall be fixed by the Board of Directors, but
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<PAGE> 20
this power may be delegated to any officer in respect of other
officers under his control.
Section 6. Bonds or Other Security. If required by the
Board, any officer, agent or employee of the Corporation shall
give a bond or other security for the faithful performance of his
duties, in such amount and with such surety or sureties as the
Board may require.
Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the
Chairman of the Board (or if there is none), the President shall
preside at meetings of the stockholders and the Board of Direc-
tors. The President shall have, subject to the control of the
Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and
agents of the Corporation, except such as shall be appointed by
the Board, and he may delegate these powers.
Section 8. Vice President. Each Vice President shall have
such powers and perform such duties as the Board of Directors or
the President may from time to time prescribe.
Section 9. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for, all
the funds and securities of the Corporation, except those which
the Corporation has placed in the custody of a bank or trust
company or member of a national securities exchange (as that term
is defined in the Securities Exchange Act of 1934) pursuant to a
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<PAGE> 21
written agreement designating such bank or trust company or
member of a national securities exchange as custodian of the
property of the Corporation;
(b) keep full and accurate accounts of receipts and dis-
bursements in books belonging to the Corporation;
(c) cause all moneys and other valuable to be deposited to
the credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable
to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or 'authorized by the Board,
taking proper vouchers therefor; and
(f) in general, perform all the duties incident to the
office of Treasurer and such other duties as from time to time
may be assigned to him by the Board or the President.
Section 10. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided
for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with
the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corpo-
ration and affix and attest the seal to all stock certificates of
the Corporation (unless the seal of the Corporation on such
certificates shall be a facsimile, as hereinafter provided) and
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<PAGE> 22
affix and attest the seal to all other documents to be executed
on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates
and other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, perform all the duties incident to the
office of Secretary and such other duties as from time to time
may be assigned to him by the Board or the President.
Section 11. Delegation of Duties. In case of the absence
of any officer of the Corporation, or for any other reason that
the Board may deem sufficient, the Board may confer for the time
being the powers or duties, or any of them, of such officer upon
any other officer or upon any director.
ARTICLE VI
Indemnification
Each officer and director of the Corporation shall be indem-
nified by the Corporation to the full extent permitted under the
General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the
Corporation or any stockholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his office. Absent a court determination that an
Officer or director seeking indemnification was not liable on the
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<PAGE> 23
merits or guilty of willful misfeasance, bad faith, gross negli-
gence or reckless disregard of the duties involved in the conduct
of his office, the decision by the Corporation to indemnify such
person must be based upon the reasonable determination of inde-
pendent counsel or non-party independent directors, after review
of the facts, that such officer or director is not guilty of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
The Corporation may purchase insurance on behalf of an
officer or director protecting such person to the full extent
permitted under the General Laws of the State of Maryland, from
liability arising from his activities as officer or director of
the Corporation. The Corporation, however, may not purchase
insurance on behalf of any officer or director of the Corporation
that protects or purports to protect such person from liability
to the Corporation or to its stockholders to which such officer
or director would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard
of the duties involved in the conduct of his office.
The Corporation may indemnify or purchase insurance to the
extent provided in this Article VI on behalf of an employee or
agent who is not an officer or director of the Corporation.
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<PAGE> 24
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate
or certificates, in such form as shall be approved by the Board,
representing the number of shares of stock of the Corporation
owned by him, provided, however, that certificates for fractional
shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of
the Corporation by the President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assis-
tant Treasurer and sealed with the seal of the Corporation. Any
or all of the signatures or the seal on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who
has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate shall be issued, it may be
issued by the Corporation with the same effect as if such offi-
cer, transfer agent or registrar were still in office at the date
of issue.
Section 2. Books of Account and Record of Stockholders.
There shall be kept at the principal executive office of the
Corporation correct and complete books and records of account of
all the business and transactions of the Corporation. There
shall be made available upon request of any stockholder, in
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accordance with Maryland law, a record containing the number of
shares of stock issued during a specified period not to exceed
twelve months and the consideration received by the Corporation
for each such share.
Section 3. Transfers of Shares. Transfers of shares of
stock of the Corporation shall be made on the stock records of
the Corporation only by the registered holder thereof, or by his
attorney thereunto authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer
clerk, and on surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a
duly executed stock transfer power and the payment of all taxes
thereon. Except as otherwise provided by law, the Corporation
shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stock-
holders as the owner of such share or shares for all purposes,
including, without limitation, the rights to receive dividends or
other distributions, and to vote as such owner, and the Corpora-
tion shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any
other person.
Section 4. Regulations. The Board may make such additional
rules and regulations, not inconsistent with these By-Laws, as it
may deem expedient concerning the issue,, transfer and registra-
tion of certificates for shares of stock of the Corporation. It
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<PAGE> 26
may appoint, or authorize any officer or officers to appoint, one
or more transfer agents or one or more transfer clerks and one or
mote registrars and may require all certificates for shares of
stock to bear the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The
holder of any certificates representing shares of stock of the
Corporation shall immediately notify the corporation of any loss,
destruction or mutilation of such certificate, and the Corpora-
tion may issue a new certificate of stock in the place of any
certificate theretofore issued by it which the owner thereof
shall allege to have been lost or destroyed or which shall have
been mutilated, and the Board may, in its discretion, require
such owner or his legal representatives to give to the Corpora-
tion a bond in such sum, limited or unlimited, and in such form
and with such surety or sureties, as the Board in its absolute
discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged
loss or destruction of any such, certificate, or issuance of a new
certificate. Anything herein to the contrary notwithstanding,
the Board, in its absolute discretion, may refuse to issue any
such new certificate, except pursuant to legal proceedings under
the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Dis-
tributions. The Board may fix, in advance, a date not more than
ninety days preceding the date fixed for the payment of any
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<PAGE> 27
dividend or the making of any distribution or the allotment of
rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising
out of any change, conversion or exchange of common stock or
other securities, as the record date for the determination of the
stockholders entitled to receive any such dividend, distribution,
allotment, rights on interests, and in such case only the stock-
holders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or inter-
ests.
Section 7. Information to Stockholders and Others. Any
stockholder of the Corporation or his agent may inspect and copy
during usual business hours the Corporation's By-Laws, minutes of
the proceedings of its stockholders, annual statements of its
affairs and voting trust agreements on file at its principal
office.
ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and
shall bear, in addition to any other emblem or device approved by
the Board of Directors, the name of the Corporation, the year of
its incorporation and the words "Corporate Seal", and "Maryland."
Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
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<PAGE> 28
ARTICLE IX
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of
the Corporation shall end on the day of
ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation
shall be deposited with such banks or other depositories as the
Board of Directors of the Corporation may from time to time
determine.
Section 2. Custodians. All securities and other invest-
ments shall be deposited in the safe keeping of such banks or
other companies as the Board of Directors of the Corporation may
from time to time determine. Every arrangement entered into with
any bank or other company for the safe keeping of the securities
and investments of the Corporation shall contain provisions
complying with the Investment Company Act of 1940, as amended,
and the general rules and regulations thereunder.
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes,
drafts, acceptances, bills of exchange and other orders obliga-
tions for the payment of money shall be signed by such officer or
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<PAGE> 29
officers or person or persons as the Board of Directors by reso-
lution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Stock certifi-
cates, bonds or other securities at any time owned by the Corpo-
ration may be held on behalf of the Corporation or sold,, trans-
ferred or otherwise disposed of subject to any limits imposed by
these By-Laws and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the Corporation or
sold, transferred or otherwise disposed of, may be transferred
from the name of the Corporation by the signature of the Presi-
dent or a Vice President or the Treasurer or pursuant to any
procedure approved by the Board of Directors,, subject to applica-
ble law.
ARTICLE XII
Independent Public Accountants
The firm of independent public accountants which shall sign
or certify the financial statements of the Corporation which are
filed with the Securities and Exchange Commission shall be
selected annually by the Board of Directors and ratified by the
stockholders in accordance with the provisions of the Investment
Company Act of 1940, as amended.
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<PAGE> 30
ARTICLE XIII
Annual Statement
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the stockholders based upon each such examination shall be mailed to
each stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be available at
the annual meeting of stockholders, if any, and, within 20 days after the
meeting (or, in the absence of an annual meeting, within 20 days after the end
of the month of March following the end of the fiscal year), and be placed on
file at the Corporation's principal office in the State of Maryland. Each such
report shall show the assets and liabilities of the Corporation as of the close
of the annual or quarterly period covered by the report and the securities in
which the funds of the Corporation were then invested. Such report shall also
show the Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or quarterly
period covered by the report and any other information required by the
Investment Company Act of 1940, as amended, and shall set forth such other
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<PAGE> 31
matters as the Board or such firm of independent public accoun-
tants shall determine.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or
repealed at any regular meeting of the stockholders or at any
special meeting of the stockholders at which a quorum is present
or represented, provided that notice of the proposed amendment,
alteration or repeal be contained in the notice of such special
meeting. These By-Laws may also be amended, altered or repealed
by the affirmative vote of a majority of the Board of Directors
at any regular or special meeting of the Board of Directors,
except any particular By-Law which is specified as not subject to
alteration or repeal by the Board of Directors, subject to the
requirements of the Investment Company Act of 1940, as amended.
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<PAGE> 1
EX-99.5(a)
MANAGEMENT AGREEMENT
AGREEMENT made this 18th day of January, 1988, by and
between MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC., a Maryland
corporation (hereinafter referred to as the "Fund"), and MERRILL
LYNCH ASSET MANAGEMENT, INC., a Delaware corporation (hereinafter
referred to as the "Manager").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as a diversified.
open-end investment company registered under the Investment
Company Act of 1940, as amended (hereinafter referred to as the
"Investment Company Act"); and
WHEREAS, the Manager is engaged principally in rendering
management and investment advisory services and is registered as
an investment adviser under the Investment Adviser's Act of 1940;
and
WHEREAS, the Fund's assets will be invested primarily in an
internationally diversified portfolio of convertible securities;
and
WHEREAS, the Fund desires to retain the Manager to provide
management and investment advisory services to the Fund in the
manner and on the terms hereinafter set forth; and
WHEREAS, the Manager is willing to provide management and
investment advisory services to the Fund on the terms and condi-
tions hereinafter set forth;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, the Fund and the Manager hereby
agree as follows:
ARTICLE I
Duties of the Manager
The Fund hereby employs the Manager to act as a manager and
investment adviser of the Fund and to furnish, or arrange for
affiliates to furnish, the management and investment advisory
services described below, subject to the policies of, review by
and overall control of the Board of Directors of the Fund, for
the period and on the terms and conditions set forth in this
Agreement. The Manager hereby accepts such employment and agrees
during such period, at its own expense, to render, or arrange for
the rendering of, such services and to assume the obligations
herein set forth for the compensation provided for herein. The
Manager and its affiliates shall for all purposes herein be deem-
ed to be independent contractors and shall, unless otherwise
expressly provided or authorized, have no authority to act for or
represent the Fund in any way or otherwise be deemed agents of
the Fund.
(a) Management Services. The Manager shall perform (or
arrange for the performance by affiliates of) the management and
administrative services necessary for the operation of the Fund
including administering shareholder accounts and handling share-
holder relations. The Manager shall provide the Fund with office
space, facilities, equipment and necessary personnel and such
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<PAGE> 3
other services as the Manager, subject to review by the
Directors, shall from time to time determine to be necessary or
useful to perform its obligations under this Agreement. The
Manager shall also, on behalf of the Fund, conduct relations with
custodians, depositories, transfer agents, dividend disbursing
agents, other shareholder servicing agents, accountants,
attorneys, underwriters, brokers and dealers, corporate
fiduciaries, insurers, banks and such other persons in any such
other capacity deemed to be necessary or desirable. The Manager
shall generally monitor the Fund's compliance with investment
policies and restrictions as set forth in the currently effective
prospectus and statement of additional information relating to
the shares of the Fund under the Securities Act of 1933, as
amended (the "Prospectus" and "Statement of Additional Infor-
mation", respectively). The Manager shall make reports to the
Directors of its performance of obligations hereunder, and furnish
advice and recommendations with respect to such other aspects of
the business and affairs of the Fund as it shall determine to be
desirable.
(b) Investment Advisory Services. The Manager shall pro-
vide the Fund with such investment research, advice and supervi-
sion as the latter may from time to time consider necessary for
the proper supervision of the assets of the Fund, shall furnish
continuously an investment program for the Fund and shall deter-
mine from time to time which securities shall be purchased, sold
or exchanged and what portion of the assets of the Fund shall be
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<PAGE> 4
held in the various securities in which the Fund invests,
options, futures, options on futures or cash, subject always to
the restrictions of the Articles of Incorporation and By-Laws of
the Fund, as amended from time to time, the provisions of the
Investment Company Act and the statements relating to the Fund's
investment objectives, investment policies and investment
restrictions as the same are set forth in the Prospectus and
Statement of Additional Information. The Manager shall make
decisions for the Fund as to foreign currency matters and make
determinations as to foreign exchange contracts, foreign currency
options, foreign currency futures and related options on foreign
currency futures. The Manager shall make decisions for the Fund
as to the manner in which voting rights, rights to consent to
corporate action and any other rights pertaining to the Fund's
portfolio securities shall be exercised. Should the Directors at
any time, however, make any definite determination as to
investment policy and notify the Manager thereof in writing, the
Manager shall be bound by such determination for the period, if
any, specified in such notice or until similarly notified that
such determination has been revoked. The Manager shall take, on
behalf of the Fund, all actions which it deems necessary to
implement the investment policies determined as provided above,
and in particular to place all orders for the purchase or sale of
portfolio securities for the Fund's account with brokers or
dealers selected by it, and to that end, the Manager is
authorized as the agent of the Fund to give instructions to the
-4-
<PAGE> 5
Custodian of the Fund as to deliveries of securities and payments
of cash for the account of the Fund. In connection with the
selection of such brokers or dealers and the placing of such
orders with respect to assets of the Fund, the Manager is
directed at all times to seek to obtain execution and prices
within the policy guidelines determined by the Directors and set
forth in the Prospectus and Statement of Additional Information.
Subject to this requirement and the provisions of the Investment
Company Act, the Securities Exchange Act of 1934, as amended, and
other applicable provisions of law, the Manager may select
brokers or dealers with which it or the Fund is affiliated.
ARTICLE II
Allocation of Charges and Expenses
(a) The Manager. The Manager assumes and shall pay for
maintaining the staff and personnel necessary to perform its
obligations under this Agreement, and shall at its own expense,
provide the office space, facilities. equipment and necessary
personnel which it is obligated to provide under Article I here-
of, and shall pay all compensation of officers of the Fund and
all Directors of the Fund who are affiliated persons of the
Manager.
(b) The Fund. The Fund assumes and shall pay or cause to
be paid all other expenses of the Fund (except for the expenses
paid by the Distributor), including, without limitation: taxes,
expenses for legal and auditing services, costs of printing
proxies, stock certificates, shareholder reports, prospectuses
-5-
<PAGE> 6
and statements of additional information, charges of the custo-
dian, any sub-custodian and transfer agent, expenses of portfolio
transactions, expenses of redemption of shares, Securities and
Exchange Commission fees, expenses of registering the shares
under Federal, state and foreign laws, fees and actual out-of-
pocket expenses of Directors who are not affiliated persons of
the Manager, accounting and pricing costs (including the daily
calculation of the net asset value), insurance, interest,
brokerage costs, litigation and other extraordinary or non-
recurring expenses, and other expenses properly payable by the
Fund. It is also understood that the Fund will reimburse the
Manager for its costs in providing accounting services to the
Fund. The Distributor will pay certain of the expenses of the
Fund incurred in connection with the continuous offering of
shares of common stock in the Fund.
ARTICLE III
Compensation of the Manager
(a) Management and Investment Advisory Fee. For the ser-
vices rendered, the facilities furnished and expenses assumed by
the Manager, the Fund shall pay to the Manager at the end of each
calendar month a fee based upon the average daily value of the
net assets of the Fund, as determined and computed in accordance
with the description of the determination of net asset value con-
tained in the Prospectus and Statement of Additional Information,
at the annual rate of 0.65 of 1.0% (0.65%) of the average daily
net assets of the Fund, commencing on the day following effec-
-6-
<PAGE> 7
tiveness hereof. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last
day of a month, compensation for that part of the month this
Agreement is in effect shall be prorated in a manner consistent
with the calculation of the fee as set forth above. Subject to
the provisions of subsection (b) hereof, payment of the Manager's
compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by
subsection (b) hereof. During any period when the determination
of net asset value is suspended by the Directors, the net asset
value of a share as of the last business day prior to such
suspension shall for this purpose be deemed to be the net asset
value at the close of each succeeding business day until it is
again determined.
(b) Expense Limitations. In the event the operating
expenses of the Fund, including amounts payable to the Manager
pursuant to subsection (a) hereof, for any fiscal year ending on
a date on which this-Agreement is in effect exceed the expense
limitations applicable to the Fund imposed by applicable state
securities laws or regulations thereunder, as such limitations
may be raised or lowered from time to time, the Manager shall
reduce its management fee by the extent of such excess and, if
required pursuant to any such laws or regulations, will reimburse
the Fund in the amount of such excess; provided, however, to the
extent permitted by law, there shall be excluded from such
expenses the amount of any interest, taxes, brokerage fees and
-7-
<PAGE> 8
commissions, distribution fees and extraordinary expenses
(including but not limited to legal claims and liabilities and
litigation costs and any indemnification related thereto) paid or
payable by the Fund. Whenever the expenses of the Fund exceed a
pro rata portion of the applicable annual expense limitations,
the estimated amount of reimbursement under such limitations
shall be applicable as an offset against the monthly payment of
the fee due to the Manager. Should two or more such expenses
limitations be applicable as at the end of the last business day
of the month, that expense limitation which results in the
largest reduction in the Manager's fee shall be applicable.
ARTICLE IV
Limitation of Liability of the Manager
The Manager shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or
for any act or omission in the management of the Fund, except for
willful misfeasance, bad faith or gross negligence in the perfor-
mance of its duties, or by reason of reckless disregard of its
obligations and duties hereunder. As used in this Article IV,
the term "Manager" shall include any affiliates of the Manager
performing services for the Fund contemplated hereby and direc-
tors, officers and employees of the Manager and such affiliates.
ARTICLE V
Activities of the Manager
The services of the Manager to the Fund are not to be deemed
to be exclusive, the Manager and any person controlled by or
-8-
<PAGE> 9
under common control with the Manager (for purposes of this
Article V referred to as "affiliates") is free to render services
to others. It is understood that Directors, officers, employees
and shareholders of the Fund are or may become interested in the
Manager and its affiliates, as directors, officers, employees,
partners and shareholders or otherwise, and that directors,
officers, employees, partners and shareholders of the Manager and
its affiliates are or may become similarly interested in the
Fund, and that the Manager and directors, officers, employees,
partners and shareholders of its affiliates may become interested
in the Fund as shareholder or otherwise.
ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first
above written and shall remain in force until December 31, 1989
and thereafter, but only so long as such continuance is specifi-
cally 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) 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 Mana-
ger, on sixty days' written notice to the other party. This
-9-
<PAGE> 10
Agreement shall automatically terminate in the event of its
assignment.
ARTICLE VII
Amendments of this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (i) the vote of a majority
of outstanding voting securities of the Fund, and (ii) 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.
ARTICLE VIII
Definitions of Certain Terms
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 of 1940 and the
Rules and Regulations thereunder, subject, however,
exemptions as may be granted by the Securities and Exchange
Commission under said Act.
ARTICLE IX
Governing Law
This Agreement shall be construed in accordance with laws of
the State of New York and the applicable provisions of the
Investment Company Act. To the extent that the applicable laws
of the State of New York, or any of the provisions herein, con-
-10-
<PAGE> 11
afflict with the applicable provisions of the Investment company
Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
By /s/
-----------------------------------------
MERRILL LYNCH ASSET MANAGEMENT, INC.
-11-
<PAGE> 1
EX-99.6(a)
DISTRIBUTION-AGREEMENT
AGREEMENT made as of the 18th day of January, 1988, 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 to date (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 -tither 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 shares in order to promote the growth of the Fund
and facilitate the distribution of its 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 shares of common stock of the
<PAGE> 2
Fund (sometimes herein referred to as "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
principal underwriter and distributor, except that:
(a) The Fund may, upon written notice to the Distributor,
from time to time designate other principal underwriters and
distributors of its 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 shares in the areas so designated shall termi-
nate, but this Agreement shall remain otherwise in full effect
until terminated in accordance with the other provisions hereof.
(b) The exclusive rights granted to the Distributor to
purchase shares from the Fund shall not apply to shares of the
Fund 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
substantially all) the assets or the outstanding shares of any
such company by the Fund.
2.
<PAGE> 3
(c) Such exclusive rights also shall not apply to shares
issued by the Fund pursuant to reinvestment of dividends or
capital gains distributions.
(d) Such exclusive rights also shall not apply to shares
issued by the Fund pursuant to any reinstatement privilege af-
forded redeeming shareholders.
Section 3. Purchase of Shares from the Fund.
(a) Prior to the continuous offering of the shares, com-
mencing on a date agreed-upon by the Fund and the Distributor, it
is contemplated that the Distributor will solicit subscriptions
for shares during a subscription period which shall last for such
period as may be agreed upon by the parties hereto. The sub-
scriptions will be payable within six business days after the
termination of the subscription period, at which time the Fund
will commence operations.
(b) After the Fund commences operations, the Fund will
commence an offering of its shares and thereafter the Distributor
shall have the right to buy from the Fund the shares needed, but
not more than the shares needed (except for clerical errors in
transmission) to fill unconditional orders for shares of the Fund
placed with the Distributor by investors or securities dealers.
The price which the Distributor shall pay for the shares so
purchased from the Fund shall be the net asset value, determined
as set forth in Section 3(d) hereof.
3.
<PAGE> 4
(c) The shares are to be resold by the Distributor to
investors at net asset value, as set forth in Section 3(d) here-
of, or to securities dealers having agreements with the Distri-
butor upon the terms and conditions set forth in Section 7 here-
of.
(d) The net asset value of 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 of the Fund and guidelines established by
the Board of Directors.
(e) The Fund shall have the right to suspend the sale of
its 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 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 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 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 shares. The Fund (or its
4.
<PAGE> 5
agent) will confirm orders upon their receipt, will make appro-
priate book entries and, upon receipt by the Fund (or its agent)
of payment therefor, will deliver deposit receipts or certifi-
cates for such shares pursuant to the instructions of the Distri-
butor. 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 Shares by the Fund.
(a) Any of the outstanding shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or
redeem the 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 addi-
tional information of the Fund. The price to be paid to redeem
or repurchase the shares shall be equal to the net asset value
calculated in accordance with the provisions of Section 3(d)
hereof, less the redemption fee or other charge, 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
5.
<PAGE> 6
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 contingent deferred sales
charge 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 prospec-
tus and statement of additional information.
(b) bRedemption of shares or payment may be suspended at
times when the New York Stock Exchange is closed, when trading on
said Exchange is closed, when trading on said Exchange is re-
stricted, when an emergency exists as a result of which disposal
by the Fund of securities owned by it is not reasonably practic-
able 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 per-
mits.
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 shares of the Fund, and this shall include, upon
request by the Distributor, one certified copy of all financial
statements prepared for the Fund by independent public account-
ants. The Fund shall make available to the Distributor such
6.
<PAGE> 7
number of copies of its prospectus and statement of additional
information as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to
the 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 of 1933,
as amended (the "Securities Act"), to the end that there will be
available for sale such number of 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 shares
for sale under the securities laws of such states as the Distri-
butor 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
qualifed.(action 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 shares of the Fund, but shall not be
7.
<PAGE> 8
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 shares of the Fund, the Distributor
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 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 prospec-
tus and statement of additional information and any sales litera-
ture 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.
8.
<PAGE> 9
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 shares; provided, that the
Fund shall approve the forms of agreements with dealers. Shares
sold to selected dealers shall be for resale by such dealers only
at net asset value determined as set forth in Section 3(d) here-
of. The form of agreement with selected dealers to be used
during the subscription period described in Section 3(a) is
attached hereto as Exhibit A and the initial form of agreement
with selected dealers to be used in the continuous offering of
the shares is attached hereto as Exhibit B.
(b) Within the United States, the Distributor shall offer
and sell shares only to such selected dealers as 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 audi-
tors, in connection with the-preparation and filing of any re-
quired 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 mate-
rials to shareholders (including but not limited to the expense
of setting in type any such registration statements, prospec-
9.
<PAGE> 10
tuses, 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 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 Dis-
tributor or furnished by it for use by selected dealers in con-
nection with the offering of the 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 Distribution Plan pursuant to Rule 12b-1
under the Investment Company Act remains in effect, any expenses
incurred by the Distributor hereunder 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 shares for sale pursuant to this Agreement, and, if
necessary or advisable in connection therewith, of qualifying the
Fund as a broker or dealer, in such states of the United States
10.
<PAGE> 11
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) arising by reason of any
person acquiring any shares, which may be based upon the Securi-
ties Act, or on any other statute or at common law, on the ground
that the registration statement or related prospectus and state-
ment 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 connec-
tion 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
11.
<PAGE> 12
deemed to protect such Distributor or any such controlling per-
sons 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 ox- 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
12.
<PAGE> 13
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 reimburse the Distributor or such controlling
person or persons, defendant 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 commence-
ment 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 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 regis-
tration statement or related prospectus and statement of addi-
tional 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
13.
<PAGE> 14
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 sub-
section (a) of this Section 9.
Section 10. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above
written and shall remain in force until December 31, 1989 and
thereafter, but only 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.
14.
<PAGE> 15
Section 11. 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 12. 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 /s/
----------------------------------------
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
15.
<PAGE> 16
EXHIBIT A
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
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 shares of common stock,
par value $0.10 per share, of the Fund, and as such has the right
to distribute 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 shares being offered to
the public are registered under the Securities Act of 1933, as
amended. Such shares and certain of the terms on which they are
being offered are more fully described in the enclosed Prospectus
and Statement of Additional Information. You have received a
copy of the Distribution Agreement between ourself and the Fund
and reference is made herein to certain provisions of such Dis-
tribution Agreement. This Agreement relates solely to the sub-
scription period described in Section 3(a) of such Distribution
Agreement. Subject to the foregoing, as principal, we offer to
sell to you, as a member of the Selected Dealers Group, shares of
the Fund upon the following terms and conditions:
1. The subscription period referred to in Section 3(a) of
the Distribution Agreement will continue through February 19,
1988. The subscription period may be extended upon agreement
between the Fund and the Distributor. Subject to the provisions
of such Section and the conditions contained herein, we will sell
to you on the fifth business day following the termination of the
subscription period, or such other date as we may advise (the
"Closing Date"), such number of shares as to which you have
placed orders with us not later than 5:00 P.M. on the second full
business day preceding the Closing Date.
2. In all sales of these 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.
<PAGE> 17
3. You shall not place orders for any of the shares unless
you have already received purchase orders for such shares at the
applicable public offering prices and subject to the terms hereof
and of the Distribution Agreement. All orders are subject to
acceptance by the Distributor or the Fund in the,sole discretion
of either. The minimum initial and subsequent purchase require-
ments are as set forth in the Prospectus, as amended from time to
time. You agree that you will not offer or sell any of the
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 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 fur-
nish to any person any information relating to the shares of the
Fund which is inconsistent in any respect with the information
contained in the Prospectus and Statement of Additional Informa-
tion (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. Payment for shares purchased by you is to be made by
certified or official bank check at the office of Merrill Lynch
Funds Distributor, Inc., Box 9011, Princeton, New Jersey 08543-
9011, on such date as we may advise, in New York Clearing House
funds payable to the order of Merrill Lynch Funds Distributor,
Inc. against delivery by us of non-negotiable share deposit
receipts ("Receipts") issued by Merrill Lyncg Financial Data
Service, Inc., as shareholder servicing agent, acknowledging the
deposit with it of the shares so purchased I-).I you. You agree
that as promptly as practicable after the delivery of such shares
you will issue appropriate written transfer instructions to the
Fund or to the shareholder servicing agent as to the purchasers
to whom you sold the shares.
5. No person is authorized to make any representations
concerning 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 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 informa-
tion which we furnish you other than the Fund's Prospectus and
Statement of Additional Information, periodic reports and proxy
solicitation material are 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.
2.
<PAGE> 18
6. 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.
7. We reserve the right in our discretion, without notice,
to suspend sales or withdraw the offering of shares entirely.
Each party hereto has the right to cancel this Agreement upon
notice to the other party.
8. 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.
9. 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 abided by the
Rules of Fair Practice of such Association.
10. Upon application to us, we will inform you as to the
states in which we believe the shares have been qualified for
sale under, or are exempt from the requirements of, the respec-
tive securities laws of such states, but we assume no responsi-
bility or obligation as to your right to sell shares in any
jurisdiction. we will file with the Department of State in New
York a Further State Notice with respect to the shares, if neces-
sary.
11. 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.
12. You agree that you will not sell any shares of the Fund
to any account over which you exercise discretionary authority.
3.
<PAGE> 19
13. This Agreement shall terminate at the close of business
on the Closing Date, unless earlier terminated, provided, how-
ever, this Agreement shall continue after termination for the
purpose of settlement of accounts hereunder.
I
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/
-------------------------------------
(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
Incorporated
By:
------------------------------------------
Address: Merrill Lynch World Headquarters,
North Tower, World Financial Center,
New York, New York 10281-1209
Date:
-----------------------------------------
4.
<PAGE> 20
EXHIBIT B
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
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 shares of common stock,
par value $0.10 per share, of the Fund, and as such has the right
to distribute 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 shares being offered to
the public are registered under the Securities Act of 1933, as
amended. You have received a copy of 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" as used
herein refer to the prospectus and statement of additional infor-
mation, respectively, on file with the Securities and Exchange
Commission which is part of the most recent effective registra-
tion statement pursuant to the Securities Act of 1933, as
amended. As principal, we offer to sell to you, as a member of
the Selected Dealers Group, shares of the Fund upon the following
terms and conditions:
1. In all sales of these 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.
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.
<PAGE> 21
3. You shall not place orders for any of the shares unless
you have already received purchase orders for such 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 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 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 supple-
mented) and will not furnish to any person any information re-
lating to the 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 supple-
mented) or cause any advertisement to be published in any news-
paper 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 shares of the Fund to be
resold by us to you subject to the applicable terms and condi-
tions governing the placement of orders by us set forth in Sec-
tion 3 of the distribution Agreement, and (ii) to tender 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.
5. 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.
6. No person is authorized to make any representations
concerning 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 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 informa-
tion which we furnish you other than the Fund's Prospectus,
Statement of Additional Information, periodic reports and proxy
solicitation material are 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
2.
<PAGE> 22
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 shares entirely.
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 shares have been qualified for
sale under, or are exempt from the requirements of, the respec-
tive securities laws of such states, but we assume no responsi-
bility or obligation as to your right to sell shares in any
jurisdiction. we will file with the Department of State in New
York a Further State Notice with respect to the shares, if neces-
sary.
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 shares of the Fund will represent your acceptance
of this Agreement.
3.
<PAGE> 23
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/
-------------------------------------
Signature)
Please return one signed cop
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
--------------------------
By:
---------------------------------
Address:
----------------------------
Date:
-------------------------------
4.
<PAGE> 1
EX-99.8
CUSTODIAN CONTRACT
Between
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY,
<PAGE> 2
TABLE OF CONTENTS
Page 11 Employment of Custodian and Property to be Held By
it ...................................................... 1,
2 . Duties of the
2.1
2.2
2.3
2.4
2. 5
2. 6
2.7
2.8,
2.9
2. 10
2. 10A,
2. 11
2. 12
2. 13
2. 14,
of the Custodian with Respect to Property Fund Held by the Custodian in the
United States..3
Holding Securities 3
Delivery of Securities. 3
Registration of Securities 8
Bank Accounts 9
Availability of Federal Funds 10,
Collection of Income Payment of Fund Monies 11
Liability for Payment in Advance of
Receipt of Securities Purchased 14
Appointment of Agents 14
Deposit of Fund Assets in Securities System 14
Fund Assets Held in the Custodian's Direct
Paper System 18
Segregated Account 19
Ownership Certificates for Tax Purposes 21
Proxies 21
Communications Relating to Portfolio
Securities 21,
Securities .....................,.... 10
. . . . 11,
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States ............. 22,
3.1 Appointment of Foreign Sub-Custodians 22
3.2 Assets to be Held 23
3.3 Foreign Securities Depositories 23
3.4 Segregation of Securities 23
3.5 Agreements with Foreign Banking Institutions 24
3.6 Access of Independent Accountants of the Fund 24
3.7 Reports by Custodian 25
3.8 Transactions in Foreign Custody Account 26
3.9 Liability-of Foreign Sub-Custodians 27
3.10 Liability of Custodian 27
3.11 Reimbursement for Advances 27
3.12 Monitoring Responsibilities 27
3.13 Branches of U.S. Banks 28,
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund .................................. 28,
5. Proper Instructions 29
6. Actions Permitted Without Express Authority 30
7. Evidence of Authority 31
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net
Income 31,.................................. 32
9. Records ............,....................... 29,
<PAGE> 3
10. Opinion of Fund's Independent Accountants 33
11. Reports to Fund by Independent Public Accountants 33
12. Compensation of Custodian 33,
13. Responsibility of Custodian ..............,
13. Responsibility of Custodian 34
14. Effective Period, Termination and Amendment 36,
15. Successor Custodian ............,
15. Successor Custodian .................................... 37
16. Interpretive and Additional Provisions ................. 39,
17. Additional Funds
18. Massachusetts Law to Apply
19. Prior Contracts,...................... 39
..................... 40
..................... 40
<PAGE> 4
CUSTODIAN CONTRACT
This Contract between Merrill Lynch Global Convertible Fund, Inc., a
corporation organized and existing under the laws of Maryland, having its
principal place of business at 800 Scudders Mill Road, Plainsboro, New Jersey
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston,- Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in one series
(such series together with all other series subsequently established by the
Fund and made subject to this Contract in accordance with paragraph 17, being
herein referred to as the "Portfolio(s)");
NOW THEREFOR, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic
<PAGE> 5
securities") and securities it desires to be held outside the United States
("foreign securities") pursuant to the provisions of the Articles of
Incorporation. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian 'all securities and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares') as
may be issued or sold from time to time. The Custodian shall not be responsible
for any property of a Portfolio held or received by the Portfolio and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5), the
Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Directors of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
<PAGE> 6
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in the
United States including all domestic securities owned by such Portfolio, other
than (a) securities which are maintained pursuant to Section 2.10 in a clearing
agency which acts as a securities-depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively referred to
herein as "Securities System" and (b) commercial paper of an issuer for which
State Street Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Direct Paper System of the
Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a Securities System
account of the Custodian or in the Custodian's Direct Paper book entry system
account ("Direct Paper System Account") only upon receipt of Proper
Instructions from the Fund on behalf of the applicable Portfolio, which may be
continuing instructions when deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of the Portfolio and receipt of
payment therefor;
<PAGE> 7
2) Upon the receipt of payment in connection with any repurchase agreement
related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a Securities System, in accordance
with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar offers
for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Portfolio or into the name of any nominee or nominees of the Custodian or into
the name or nominee name of any agent appointed pursuant to Section 2.9 or into
the name or nominee name of any sub-custodian appointed pursuant to Article 1;
or for exchange for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units; Provided that,
in any such case, the new securities are to be delivered to the Custodian;
-4-
<PAGE> 8
7) Upon the sale of such securities for the account of the Portfolio, to the
broker or its clearing agent, against a receipt, for examination in accordance
with "street delivery" custom; provided that in any such case, the Custodian
shall have no responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such securities
except as may arise from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger, consolidation,
recapitalization, reorganization or readjustment of the securities of the
issuer of such securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement; provided that, in any
such case, the new securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities, the surrender thereof
in the exercise of such warrants, rights or similar securities or the surrender
of interim receipts or temporary securities for
-5-
<PAGE> 9
definitive securities; provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian;
lo) For delivery in connection with any loans of securities made by the
Portfolio, against receipt of adequate collateral as agreed upon from time to
time by the Custodian and the Fund on behalf of the Portfolio, which may be in
the form of cash or obligations issued by the United States government, its
agencies or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in the book-entry
system authorized by the U.S. Department of the Treasury, the Custodian will
not be held liable or responsible for the delivery of securities owned by the
Portfolio prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the Fund on
behalf of the Portfolio requiring a pledge of assets by the Fund on behalf of
the Portfolio, but only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among the
Fund on behalf of the Portfolio, the Custodian and a
-6-
<PAGE> 10
broker-dealer registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other arrangements
in connection with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement among the
Fund on behalf of the Portfolio, the Custodian, and a Futures Commission
Merchant registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding account
deposits in connection with transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer Agent") for
the Fund, for delivery to such Transfer Agent or to the holders of shares in
connection with distributions in kind, as may be described
-7-
<PAGE> 11
from time to time in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio ("Prospectus"), in
satisfaction of requests by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Directors or of the
Executive Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, specifying the securities of the Portfolio
to be delivered, setting forth the purpose for which such delivery is to be
made, declaring such purpose to be a proper corporate purpose, and naming the
person or persons to whom delivery of such securities shall be made.
2.3 Registration of Securities i . Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the Portfolio
or in the name of any nominee of the Fund on behalf of the Portfolio or of any
nominee of the Custodian which nominee shall be assigned exclusively to the
Portfolio, the Fund has authorized in writing the appointment of a nominee to
-8-
<PAGE> 12
be used in common with other registered investment companies having the same
investment adviser as the Portfolio, or in the name or nominee name of any
agent appointed pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted by the
Custodian on behalf of the Portfolio under the terms of this Contract shall be
in "street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of the
Fund, subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts, subject to
the provisions hereof, all cash received by it from or for the account of the
Portfolio, other than cash maintained by the Portfolio in a bank account
established and used in accordance with Rule 17f-3 under the Investment Company
Act of 1940. Funds held by the Custodian for a Portfolio may be deposited by it
to its credit as Custodian in the Banking Department of the Custodian or in
such other banks or trust companies as it may in its discretion deem necessary
or desirable; Provided, however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company Act of 1940 and
that each such bank or trust company and the funds to be deposited with each
such bank or trust company shall on behalf of
-9-
<PAGE> 13
each applicable Portfolio be approved by vote of a majority of the Board of
Directors of the Fund. Such funds shall be deposited by the Custodian in its
capacity as Custodian and shall be withdrawable by the Custodian only in that
capacity.
2.5, Availability of Federal Funds. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian shall,
upon the receipt of Proper Instructions from the Fund on behalf of a Portfolio,
make federal funds available to such Portfolio as of specified times agreed
upon from time to time by the Fund and the Custodian in the amount of checks
received in payment for Shares of such Portfolio which are deposited into the
Portfolio's account.
2. 6, Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to registered domestic securities held
hereunder to which each Portfolio shall be entitled either by law or pursuant
to custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer domestic securities if, on the
date of payment by the issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected, to such Portfolio's
custodian account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other income
items requiring,
-10-
<PAGE> 14
presentation as and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities loaned
pursuant to the provisions of Section 2.2 (10) shall be the responsibility of
the Fund. The Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or data as may
be necessary to assist the Fund in arranging for the timely delivery to the
Custodian of the income to which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be-continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out monies of a
Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts or
options on futures contracts for the account of the Portfolio but only (a)
against the delivery of such securities or evidence of title to such options,
futures contracts or options on futures contracts to the Custodian (or any
bank, banking firm or trust company doing business in the United States or
abroad which is qualified under the Investment Company Act of 1940, as amended,
to act as a custodian and has been designated by the Custodian as,
-11-
<PAGE> 15
its agent for this purpose) registered in the name of the Portfolio or in the
name of a nominee of the Custodian referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth in Section 2.10
hereof; or (c) in the case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.10A; or (d) in the case
of repurchase agreements entered into between the Fund on behalf of the
Portfolio and the Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either in certificate
form or through an entry crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii) against delivery of the receipt
evidencing purchase by the Portfolio of securities owned by the Custodian along
with written evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio;
2) In connection with conversion, exchange or surrender of securities owned by
the Portfolio as set forth in Section 2.2 hereof;,
-12-
<PAGE> 16
3) For the redemption or repurchase of Shares issued by the Portfolio as set
forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the Portfolio,
including but not limited to the following payments for the account of the
Portfolio: interest, taxes, management, accounting, transfer agent and legal
fees, and operating expenses of the Fund whether or not such expenses are to be
in whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of securities
sold short;
7) For any other proper purpose, but only upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the Portfolio, a certified copy
of a resolution of the Board of Directors or of the Executive Committee of the
Fund signed by an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring,
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<PAGE> 17
such purpose to be a proper purpose, and naming the person or persons to whom
such payment is to be made.
2.8 Liability for Payment in Advance, of Receipt of Securities Purchased. In
any and every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from the
Fund on behalf of such Portfolio to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same extent as if the
securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any-time remove) any other bank or trust company
which is itself qualified under the Investment Company Act of 1940, as amended,
to act as a custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; Provided, however,
that the appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency registered
with the Securities and Exchange Commission under Section 17A of the Securities
Exchange Act of 1934, which acts as a, 2. 8, 2. 9,
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<PAGE> 18
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively referred
to herein as "Securities System" in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a Securities System
provided that such securities are represented in an account ("Account") of the
Custodian in the Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
.2) The records of the Custodian with respect to securities of the Portfolio
which are maintained in a Securities System shall identify by book-entry those
securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of the
Portfolio upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such payment and,
-15-
<PAGE> 19
transfer for the account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon (i) receipt of advice
from the Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such transfer and payment for the account of the
Portfolio. Copies of all advices from the Securities System of transfers of
securities for the account of the Portfolio shall identify the Portfolio, be
maintained for the Portfolio by the Custodian and be provided to the Fund at
its request. Upon request, the Custodian shall furnish the Fund on behalf of
the Portfolio confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall furnish to the
Fund on behalf of the Portfolio-copies of daily transaction sheets reflecting
each day's transactions in the Securities System for the account of the
Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with any report
obtained by the Custodian on the Securities System's,
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<PAGE> 20
accounting system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
5), The Custodian shall have received from the Fund on behalf of the Portfolio
the initial or annual certificate, as the case may be, required by Article 14
hereof;
6 ), Anything to the contrary in this Contract notwithstanding, the Custodian
shall be liable to the Fund for the benefit of the Portfolio for any loss or
damage to the Portfolio resulting from use of the Securities System by reason
of any negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of the Custodian or
any such agent to enforce effectively such rights as it may have against the
Securities System; at the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent that the Portfolio
has not been made whole for any such loss or damage.,
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<PAGE> 21
2.10A Fund Assets Held in the Is-Direct Paper System. The Custodian may
deposit and/or maintain securities owned by a Portfolio in the Direct Paper
System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will be
effected in the absence of Proper Instructions from the Fund on behalf of the
Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct Paper
System only if such securities are represented in an account ("Account") of the
Custodian in the Direct Paper System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
3) The records of the Custodian with respect to securities of the Portfolio
which are maintained in the Direct Paper System shall identify by book-entry
those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of the
Portfolio upon the making of An entry on the records of the Custodian to
reflect such payment and transfer of securities to the account of the
Portfolio. The Custodian shall transfer,
-18-
<PAGE> 22
securities sold for the account of the Portfolio upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt of payment
for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio confirmation
of each transfer to or from the account of the Portfolio, in the form of a
written advice or notice, of Direct Paper on the next business day following
such transfer and shall furnish to the Fund on behalf of the Portfolio copies
of daily transaction sheets reflecting each day's transaction in the Securities
System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with any
report on its system of internal accounting control as the Fund may reasonably
request from time to time.
2.11 Secgregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio establish and
maintain a segregated account or accounts for and on behalf of each such
Portfolio, into which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by the Custodian
pursuant to,
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<PAGE> 23
Section 2.10 hereof, (i) in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer
registered under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization
or organizations, regarding escrow or other arrangements in connection with
transactions by the Portfolio, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or written by
the Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the Portfolio
with the procedures required by Investment Company Act Release No. 10666, or
any subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in the case
of clause (iv), upon receipt of, in addition to Proper Instructions from the
Fund on behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Directors or of the Executive Committee signed by an officer of
the Fund and,
-20-
<PAGE> 24
certified by the Secretary or an Assistant Secretary, setting forth the purpose
or purposes of such segregated account and declaring such purposes to be proper
corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and-other certificates and affidavits for all federal and state tax
purposes in connection with receipt of income or other payments with respect to
domestic securities of each Portfolio held by it and in connection with
transfers of securities.
2.13 Proxies. the Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of the
Portfolio or a nominee of the Portfolio, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly deliver to the
Portfolio such proxies, all proxy soliciting materials and all notices relating
to such securities.
2.14 Communications Relating to Portfolio Securities. The Custodian shall
transmit promptly to the Fund for each Portfolio all written information
(including, without limitation, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and notices of
exercise of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased,
-21-
<PAGE> 25
or sold by the Portfolio) received by the Custodian from issuers of the
securities being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all written
information received by the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Portfolio desires to take action with respect
to any tender offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least three business days prior to the
date on which the Custodian is to take such action.
3. Duties of the Custodian with Resect to Property of the Fund Held Outside of
the United States, 3 .,
3.1, Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the foreign
banking institutions and foreign securities depositories designated on Schedule
A hereto ("foreign sub-custodians"). Upon receipt of "Proper Instructions", as
defined in Section 5 of this Contract, together with a certified resolution of
the Fund's Board of Trustees, the Custodian and the Fund may agree to amend
Schedule A hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as sub-custodian. Upon
receipt of Proper,
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<PAGE> 26
Instructions, the Fund may instruct the Custodian to cease the employment of
any one or more such sub-custodians for maintaining custody of the Portfolio's
assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a) "foreign
securities", as defined in paragraph (c)(1) of Rule 17f-5 under the Investment
Company Act of 1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to effect the
Portfolio's foreign securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall include
entry into agreements containing the provisions set forth in Section 3.5
hereof.
3.4 Secregation of Securities The Custodian shall identify on its books as
belonging to each applicable Portfolio of the Fund, the foreign securities of
such Portfolios held by each foreign sub-custodian. Each agreement pursuant to
which the Custodian employs a foreign banking institution shall,
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<PAGE> 27
require that such institution establish a custody account for the Custodian on
behalf of the Fund for each applicable Portfolio of the Fund and physically
segregate in each account, securities and other assets of the Portfolios, and,
in the event that such institution deposits the securities of one or more of
the Portfolios in a foreign securities depository, that it shall identify on
its books as belonging to the Custodian, as agent for each applicable
Portfolio, the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a foreign
banking institution shall be substantially in the form set forth in Exhibit 1
hereto and shall provide that: (a) the assets of each Portfolio will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of the foreign banking institution or its creditors or agent, except a
claim of payment for their safe custody or administration; (b) beneficial
ownership for the assets of each Portfolio will be freely transferable without
the payment of money or value other than for custody or administration; (c)
adequate records will be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Fund, will be given
access,
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<PAGE> 28
to the books and records of the foreign banking institution relating to its
actions under its agreement with the Custodian; and (e) assets of the
Portfolios held by the foreign sub-custodian will be subject only to the
instructions of the Custodian or its agents.
3.6, Access of Independent Accountants of the Fund. Upon request of the
Fund,-the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a foreign sub-custodian insofar as such
books and records relate to the performance of such foreign banking institution
under its agreement with the Custodian.
3.7, Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign sub-custodians, including but
not limited to an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or notifications of any
transfers of securities to or from each custodial account maintained by a
foreign banking institution for the Custodian on behalf of each Applicable
Portfolio indicating, as to securities acquired for a Portfolio, the identity
of the entity having physical possession of such securities.,
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<PAGE> 29
3.8 Transactions in Foreign Custody Account.
(a) Except as otherwise provided in paragraph (b) of this Section 3.8, the
provision of Sections 2.2 and 2.7 of this Contract shall apply, mutatis
mutandis to the foreign securities of the Fund held outside the United States
by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary, settlement
and payment for securities received for the account of each applicable
Portfolio and delivery of securities maintained,for the account of each
applicable Portfolio may be effected in accordance with the customary
established securities trading or securities processing practices and
procedures in the jurisdiction or market in which the transaction occurs,
including, without limitation, delivering securities to the purchaser thereof
or to a dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such securities
from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set forth
in Section 2.3 of this Contract, and the Fund agrees to hold any such nominee
harmless from any liability as a holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking, 3.9,
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<PAGE> 30
institution as a foreign sub-custodian shall require the institution to
exercise reasonable care in the performance of its duties and to indemnify, and
hold harmless, the Custodian and each Fund from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the Fund, it
shall be entitled to be subrogated to the rights of the Custodian with respect
to any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent that
the Fund has not been made whole for any such loss, damage, cost, expense,
liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth with
respect to sub-custodians generally in this Contract and, regardless of whether
assets are maintained in the custody of a foreign banking institution, a
foreign securities depository or a branch of a U.S. bank as contemplated by
paragraph 3.13 hereof, the Custodian shall not be liable for any loss, damage,
cost, expense,, liability or claim resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism or otherwise
resulting from a bank or a securities depository failure to exercise reasonable
care. Notwithstanding the foregoing provisions of this,
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<PAGE> 31
paragraph 3.10, in delegating custody duties to State Street London Ltd., the
Custodian shall not be relieved of any responsibility to the Fund for any loss
due to such delegation, except such loss as may result from (a) political risk
(including, but not limited to, exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or armed
hostilities) or (b) other risk of loss (excluding a bankruptcy or insolvency of
State Street London Ltd. not caused by political risk) for which neither the
Custodian nor State Street London Ltd. would be liable (including, but not
limited to, losses due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have exercised
reasonable care).
3.11 Reimbursement for Advances. If the Fund requires the Custodian to advance
cash or securities for any purpose for the benefit of a Portfolio including the
purchase or sale of foreign exchange or of contracts for foreign exchange, or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or 'Willful
misconduct, any property at any time held for the account of the applicable
Portfolio shall be security therefor and,
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<PAGE> 32
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolios assets to
the extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be similar in
kind and scope to that furnished to the Fund in connection with the initial
approval of this Contract. In addition, the Custodian will promptly inform the
Fund in the event that the Custodian learns of a material adverse change in the
financial condition of a foreign sub-custoian or any material loss of the
assets of the Fund or in the case of any foreign sub-custodian not the subject
of an exemptive order from the Securities and Exchange Commission is notified
by such foreign sub-custodian that there appears to be a substantial likelihood
that its shareholders' equity will decline below $200 million (U.S. dollars or
the equivalent thereof) or that its shareholders, equity has declined below
$200 million (in each case computed in accordance with generally accepted U.S.
accounting principles).
3.13 Branches of U.S. Banks.
(a) Except as otherwise set forth in this Contract, the provisions hereof shall
not apply where the custody of the Portfolios assets are maintained in a
foreign branch,
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<PAGE> 33
of a banking institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in Section
26(a) of said Act. The appointment of any such branch 'as a sub-custodian shall
be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom shall be
maintained in an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the direction of
the Custodian, State Street London Ltd. or both.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund. The
Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer
Agent of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer,
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<PAGE> 34
Agent a request for redemption or repurchase of their Shares. In connection
with the redemption or repurchase of Shares of a Portfolio, the Custodian is
authorized upon receipt of instructions from the Transfer Agent to wire funds
to or through a commercial bank designated by the redeeming shareholders. In
connection with the redemption or repurchase of Shares of the Fund, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares,
which checks have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and controls as
are mutually agreed upon from time to time between the Fund and the Custodian.
5. - Proper Instructions. Proper Instructions as used throughout this Contract
means a writing signed or initialled by one or more person or persons as the
Board of Directors shall have from time to time authorized. Each such writing
shall set forth the specific transaction or type of transaction involved,
including a specific statement of the purpose for which such action is
requested. Oral instructions will be considered Proper Instructions if the
Custodian reasonably believes them to have been given by a person authorized to
give such instructions with respect to the transaction involved. The Fund shall
cause all oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the authorization
by the Board of Directors of the Fund accompanied by a detailed description of
procedures approved by the Board of Directors, Proper Instructions may include
communications effected directly between electromechanical or electronic,
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<PAGE> 35
devices provided that the Board of Directors and the Custodian are satisfied
that such procedures afford adequate safeguards for the Portfolios, assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three - party agreement which
requires a segregated asset account in accordance with Section 2.11.
6. Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Fund on behalf of each
applicable Portfolio:
1) make payments to itself or others for minor expenses of handling securities
or other similar items relating to its duties under this Contract, provided
that all such payments shall be accounted for to the Fund on behalf of the
Portfolio;
2) surrender securities in temporary form for securities in definitive form;
3) endorse for collection, in the name of the Portfolio, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with the
sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Portfolio except as otherwise directed by the
Board of Directors of the Fund.
7. Evidence of Authority. The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other instrument or
paper believed by it to be genuine and to have been properly executed by or on
behalf of the,
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Fund. The Custodian may receive and accept a certified copy of a vote of the
Board of Directors of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or
of any action by the Board of Directors pursuant to the Articles of
Incorporation as described in such vote, and such vote may be considered as in
full force and effect until receipt by the Custodian of written notice to the
contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall
advise the Fund and the Transfer Agent daily of the total amounts of such net
income and, if instructed in writing by an officer of the Fund to do so, shall
advise the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the daily income of each Portfolio shall be made at the time or times described
from time to time in the Fund's currently effective prospectus related to such
Portfolio.,
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9. Records
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company
Act of 1940, with particular attention to Section 31 thereof and Rules 3la-1
and 3la-2 thereunder, applicable federal and state tax laws and any other law
or administrative rules or procedures which may be applicable to the Fund. All
such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents
of the Securities and Exchange Comission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by each
Portfolio and held by the Custodian and shall, when requested to do so by the
Fund and for such compensation as shall be agreed upon between the Fund and the
Custodian, include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of each
applicable Portfolio may from time to time request, to obtain from year to year
favorable opinions from the Fund's independent accountants with respect to its
activities hereunder in connection with the preparation of the Fund's Form
N-lA, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.,
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<PAGE> 38
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the Portfolios at
such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on
futures contracts, including securities deposited and/or maintained in a
Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies,- the reports shall so
state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its services and
expenses as Custodian, as agreed upon from time to time between the Fund on
behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian.
So long as and to the extent that it is in the exercise of reasonable care, the
Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party,
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<PAGE> 39
or parties, including any futures commission merchant acting pursuant to the
terms of a three - party futures or options agreement. The Custodian shall be
held to the exercise of reaonable care in carrying out the provisions of this
Contract, but shall be kept indemnified by and shall be without liability to
the Fund for any action taken or omitted by it in good faith without
negligence. It shall be entitled to rely on and may act upon advice of counsel
(who may be counsel for the Fund) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
Notwithstanding the foregoing, the responsibility of the Custodian with respect
to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund.,
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.10)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.11 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from,
-36-
<PAGE> 40
nationalization, expropriation, currency restrictions, or acts of war or
terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any action
with respect to securities, which action involves the payment of money or which
action may, in the opinion of the Custodian, result in the Custodian or its
nominee assigned to the Fund or the Portfolio being liable for the payment of
money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian to advance cash or securities for any
purpose for the benefit of a Portfolio including the purchase or sale of
foreign exchange or of contracts for foreign exchange or in the event that the
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.,
-37-
<PAGE> 41
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall -continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid
to the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; Provided, however that the
Custodian shall not with respect to a Portfolio act under Section 2.10 hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors of the Fund has approved the
initial use of a particular Securities System by such Portfolio and the receipt
of an annual certificate of the Secretary or an Assistant Secretary that the
Board of Directors has reviewed the use by such Portfolio of such Securities
System, as required in each case by Rule 17f-4 under the Investment Company Act
of 1940, as amended and that the Custodian shall not with respect to a
Portfolio act under Section 2.10A hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors has approved the initial use of the Direct Paper System by such
Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Directors has reviewed the use by such
Portfolio of the Direct Paper System; Provided further, however, that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state,
-38-
<PAGE> 42
regulations, or any provision of the Articles of Incorporation, and further
provided, that the Fund on behalf of one or more of the Portfolios may at any
time by action of its Board of Directors (i) substitute another bank or trust
company for the Custo(lian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller
of the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios shall
be appointed by the Board of Directors of the Fund, the Custodian shall, upon
termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in like
manner, upon receipt of a certified copy of a vote of the Board of Directors of
the Fund, deliver at the,
-39-
<PAGE> 43
office of the Custodian and transfer such securities, funds and other
properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to
transfer to an account of such successor custodian all of the securities of
each such Portfolio held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities,,
-40-
<PAGE> 44
funds and other properties and the provisions of this Contract relating to the
duties and obligations of the Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the Fund
on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, Provided that no such
interpretive or additional provisions shall contravene any applicable federal
or state regulations or any provision of the Articles of Incorporation of the
Fund. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services,, such series of Shares
shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted under
and in accordance with laws of The Commonwealth of Massachusetts.,
-41-
<PAGE> 45
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as, of the,
ATTEST,, ATTEST,, Assistant Secretary, day of, 1 19 8 8 .,
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.,
By L -
STATE STREET BANK AND TRUST COMPANY,
By Vice President,
-42-
<PAGE> 46
Schedule A I,
The following foreign banking institutions and foreign securities depositories
have been approved by the Board of Directors of Merrill Lynch Global
Convertible Fund, Inc. for use as sub-custodians for the Fund's securities and
other assets:,
(Insert banks and securities depositories),
-43-
<PAGE> 1
EX-99.9(a)
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the 18th day of January, 1988
By and between Merrill Lynch Global Convertible Fund, Inc. (the
"Fund") and Merrill Lynch Financial Data Service, Inc. ("MLFDS"),
a New Jersey corporation.
WITNESSETH:
WHEREAS, the Fund wishes to appoint MLFDS to be the
Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent upon, and subject top the terms and provisions of
this Agreement, and MLFDS is desirous of accepting such
appointment upon, and subject tot such terms and provisions:
NOW THEREFORE, in consideration of mutual covenants
contained in this Agreement, the Fund and MLFDS agree as follows:
1. Appointment of MLFDS as Transfer Agent., Dividend
Disbursing Agent and Shareholder Servicing Agent.
(a) The Fund hereby appoints MLFDS to act as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the
Fund upon, and subject to, the terms and provisions of this
Agreement.
(b) MLFDS hereby accepts the appointment as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the
Fund, and agrees to act as such upon, and subject tot the terms
and provisions of the Agreement.
2. Definitions.
(a) In this Agreement:
(I) The term 'Act' means the Investment Company Act of
1940 as amended from time to time and any rule or regulation
thereunder.-
(II) The term "Account" means any account of a
Shareholder, ore if the shares are held in an account in the name
of MLPF&S for benefit of an identified customer, such account,
including a Plan Account, any account under a plan (by whatever
name referred to in the Prospectus) pursuant to the Self-Employed
Individuals Retirement Act of 1962 ("keogh Act Plan") and any plan
(by whatever name referred to in the Prospectus) in conjunction
with Section 401 of the Internal Revenue Code ('Corporation Master
Plan");
<PAGE> 2
(III) The term "application" means an application made
by a Shareholder or prospective Shareholder respecting the opening
of an Account;
(IV) The term "MLFD" means Merrill Lynch Funds
Distributor Inc., a Delaware corporation;
(V) The term "MLPF&S" means Merrill Lynch# Pierce,
Fenner & Smith Incorporated, a Delaware corporation;
(VI) The term "officer's Instruction" means an
instruction in writing given on behalf of the Fund to MLFD and.
signed on behalf of the Fund by the President, any Vice President,
the Secretary or the Treasurer of the Fund;
(VII) The term
the Statement of Additional
to time in effect;
"prospectus" means the Prospectus and
Information of the Fund as from time
(VIII) The term "Shares" means shares of stock or
beneficial intereat, as the case may be, of the Fund, irrespective
of class or series;
(IX) The term "Shareholder" meant the holder of record
of Shares;
(X) The term "Plan Account" means an account opened
by a Shareholder or prospective Shareholder in respect to an open
account, monthly payment or withdrawal plan (in each case by
whatever name referred to in the Prospectus) and may also include
an account relating to any other Plan if and when provision is
made for such plan in the Prospectus.
3. Duties of MLFDS aa Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent.
(a) Subject to the succeeding provisions -of the
Agreement, MLFDS hereby agrees to perform the following functions
as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent for the Fund;
Accounts;
(I) Issuing, transferring and redeeming Shares;
(11) Openingi maintaining, servicing and closing
- 2 -
<PAGE> 3
(III) Acting as agent for the Fund Shareholders and/or
customers of MLPF&S in connection with Plan Accounts, upon the
terms and subject to the conditions contained in the Prospectus
and application relating to the specific Plan Account;
(IV) 'Acting as agent of the Fund and/or MLPF&S,
maintaining such records as may permit the imposition of such
contingent deferred sales charges as may be described in the
Prospectus, including such reports as may be reasonably requested
by the Fund with respect to such Shares as may be subject to a
contingent deferred sales charge;
(V) Upon the redemption of Shares subject to such a
contingent deferred sales charge, calculating and deducting from
the redemption proceeds thereof the amount of such charge in the
manner set forth in the Prospectus. MLFDS shall pay on behalf of
MLFD), to MLPF&S such deducted contingent deferred sales charges
imposed upon all Shares maintained in the name of MLPF&S or
maintained in the name of an account identified as a customer
. account of MLPF&S. Sales charges imposed upon any other Shares
shall-be paid by MLFDS to MLFD.
(VI) Exchanging the investment of an investor into, or
from the shares of other open-end investment companies or other
series portfolios of the Fund, if any, if and to the extent
permitted by the Prospectus at the direction of such investor.
(VII) Processing redemptions;
(VIII) Examining and approving legal transfers;-
(IX) Replacing lost, stolen or destroyed certificates
representing Shares, in accordance with, and subject to,
procedures and conditions adopted by the. Fund;
(X) Furnishing such confirmations of transactions
relating to their-Shares as required by applicable law;
(XI) Acting as agent for the Fund and/or MLPF&S.
furnishing such appropriate periodic statements relating to
Accounts, together with additional enclosures, including
appropriate income tax information and income tax forms duly
completed as required by applicable law;
(XII) Acting agent for the Fund and/or MLPF&S,
mailing annual, semi-annual and quarterly reports prepared by or
on behalf of the Fund, and mailing new Prospectuses upon their
issue to Shareholders as required by applicable law;
(XIII) Furnishing such periodic statements of
transactions effected by MLFDS, reconciliations, balances and
summaries as the Fund may reasonably request;
- 3 -
<PAGE> 4
(XIV) maintaining such books and records relating to
transactions effected by MLFDS as are required by the Act, or by
any other applicable provision of law, rule or regulation, to be
maintained by the Fund or its transfer agent with respect to such
transactions, and preserving, or causing to be preserved any such
books and records for such periods as may be required by any such
law, rule or regulation and as may be agreed upon from time to
time between MLFDS and the Fund. In addition, MLFDS agrees to
maintain and preserve master files and historical computer tapes
on a daily basis in multiple separate locations a sufficient
distance apart to insure preservation of at least one copy of such
information;
(XV) Withholding taxes on non-resident alien Accounts,
preparing and filing U.S. Treasury Department Form 1099 and other
appropriate forms as required by applicable law with respect to
dividends and distributions; and
(XVI) Reinvesting dividends for full and fractional
shares and disbursing cash dividends, as applicable.
(b) MLFDS agrees to act as proxy agent in connection
with the holding of annual, if any, and special meetings of
Shareholders, mailing such notices, proxies and proxy statements
in connection with the holding of such meetings as may be required
by applicable law, receiving and tabulating votes cast by proxy
and communicating to the Fund the results of such tabulation
accompanied by appropriate certifications, and preparing and
furnishing to the Fund certified lists of Shareholders as of such
date, in such form and containing such information as may be
required by the Fund.
(c) MLFDS agrees to deal with and answer in a-timely
manner, all correspondence and inquiries relating to the functions
Of MLFDS under this Agreement with respect to Accountg.
(d) MLFDS agrees to furnish to the Fund such
information and at such intervals as is necessary for the Fund to
Comply with the registration and/or the reporting requirements
(including applicable escheat laws) of the Securities and Exchange
Comission, Blue Sky authorities or other governmental
authorities.
- 4 -
<PAGE> 5
(e) MLFDS Agrees to provide to the Fund such
information as may reasonably be required to enable the Fund to
reconcile the number of outstanding shares between MLFDS's records
and the account books of the Fund.
(f) Notwithstanding anything in the foregoing
provisions of this paragraph, MLFDS agrees to perform its
functions thereunder subject to such modification (whether in
respect of particular cases or in any particular class of cases)
as may from time to time be contained tin an Officer's Instruction.
4. Compensation.
The charges for services described in this Agreement,
including "out-of-pocket" expenses will be set forth- in the
Schedule of Fees attached hereto.
5. Right of Inspection.
MUDS agrees that it will in a timely manner make
available to, and permit, any officer, accountant, attorney or
authorized agent of the Fund to examine and make transcripts and
copies (including photocopies and computer or other electronical
information storage media and print-outs) of any and all of its
books and records which relate to any transaction or -function
performed by MLFDS under or pursuant to this Agreement.
6. Confidential Relationship.
MLFDS agrees that it will, on behalf of itself and its
officers and employees# treat all transactions contemplated by
this Agreement, and all information germane thereto, as
confidential and not to be disclosed to any person (other than the
Shareholder concerned, or the Fund, or as may be disclosed in the
examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the
Fund by way of an Officer's Instruction.
7. Indemnification.
The Fund shall Indemnify and hold MLFDS harmless from any
loss, costs, damage and reasonable expenses, including reasonable
attorney's fees (provided that such attorney is appointed with the
Fund's consent, which consent shall not be unreasonably withheld),
incurred by it resulting from any claim, demand, actions, or suit
in connection with the performance of its duties hereunder,
- 5 -
<PAGE> 6
provided that this indemnification shall not apply to actions or
omissions of MLFDS in cases of willful misconduct, failure to act
in good faith or negligence by MLFDS, it's officers, employees or
agents, and further provided, that prior to confessing any claim
against it which may be subject to this indemnification, MLFDS
shall give the Fund reasonable opportunity to defend against said
claim in its own name or in the name of MUDS. An action taken by
MLFDS upon any Officer's Instruction reasonably believed by it to
have been properly executed shall not constitute willful
misconduct, failure to act in good faith or negligence under this
Agreement.
S. Regarding MLFDS.
(a) MLFDS hereby agrees -.to hire, purchase, develop and
maintain such dedicated personnel, facilities equipment,
software, resources and capabilities as may be reasonably
determined by the Fund to be necessary for the satisfactory
performance of the duties and responsibilities of MLFDS. MLFDS
warrants and represents that its officers and supervisory
personnel charged with carrying out its functions as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent
for the 'Fund possess the special skill and technical knowledge
appropriate for that purpose MLFDS shall at all times exercise
due care and diligence in the performance of its functions as
Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent for the Fund. MLFDS agrees that, in determining
whether it has exercised due care and diligence, its conduct shall
be measured by the standard applicable to persons possessing such
special skill and technical knowledge.
(b) MLFDS warrants and represents that is duly authorized
and permitted to act as Transfer Agent, Dividend Disbursing Agent,
and Shareholder Servicing Agent under all applicable laws and that
it will immediately notify the Fund of any revocation of such
authority or permission or of the commencement of any proceeding
or other action which may lead to such revocation.
9.Termination.
(a) This Agreement shall become effective as of the date
first above written and shall thereafter continue from year to
year. This Agreement may be terminated by the Fund or MLFDS
(without penalty to the Fund or MLFDS) provided that the
terminating party gives the other -party written notice of such
termination at least sixty (60) days in advance, except that the
Fund may terminate this Agreement immediately upon written notice
to MLFDS if the authority or permission of MLFDS to act as
Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent has been revoked or if any proceeding or other
action which the Fund reasonably believes will lead to such
revocation has been commenced.
- 6 -
<PAGE> 7
(b) Upon termination of this Agreement, MLFDS shall
deliver all unissued and canceled stock certificates representing
Shares remaining in its possession, and all Shareholder records,
books, stock ledgers, instruments and other documents (including
computerized or other electronically stored information) made or
accumulated in the performance of its duties as Transfer Agent,
Disbursing Agent and Shareholder Servicing Agent for the Fund
along with a certified locator document clearly indicating the
complete contents therein, to such successor as may be specified
in a notice of termination or Officer's Instruction; and the Fund
assumes all responsibility for failure thereafter to produce any
paper, record or documents so delivered and identified in the
locator document, if and when required to be produced.
10. Amendment.
Except to the extent that the performance by MLFDS or
its functions under this Agreement may from time to time be
modified by an Officer's Instruction, this Agreement may be
amended or modified only by further written Agreement between the
parties.
11. Governing Law.
This Agreement shall be governed by the laws of the
State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective duly authorized
officers and their respective corporate seals hereunto duly
affixed and attested, as of the day and year above written.
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
By: /s/
---------------------------------------
Title/
-------------------------------------
MERRILL LYNCH FINANCIAL DATA SERVICE, INC.
By:
---------------------------------------
Title: /s/
------------------------------------
<PAGE> 8
Schedule of Fees
The Fund will pay to FDS an annual fee of $11.00 per Class A
and Class D Shareholder Account and $14.00 per Class B and Class
C Shareholder Account in addition to reimbursement for the out-
of-pocket expenses incurred by FDS pursuant to this Agreement.
<PAGE> 1
EX-99.9(b)
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT made as of the day of January, 1988, by,
between MERRILL LYNCH & CO., INC. ("ML&Co.") a Delaware
corporation and MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC., a
Maryland corporation (the "Fund");
W I T N E S S E T H :
WHEREAS, ML&CO. was incorporated under the laws of the State
of Delaware on March 27, 1973 under the corporate name "Merrill
Lynch & Co., Inc." and has used such name at all times
thereafter;
WHEREAS, ML&CO. was duly qualified as a foreign corporation
under the laws of the State of New York April 25, 1973 and has
remained so qualified at all times thereafter;
WHEREAS, the Fund was incorporated under the laws of the
State of Maryland on October 22, 1987; and
WHEREAS, the Fund desires to qualify as a foreign
corporation under the laws of the State of New York and has
requested ML&CO. to give its consent to the use of the name
"Merrill Lynch" in the Fund's corporate name.
<PAGE> 2
NOW, THEREFORE, in consideration of the premisis of the
covenants hereinafter contained, ML&CO. and the Fund hereby agree
as follows:
1. ML&CO. hereby grants the Fund a non-exclusive license to
use the words "Merrill Lynch" in its corporate name.
2. ML&CO. hereby consents to the qualification of the Fund
as a foreign corporation under the laws of the State of New York
with the words "Merrill Lynch" in its corporate name and agrees
to execute such formal consents as may be necessary in connection
with such filing.
3. The non-exclusive license hereinabove referred to has
been given and is given by ML&CO. on the condition that it may at
any time, in its dole and absolute discretion, withdraw the non-
exclusive license to the use of the words "Merrill Lynch" in the
name of the Fund; and, as soon as practicable after receipt by
the Fund of written notice of the withdrawal of such non-
exclusive license, and in no event later than ninety days
thereafter, the Fund will change its name so that such name will
not thereafter include the words "Merrill Lynch" or any variation
thereof.
4. ML&CO. reserves and shall have the right to grant to any
other company, including without limitation, any other investment
company, the right to use the words "Merrill Lynch" or variations
thereof in its name and no consent or permission of the Fund
shall be necessary; but, if required by an applicable law of any
state, the Fund will forthwith grant all requisite consents.
2.
<PAGE> 3
5. The Fund will not grant to any other company the right
to use a name similar to that of the Fund or ML&CO. without the
written consent of ML&CO.
6. -Regardless of whether the Fund should hereafter change
its name and eliminate the words "Merrill Lynch" or any variation
thereof from such name, the Fund hereby grants to ML&CO. the
right to cause the incorporation of other corporations or the
organization of voluntary associations which may have names
similar to that of the Fund or to that to which the Fund may
change its name and to own all or-any portion of the shares of
such other corporations or associations and to enter into
contractual relationships with such other corporations or
associations, subject to any requisite approval of a majority of
the Fund's shareholders and the Securities and Exchange
Commission and subject to the payment of a reasonable amount to
be determined at the time of use, and the Fund agrees to give and
execute any such formal consents or agreements as may be
necessary in connection therewith.
7. This Agreement may be amended at any time by a writing
signed by the parties hereto.
3.
<PAGE> 4
IN WITNESS WHEREOF,eto have executed this
the parties her
Agreement as of the day and year first above written.
MERRILL LYNCH & CO., INC.
By /s/
------------------------
Vice President
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
4.
<PAGE> 1
EX-99.13
CERTIFICATE OF SOLE STOCKHOLDER
Merrill Lynch Asset Management, Inc., the holder of 10,000
shares of Class B Common Stock, par value $0.10 per share, of
Merrill Lynch Global Convertible Fund, Inc., a Maryland
corporation (the "Fund"), does hereby confirm to the Fund its
representation that it purchased such shares for investment
purposes, with no present intention of redeeming or reselling any
portion thereof, and does further agree that if it redeems any
portion of such shares prior to the amortization of the Fund's
prepaid registration fees and organizational expenses, the
proceeds thereof will be reduced by the proportionate amount of
the unamortized organizational expenses which the number of
shares being redeemed bears to the number of shares initially
purchased.
MERRILL LYNCH ASSET MANAGEMENT, INC.
By:
/s/ Mark B. Goldfus Vice President
Dated: aJanuary 21, 1988
<PAGE> 1
Merrill Lynch Global Convertible Fund, Inc.
Class A
Total Return
Ex-99.16(a)
<TABLE>
<CAPTION>
Period-from
11/04/88 Annual
(inception) Total
to 10/31/89 Return*
------------ ----------
<S> <C> <C>
Initial Investment $1.000.00 $1,000.00
Divided by
Maximum Offering Price 10.39 -
----------
Divided by Net Asset Value 9,97
----------
Equals Shares Purchased 96.25 100.30
Plus Shares Acquireed through
Dividend Reinvestment 6.29 6.52
---------- ----------
Equals Shares Held
at 10/31/89 102.54 106.82
Multiplied by Net A.-;set
Value at 10/31/89 9.95 9.95
---------- ----------
Equals Ending Redeemable
Value at $1.000
Investment (ERV) at 10/31/89 $1,020.30 $1,062.90
Divided by $1,000 (II) 1.0203 1.0629
Subtract 1 0.0203 0.0629
Expressed as a percentage
equals the Aggregegate Total
Return for the Period (T) 2.03%
======
Expressed as a percentage
equals the Aggregate Total
Return for the Period 6.29%
=====
ERV divided by P 1,0203
Raise to the power of 1.9859
Equals 1.0206
Subtract 1 0.0206
Expressed as a percentage
equals the Average
Annualized Total Raturn 2.06%
======
</TABLE>
Does not include sales charge for the period.
<PAGE> 1
EX-99.16(b)
GLOBAL CONVERTIBLE
TOTAL RETURN
<TABLE>
<CAPTION>
Since Annual
Inception Total
(2-26-88) Return*
--------- -------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 10.00 10.00
--------- ---------
Equals Shares Purchased 100.00 100.00
Plus Shares Acquired Through
Dividend Reinvestment 1,269 1,269
--------- ---------
Equals Shares Hold
at 8/31/88 101.269 101.269
Multiplied by Net Asset
Value at 8/31/88 @7
--------- ---------
Equals Ending Value before
deduction for contingent
deferred sales charge $990.41 $990.41
Deduction for deferred
sales charge 12.10 ZL-
--------- ---------
Equals Ending Redeemable Value
of a $1,000 Investment (ERV) $951.31 $990.41
Divided by $1,000 (P) .9513 .9904
Subtract I (.0487) (.0096)
Expressed as a percentage
equals the Aggregate Total
Return for the Period
Expressed as a percentage
equals the Actual
Total Return (T)
ERV divided by P .9513
Raise to the power of I/.512
Equals .9050
Subtract I (.0950)
Expressed as a percentage
equals the Average
Annualized Total Return (.0950)
Annualized Total Return (9,50%) .
</TABLE>
*Does not include sales charge for the period,
6
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.:
We consent to the use in Post-Effective Amendment No. 11 to Registration
Statement No. 33-18720 of our report dated December 4, 1995 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.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Princeton, New Jersey
February 23, 1996
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