<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1995
SECURITIES ACT FILE NO. 33-22462
INVESTMENT COMPANY ACT FILE NO. 811-5576
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 9 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 11 [X]
(CHECK APPROPRIATE BOX OR BOXES)
----------------
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
800 SCUDDERS MILL ROAD 08536
PLAINSBORO, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH GLOBAL ALLOCATION 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:
COUNSEL FOR THE COMPANY: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD MERRILL LYNCH ASSET
ONE WORLD TRADE CENTER MANAGEMENT
NEW YORK, NEW YORK 10048-0557 P.O. BOX 9011
ATTENTION: THOMAS R. SMITH, JR., ESQ. PRINCETON, N.J. 08543-9011
----------------
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) (i)
[_] on (date) pursuant to paragraph (a) (i)
[_] 75 days after filing pursuant to paragraph (a) (ii)
[_] on (date) pursuant to paragraph (a) (ii) of rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
----------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF COMMON
STOCK 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 28, 1994.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
------------- --------
<C> <S> <C>
PART A
Item 1. Cover Page.............. Cover Page
Item 2. Synopsis................ Fee Table
Item 3. Condensed Financial
Information............. Financial Highlights; Performance Data
Item 4. General Description of
Registrant.............. Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund.. Fee Table; Management of the Fund; Inside
Back Cover Page
Item 5A. Management's Discussion
of Fund Performance..... Not Applicable
Item 6. Capital Stock and Other
Securities.............. Cover Page; Additional Information
Item 7. Purchase of Securities
Being Offered........... Cover Page; Fee Table; Merrill Lynch
Select Pricing SM System; Purchase of
Shares; Shareholder Services; Additional
Information; Inside Back Cover Page
Item 8. Redemption or
Repurchase.............. Fee Table; Merrill Lynch Select Pricing SM
System; Shareholder Services; Purchase of
Shares; Redemption of Shares
Item 9. Pending Legal
Proceedings............. Not Applicable
PART B
Item 10. Cover Page.............. Cover Page
Item 11. Table of Contents....... Back Cover Page
Item 12. General Information and
History................. Not Applicable
Item 13. Investment Objectives
and Policies............ Investment Objective and Policies
Item 14. Management of the Fund.. Management of the Fund
Item 15. Control Persons and
Principal Holders of
Securities.............. Management of the Fund
Item 16. Investment Advisory and
Other Services.......... Management of the Fund; Purchase of Shares;
General Information
Item 17. Brokerage Allocation and
Other Practices......... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other
Securities.............. General Information
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered........... Purchase of Shares; Redemption of Shares;
Determination of Net Asset Value;
Shareholder Services; General Information
Item 20. Tax Status.............. Dividends and Distributions; Taxes
Item 21. Underwriters............ Purchase of Shares
Item 22. Calculation of
Performance Data........ Performance Data
Item 23. Financial Statements.... Financial Statements
PART C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration
Statement.
<PAGE>
PROSPECTUS
FEBRUARY 27, 1995
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
Merrill Lynch Global Allocation Fund, Inc. (the "Fund") is a non-diversified
mutual fund seeking 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 types of securities and
markets in response to changing market and economic trends. Total investment
return is the aggregate of capital value changes and income. There can be no
assurance that the Fund's investment objective will be achieved. The Fund may
employ a variety of instruments and techniques to enhance income and to hedge
against market and currency risk. Investments on an international basis
involve special considerations. See "Special Considerations".
----------------
Pursuant to the Merrill Lynch Select Pricing SM System, the Fund offers four
classes of shares, each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select Pricing SM System permits an
investor to choose the method of purchasing shares that the investor believes
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances. See
"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 9011, Princeton, New Jersey 08543-9011 [(609)
282-2800], or from securities dealers which have entered into selected dealers
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 SECURI-
TIES 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, 1995 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and
is available, without charge, by calling or by writing the Fund at the above
telephone number or address. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
----------------
MERRILL LYNCH ASSET MANAGEMENT--MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION>
CLASS A(A) CLASS B(B) CLASS C 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 None(d) 4.0% during the first 1% for None(d)
price or redemption year, one year
proceeds, whichever decreasing 1.0% annually
is lower)............. thereafter
to 0.0% after the fourth
year
Exchange Fee........... None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)(E):
Investment Advisory
Fees(f)............... 0.71% 0.71% 0.71% 0.71%
12b-1 Fees(g):
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(h)............ 0.08% 0.10% 0.10% 0.08%
Other................ 0.06% 0.06% 0.06% 0.06%
---- ---- ---- ----
Total Other Expenses. 0.18% 0.20% 0.20% 0.18%
---- ---- ---- ----
Total Fund Operating 0.89% 1.91% 1.91% 1.14%
Expenses.............. ==== ==== ==== ====
</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 29.
(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 30.
(c) Reduced for purchases of $25,000 and over. Class A or Class D purchases of
$1,000,000 or more may not be subject to an initial sales charge. See
"Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class
D Shares"--page 29.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that purchases of $1,000,000 or more which may not
be subject to an initial sales charge may instead be subject to a CDSC of
1.0% of amounts redeemed within the first year of purchase.
(e) Information for Class A and Class B shares is stated for the fiscal year
ended October 31, 1994. Information under "Other Expenses" for Class C and
Class D shares is estimated for the fiscal year ending October 31, 1995.
(f) See "Management of the Fund--Management and Advisory Arrangements"--page
25.
(g) See "Purchase of Shares--Distribution Plans"--page 34.
(h) See "Management of the Fund--Transfer Agency Services"--page 26.
2
<PAGE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
---------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
An investor would pay the
following expenses on a
$1,000 investment including
the maximum $52.50 initial
sales charge (Class A and
Class D shares only) and
assuming (1) the Total Fund
Operating Expenses for each
Class set forth above, (2)
a 5% annual return through-
out the periods and (3) re-
demption at the end of the
period:
Class A................. $61 $79 $99 $156
Class B................. $59 $80 $103 $204*
Class C................. $29 $60 $103 $223
Class D................. $64 $87 $112 $184
An investor would pay the
following expenses on the
same $1,000 investment as-
suming no redemption at the
end of the period:
Class A................. $61 $79 $99 $156
Class B................. $19 $60 $103 $204*
Class C................. $19 $60 $103 $223
Class D................. $64 $87 $112 $184
</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
RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and Class C
shareholders who hold their shares for an extended period of time may pay more
in Rule 12b-1 distribution fees than the economic equivalent of the maximum
front-end sales charges permitted under the 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 redemptions. 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".
3
<PAGE>
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 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 do not affect
the net asset value of any other class or have any impact on investors choosing
another sales charge option. Dividends paid by the Fund for each class of
shares are calculated in the same manner at the same time and 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 PricingSM 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 PricingSM System that the investor believes is
most beneficial under his particular circumstances. More detailed information
as to each class of shares is set forth under "Purchase of Shares".
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(/1/) FEE FEE CONVERSION FEATURE
- ----------------------------------------------------------------------------------------
<C> <S> <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 D shares
years at a rate of 4.0% automatically after
during the first year, approximately eight
decreasing 1.0% years(/4/)
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.
(footnotes continued on following page)
4
<PAGE>
(2) Offered only to eligible investors. See "Purchase of Shares -- Initial
Sales Charge Alternatives -- Class A and Class D Shares -- Eligible Class
A Investors".
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year. See "Class
A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other MLAM-
advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares.
Investors that currently own Class A shares in a shareholder account
are entitled to purchase additional Class A shares in that account.
Other eligible investors include certain retirement plans and
participants in certain investment programs. In addition, Class A
shares will be offered to Merrill Lynch & Co., Inc. ("ML&Co.") and
its subsidiaries (the term "subsidiaries" when used herein with
respect to ML&Co., includes MLAM, FAM and certain other entities
directly or indirectly wholly-owned and controlled by ML&Co.) and
their directors and employees and to members of the Boards of MLAM-
advised mutual funds. The maximum initial sales charge is 5.25%,
which is reduced for purchases of $25,000 and over. Purchases of
$1,000,000 or more may not be subject to an initial sales charge but
if the initial sales charge is waived such purchases will be subject
to a 1% CDSC if the shares are redeemed within one year after
purchase. Sales charges also are 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%
and an ongoing distribution fee of 0.75% of the Fund's average net
assets attributable to the Class B shares, and a CDSC if they are
redeemed within four years of purchase. Approximately eight years
after issuance, Class B shares will convert automatically into Class
D shares of the Fund, which are subject to an account maintenance fee
but no distribution fee; Class B shares of certain other MLAM-advised
mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares
of the Fund are exchanged for Class B shares of another MLAM-advised
mutual fund, the conversion period applicable to the Class B shares
acquired in the exchange will apply, and the holding period for the
shares exchanged will be tacked onto the holding period for the
shares acquired. Automatic conversion of Class B shares into Class D
shares will occur at least once a month on the basis of the relative
net asset values of the shares of the two classes on the conversion
date, without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not be deemed a
purchase or sale of the shares for Federal income tax purposes.
Shares purchased through reinvestment of dividends on Class B shares
will also 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".
5
<PAGE>
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 Class C shares. Class C shares are also subject
to a CDSC if they are redeemed within one year of purchase. Although
Class C shares are subject to a 1.0% CDSC for only one year (as
compared to four years for Class B), Class C shares have no conversion
feature and, accordingly, an investor that purchases Class C shares
will be subject to distribution fees that will be imposed on Class C
shares for an indefinite period subject to annual approval by the
Fund's Board of 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 purchase will be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. The schedule of initial sales
charges and reductions for Class D shares is the same as the schedule
for Class A shares. Class D shares also will be issued upon conversion
of Class B shares as described above under "Class B". See "Purchase of
Shares -- Initial Sales Charge Alternatives -- Class A and Class D
Shares".
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
PricingSM 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
6
<PAGE>
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 forgo the Class B conversion
feature, making their investment subject to account maintenance and
distribution fees for an indefinite period of time. In addition, while both
Class B and Class C distribution fees are subject to the limitations on asset-
based sales charges imposed by the NASD, the Class B distribution fees are
further limited under a voluntary waiver of asset-based sales charges. See
"Purchase of Shares --Limitations on the Payment of Deferred Sales Charges".
7
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Fund by Deloitte &
Touche LLP, independent auditors. Financial statements for the fiscal year
ended October 31, 1994, with respect to Class A and Class B shares, and for
the fiscal period October 21, 1994, to October 31, 1994, with respect to Class
C and Class D shares, and the independent auditors' report thereon are
included in the Statement of Additional Information. The following per share
data and ratios have been derived from information provided in the financial
statements. 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.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
FOR THE
PERIOD
FEB. 3,
FOR THE YEAR ENDED OCTOBER 31, 1989+ TO
------------------------------------------------ OCT. 31,
1994 1993 1992 1991 1990 1989
---------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DE-
CREASE) IN NET
ASSET VALUE:
PER SHARE OPERAT-
ING
PERFORMANCE:
Net asset value,
beginning
of period........ $ 13.52 $ 11.92 $ 12.16 $ 10.37 $ 10.79 $ 10.00
---------- -------- -------- ------- ------- -------
Investment in-
come -- net..... .60 .39 .36 .55 .60 .45
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions --
net............ (.31) 2.14 .89 2.24 (.16) .48
---------- -------- -------- ------- ------- -------
Total from in-
vestment
operations....... .29 2.53 1.25 2.79 .44 .93
---------- -------- -------- ------- ------- -------
Less dividends
and distribu-
tions:
Investment in-
come -- net..... (.51) (.81) (.89) (.45) (.66) (.14)
Realized gain on
investments --
net............ (.23) (.12) (.60) (.55) (.20) --
---------- -------- -------- ------- ------- -------
Total dividends
and
distributions.... (.74) (.93) (1.49) (1.00) (.86) (.14)
---------- -------- -------- ------- ------- -------
Net asset value,
end of period.... $ 13.07 $ 13.52 $ 11.92 $ 12.16 $ 10.37 $ 10.79
========== ======== ======== ======= ======= =======
TOTAL INVESTMENT
RETURN**
Based on net as-
set value per
share............ 2.14% 22.61% 11.78% 28.89% 3.91% 9.34%++
========== ======== ======== ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS:
Expenses, exclud-
ing
distribution
fees............. .89% .93% 1.07% 1.29% 1.29% 1.37%*
========== ======== ======== ======= ======= =======
Expenses......... .89% .93% 1.07% 1.29% 1.29% 1.37%*
========== ======== ======== ======= ======= =======
Investment in-
come--net........ 4.60% 3.90% 10.82% 8.96% 4.37% 5.31%*
========== ======== ======== ======= ======= =======
SUPPLEMENTAL DA-
TA:
Net assets, end
of period (in
thousands)....... $1,357,906 $917,806 $245,839 $72,702 $49,691 $47,172
========== ======== ======== ======= ======= =======
Portfolio turn-
over............. 57.04% 50.35% 59.56% 81.21% 129.51% 88.59%
========== ======== ======== ======= ======= =======
<CAPTION>
CLASS B CLASS C CLASS D
----------------------------------------------------------------- ---------- ----------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
FEB. 3, OCT. 21, OCT. 21,
FOR THE YEAR ENDED OCTOBER 31, 1989+ TO 1994+ TO 1994+ TO
----------------------------------------------------- OCT. 31, OCT. 31, OCT. 31,
1994 1993 1992 1991 1990 1989 1994 1994
----------- ----------- --------- --------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DE-
CREASE) IN NET
ASSET VALUE:
PER SHARE OPERAT-
ING
PERFORMANCE:
Net asset value,
beginning
of period........ $ 13.38 $ 11.83 $ 12.10 $ 10.33 $ 10.73 $ 10.00 $12.91 $13.07
----------- ----------- --------- --------- --------- ----------- ---------- ----------
Investment in-
come -- net..... .46 .28 .22 .44 .49 .38 .01 .01
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions --
net............ (.31) 2.11 .91 2.22 (.16) .47 (.01) --
----------- ----------- --------- --------- --------- ----------- ---------- ----------
Total from in-
vestment
operations....... .15 2.39 1.13 2.66 .33 .85 -- .01
----------- ----------- --------- --------- --------- ----------- ---------- ----------
Less dividends
and distribu-
tions:
Investment in-
come -- net..... (.39) (.72) (.80) (.34) (.53) (.12) -- --
Realized gain on
investments --
net............ (.23) (.12) (.60) (.55) (.20) -- -- --
----------- ----------- --------- --------- --------- ----------- ---------- ----------
Total dividends
and
distributions.... (.62) (.84) (1.40) (.89) (.73) (.12) -- --
----------- ----------- --------- --------- --------- ----------- ---------- ----------
Net asset value,
end of period.... $ 12.91 $ 13.38 $ 11.83 $ 12.10 $ 10.33 $ 10.73 $12.91 $13.08
=========== =========== ========= ========= ========= =========== ========== ==========
TOTAL INVESTMENT
RETURN**
Based on net as-
set value per
share............ 1.13% 21.42% 10.64% 27.48% 2.93% 8.50%++ .00%++ .08%++
=========== =========== ========= ========= ========= =========== ========== ==========
RATIOS TO AVERAGE
NET ASSETS:
Expenses, exclud-
ing
distribution
fees............. .91% .95% 1.09% 1.31% 1.31% 1.40%* 1.44%* 1.44%*
=========== =========== ========= ========= ========= =========== ========== ==========
Expenses......... 1.91% 1.95% 2.09% 2.31% 2.31% 2.40%* 2.44%* 1.69%*
=========== =========== ========= ========= ========= =========== ========== ==========
Investment in-
come--net........ 3.58% 2.87% 11.95% 7.98% 3.35% 4.29%* 3.71%* 4.46%*
=========== =========== ========= ========= ========= =========== ========== ==========
SUPPLEMENTAL DA-
TA:
Net assets, end
of period (in
thousands)....... $6,457,130 $4,299,545 $958,949 $161,328 $115,682 $113,649 $7,347 $4,968
=========== =========== ========= ========= ========= =========== ========== ==========
Portfolio turn-
over............. 57.04% 50.35% 59.56% 81.21% 129.51% 88.59% 57.04% 57.04%
=========== =========== ========= ========= ========= =========== ========== ==========
</TABLE>
- ----
+Commencement of Operations.
++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
8
<PAGE>
SPECIAL CONSIDERATIONS
As a global fund, the Fund may invest in U.S. and foreign securities.
Investments in securities of foreign entities and securities denominated in
foreign currencies involve risks not typically involved in domestic investment,
including, but not limited to, fluctuations in foreign exchange rates, future
foreign political and economic developments, and the possible imposition of
exchange controls or other foreign or U.S. governmental laws or restrictions
applicable to such investments. Since the Fund may invest in securities
denominated or quoted in currencies other than the U.S. dollar, changes in
foreign currency exchange rates may affect the value of investments in the
portfolio and the unrealized appreciation or depreciation of investments
insofar as U.S. investors are concerned. Changes in foreign currency exchange
rates relative to the U.S. dollar will affect the U.S. dollar value of the
Fund's assets denominated in those currencies 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 U.S.
economy in such respects as growth of gross 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 U.S. instrument, and foreign entities may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. entities are subject. In
addition, certain foreign investments may be subject to foreign withholding
taxes. Investors may be able to deduct such taxes in computing their taxable
income or to use such amounts as credits against their U.S. income taxes if
more than 50% of the Fund's total assets at the close of any taxable year
consists of stock or securities in foreign corporations. See "Additional
Information -- Taxes". Foreign financial markets, while generally growing in
volume, typically have substantially less volume than U.S. markets, and
securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable domestic companies. Foreign markets also
have different clearance and settlement procedures and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays or other problems 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 portfolio securities due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
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 U.S. securities. There is generally less government supervision
and regulation of exchanges, financial institutions and issuers in foreign
countries than there is in the United States.
The operating expense ratio of the Fund can be expected to be higher than
that of an investment company investing exclusively in U.S. securities because
the expenses of the Fund, such as custodial costs, are higher.
9
<PAGE>
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 securities markets, interest rates and
exchange rates between currencies by the use of options, futures and options
thereon. Utilization of options and futures transactions involves the risk of
imperfect correlation in movements in the price of options and futures 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 has established no rating criteria for the fixed income securities
in which it may invest. 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 securities that are in
default.
The net asset value of the Fund's shares, to the extent the Fund invests in
fixed income securities, will be affected by changes in the general level of
interest rates. When interest rates decline, the value of a portfolio of fixed
income securities can be expected to rise. Conversely, when interest rates
rise, the value of a portfolio of fixed income securities can be expected to
decline.
As a non-diversified investment company, the Fund may invest a larger
percentage of its assets in individual issuers than a diversified investment
company. In this regard, the Fund is not subject to the general limitation that
it not invest more than 5% of its total assets in the securities of any one
issuer. To the extent the Fund makes investments in excess of 5% of its assets
in a particular issuer, its exposure to credit and market risks associated with
that issuer is increased. However, the Fund's investments will be limited so as
to qualify for the special tax treatment afforded "regulated investment
companies" under the Internal Revenue Code of 1986, as amended. See "Additional
Information--Taxes".
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a non-diversified, open-end management investment company. The
Fund's investment objective is to seek a 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
types of securities and markets in response to changing market and economic
trends. Total investment return is the aggregate of capital value changes and
income. This objective is a fundamental policy which the Fund may not change
without a vote of a majority of the Fund's outstanding voting securities. There
can be no assurance that the Fund's investment objective will be achieved. The
Fund may employ a variety of instruments and techniques to enhance income and
to hedge against market and currency risk, as described under "Portfolio
Strategies Involving Options and Futures" below.
The Fund will invest in a portfolio of U.S. and foreign equity, debt and
money market securities. The composition of the portfolio among these
securities and markets will be varied from time to time by the Manager, in
response to changing market and economic trends. This fully managed investment
approach
10
<PAGE>
provides the Fund with the opportunity to benefit from anticipated shifts in
the relative performance of different types of securities and different capital
markets. For example, at times the Fund may emphasize investments in equity
securities in anticipation of significant advances in stock markets and at
times may emphasize debt securities in anticipation of significant declines in
interest rates. Similarly, the Fund may emphasize foreign markets in its
security selection when such markets are expected to outperform, in U.S. dollar
terms, the U.S. markets. The Fund will seek to identify longer-term structural
or cyclical changes in the various economies and markets of the world which are
expected to benefit certain capital markets and certain securities in those
markets to a greater extent than other investment opportunities.
In determining the allocation of assets among capital markets, the Manager
will consider, among other factors, the relative valuation, condition and
growth potential of the various economies, including current and anticipated
changes in the rates of economic growth, rates of inflation, corporate profits,
capital reinvestment, resources, self-sufficiency, balance of payments,
governmental deficits or surpluses and other pertinent financial, social and
political factors which may affect such markets. In allocating among equity,
debt and money market securities within each market, the Manager also will
consider the relative opportunity for capital appreciation of equity and debt
securities, dividend yields, and the level of interest rates paid on debt
securities of various maturities.
In selecting securities denominated in foreign currencies, the Manager will
consider, among other factors, the effect of movement in currency exchange
rates on the U.S. dollar value of such securities. An increase in the value of
a currency will increase the total return to the Fund of securities denominated
in such currency. Conversely, a decline in the value of the currency will
reduce the total return. The Manager may seek to hedge all or a portion of the
Fund's foreign securities through the use of forward foreign currency
contracts, currency options, futures contracts and options thereon. See
"Portfolio Strategies Involving Options and Futures" below.
While there are no prescribed limits on the geographical allocation of the
Fund's assets, the Manager anticipates that it will invest primarily in the
securities of corporate and governmental issuers domiciled or located in the
U.S., Canada, Western Europe and the Far East. In addition, the Manager
anticipates that a portion of the Fund's assets normally will be invested in
the U.S. securities markets and the other major capital markets. Under normal
conditions, the Fund's investments will be denominated in at least three
currencies or multinational currency units. However, the Fund reserves the
right to invest substantially all of its assets in U.S. markets or U.S. dollar-
denominated obligations when the Manager believes market conditions warrant
such investment.
Similarly, there are no prescribed limits on the allocation of the Fund's
assets among equity, debt and money market securities. Therefore, at any given
time, the Fund's assets may be primarily invested in equity, debt or money
market securities or in any combination thereof. However, the Manager
anticipates that the Fund's portfolio generally will include both equity and
debt securities.
EQUITY SECURITIES
Within the portion of the Fund's portfolio allocated to equity securities,
the Manager will seek to identify the securities of companies and industry
sectors which are expected to provide high total return relative to alternative
equity investments. The Fund generally will seek to invest in securities the
Manager believes to be undervalued. Undervalued issues include securities
selling at a discount from the price-to-book value ratios and price/earnings
ratios computed with respect to the relevant stock market averages. The Fund
may also consider as undervalued, securities selling at a discount from their
historic price-to-book value or
11
<PAGE>
price/earnings ratios, even though these ratios may be above the ratios for the
stock market averages. Securities offering dividend yields higher than the
yields for the relevant stock market averages or higher than such securities'
historic yield may also be considered to be undervalued. The Fund may also
invest in the securities of small and emerging growth companies when such
companies are expected to provide a higher total return than other equity
investments. Such companies are characterized by rapid historical growth rates,
above-average returns on equity or special investment value in terms of their
products or services, research capabilities or other unique attributes. The
Manager will seek to identify small and emerging growth companies that possess
superior management, marketing ability, research and product development skills
and sound balance sheets. Investment in the securities of small and emerging
growth companies involves greater risk than investment in larger, more
established companies. Such risks include the fact that securities of small or
emerging growth companies may be subject to more abrupt or erratic market
movements than larger, more established companies or the market average in
general. Also, these companies may have limited product lines, markets or
financial resources, or they may be dependent on a limited management group.
There may be periods when market and economic conditions exist that favor
certain types of tangible assets as compared to other types of investments. For
example, the value of precious metals can be expected to benefit from such
factors as rising inflationary pressures or other economic, political or
financial uncertainty or instability. Real estate values, which are influenced
by a variety of economic, financial and local factors, tend to be cyclical in
nature. During periods when the Manager believes that conditions favor a
particular real asset as compared to other investment opportunities, the Fund
may emphasize investments related to that asset such as investments in precious
metal-related securities or real estate-related securities as described below.
The Fund may invest up to 25% of its total assets in any particular industry
sector.
Precious Metal-Related Securities. Precious metal-related securities are
equity securities of companies that explore for, extract, process or deal in
precious metals, i.e., gold, silver and platinum, and asset-based securities
indexed to the value of such metals. Based on historical experience, during
periods of economic or financial instability the securities of such companies
may be subject to extreme price fluctuations, reflecting the high volatility of
precious metal prices during such periods. In addition, the instability of
precious metal prices may result in volatile earnings of precious metal-related
companies which, in turn, may affect adversely the financial condition of such
companies. Asset-based securities are debt securities, preferred stock or
convertible securities, the principal amount, redemption terms or conversion
terms of which are related to the market price of some precious metal such as
gold bullion. The Fund will purchase only asset-based securities which are
rated, or are issued by issuers that have outstanding debt obligations rated,
BBB or better by Standard & Poor's Ratings Group ("S&P") or Baa or better by
Moody's Investors Service, Inc. ("Moody's") or commercial paper rated A-1 by
S&P or Prime-1 by Moody's or of issuers that the Manager has determined to be
of similar creditworthiness. Securities rated BBB by S&P or Baa by Moody's,
while considered "investment grade", have certain speculative characteristics.
If the asset-based security is backed by a bank letter of credit or other
similar facility, the Manager may take such backing into account in determining
the creditworthiness of the issuer.
Real Estate-Related Securities. The real estate-related securities which will
be emphasized are equity and convertible debt securities of real estate
investment trusts, which own income-producing properties, and mortgage real
estate investment trusts which make various types of mortgage loans often
combined with equity features. The securities of such trusts generally pay
above average dividends and may offer the potential for capital appreciation.
Such securities may be subject to the risks customarily associated with the
real estate
12
<PAGE>
industry, including declines in the value of the real estate investments of the
trusts. Real estate values are affected by numerous factors including (i)
governmental regulation (such as zoning and environmental laws) and changes in
tax laws; (ii) operating costs; (iii) the location and the attractiveness of
the properties; (iv) changes in economic conditions (such as fluctuations in
interest and inflation rates and business conditions); and (v) supply and
demand for improved real estate. Such trusts also are dependent on management
skill and may not be diversified in their investments.
Indexed and Inverse Securities. The Fund may invest in securities whose
potential investment return is based on the change in particular measurements
of value and/or rate (an "index"). As an illustration, the Fund may invest in a
security that pays interest and returns principal based on the change in an
index of interest rates or of the value of a precious or industrial metal.
Interest and principal payable on a security may also be based on relative
changes among particular indices. In addition, the Fund may invest in
securities whose potential investment return is inversely based on the change
in particular indices. For example, the Fund may invest in securities that pay
a higher rate of interest and principal when a particular index decreases and
pay a lower rate of interest and principal when the value of the index
increases. To the extent that the Fund invests in such types of securities, it
will be subject to the risks associated with changes in the particular indices,
which may include reduced or eliminated interest payments and losses of
invested principal.
Certain indexed securities, including certain inverse securities, may have
the effect of providing a degree of investment leverage, because they may
increase or decrease in value at a rate that is a multiple of the changes in
applicable indices. As a result, the market value of such securities will
generally be more volatile than the market values of fixed-rate securities. The
Fund believes that indexed securities, including inverse securities, represent
flexible portfolio management instruments that may allow the Fund to seek
potential investment rewards, hedge other portfolio positions, or vary the
degree of portfolio leverage relatively efficiently under different market
conditions.
DEBT SECURITIES
The debt securities in which the Fund may invest include securities issued or
guaranteed by the U.S. Government and its agencies or instrumentalities, by
foreign governments (including foreign states, provinces and municipalities)
and agencies or instrumentalities thereof and debt obligations issued by U.S.
and foreign entities. Such securities may include mortgage-backed securities
issued or guaranteed by governmental entities or by private issuers. In
addition, the Fund may invest in debt securities issued or guaranteed by
international organizations designed or supported by multiple governmental
entities (which are not obligations of the U.S. Government or foreign
governments) to promote economic reconstruction or development ("supranational
entities") such as the International Bank for Reconstruction and Development
(the "World Bank").
U.S. Government securities include: (i) U.S. Treasury obligations (bills,
notes and bonds), which differ in their interest rates, maturities and times of
issuance, all of which are backed by the full faith and credit of the U.S.; and
(ii) obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, including government guaranteed mortgage-related securities,
some of which are backed by the full faith and credit of the U.S. Treasury
(e.g., direct pass-through certificates of the Government National Mortgage
Association), some of which are supported by the right of the issuer to borrow
from the U.S. Government (e.g., obligations of Federal Home Loan Banks) and
some of which are backed only by the credit of the issuer itself (e.g.,
obligations of the Student Loan Marketing Association).
13
<PAGE>
In the case of mortgage-related securities, prepayments occur when the holder
of an individual mortgage prepays the remaining principal before the mortgage's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, a mortgage-related security is often
subject to more rapid prepayment of principal than its stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgages
vary, it is not possible to predict accurately the realized yield or average
life of a particular issue of pass-through certificates. Prepayment rates are
important because of their effect on the yield and price of the securities.
Accelerated prepayments adversely impact yields for pass-through securities
purchased at a premium (i.e., a price in excess of principal amount) and may
involve additional risk of loss of principal because the premium may not have
been fully amortized at the time the obligation is repaid. The opposite is true
for pass-through securities purchased at a discount. The Fund may purchase
mortgage-related securities at a premium or at a discount.
The obligations of foreign governmental entities have various kinds of
government support and include obligations issued or guaranteed by foreign
governmental entities with taxing power. These obligations may or may not be
supported by the full faith and credit of a foreign government. The Fund will
invest in foreign government securities of issuers considered stable by the
Manager. The Manager does not believe that the credit risk inherent in the
obligations of stable foreign governments is significantly greater than that of
U.S. Government securities.
The Fund is authorized to invest in debt securities of governmental issuers
and of corporate issuers, including convertible debt securities, rated BBB or
better by S&P or Baa or better by Moody's or which, in the Manager's judgment,
possess similar credit characteristics ("investment grade bonds"). Debt
securities ranked in the fourth highest rating category, while considered
"investment grade", have more speculative characteristics and are more likely
to be downgraded than securities rated in the three highest rating categories.
See the Statement of Additional Information for more information regarding
ratings of debt securities. The Manager considers the ratings assigned by S&P
and Moody's as one of several factors in its independent credit analysis of
issuers.
The Fund is also authorized to invest a portion of its debt portfolio in
fixed income securities of governmental issuers and of corporate issuers rated
below investment grade by a nationally recognized rating agency or in unrated
securities which, in the Manager's judgment, possess similar credit
characteristics ("high yield bonds"). The Fund's Board of Directors has adopted
a policy that the Fund will not invest more than 35% of its assets in
obligations rated below Baa or BBB by Moody's or S&P, respectively. Investment
in high yield bonds (which are sometimes referred to as "junk" bonds) involves
substantial risk. Investments in high yield bonds will be made only when, in
the judgment of the Manager, such securities provide attractive total return
potential, relative to the risk of such securities, as compared to higher
quality debt securities. Securities rated BB or lower by S&P or Ba or lower by
Moody's are considered by those rating agencies to have varying degrees of
speculative characteristics. Consequently, although high yield bonds can be
expected to provide higher yields, such securities may be subject to greater
market price fluctuations and risk of loss of principal than lower yielding,
higher rated fixed income securities. The Fund will not invest in debt
securities in the lowest rating categories (CC or lower for S&P or Ca or lower
for Moody's) unless the Manager believes that the financial condition of the
issuer or the protection afforded the particular securities is stronger than
would otherwise be indicated by such low ratings. See the Statement of
Additional Information for additional
14
<PAGE>
information regarding high yield bonds. Although the Fund may invest in
preferred stock rated below investment grade, an investment in an equity
security such as preferred stock is not subject to the above noted percentage
restriction applicable to the Fund's investments in non-investment grade debt
securities.
High yield bonds may be issued by less creditworthy companies or by larger,
highly leveraged companies and are frequently issued in corporate
restructurings such as mergers and leveraged buyouts. Such securities are
particularly vulnerable to adverse changes in the issuer's industry and in
general economic conditions. High yield bonds frequently are junior obligations
of their issuers, so that in the event of the issuer's bankruptcy, claims of
the holders of high yield bonds will be satisfied only after satisfaction of
the claims of senior securityholders. While the high yield bonds in which the
Fund may invest normally do not include securities which, at the time of
investment, are in default or the issuers of which are in bankruptcy, there can
be no assurance that such events will not occur after the Fund purchases a
particular security, in which case the Fund may experience losses and incur
costs.
High yield bonds tend to be more volatile than higher rated fixed income
securities so that adverse economic events may have a greater impact on the
prices of high yield bonds than on higher rated fixed income securities. Like
higher rated fixed income securities, high yield bonds are generally purchased
and sold through dealers who make a market in such securities for their own
accounts. However, there are fewer dealers in the high yield bond market which
may be less liquid than the market for higher rated fixed income securities
even under normal economic conditions. Also, there may be significant
disparities in the prices quoted for high yield bonds by various dealers.
Adverse economic conditions or investor perceptions (whether or not based on
economic fundamentals) may impair the liquidity of this market and may cause
the prices the Fund receives for its high yield bonds to be reduced, or the
Fund may experience difficulty in liquidating a portion of its portfolio. Under
such conditions, judgment may play a greater role in valuing certain of the
Fund's portfolio securities than in the case of securities trading in a more
liquid market.
The average maturity of the Fund's portfolio of debt securities will vary
based on the Manager's assessment of pertinent economic market conditions. As
with all debt securities, changes in market yields will affect the value of
such securities. Prices generally increase when interest rates decline and
decrease when interest rates rise. Prices of longer term securities generally
fluctuate more in response to interest rate changes than do shorter term
securities.
MONEY MARKET SECURITIES
Money market securities in which the Fund may invest consist of short-term
securities issued or guaranteed by the U.S. Government and its agencies and
instrumentalities; commercial paper, including variable amount master demand
notes, rated at least "A" by S&P or "Prime" by Moody's; and repurchase
agreements, purchase and sale contracts, and money market instruments issued by
commercial banks, domestic savings banks, and savings and loan associations
with total assets of at least one billion dollars. The obligations of
commercial banks may be issued by U.S. banks, foreign branches of U.S. banks
("Eurodollar" obligations) or U.S. branches of foreign banks ("Yankeedollar"
obligations).
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 adverse movements in the equity, debt and
15
<PAGE>
currency markets. The Fund has authority to write (i.e., sell) covered put and
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 and in "Risk Factors in
Options and Futures Transactions" further below), the Manager believes that,
because the Fund will (i) write only covered options on portfolio securities
and (ii) 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 its shares, the net
asset value of the Fund's shares 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, debt and currency
markets occur. Reference is made to the Statement of Additional Information for
further information concerning these strategies.
Writing Covered 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 also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options which means that so
long as the Fund is obligated as the writer of the option it will, through its
custodian, have deposited and maintained cash, cash equivalents, U.S.
Government securities or other high grade liquid debt or equity securities
denominated in U.S. dollars or non-U.S. currencies with a securities depository
with a value equal to or greater than the exercise price of the underlying
securities. By writing a put, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of that
security at the time of exercise for as long as the option is outstanding. The
Fund may engage in closing transactions in order to terminate put options that
it has written.
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 stated 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
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costs. Prior to its expiration, a put option may be sold in a closing sale
transaction and profit or loss from the sale will depend on whether the amount
received is more or less than the premium paid for the put option plus the
related transaction costs. A closing sale transaction cancels out the Fund's
position as the purchaser of an option by means of an offsetting sale of an
identical option prior to the expiration of the option it has purchased. In
certain circumstances, the Fund may purchase call options on securities held in
its portfolio on which it has written call options or on securities which it
intends to purchase. The Fund will not purchase options on securities
(including stock index options discussed below) 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. The Fund may purchase or write
put and call options on stock indices to hedge against the risks of market-wide
stock price movements in the securities in which the Fund invests. Options on
indices are similar to options on securities except that, on settlement, the
parties to the contract pay or receive an amount of cash equal to the
difference between the closing value of the index on the relevant valuation
date and the exercise price of the option times a specified multiple. The Fund
may invest in stock index options based on a broad market index, e.g., the S&P
500 Index, or on a narrow index representing an industry or market segment,
e.g., the AMEX Oil & Gas Index.
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 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 particular commodity for a set price on a future date. Unlike most
other futures contracts, a stock index futures contract does not require actual
delivery of a commodity, in this case securities, but results in cash
settlement based upon the difference in value of the stock 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 the
equity securities in which it invests and in financial futures contracts in
connection with the debt securities in which it invests. 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 financial futures contracts in anticipation of an increase
in the general level of interest rates. Generally, as interest rates rise, the
market values of fixed-income securities which may be held by the Fund as a
temporary defensive measure 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 the Fund would have 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.
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The Fund may sell 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 advance, it
may purchase 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 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 futures contract or the purchase
of a call option or the writing of a put option on a future, but under unusual
circumstances (e.g., the Fund experiences a significant amount of redemptions),
a long futures position may be terminated without the corresponding purchase of
securities.
The Fund also has authority to purchase and write call and put options on
futures contracts and stock indices 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 and stock indices rather
than selling the underlying futures contract in anticipation of a decrease in
the market value of its securities. Similarly, the Fund may purchase call
options, or write put options on futures contracts and stock indices, as a
substitute for the purchase of such futures to hedge against the increased cost
resulting from an increase in the market value of securities which the Fund
intends to purchase.
The Fund may engage in options and futures transactions on U.S. and foreign
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 prices 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 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. 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 the
Manager 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
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committed or anticipated to be purchased by the Fund. As an illustration, the
Fund may use such techniques to hedge the stated value in U.S. 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 yen for dollars at a specified price by a future
date (a technique called a "straddle"). By selling such a 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. 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 or 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 which it has committed or anticipates
to purchase which are denominated in such currency and, in the case of
securities which 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. Regulations of the Commodity
Futures Trading Commission ("CFTC") applicable to the Fund provide that the
futures trading activities described herein will not result in the Fund being
deemed a "commodity pool", as defined under such regulations if the Fund
adheres to certain restrictions. In particular, the Fund may purchase and sell
futures contracts and options thereon (i) for bona fide hedging purposes, and
(ii) for non-hedging purposes, if the aggregate initial margin and premiums
required to establish positions in such contracts and options does not exceed
5% of the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts and options.
These restrictions are in addition to other restrictions on the Fund's hedging
activities mentioned herein.
When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash and cash equivalents will be
deposited in a segregated account with the Fund's custodian so that the amount
so segregated, plus the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contract, thereby
ensuring that the use of such futures contract is unleveraged.
Restrictions on OTC Options. The Fund will engage in OTC options, including
over-the-counter stock index options, 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 U.S. Government securities or with
affiliates of such banks or dealers which have capital of at least $50 million
or whose obligations are guaranteed by an entity having capital of at least $50
million.
The staff of the Securities and Exchange 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
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futures contracts) if, as a result of such transaction, the sum of the market
value of OTC options currently outstanding which are held by the Fund, the
market value of the underlying securities covered by OTC call options currently
outstanding which were sold by the Fund and margin deposits on the Fund's
existing OTC options on futures contracts exceeds 15% (10% to the extent
required by certain state laws) of the total assets of the Fund, taken at
market value, together with all other assets of the Fund which are illiquid or
are not otherwise readily marketable. However, if the OTC option is sold by the
Fund to a primary U.S. Government securities dealer recognized by the Federal
Reserve Bank of New York and if 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 Securities and Exchange 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 or currencies which are the subject of the hedge.
If the price of the options or futures moves more or less than the price of the
hedged securities or currencies, 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 correctly predict price movements in the market involved in a
particular options or futures transaction. To compensate for imperfect
correlations, the Fund may purchase or sell stock index options or futures
contracts in a greater dollar amount than the hedged securities if the
volatility of the hedged securities is historically greater than the volatility
of the stock index options or futures contracts. Conversely, the Fund may
purchase or sell fewer stock index options or futures contracts if the
volatility of the price of the hedged securities is historically less than that
of the stock index options or futures contracts. The risk of imperfect
correlation generally tends to diminish as the maturity date of the stock index
option or futures contract approaches.
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. 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)
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. The Manager
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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
Non-Diversified Status. The Fund is classified as non-diversified within the
meaning of the Investment Company Act, which means that the Fund is not limited
by such Act in the proportion of its assets that it may invest in securities of
a single issuer. However, the Fund's investments will be limited so as to
qualify as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended. See "Additional Information -- Taxes". To
qualify, among other requirements, the Fund will limit its investments so that,
at the close of each quarter of the taxable year, (i) not more than 25% of the
market value of the Fund's total assets will be invested in the securities of a
single issuer and (ii) with respect to 50% of the market value of its total
assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer, and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer. A fund which
elects to be classified as "diversified" under the Investment Company Act must
satisfy the foregoing 5% and 10% requirements with respect to 75% of its total
assets. To the extent that the Fund assumes large positions in the securities
of a small number of issuers, the Fund's yield may fluctuate to a greater
extent than that of a diversified company as a result of changes in the
financial condition or in the market's assessment of the issuers.
Portfolio Transactions. Since portfolio transactions may be effected on
foreign securities exchanges, the Fund may incur settlement delays on certain
of such exchanges. See "Special Considerations" above. Where possible, the Fund
will deal directly with the dealers who make a market in the securities
involved except in those circumstances where better prices and execution are
available elsewhere. Such dealers usually are acting as principal for their own
account. On occasion, securities may be purchased directly from the issuer.
Such portfolio securities are generally traded on a net basis and do not
normally involve either brokerage commissions or transfer taxes. Securities
firms may receive brokerage commissions on certain portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon exercise of options. The Fund has no
obligation to deal with any broker in the execution of transactions in
portfolio securities. Under the Investment Company Act, persons affiliated with
the Fund, including Merrill Lynch, are prohibited from dealing with the Fund as
a principal in the purchase and sale of securities unless a permissive order
allowing such transactions is obtained from the Commission. Affiliated persons
of the Fund, and affiliated persons of such affiliated persons, may serve as
its broker in transactions conducted on an exchange and in over-the-counter
transactions conducted on an agency basis. In addition, consistent with the
Rules of Fair Practice of the NASD, the Fund 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. Costs associated with
transactions in foreign securities are generally higher than with transactions
in U.S. securities, although the Fund will endeavor to achieve the best net
results in effecting such transactions.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase securities on a when-issued basis, and it may purchase or sell
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future to secure what is considered an advantageous yield and price to the Fund
at the time of entering into the transaction. Although the Fund has not
established any limit on the percentage of its assets that may be committed in
connection with such transactions, the Fund will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government securities
or other high grade liquid debt or equity securities denominated
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in U.S. dollars or non-U.S. currencies in an aggregate amount equal to the
amount of its commitment in connection with such purchase transactions.
Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed income security which
may be issued and sold to the Fund at the option of the issuer. The price and
coupon of the security is fixed at the time of the commitment. At the time of
entering into the agreement, the Fund is paid a commitment fee, regardless of
whether or not the security is ultimately issued, which is typically
approximately 0.5% of the aggregate purchase price of the security which the
Fund has committed to purchase. The Fund will enter into such agreements only
for the purpose of investing in the security underlying the commitment at a
yield and price which is considered advantageous to the Fund. The Fund will not
enter into a standby commitment with a remaining term in excess of 90 days and
will limit its investment in such commitments so that the aggregate purchase
price of the securities subject to such commitments, together with the value of
portfolio securities subject to legal restrictions on resale, will not exceed
15% (10% to the extent required by certain state laws) of its total assets
taken at the time of acquisition of such commitment or security. The Fund will
at all times maintain a segregated account with its custodian of cash, cash
equivalents, U.S. Government securities or other high grade liquid debt or
equity securities denominated in U.S. dollars or non-U.S. currencies in an
aggregate amount equal to the purchase price of the securities underlying the
commitment.
There can be no assurance that the securities subject to a standby commitment
will be issued and the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the Fund may bear the
risk of a decline in the value of such security and may not benefit from an
appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued, and the value of the security will
thereafter be reflected in the calculation of the Fund's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment
fee. In the event the security is not issued, the commitment fee will be
recorded as income on the expiration date of the standby commitment.
Repurchase Agreements; Purchase and Sale Contracts. The Fund may invest in
securities pursuant to repurchase agreements or purchase and sale contracts.
Under a repurchase agreement, the seller agrees, upon entering into the
contract with the Fund, to repurchase a security (typically a security issued
or guaranteed by the U.S. Government) at a mutually agreed upon time and price,
thereby determining the yield during the term of the agreement. This insulates
the Fund from fluctuations in the market value of the underlying security
during such period, although, to the extent the repurchase agreement is not
denominated in U.S. dollars, the Fund's return may be affected by currency
fluctuations. Repurchase agreements may be entered into only with a member bank
of the Federal Reserve System, a primary dealer in U.S. government securities
or an affiliate thereof. A purchase and sale contract is similar to a
repurchase agreement, but purchase and sale contracts, unlike repurchase
agreements, allocate interest on the underlying security to the purchaser
during the term of the agreement. In all instances, the Fund takes possession
of the underlying securities when investing in repurchase agreements or
purchase and sale contracts. Nevertheless, if the seller were to default on its
obligation to repurchase a security under a repurchase agreement or purchase
and sale contract and the market value of the underlying security at such time
was less than the Fund had paid to the seller, the Fund would realize a
loss. The Fund may not invest more than 15% (10% to the extent required by
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certain state laws) of its total assets in repurchase agreements or purchase
and sale contracts maturing in more than seven days, together with all other
illiquid securities.
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 U.S. 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's investment activities are subject to
further restrictions that are described in the Statement of Additional
Information. Investment restrictions and policies which are fundamental
policies 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 (a) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (b) more than 50% of the outstanding shares). Among its
fundamental policies, the Fund may not invest more than 25% of its assets,
taken at market value, in the securities of issuers in any particular industry
(excluding the U.S. Government and its agencies and instrumentalities). Other
fundamental policies include policies which restrict the issuance of senior
securities and limit bank borrowings. In addition, the Fund has adopted non-
fundamental restrictions which may be changed by the Board of Directors. Among
its non-fundamental policies, the Fund may not:
--Purchase securities of other investment companies, except to the extent
such purchases are permitted by applicable law.
--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. As explained further in the Statement of Additional
Information, under state law the Fund is presently limited with respect to
investment in certain illiquid securities to 10% of its total assets.
--Notwithstanding the less restrictive fundamental investment restriction
recited in the Statement of Additional Information, borrow amounts in excess of
10% of its total assets, taken at market value, and then only from banks as a
temporary measure for extraordinary or emergency purposes such as the
redemption of Fund shares. The Fund will not purchase securities while
borrowings exceed 5% (taken at market value) of its total assets.
The Fund will include OTC options and the securities underlying such options
in calculating the amount of its total assets subject to the limitation
concerning investments in illiquid securities noted above. However, as
discussed further above, the Fund may treat the securities it uses as cover for
written OTC options as liquid, and, therefore, will be excluded from this
restriction, provided it follows a specified procedure. The
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Fund will not change or modify this policy prior to the change or modification
by the Commission staff of its position regarding OTC options, as discussed
above.
Portfolio Turnover. The Manager will effect portfolio transactions without
regard to holding period, if, in its judgment, such transactions are advisable
in light of a change in circumstance in general market, economic or financial
conditions. As a result of its investment policies, the Fund may engage in a
substantial number of portfolio transactions. Accordingly, while the Fund
anticipates that its annual portfolio turnover rate should not exceed 200%
under normal conditions, it is impossible to predict portfolio turnover rates.
The portfolio turnover rate is calculated by dividing the lesser of the Fund's
annual sales or purchases of portfolio securities (exclusive of purchases or
sales of 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. High portfolio turnover involves correspondingly greater transaction
costs in the form of dealer spreads and brokerage commissions, which are borne
directly by the Fund.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of six individuals, five of whom
are not "interested persons" of the Fund as defined in the Investment Company
Act. The Board of Directors of the Fund is responsible for the overall
supervision of the operations of the Fund and performs the various duties
imposed on the directors of investment companies by the Investment Company Act.
The Directors of the Fund are:
Arthur Zeikel* -- President and Chief Investment Officer of the Manager;
President and Director of Princeton Services, Inc.; Executive Vice President of
Merrill Lynch & Co., Inc. ("ML & Co."); Executive Vice President of Merrill
Lynch; Director of the Distributor.
Donald Cecil -- Special Limited Partner of Cumberland Partners (an investment
partnership).
Edward H. Meyer -- Chairman of the Board, President and Chief Executive
Officer of Grey Advertising Inc.
Charles C. Reilly -- Self-employed financial consultant; former President and
Chief Investment Officer of Verus Capital, Inc.; former Senior Vice President
of Arnhold and S. Bleichroeder, Inc.; Adjunct Professor, Columbia University
Graduate School of Business.
Richard R. West -- Professor of Finance, and Dean from 1984 to 1993, New York
University Leonard N. Stern School of Business Administration.
Edward D. Zinbarg -- Former Executive Vice President of The Prudential
Insurance Company of America.
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* Interested person, as defined in the Investment Company Act, of the Fund.
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MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager, Merrill Lynch Asset Management, L.P., which does business as
Merrill Lynch Asset Management, is owned and controlled by ML & Co., a
financial services holding company and the parent of Merrill Lynch. The Manager
provides the Fund with management and investment advisory services. The Manager
or an affiliate, Fund Asset Management, L.P. ("FAM"), acts as the manager for
more than 130 registered investment companies. The Manager also offers
portfolio management and portfolio analysis services to individuals and
institutions. As of January 31, 1995, the Manager and FAM had a total of
approximately $166.5 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 Board of 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 Board of 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 is also obligated to perform certain administrative
and management services for the Fund and is obligated to provide all of the
office space, facilities, equipment and personnel necessary to perform its
duties under the Management Agreement.
The Management Agreement provides that the Fund will pay the Manager a
monthly fee at the annual rate of 0.75% of the average daily net assets of the
Fund. The Manager has agreed to waive a portion of its management fee payable
by the Fund so that such fee is reduced for average daily net assets of the
Fund in excess of $2.5 billion from the annual rate of 0.75% to 0.70%, and
further reduced from 0.70% to 0.65% for average daily net assets in excess of
$5 billion. For the fiscal year ended October 31, 1994, the Fund paid the
Manager a fee at the rate of 0.71% of average daily net assets. This fee is
higher than that of most mutual funds, but management of the Fund believes this
fee, which is typical for a global fund, is justified by the global nature of
the Fund. For the fiscal year ended October 31, 1994, the Manager received a
fee of $49,037,363 (based on average net assets of $6.9 billion). At January
31, 1995, the net assets of the Fund aggregated approximately $7.6 billion. At
this asset level, the annual management fee would aggregate approximately $53.4
million. Also, the Manager has entered into a sub-advisory agreement (the "Sub-
Advisory Agreement") with Merrill Lynch Asset Management U.K. Limited ("MLAM
U.K."), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. and
an affiliate of the Manager, pursuant to which the Manager pays MLAM U.K. a fee
computed at the rate of 0.10% of the average daily net assets of the Fund for
providing investment advisory services to the Manager with respect to the Fund.
For the fiscal year ended October 31, 1994, the fee paid by the Manager to MLAM
U.K. pursuant to such agreement aggregated $6,509,464. At the Fund's January
31, 1995, asset level, the annual fee paid by the Manager to MLAM U.K. would
aggregate approximately $7.6 million. MLAM U.K. has offices at Ropemaker Place,
25 Ropemaker Street, 1st Floor, London EC24 9LY, England.
Bryan N. Ison, Vice President of the Fund, is the Fund's Portfolio Manager.
Mr. Ison has been a Portfolio Manager of the Manager since 1984 and a Vice
President of the Manager since 1985. Mr. Ison has been primarily responsible
for the management of the Fund's portfolio since it commenced operations.
25
<PAGE>
The Management Agreement obligates the Fund to pay certain expenses incurred
in its operations including, among other things, the investment advisory fee,
legal and audit fees, registration fees, unaffiliated Directors' fees and
expenses, custodian and transfer agency fees, accounting costs, the costs of
issuing and redeeming shares and certain of the costs of printing proxies,
shareholder reports, prospectuses and statements of additional information.
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 fiscal year ended October 31, 1994, the Fund
reimbursed the Manager $570,246 for such accounting services. For the fiscal
year ended October 31, 1994, the ratio of total expenses to average net assets
was 0.89% for Class A shares and 1.91% for Class B shares. For the fiscal
period October 21, 1994 (commencement of operations for Class C and Class D
shares) to October 31, 1994, the ratio of total expenses to average net assets
was 2.44% (annualized) for Class C shares and 1.69% (annualized) for Class D
shares.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act which incorporates the Code of Ethics of
the 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
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 Transfer Agent receives an
annual fee of $11.00 per Class A or Class D shareholder account and $14.00 per
Class B or Class C shareholder account, nominal miscellaneous fees (e.g.,
account closing fees) and is entitled to reimbursement for out-of-pocket
expenses incurred by it under the Transfer Agency Agreement. For the fiscal
year ended October 31, 1994, the Fund paid $6,956,192 to the Transfer Agent
pursuant to the Transfer Agency Agreement. At January 31, 1995, the Fund had
102,810 Class A shareholder accounts, 519,272 Class B shareholder accounts,
3,992 Class C shareholder accounts and 13,961 Class D shareholder accounts. At
this level of accounts, the annual fee payable to the Transfer Agent would
aggregate approximately $8.6 million, plus miscellaneous and out-of-pocket
expenses.
26
<PAGE>
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
both the Manager and Merrill Lynch, acts as the distributor of 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 initial purchase is $1,000, and
the minimum subsequent purchase is $50, except that for retirement plan, 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
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 orders 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 orders 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 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 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
27
<PAGE>
shares, are imposed directly against those classes and not against all assets
of the Fund and, accordingly, such charges do not affect the net asset value
of any other class or have any impact on investors choosing another sales
charge option. Dividends paid by the Fund for each class of shares are
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect
to such class pursuant to which account maintenance and/or distribution fees
are paid. 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 PricingSM System.
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(/1/) FEE FEE CONVERSION FEATURE
- ---------------------------------------------------------------------------------
<C> <S> <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 D
years, at a rate of shares automatically
4.0% during the after approximately
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 may be imposed if the redemption occurs
within the applicable CDSC time period. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives -- Class A and Class D Shares -- Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more will not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other MLAM-
advised mutual funds into which exchanges may be made have a ten-year
conversion period. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
28
<PAGE>
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible to
purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net
asset value plus varying sales charges (i.e., sales loads), as set forth
below.
<TABLE>
<CAPTION>
SALES LOAD AS DISCOUNT TO
SALES LOAD AS PERCENTAGE* OF SELECTED DEALERS
PERCENTAGE OF THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED THE OFFERING PRICE
- ------------------ -------------- -------------- ------------------
<S> <C> <C> <C>
Less than $25,000............. 5.25% 5.54% 5.00%
$25,000 but less than $50,000. 4.75 4.99 4.50
$50,000 but less than
$100,000..................... 4.00 4.17 3.75
$100,000 but less than
$250,000..................... 3.00 3.09 2.75
$250,000 but less than
$1,000,000................... 2.00 2.04 1.80
$1,000,000 and over**......... 0.00 0.00 0.00
</TABLE>
- --------
*Rounded to the nearest one-hundredth percent.
** Class A and Class D purchases of $1,000,000 or more made on or after
October 21, 1994, 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 annual rates: 1.00% on
purchases of $1,000,000 to $2,500,000; 0.60% on purchases of $2,500,001 to
$3,500,000; 0.40% on purchases of $3,500,001 to $5,000,000; and 0.25% on
purchases of more than $5,000,000 in lieu of paying an initial sales
charge. 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. 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.
During the fiscal year ended October 31, 1994, the Fund sold 51,696,255 Class
A shares for aggregate net proceeds of $691,831,423. The gross sales charges
for the sale of Class A shares of the Fund for that year were $10,514,692, of
which $623,860 and $9,890,832 were received by the Distributor and Merrill
Lynch, respectively. For the fiscal year ended October 31, 1994, the
Distributor received CDSCs of $77,685, all of which were paid to Merrill
Lynch, with respect to redemption within one year after purchase of Class A
shares purchased subject to front-end sales charge waivers. During the fiscal
period October 21, 1994 (commencement of operations for Class D shares) to
October 31, 1994, the Fund sold 385,289 Class D shares for aggregate net
proceeds of $5,017,907. The gross sales charges for the sale of Class D shares
of the Fund for that year were $95,875, of which $5,131 and $90,744 were
received by the Distributor and Merrill Lynch, respectively. For the fiscal
period October 21, 1994 (commencement of operations for Class D shares) to
October 31, 1994, the Distributor did not receive CDSCs with respect to
redemption 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 that currently own Class A
29
<PAGE>
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 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 who wish to reinvest
the net proceeds from a sale of their closed-end fund shares of common stock
in shares of the Fund also may purchase Class A shares of the Fund if certain
conditions set forth in the Statement of Additional Information are met for
closed-end funds that commenced operations prior to October 21, 1994. For
example, Class A shares of the Fund and certain other MLAM-advised mutual
funds are offered at net asset value to shareholders of Merrill Lynch Senior
Floating Rate Fund, Inc. who wish to reinvest the net proceeds from a sale of
certain of their shares of common stock of Merrill Lynch Senior Floating Rate
Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges
also may be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A
investors as set forth above under "Eligible Class A Investors".
Class D shares are offered at net asset value without sales charge to an
investor who has a business relationship with a Merrill Lynch financial
consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint SM Program.
Additional information concerning these reduced initial sales charges,
including information regarding investments by Employee Sponsored Retirement
or Savings Plans, is set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES -- CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net
asset value per share without the imposition of a sales charge at the
30
<PAGE>
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 a distribution
fee 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 its 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 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 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 which 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 CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
31
<PAGE>
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------------- -----------------
<S> <C>
0-1........................................................ 4.00%
1-2........................................................ 3.00
2-3........................................................ 2.00
3-4........................................................ 1.00
4 and thereafter........................................... 0.00
</TABLE>
For the fiscal year ended October 31, 1994, the Distributor received CDSCs of
$6,842,598 with respect to redemptions of Class B shares, all of which were
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 the redemption of Class C shares.
In determining whether a CDSC is applicable to a redemption, the calculation
will be determined in the manner that results in the lowest possible rate
being charged. Therefore, it will be assumed that the redemption is first of
shares held for over four years or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the four-
year period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of
shares from a shareholder's account to another account will be assumed to be
made in the same order as a redemption.
To provide an example, assume an investor purchases 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 CDSC is applied only to the original
cost of $10 per share and not to the increase in net asset value of $2 per
share. Therefore, $400 of the $600 redemption proceeds will be charged at a
rate of 2.0% (the applicable rate in the third year after purchase for shares
purchased on or after October 21, 1994).
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of a shareholder.
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 CDSC also
is waived for any Class B shares which are purchased by eligible 401(k) or
eligible 401(a) plans 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.
32
<PAGE>
Contingent Deferred Sales Charges -- Class C Shares. Class C shares which are
redeemed within one year after purchase may be subject to a 1.0% CDSC charged
as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed
on increases in net asset value above the initial purchase price. In addition,
no Class C CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over one year or shares acquired pursuant to
reinvestment of dividends or distributions and then of shares held longest
during the one-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase. A
transfer of shares from a shareholder's account to another account will be
assumed to be made in the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Fund. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load fee or other charge. Conversion of 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.
33
<PAGE>
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares ("Class B Retirement
Plans"). When the first share of any MLAM-advised mutual fund purchased by a
Class B Retirement Plan has been held for ten years (i.e., ten years from the
date the relationship between MLAM-advised mutual funds and the Class B
Retirement Plan was established), all Class B shares of all MLAM-advised mutual
funds held in that Class B Retirement Plan will be converted into Class D
shares of the appropriate funds. Subsequent to such conversion, that Class B
Retirement Plan will be sold Class D shares of the appropriate funds at net
asset value.
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
"Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Fund to the Distributor with respect to such
classes. The Class B and Class C Distribution Plans provide for the payment of
account maintenance fees and distribution fees, and the Class D Distribution
Plan provides for the payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual
rate of 0.25% of the average daily net assets of the Fund attributable to
shares of the relevant class in order to compensate the Distributor and Merrill
Lynch (pursuant to a sub-agreement) in connection with account maintenance
activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 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, 1994, the Fund paid the Distributor
$57,576,817 pursuant to the Class B Distribution Plan (based on average net
assets subject to the Class B Distribution Plan of approximately $5.7 billion),
all of which was paid to Merrill Lynch for providing account maintenance and
distribution-related activities and services in connection with Class B shares.
For the fiscal period October 21, 1994 (commencement of operations for Class C
shares) to October 31, 1994, the Fund paid the Distributor $1,216 pursuant to
the Class C Distribution Plan (based on average net assets subject to the Class
C Distribution Plan of approximately $4.4 million), all of which was paid to
Merrill Lynch for providing account maintenance and distribution-related
activities and services in connection with Class C shares. For the fiscal
period October 21, 1994 (commencement of operations for Class D shares) to
October 31, 1994, the
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Fund paid the Distributor $216 pursuant to the Class D Distribution Plan (based
on average net assets subject to such Distribution Plan of approximately $3.2
million), all of which was paid to Merrill Lynch for providing account
maintenance services in connection with Class D shares. At January 31, 1995,
the net assets of the Fund subject to the Class B Distribution Plan aggregated
approximately $6.2 billion. At this asset level, the annual fee payable
pursuant to the Class B Distribution Plan would aggregate approximately $61.7
million. At January 31, 1995, the net assets of the Fund subject to the Class C
Distribution Plan aggregated approximately $30.3 million. At this asset level,
the annual fee payable pursuant to the Class C Distribution Plan would
aggregate approximately $303,000. At January 31, 1995, the net assets of the
Fund subject to the Class D Distribution Plan aggregated approximately $111.6
million. At this asset level, the annual fee payable pursuant to the Class D
Distribution Plan would aggregate approximately $279,000.
The payments under the Distribution Plans are based upon 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, 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.
At December 31, 1993, the fully allocated accrual expenses incurred by the
Distributor and Merrill Lynch with respect to Class B shares for the period
since February 3, 1989 (commencement of operations) exceeded fully allocated
accrual revenues by approximately $87,524,000 (1.80% of Class B net assets at
that date). As of December 31, 1993, for Class B shares, direct cash expenses
for the period since February 3, 1989 (commencement of operations) exceeded
direct cash revenues by $17,461,314 (0.36% of Class B net assets at that date).
As of December 31, 1994, for Class B shares, direct cash revenues for the
period since February 3, 1989 (commencement of operations) exceeded direct cash
expenses by $7,777,834 (0.12% of Class B net assets at that date). Similar
fully allocated accrual data is not yet available with respect to Class C
shares which the Fund commenced offering to the public on October 21, 1994. As
of December 31, 1994, for Class C shares, direct cash expenses for the period
since October 21, 1994 (commencement of public offering) exceeded direct cash
revenues by $11,048 (0.15% 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 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
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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 Fund's
distribution fee and the CDSC 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 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.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares of the Fund upon receipt
of a written request in proper form. The redemption price is the net asset
value per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC 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 upon
redemption all dividends reinvested through the date of redemption. The value
of shares at the time of redemption may be more or less than the shareholder's
cost, depending on the market value of the securities held by the Fund at such
time.
REDEMPTION
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Transfer Agent, Financial Data Services, Inc., Transfer Agency
Mutual Fund Operations, P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to
Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484. Proper notice of
redemption in the case of shares deposited with the Transfer Agent may be
accomplished by a written letter requesting redemption. Proper notice of
redemption
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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 signatures
of all persons in whose names the shares are registered, signed exactly as
their names appear on the Transfer Agent's register or on the certificate, as
the case may be. The signature(s) on the notice must be guaranteed by an
"eligible guarantor institution" (including, for example, Merrill Lynch branch
offices and certain other financial institutions) as such term is defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, 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, payment will be mailed
within seven days of receipt of a proper notice of redemption.
At various times the Fund may be requested to redeem shares for which it has
not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as good payment (e.g., cash or
certified check drawn on a U.S. 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 normally will accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request
for repurchase is received by the dealer prior to the close of business on the
New York Stock Exchange on the day received and that such request is received
by the Fund from such dealer not later than 30 minutes after the close of
business on the New York Stock Exchange (generally, 4:00 p.m., New York time)
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.
The foregoing repurchase arrangements are for the convenience of shareholders
and do not involve a charge by the Fund (other than any applicable CDSC).
Securities firms which do not have selected dealer agreements with the
Distributor, however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Merrill Lynch may charge its
customers a processing fee (presently $4.85) to confirm a repurchase of shares
to such customers. Redemptions directly through the Transfer Agent are not
subject to the processing fee. The Fund reserves the right to reject any order
for repurchase, which right of rejection might adversely affect shareholders
seeking redemption through the repurchase procedure. A shareholder whose order
for repurchase is rejected by the Fund, however, 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 within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor. The
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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 and investment plans
described below which are designed to facilitate investment in shares of the
Fund. Certain of such services are not available to investors who place
purchase orders for the Fund's shares through the Merrill Lynch BlueprintSM
Program. Full details as to each of such services, copies of the various plans
described below and instructions as to how to participate in the various 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. Certain of these services are available only to
U.S. investors.
Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive statements, at least
quarterly, from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
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 gain
distributions. A shareholder may make additions to his Investment Account at
any time by mailing a check directly to the Transfer Agent. Shareholders also
may maintain their accounts through Merrill Lynch. Upon the transfer of shares
out of a Merrill Lynch brokerage account, an Investment Account in the
transferring shareholder's name will be opened automatically, without charge,
at the Transfer Agent. Shareholders considering transferring their Class A or
Class D shares from Merrill Lynch to another brokerage firm or financial
institution should be aware that, if the firm to which the Class A or Class D
shares are to be transferred will not take delivery of shares of the 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. 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 must either redeem the shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm, or such
shareholder must continue to maintain a retirement account at Merrill Lynch for
those shares.
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Exchange Privilege. U.S. shareholders of each class of shares of the Fund
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 PricingSM 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 fund.
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 of holders of Class A, Class B, Class C or Class D shares. The
period of time that Class A, Class B, Class C or Class D shares are held in a
money market fund, however, will not count toward satisfaction of the holding
period requirement for reduction of any CDSC imposed on such shares, if any,
and with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes. For further information, see "Shareholder Services -- Exchange
Privilege" in the Statement of Additional Information.
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The Fund's exchange privilege is modified with respect to purchases of Class
A and Class D shares under the Merrill Lynch Mutual Fund Adviser ("MFA")
program. First, the initial allocation of assets is made under the MFA program.
Then, any subsequent exchange under the MFA program of Class A or Class D
shares of a MLAM-advised mutual fund for Class A or Class D shares of the Fund
will be made solely on the basis of the relative net asset values of the shares
being exchanged. Therefore, there will not be a charge for any difference
between the sales charge previously paid on the shares of the other MLAM-
advised mutual fund and the sales charge payable on the shares of the Fund
being acquired in the exchange under the MFA program.
Automatic Reinvestment of Dividends and Capital Gains Distributions. All
dividends and capital gains distributions are reinvested automatically in full
and fractional shares of the Fund 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 to Merrill Lynch if the
shareholder's account is maintained with Merrill Lynch or by written
notification or by telephone (1-800-MER-FUND) to the Transfer Agent if the
shareholder's account is maintained with the Transfer Agent, elect to have
subsequent dividends or capital gains distributions, or both, paid in cash,
rather than reinvested, in which event payment will be mailed on or about the
payment date. Cash payments can also 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 Plan. A Class A or Class D shareholder may elect to
receive systematic withdrawal payments from his Investment Account in the form
of payments by check or through automatic payment by direct deposit to his bank
account on either a monthly or quarterly basis. 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 CMA(R)/CBA(R) Systematic Redemption
Program, subject to certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C
and Class D shares may be made to an investor's Investment Account by
prearranged charges of $50 or more to his regular bank account. Investors who
maintain CMA(R) or CBA(R) accounts may arrange to have periodic investments
made in the Fund in their CMA(R) or CBA(R) accounts or in certain related
accounts in amounts of $100 or more through the CMA(R)/CBA(R) Automated
Investment Program.
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
a formula specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value of such investment at the end of each period. Average annual total return
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses,
including any CDSC that would be applicable to a complete redemption of the
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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 fees 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 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 longer
periods of time. In advertisements directed 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 shares (such as investors in certain
retirement plans), performance data may take into account the reduced, and not
the maximum, sales charge or may not take into account the CDSC and therefore
may reflect greater total return since, due to the reduced sales charges or
waiver of the CDSC, a lower amount of expenses may be deducted. See "Purchase
of Shares". The Fund's total return may be expressed either as a percentage or
as a dollar amount in order to illustrate the effect of such total return on a
hypothetical $1,000 investment in the 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 the Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average, or
performance data published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business Week,
CDA Investment Technology, Inc., Forbes Magazine, Fortune Magazine or other
industry publications. In addition, from time to time the Fund may include the
Fund's risk-adjusted performance ratings assigned by Morningstar Publications,
Inc. in advertising or supplemental sales literature. As with other performance
data, performance comparisons should not be considered indicative of the Fund's
relative performance for any future period.
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ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all of its net investment income, if
any. Dividends from such net investment income are paid at least annually. All
net realized long- or short-term capital gains, if any, are distributed to the
Fund's shareholders at least annually. The per share dividends and
distributions on each class of shares will be reduced as a result of any
account maintenance, distribution and transfer agency fees applicable to that
class. See "Additional Information -- Determination of Net Asset Value".
Dividends and distributions may be reinvested automatically in shares of the
Fund, at net asset value without a sales charge. Shareholders may elect in
writing to receive any such dividends or distributions, or both, in cash.
Dividends and distributions are taxable to shareholders as described below
whether they are reinvested in shares of the Fund or received in cash. 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 related gains or
losses from certain of the Fund's investments may increase or decrease the
amount of the Fund's income available for distribution to shareholders. If such
losses exceed other income during a taxable year, (a) the Fund would not be
able to make any ordinary dividend distributions, and (b) distributions made
before the losses were realized would be recharacterized as returns of capital
to shareholders, rather than as ordinary dividends, reducing each shareholder's
tax basis in his Fund shares for Federal income tax purposes. For a detailed
discussion of the Federal tax considerations relevant to foreign currency
transactions, see "Additional Information -- Taxes". If in any fiscal year the
Fund has net income from certain foreign currency transactions, such income
will be distributed annually.
All net realized long- or short-term capital gains, if any, are declared and
distributed to the Fund's shareholders annually after the close of the Fund's
fiscal year. Capital gains distributions will be automatically reinvested in
shares unless the shareholder elects to receive such distributions in cash.
See "Shareholder Services -- Automatic Reinvestment of Dividends and Capital
Gains Distributions" for information as to how to elect either dividend
reinvestment or cash payments. Dividends and distributions are taxable to
shareholders as described below whether they are reinvested in shares of any
portfolio or received in cash.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily as of 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 is computed by dividing
the market value of the securities held by the Fund plus any cash or other
assets (including interest and dividends accrued but not yet received) minus
all liabilities (including accrued expenses) by the total number of shares
outstanding at such time. Expenses, including the management fees payable to
the Manager and any account maintenance and/or distribution fees payable to 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
the
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other classes, reflecting the daily expense accruals of the account
maintenance, distribution and higher transfer agency fees applicable with
respect to Class B and Class C shares and the daily expense accruals of the
account maintenance fees applicable with respect to Class D shares; 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 the higher transfer agency fees
applicable with respect to Class B and Class C shares. It is expected, however,
that the per share net asset value of the classes will tend to converge
(although not necessarily meet) immediately after the payment of dividends or
distributions which will differ by approximately the amount of the expense
accrual differentials between the classes.
Portfolio securities which 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 Board of 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. When the Fund writes an option, the amount of the premium
received is recorded on the books of the Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to reflect the
current market value of the option written, based upon the last sale price in
the case of exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased by the Fund
are valued at their last sale price in the case of exchange-traded options or,
in the case of options traded in the over-the-counter market, the last bid
price.
Securities and assets for which market quotations are not readily available
are valued at fair value as determined in good faith under the direction of the
Board of Directors of the Fund.
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). If it so qualifies, the Fund (but not
its shareholders) will not be subject to Federal income tax on the part of its
net ordinary income and net realized capital gains which it distributes to
Class A, Class B, Class C and Class D shareholders (together, the
"shareholders"). The Fund intends to distribute substantially all of such
income.
Dividends paid by the Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in futures and options)
("capital gain dividends") are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund shares.
Distributions in excess of the Fund's earnings and profits will first reduce
the adjusted tax basis of a holder's shares and, after such adjusted tax basis
is reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. A portion of the Fund's ordinary income dividends may be eligible
for the dividends received deduction allowed to corporations under the Code, if
certain requirements are met. If the Fund pays a dividend in January that
43
<PAGE>
was declared in the previous October, November or December to shareholders of
record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% U.S.
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
U.S. withholding tax.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. If more than 50% in value of the Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service pursuant to which shareholders of the Fund will be
required to include their proportionate shares of such withholding taxes in
their U.S. income tax returns as gross income, treat such proportionate shares
as taxes paid by them, and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against
their U.S. income taxes. No deductions for foreign taxes, however, may be
claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign corporation may
be subject to U.S. withholding tax on the income resulting from the Fund's
election described in this paragraph but may not be able to claim a credit or
deduction against such U.S. tax for the foreign taxes treated as having been
paid by such shareholder. The Fund will report annually to its shareholders the
amount per share of such withholding taxes.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Under Code Section 988, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are
not "regulated futures contracts" and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, the Fund would not be able to make any
ordinary income dividend distributions, and any distributions made before the
losses were realized but in the same taxable year would be recharacterized as a
return of capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than the shareholder's tax basis in Fund
shares (assuming the shares were held as a capital asset).
44
<PAGE>
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 the sales charge paid to the Fund
on the exchanged shares reduces any sales charge the shareholder would have
owed upon 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 or administrative action
either prospectively or retroactively.
Ordinary income dividends 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.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on June 9, 1988. It has an
authorized capital of 2,200,000,000 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, of which Class A and Class C consists of 200,000,000
shares, and Class B and Class D consists of 900,000,000 shares. Shares of Class
A, Class B, Class C and Class D Common Stock represent interests in the same
assets of the Fund and are identical in all respects except that Class B, Class
C and Class D shares bear certain expenses related to the account maintenance
associated with such shares, and Class B and Class C shares bear certain
expenses related to the distribution of such shares. Each class has exclusive
voting rights with respect to matters relating to account maintenance and
distribution expenditures, as applicable. See "Purchase of Shares". The Fund
has received an order from the Securities and Exchange Commission permitting
the issuance and sale of multiple classes of Common Stock. The Board of
Directors of the Fund may classify and reclassify the shares of the Fund into
additional classes of Common Stock at a future date.
45
<PAGE>
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 matters 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 on 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 auditors. Also, the by-laws of the Fund require that a special
meeting of stockholders 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
disclosed in this Prospectus. Each share of Common Stock is entitled to
participate equally in dividends and distributions declared by the Fund and in
the net assets of the Fund on liquidation or dissolution after satisfaction of
outstanding liabilities, except, as noted above, Class B, Class C and Class D
shares bear certain additional expenses.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts, the shareholder should notify in writing:
Financial Data Services, Inc.
Attn: TAMFO
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this,
please call your Merrill Lynch financial consultant or Financial Data Services,
Inc. at 1-800-637-3863.
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.
46
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION 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 (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 Allocation Fund, Inc., and establish an Investment
Account as described in the Prospectus. In the event that I am not eligible to
purchase Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $............ payable to Financial Data Services,
Inc. as an initial investment (minimum $1,000). I understand that this
purchase will be executed at the applicable offering price next to be
determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the Right of Accumulation as outlined in the Statement of
Additional Information: Please list all funds. (Use a separate sheet of
paper if necessary.)
1. .................................. 4. ..................................
2. .................................. 5. ..................................
3. .................................. 6. ..................................
Name...........................................................................
First Name Initial Last Name
Name of Co-Owner (if any)......................................................
First Name Initial Last Name
Address........................................................................
................................................. Date........................
(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 Allocation Fund, Inc.
Authorization Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE) [_] CHECKING [_] SAVINGS
Name on your account ..........................................................
Bank Name .....................................................................
Bank Number ...................... Account Number ............................
Bank Address ..................................................................
I agree that this authorization will remain in effect until I provide written
notification to Financial Data Services, Inc. amending or terminating this
service.
Signature of Depositor ........................................................
Signature of Depositor ............................... Date...................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED
CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD
ACCOMPANY THIS APPLICATION.
- -------------------------------------------------------------------------------
A-1
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.--AUTHORIZATION FORM (PART 1) --
(CONTINUED)
3. SOCIAL SECURITY 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 under "Additional
Information--Taxes") either because I have not been notified that I am subject
thereto as a result of a failure to report all interest or dividends, or the
Internal Revenue Service ("IRS") has notified me that I am no longer subject
thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDER-REPORTING 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 CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
Dear Sir/Madam:
..................., 19......
Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Global Allocation 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 Fund's 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 Allocation Fund, Inc. held as security.
By .................................. .....................................
Signature of Owner Signature of Co-Owner
(If registered in joint names,
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............................. (2) Name.............................
Account Number....................... Account Number.......................
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
We hereby authorize Merrill Lynch
Branch Office, Address, Stamp 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.
This form when completed should be .....................................
mailed to: Dealer Name and Address
Merrill Lynch Global Allocation
Fund, Inc. By ..................................
c/o Financial Data Services, Inc. Authorized Signature of Dealer
Transfer Agency Mutual Fund Operations
P.O. Box 45289 [_][_][_] [_][_][_][_]
Jacksonville, FL 32232-5289
Branch Code F/C No
....................
F/C Last Name
[_][_][_] [_][_][_][_]
Dealer's Customer Account No.
A-2
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION 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
Name of Owner......................
Name of Co-Owner (if any)..........
Social Security Number or
Taxpayer Identification
Number
Address............................ Account Number ....................
(if existing account)
...................................
- -------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND CLASS 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
Allocation Fund, Inc., at cost or current offering price. Withdrawals to be
made either (check one) [_] Monthly on the 24th day of each month, or
[_] Quarterly on the 24th day of March, June, September and December. If the
24th falls on a weekend or holiday, the next succeeding business day will be
utilized. Begin systematic withdrawal on . . . . . . . . . .(month), or as
soon as possible thereafter.
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): [_] $
or [_] % of the current value of [_] Class A or [_] Class D shares in the
account.
SPECIFY WITHDRAWAL METHOD: [_] check or [_] direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a)I hereby authorize payment by check
[_] as indicated in Item 1.
[_] to the order of..........................................................
Mail to (check one)
[_] the address indicated in Item 1.
[_] Name (Please Print)......................................................
Address .......................................................................
..........................................................................
Signature of Owner................................ Date..................
Signature of Co-Owner (if any)............................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO 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.
A-3
<PAGE>
- -------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Financial Data Services, Inc. draw an automated
clearing house ("ACH") debit on my checking account described below each month
to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class C shares [_] Class D shares
of Merrill Lynch Global Allocation 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.
AUTHORIZATION TO HONOR ACH DEBITS
FINANCIAL DATA SERVICES, INC. DRAWN BY FINANCIAL DATA SERVICES,
INC.
You are hereby authorized to draw an To...............................Bank
ACH debit each month on my bank (Investor's Bank)
account for investment in Merrill
Lynch Global Allocation Fund, Inc. Bank Address.........................
as indicated below:
Amount of each ACH debit $........ City...... State...... Zip Code......
Account Number ................... As a convenience to me, I hereby
request and authorize you to pay and
charge to my account ACH debits
Please date and invest ACH debits on drawn on my account by and payable
the 20th of each month beginning to Financial Data Services, Inc., I
agree that your rights in respect to
..................................... each such debit shall be the same as
if it were a check drawn on you and
................(month) signed personally by me. This
authority is to remain in effect
or as soon thereafter as possible. until revoked by me in writing.
Until you receive such notice, you
I agree that you are drawing these shall be fully protected in honoring
ACH debits voluntarily at my request any such debit. I further agree that
and that you shall not be liable for if any such debit be dishonored,
any loss arising from any delay in whether with or without cause and
preparing or failure to prepare any whether intentionally or
such debit. If I change banks or inadvertently, you shall be under no
desire to terminate or suspend this liability.
program, I agree to notify you
promptly in writing. I hereby
authorize you to take any action to ............ .....................
correct erroneous ACH debits of my Date Signature of
bank account or purchases of fund Depositor
shares including liquidating shares
of the Fund and crediting my bank ............ .....................
account. I further agree that if a Bank Signature of Depositor
debit is not honored upon Account (If joint account,
presentation, Financial Data Number both must sign)
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
returned dishonored debit.
............ .....................
Date Signature of
Depositor
......................
Signature of Depositor
(If joint account,
both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
A-4
<PAGE>
MANAGER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
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 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
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>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE
OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMA-
TION 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 PricingSM System...................................... 3
Financial Highlights....................................................... 8
Special Considerations..................................................... 9
Investment Objective and Policies.......................................... 10
Equity Securities......................................................... 11
Debt Securities........................................................... 13
Money Market Securities................................................... 15
Portfolio Strategies Involving Options and Futures........................ 15
Other Investment Policies and Practices................................... 21
Management of the Fund..................................................... 24
Board of Directors........................................................ 24
Management and Advisory Arrangements...................................... 25
Code of Ethics............................................................ 26
Transfer Agency Services.................................................. 26
Purchase of Shares......................................................... 27
Initial Sales Charge Alternatives--
Class A and Class D Shares.............................................. 29
Deferred Sales Charge Alternatives--
Class B and Class C Shares.............................................. 30
Distribution Plans........................................................ 34
Limitations on the Payment of Deferred Sales Charges...................... 36
Redemption of Shares....................................................... 36
Redemption................................................................ 36
Repurchase................................................................ 37
Reinstatement Privilege--
Class A and Class D Shares.............................................. 37
Shareholder Services....................................................... 38
Performance Data........................................................... 40
Additional Information..................................................... 42
Dividends and Distributions............................................... 42
Determination of Net Asset Value.......................................... 42
Taxes..................................................................... 43
Organization of the Fund.................................................. 45
Shareholder Reports....................................................... 46
Shareholder Inquiries..................................................... 46
Authorization Form......................................................... A-1
</TABLE>
Code # 10810-0295
LOGO MERRILL LYNCH
Merrill Lynch
Global Allocation Fund, Inc.
[ART]
PROSPECTUS
February 27, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Global Allocation Fund, Inc. (the "Fund") is a non-diversified
mutual fund seeking 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 types of securities and
markets in response to changing market and economic trends. Total investment
return is the aggregate of capital value changes and income. There can be no
assurance that the Fund's investment objective will be achieved. The Fund may
employ a variety of instruments and techniques to enhance income and to hedge
against market and currency risk.
----------------
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, 1995 (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, 1995.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek a 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
types of securities and markets in response to changing market and economic
trends. Reference is made to "Investment Objective and Policies" in the
Prospectus for a discussion of the investment objective and policies of the
Fund.
While it is the policy of the Fund generally not to engage in trading for
short-term gains, Merrill Lynch Asset Management, L.P., doing business as
Merrill Lynch Asset Management (the "Manager"), will effect portfolio
transactions without regard to holding period if, in its judgment, such
transactions are advisable in light of a change in circumstances of a
particular company or within a particular industry or due to general market,
economic or financial conditions. Accordingly, while the Fund anticipates that
its annual turnover rate should not exceed 200% under normal conditions, it is
impossible to predict portfolio turnover rates. The portfolio turnover rate is
calculated by dividing the lesser of the Fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of 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. The portfolio
turnover rates for the fiscal years ending October 31, 1993, and 1994 were
50.35% and 57.04%, respectively. The Fund is subject to the Federal income tax
requirement 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.
The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such
as the Fund. If such restrictions should be reinstituted, it might become
necessary for the Fund to invest all or substantially all of its assets in U.S.
securities. In such event, the Fund would review its investment objective and
investment policies to determine whether changes are appropriate. Any changes
in the investment objective or fundamental policies set forth under "Investment
Restrictions" below would require the approval of the holders of a majority of
the Fund's outstanding voting securities.
The Fund's ability and decisions to purchase or sell portfolio securities may
be affected by laws or regulations relating to the convertibility and
repatriation of assets. Because the shares of the Fund are redeemable on a
daily basis on each day the Fund determines its net asset value in U.S.
dollars, the Fund intends to manage its portfolio so as to give reasonable
assurance that it will be able to obtain U.S. dollars to the extent necessary
to meet anticipated redemptions. See "Redemption of Shares". Under present
conditions, the Fund does not believe that these considerations will have any
significant effect on its portfolio strategy, although there can be no
assurance in this regard.
PRECIOUS METAL-RELATED SECURITIES
The Fund may invest in the equity securities of companies that explore for,
extract, process or deal in precious metals, i.e., gold, silver and platinum,
and in asset-based securities indexed to the value of such metals. Such
securities may be purchased when they are believed to be attractively priced in
relation to the value of a company's precious metal-related assets or when the
value of precious metals are expected to benefit from inflationary pressure or
other economic, political or financial uncertainty or instability. The prices
of precious metals and of the securities of precious metal-related companies
historically have been subject to
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high volatility. In addition, the earnings of precious metal-related companies
may be adversely affected by volatile metals prices which may adversely affect
the financial condition of such companies.
The major producers of gold include the Republic of South Africa, Russia,
Canada, the United States, Brazil and Australia. Sales of gold by Russia are
largely unpredictable and often relate to political and economic considerations
rather than to market forces. Economic, social and political developments
within South Africa may significantly affect South African gold production.
The Fund presently does not intend to invest in companies the assets of which
are located primarily in the Republic of South Africa, which produces
approximately 60% of the gold mined in nations outside of what until recently
constituted the Communist bloc. This limitation may affect adversely the Fund's
ability to invest in gold-related securities and during certain periods may
result in the Fund restricting its investments to relatively few companies.
This limitation is not a fundamental policy of the Fund and may be changed by
the Directors, without a vote of the shareholders, if they determine that such
action is warranted. The Fund will notify its shareholders of any change in
this policy with respect to South Africa.
The Fund may invest in debt securities, preferred stock or convertible
securities, the principal amount, redemption terms or conversion terms of which
are related to the market price of some precious metals such as gold bullion.
These securities are referred to herein as "asset-based securities". The Fund
will purchase only asset-based securities which are rated, or are issued by
issuers that have outstanding debt obligations rated, BBB or better by Standard
& Poor's Ratings Group ("S&P") or Baa or better by Moody's Investors Service,
Inc. ("Moody's") or commercial paper rated A-1 by S&P or Prime-1 by Moody's or
of issuers that the Manager has determined to be of similar creditworthiness.
If the asset-based security is backed by a bank letter of credit or other
similar facility, the Manager may take such backing into account in determining
the creditworthiness of the issuer. While the market prices for an asset-based
security and the related natural resource asset generally are expected to move
in the same direction, there may not be perfect correlation in the two price
movements. Asset-based securities may not be secured by a security interest in
or claim on the underlying natural resource asset. The asset-based securities
in which the Fund may invest may bear interest or pay preferred dividends at
below market (or even at relatively nominal) rates. As an example, assume gold
is selling at a market price of $300 per ounce and an issuer sells a $1,000
face amount gold-related note with a seven year maturity, payable at maturity
at the greater of either $1,000 in cash or in the then market price of three
ounces of gold. If at maturity, the market price of gold is $400 per ounce, the
amount payable on the note would be $1,200. Certain asset-based securities may
be payable at maturity in cash at the stated principal amount or, at the option
of the holder, directly in a stated amount of the asset to which it is related.
In such instance, because the Fund presently does not intend to invest directly
in natural resource assets, the Fund would sell the asset-based security in the
secondary market, to the extent one exists, prior to maturity if the value of
the stated amount of the asset exceeds the stated principal amount and thereby
realize the appreciation in the underlying asset.
REAL ESTATE-RELATED SECURITIES
The real estate-related securities which will be emphasized by the Fund are
equity securities of real estate investment trusts, which own income-producing
properties, and mortgage real estate investment trusts which make various types
of mortgage loans often combined with equity features. The securities of such
trusts generally pay above average dividends and may offer the potential for
capital appreciation. Such securities
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will be subject to the risks customarily associated with the real estate
industry, including declines in the value of the real estate investments of the
trusts. Real estate values are affected by numerous factors including (i)
governmental regulations (such as zoning and environmental laws) and changes in
tax laws, (ii) operating costs, (iii) the location and the attractiveness of
the properties, (iv) changes in economic conditions (such as
fluctuations in interest and inflation rates and business conditions) and (v)
supply and demand for improved real estate. Such trusts also are dependent on
management skill and may not be diversified in their investments.
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, debt and currency markets. The Fund has authority to
write (i.e., sell) covered put and 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 stock 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), the Manager believes
that, because the Fund will (i) write only covered options on portfolio
securities and (ii) 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 its
shares, the net asset value of the Fund's shares will fluctuate. There can be
no assurance that the Fund's hedging transactions will be effective. The
following is further information relating to portfolio strategies involving
options and futures that the Fund may utilize.
Writing Covered 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 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 would realize 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 would realize a gain or loss from the sale of the
underlying security.
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The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options which means that so
long as the Fund is obligated as the writer of the option, it will, through its
custodian, have deposited and maintained cash, cash equivalents, U.S.
Government securities or other high grade liquid debt or equity securities
denominated in U.S. dollars or non-U.S. currencies with a securities depository
with a value equal to or greater than the exercise price of the underlying
securities. By writing a put, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of that
security at the time of exercise for as long as the option is outstanding. The
Fund may engage in closing transactions in order to terminate put options that
it has written.
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, New York Stock Exchange, Philadelphia Stock Exchange and Pacific
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 which provides a secondary market for an option of the same
series. If a secondary market does not exist, it might not be possible to
effect a closing transaction in a particular option, 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 until 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 option transactions ("OTC
options"), which are two party contracts with price and terms negotiated
between the buyer and seller. The staff of the Securities and Exchange
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 securities 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
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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. The Fund may purchase either exchange traded options or
OTC options. The Fund will not purchase options on securities (including stock
index options discussed below) 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
particular commodity, such as 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.
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 Securities and Exchange Commission
exempting the Fund from the provisions of Section 17(f) and Section 18(f) of
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
in connection with its strategy of investing in futures contracts. Section
17(f) relates to the custody of securities and other assets of an investment
company and may be deemed to prohibit certain arrangements between the Fund and
commodities brokers with respect to initial and variation margin. Section 18(f)
of the Investment Company Act prohibits an open-end investment company such as
the Fund from issuing a "senior security" other than a borrowing from a bank.
The staff of the Securities and Exchange 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 of
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 one tenth 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 rates 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
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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 will place cash or liquid equity or 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 enter into such transactions only to the extent, if
any, deemed appropriate by the Manager. 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 U.S. dollars of an investment in a yen denominated security. In such
circumstances, for example, the Fund may purchase a foreign currency put option
enabling it to sell a specified amount of Japanese yen for dollars at a
specified price by a future date. To the extent the hedge is successful, a loss
in the value of the yen relative to the dollar will tend to be offset by an
increase in the value of the put option. To offset, in whole or part, the cost
of acquiring such a put option, the Fund may also sell a call option which, if
exercised, requires it to sell a specified amount of yen for dollars at a
specified price by a future date (a technique called a "straddle"). By selling
such call option in this illustration, the Fund gives up the opportunity to
profit without limit from increases in the relative value of the yen to the
dollar. The Manager believes that "straddles" of the type which may be utilized
by the Fund constitute hedging transactions and are consistent with the
policies described above.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the
currency at a 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 options and
futures transactions involves the risk of imperfect correlation in movements in
the prices of options and futures contracts and movements in the prices of the
securities and currencies which are the subject of the hedge. If the price of
the options and futures contract moves more or less than the prices of the
hedged securities or currencies, the Fund will experience a gain or loss which
will not be completely offset by movements in the prices of the
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securities and currencies which are the subject of the hedge. The successful
use of options and futures also depends on the Manager's ability to correctly
predict price movements in the market involved in a particular options or
futures transaction.
Prior to exercise or expiration, an exchange-traded option or futures
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 specific 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), unless there is only one dealer, in which case
that dealer's price is used. 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 or currency 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 risk of loss from investing in futures
transactions is theoretically unlimited.
The exchanges on which the Fund intends to conduct options transactions have
generally established limitations governing the maximum number of call or put
options on the same underlying security or currency (whether or not covered)
which may be written by a single investor, whether acting alone or in concert
with others (regardless of whether such options are written on the same or
different exchanges or are held or written on one or more accounts or through
one or more brokers). "Trading limits" are imposed on the maximum number of
contracts which any person may trade on a particular trading day. An exchange
may order the liquidation of positions found to be in violation of these
limits, and it may impose other sanctions or restrictions. The Manager does not
believe that these trading and position limits will have any adverse impact on
the portfolio strategies for hedging the Fund's portfolio.
OTHER INVESTMENT POLICIES AND PRACTICES
Non-Diversified Status. The Fund is classified as non-diversified within the
meaning of the Investment Company Act, which means that the Fund is not limited
by such Act in the proportion of its assets that it may invest in securities of
a single issuer. However, the Fund's investments will be limited so as to
qualify for the special tax treatment afforded "regulated investment companies"
under the Internal Revenue Code of 1986, as amended. See "Dividends,
Distributions and Taxes--Taxes". To qualify, among other requirements, the Fund
will limit its investments so that, at the close of each quarter of the taxable
year, (i) not more than 25% of the market value of the Fund's total assets will
be invested in the securities of a single issuer, and (ii) with respect to 50%
of the market value of its total assets, not more than 5% of the market value
of its total assets will be invested in the securities of a single issuer, and
the Fund will not own more than 10% of the outstanding voting securities of a
single issuer. A fund which elects to be classified as "diversified" under the
Investment Company Act must satisfy the foregoing 5% and 10% requirements
with respect to 75% of its
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total assets. To the extent that the Fund assumes large positions in the
securities of a small number of issuers, the Fund's net asset value may
fluctuate to a greater extent than that of a diversified company as a result of
changes in the financial condition or in the market's assessment of the
issuers.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase securities on a when-issued basis, and it may purchase or sell
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future to secure what is considered an advantageous yield and price to the Fund
at the time of entering into the transaction. Although the Fund has not
established any limit on the percentage of its assets that may be committed in
connection with such transactions, the Fund will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government securities or
other high grade liquid debt or equity securities denominated in U.S. dollars
or non-U.S. currencies in an aggregate amount equal to the amount of its
commitment in connection with such purchase transactions.
Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed income security which
may be issued and sold to the Fund at the option of the issuer. The price and
coupon of the security is fixed at the time of the commitment. At the time of
entering into the agreement, the Fund is paid a commitment fee, regardless of
whether or not the security is ultimately issued, which is typically
approximately 0.5% of the aggregate purchase price of the security which the
Fund has committed to purchase. The Fund will enter into such agreement only
for the purpose of investing in the security underlying the commitment at a
yield and price which is considered advantageous to the Fund. The Fund will not
enter into a standby commitment with a remaining term in excess of 90 days and
will limit its investment in such commitments so that the aggregate purchase
price of the securities subject to such commitments, together with the value of
portfolio securities subject to legal restrictions on resale, will not exceed
15% (10% to the extent required by certain state laws) of its total assets
taken at the time of acquisition of such commitment or security. The Fund will
at all times maintain a segregated account with its custodian of cash, cash
equivalents, U.S. Government securities or other high grade liquid debt or
equity securities denominated in U.S. dollars or non-U.S. currencies in an
aggregate amount equal to the purchase price of the securities underlying the
commitment.
There can be no assurance that the securities subject to a standby commitment
will be issued, and the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the Fund may bear the
risk of a decline in the value of such security and may not benefit from an
appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued, and the value of the security will
thereafter be reflected in the calculation of the Fund's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment
fee. In the event the security is not issued, the commitment fee will be
recorded as income on the expiration date of the standby commitment.
Repurchase Agreements; Purchase and Sale Contracts. The Fund may invest in
securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements may be entered into only with a member bank of the
Federal Reserve System or primary dealer in U.S. Government securities or an
affiliate thereof. Purchase and sale contracts may be entered into only with
financial institutions which have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
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Under such agreements, the other party agrees, upon entering into the contract
with the Fund, to repurchase the security at a mutually agreed upon time and
price in a specified currency, thereby determining the yield during the term of
the agreement. This results in a fixed rate of return insulated from market
fluctuations during such period although it may be affected by currency
fluctuations. In the case of repurchase agreements, the prices at which the
trades are conducted do not reflect the accrued interest on the underlying
obligations; whereas, in the case of purchase and sale contracts, the prices
take into account accrued interest. Such agreements usually cover short
periods, often under one week. Repurchase agreements may be construed to be
collateralized loans by the purchaser to the seller secured by the securities
transferred to the purchaser. In the case of a repurchase agreement, as a
purchaser, the Fund will require the seller to provide additional collateral if
the market value of the securities falls below the repurchase price at any time
during the term of the repurchase agreement; the Fund does not have the right
to seek additional collateral in the case of purchase and sale contracts. In
the event of default by the seller under a repurchase agreement construed to be
a collateralized loan, the underlying securities are not owned by the Fund but
constitute only collateral for the seller's obligation to pay the repurchase
price. Therefore, the Fund may suffer time delays and incur costs of possible
losses in connection with the disposition of the collateral. A purchase and
sale contract differs from a repurchase agreement in that the contract
arrangements stipulate that the securities are owned by the Fund. In the event
of a default under such a repurchase agreement or under a purchase and sale
contract, instead of the contractual fixed rate of return, the rate of return
to the Fund would depend on intervening fluctuations of the market values of
such securities and the accrued interest on the securities. In such event, the
Fund would have rights against the seller for breach of contract with respect
to any losses arising from market fluctuations following the failure of the
seller to perform. While the substance of purchase and sale contracts is
similar to repurchase agreements, because of the different treatment with
respect to accrued interest and additional collateral, management believes that
purchase and sale contracts are not repurchase agreements as such term is
understood in the banking and brokerage community. The Fund may not invest more
than 15% (10% to the extent required by certain state laws) of its total assets
in repurchase agreements or purchase and sale contracts maturing in more than
seven days together with all other illiquid investments.
Lending of Portfolio Securities. Subject to the investment restrictions
stated below, the Fund may lend securities from its portfolio to approved
borrowers and receive therefor collateral in cash or securities issued or
guaranteed by the U.S. 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
loan 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. With respect to the lending of portfolio securities, there is the risk
of failure by the borrower to return the securities involved in such
transactions.
High Yield Bonds. The Fund is authorized to invest a portion of its debt
portfolio in fixed income securities rated below investment grade by a
nationally recognized statistical rating agency or in unrated debt securities
which, in the Manager's judgment, possess similar credit characteristics ("high
yield bonds").
10
<PAGE>
Issuers of high yield bonds may be highly leveraged and may not have available
to them more traditional methods of financing. Therefore, the risks associated
with acquiring the securities of such issuers generally are greater than is the
case with higher rated securities. For example, during an economic downturn or
a sustained period of rising interest rates, issuers of high yield bonds 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 holder of high yield
bonds because such securities may be unsecured and may be subordinated to other
creditors of the issuer. The Fund's Board of Directors has adopted a policy
that the Fund will not invest more than 35% of its assets in debt obligations
rated below Baa or BBB by Moody's or S&P, respectively.
High yield bonds frequently have call or redemption features which would
permit issuers to repurchase such securities from the Fund. If a call were
exercised by an 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 bonds because
there may be a thin trading market for such securities. The secondary trading
market for high yield bonds 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
bonds, particularly in a thinly traded market. Factors adversely affecting the
market value of high yield bonds are likely to affect adversely 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 portfolio holding or to
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 shares represented at a meeting
at which more than 50% of the outstanding shares are represented or (ii) more
than 50% of the outstanding shares).
Under the fundamental investment restrictions, the Fund may not:
1. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control or management.
3. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
11
<PAGE>
4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that (i) the 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.
7. 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.
8. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the 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.
In addition, the Fund has adopted non-fundamental restrictions which may be
changed by the Board of Directors. 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.
c. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which cannot otherwise be marketed, redeemed
or put to the issuer or a third party, if at the time of acquisition more
than 15% of its total assets would be invested in such securities. This
restriction shall not apply to securities which mature within seven days or
securities which the Board of Directors of the Fund has otherwise
determined to be liquid pursuant to applicable law. Notwithstanding the 15%
limitation herein, to the extent the laws of any state in which the Fund's
shares are registered or qualified for sale require a lower limitation, the
Fund will observe such limitation. As of the date hereof, therefore, the
Fund will not invest more than 10% of its total assets in securities which
are subject to this investment restriction (c). Securities purchased in
accordance with Rule 144A under the Securities Act (a "Rule 144A security")
and determined to be liquid by the Fund's Board of Directors are not
subject to the limitations set forth in this investment restriction (c).
Notwithstanding the fact that the Board
12
<PAGE>
may determine that a Rule 144A security is liquid and not subject to
limitations set forth in this investment restriction (c), the State of Ohio
does not recognize Rule 144A securities as securities that are free of
restrictions as to resale. To the extent required by Ohio law, the Fund
will not invest more than 50% of its total assets in securities of issuers
that are restricted as to disposition, including Rule 144A securities.
d. Invest in warrants if, at the time of acquisition, its investments in
warrants, valued at the lower of cost or market value, would exceed 5% of
the Fund's net assets; included within such limitation, but not to exceed
2% of the Fund's net assets, are warrants which are not listed on the New
York Stock Exchange or American Stock Exchange or a major foreign exchange.
For purposes of this restriction, warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.
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 (6) above, borrow
amounts in excess of 10% of its total assets, taken at market value, and
then only from banks as a temporary measure for extraordinary or emergency
purposes such as the redemption of Fund shares. The Fund will not purchase
securities while borrowings exceed 5% (taken at market value) of its total
assets.
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
if, as a result of such transaction, the sum of the market value of OTC options
currently outstanding which are held by the Fund, the market value of the
underlying securities covered by OTC call options currently outstanding which
were sold by the Fund and margin deposits on the Fund's existing OTC options on
futures contracts exceeds 15% of the total assets of the Fund (10% to the
extent required by certain state laws), taken at market value, together with
all other assets of the Fund which are illiquid or are not otherwise readily
marketable. However, if the OTC option is sold by the Fund to a primary U.S.
Government securities dealer recognized by the Federal Reserve Bank of New York
and if the Fund has the unconditional contractual right to repurchase such OTC
option from the dealer at a predetermined price, then the Fund will treat as
illiquid such amount of the underlying securities as is equal to the repurchase
price less the amount by which the option is "in-the-money" (i.e., current
market value of the underlying securities minus the option's strike price). The
repurchase price with the primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option, plus the
amount by which the option is "in-the-money".
13
<PAGE>
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.
Portfolio securities of the Fund generally may not be purchased from, sold or
loaned to the Manager or its affiliates or any of their directors, general
partners, officers or employees, acting as principal, unless pursuant to a rule
or exemptive order under the Investment Company Act.
Because of the affiliation of the Manager with the Fund, the Fund is
prohibited from engaging in certain transactions involving the Manager's
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), or its affiliates except for brokerage transactions permitted under
the Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Portfolio Transactions and Brokerage". Without such an exemptive order,
the Fund would be prohibited from engaging in portfolio transactions with
Merrill Lynch or its affiliates acting as principal and from purchasing
securities in public offerings which are not registered under the Securities
Act in which such firm or any of its affiliates participate as an underwriter
or dealer.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Director is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel (62)--President and Director(1)(2)--President of the Manager
(which term as used herein includes its corporate predecessors) since 1977 and
Chief Investment Officer since 1976; President and Chief Investment Officer of
Fund Asset Management, L.P. ("FAM") (which term as used herein includes its
corporate predecessors) since 1977; President and Director of Princeton
Services, Inc. ("Princeton Services") since 1993; Executive Vice President of
Merrill Lynch since 1990 and a Senior Vice President thereof from 1985 to 1990;
Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since 1990;
Director of the Distributor.
Donald Cecil (68)--Director(2)--1114 Avenue of the Americas, New York, New
York 10036. Special Limited Partner of Cumberland Partners (investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
Edward H. Meyer (68)--Director(2)--777 Third Avenue, New York, New York
10017. President of Grey Advertising Inc. since 1968, Chief Executive Officer
since 1970, and Chairman of the Board of Directors since 1972; Director of The
May Department Stores Company, Bowne & Co., Inc. (financial printers), Ethan
Allen Interiors Inc. and Harman International Industries, Inc.
14
<PAGE>
Charles C. Reilly (63)--Director(2)--9 Hampton Harbor Road, Hampton Bays,
N.Y. 11946. Self-employed financial consultant since 1990; President and Chief
Investment Officer of Verus Capital, Inc. from 1979 to 1990; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business since 1990; Adjunct
Professor, Wharton School, University of Pennsylvania, 1990; Director, Harvard
Business School Alumni Association.
Richard R. West (57)--Director(2)--482 Tepi Drive, Southbury, Connecticut
06488. Professor of Finance since 1984, and Dean from 1984 to 1993, New York
University Leonard N. Stern School of Business Administration; Director of Re
Capital Corp. (reinsurance holding company), Bowne & Co., Inc. (financial
printers), Vornado, Inc. (real estate holding company), Smith-Corona
Corporation (manufacturer of typewriters and word processors) and Alexander's,
Inc. (real estate company).
Edward D. Zinbarg (60)--Director(2)--5 Hardwell Road, Short Hills, New Jersey
07078-2117. Former Executive Vice President of The Prudential Insurance Company
of America from 1988 to 1994; former Director of Prudential Reinsurance Company
and former Trustee of the Prudential Foundation.
Terry K. Glenn (54)--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 and Director of the Distributor since
1986.
Norman R. Harvey (61)--Senior Vice President(1)(2)--Senior Vice President of
the Manager and FAM since 1982; Senior Vice President of Princeton Services
since 1993.
Bryan N. Ison (39)--Vice President(1)--Vice President of the Manager since
1985; Portfolio Manager since 1984.
Donald C. Burke (34)--Vice President(1)(2)--Vice President and Director of
Taxation of the Manager since 1990; employee of Deloitte & Touche LLP from 1982
to 1990.
Gerald M. Richard (45)--Treasurer (1)(2)--Senior Vice President and Treasurer
of the Manager and FAM since 1984; Senior Vice President and Treasurer of
Princeton Services since 1993; Vice President of the Distributor since 1981 and
Treasurer since 1984.
Michael J. Hennewinkel (42)--Secretary (1)(2)--Vice President of the Manager
since 1985; attorney associated with the Manager since 1982.
- --------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a director, trustee or officer of one or more
additional investment companies for which the Manager, or its affiliate
FAM, acts as investment adviser or manager.
At January 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 the
Fund. At such date, Mr. Zeikel, a Director of the Fund, and the other officers
of the Fund owned less than 1% of the outstanding shares of common stock of ML
& Co.
15
<PAGE>
COMPENSATION OF DIRECTORS
The Fund pays each Director not affiliated with the Manager a fee of $3,500
per year plus $500 per meeting attended, together with such Director's actual
out-of-pocket expenses relating to attendance at meetings. The Fund also
compensates members of its Audit and Nominating Committee, which consists of
all of the unaffiliated Directors, at a rate of $500 per meeting attended. The
Chairman of the Audit and Nominating Committee receives an additional fee of
$250 per meeting attended. For the fiscal year ended October 31, 1994, fees
and expenses paid to the unaffiliated Directors aggregated $35,499+.
The following table sets forth for the fiscal year ended October 31, 1994,
compensation paid by the Fund to the non-interested Directors and for the
calendar year ending December 31, 1994, the aggregate compensation paid by all
investment companies advised by the Manager and its affiliate, FAM ("MLAM/FAM
Advised Funds") to the non-interested Directors.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL COMPENSATION
BENEFITS FROM FUND AND OTHER
AGGREGATE ACCRUED AS MLAM/FAM
NAME OF COMPENSATION PART OF FUND ADVISED FUNDS PAID
DIRECTOR FROM FUND EXPENSES TO DIRECTORS (1)
-------- ------------ ------------ -------------------
<S> <C> <C> <C>
Donald Cecil..................... $9,750 None $276,350
Edward H. Meyer.................. $8,500 None $251,600
Charles C. Reilly................ $8,500 None $276,900
Richard R. West.................. $8,500 None $300,900
Edward D. Zinbarg*............... $8,500 None $121,500
</TABLE>
- --------
* Projected annual compensation for the Fund's current fiscal year. Mr.
Zinbarg was elected to the Fund's Board of Directors effective October 25,
1994.
(1) In addition to the Fund, the Directors serve on the boards of other
MLAM/FAM Advised Funds as follows: Mr. Cecil (34 boards); Mr. Meyer (34
boards); Mr. Reilly (40 boards); Mr. West (40 boards); and Mr. Zinbarg (16
boards).
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 held by the Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which the
Manager or its affiliates act as an adviser. Because of different objectives
or other factors, a particular security may be bought for one or more clients
when one or more clients are selling the same security. If purchases or sales
of securities by the Manager for the Fund or other funds for which it acts as
investment adviser or for its other 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.
- --------
+ During most of the fiscal year ended October 31, 1994, the Board consisted
of five Directors, four of whom were non-interested.
16
<PAGE>
The Fund has entered into a management agreement with the Manager (the
"Management Agreement"). As discussed in the Prospectus, the Management
Agreement provides that the Manager is entitled to receive for its services to
the Fund monthly compensation at the annual rate of 0.75% of the average daily
net assets of the Fund. The Manager has agreed to waive a portion of its
management fee payable by the Fund so that such fee is reduced for average
daily net assets of the Fund in excess of $2.5 billion from the annual rate of
0.75% to 0.70%, and further reduced from 0.70% to 0.65% for average daily net
assets in excess of $5 billion. For the fiscal year ended October 31, 1994, the
Fund paid the Manager a fee at the rate of 0.71% of average daily net assets.
For the fiscal years ended October 31, 1992, 1993 and 1994, the total
management fees paid by the Fund to the Manager aggregated $3,938,829,
$18,984,493 and $49,037,363, respectively.
The Manager has also entered into a sub-advisory agreement with Merrill Lynch
Asset Management U.K. Limited ("MLAM U.K.") pursuant to which the Manager pays
MLAM U.K. a fee computed at the rate of 0.10% of the average daily net assets
of the Fund for providing investment advisory services to the Manager with
respect to the Fund. For the fiscal years ended October 31, 1992, 1993 and
1994, the fees paid by MLAM to MLAM U.K. pursuant to such arrangement
aggregated $525,177, $2,293,281 and $6,509,464, respectively.
California imposes limitations on the expenses of the Fund. These expense
limitations require that the Manager reimburse the Fund in an amount necessary
to prevent the 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. No fee payment will be made to the Manager during any fiscal
year which will cause such expenses to exceed the most restrictive expense
limitation applicable at the time of such payment.
The Fund has received an order from the State of California partially waiving
the expense limitations described above. Pursuant to the terms of such order,
the expense limitations that would otherwise apply are waived to the extent the
Fund's expense for custodial services, management and auditing fees exceeds the
average of such fees of a group of funds managed by the Manager or its
subsidiary which primarily invest domestically. Since the commencement of
operations of the Fund, no reimbursement of expenses has been required pursuant
to the applicable expense limitation provisions discussed above.
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 the Manager or any of their
affiliates. The Fund pays all other expenses incurred in its operation,
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 unaffiliated Directors; accounting and pricing costs (including the daily
calculation of net asset value); insurance; interest; brokerage costs;
litigation and other extraordinary or non-recurring expenses; and other
expenses properly payable by the Fund. Accounting services are provided to the
Fund by the Manager, and the Fund reimburses the Manager for its costs in
connection with such services on a semi-annual basis. For the fiscal years
ended October 31, 1992, 1993 and
17
<PAGE>
1994, the amount of such reimbursement was $104,603, $213,891 and $570,246,
respectively. As required by the Fund's distribution agreements, the
Distributor will pay certain promotional expenses of the Fund incurred in
connection with the offering of its shares. Certain expenses will be financed
by the Fund pursuant to distribution plans in compliance with Rule 12b-1 under
the Investment Company Act. See "Purchase of Shares--Distribution Plans".
ML & Co. and Princeton Services, Inc. are "controlling persons" of the
Manager as defined under the Investment Company Act because of their ownership
of its voting securities or their power to exercise a controlling influence
over its management or policies.
Duration and Termination. Unless earlier terminated as described herein, the
Management Agreement and the sub-advisory 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 contracts or interested persons (as
defined in the Investment Company Act) of any such party. Such contracts are
not assignable and may be terminated without penalty on 60 days' written notice
at the option of either party thereto or by the vote of the shareholders of the
Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
PricingSM System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives, and shares of Class B and Class C are
sold to investors choosing the deferred sales charge alternatives. Each Class
A, Class B, Class C 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.
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 PricingSM System is used by more than 50 mutual
funds advised by the Manager, or an affiliate of the Manager, 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 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.
18
<PAGE>
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
The Fund commenced the public offering of its Class A shares on February 3,
1989. The gross sales charges for the sale of Class A shares for the fiscal
year ended October 31, 1992, were $3,517,696, of which the Distributor received
$91,712 and Merrill Lynch received $3,425,984. The gross sales charges for the
sale of Class A shares for the fiscal year ended October 31, 1993, were
$13,935,192, of which the Distributor received $861,771 and Merrill Lynch
received $13,073,421. The gross sales charges for the sale of Class A shares
for the fiscal year ended October 31, 1994, were $10,514,692, of which the
Distributor received $623,860 and Merrill Lynch received $9,890,832. The gross
sales charges for the sale of its Class D shares for the fiscal period October
21, 1994 (commencement of operations) to October 31, 1994, were $95,875, of
which the Distributor received $5,131 and Merrill Lynch received $90,744.
During such periods, the Distributor received no contingent deferred sales
charges with respect to redemptions within one year after purchase of Class A
or Class D shares purchased subject to front-end sales charge waivers.
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 (including a pension, profit-sharing or
other employee benefit trust created pursuant to a plan qualified under Section
401 of the Code) 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 of an investment adviser.
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 MLAM or the Investment
Adviser who purchased such closed-end fund shares prior to October 21, 1994
(the date the Merrill Lynch Select PricingSM System commenced operations) and
wish to reinvest the net proceeds from a sale of their closed-end fund shares
of common stock in Eligible Class A Shares, if the conditions set forth below
are satisfied. Alternatively, closed-end fund shareholders who purchased such
shares on or after October 21, 1994, and wish to reinvest the net proceeds from
a sale of their closed-end fund shares are offered Class A shares (if eligible
to buy Class A shares) or Class D shares of the Fund and other MLAM-advised
mutual funds ("Eligible Class D Shares"), if the following conditions are met.
First, the sale of the closed-end fund shares must be made through Merrill
Lynch, and the net proceeds therefrom must be immediately reinvested in
Eligible Class A or Class D shares. Second, the closed-end fund shares must
either have been acquired in the initial public offering or be shares
representing dividends from shares of common stock acquired in such offering.
Third, the closed-end fund shares must have been continuously maintained in a
Merrill Lynch securities account. Fourth, there must be a minimum purchase of
$250 to be eligible for the investment option. Class A shares of the Fund are
offered at net asset value to shareholders of Merrill Lynch Senior Floating
Rate Fund, Inc. ("Senior Floating Rate Fund") who wish to reinvest the net
proceeds from a sale of certain of their shares of common stock of Senior
Floating Rate Fund in shares of the
19
<PAGE>
Fund. In order to exercise this investment option, Senior Floating Rate Fund
shareholders must sell their Senior Floating Rate Fund shares to the Senior
Floating Rate Fund in connection with a tender offer conducted by the Senior
Floating Rate Fund and reinvest the proceeds immediately in the Fund. This
investment option is available only with respect to the proceeds of Senior
Floating Rate Fund shares as to which no Early Withdrawal Charge (as defined in
the Senior Floating Rate Fund prospectus) is applicable. Purchase orders from
Senior Floating Rate Fund shareholders wishing to exercise this investment
option will be accepted only on the day that the related Senior Floating Rate
Fund tender offer terminates and will be effected at the net asset value of the
Fund at such day.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase shares
of the 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 Class A or Class D shares of the Fund or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Fund's transfer agent. The Letter of Intention
is not available to employee benefit plans for which Merrill Lynch provides
plan-participant record-keeping 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 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 purchased does not equal the amount
stated in the Letter of Intention (minimum of $25,000), the investor will be
notified and must pay, within 20 days of the expiration of such Letter, the
difference between the sales charge on the Class A or Class D shares purchased
at the reduced rate and the sales charge applicable to the shares actually
purchased through the Letter. Class A or Class D shares equal to five percent
of the intended amount will be held in escrow during the 13-month period (while
remaining registered in the name of the purchaser) for this purpose. The first
purchase under the Letter of Intention must be at least five percent of the
dollar amount of such Letter. If a purchase during the term of such Letter
would otherwise be subject to a further reduced sales charge based on the right
of accumulation, the purchaser will be entitled on that purchase and subsequent
purchases to the reduced percentage sales charge which would be applicable to a
single purchase equal to the total dollar value of the Class A or Class D
shares then being purchased under such Letter, but there will be no retroactive
reduction of the sales charges on any previous purchase.
20
<PAGE>
The value of any shares redeemed or otherwise disposed of by the purchaser
prior to termination or completion of the Letter of Intention will be deducted
from the total purchases made under such Letter. An exchange from a MLAM-
advised money market fund into the Fund that creates a sales charge will count
toward completing a new or existing Letter of Intention from the Fund.
Merrill Lynch BlueprintSM Program. Class D shares of the Fund are offered to
participants in the Merrill Lynch BlueprintSM Program ("Blueprint"). In
addition, participants in Blueprint who own Class A shares or 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, trade associations and benefit plans. Investors
placing orders to purchase Class A or Class D shares of the Fund through
Blueprint will acquire the Class A or Class D shares at net asset value plus a
sales charge calculated in accordance with the Blueprint sales charge schedule
(i.e., up to $300 at 4.25%, $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). Class A or Class D shares of the Fund are 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 Class D shares through Blueprint.
Services, including the exchange privilege, available to Class A and Class D
investors through Blueprint, however, may differ from those available to other
investors in Class A or Class D shares.
Class A and Class D shares are offered at net asset value to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program ("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 a
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
BlueprintSM Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMA SM Managed Trusts. Class A shares are offered to TMA SM Managed Trusts
to which Merrill Lynch Trust Company provides discretionary trustee services
at net asset value.
Employer Sponsored Retirement and Savings Plans. Class A and Class D shares
are offered at net asset value to employer sponsored retirement or savings
plans, such as tax qualified retirement plans within the meaning of Section
401(a) of the Code, deferred compensation plans within the meaning of Sections
403(b) and 457 of the Code, other deferred compensation arrangements,
Voluntary Employee Benefits Association ("VEBA") plans, and non-qualified
After Tax Savings and Investment programs, maintained on the Merrill Lynch
Group Employee Services system, herein referred to as "Employer Sponsored
Retirement or Savings Plans", provided the plan has accumulated $20 million or
more in MLAM-advised mutual funds (in the case of Class A shares) or $5
million or more in MLAM-advised mutual funds (in the case of Class D shares).
Class D shares may be offered at net asset value to new Employer Sponsored
Retirement or Savings Plans, provided the plan has $3 million or more
initially invested in MLAM-advised mutual funds. Assets of
21
<PAGE>
Employer Sponsored Retirement or Savings Plans sponsored by the same sponsor
or an affiliated sponsor may be aggregated. Class A shares and Class D shares
also are offered at net asset value to Employer Sponsored Retirement or
Savings Plans that have at least 1,000 employees eligible to participate in
the plan (in the case of Class A shares) or between 500 and 999 employees
eligible to participate in the plan (in the case of Class D shares). Employees
eligible to participate in Employer Sponsored Retirement or Savings Plans of
the same sponsoring employer or its affiliates may be aggregated. Tax
qualified retirement plans within the meaning of Section 401(a) of the Code
meeting any of the foregoing requirements and which are provided specialized
services (e.g., plans whose participants may direct on a daily basis their
plan allocations among a wide range of investments including individual
corporate equities and other securities in addition to mutual fund shares) by
Blueprint, are offered Class A shares at a price equal to net asset value per
share plus a reduced sales charge of 0.50%.
Any Employer Sponsored Retirement or Savings Plan which does not meet the
above described qualifications to purchase Class A or Class D shares at net
asset value has the option of (1) purchasing Class D shares at the initial
sales charge schedule disclosed in the Prospectus for purchases of up to
$1,000,000 and at 0.75% for purchases of $1,000,000 or more, (ii) if the
Employer Sponsored Retirement or Savings Plan meets the specified
requirements, purchasing Class B shares with a waiver of the CDSC upon
redemption, or (iii) if the Employer Sponsored Retirement or Savings Plan does
not qualify to purchase Class B shares with a waiver upon redemption,
purchasing Class B or Class C shares at their respective CDSC schedule
disclosed in the prospectus.
Certain Employer Sponsored Retirement or Savings Plans, which were permitted
prior to October 21, 1994, to purchase Class A shares at the initial sales
charge schedule in the then current prospectus for purchases up to $1,000,000
and at 0.75% for purchases of $1,000,000 or more, may purchase Class A shares
at the initial sales charge schedule disclosed in the Prospectus for purchases
of up to $1,000,000 and at 0.75% for purchases of $1,000,000 or more. The
minimum initial and subsequent purchase requirements are waived in connection
with all the above referenced Employer Sponsored Retirement or Savings Plans.
Purchase Privilege of Certain Persons. Directors of the Fund, members of the
Boards of other MLAM-advised investment companies, directors and employees of
ML & Co. and its subsidiaries (the term "subsidiaries" when used herein with
respect to Merrill Lynch & Co., Inc. includes MLAM, FAM and certain other
entities directly or indirectly wholly owned and controlled by Merrill Lynch &
Co., Inc.) and any trust, pension, profit-sharing or other benefit plan for
such persons may purchase Class A shares of the Fund at net asset value.
Class D shares of the Fund 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. 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, if the
22
<PAGE>
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; second, such purchase of
Class D shares must be made within 90 days after such notice of termination.
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 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 such shares of
other mutual funds and that such shares have been outstanding for a period of
no less than six months. Second, such purchase of Class D shares must be made
within 60 days after the redemption and the proceeds from the redemption must
be maintained in the interim in cash or a money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation
with a 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 objectives and policies of the Fund; (ii) are acquired for
investment and not for resale (subject to the understanding that the
disposition of the Fund's portfolio securities shall at all times remain within
its control); and (iii) are liquid securities, the value of which is readily
ascertainable, which are not restricted as to transfer either by law or
liquidity of market (except that the Fund may acquire through such transactions
restricted or illiquid securities to the extent the Fund does not exceed the
applicable limits on acquisition of such securities set forth under "Investment
Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares -- Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the 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 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
23
<PAGE>
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. Each Distribution Plan can be
terminated at any time, without penalty, by the vote of a majority of the
Independent Directors or by the vote of the holders of a majority of the
outstanding related class of voting securities of the Fund. A Distribution Plan
cannot be amended to increase materially the amount to be spent by the Fund
without the approval of the related class of shareholders, and all material
amendments are required to be approved by the vote of the 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.
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-backed 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.
24
<PAGE>
The following table sets forth comparative information as of October 31,
1994, with respect to the Class B shares and as of November 30, 1994, with
respect to the 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 Class B shares, the Distributor's voluntary maximum.
<TABLE>
<CAPTION>
ANNUAL
DISTRIBUTION
ALLOWABLE ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT NET
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID ASSET
SALES (1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
---------- --------- ---------- -------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR CLASS B SHARES--DATA
CALCULATED AS OF
OCTOBER 31, 1994 (IN
THOUSANDS):
Class B Shares (for the
fiscal period February
3, 1989 (commencement
of operations) to
October 31, 1994):
Under NASD Rule As
Adopted................ $5,715,384 $357,211 $30,754 $387,965 $74,154 $313,813 $48,428
Under Distributor's
Voluntary Waiver....... $5,715,384 $357,211 $28,577 $385,788 $74,154 $311,635 $48,428
FOR CLASS C SHARES--DATA
CALCULATED AS OF
NOVEMBER 30, 1994 (NOT
ROUNDED):
Class C Shares (for the
fiscal period October
21, 1994 (commencement
of public offering) to
November 30, 1994):
Under NASD Rule As
Adopted................ $ 13,427 $ 843 $ 4 $ 847 $ 8 $ 838 $ 119
</TABLE>
- --------
(1) Purchase price of all eligible Class B or Class C shares sold during
period indicated other than shares acquired through dividend reinvestment
and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1%, as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made with respect to Class B shares prior to
July 7, 1993, under the distribution plan in effect at that time, at the
1.0% rate, 0.75% of average daily net assets has been treated as a
distribution fee and 0.25% of average daily net assets has been deemed to
have been a service fee and not subject to the NASD maximum sales charge
rule.
(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 NASD maximum or, with respect to
Class B shares, the voluntary maximum.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended only for any period 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.
25
<PAGE>
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 (i) on redemptions of Class B shares in
connection with certain post-retirement withdrawals from an Individual
Retirement Account ("IRA") or other retirement plan or (ii) on redemptions 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 tax-free distribution following retirement
under a tax-deferred retirement plan or attaining age 59 1/2 in the case of an
IRA or other retirement plan, or part of a series of equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) or
any redemption resulting from the tax-free return of an excess contribution to
an IRA or (b) any partial or complete redemption following the death or
disability (as defined in the Code) of a Class B shareholder (including one
who owns the Class B shares as joint tenant with his or her spouse), provided
the redemption is requested within one year of the death or initial
determination of disability. For the fiscal years ended October 31, 1992, 1993
and 1994, the Distributor received CDSCs of $301,136, $1,701,006 and
$6,842,598, 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) to October 31, 1994, there were no redemptions of
Class C shares resulting in payments of CDSCs.
Merrill Lynch Blueprint SM Program. Class B shares are offered to certain
participants in the Merrill Lynch Blueprintsm Program ("Blueprint"). Blueprint
is directed to small investors, group IRAs and participants in certain
affinity groups such as trade associations and credit unions. Class B shares
of the Fund are offered through Blueprint only to members of certain affinity
groups. The CDSC is waived in connection with purchase orders placed through
Blueprint. Services, including the exchange privilege, available to Class B
investors through Blueprint, however, may differ from those available to other
investors in Class B shares. Orders for purchases and redemptions of Class B
shares of the Fund will be grouped for execution purposes which, in some
circumstances, may involve the execution of such orders two business days
following the day such orders are placed. The minimum initial purchase price
is $100, with a $50 minimum for subsequent purchases through Blueprint. There
is no minimum initial or subsequent purchase requirement for investors who are
part of the Blueprint automatic investment plan. Additional information
concerning these Blueprint programs, including any annual fees or transaction
charges, is available from Merrill Lynch, Pierce, Fenner & Smith Incorporated,
The Blueprint SM Program, P.O. Box 30441, New Brunswick, New Jersey 08989-
0441.
Retirement Plans. Any Retirement Plan which does not meet the qualifications
to purchase Class A or Class D shares at net asset value has the option of
purchasing Class A or Class D shares at the sales charge schedule disclosed in
the Prospectus, or if the Retirement Plan meets the following requirements,
then it may purchase Class B shares with a waiver of the CDSC upon redemption.
The CDSC is waived for any Eligible 401(k) Plan redeeming Class B shares.
"Eligible 401(k) Plan" is defined as a retirement plan qualified under Section
401(k) of the Code with a salary reduction feature offering a menu of
investments to plan participants. The CDSC is also waived for redemptions from
a 401(a) plan qualified under the Code, provided, however, that each such plan
has the same or an affiliated sponsoring employer as an Eligible 401(k) Plan
purchasing Class B shares of MLAM-advised mutual funds ("Eligible 401(a)
Plan"). Other tax qualified retirement plans within the meaning of Section
401(a) or 403(b) of the Code which are provided specialized services (e.g.,
plans whose participants may direct on a daily basis their plan allocations
among a menu of investments) by independent administration firms contracted
through Merrill Lynch also may purchase Class B shares with a
26
<PAGE>
waiver of the CDSC. The CDSC also is waived for any Class B shares which are
purchased by an Eligible 401(k) Plan or Eligible 401(a) Plan and are rolled
over into a Merrill Lynch or Merrill Lynch Trust Company custodied 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. The minimum
initial and subsequent purchase requirements are waived in connection with all
the above referenced Retirement Plans.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to "Investment Objective and Policies -- Other Investment
Policies and Practices -- Portfolio Transactions" in the Prospectus.
Subject to policies established by the Board of Directors of the Fund, the
Manager is primarily responsible for the execution of the Fund's portfolio
transactions. In executing such transactions, the Manager seeks to obtain the
best net results for the Fund, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of
order, difficulty of execution and operational facilities of the firm involved
and the firm's risk in positioning a block of securities. Subject to obtaining
the best price and execution, brokers who provide supplemental investment
research to the Manager 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 under the Management Agreement, and the
expenses of the Manager will not necessarily be reduced as a result of the
receipt of such supplemental information. In addition, consistent with the
Rules of Fair Practice of the NASD 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. It is possible that certain of the supplementary investment research so
received will primarily benefit one or more other investment companies or other
accounts for which investment discretion is exercised. Conversely, the Fund may
be the primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other accounts or investment
companies.
For the fiscal year ended October 31, 1992, the Fund paid total brokerage
commissions of $1,236,287, of which $72,320 or 5.85% was paid to Merrill Lynch
for effecting 2.69% of the aggregate dollar amount of transactions in which the
Fund paid brokerage commissions. For the fiscal year ended October 31, 1993,
the Fund paid total brokerage commissions of $3,047,988, of which $246,070 or
8.1% was paid to Merrill Lynch for effecting 8.4% of the aggregate dollar
amount of transactions in which the Fund paid brokerage commissions. For the
fiscal year ended October 31, 1994, the Fund paid total brokerage commissions
of $4,792,669, of which $335,953 or 7.0% was paid to Merrill Lynch for
effecting 8.1% of the aggregate dollar amount of transactions in which the Fund
paid brokerage commissions.
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.
27
<PAGE>
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 and persons who are affiliated with such affiliated
persons are prohibited from dealing with the Fund as principal in the purchase
and sale of securities unless a permissive order allowing such transactions is
obtained from the Commission. Since transactions in the over-the-counter market
usually involve transactions with dealers acting as principal for their own
accounts, affiliated persons of the Fund, including Merrill Lynch and any of
its affiliates, will not serve as the Fund's dealer in such transactions.
However, affiliated persons of the Fund may serve as its broker in listed or
over-the-counter transactions conducted on an agency basis provided that, among
other things, the fee or commission received by such affiliated broker is
reasonable and fair compared to the fee or commission received by non-
affiliated brokers in connection with comparable transactions.
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 U.S. dollars, the Fund intends to manage its portfolio so as to
give reasonable assurance that it will be able to obtain U.S. dollars to the
extent necessary to meet anticipated redemptions. 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 U.S. national securities exchanges from executing
exchange transactions for their affiliates and institutional accounts which
they manage unless the member (i) has obtained prior express authorization from
the account to effect such transactions, (ii) at least annually furnishes the
account with a statement disclosing 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.
As a non-fundamental restriction, the Fund will not 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 five percent of the securities of such
issuer.
The Directors have considered the possibilities of seeking to recapture for
the benefit of the Fund brokerage commissions and other expenses of possible
portfolio transactions by conducting portfolio transactions through affiliated
entities. For example, brokerage commissions received by affiliated brokers
could be offset against the advisory fee paid by the Fund. 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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DETERMINATION OF NET ASSET VALUE
Reference is made to "Additional Information -- Determination of Net Asset
Value" in the Prospectus concerning the determination of net asset value. The
net asset value of the shares of the Fund is determined once daily Monday
through Friday as of 15 minutes after the close of business on the New York
Stock Exchange (generally, 4:00 p.m., New York time), New York time, on each
day 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. 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 management
fees and any account maintenance and/or distribution fees, are accrued daily.
The per share net asset value of the Class B, Class C and Class D shares
generally will be lower than the per share net asset value of the Class A
shares reflecting the daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with respect to the
Class B and Class C shares and the daily expense accruals of the account
maintenance fees applicable with respect to the Class D shares; moreover, the
per share net asset value of Class B and Class C shares generally will be lower
than the per share net asset value of Class D shares reflecting the daily
expense accruals of the distribution fees and higher transfer agency fees
applicable with respect to Class B and Class C shares of the Fund. It is
expected, however, that the per share net asset value of the four classes will
tend to converge (although not necessarily meet) immediately after the payment
of dividends or distributions, which will differ by approximately the amount of
the expense accrual differentials between the classes.
Portfolio securities which 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 Board of 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. When the Fund writes a call option, the amount of the
premium received is recorded on the books of the Fund as an asset and an
equivalent liability. The amount of the liability is subsequently valued to
reflect the current market value of the option written, based upon the last
sale price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last asked price. Options purchased
by the Fund are valued at their last sale price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter market, the
last bid price.
Securities and assets for which market quotations are not readily available
are valued at fair value as determined in good faith under the direction of the
Board of Directors of the Fund.
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<PAGE>
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in its shares. Full details as to each of
such services and copies of the various plans described below can be obtained
from the Fund, the Distributor or Merrill Lynch. Certain of these services are
available only to U.S. investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the transfer agent has an
Investment Account and will receive statements at least quarterly, from the
transfer agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gain distributions. The 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. A shareholder may make additions to his Investment Account at
any time by mailing a check directly to the Fund's transfer agent.
Share certificates are issued only for full shares and only upon the specific
request of the shareholder. Issuance of certificates representing all or only
part of the full shares in an Investment Account may be requested by a
shareholder directly from the Fund's transfer agent.
Shareholders considering transferring their Class A shares from Merrill Lynch
to another brokerage firm or financial institution should be aware that, if the
firm to which the Class A or Class D shares are to be transferred will not take
delivery of shares of the Fund, a shareholder either must redeem the Class A or
Class D shares (paying any applicable CDSC) so that the cash proceeds can be
transferred to the account at the new firm or such shareholder must continue to
maintain an Investment Account at the transfer agent for those Class A or Class
D shares. Shareholders interested in transferring their Class B or Class C
shares from Merrill Lynch and who do not wish to have an Investment Account
maintained for such shares at the transfer agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder at the transfer agent. If
the new brokerage firm is willing to accommodate the shareholder in this
manner, the shareholder must request that he be issued certificates for his
shares, and then must turn the certificates over to the new firm for re-
registration as described in the preceding sentence. Shareholders 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 must
either redeem the shares (paying any applicable CDSC) so that the cash proceeds
can be transferred to the account at the new firm, or such shareholder must
continue to maintain a retirement account at Merrill Lynch for those shares.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer or by mail directly to the Fund's 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
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<PAGE>
regular bank account of the shareholder on a regular basis to provide
systematic additions to the Investment Account of such shareholder. For
investors who buy shares of the Fund through Blueprint no minimum charge to the
investors' bank account is required. An investor whose shares of the Fund are
held within a CMA(R) or CBA (R) account may arrange to have periodic
investments made in the Fund in amounts of $100 or more ($1 for retirement
accounts) through the CMA(R)/CBA (R) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will be reinvested automatically in additional shares of the
Fund. Such reinvestment will be at the net asset value of shares of the Fund as
of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing to receive either their
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed or direct deposited on or about the payment date.
Shareholders may, at any time, notify the transfer agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or distributions reinvested in shares of the Fund or vice versa, and
commencing ten days after 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 withdrawals from an
Investment Account on either a monthly or quarterly basis as provided below.
Quarterly withdrawals are available for shareholders who have acquired Class A
or Class D shares of the Fund having a value, based on cost or the current
offering price, of $5,000 or more and monthly withdrawals are available for
shareholders with Class A or Class D shares with such a value of $10,000 or
more.
At the time of each withdrawal payment, sufficient Class A or Class D shares
are redeemed from those on deposit in the shareholder's account to provide the
withdrawal payment specified by the shareholder. The shareholder may specify
either a dollar amount or a percentage of the value of his Class A or Class D
shares. Redemptions will be made at net asset value as determined as of 15
minutes after the close of business of 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 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 the following business day. The check for the
withdrawal payment will be mailed, or the direct deposit of the withdrawal
payment will be made, on the next business day following redemption. When a
shareholder is making systematic withdrawals, dividends and distributions on
all Class A or Class D shares in the Investment Account are reinvested
automatically in Class A or Class D shares of the Fund, respectively. 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.
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<PAGE>
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.
Alternatively, 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
CMA (R)/CBA (R) Systematic Redemption Program. The minimum fixed dollar amount
redeemable is $25. The proceeds of systematic redemptions will be posted to the
shareholder's account five business days after the date the shares are
redeemed. Monthly systematic redemptions will be made at net asset value on the
first Monday of each month, bimonthly systematic redemptions will be made at
net asset value on the first Monday of every other month, and quarterly,
semiannual or annual redemptions are made at net asset value on the first
Monday of months selected at the shareholder's option. If the first Monday of
the month is a holiday, the redemption will be processed at net asset value on
the next business day. The CMA (R)/CBA (R) Systematic Redemption Program is not
available if Fund shares are being purchased within the account pursuant to the
Automatic Investment Program. For more information on the CMA (R)/CBA (R)
Systematic Redemption Program, eligible shareholders should contact their
Financial Consultant.
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 PricingSM 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 at least 15 days. It is contemplated that the exchange
privilege may be applicable to other new mutual funds whose shares may be
distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount
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<PAGE>
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 charge paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A 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
may 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 with a reduced or 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 shares
of the fund from which the exchange has been made. For purposes of computing
the sales charge that may be payable on a disposition of the new Class B or
Class C shares, the holding period for the outstanding Class B or Class C
shares is "tacked" to the holding period of the new Class B or Class C shares.
For example, an investor may exchange Class B shares of the Fund for those of
Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having held
the Fund Class B shares for two and a half years. The 2% CDSC that generally
would apply to a redemption would not apply to the exchange. Three years later
the investor may decide to redeem the Class B shares of Special Value Fund and
receive cash. There will be no CDSC due on this redemption, since by "tacking"
the two and a half year holding period of Fund Class B shares to the three year
holding period for the Special Value Fund Class B shares, the investor will be
deemed to have held the 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 the 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
("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 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
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<PAGE>
fund which the shareholder continued to hold for an additional two and 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:
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 by investing primarily in a
portfolio of adjustable rate securities,
consisting principally of mortgage-backed
and asset-backed 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 with respect to types of
securities and markets in response to
changing market and economic trends.
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<PAGE>
Merrill Lynch Asset Income
Fund, Inc. ...................
A high level of current income through
investment primarily in United States fixed
income securities.
Merrill Lynch Balanced Fund
for Investment and
Retirement, Inc. .......
As high a level of total investment return as
is consistent with reasonable risk by
investing in common stocks and other types
of securities, including fixed income
securities and convertible securities.
Merrill Lynch Basic Value
Fund, Inc. .............. Capital appreciation and, secondarily, income
through investment 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 consisting 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.
The highest total investment return
Merrill Lynch Capital Fund, consistent with prudent risk through a fully
Inc. .................... managed investment policy utilizing equity,
debt and convertible securities.
Merrill Lynch Colorado
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 Colorado
income taxes as is consistent with prudent
investment management.
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<PAGE>
Merrill Lynch Connecticut
Municipal Bond Fund...........
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Connecticut
income taxes as is consistent with prudent
investment management.
Merrill Lynch Corporate Bond
Fund, Inc. .............. Current income from three separate
diversified portfolios of fixed income
securities.
Merrill Lynch Developing
Capital Markets Fund, Inc.....
Long-term capital 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.
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<PAGE>
Merrill Lynch Fund For
Tomorrow, Inc.................
Long-term growth through investment in a
portfolio of good quality securities,
primarily common stock, potentially
positioned to benefit from demographic and
cultural changes as they affect consumer
markets.
Merrill Lynch Fundamental
Growth Fund, Inc. ....... Long-term growth of capital 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.......... A portfolio of Merrill Lynch Retirement Asset
Builder Program, Inc., a series fund, whose
(Available only for objective is to provide capital appreciation
exchanges by certain and income by investing in securities, with
individual retirement at least 65% of the portfolio's assets being
accounts for which Merrill invested in equities.
Lynch acts as custodian)
Merrill Lynch Global Bond Fund
for Investment and
Retirement....................
High total investment return from investment
in a global portfolio of debt instruments
denominated in various currencies and
multinational currency units.
Merrill Lynch Global
Convertible Fund, Inc. .. High total return from investment primarily
in an internationally diversified portfolio
of convertible debt securities, convertible
preferred stock and "synthetic" convertible
securities consisting of a combination of
debt securities or preferred stock and
warrants or options.
Merrill Lynch Global Holdings,
Inc. (residents of Arizona
must meet investor
suitability standards)........
The highest total investment return
consistent with prudent risk through
worldwide investment in an internationally
diversified portfolio of securities.
Merrill Lynch Global
Opportunity Portfolio.... A portfolio of Merrill Lynch Retirement Asset
Builder Program, Inc., a series fund, whose
(Available only for objective is to provide a high total
exchanges by certain investment return through an investment
individual retirement policy utilizing United States and foreign
accounts for which Merrill equity, debt and money market securities,
Lynch acts as custodian) 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.
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<PAGE>
Merrill Lynch Global SmallCap
Fund, Inc. ...................
Long-term growth of capital by investing
primarily in equity securities of companies
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, tele-
communications, gas or water.
Merrill Lynch Growth Fund for
Investment and Retirement.....
Growth of capital and, secondarily, income
from investment in a diversified portfolio
of equity securities placing principal
emphasis on those securities which
management of the fund believes to be
undervalued.
Merrill Lynch Healthcare Fund,
Inc. (residents of Wisconsin
must meet investor
suitability standards)........
Capital appreciation through worldwide
investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in healthcare.
Merrill Lynch International
Equity Fund...................
Capital appreciation and, secondarily, income
by investing in a diversified portfolio of
equity 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.
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<PAGE>
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
as high a level of income exempt from
Federal and Michigan income taxes as is
consistent with prudent investment
management through investment in a portfolio
primarily of intermediate-term investment
grade Michigan Municipal Bonds.
Merrill Lynch Michigan
Municipal Bond Fund...........
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Michigan
income taxes as is consistent with prudent
investment management.
Merrill Lynch Minnesota
Municipal Bond Fund...........
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from 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.
39
<PAGE>
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.
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.
40
<PAGE>
Capital appreciation by investing in equity
Merrill Lynch Pacific Fund, securities of corporations domiciled in Far
Inc. .................... Eastern and Western Pacific countries,
including Japan, Australia, Hong Kong and
Singapore.
Merrill Lynch Pennsylvania
Limited Maturity Municipal
Bond Fund.....................
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Pennsylvania income taxes as is
consistent with prudent investment
management through investment in a portfolio
of intermediate-term investment grade
Pennsylvania Municipal Bonds.
Merrill Lynch Pennsylvania
Municipal Bond Fund...........
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Pennsylvania
personal income taxes as is consistent with
prudent investment management.
Merrill Lynch Phoenix Fund,
Inc. .................... Long-term growth of capital by investing in
equity and fixed income securities,
including tax-exempt 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................ A portfolio of Merrill Lynch Retirement Asset
Builder Program, Inc., a series fund, whose
(Available only for objective is to provide a high level of
exchanges by certain current income through investment in a
individual retirement diversified portfolio of debt obligations,
accounts for which Merrill such as corporate bonds and notes,
Lynch acts as custodian) 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.
41
<PAGE>
Merrill Lynch Strategic
Dividend Fund.................
Long-term total return from investment in
dividend paying common stocks which yield
more than Standard & Poor's 500 Composite
Stock Price Index.
Merrill Lynch Technology Fund,
Inc. .................... Capital appreciation through worldwide
investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in technology.
Merrill Lynch Texas Municipal
Bond Fund.....................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal income taxes as
is consistent with prudent investment
management by investing primarily in a
portfolio of long-term, investment grade
obligations issued by the State of Texas,
its political subdivisions, agencies and
instrumentalities.
Merrill Lynch U.S. Government
Securities Portfolio..... A portfolio of Merrill Lynch Retirement Asset
Builder Program, Inc., a series fund, whose
(Available only for objective is to provide a high current
exchanges by certain return through investments in U.S.
individual retirement Government and government agency securities,
accounts for which Merrill including GNMA mortgage-backed certificates
Lynch acts as custodian) 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
AssetsTrust...................
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>
Merrill Lynch Retirement
Reserves Money Fund
(available only for exchanges
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.
43
<PAGE>
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
continuous offering of their shares 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
It is the Fund's intention to distribute all of its net investment income, if
any. Dividends from such net investment income are paid at least annually. 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 taxable year.
Premiums from expired call options written by the Fund and net gains from
closing purchase transactions are treated as short-term capital gains for
Federal income tax purposes. 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 described below whether they are invested in shares
of the Fund or received in cash. The per share dividends and distributions on
Class B and Class C shares will be lower than the per share dividends and
distributions on Class A and Class D shares as a result of the account
maintenance, distribution and higher transfer agency fees applicable with
respect to the Class B and Class C shares; similarly, the per share dividends
and distributions on Class D shares will be lower than the per share dividends
and distributions on Class A shares as a result of the account maintenance fees
applicable with respect to the Class D shares. See "Determination of Net Asset
Value".
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). If it so qualifies, the Fund (but not
its shareholders) will not be subject to Federal income tax on the part of its
net ordinary income and net realized capital gains which it distributes to
Class A, Class B, Class C and Class D shareholders (together, the
"shareholders"). The Fund intends to distribute substantially all of such
income.
Dividends paid by the Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders
44
<PAGE>
as ordinary income. Distributions made from the Fund's net realized long-term
capital gains (including long-term gains from certain transactions in futures
and options) ("capital gain dividends") are taxable to shareholders as long-
term capital gains, regardless of the length of time the shareholder has owned
Fund shares. Any loss upon the sale or exchange of Fund shares held for six
months or less, however, will be treated as long-term capital loss to the
extent of any capital gain dividends received by the shareholder. Distributions
in excess of the Fund's earnings and profits will first reduce the adjusted tax
basis of a holder's shares and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such holder (assuming the shares are
held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income 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. For this purpose, the Fund will allocate
dividends eligible for the dividends received deduction among the Class A,
Class B, Class C and Class D shareholders according to a method (which it
believes is consistent with the Securities and Exchange Commission exemptive
order permitting the issuance and sale of multiple classes of stock) that is
based on the gross income allocable to Class A, Class B, Class C and Class D
shareholders during the taxable year, or such other method as the Internal
Revenue Service may prescribe. If the Fund pays a dividend in January that was
declared in the previous October, November or December to shareholders of
record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% U.S.
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
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
45
<PAGE>
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. 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 the sales charge paid to the Fund
reduces any sales charge the shareholder would have owed upon purchase of the
new shares in the absence of the exchange privilege. Instead, such sales charge
will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income
and capital gains in the manner necessary to avoid imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition
of the tax. In such event, the Fund will be liable for the tax only on the
amount by which it does not meet the foregoing distribution requirements.
The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield securities"), as 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 and may be eligible for
the dividends received deduction allowed to domestic corporations under the
Code.
Tax Treatment of Options, Futures and Forward Foreign Exchange Transactions.
The Fund may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the
end of each taxable year, i.e., each such option or futures contract will be
treated as sold for its fair market value on the
46
<PAGE>
last day of the taxable year. Unless such contract is a forward foreign
exchange contract, or is a non-equity option or a regulated futures contract
for a non-U.S. currency for which the Fund elects to have gain or loss treated
as ordinary gain or loss under Code Section 988 (as described below), gain or
loss from Section 1256 contracts will be 60% long-term and 40% short-term
capital gain or loss. The mark-to-market rules outlined above, however, will
not apply to certain transactions entered into by the Fund solely to reduce the
risk of changes in price or interest or currency exchange rates with respect to
its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The
Fund may, nonetheless, elect to treat the gain or loss from certain forward
foreign exchange contracts as capital. In this case, gain or loss realized in
connection with a forward foreign exchange contract that is a Section 1256
contract will be characterized as 60% long-term and 40% short-term capital gain
or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Fund's transactions in options, 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 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
stock, securities or foreign currencies will be qualifying income for purposes
of determining whether the Fund qualifies as a RIC. It is currently unclear,
however, who will be treated as the issuer of a foreign currency instrument or
how foreign currency options, foreign currency futures and forward foreign
exchange contracts will be valued for purposes of the RIC diversification
requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a currency other than the taxpayer's functional currency (i.e., unless
certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from 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 any distributions
made before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Fund shares and resulting in a capital gain for any
shareholder who received a distribution greater than the shareholder's tax
basis in Fund shares (assuming the shares were held as a capital
47
<PAGE>
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 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. 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 a formula specified by the
Commission.
Average annual total return quotations for the specified periods are computed
by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including the maximum sales charge in the case of
Class A and Class D shares and the CDSC that would be applicable to a complete
redemption of the investment at the end of the specified period in the case of
Class B and Class C shares.
The 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 (i) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted,
and (ii) the maximum applicable sales charges will not be included. Actual
annual or annualized total return data generally will be lower than average
annual total return data since the average rates of return reflect compounding
of return; aggregate total return data generally will be higher than average
annual total return data since the aggregate rates of return reflect
compounding over longer periods of time.
48
<PAGE>
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>
PERIOD CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS D SHARES
------ ---------------------------- ---------------------------- ---------------------------- ---------------------------
REDEEMABLE REDEEMABLE REDEEMABLE REDEEMABLE
EXPRESSED AS A VALUE OF A EXPRESSED AS A VALUE OF A EXPRESSED AS A VALUE OF A EXPRESSED AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED $1,000 BASED $1,000 BASED $1,000 BASED $1,000
ON A INVESTMENT ON A INVESTMENT ON A INVESTMENT ON A INVESTMENT
HYPOTHETICAL AT THE END OF HYPOTHETICAL AT THE END OF HYPOTHETICAL AT THE END OF HYPOTHETICAL AT THE END
$1,000 THE $1,000 THE $1,000 THE $1,000 OF THE
INVESTMENT PERIOD INVESTMENT PERIOD INVESTMENT PERIOD INVESTMENT PERIOD
-------------- ------------- -------------- ------------- -------------- ------------- -------------- -----------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception
(October 21,
1994) to
October 31,
1994........... (30.71%) $ 990.00 (85.64%) $ 948.20
One Year Ended
October 31,
1994........... (3.22%) $ 967.80 (2.73%) $ 972.70
Five Years Ended
October 31,
1994........... 12.18% $1,776.40 12.26% $1,782.60
Inception
(February 3,
1989) to
October 31,
1994........... 12.26% $1,942.30 12.17% $1,934.20
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception
(October 21,
1994) to
October 31,
1994........... 0.00% $1,000.00 0.08% $1,000.80
One Year Ended
October 31,
1994........... 2.14% $1,021.40 1.13% $1,011.30
1993............ 22.61% $1,226.10 21.42% $1,214.20
1992............ 11.78% $1,117.80 10.64% $1,106.40
1991............ 28.89% $1,288.90 27.48% $1,274.80
1990............ 3.91% $1,039.10 2.93% $1,029.30
Inception
(February 3,
1989) to
October 31,
1989........... 9.34% $1,093.40 8.50% $1,085.00
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception
(October 21,
1994) to
October 31,
1994........... (1.00%) $ 990.00 (5.18%) $ 948.20
Inception
(October 21,
1994) to
October 31,
1994........... 94.23% $1,942.30 93.42% $1,934.20
</TABLE>
In order to reflect the reduced sales charges, in the case of Class A or
Class D shares, or the waiver of the CDSC, in the case of Class B 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 not take into account the CDSC and
therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of sales charges, a lower amount of expenses may be
deducted.
49
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on June 9, 1988. It has an
authorized capital of 2,200,000,000 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, of which Class A and Class C each consist of 200,000,000
shares and Class B and Class D each consist of 900,000,000 shares. Class A,
Class B, Class C and Class D Common Stock represent an interest in the same
assets of the Fund and are identical in all respects except that the Class B,
Class C and Class D shares bear certain expenses related to the account
maintenance and/or distribution of such shares and have exclusive voting
rights with respect to matters relating to such account maintenance and/or
distribution expenditures. The Fund has received an order from the Commission
permitting the issuance and sale of multiple classes of Common Stock. The
Board of Directors of the Fund may classify and reclassify the shares of the
Fund into additional classes of Common Stock at a future date.
Shareholders are entitled to one vote for each 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. Also, the by-laws of the Fund require that a
special meeting of stockholders 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. Redemption and conversion
rights are discussed elsewhere herein and in the Prospectus. Each share 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 are issued by the
transfer agent only on specific request. Certificates for fractional shares
are not issued in any case.
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 on October 31, 1994, and its shares outstanding on that date is as
follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
-------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Net Assets................. $1,357,905,506 $6,457,130,497 $7,347,309 $4,967,730
============== ============== ========== ==========
Number of Shares Outstand-
ing....................... 103,860,623 500,261,282 569,017 379,903
============== ============== ========== ==========
Net Asset Value Per Share
(net assets divided by
number of shares outstand-
ing)...................... $ 13.07 $ 12.91 $ 12.91 $ 13.08
Sales Charge (for Class A
and Class D shares: 5.25%
of offering price (5.54%
of net amount invested))*. 0.72 ** ** 0.72
-------------- -------------- ---------- ----------
Offering Price............. $ 13.79 $ 12.91 $ 12.91 $ 13.80
============== ============== ========== ==========
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent; assumes maximum sales
charge is applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption of shares. See "Purchase of
Shares--Deferred Sales Charge Alternatives-- Class B and Class C Shares"
in the Prospectus and "Redemption of Shares--Deferred Sales Charge--Class
B Shares" herein.
50
<PAGE>
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to ratification by the shareholders of the
Fund. The independent auditors are responsible for auditing the annual
financial statements of the Fund.
CUSTODIAN
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), acts as the custodian of the Fund's assets. Under its
contract with the Fund, the Custodian is authorized to establish separate
accounts in foreign currencies and to cause foreign securities owned by the
Fund to be held in its offices outside the U.S. and with certain foreign banks
and securities depositories. The Custodian is responsible for safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery
of securities and collecting interest and dividends on the Fund's investments.
TRANSFER AGENT
Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484 (the "Transfer Agent"),
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 Commission, Washington,
D.C., under the Securities Act and the Investment Company Act, to which
reference is hereby made.
Under a separate agreement, Merrill Lynch 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, under
certain conditions, the use of any other name it might assume in the future,
with respect to any corporation organized by Merrill Lynch.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on January 31, 1995.
51
<PAGE>
APPENDIX
RATINGS OF FIXED INCOME SECURITIES
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") CORPORATE RATINGS
<TABLE>
<C> <S>
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 thereby 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 the desirable
investment. 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.
</TABLE>
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
52
<PAGE>
DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's makes no
representation that rated bank or insurance company obligations are exempt from
registration under the Securities Act of 1933 or issued in conformity with any
other applicable law or regulation. Nor does Moody's represent that any
specific bank or insurance company obligation is legally enforceable or a valid
senior obligation of a rated issuer. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment ability of rated issuers:
PRIME-1. Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
--Leading market positions in well-established industries.
--High rates of return on funds employed.
--Conservative capitalization structure 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.
PRIME-2. Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt 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, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3. Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME. Issuers rated Not Prime do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its short-term debt 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 the 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
affiliated corporations, commercial banks, insurance companies, foreign
governments or other entities, but only as one factor in the total rating
assessment. Moody's makes no representation and gives no opinion on the legal
validity or enforceability of any support arrangement.
53
<PAGE>
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
Because of the fundamental differences between preferred stocks and bonds, a
variation of the bond rating symbols is being used in the quality ranking of
preferred stock. The symbols, presented below, are designed to avoid comparison
with bond quality in absolute terms. It should always be borne in mind that
preferred stock occupies 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 a reasonable assurance the 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 protections are,
nevertheless, expected to be maintained at adequate levels.
"baa" An issue which is rated "baa" is considered to be a medium-grade
preferred stock, 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 payments.
"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 applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
54
<PAGE>
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S
("STANDARD & POOR'S") CORPORATE DEBT RATINGS
A Standard & Poor's corporate or municipal debt 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 any 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 circumstances.
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.
<TABLE>
<C> <S>
AAA Debt rated AAA has the highest rating assigned by Standard &
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 highest 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 in higher rated categories.
SPECULATIVE Debt rated BB, B, CCC, CC and C is regarded as having
GRADE predominantly speculative characteristics with respect to capacity
to pay interest and repay principal. BB indicates the least degree
of speculation and C the highest. While such debt will likely have
some quality and protective characteristics, these are outweighed
by large uncertainties or major 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.
</TABLE>
55
<PAGE>
<TABLE>
<C> <S>
B Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will 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 currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions
to meet timely payment 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
that 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 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. The D
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
</TABLE>
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 within the major
categories.
N.R. indicates not rated.
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 Legal Investment Laws of various states may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
56
<PAGE>
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. Ratings are graded into four categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. The four categories are as
follows:
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2, and 3 to indicate the relative degree of safety.
A-1
This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess
overwhelming 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-3Issues 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 an adequate 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, 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
to Standard & Poor's 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.
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS
A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any
applicable sinking fund obligations. A preferred stock rating differs from a
bond rating inasmuch as it is assigned to an equity issue, which issue is
intrinsically different from, and subordinated to, a debt issue. Therefore, to
reflect this difference, the preferred stock rating symbol will normally not be
higher than the bond rating symbol assigned to, or that would be assigned to,
the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
I. Likelihood of payment-- capacity and willingness of the issuer to meet
the timely payment of preferred stock dividends and any applicable sinking
fund requirements in accordance with the terms of the obligation.
II. Nature of, and provisions of, the issue.
57
<PAGE>
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and other
laws 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 to a weakened capacity to make
payments for a preferred stock in this category than for issues in the "A"
category.
BB Preferred stock rated "BB", "B", and "CCC" are regarded, on balance,
B as predominately speculative with respect to the issuer's capacity to pay
CCC 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 rating from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
The preferred stock 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. 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, 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 based on other circumstances.
58
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Merrill Lynch Global Allocation Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Global Allocation Fund, Inc. as
of October 31, 1994, 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, 1994, by correspondence with the custodian, brokers, and affiliated funds.
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 Allocation Fund, Inc. as of October 31, 1994, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 7, 1994
59
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Value Percent of
COUNTRY Industries Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Australia Banking 2,645,800 Westpac Banking Corp. $ 5,614,396 $ 8,890,825 0.1%
Food 7,916,000 Goodman Fielder Wattie Ltd. 8,324,587 7,457,553 0.1
Insurance 500,000 GIO Australia Holdings, Ltd. 841,716 860,488 0.0
Tobacco 1,999,800 Rothmans Holdings, Ltd. 7,517,440 7,684,280 0.1
1,242,300 WD & HO Wills Holdings, Ltd. 2,092,022 3,317,537 0.0
-------------- -------------- ------
9,609,462 11,001,817 0.1
Total Common Stocks in Australia 24,390,161 28,210,683 0.3
Austria Utilities-- 174,750 Oesterreichische Elektrizitats 10,542,970 10,955,855 0.1
Electric AG (Verbund)
Total Common Stocks in Austria 10,542,970 10,955,855 0.1
Canada Natural Resources 300,000 Canadian Pacific, Ltd. 3,503,161 4,800,000 0.1
Oil & Related 353,000 International Petroleum Corp. 1,000,196 419,188 0.0
Telecommunications 100,000 BCE Telecommunications, Inc. 3,375,484 3,500,000 0.0
Total Common Stocks in Canada 7,878,841 8,719,188 0.1
Denmark Banking & Financial 53,500 Unidanmark A/S 1,870,730 2,143,815 0.0
</TABLE>
60
<PAGE>
<TABLE>
<S> <S> <C> <S> <C> <C> <C>
Total Common Stocks in Denmark 1,870,730 2,143,815 0.0
Finland Banking 250,000 Kansallis-Osake-Pankki 533,290 465,230 0.0
3,033,915 Unitas Bank Ltd. 8,709,516 9,201,649 0.1
-------------- -------------- ------
9,242,806 9,666,879 0.1
Metals 175,000 Outokumpu OY 1,920,901 3,696,382 0.0
Paper & Forest 480,000 Enso-Gutzeit OY 3,485,619 4,253,033 0.1
Products 33,500 Metsa-Serla OY 1,397,019 1,553,076 0.0
450,000 Repola OY S 5,925,368 9,407,496 0.1
-------------- -------------- ------
10,808,006 15,213,605 0.2
Total Common Stocks in Finland 21,971,713 28,576,866 0.3
France Automobiles 113,300 Peugeot S.A. 14,661,303 16,952,125 0.2
Banking 100,878 Compagnie Financiere de Paribas 7,150,761 6,704,971 0.1
86,500 Societe Generale 9,605,405 9,752,862 0.1
-------------- -------------- ------
16,756,166 16,457,833 0.2
Insurance 89,900 GAN S.A. (Registered) 6,452,319 4,980,875 0.1
Multi-Industry 15,650 EuraFrance 4,256,713 5,412,051 0.1
Utilities 104,512 Compagnie Generale des Eaux 11,466,525 9,562,858 0.1
Total Common Stocks in France 53,593,026 53,365,742 0.7
Germany Banking 4,950 Bayerische Vereinsbank AG 1,181,909 1,468,067 0.0
33,900 Deutsche Bank AG 15,974,345 16,685,420 0.2
-------------- -------------- ------
17,156,254 18,153,487 0.2
Capital Goods 369,636 Kloeckner Werke AG 17,229,762 33,391,229 0.4
Chemicals 49,450 Bayer AG 8,953,719 11,558,589 0.2
Insurance 7,860 Munich Reinsurance Co. (Ordinary) 14,055,714 14,461,773 0.2
Machinery & Equipment 57,179 Mannesmann AG 15,621,661 15,267,989 0.2
Multi-Industry 103,840 Veba AG 29,898,982 34,762,776 0.5
Steel 92,100 Thyssen AG 11,715,893 17,575,775 0.2
Total Common Stocks in Germany 114,631,985 145,171,618 1.9
Hong Kong Telecommunications 1,180,000 Hong Kong Telecommunications Ltd. 754,179 2,527,437 0.0
Utilities--Electric 676,800 China Light & Power Co., Ltd. 841,166 3,521,168 0.0
Total Common Stocks in Hong Kong 1,595,345 6,048,605 0.0
Ireland Building & 1,065,600 CRH PLC 3,594,241 5,992,348 0.1
Construction
Miscellaneous-- 2,178,000 Waterford Wedgwood Units 1,080,827 2,029,648 0.0
Consumer Goods
Total Common Stocks in Ireland 4,675,068 8,021,996 0.1
Italy Banking 533,400 IMI (Ordinary) 3,443,328 3,479,600 0.0
Building & 1,922,200 Filippo Fochi S.p.A. 6,101,165 5,123,201 0.1
Construction
Multi-Industry 7,639,495 Compagnie Industriali Riunite S.p.A.
(CIR) 6,443,269 8,795,128 0.1
Telecommunications 3,000,000 Societa Finanziaria Telefonica
S.p.A.(STET) 4,365,656 9,068,452 0.1
11,181,363 Societa Finanziaria Telefonica
S.p.A. (STET) RISP 20,700,047 27,657,210 0.4
3,958,000 Societa Italiana Esercizio Telecom
S.p.A. (S.I.P.) 3,323,376 10,857,934 0.1
-------------- -------------- ------
28,389,079 47,583,596 0.6
Total Common Stocks in Italy 44,376,841 64,981,525 0.8
</TABLE>
61
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Value Percent of
COUNTRY Industries Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Japan Automobiles & 1,512,000 Suzuki Motor Corp. $ 13,245,256 $ 19,198,513 0.2%
Equipment 295,000 Toyota Motor Corp. 4,030,746 6,516,982 0.1
-------------- -------------- ------
17,276,002 25,715,495 0.3
Beverage 497,000 Chukyo Coca-Cola Bottling Co., Ltd. 6,342,434 5,848,870 0.1
358,000 Hokkaido Coca-Cola Bottling Co., Ltd. 4,698,844 5,469,598 0.1
573,000 Kinki Coca-Cola Bottling Co., Ltd. 9,468,770 8,695,262 0.1
468,000 Mikuni Coca-Cola Bottling Co., Ltd. 7,366,538 6,763,704 0.1
444,000 Sanyo Coca-Cola Bottling Co., Ltd. 6,660,269 6,416,847 0.1
-------------- -------------- ------
34,536,855 33,194,281 0.5
Capital Goods 3,608,000 Mitsubishi Heavy Industries, Ltd. 21,963,469 29,386,931 0.4
Containers 751,000 Toyo Seikan Kaisha, Ltd. 18,417,114 25,118,613 0.3
Electric Construction 410,000 Chudenko Corp. 13,428,175 15,067,616 0.2
29,000 Taihei Dengyo Kaisha Ltd. 657,632 796,325 0.0
-------------- -------------- ------
14,085,807 15,863,941 0.2
Electric Equipment 189,000 Hitachi, Ltd. 1,899,032 1,970,579 0.0
562,500 Murata Manufacturing Co., Ltd. 18,134,758 22,994,735 0.3
1,360,000 Sumitomo Electric Industries 15,481,185 20,357,180 0.3
-------------- -------------- ------
35,514,975 45,322,494 0.6
Insurance 1,237,000 Dai-Tokyo Fire & Marine Insurance
Co., Ltd. 7,457,147 9,436,802 0.1
665,000 Fuji Fire & Marine Insurance
Co., Ltd. 3,727,641 4,633,788 0.1
1,426,000 Koa Fire & Marine Insurance
Co., Ltd. 7,615,672 10,010,117 0.1
620,000 Mitsui Marine & Fire Insurance
Co., Ltd. 5,004,638 4,704,243 0.1
1,314,000 Nichido Fire & Marine Insurance
Co., Ltd. 8,013,286 11,516,321 0.1
1,295,000 Nippon Fire & Marine Insurance
Co., Ltd. 6,665,367 9,598,534 0.1
1,775,000 Sumitomo Marine & Fire Insurance
Co.,Ltd. 13,830,866 16,069,733 0.2
1,625,000 Tokio Marine & Fire Insurance
Co., Ltd. 17,355,002 19,291,318 0.2
630,000 Yasuda Fire & Marine Insurance
Co., Ltd. 4,971,410 4,630,536 0.1
-------------- -------------- ------
74,641,029 89,891,392 1.1
Office Equipment 1,372,000 Canon, Inc. 18,975,801 25,493,961 0.3
Pharmaceuticals 865,000 Sankyo Pharmaceuticals Co., Ltd. 21,123,949 22,502,323 0.3
384,000 Taisho Pharmaceuticals Co. 7,984,458 7,056,055 0.1
-------------- -------------- ------
29,108,407 29,558,378 0.4
Photography 298,000 Fuji Photo Film Co., Ltd. 6,679,585 7,106,225 0.1
Retail Stores 448,000 Ito Yokado Co., Ltd. 20,618,869 24,464,953 0.3
100,000 Sangetsu Co., Ltd. 3,160,832 2,973,057 0.0
-------------- -------------- ------
23,779,701 27,438,010 0.3
Steel 10,000 Maruichi Steel Tube Ltd. 153,093 190,978 0.0
Total Common Stocks in Japan 295,131,838 354,280,699 4.5
Netherlands Airlines 800,960 KLM Royal Dutch Airlines N.V. 15,801,656 22,267,353 0.3
Banking 1,226,150 ABN Amro Holdings N.V. 39,994,928 43,536,683 0.6
Chemicals 129,450 Akzo N.V. 12,211,968 16,336,636 0.2
Electronics 986,000 Philips Electronics N.V. 29,158,574 32,613,397 0.4
Insurance 155,000 Aegon N.V. 8,361,695 9,564,612 0.1
</TABLE>
62
<PAGE>
<TABLE>
<S> <S> <C> <S> <C> <C> <C>
375,400 Amev N.V. 14,542,480 15,599,016 0.2
800,965 Internationale Nederlanden Groep N.V. 30,066,279 37,460,663 0.5
-------------- -------------- ------
52,970,454 62,624,291 0.8
Miscellaneous-- 10,000 Nijverdal Ten Cate N.V. 501,699 493,776 0.0
Manufacturing
Paper & Forest 229,920 Koninklijke KNP 3,736,708 6,787,206 0.1
Products
Telecommunications 310,680 Koninklijke PTT Nederland N.V. 9,724,158 9,889,458 0.1
Total Common Stocks in the Netherlands 164,100,145 194,548,800 2.5
New Finance 4,585,700 Brierly Investments, Ltd. 2,882,632 3,187,869 0.0
Zealand
Total Common Stocks in New Zealand 2,882,632 3,187,869 0.0
Spain Banking 116,011 Banco de Santander S.A. (New) 4,603,421 4,500,786 0.1
568,670 Banco de Santander S.A. (Ordinary) 20,154,425 23,106,333 0.3
61,775 Banco Popular Espanol S.A. 6,511,311 7,747,148 0.1
83,000 Bank Intercontinental S.A. 4,607,612 7,659,296 0.1
-------------- -------------- ------
35,876,769 43,013,563 0.6
Electrical Equipment 45,750 Alba Corp. (Rights) -- -- 0.0
Energy & Petroleum 618,500 Repsol S.A. 18,566,656 19,774,028 0.3
Financial Services 326,000 Argentaria S.A. 12,974,203 12,608,526 0.2
Insurance 30,000 Mapfre S.A. 1,130,028 1,324,339 0.0
Miscellaneous 137,500 Autopista Espana (ACESA) 1,363,125 1,141,534 0.0
6,875 Autopista Espana (ACESA) (Rights) -- 57,077 0.0
195,000 Grupo Fosforera Espanola S.A. 1,696,601 1,603,337 0.0
-------------- -------------- ------
3,059,726 2,801,948 0.0
Multi-Industry 45,750 Corporacion Financiera Alba S.A. 1,611,658 2,227,788 0.0
Real Estate 236,708 Metrovacesa 5,888,465 7,747,288 0.1
Telecommunications 1,802,118 Telefonica Nacional de Espana S.A. 20,127,134 24,384,051 0.3
184,000 Telefonica Nacional de Espana S.A.
(ADR)++ 5,492,987 7,452,000 0.1
-------------- -------------- ------
25,620,121 31,836,051 0.4
Utilities--Electric 100,000 Empresa Nacional de Electricidad S.A. 3,759,956 4,582,103 0.1
591,800 Iberdrola I S.A. 3,310,030 3,897,461 0.1
-------------- -------------- ------
7,069,986 8,479,564 0.2
Total Common Stocks in Spain 111,797,612 129,813,095 1.8
Sweden Electrical Equipment 120,000 ASEA AB 'B' Free 6,532,086 8,709,193 0.1
Insurance 343,050 Skandia Forsakring 'AB' Free 5,159,320 6,248,199 0.1
Mining 725,725 Trelleborg 'B' Free 5,291,716 11,200,083 0.1
Miscellaneous 200,000 SKF 'A' 3,713,376 3,587,120 0.0
487,500 SKF 'B' Free 9,074,042 8,879,164 0.1
-------------- -------------- ------
12,787,418 12,466,284 0.1
Multi-Industry 245,000 Svedala Industri 'AB' Free 3,925,653 5,688,644 0.1
Total Common Stocks in Sweden 33,696,193 44,312,403 0.5
Switzerland Electrical Equipment 19,534 BBC Brown Boveri & Cie (Bearer) 12,064,907 16,765,647 0.2
Food & Beverage 16,500 Nestle AG 13,014,541 15,422,771 0.2
Insurance 1,040 Baloise Holding Insurance (Registered) 1,986,476 1,958,280 0.0
Pharmaceuticals 19,800 Ciba-Geigy AG (Registered) 9,511,983 11,539,490 0.2
Total Common Stocks in Switzerland 36,577,907 45,686,188 0.6
</TABLE>
63
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Value Percent of
COUNTRY Industries Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Aerospace 1,452,500 Rolls Royce PLC $ 3,586,733 $ 4,125,646 0.1%
Kingdom
Banks & Finance 232,800 Reuters Holdings PLC 1,686,224 1,824,109 0.0
Beverage 1,560,600 Grand Metropolitan PLC 10,377,835 10,572,222 0.1
35,000 Grand Metropolitan PLC (ADR)++ 1,031,100 940,625 0.0
-------------- -------------- ------
11,408,935 11,512,847 0.1
Conglomerates 50,000 Hanson PLC (ADR)++ 984,250 931,250 0.0
Consumer Goods 850,000 Vendome Luxury Group (Units) 5,501,439 7,201,333 0.1
Electrical Equipment 1,230,200 General Electric Co. PLC 5,848,390 5,542,573 0.1
Food 825,000 Tate & Lyle PLC 5,110,541 5,737,070 0.1
Industrial--Other 1,581,600 Tomkins PLC 5,292,446 5,473,424 0.1
Insurance 599,000 Commercial Union Assurance Co. PLC 5,354,117 5,358,386 0.1
Leisure & 857,100 The Rank Organisation PLC 5,411,425 5,666,477 0.1
Entertainment 490,000 Thorn EMI PLC (Ordinary) 7,194,681 7,774,795 0.1
-------------- -------------- ------
12,606,106 13,441,272 0.2
Pharmaceuticals 625,000 SmithKline Beecham Corp. PLC (ADR)++ 17,244,510 19,062,500 0.2
1,000,000 Zeneca Group PLC 9,406,370 14,054,964 0.2
-------------- -------------- ------
26,650,880 33,117,464 0.4
Retail Stores 4,300 Boots Co. PLC 28,682 37,202 0.0
1,500,000 Sears Holdings PLC 2,825,599 2,632,245 0.0
-------------- -------------- ------
2,854,281 2,669,447 0.0
Steel 1,500,000 British Steel PLC 1,442,449 3,923,881 0.1
Telecommunications 1,097,200 British Telecommunications PLC 6,551,120 7,065,768 0.1
423,200 Unilever Capital Corp. 6,373,658 7,875,481 0.1
-------------- -------------- ------
12,924,778 14,941,249 0.2
Utilities-- 111,800 Cable & Wireless International PLC 823,118 766,510 0.0
Communications
Utilities--Gas 435,800 British Gas PLC 1,789,284 2,070,174 0.0
Waste Disposal 83,500 Attwoods PLC (ADR)++ 759,800 761,938 0.0
Total Common Stocks in the
United Kingdom 104,623,771 119,398,573 1.6
United Aerospace 56,000 Boeing Co. 2,003,133 2,457,000 0.0
States
Aerospace & Defense 200,000 EG&G, Inc. 2,889,403 3,225,000 0.0
Airlines 12,500 UAL Corp. 1,187,500 1,181,250 0.0
Apparel 860,000 Fruit of the Loom, Inc. 23,555,786 24,617,500 0.3
373,900 Liz Claiborne, Inc. 8,022,626 8,646,438 0.1
150,000 NIKE, Inc. (Class B) 7,970,975 9,131,250 0.1
-------------- -------------- ------
39,549,387 42,395,188 0.5
Automobiles 210,300 General Motors Corp. 8,014,471 8,306,850 0.1
Banking 85,000 Albank Financial Corp. 971,875 1,870,000 0.0
280,500 AmSouth Bancorporation 7,624,356 8,344,875 0.1
678,400 Anchor Bancorp., Inc. 8,229,970 10,006,400 0.1
400,000 Bank of New York 10,650,626 12,700,000 0.2
75,000 BankAmerica Corp. 3,219,677 3,262,500 0.0
319,000 Bankers Trust Co. 7,620,125 6,738,875 0.1
</TABLE>
64
<PAGE>
<TABLE>
<S> <S> <C> <S> <C> <C> <C>
129,500 Banknorth Group, Inc. 1,865,422 2,946,125 0.0
700,000 Barnett Banks Inc. 28,355,015 29,050,000 0.4
500,000 California Federal Bank 4,500,000 5,750,000 0.1
496,700 Charter One Financial, Inc. 9,263,048 9,996,088 0.1
798,500 Chase Manhattan Corp. 26,045,496 28,746,000 0.4
1,391 Chase Manhattan Corp. (Warrants) (a) 6,955 9,215 0.0
1,513,500 Chemical Banking Corp. 55,174,508 57,513,000 0.7
1,560,300 City National Corp. 11,096,128 17,163,300 0.2
1,112,500 Comerica Inc. 30,077,266 30,732,813 0.4
375,000 CoreStates Financial Corp. 9,855,001 9,703,125 0.1
1,120,000 First of America Bank 41,734,310 37,940,000 0.5
1,080,000 First Commerce Corp. 27,728,848 28,350,000 0.4
400,000 First Union Corp. 16,226,028 18,000,000 0.2
1,426,103 KeyCorp 42,386,643 40,822,184 0.5
498,600 Mellon Bank Corp. 26,731,868 27,734,625 0.4
112,950 Mercantile Bancorp., Inc. 2,920,618 3,925,012 0.1
150,000 NBD Bancorp, Inc. 4,352,648 4,612,500 0.1
648,000 Onbancorp, Inc. 18,276,126 16,848,000 0.2
294,400 Oriental Bank and Trust 5,050,248 4,747,200 0.1
45,000 Premier Bancorp. 708,437 731,250 0.0
1,400,000 Republic New York Corp. 64,147,741 64,050,000 0.8
450,000 Southern National Corp. 8,670,728 9,281,250 0.1
17,000 Trustco Bankcorp. NY 222,793 327,250 0.0
-------------- -------------- ------
473,712,504 491,901,587 6.3
Building & 605,000 TJ International, Inc. 10,871,756 10,738,750 0.1
Construction
Communications 185,700 Comsat Corp. 4,308,767 3,992,550 0.1
104,500 GTE Corp. 3,514,166 3,213,375 0.0
300,000 Octel Communications Corp. 5,268,100 6,450,000 0.1
-------------- -------------- ------
13,091,033 13,655,925 0.2
Computers 148,500 Boole & Babbage, Inc. 2,962,360 4,714,875 0.1
700,000 Borland International Corp. 8,054,338 7,437,500 0.1
270,000 International Business Machines Corp. 12,146,536 20,115,000 0.3
800,000 Unisys Corp. 9,264,381 8,500,000 0.1
100,000 Western Digital Co. 1,224,880 1,700,000 0.0
-------------- -------------- ------
33,652,495 42,467,375 0.6
Construction & 153,800 Centex Corp. 3,880,118 3,422,050 0.0
Housing 500,000 K. Hovnanian Enterprises, Inc.
(Class A) 4,920,209 3,000,000 0.0
-------------- -------------- ------
8,800,327 6,422,050 0.0
Energy & Petroleum 163,900 Ashland Coal, Inc. 4,132,919 4,998,950 0.1
45,000 Brown (Tom), Inc. 195,997 568,125 0.0
49,500 Cabot Oil & Gas Corp. (Class A) 529,030 915,750 0.0
34,600 Coastal Corp. 817,773 986,100 0.0
153,000 Coho Resources, Inc. 1,662,813 765,000 0.0
408,000 Gerrity Oil & Gas Corp. 5,748,846 2,397,000 0.0
130,000 Helmerich & Payne, Inc. 2,773,423 4,062,500 0.1
30,000 McMoRan Oil & Gas Co. 146,197 105,000 0.0
46,400 Mitchell Energy Development Corp.
(Class A) 675,717 823,600 0.0
174,350 Mitchell Energy Development Corp.
(Class B) 2,755,451 3,138,300 0.0
50,000 Murphy Oil Corp. 1,899,720 2,381,250 0.0
106,100 Nuevo Energy Co. 2,048,791 2,373,987 0.0
</TABLE>
65
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Held/ Value Percent of
COUNTRY Industries Face Amount Common Stocks & Notes Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Energy & Petroleum 1,563,400 Occidental Petroleum Corp. $ 29,245,537 $ 34,199,375 0.4%
States (concluded) 61,200 Pennzoil Co. 3,775,844 3,151,800 0.0
(continued) 149,700 +++Plains Resources, Inc. 1,371,062 991,762 0.2
1,794,247 Santa Fe Energy Resources, Inc. 16,331,708 16,372,512 0.0
1,175,000 Trans Texas Gas Corp. 14,200,000 15,421,875 0.2
700,000 USX-Marathon Group 12,267,189 13,125,000 0.2
138,800 Unocal Corp. 3,272,336 4,059,900 0.1
-------------- -------------- ------
103,850,353 110,837,786 1.3
Financial Services 807,800 Student Loan Marketing Association 34,901,569 25,950,575 0.3
Foods/Food 900,000 Borden, Inc. 11,393,223 12,150,000 0.2
Processing
Healthcare Services 410,000 Advocat, Inc. 3,897,500 4,305,000 0.1
961,200 Baxter International, Inc. 21,122,668 24,991,200 0.3
650,000 Beverly Enterprises, Inc. 6,733,713 9,831,250 0.1
55,000 Community Psychiatric Centers 580,744 543,125 0.0
150,000 HealthCare COMPARE Corp. 2,732,397 4,143,750 0.1
530,500 Hillhaven Corp. 8,732,138 11,803,625 0.2
150,000 Manor Care, Inc. 2,928,940 4,125,000 0.1
546,500 US Surgical Corp. 11,871,438 12,296,250 0.2
-------------- -------------- ------
58,599,538 72,039,200 1.1
Index-Related US$ 40,800 Republic of Austria Stock Index
Growth Notes due 8/15/1996 432,941 540,600 0.0
Industrial 915,000 BW/IP Holdings, Inc. 15,816,387 16,012,500 0.2
390,000 CBI Industries, Inc. 10,158,411 9,018,750 0.1
250,000 Cooper Industries, Inc. 9,064,307 9,343,750 0.1
2,672 Gardner Denver Machinery, Inc. 22,042 27,722 0.0
-------------- -------------- ------
35,061,147 34,402,722 0.4
Insurance 524,700 Ace, Ltd. 12,307,636 11,936,925 0.2
245,000 Aetna Life & Casualty Co. 12,939,855 11,300,625 0.1
500,000 Alexander & Alexander Services, Inc. 8,443,979 10,125,000 0.1
550,000 American General Corp. 14,227,584 15,125,000 0.2
571,000 Horace Mann Educators, Inc. 13,654,588 12,347,875 0.2
630,200 Lincoln National Corp. 23,245,001 22,844,750 0.3
203,000 PartnerRe Holdings, Ltd. 4,026,552 4,110,750 0.1
-------------- -------------- ------
88,845,195 87,790,925 1.2
Metals 277,500 Alcan Aluminum, Ltd. 4,669,221 7,423,125 0.1
120,000 Aluminum Co. of America 8,094,043 10,230,000 0.1
100,000 Inco Ltd. 2,132,000 3,012,500 0.0
132,800 Reynolds Metals Co. 5,801,771 7,353,800 0.1
-------------- -------------- ------
20,697,035 28,019,425 0.3
Miscellaneous 125,000 ADT Limited (ADR)++ 1,434,405 1,406,250 0.0
93,700 Handleman Co. 1,044,752 1,054,125 0.0
223,900 Jostens Inc. 4,199,326 3,862,275 0.1
385,000 Loews Corp. 35,433,180 33,976,250 0.4
-------------- -------------- ------
42,111,663 40,298,900 0.5
Natural Resources 7,500 Freeport McMoRan Copper and
Gold, Inc. 164,363 170,625 0.0
300,000 Freeport-McMoRan, Inc. 4,907,292 5,512,500 0.1
</TABLE>
66
<PAGE>
<TABLE>
<S> <C> <S> <C> <C> <C>
440,000 Horsham Corp. (ADR)++ 3,550,742 6,820,000 0.1
-------------- -------------- ------
8,622,397 12,503,125 0.2
Oil Services 670,000 Arethusa (Off-Shore) Ltd. 6,809,378 7,286,250 0.1
149,800 Atwood Oceanics, Inc. 1,238,663 1,872,500 0.0
43,400 Cliffs Drilling Co. 595,425 553,350 0.0
2,949,375 Noble Drilling Corp. 21,592,068 21,382,969 0.3
-------------- -------------- ------
30,235,534 31,095,069 0.4
Paper & Forest 561,900 Boise Cascade Corp. 12,517,685 14,890,350 0.2
Products 435,000 Bowater, Inc. 8,882,625 11,745,000 0.2
112,000 Champion International Corp. 3,318,152 4,144,000 0.1
150,000 International Paper Co. 9,477,586 11,175,000 0.1
150,000 Stone Container Corp. 1,954,854 2,512,500 0.0
-------------- -------------- ------
36,150,902 44,466,850 0.6
Pharmaceuticals/ 600,000 ALZA Corp. 13,048,597 10,650,000 0.1
Biotechnology 121,500 Alteon Inc. 1,205,188 789,750 0.0
139,400 American Home Products Corp. 8,256,144 8,851,900 0.1
435,000 +++Applied Immune Sciences, Inc. 6,160,143 2,229,375 0.0
58,200 AutoImmune Inc. 385,575 305,550 0.0
600,000 Bristol-Myers Squibb Co. 33,254,124 35,025,000 0.5
110,000 Immune Response Corp. 1,444,874 893,750 0.0
275,000 Lilly (Eli) & Co. 13,880,596 17,050,000 0.2
550,000 Merck & Co. 18,652,516 19,662,500 0.3
100,000 Pfizer, Inc. 5,793,898 7,412,500 0.1
-------------- -------------- ------
102,081,655 102,870,325 1.3
Pollution Control 646,900 WMX Technologies, Inc. 16,148,443 19,002,687 0.2
Publishing 250,000 Deluxe Corp. 6,706,999 7,062,500 0.1
301,500 New York Times Co. (Class A) 7,158,778 6,821,437 0.1
150,000 Times Mirror Co. 4,654,407 4,893,750 0.1
-------------- -------------- ------
18,520,184 18,777,687 0.3
Real Estate 424,600 Carr Realty Corp. 8,608,363 8,279,700 0.1
500,000 First Union Real Estate Investments 3,764,840 3,875,000 0.1
661,300 Mid-America Realty Investments 6,616,640 5,786,375 0.1
100,000 Mid-Atlantic Realty Trust Co. 917,500 875,000 0.0
720,000 Prime Residential, Inc. 11,584,750 11,340,000 0.1
-------------- -------------- ------
31,492,093 30,156,075 0.4
Retail Stores 608,500 Baker (J.) Inc. 10,187,765 10,268,437 0.1
516,900 ++++Buttrey Food & Drug Stores Co. 4,084,486 4,005,975 0.1
156,700 Dayton-Hudson Corp. 10,496,970 12,144,250 0.2
100,000 Eagle Food Centers, Inc. 612,500 225,000 0.0
1,110,000 ++++Filene's Basement Corp. 10,092,619 8,325,000 0.1
1,373,500 Payless Cashways Inc. 17,027,625 12,876,562 0.2
1,100,000 Service Merchandise Co., Inc. 9,491,185 6,600,000 0.1
158,400 Smith Food & Drug Ltd. 3,067,501 4,098,600 0.1
400,000 Sotheby's Holdings, Inc. (Class A) 4,879,558 4,850,000 0.1
1,111,600 The Vons Companies, Inc. 18,500,110 21,676,200 0.3
-------------- -------------- ------
88,440,319 85,070,024 1.3
</TABLE>
67
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Value Percent of
COUNTRY Industries Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Savings Banks 106,000 Ahmanson (H.F.) & Co. $ 1,767,857 $ 2,027,250 0.0%
States 297,600 Bankers Corp. 1,688,842 4,240,800 0.1
(concluded) 655,000 Brooklyn Bancorp Inc. (e) 15,782,500 21,287,500 0.3
500,000 Dime Savings Bank of New York 3,417,510 4,375,000 0.1
196,400 Downey Savings & Loan Association 2,896,670 3,707,050 0.1
1,895,553 Glendale Federal Savings Bank 16,659,352 20,614,139 0.3
770,194 Glendale Federal Savings Bank
(Warrants) (a) -- 2,599,405 0.0
37,500 NS Bancorp, Inc. 300,000 1,031,250 0.0
200,000 Portsmouth Bank Shares, Inc. 1,396,014 2,300,000 0.0
-------------- -------------- ------
43,908,745 62,182,394 0.9
Textiles 2,825,200 Burlington Industries, Inc. 37,451,653 26,486,250 0.3
Tobacco 720,000 Philip Morris Companies, Inc. 34,696,738 44,100,000 0.6
Utilities--Electric 1,250,000 Allegheny Power System, Inc. 27,315,551 25,937,500 0.3
125,000 CMS Energy Corp. 2,290,025 2,875,000 0.0
2,071,000 Centerior Energy Corp. 31,583,112 17,085,750 0.2
150,000 Consolidated Edison Company Inc. 4,390,815 3,731,250 0.1
1,780,000 Entergy Corp. 47,516,856 41,607,500 0.5
475,000 FPL Group, Inc. 14,363,265 15,734,375 0.2
300,000 General Public Utilities Corp. 8,663,891 7,725,000 0.1
1,757,900 Niagara Mohawk Power Corp. 28,627,702 24,171,125 0.3
844,600 Texas Utilities Co. 26,942,999 27,555,075 0.4
1,148,800 Unicom Corporation 27,549,620 24,842,800 0.3
-------------- -------------- ------
219,243,836 191,265,375 2.4
Utilities--Gas 115,650 Atmos Energy Corp. 1,445,257 1,893,769 0.0
126,900 Pacific Enterprises 2,486,131 2,728,350 0.0
40,800 South Jersey Industries, Inc. 711,756 708,900 0.0
-------------- -------------- ------
4,643,144 5,331,019 0.0
Total Common Stocks
in the United States 1,661,300,316 1,708,087,988 22.0
Total Investments in Common Stocks 2,695,637,094 2,955,511,508 37.8
Equity Closed-End Funds
Portugal Financial Services 39,500 Capital Portugal Fund 2,052,116 3,250,976 0.1
Total Equity Closed-End Funds
in Portugal 2,052,116 3,250,976 0.1
United Financial Services 320,000 Austria Fund 2,642,432 2,600,000 0.0
States 166,666 European Warrant Fund 1,363,723 1,624,993 0.0
11,700 Global Yield Fund 89,798 71,662 0.0
300,100 Growth Fund of Spain, Inc. 2,630,827 3,076,025 0.1
150,000 Irish Investment Fund, Inc. 1,086,041 1,518,750 0.0
150,000 Italy Fund 1,198,520 1,312,500 0.0
25,600 Jakarta Growth Fund 158,080 275,200 0.0
40,000 Portugal Fund 360,368 635,000 0.0
-------------- -------------- ------
9,529,789 11,114,130 0.1
Total Equity Closed-End Funds
in the United States 9,529,789 11,114,130 0.1
Total Investments in
Equity Closed-End Funds 11,581,905 14,365,106 0.2
Preferred Stocks
</TABLE>
68
<PAGE>
<TABLE>
<S> <S> <C> <S> <C> <C> <C>
Germany Automobiles 80,150 Volkswagen of America, Inc. 17,907,876 18,739,821 0.2
Multi-Industry 45,000 R.W.E. AG 8,725,424 11,029,558 0.1
Total Preferred Stocks in Germany 26,633,300 29,769,379 0.3
Netherlands Paper & Forest 100,240 Koninklijke KNP BT 404,041 450,397 0.0
Products
Total Preferred Stocks in Netherlands 404,041 450,397 0.0
Spain Banking 225,000 Santander Overseas Bank
(8%, Series D) (ADR)++ 5,463,250 4,837,500 0.1
Total Preferred Stocks in Spain 5,463,250 4,837,500 0.1
United Engineering 750,000 AMEC PLC (6.50% Convertible) 968,501 1,003,926 0.0
Kingdom
Retail Stores 545,000 Signet Group (Convertible) (ADR)++ 2,194,907 4,155,625 0.1
Waste Disposal 1,700,000 Attwoods PLC (8.50% Convertible) 2,417,796 2,455,946 0.0
Total Preferred Stocks
in the United Kingdom 5,581,204 7,615,497 0.1
United Airlines 100,000 +++++++AMR Corp. (Convertible $3.00) 5,065,500 4,150,000 0.1
States 85,000 +++++++UAL Corp. (6.25% Convertible) 7,885,625 7,203,750 0.1
150,000 USAir Group, Inc. (Convertible $4.375,
Series B) 7,940,250 2,493,750 0.0
-------------- -------------- ------
20,891,375 13,847,500 0.2
Automobiles &
Equipment 20,000 Ford Motor Co. (8.40% Convertible,
Series A) 1,000,000 1,935,000 0.0
Banking 75,000 California Federal Bank (10.625%) 7,500,000 7,593,750 0.1
115,000 First Nationwide Bank (11.50%) 11,500,000 11,787,500 0.2
100,000 Fourth Financial Corp. (Convertible,
Class A) 2,500,000 2,950,000 0.0
130,300 Marine Midland Banks, Inc.
(Adj. Rate, Series A) 5,219,925 5,765,775 0.1
100,000 Onbancorp, Inc. (6.75% Convertible,
Series B) 2,668,750 2,375,000 0.0
-------------- -------------- ------
29,388,675 30,472,025 0.4
Energy & Petroleum 150,000 Grant Tensor Corp. (9.75% Convertible) 1,853,375 1,987,500 0.0
13,000 +++Plains Resources, Inc.
(Convertible, Series C) 1,300,000 1,435,687 0.0
64,219 Santa Fe Energy Resources, Inc. (7%) 954,075 1,131,860 0.0
460,000 Santa Fe Energy Resources, Inc.
(Convertible, Class A) 4,082,500 4,197,500 0.1
50,000 Tenneco Inc. (Convertible, Series P) 1,475,000 2,081,250 0.0
-------------- -------------- ------
9,664,950 10,833,797 0.1
Financial Services 175,000 A/S Eksportfinans (8.70%) 4,377,500 4,221,875 0.1
Industrial 1,080,000 US Surgical Corp. (Convertible) 24,354,000 28,620,000 0.4
Natural Resources 85,000 Alumax Inc. (Convertible) 7,240,312 10,795,000 0.1
150,000 Cyprus Amax Minerals Co.
(Convertible, Series A) 9,188,313 9,262,500 0.1
20,000 Echo Bay Finance Ltd. (Convertible)
(Series A) 500,000 747,500 0.0
245,000 Freeport-McMoRan Copper and Gold Inc.
(Convertible Shares) 5,828,450 5,635,000 0.1
219,000 Freeport-McMoRan Inc.
(Convertible--Gold) 7,703,330 7,884,000 0.1
-------------- -------------- ------
30,460,405 34,324,000 0.4
Oil Service 447,200 +++Noble Drilling Corp. (Convertible) 10,745,382 10,062,000 0.1
Paper & Forest 300,000 Boise Cascade Corp.(Convertible,
Products Series G) 6,337,500 7,387,500 0.1
388,200 James River Corp. of Virginia
(9% Convertible, Series P) 6,696,450 8,540,400 0.1
-------------- -------------- ------
13,033,950 15,927,900 0.2
</TABLE>
69
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Value Percent of
COUNTRY Industries Shares Held Preferred Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Real Estate 500,000 Catellus Development Corp. (7.25%
States 666,000 Conv. Exchangeable, Series B) $ 25,000,000 $ 22,000,000 0.3%
(concluded) National Health Investors, Inc.
(8.50% Conv.) 16,650,000 16,150,500 0.2
700,000 Prime Retail, Inc. (10.50%) 16,712,575 14,875,000 0.2
-------------- -------------- ------
58,362,575 53,025,500 0.7
Savings Bank 619,900 Glendale Federal Savings Bank
(8.75% Convertible, Series E) 15,070,337 19,449,362 0.3
Total Preferred Stocks in the
United States 217,349,149 222,718,959 2.9
Total Investments in Preferred Stocks 255,430,944 265,391,732 3.4
<CAPTION>
Face Amount Fixed-Income Securities
<S> <S> <C> <S> <C> <C> <C>
Canada Government Canadian Government Bonds:
Obligations C$ 120,000,000 9.50% due 10/01/1998 91,871,422 91,843,526 1.2
25,000,000 8.50% due 3/01/2000 18,537,048 18,394,587 0.2
25,000,000 6.50% due 6/01/2004 16,791,181 15,473,638 0.2
-------------- -------------- ------
127,199,651 125,711,751 1.6
Oil & Related Mark Resources Inc., Convertible
Bonds:
7,250,000 7.00% due 4/15/2002 5,052,564 4,637,469 0.1
1,250,000 8.00% due 11/30/2004 943,556 887,377 0.0
14,500,000 Talisman Energy Inc.,8.50% due
12/01/2000 11,040,982 10,132,737 0.1
-------------- -------------- ------
17,037,102 15,657,583 0.2
Paper & Forest Domtar, Inc.:
Products 6,763,000 10.35% due 9/01/2006 4,014,962 4,576,015 0.1
3,500,000 10.00% due 4/15/2011 1,938,573 2,322,894 0.0
-------------- -------------- ------
5,953,535 6,898,909 0.1
Real Estate +++Olympia & York Inc.:
57,194,000 Series 1, 10.70% due 11/04/1995 29,626,733 29,182,770 0.4
34,000,000 Series 2, 11.00% due 11/04/1998 18,060,242 17,348,222 0.2
-------------- -------------- ------
47,686,975 46,530,992 0.6
Resources 67,000,000 Sheritt Gordon, Ltd., 11.00%
due 3/31/2004 48,454,704 47,811,137 0.6
Total Fixed-Income Securities
in Canada 246,331,967 242,610,372 3.1
European Government ECU 175,000,000 Government of France,8.25%
Currency Obligations due 4/25/2022 202,798,464 201,546,800 2.6
Unites
Banking 15,650,000 Banco Commercial Portuguese, Conv.
Bonds, 8.75% due 5/21/2002 21,845,827 20,995,038 0.3
2,000,000 Credit Local de France,
9.48% due 10/16/2001 (b) 1,538,042 1,384,313 0.0
-------------- -------------- ------
23,383,869 22,379,351 0.3
Industrial 1,000,000 Investor International Placements,
Conv. Bonds, 7.25% due 6/21/2001 1,001,412 1,271,928 0.0
7,000,000 SKF-AB Lyons, Conv. Bonds,
8.63% due 7/26/2002 (b) 4,907,415 4,628,932 0.1
-------------- -------------- ------
5,908,827 5,900,860 0.1
Total Fixed-Income Securities in
European Currency Units 232,091,160 229,827,011 3.0
</TABLE>
70
<PAGE>
<TABLE>
<S> <S> <C> <S> <C> <C> <C>
Finland Government Fmk 75,000,000 Republic of Finland,
Obligations 11.00% due 1/15/1999 14,754,836 17,113,843 0.2
Total Fixed-Income Securities
in Finland 14,754,836 17,113,843 0.2
France Government Frf 675,000,000 Government of France,
Obligations 8.50% due 4/25/2023 125,049,588 127,690,666 1.6
Automobiles 5,500 Peugeot, Conv.Bonds, 2.00% 992,341 981,952 0.0
due 1/01/2001
Banking 58,000 Societe Generale, Conv. Bonds,
3.50% due 1/01/2000 7,499,838 7,788,861 0.1
13,000 Credit National, Conv. Bonds, 3.75%
due 1/01/2001 1,653,250 1,665,049 0.0
-------------- -------------- ------
9,153,088 9,453,910 0.1
Industrial 30,000 Alcatel Alsthom, Conv. Bonds,
2.50% due 1/01/2004 3,926,887 3,883,175 0.1
Insurance 28,000 Finaxa Conv. Bonds, 3.00%
due 1/01/2001 7,022,120 7,009,509 0.1
Multi-Industry 8,713 Compagnie Generale des Eaux, Conv.
Bonds, 6.00% due 1/01/1998 4,859,722 5,261,955 0.1
Total Fixed-Income Securities
in France 151,003,746 154,281,167 2.0
Germany Government DM 63,000,000 Bundesrepublic Deutscheland,
Obligations 6.75% due 4/22/2003 38,164,973 39,465,493 0.5
Treuhandanstalt:
35,000,000 7.375% due 12/02/2002 22,503,456 22,841,249 0.3
75,000,000 6.875% due 6/11/2003 44,862,188 47,331,451 0.6
400,000,000 7.50% due 9/09/2004 258,210,288 263,115,244 3.4
-------------- -------------- ------
363,740,905 372,753,437 4.8
Government 64,000,000 Baden-Wuerttemberg,
Obligations-- 6.20% due 11/22/2013 37,148,769 37,902,624 0.5
Regional 57,500,000 Freie Hansestadt Hamburg,
6.08% due 11/29/2018 33,152,404 33,678,844 0.4
165,000,000 Land Hessen, 6.00% due 11/29/2013 94,980,999 96,643,640 1.2
110,000,000 Mecklenberg Vorpommern,
6.15% due 6/16/2023 61,012,437 62,492,860 0.8
116,200,000 Nordrhein-Westfalen,
6.125% due 12/21/2018 66,517,753 68,392,441 0.9
Rheinland-Pfalz:
33,000,000 5.75% due 2/24/2014 18,324,663 18,885,952 0.2
62,000,000 6.08% due 11/29/2018 35,633,056 36,306,343 0.5
50,000,000 Sachsen-Anhalt, 6% due 1/10/2014 28,632,994 28,897,376 0.4
-------------- -------------- ------
375,403,075 383,200,080 4.9
Banking 2,310,000 Commerzbank AG, Floating Rate
Convertible Bonds, 2.00% due
6/15/2001 (b) 1,556,456 2,086,749 0.0
Total Fixed-Income Securities
in Germany 740,700,436 758,040,266 9.7
Ireland Industrial IrP 8,046,277 CRH Capital Corp., Conv. Bonds,
6.50% due 4/30/2003 15,808,558 16,806,339 0.2
Total Fixed-Income Securities
in Ireland 15,808,558 16,806,339 0.2
Italy Telecom- Softe SA-LUX:
munications Lit 10,500,000,000 Convertible Bonds, 4.25%
due 7/30/1998 7,317,044 7,610,674 0.1
16,760,000,000 8.75% due 3/24/1997 10,756,360 9,969,057 0.1
Total Fixed-Income Securities
in Italy 18,073,404 17,579,731 0.2
Japan Automobiles YEN 400,000,000 Toyota Motor Corp., Convertible
& Equipment Bonds, 1.20% due 1/28/1998 2,477,431 4,583,462 0.0
Beverages 1,282,500,000 Hokkaido Coca-Cola Bottling Co., Ltd.,
Conv. Bonds, 0.90% due 6/30/1995 13,057,275 13,040,802 0.2
Industrial 988,000,000 Matsushita Electric Works, Conv.
Bonds, 2.70% due 5/31/2002 9,691,544 11,525,137 0.2
</TABLE>
71
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Value Percent of
COUNTRY Industries Face Amount Fixed-Income Securities Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Japan Pharma- YEN 2,850,000,000 Glaxo Holdings PLC, Conv. Bonds,
(concluded) ceutical 4.30% due 9/28/1998 $ 25,735,735 $ 29,273,769 0.4%
Transportation 950,000,000 Hankyu Corp., Convertible Bonds,
1.25% due 9/30/1998 8,674,953 8,899,814 0.1
Total Fixed-Income Securities
in Japan 59,636,938 67,322,984 0.9
New Utilities-- NZ$ 2,000,000 Natural Gas Corp. Holdings,
Zealand Gas Convertible Bonds, 10.50% due
10/14/1997 1,186,318 1,661,040 0.0
Total Fixed-Income Securities
in New Zealand 1,186,318 1,661,040 0.0
South Food President Enterprises (b):
Korea KW 800,000 8.30% due 7/22/2001 796,158 834,000 0.0
2,000,000 +++++++8.30% due 7/22/2001 1,990,454 2,085,000 0.0
Total Fixed-Income Securities
in South Korea 2,786,612 2,919,000 0.0
Spain Government Government of Spain:
Obligations Pta 14,500,000,000 10.30% due 6/15/2002 108,997,661 109,696,256 1.4
12,000,000,000 10.90% due 8/30/2003 91,501,238 93,407,839 1.2
Total Fixed-Income Securities
in Spain 200,498,899 203,104,095 2.6
Switzerland Financial Chf 4,010,000 Chrysler Financial Corp.,
Services 5.75% due 6/18/1996 1,914,011 3,208,639 0.1
Hospital 1,500,000 American Medical International, Inc.,
Management 5.00% due 3/18/1996 493,386 1,161,425 0.0
Industrial 1,401,000 Ciba-Geigy AG, Convertible Bonds,
2.00% due 8/09/1998 1,178,587 1,332,958 0.0
Newspaper/Publishing 3,020,000 News International, PLC, 5.375%
due 4/30/1996 1,115,703 2,386,425 0.0
Total Fixed-Income Securities
in Switzerland 4,701,687 8,089,447 0.1
United Government Pound 37,500,000 United Kingdom Treasury Gilt,
Kingdom Obligations Sterling 8.00% due 6/10/2003 56,327,454 58,184,857 0.7
Building 3,250,000 Redland Capital PLC, Convertible
Materials Bonds, 7.25% due 1/28/2002 5,382,804 5,199,194 0.1
1,000,000 RMC Capital Ltd., Convertible Bonds,
8.75% due 5/31/2006 1,755,430 2,105,796 0.0
-------------- -------------- ------
7,138,234 7,304,990 0.2
Financial 3,550,000 SG Warburg Group, Convertible Bonds,
Services 6.50% due 8/04/2008 5,416,350 5,186,543 0.1
3,500,000 TransAtlantic Holdings, PLC,
Convertible Bonds, 5.50%
due 4/30/2009 4,521,101 4,656,421 0.0
-------------- -------------- ------
9,937,451 9,842,964 0.1
Food 7,750,000 Tate & Lyle International,
Convertible Bonds, 5.75% due
3/21/2001 10,092,554 10,563,668 0.1
Industrial 5,250,000 Hanson PLC, Convertible Bonds,
9.50% due 1/31/2006 9,953,589 8,827,203 0.1
Oil & Related 29,990,000 Elf Enterprises Finance PLC,
Convertible Bonds, 8.75%
due 6/27/2006 48,109,352 46,875,060 0.6
Real Estate 500,000 Land Securities PLC, Convertible
Investment Trust Bonds, 6.75% due 12/31/2002 679,603 783,552 0.0
Retail 8,350,000 Sainsbury (J.) PLC, Convertible
Bonds, 8.50% due 11/19/2005 16,072,715 17,106,328 0.2
Multi-Industry 4,875,000 English China Clays PLC, Convertible
Bonds, 6.50% due 9/30/2003 8,364,034 7,639,632 0.1
Total Fixed-Income Securities
in the United Kingdom 166,674,986 167,128,254 2.1
</TABLE>
72
<PAGE>
<TABLE>
<S> <S> <C> <S> <C> <C> <C>
United Aerospace Rohr Industries, Inc.:
States US$ 7,500,000 11.625% due 5/15/2003 7,500,000 7,612,500 0.1
5,500,000 Convertible Bonds, 7.75%
due 5/15/2004 5,500,000 6,105,000 0.1
10,075,000 Sequa Corp., 9.625% due 10/15/1999 9,874,312 9,697,187 0.1
-------------- -------------- ------
22,874,312 23,414,687 0.3
Airlines Delta Airlines, Inc.:
8,000,000 Series A2, 9.20% due 9/23/2014 7,370,000 6,920,000 0.1
8,000,000 10.06% due 1/02/2016 8,005,000 7,400,000 0.1
USAir Inc.:
11,000,000 10.00% due 7/01/2003 8,529,375 6,297,500 0.1
4,525,207 9.33% due 1/01/2006 4,412,529 3,755,921 0.0
18,300,000 10.375% due 3/01/2013 16,754,875 15,234,750 0.2
7,500,000 USAir Pass Thru, 9.625% due
9/01/2003 (d) 7,495,625 6,243,750 0.1
-------------- -------------- ------
52,567,404 45,851,921 0.6
Banking 27,000,000 Crossland Federal Savings Bank,
9.00% due 9/01/2003 27,678,000 25,447,500 0.3
21,400,000 First Federal Financial Corporation,
11.75% due 10/01/2004 21,401,250 21,400,000 0.3
3,000,000 Roosevelt Financial Group, Inc.,
9.50% due 8/01/2002 3,000,000 3,052,500 0.0
-------------- -------------- ------
52,079,250 49,900,000 0.6
Broadcasting/ 15,550,000 +++Continental Cablevision, Inc.,
Cable 9.50% due 8/01/2013 14,092,188 13,956,125 0.2
55,061,000 Marcus Cable Co. L.P.,
13.50% due 8/01/2004 (b) 29,113,843 29,319,982 0.4
-------------- -------------- ------
43,206,031 43,276,107 0.6
Building 20,300,000 DalTile International, Inc.,
Materials 11.955% due 7/15/1998 (b) 12,758,069 12,636,750 0.2
Computers 25,000,000 Dell Computer Corp., 11.00%
due 8/15/2000 25,077,500 26,125,000 0.3
Financial 5,000,000 Card Establishment Services, Inc.,
Services 10.00% due 10/01/2003 4,812,500 4,712,500 0.1
Lomas Mortgage USA, Inc.:
11,000,000 9.75% due 10/01/1997 10,465,250 10,120,000 0.1
7,500,000 10.25% due 10/01/2002 7,000,000 6,525,000 0.1
3,851,000 US Trails Senior Secured Notes,
12.00% due 7/15/1998 3,150,185 2,714,955 0.0
-------------- -------------- ------
25,427,935 24,072,455 0.3
Governments 130,000,000 Banco Nacional (BNCE),
& Agencies--US$ 7.25% due 2/02/2004 112,951,825 105,625,000 1.3
Denominated 25,000,000 Brazil Exit Bonds, 6.00% due
9/15/2013 14,465,811 12,625,000 0.2
Republic of Argentina:
120,000,000 Discount Notes, 5.812%
due 3/31/2023 91,349,500 82,200,000 1.1
12,500,000 Global Bonds, 8.375%
due 12/20/2003 11,456,250 10,000,000 0.1
241,000,000 Par Bonds, 4.25% due 3/31/2023 128,770,375 112,667,500 1.4
38,220,000 Republic of Brazil,
4.312% due 1/01/2001 (d) 29,874,075 31,292,625 0.4
United Mexican States:
10,000,000 8.50% due 9/15/2002 9,420,000 9,109,300 0.1
65,000,000 Discount Notes, Series A, 6.687%
due 12/31/2019 58,148,000 55,412,500 0.7
35,000,000 Discount Notes, Series B,
4.312% due 12/31/2019 30,062,500 29,793,750 0.4
United Mexican States, Rights:
99,996,000 (Series A) 0 0 0.0
53,845,000 (Series B) 0 0 0.0
60,000,000 US Treasury Notes, 7.50%
due 11/15/2001 61,700,781 59,503,140 0.8
-------------- -------------- ------
548,199,117 508,228,815 6.5
</TABLE>
73
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Value Percent of
COUNTRY Industries Face Amount Fixed-Income Securities Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Health Care US$ 7,200,000 Cetus (Chiron) Corp., Convertible
States Bonds, 5.25% due 5/21/2002 $ 5,220,250 $ 5,976,000 0.1%
(continued) 8,500,000 Mediq/PRN Senior Notes,
11.125% due 7/01/1999 8,845,000 7,713,750 0.1
24,000,000 Paracelsus Healthcare Corp.,
9.875% due 10/15/2003 23,971,875 22,680,000 0.3
5,000,000 Regency Health Services, Inc.,
Convertible Bonds, 6.50%
due 7/15/2003 4,887,500 5,300,000 0.1
8,500 +++Total Renal Care Inc., 12.00%
due 8/15/2004 (with Warrants) (b) 6,060,840 6,247,500 0.1
-------------- -------------- ------
48,985,465 47,917,250 0.7
Homebuilding & 27,950,000 Baldwin Co., 10.375% due 8/01/2003 27,692,438 19,285,500 0.3
Construction 40,000,000 Beazer Homes USA, Inc.,
9.00% due 3/01/2004 38,250,750 33,600,000 0.4
29,500,000 K. Hovnanian Enterprises,
9.75% due 6/01/2005 28,874,300 22,125,000 0.3
10,000,000 Kaufman & Broad Home Corporation,
9.375% due 5/01/2003 9,137,500 9,000,000 0.1
MDC Holdings Inc.:
1,100,000 6.642% due 4/01/1998 914,375 918,500 0.0
27,000,000 11.125% due 12/15/2003 26,424,000 23,152,500 0.3
28,250,000 Presley Companies, Senior Notes,
12.50% due 7/01/2001 28,190,312 26,696,250 0.3
Webb (Del E.) Corp.:
12,000,000 9.75% due 3/01/2003 11,940,000 10,500,000 0.1
17,850,000 9.00% due 2/15/2006 15,222,475 14,369,250 0.2
-------------- -------------- ------
186,646,150 159,647,000 2.0
Hospital 3,087,500 American Medical International,
Management Inc., 6.50% due 5/30/1997 2,578,063 3,002,594 0.0
1,000,000 Novacare, Inc., Convertible Bonds,
5.50% due 1/15/2000 857,500 810,000 0.0
-------------- -------------- ------
3,435,563 3,812,594 0.0
Industrial 47,000,000 Allison Engine, Inc.,
10.00% due 12/01/2003 47,150,625 45,237,500 0.6
7,370,000 Boise Cascade Corp., 9.45%
due 11/01/2009 8,024,088 7,167,325 0.1
4,000,000 Congoleum Corp., 9.00% due 2/01/2001 4,000,000 3,710,000 0.0
20,000,000 Crown Packaging Ltd.,
10.75% due 11/01/2000 20,000,000 20,100,000 0.3
19,000,000 Easco Corp., 10.00% due 3/15/2001 19,005,000 18,050,000 0.2
19,000,000 Envirotest Systems Corp.,
9.125% due 3/15/2001 18,412,210 17,290,000 0.2
27,250,000 Genmar Holdings, Inc., 13.50%
due 7/15/2001 27,127,100 26,568,750 0.3
3,500,000 Hartmarx Corp., 10.875% due 1/15/2002 3,476,270 3,202,500 0.0
10,000,000 +++Merisel, Inc., 12.50% due 12/31/2004 10,000,000 9,987,500 0.1
14,000,000 OSI Specialities Corp.,
9.25% due 10/01/2003 14,000,000 12,810,000 0.2
Owens-Illinois, Inc.:
3,000,000 10.50% due 6/15/2002 3,051,000 3,022,500 0.0
10,000,000 9.75% due 8/15/2004 9,740,750 9,625,000 0.1
30,500,000 Plastic Specialties & Technology,
Inc., 11.25% due 12/01/2003 30,540,000 27,297,500 0.4
-------------- -------------- ------
214,527,043 204,068,575 2.5
Insurance 7,750,000 Horace Mann Educators, Inc.,
Convertible Bonds, 4.00%
due 12/01/1999 7,682,500 7,459,375 0.1
27,500,000 +++Mutual Life Insurance Co.,
11.25% due 8/15/2024 15,970,692 15,812,500 0.2
12,500,000 Nacolah Holding Corp., 9.50%
due 12/01/2003 12,500,000 10,937,500 0.1
-------------- -------------- ------
36,153,192 34,209,375 0.4
</TABLE>
74
<PAGE>
<TABLE>
<S> <S> <C> <S> <C> <C> <C>
Oil & Related +++Columbia Gas System, Inc.:
2,000,000 9.00% due 8/01/1994 2,326,250 2,400,000 0.0
6,500,000 7.50% due 6/01/1997 6,808,750 7,280,000 0.1
4,700,000 10.25% due 8/01/2011 5,340,375 6,039,500 0.1
10,000,000 10.50% due 6/01/2012 11,225,000 12,750,000 0.2
5,000,000 10.15% due 11/01/2013 5,562,500 6,175,000 0.1
4,000,000 9.50% due 10/10/2019 4,310,000 4,940,000 0.1
9,500,000 Gerrity Oil & Gas Corp.,
11.75% due 7/15/2004 9,500,000 8,858,750 0.1
8,000,000 Noble Drilling Corp.,
9.25% due 10/01/2003 8,000,000 7,620,000 0.1
PDV America, Inc.:
35,000,000 7.25% due 8/01/1998 34,856,150 31,762,500 0.4
10,000,000 7.75% due 8/01/2000 10,062,500 8,775,000 0.1
26,362,500 +++++++Presidio Oil Co., 11.50%
due 9/15/2000 26,963,000 24,912,562 0.3
10,000,000 Santa Fe Energy Resources, Inc.,
11.00% due 5/15/2004 9,926,600 10,150,000 0.1
36,301,000 Transtexas Gas Corp.,10.50%
due 9/01/2000 36,300,233 35,030,465 0.4
6,000,000 USX-Marathon Oil Co., 7.00%
due 6/15/2017 5,650,000 5,460,000 0.1
-------------- -------------- ------
176,831,358 172,153,777 2.2
Paper & 9,000,000 Stone Consolidated Corp.,
Forest Products 10.25% due 12/15/2000 9,000,000 8,853,750 0.1
5,000,000 Stone Container Corp.,9.875%
due 2/01/2001 4,727,500 4,687,500 0.1
-------------- -------------- ------
13,727,500 13,541,250 0.2
Real Estate & 22,500,000 +++++++Alexander Haagen Properties Inc.,
Real Estate Exchangeable Debentures,
Investment 7.25% due 12/27/2003 22,500,000 20,587,500 0.3
Trusts 7,000,000 Centerpoint Properties Corp., Conv.
Bonds, 8.22% due 1/15/2004 7,000,000 7,070,000 0.1
30,000,000 First Union Real Estate,
8.875% due 10/01/2003 29,756,100 24,900,000 0.3
25,000,000 +++++++First Washington Realty,
8.25% due 6/26/1999 25,000,000 23,375,000 0.3
6,500,000 LTC Properties, Inc., Conv. Bonds,
9.75% due 7/01/2004 6,500,000 8,222,500 0.1
12,500,000 Liberty Property Trust, Conv. Bonds,
8.00% due 7/01/2001 12,500,000 11,625,000 0.2
27,000,000 +++++++Malan Realty Investors, Inc., Conv.
Bonds, 8.50% due 7/01/2003 27,000,000 24,975,000 0.3
Meditrust, Conv. Bonds:
6,000,000 7.00% due 3/01/1998 6,035,000 5,880,000 0.1
28,500,000 7.50% due 3/01/2001 28,500,000 26,790,000 0.3
5,000,000 Mid-Atlantic Realty Trust, Conv.
Bonds, 7.625% due 9/15/2003 4,875,000 4,500,000 0.0
5,000,000 National Health Investors, Inc.,
Conv. Bonds, 7.375% due 4/01/1998 5,125,000 5,000,000 0.0
22,000,000 Nationwide Health Properties Inc.,
Conv. Bonds, 6.25% due 1/01/1999 21,950,000 20,680,000 0.3
9,545,000 Phoenix Home Life-Mutual Insurance
Co., 8.00% due 11/25/2023 9,545,000 8,256,425 0.1
24,244,340 RTC Commercial Mortgage, Class E,
8.25% due 12/25/2020 (d) 23,873,099 20,850,133 0.3
5,500,000 Sizeler Property Investors, Inc.,
Conv. Bonds, 8.00% due 7/15/2003 5,505,000 5,060,000 0.1
23,336,370 Vista Properties, Inc., 13.75%
due 10/31/2001 (c) 11,748,460 7,934,366 0.1
-------------- -------------- ------
247,412,659 225,705,924 2.9
Resources 37,500,000 Freeport-McMoRan Resources,
8.75% due 2/15/2004 36,378,750 34,125,000 0.4
Retail 11,000,000 Best Buy Company Inc.,
8.625% due 10/01/2000 11,015,000 10,477,500 0.2
12,000,000 Price Club Co., Convertible Bonds,
5.50% due 2/28/2012 11,213,250 10,290,000 0.1
17,500,000 The Vons Companies, Inc., 9.625%
due 4/01/2002 18,448,750 17,368,750 0.2
10,500,000 Waban, Inc., 11.00% due 5/15/2004 10,487,500 10,171,875 0.1
-------------- -------------- ------
51,164,500 48,308,125 0.6
</TABLE>
75
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Value Percent of
COUNTRY Industries Face Amount Fixed-Income Securities Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Supermarkets US$ 39,650,000 Eagle Food Centers Inc., 8.625%
States due 4/15/2000 $ 36,095,837 $ 22,402,250 0.3%
(concluded) 40,000,000 Penn Traffic Co., 8.625%
due 12/15/2003 39,876,400 35,000,000 0.5
17,500,000 Pueblo Xtra International Inc.,
9.50% due 8/01/2003 16,855,125 14,875,000 0.2
11,000,000 Ralphs Grocery Company, 10.25%
due 7/15/2002 11,235,000 10,670,000 0.1
-------------- -------------- ------
104,062,362 82,947,250 1.1
Tele- 26,000,000 Allnet Communication Services,
communications 9.00% due 5/15/2003 25,763,225 25,220,000 0.3
28,500,000 Diamond Cable Communications, 13.251%
due 9/30/2004 (b) 15,082,612 14,891,250 0.2
20,000,000 MFS Communications Corp., Inc.,
9.374% due 1/15/2004 (b) 12,010,457 11,775,000 0.2
Nextel Communications Inc. (b):
3,000,000 11.45% due 9/01/2003 1,931,500 1,507,500 0.0
33,500,000 9.75% due 8/15/2004 20,177,505 14,823,750 0.2
10,875,000 Paging Network, Inc., 8.875%
due 2/01/2006 9,787,812 9,189,375 0.1
-------------- -------------- ------
84,753,111 77,406,875 1.0
Textiles 12,500,000 Consoltex Group, Inc., 11.00%
due 10/01/2003 12,530,000 11,500,000 0.1
23,500,000 Salant Corp., Secured, 10.50%
due 12/31/1998 23,030,000 22,442,500 0.3
18,250,000 Texfi Industries, Inc., 8.75%
due 8/01/1999 17,930,300 14,052,500 0.2
-------------- -------------- ------
53,490,300 47,995,000 0.6
Transportation 22,000,000 OMI Corp., 10.25% due 11/01/2003 21,910,000 19,360,000 0.3
Utilities-- CTC Mansfield Funding Corp.:
Electric 17,000,000 10.25% due 3/30/2003 17,580,000 15,980,000 0.2
12,000,000 11.125% due 9/30/2016 12,820,000 11,160,000 0.1
40,000,000 California Energy Co., Inc., 10.246%
due 1/15/2004 (b) 30,674,126 28,000,000 0.4
8,000,000 Calpine Corp., Inc., 9.25%
due 2/01/2004 7,277,500 6,980,000 0.1
Cleveland Electric Illuminating
Company Inc., First Mortgage:
5,000,000 9.30% due 7/26/1999 5,437,500 4,800,000 0.1
12,500,000 9.25% due 7/29/1999 13,562,500 11,968,750 0.2
3,000,000 9.05% due 8/15/2001 3,093,750 2,790,000 0.0
7,500,000 7.625% due 8/01/2002 7,462,500 6,300,000 0.1
5,000,000 7.375% due 6/01/2003 4,700,000 4,075,000 0.0
+++EUA Power Corp.:
1,000,000 Series B, 17.50% due 5/15/1993 475,000 60,000 0.0
3,157,600 Series C, 17.50% due 5/15/1993 1,915,790 189,456 0.0
+++El Paso Funding:
4,050,000 9.20% due 7/02/1997 3,286,000 2,065,500 0.0
25,000,000 10.375% due 1/02/2011 21,170,000 12,750,000 0.2
62,040,000 10.75% due 4/01/2013 52,996,150 31,640,400 0.4
6,000,000 Long Island Lighting Co., 7.90%
due 7/15/2008 5,412,060 5,130,000 0.1
Public Service Company of New Mexico:
19,800,000 10.30% due 1/15/2014 19,466,500 18,315,000 0.2
18,000,000 10.15% due 1/15/2016 17,128,125 16,470,000 0.2
23,000,000 PS of New Mexico, First PV Funding,
10.25% due 10/01/2012 23,000,000 21,217,500 0.3
Toledo Edison Co.:
2,000,000 9.30% due 4/01/1998 2,130,000 1,945,000 0.0
15,425,000 7.25% due 8/01/1999 15,425,000 13,612,562 0.2
3,000,000 9.50% due 4/01/2001 3,221,250 2,835,000 0.0
</TABLE>
76
<PAGE>
<TABLE>
<S> <S> <C> <S> <C> <C> <C>
2,000,000 7.91% due 4/01/2003 1,992,500 1,680,000 0.0
-------------- -------------- ------
270,226,251 219,964,168 2.8
Total Fixed-Income Securities
in the United States 2,331,893,822 2,124,667,898 27.1
Foreign Banking 21,000,000 Banco de Galicia, 9.00%
Issuers-- due 11/01/2003 20,913,960 16,983,750 0.2
US$ De- Banco Rio de la Plata:
nominated 52,000,000 (Class 3), 8.50% due 7/15/1998 52,444,125 48,262,500 0.6
40,000,000 8.75% due 12/15/2003 35,628,125 31,750,000 0.4
-------------- -------------- ------
108,986,210 96,996,250 1.2
Building & 41,100,000 Tarkett International, 9.00%
Materials due 3/01/2002 39,413,750 37,606,500 0.5
Hotel/Leisure 23,500,000 +++++++Four Seasons Hotel, Inc., 9.125%
due 7/01/2000 23,401,875 21,855,000 0.3
Industrial 8,250,000 Burns, Philp & Company Ltd., Conv.
Bonds, 5.50% due 4/30/2004 7,249,450 6,930,000 0.1
24,945,000 +++++++Ciba-Geigy Corp., Convertible Bonds,
6.25% due 3/15/2016 25,632,050 23,011,762 0.3
7,945,000 Ciba-Geigy Corp., 5.50%
due 10/28/1998 (Warrants) (a) 9,418,275 8,540,875 0.1
1,330,000 CRH Capital Corp., Convertible Bonds,
5.75% due 4/30/2005 1,602,550 1,569,400 0.0
2,470,000 HIH Capital Ltd., Convertible Bonds
(Bearer), 7.50% due 9/25/2006 2,059,800 1,624,025 0.0
5,750,000 Hanson America Convertible Bonds,
2.39% due 3/01/2001 4,388,842 4,197,500 0.1
77,000,000 International Semi-Tech
Microelectronics Inc., 11.466% due
8/15/2003 (b) 38,729,137 34,650,000 0.5
4,580,000 Johnson Electric Holdings Ltd.,
Convertible Bonds, 4.50%
due 11/05/2000 4,298,779 4,557,100 0.1
20,360,000 Lend Lease Finance Corp., Ltd.,
Convertible Bonds, 4.75% due 6/01/2003 22,511,980 21,632,500 0.3
9,000,000 Methanex Corp., 8.875% due 11/15/2001 8,956,250 8,685,000 0.1
2,000,000 P.T. Indorayon, Convertible Bonds,
5.50% due 10/01/2002 2,363,125 2,450,000 0.0
1,000,000 Siemens Corp. (with Warrants),
8.00% due 6/24/2002 (a) 1,318,750 1,267,500 0.0
2,220,000 Tung Ho Steel Enterprise, Convertible
Bonds, 4.00% due 7/26/2001 2,243,700 2,464,200 0.0
14,000,000 Wilrig AS, 11.25% due 3/15/2004 14,000,000 12,320,000 0.2
-------------- -------------- ------
144,772,688 133,899,862 1.8
Multi-Industry 5,875,000 Veba International Finance (Warrants),
6.00% due 4/06/2000 (a) 7,083,300 9,032,812 0.1
Oil & Related 6,500,000 +++++++Petrolera Argentina San Jorge S.A.,
11.00% due 2/09/1998 6,278,750 6,607,500 0.1
2,750,000 Ssangyong Oil Corp., 3.75%
due 12/31/2008 2,929,812 3,588,750 0.0
-------------- -------------- ------
9,208,562 10,196,250 0.1
Resources 26,000,000 Sherritt Ltd., 9.75% due 4/01/2003 26,124,375 25,090,000 0.3
34,000,000 Sifto Canada, Inc., 8.50% due
7/15/2000 33,875,187 31,110,000 0.4
-------------- -------------- ------
59,999,562 56,200,000 0.7
Textile 10,000,000 Dominion Textile (USA) Inc.,
Senior Notes, 8.875% due 11/01/2003 9,950,800 9,275,000 0.1
Transportation 8,500,000 Eletson Holdings Inc., 9.25%
due 11/15/2003 8,537,500 7,713,750 0.1
Total Foreign Issuers--
US$ Denominated 411,354,247 382,775,424 4.9
Total Investments in
Fixed-Income Securities 4,597,497,616 4,393,926,871 56.1
</TABLE>
77
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Value Percent of
COUNTRY Face Amount Short-Term Securities Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Commercial US$ 91,738,000 General Electric Capital Corp.,
States Paper* 4.72% due 11/01/1994 $ 91,738,000 $ 91,738,000 1.2%
Total Investments in Commercial Paper 91,738,000 91,738,000 1.2
US Government & 50,000,000 Federal National Mortgage Association,
Agency Obligations 4.88% due 11/17/1994 49,891,556 49,891,556 0.6
Total Investments in US Government &
Agency Obligations 49,891,556 49,891,556 0.6
Total Investments in
Short-Term Securities 141,629,556 141,629,556 1.8
Total Investments $7,701,777,115 7,770,824,773 99.3
==============
Unrealized Depreciation on Forward Foreign Exchange Contracts** (35,886,925) (0.4)
Other Assets Less Liabilities 92,413,194 1.1
-------------- ------
Net Assets $7,827,351,042 100.0%
============== ======
<FN>
*Commercial Paper and 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, 1994 were as follows:
Unrealized
Foreign Expiration Appreciation
Currency Sold Date (Depreciation)
Chf 15,000,000 November 1994 $ (221,787)
Chf 40,000,000 December 1994 (844,087)
DM 466,000,000 November 1994 (8,689,835)
DM 727,000,000 December 1994 (9,410,926)
DM 90,000,000 January 1995 219,481
Dkr 7,000,000 November 1994 (31,297)
ECU 25,000,000 November 1994 (847,150)
ECU 25,000,000 December 1994 (710,075)
ECU 100,000,000 January 1995 317,840
Pta 5,500,000,000 November 1994 (1,000,119)
Pta 10,000,000,000 December 1994 (1,811,334)
Pta 9,500,000,000 January 1995 18,580
Frf 174,000,000 November 1994 (823,345)
Frf 420,000,000 December 1994 (2,178,092)
Frf 180,000,000 January 1995 (10,731)
Frf 140,000,000 February 1995 133,533
Pound Sterling 25,000,000 November 1994 (1,133,275)
Pound Sterling 20,000,000 December 1994 (1,008,640)
Pound Sterling 51,000,000 January 1995 (563,977)
YEN 32,000,000,000 December 1994 (5,480,366)
Nlg 63,000,000 November 1994 (1,097,777)
Nlg 55,000,000 December 1994 (963,816)
Nlg 68,000,000 January 1995 250,270
Total (US$ Commitment--$2,061,915,619) $(35,886,925)
------------
Total Unrealized Depreciation--Net On
Forward Foreign Exchange Contracts $(35,886,925)
============
(a)Warrants entitle the Fund to purchase a predetermined number of shares of
stock/face amount of bonds at a predetermined price until the expiration date.
(d)Subject to principal paydowns as a result of prepayments or refinancings
of the underlying mortgage instruments. As a result, the average life may be
less than the original maturity.
(e)Name changed from Crossland Federal Savings Bank.
++American Depositary Receipt (ADR).
++++Investment in Companies 5% or more of whose outstanding securities are
held by the Fund (such companies are defined as "Affiliated Companies" in
section 2(a)(3) of the Investment Company Act of 1940) are as follows:
<CAPTION>
Net Share Net Dividend
Industry Affiliate Activity Cost Income
<S> <S> <C> <C> <C>
Retail Stores Buttrey Food & Drug -- -- --
Stores Co.
Retail Stores Filene's Basement Corp. 200,000 $1,890,625 --
+++Non-income producing security.
+++++++Restricted securities as to resale. The value of the Fund's investment in restricted
securities was approximately $158,763,000, representing 2.0% of net assets.
<CAPTION>
Acquisition Value
Issue Date Cost (Note 1a)
<S> <C> <C> <C>
Alexander Haagan Properties
Inc., Exchangeable Debentures,
7.25% due 12/27/2003 12/27/1993 $ 22,500,000 $ 20,587,500
AMR Corp. (Convertible $3.00) 6/21/1993 5,065,500 4,150,000
Ciba-Geigy Corp., Convertible
Bonds, 6.25% due 3/15/2016 3/23/1993 25,632,050 23,011,762
First Washington Realty,
8.25% due 6/26/1999 6/27/1994 25,000,000 23,375,000
Four Seasons Hotel, Inc.,
9.125% due 7/01/2000 6/23/1993 23,401,875 21,855,000
Malan Realty Investors, Inc.,
Convertible Bonds,
8.50% due7/01/2003 6/24/1994 27,000,000 24,975,000
Petrolera Argentina San Jorge S.A.,
11% due 2/09/1998 1/29/1993 6,278,750 6,607,500
President Enterprises, 8.30%
due 7/22/2001 7/06/1994 1,990,454 2,085,000
</TABLE>
78
<PAGE>
[FN]
(b) The interest rate shown represents the yield-to-maturity on this
zero coupon issue.
(c) Represents a pay-in-kind security.
<TABLE>
<S> <C> <C> <C>
Presidio Oil Co., 11.50% due 9/15/2000 8/03/1993 26,963,000 24,912,562
UAL Corp., (6.25% Convertible) 2/23/1993 7,885,625 7,203,750
------------ ------------
$171,717,254 $158,763,074
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of October 31, 1994
<S> <C> <C>
Assets: Investments, at value (identified cost--$7,701,777,115) (Note 1a) $7,770,824,773
Cash 2,123,122
Foreign cash (Note 1c) 228,878
Receivables:
Interest $ 118,023,952
Securities sold 63,997,769
Capital shares sold 33,964,220
Dividends 8,047,941 224,033,882
--------------
Prepaid registration fees and other assets (Note 1h) 173,328
--------------
Total assets 7,997,383,983
--------------
Liabilities: Unrealized depreciation on forward foreign exchange contracts (Note 1c) 35,886,925
Payables:
Securities purchased 100,798,857
Capital shares redeemed 18,658,959
Distributor (Note 2) 5,475,841
Investment adviser (Note 2) 4,628,672 129,562,329
--------------
Accrued expenses and other liabilities 4,583,687
--------------
Total Liabilities 170,032,941
--------------
Net Assets: Net assets $7,827,351,042
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 200,000,000 shares authorized $ 10,386,062
Consist of: Class B Shares of Common Stock, $0.10 par value, 900,000,000 shares authorized 50,026,128
Class C Shares of Common Stock, $0.10 par value, 200,000,000 shares authorized 56,902
Class D Shares of Common Stock, $0.10 par value, 900,000,000 shares authorized 37,990
Paid-in capital in excess of par 7,612,200,596
Undistributed investment income--net 93,144,339
Undistributed realized capital gains and foreign currency transactions--net 25,491,311
Unrealized appreciation on investments and foreign currency transactions--net 36,007,714
--------------
Net assets $7,827,351,042
==============
Net Asset Class A--Based on net assets of $1,357,905,506 and 103,860,623 shares outstanding $ 13.07
Value: ==============
Class B--Based on net assets of $6,457,130,497 and 500,261,282 shares outstanding $ 12.91
==============
Class C--Based on net assets of $7,347,309 and 569,017 shares outstanding $ 12.91
==============
Class D--Based on net assets of $4,967,730 and 379,903 shares outstanding $ 13.08
==============
See Notes to Financial Statements.
</TABLE>
79
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended October 31, 1994
<S> <S> <C> <C>
Investment Interest and discount earned $ 308,032,977
Income Dividends (net of $3,302,212 foreign withholding tax) 73,919,529
(Notes 1f Other 218,581
& 1g): --------------
Total income 382,171,087
--------------
Expenses: Distribution fees--Class B (Note 2) 57,576,826
Investment advisory fees (Note 2) 49,037,363
Transfer agent fees--Class B (Note 2) 5,917,129
Custodian fees 2,579,126
Registration fees (Note 1h) 1,957,917
Transfer agent fees--Class A (Note 2) 1,038,346
Amortization of organization expenses (Note 1h) 984,686
Printing and shareholder reports 642,909
Accounting services (Note 2) 570,246
Professional fees 121,645
Directors' fees and expenses 35,499
Pricing fees 16,590
Distribution fees--Class C (Note 2) 1,216
Transfer agent fees--Class C (Note 2) 419
Transfer agent fees--Class D (Note 2) 298
Account maintenance fees--Class D (Note 2) 216
Other 35,336
--------------
Total expenses 120,515,767
--------------
Investment income--net 261,655,320
--------------
Realized & Realized gain (loss) from:
Unrealized Investments--net $ 186,774,367
Gain (Loss) Foreign currency transactions--net (159,324,097) 27,450,270
on Invest- --------------
ments & Change in unrealized appreciation/depreciation on:
Foreign Investments--net (198,866,445)
Currency Foreign currency transactions--net (46,111,336) (244,977,781)
Transactions -------------- --------------
- --Net (Notes Net realized and unrealized loss on investments and foreign currency transactions (217,527,511)
1c, 1g & 3): --------------
Net Increase in Net Assets Resulting from Operations $ 44,127,809
==============
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 261,655,320 $ 78,569,836
Realized gain on investments and foreign currency transactions--net 27,450,270 96,098,223
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net (244,977,781) 303,533,099
-------------- --------------
Net increase in net assets resulting from operations 44,127,809 478,201,158
-------------- --------------
</TABLE>
80
<PAGE>
<TABLE>
<S> <S> <C> <C>
Dividends & Investment income--net:
Distributions Class A (42,294,885) (21,579,231)
to Class B (157,338,890) (78,516,167)
Shareholders Realized gain on investments--net:
(Note 1i): Class A (16,636,230) (2,640,570)
Class B (80,810,426) (10,640,849)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (297,080,431) (113,376,817)
-------------- --------------
Capital Share Net increase in net assets derived from capital share transactions 2,862,952,855 3,647,738,774
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase in net assets 2,610,000,233 4,012,563,115
Beginning of year 5,217,350,809 1,204,787,694
-------------- --------------
End of year* $7,827,351,042 $5,217,350,809
============== ==============
<FN>
*Undistributed investment income--net $ 93,144,339 $ 31,215,711
============== ==============
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.52 $ 11.92 $ 12.16 $ 10.37 $ 10.79
Operating ---------- --------- --------- --------- ---------
Performance: Investment income--net .60 .39 .36 .55 .60
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net (.31) 2.14 .89 2.24 (.16)
---------- --------- --------- --------- ---------
Total from investment operations .29 2.53 1.25 2.79 .44
---------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.51) (.81) (.89) (.45) (.66)
Realized gain on investments--net (.23) (.12) (.60) (.55) (.20)
---------- --------- --------- --------- ---------
Total dividends and distributions (.74) (.93) (1.49) (1.00) (.86)
---------- --------- --------- --------- ---------
Net asset value, end of year $ 13.07 $ 13.52 $ 11.92 $ 12.16 $ 10.37
========== ========= ========= ========= =========
Total Based on net asset value per share 2.14% 22.61% 11.78% 28.89% 3.91%
Investment ========== ========= ========= ========= =========
Return:*
Ratios to Average Expenses .89% .93% 1.07% 1.29% 1.29%
Net Assets: ========== ========= ========= ========= =========
Investment income--net 4.60% 3.90% 10.82% 8.96% 4.37%
========== ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $1,357,906 $ 917,806 $ 245,839 $ 72,702 $ 49,691
Data: ========== ========= ========= ========= =========
Portfolio turnover 57.04% 50.35% 59.56% 81.21% 129.51%
========== ========= ========= ========= =========
<FN>
*Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
81
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.38 $ 11.83 $ 12.10 $ 10.33 $ 10.73
Operating ---------- ---------- --------- --------- ---------
Performance: Investment income--net .46 .28 .22 .44 .49
Realized and unrealized gain (loss) on
investments and foreign currency transactions--net (.31) 2.11 .91 2.22 (.16)
---------- ---------- --------- --------- ---------
Total from investment operations .15 2.39 1.13 2.66 .33
---------- ---------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.39) (.72) (.80) (.34) (.53)
Realized gain on investments--net (.23) (.12) (.60) (.55) (.20)
---------- ---------- --------- --------- ---------
Total dividends and distributions (.62) (.84) (1.40) (.89) (.73)
---------- ---------- --------- --------- ---------
Net asset value, end of year $ 12.91 $ 13.38 $ 11.83 $ 12.10 $ 10.33
========== ========== ========= ========= =========
Total Investment Based on net asset value per share 1.13% 21.42% 10.64% 27.48% 2.93%
Return:** ========== ========== ========= ========= =========
Ratios to Average Expenses, excluding distribution fees .91% .95% 1.09% 1.31% 1.31%
Net Assets: ========== ========== ========= ========= =========
Expenses 1.91% 1.95% 2.09% 2.31% 2.31%
========== ========== ========= ========= =========
Investment income--net 3.58% 2.87% 11.95% 7.98% 3.35%
========== ========== ========= ========= =========
Supplemental Net assets, end of year (in thousands) $6,457,130 $4,299,545 $ 958,949 $ 161,328 $ 115,682
Data: ========== ========== ========= ========= =========
Portfolio turnover 57.04% 50.35% 59.56% 81.21% 129.51%
========== ========== ========= ========= =========
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++ to
October 31, 1994
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 12.91 $ 13.07
Operating -------- ---------
Performance: Investment income--net .01 .01
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net (.01) --
-------- ---------
Total from investment operations -- .01
-------- ---------
Net asset value, end of period $ 12.91 $ 13.08
======== =========
Total Investment Based on net asset value per share .00%+++ .08%+++
Return:** ======== =========
Ratios to Average Expenses, excluding distribution fees 1.44%* 1.44%*
Net Assets: ======== =========
Expenses 2.44%* 1.69%*
======== =========
Investment income--net 3.71%* 4.46%*
======== =========
Supplemental Net assets, end of period (in thousands) $ 7,347 $ 4,968
Data: ======== =========
Portfolio turnover 57.04% 57.04%
======== =========
</TABLE>
82
<PAGE>
[FN]
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Global Allocation 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
US stock exchanges are valued at the last sale price on the principal
market 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 or yield
equivalents obtained from one or more dealers in the over-the-
counter market prior to the time of valuation. Portfolio securities
which are traded both in the over-the-counter market and on a
stock exchange are valued according to the broadest and most
representative market. Portfolio securities which are traded on
European stock exchanges are valued at the closing bid price on
such exchanges on the day the securities are being valued or, if
closing prices are unavailable, at the last traded bid price available
prior to the time of valuation. Short-term securities are valued at
amortized cost, which approximates market.
Options written by the Fund are valued at the last sales 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 pur-
chased by the Fund are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last bid price.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund.
(b) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements with a member bank
of the Federal Reserve System or a primary dealer in US Government
securities. Under such agreements, the bank or primary dealer
agrees to repurchase the security at a mutually agreed upon time
and price. The Fund takes possession of the underlying securities,
marks to market such securities and, if necessary, receives additions
to such securities daily to ensure that the contract is fully
collateralized.
(c) 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) receivables or payables expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates
on investments.
The Fund is authorized to enter into forward foreign exchange
contracts as a hedge against either specific transactions or portfolio
positions. Such contracts are not entered on the Fund's records.
83
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
However, the effect on operations is recorded from the date the Fund
enters into such contracts. Premium or discount is amortized over
the life of the contracts.
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.
(d) Options--The Fund can write covered call options and purchase
put options. When the Fund writes an option, an amount equal to
the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current value of the option written.
When a security is sold through an exercise of an option, the
related premium received (or paid) is deducted from (or added to)
the basis of the security sold. When an option expires (or the
Fund enters into a closing transaction), the Fund realizes a gain
or loss on the option to the extent of the premiums received or paid
(or gain or loss to the extent the cost of the closing transaction
exceeds the premiums paid or received).
Written and purchased options are non-income producing
investments.
(e) Financial futures contracts--The Fund may purchase or sell
stock index futures contracts and options on such futures contracts.
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.
(f) 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.
computed at the rate of 0.10% of the average daily net assets of the
Fund for providing investment advisory services to MLAM with
respect to the Fund. For the year ended October 31, 1994, MLAM
paid MLAM U.K. a fee of $6,509,464 pursuant to such agreement.
Certain of the states in which the shares of the Fund are qualified
for sale impose limitations on the expenses of the Fund. The most
restrictive annual expense limitation requires that the Investment
Adviser reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of the 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 which will cause such
expenses to exceed the most restrictive expense limitation appli-
cable at the time of such payment.
Pursuant to the distribution plans adopted by the Fund in accord-
ance 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 distribu-
tion fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and
Class C shareholders.
For the year ended October 31, 1994, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
84
<PAGE>
(g) 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
dates 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
amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined
on the identified cost basis.
(h) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(i) Dividends and distributions--Dividends and distributions paid
by the Fund are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). Effective January 1,
1994, the investment advisory business of MLAM was reorganized
from a corporation to a limited partnership. Both prior to and after
the reorganization, ultimate control of MLAM was vested with
Merrill Lynch & Co., Inc. ("ML & Co."). The general partner of
MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Merrill
Lynch Investment Management, Inc. ("MLIM"), which is also an
indirect wholly-owned subsidiary of ML & Co. The Fund has also
entered into a Distribution Agreement and a Distribution Plan ("the
Distribution Plans") with Merrill Lynch Funds Distributor, Inc.
("MLFD" or "Distributor"), a wholly-owned subsidiary of MLIM.
MLAM is responsible for the management of the Fund's portfolio
and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund. For
such services, the Fund pays a monthly fee of 0.75%, on an annual
basis, of the average daily value of the Fund's net assets. MLAM has
agreed to waive a portion of its fee payable by the Fund so that such
fee is reduced for average daily net assets of the Fund, in excess of
$2.5 billion from the annual rate of 0.75% to 0.70%, and further
reduced from 0.70% to 0.65% for average daily net assets in excess of
$5 billion. MLAM has entered into a sub-advisory agreement with
Merrill Lynch Asset Management U.K., Ltd. ("MLAM U.K."), an
affiliate of MLAM, pursuant to which MLAM pays MLAM U.K. a fee
MLFD MLPF&S
Class A $623,860 $9,890,832
Class D $ 5,131 $ 90,744
MLPF&S received contingent deferred sales charges of $6,812,598
relating to transactions in Class B Shares of beneficial interest,
$0 relating to transactions in Class C Shares of beneficial interest,
and $294,624 in commissions on the execution of portfolio security
transactions for the Fund for the year ended October 31, 1994.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLIM, MLPF&S, FDS, MLFD and/or
ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1994 were $7,206,550,417 and
$3,586,603,191, respectively.
Net realized and unrealized gains (losses) as of October 31, 1994
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $182,548,624 $ 69,047,658
Short-term investments (27,825) --
Financial futures contracts 4,253,568 --
Forward foreign exchange contracts (173,001,391) (35,886,925)
Foreign currency transactions 13,677,294 2,846,981
------------ ------------
Total $ 27,450,270 $ 36,007,714
============ ============
As of October 31, 1994, net unrealized appreciation for Federal income
tax purposes aggregated $68,860,827, of which $451,980,812 related
to appreciated securities and $383,119,985 related to depreciated
securities. At October 31, 1994, the aggregate cost of investments
for Federal income tax purposes was $7,701,597,115.
85
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $2,862,952,855 and $3,647,738,774 for the years
ended October 31, 1994 and October 31, 1993, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Ended Dollar
October 31, 1994 Shares Amount
Shares sold 51,696,255 $ 691,831,423
Shares issued to shareholders in
reinvestment of dividends and
distributions 3,969,366 52,332,829
-------------- --------------
Total issued 55,665,621 744,164,252
Shares redeemed (19,692,065) (262,792,460)
-------------- --------------
Net increase 35,973,556 $ 481,371,792
============== ==============
Class A Shares for the Year Ended Dollar
October 31, 1994 Shares Amount
Shares sold 51,001,581 $ 652,336,461
Shares issued to shareholders in
reinvestment of dividends and
distributions 1,771,977 20,906,783
-------------- --------------
Total issued 52,773,558 673,243,244
Shares redeemed (5,508,522) (70,517,148)
-------------- --------------
Net increase 47,265,036 $ 602,726,096
============== ==============
Class B Shares for the Year Ended Dollar
October 31, 1994 Shares Amount
Shares sold 225,442,147 $2,984,209,294
Shares issued to shareholders in
reinvestment of dividends and
distributions 16,263,879 212,326,903
-------------- --------------
Total issued 241,706,026 3,196,536,197
Shares redeemed (62,873,994) (827,228,356)
-------------- --------------
Net increase 178,832,032 $2,369,307,841
============== ==============
Class B Shares for the Year Ended Dollar
October 31, 1994 Shares Amount
Shares sold 248,487,181 $3,152,585,403
Shares issued to shareholders in
reinvestment of dividends and
distributions 6,532,523 76,482,665
-------------- --------------
Total issued 255,019,704 3,229,068,068
Shares redeemed (14,631,176) (184,055,390)
-------------- --------------
Net increase 240,388,528 $3,045,012,678
============== ==============
Class C Shares for the Period Dollar
October 21, 1994++ to October 31, 1994 Shares Amount
Shares sold 569,603 $ 7,333,052
Shares redeemed (586) (7,533)
-------------- --------------
Net increase 569,017 $ 7,325,519
============== ==============
[FN]
++Commencement of Operations.
Class D Shares for the Period Dollar
October 21, 1994++ to October 31, 1994 Shares Amount
Shares sold 385,289 $ 5,017,907
Shares redeemed (5,386) (70,204)
-------------- --------------
Net increase 379,903 $ 4,947,703
============== ==============
[FN]
++Commencement of Operations.
5. Commitments:
At October 31, 1994, the Fund had entered into forward foreign
exchange contracts under which it had agreed to purchase and sell
various foreign currency with an approximate value of $17,629,000
and $7,333,000, respectively.
6. Subsequent Event:
On December 14, 1994, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the
amount of $0.221714 per Class A Share, $0.155144 per Class B
Share, $0.203138 per Class C Share and $0.217868 per Class D Share
and a capital gains distribution of $0.304732 per Class A Share, Class B
Share, Class C Share and Class D Share, payable on December 21,
1994, to shareholders of record as of December 13, 1994.
86
<PAGE>
[This page is intentionally left blank.]
87
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies.......................................... 2
Precious Metal-Related Securities......................................... 2
Real Estate-Related Securities............................................ 3
Portfolio Strategies Involving Options and Futures........................ 4
Other Investment Policies and Practices................................... 8
Management of the Fund..................................................... 14
Directors and Officers.................................................... 14
Compensation of Directors................................................. 16
Management and Advisory Arrangements...................................... 16
Purchase of Shares......................................................... 18
Initial Sales Charge Alternatives--Class A and Class D Shares............. 19
Reduced Initial Sales Charges............................................. 20
Distribution Plans........................................................ 23
Limitations on the Payment of Deferred Sales Charges...................... 24
Redemption of Shares....................................................... 25
Deferred Sales Charges--Class B and Class C Shares........................ 26
Portfolio Transactions and Brokerage....................................... 27
Determination of Net Asset Value........................................... 29
Shareholder Services....................................................... 30
Investment Account........................................................ 30
Automatic Investment Plans................................................ 30
Automatic Reinvestment of Dividends and Capital Gains Distributions....... 31
Systematic Withdrawal Plans--Class A and Class D Shares................... 31
Exchange Privilege........................................................ 32
Dividends, Distributions and Taxes......................................... 44
Dividends and Distributions............................................... 44
Taxes..................................................................... 44
Performance Data........................................................... 48
General Information........................................................ 50
Description of Shares..................................................... 50
Computation of Offering Price Per Share................................... 50
Independent Auditors...................................................... 51
Custodian................................................................. 51
Transfer Agent............................................................ 51
Legal Counsel............................................................. 51
Reports to Shareholders................................................... 51
Additional Information.................................................... 51
Security Ownership of Certain Beneficial Owners........................... 51
Appendix................................................................... 52
Independent Auditors' Report............................................... 59
Financial Statements....................................................... 60
</TABLE>
Code # 10811-0295
LOGO MERRILL LYNCH
Merrill Lynch
Global Allocation Fund, Inc.
[ART]
STATEMENT OF
ADDITIONAL
INFORMATION
February 27, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Contained in Part A:
Financial Highlights for the five years ended October 31, 1994, and
the period February 3, 1989 (commencement of operations) to October
31, 1989.
Contained in Part B:
Schedule of Investments as of October 31, 1994.
Statement of Assets and Liabilities, as of October 31, 1994.
Statement of Operations for the year ended October 31, 1994.
Statements of Changes in Net Assets for the years ended October 31,
1994 and 1993.
Financial Highlights for the five years ended October 31, 1994.
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
1(a) --Articles of Incorporation of the Registrant. (e)
(b) --Articles of Amendment to Articles of Incorporation of the Registrant.
(e)
(c) --Articles Supplementary to the Articles of Incorporation of the
Registrant. (e)
(d) --Articles of Amendment to the Articles of Incorporation dated October 19,
1994.
(e) --Articles Supplementary to the Articles of Incorporation dated October
21, 1994.
2 --By-Laws of the Registrant. (a)
3 --None.
4 --Copies of instruments defining the rights of shareholders, including the
relevant portions of the Articles of Incorporation, as amended, and By-
Laws of Registrant.(d)
5(a) --Management Agreement between Registrant and Merrill Lynch Asset
Management, Inc.(a)
(b) --Sub-Advisory Agreement between Merrill Lynch Asset Management, Inc. and
Merrill Lynch Asset Management U.K., Limited.(a)
(c) --Supplement to Management Agreement between Registrant and Merrill Lynch
Asset Management L.P., dated January 3, 1994.(f)
6(a) --Class A Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.(f)
(b) --Class B Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (a)
(c) --Letter Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund Advisor
Program.(e)
(d) --Class C Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.(f)
(e) --Class D Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.(f)
7 --None.
8 --Custodian Agreement between Registrant and Brown Brothers Harriman &
Co.(a)
9(a) --Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between Registrant and 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(a) --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
(b) --Consent of Morningstar, Inc.(c)
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
12 --None.
13 --Certificate of Merrill Lynch Asset Management, Inc.(a)
14 --None.
15(a) --Amended and Restated Class B Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(e)
(b) --Class C Shares Distribution Plan and Class C Shares Distribution Plan
Sub-Agreement of the Registrant.(f)
(c) --Class D Shares Distribution Plan and Class D Shares Distribution Plan
Sub-Agreement of the Registrant.(f)
16(a) --Schedule of computation of each performance quotation relating to Class
A shares provided in the Registration Statement in response to Item
22.(b)
(b) --Schedule of computation of each performance quotation relating to Class
B shares provided in the Registration Statement in response to Item
22.(b)
(c) --Schedule of computation of each performance quotation relating to Class
C shares provided in the Registration Statement in response to Item 22.
(d) --Schedule of computation of each performance quotation relating to Class
D shares provided in the Registration Statement in response to Item 22.
17(a) --Financial Data Schedule for Class A Shares for the fiscal year ended
October 31, 1994.
(b) --Financial Data Schedule for Class B Shares for the fiscal year ended
October 31, 1994.
(c) --Financial Data Schedule for Class C Shares for the fiscal year ended
October 31, 1994.
(d) --Financial Data Schedule for Class D Shares for the fiscal year ended
October 30, 1994.
18 --Power of Attorney for Edward D. Zinbarg.
</TABLE>
- --------
(a) Filed on December 15, 1988 as an exhibit to Pre-Effective Amendment No. 2
to Registrant's Registration Statement under the Securities Act of 1933 on
Form N-1A (the "Registration Statement").
(b) Filed as an exhibit to Post-Effective Amendment No. 1 to the Registration
Statement.
(c) Filed as an exhibit to Post-Effective Amendment No. 5 to the Registration
Statement.
(d) Reference is made to Article III (Sections 3 and 4), Article V, Article VI
(Section 3), Article VII, Article VIII and Article X of the Registrant's
Articles of Incorporation, filed as Exhibit (1)(a) to the Registration
Statement; amended and restated Article VI (Sections 2, 3, 5 and 6)
contained in the Articles of Amendment filed as Exhibit (1)(b) to the
Registration Statement; the Articles Supplementary filed as Exhibit (1)(c)
to the Registration Statement; the Articles of Amendment filed as Exhibit
(1)(d) to the Registration Statement; the Articles Supplementary filed as
Exhibit (1)(e) to the Registration Statement; and Article II, Article III
(Sections 1, 3, 5, 6 and 17), Article IV (Section 1), Article V (Section
7), Article VI, Article VII, Article XII, Article XIII, and Article XIV of
the Registrant's By-Laws previously filed as Exhibit (2) to the
Registration Statement.
(e) Filed on February 24, 1994, as an exhibit to Post-Effective Amendment No. 7
to the Registration Statement.
(f) Filed on October 18, 1994, as an exhibit to Post-Effective Amendment No. 8
to the Registration Statement.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled by or under common control with any other
person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AT
TITLE OF CLASS JANUARY 31, 1995
-------------- ----------------
<S> <C>
Shares of Class A Common Stock, par value $0.10 per share...... 1,716
Shares of Class B Common Stock, par value $0.10 per share...... 11,595
Shares of Class C Common Stock, par value $0.10 per share...... 74
Shares of Class D Common Stock, par value $0.10 per share...... 158
</TABLE>
C-2
<PAGE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Distribution Agreements.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or
any stockholder thereof to which such person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. Absent a court
determination that an officer or director seeking indemnification was not
liable on the merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, the decision by the Registrant to indemnify such person must be based
upon the reasonable determination of independent counsel or non-party
independent directors, after review of the facts, that such officer or director
is not guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or
purports to protect such person from liability to the Registrant or to its
stockholders to which such officer or director would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Insofar as the conditional advancing of indemnification moneys for actions
based upon the Investment Company Act of 1940 may be concerned, such payments
will be made only on the following conditions: (i) the advances must be limited
to amounts used, or to be used, for the preparation or presentation of a
defense to the action, including costs connected with the preparation of a
settlement; (ii) advances may be made only upon receipt of a written promise
by, or on behalf of, the recipient to repay that amount of the advance which
exceeds the amount 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 upon
a review of readily available facts, that the recipient of the advance
ultimately will be found entitled to indemnification.
In Section 9 of the Distribution Agreements relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "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 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 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
C-3
<PAGE>
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
(a) Merrill Lynch Asset Management, L.P., doing business as Merrill Lynch
Asset Management ("MLAM" or the "Manager'), acts as investment adviser for the
following registered investment companies: Convertible Holdings, Inc., Merrill
Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income
Fund, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Balanced Fund for Investment and Retirement, Merrill
Lynch Capital Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Fundamental Growth Fund, Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill
Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Convertible Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Global Small Cap Fund, Inc.,
Merrill Lynch Growth Fund for Investment and Retirement, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch High Income Municipal Bond Fund, Inc.,
Merrill Lynch Institutional Intermediate Fund, Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch
Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement
Asset Builder Program, Inc., Merrill Lynch Retirement Series Trust, Merrill
Lynch Senior Floating Rate Fund Inc., Merrill Lynch Series Fund, Inc., Merrill
Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend
Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money
Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income
Fund, Inc., and Merrill Lynch Variable Series Funds, Inc. Fund Asset
Management, L.P. ("FAM"), an affiliate of the Manager, acts as the investment
adviser for the following investment companies: Apex Municipal Fund, Inc., CBA
Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate
High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Financial Institutions
Series Trust, Income Opportunities Fund 1999, Inc., Income Opportunities Fund
2000, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch
Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill
Lynch Multi-State Municipal Series Trust, Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc.,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch World Income Fund, Inc., MuniAssets Fund, Inc., MuniBond Income
Fund, Inc., The Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund,
Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc.,
MuniVest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest
Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York
Insured Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund,
Inc., MuniYield Arizona Fund II, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New
Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York
Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New
York Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality
Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc., Senior High Income Portfolio II, Inc., Senior Strategic Income Fund,
Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc.
and Worldwide DollarVest Fund, Inc. The address of each of these investment
companies is P.O. Box 9011, Princeton, New Jersey 08543-9011, except that the
address of Merrill Lynch Funds for Institutions Series and Merrill Lynch
Institutional Intermediate Fund is One Financial Center, 15th Floor, Boston,
Massachusetts 02111-2646. The address of the Manager and FAM is also P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc.
("ML&Co.") is World Financial Center, North Tower, 250 Vesey Street, New York,
New York 10281.
C-4
<PAGE>
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
November 1, 1992, for his or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard
is Treasurer and Mr. Glenn is Executive Vice President of substantially all of
the investment companies described in the preceding paragraph, and Messrs.
Durnin, Giordano, Harvey, Kirstein, Monagle and Ms. Griffin are directors,
trustees or officers of one or more of such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME POSITION(S) WITH THE MANAGER VOCATION OR EMPLOYMENT
---- ---------------------------- ---------------------------------------
<S> <C> <C>
ML & Co. ............... Limited Partner Financial Services Holding Company
Princeton Services, Inc.
("Princeton Services"). General Partner General Partner of FAM
Arthur Zeikel........... President President of FAM; President and
Director of Princeton Services;
Director of Merrill Lynch Funds
Distributor, Inc. ("MLFD"); Executive
Vice President of ML & Co.; Executive
Vice President of Merrill Lynch
Terry K. Glenn.......... Executive Vice Executive Vice President of FAM;
President Executive Vice President and Director
of Princeton Services; President and
Director of MLFD; Director of
Financial Data Services, Inc.
("FDS"); President of Princeton
Administrators, L.P.
Bernard J. Durnin....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Vincent R. Giordano..... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Elizabeth Griffin....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
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 Senior Vice President, General Counsel
President, General and Secretary of FAM; Senior Vice
Counsel and President, General Counsel, Director
Secretary and Secretary of Princeton Services;
Director of MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and Controller
and Controller of FAM; Senior Vice President and
Controller of Princeton Services
Stephen M.M. Miller..... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.
Joseph T. Monagle, Jr... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of
and Treasurer FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME POSITION(S) WITH THE MANAGER VOCATION OR EMPLOYMENT
---- ---------------------------- ---------------------------------------
<S> <C> <C>
Ronald L. Welburn....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of Princeton
Services
</TABLE>
(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as sub-
adviser for the following registered investment companies: Merrill Lynch
EuroFund, Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch International Equity Fund and Merrill Lynch
Short-Term Global Income Fund, Inc. The address of each of these investment
companies is P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of
MLAM U.K. is Ropemaker Place, 25 Ropemaker Street, 1st Floor, London EC24 9LY,
England.
Set forth below is a list of each executive officer and director of MLAM U.K.
indicating each business, profession, vocation or employment of a substantial
nature in which each such person has been engaged since November 1, 1992, for
his own account or in the capacity of director, officer, partner or trustee. In
addition, Messrs. Zeikel, Albert, Glenn, Harvey, Richard and Yardley are
officers of one or more of the registered investment companies listed in the
preceding paragraph:
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME MLAM U.K. VOCATION OR EMPLOYMENT
---- --------------------- ---------------------------------------
<S> <C> <C>
Arthur Zeikel........... Chairman President of the Manager and FAM;
President and Director of Princeton
Services; Director of MLFD; Executive
Vice President of ML & Co.; Executive
Vice President of Merrill Lynch
Alan J. Albert.......... Managing Director Vice President of the Manager
Terry K. Glenn.......... Managing Director Executive Vice President of the
Manager and FAM; Executive Vice
President and Director of Princeton
Services; President and Director of
MLFD; Director of FDS; President of
Princeton Administrators
Andrew John Bascand..... Director Director of Merrill Lynch Global Asset
Management
Adrian Holmes........... Managing Director Director of Merrill Lynch Global Asset
Management
Paul J. Sarosy.......... Managing Director None
Norman R. Harvey........ Senior Vice President Senior Vice President of the Manager
and FAM; Senior Vice President of
Princeton Services
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of
the Manager and FAM; Senior Vice
President and Treasurer of Princeton
Services; Vice President and
Treasurer of MLFD
Adrian Holmes........... Vice President None
Steven J. Yardley....... Vice President None
Carol Ann Langham....... Company Secretary None
Debra Anne Searle....... Assistant Company None
Secretary
</TABLE>
C-6
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each of
the investment companies referred to in the first paragraph of Item 28 except
Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities Fund, CMA
Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA
Treasury Fund, Convertible Holdings, Inc., The Corporate Fund Accumulation
Program, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II,
Inc., Emerging Tigers Fund, Inc., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., MuniAssets Fund, Inc., MuniBond Income Fund,
Inc., The Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc.,
MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest
California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured
Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund,
Inc., MuniVest Pennsylvania Fund, MuniYield Arizona Fund, MuniYield Arizona
Fund II, Inc., MuniYield California Fund, Inc., MuniYield California Insured
Fund, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield
Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc.,
MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield
New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New
York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield
New York Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality
Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc., Senior High Income Portfolio II, Inc., Senior Strategic Income Fund,
Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc.
and Worldwide DollarVest Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Crook,
Aldrich, Breen, Graczyk, Fatseas, and Wasel is One Financial Center, Boston,
Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(2) (3)
POSITION(S) AND POSITION(S) AND
(1) OFFICE(S) 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
Stanley Graczyk................ Vice President None
Michelle T. Lau................ Vice President None
Debra W. Landsman-Yaros........ 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.
C-7
<PAGE>
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 are maintained at the offices of the Registrant, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and 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, Registrant is not a party to any
management related service contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders
upon request and without charge.
C-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF THE
REQUIREMENTS FOR EFFECTIVENESS OF THIS POST-EFFECTIVE AMENDMENT TO THE
REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933
AND HAS DULY CAUSED THIS AMENDMENT TO ITS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF
PLAINSBORO, AND THE STATE OF NEW JERSEY, ON THE 24TH DAY OF FEBRUARY 1995.
Merrill Lynch Global Allocation
Fund, Inc.
(Registrant)
/s/ Arthur Zeikel
By __________________________________
(Arthur Zeikel, President)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
REGISTRANT'S REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATE(S) INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Arthur Zeikel President and Director February 24, 1995
- ------------------------------------------- (Principal Executive
(Arthur Zeikel) Officer)
/s/ Gerald M. Richard Treasurer (Principal February 24, 1995
- ------------------------------------------- Financial and
(Gerald M. Richard) Accounting Officer)
Donald Cecil* Director
- -------------------------------------------
(Donald Cecil)
Edward H. Meyer* Director
- -------------------------------------------
(Edward H. Meyer)
Charles C. Reilly* Director
- -------------------------------------------
(Charles C. Reilly)
Richard R. West* Director
- -------------------------------------------
(Richard R. West)
Edward D. Zinbarg* Director
- -------------------------------------------
(Edward D. Zinbarg)
</TABLE>
*By
/s/ Arthur Zeikel February 24, 1995
_____________________________________
(Arthur Zeikel, Attorney-in-Fact)
C-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
------- ------------
<C> <S> <C>
1(a) --Articles of Incorporation of the Registrant. (e)
(b) --Articles of Amendment to Articles of Incorporation of the Registrant.
(e)
(c) --Articles Supplementary to the Articles of Incorporation of the
Registrant. (e)
(d) --Articles of Amendment to the Articles of Incorporation dated October 19,
1994.
(e) --Articles Supplementary to the Articles of Incorporation dated October
21, 1994.
2 --By-Laws of the Registrant. (a)
3 --None.
4 --Copies of instruments defining the rights of shareholders, including the
relevant portions of the Articles of Incorporation, as amended, and By-
Laws of Registrant.(d)
5(a) --Management Agreement between Registrant and Merrill Lynch Asset
Management, Inc.(a)
(b) --Sub-Advisory Agreement between Merrill Lynch Asset Management, Inc. and
Merrill Lynch Asset Management U.K., Limited.(a)
(c) --Supplement to Management Agreement between Registrant and Merrill Lynch
Asset Management L.P., dated January 3, 1994.(f)
6(a) --Class A Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.(f)
(b) --Class B Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (a)
(c) --Letter Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund Advisor
Program.(e)
(d) --Class C Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.(f)
(e) --Class D Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.(f)
7 --None.
8 --Custodian Agreement between Registrant and Brown Brothers Harriman &
Co.(a)
9(a) --Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between Registrant and 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(a) --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
(b) --Consent of Morningstar, Inc.(c)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
------- ------------
<C> <S> <C>
12 --None.
13 --Certificate of Merrill Lynch Asset Management, Inc.(a)
14 --None.
15(a) --Amended and Restated Class B Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(e)
(b) --Class C Shares Distribution Plan and Class C Shares Distribution Plan
Sub-Agreement of the Registrant.(f)
(c) --Class D Shares Distribution Plan and Class D Shares Distribution Plan
Sub-Agreement of the Registrant.(f)
16(a) --Schedule of computation of each performance quotation relating to Class
A shares provided in the Registration Statement in response to Item
22.(b)
(b) --Schedule of computation of each performance quotation relating to Class
B shares provided in the Registration Statement in response to Item
22.(b)
(c) --Schedule of computation of each performance quotation relating to Class
C shares provided in the Registration Statement in response to Item 22.
(d) --Schedule of computation of each performance quotation relating to Class
D shares provided in the Registration Statement in response to Item 22.
17(a) --Financial Data Schedule for Class A Shares for the fiscal year ended
October 31, 1994.
(b) --Financial Data Schedule for Class B Shares for the fiscal year ended
October 31, 1994.
(c) --Financial Data Schedule for Class C Shares for the fiscal year ended
October 31, 1994.
(d) --Financial Data Schedule for Class D Shares for the fiscal year ended
October 30, 1994.
18 --Power of Attorney for Edward D. Zinbarg.
</TABLE>
- --------
(a) Filed on December 15, 1988 as an exhibit to Pre-Effective Amendment No. 2
to Registrant's Registration Statement under the Securities Act of 1933 on
Form N-1A (the "Registration Statement").
(b) Filed as an exhibit to Post-Effective Amendment No. 1 to the Registration
Statement.
(c) Filed on December 17, 1992, as an exhibit to Post-Effective Amendment No. 5
to the Registration Statement.
(d) Reference is made to Article III (Sections 3 and 4), Article V, Article VI
(Section 3), Article V, Article VII, Article VIII and Article X of the
Registrant's Articles of Incorporation, filed as Exhibit (1)(a) to the
Registration Statement; amended and restated Article VI (Sections 2, 3, 5
and 6) contained in the Articles of Amendment filed as Exhibit (1)(b) to
the Registration Statement; the Articles Supplementary filed as Exhibit
(1)(c) to the Registration Statement; the Articles of Amendment filed as
Exhibit (1)(d) to the Registration Statement; the Articles Supplementary
filed as Exhibit (1)(e) to the Registration Statement; and Article II,
Article III (Sections 1, 3, 5, 6 and 17), Article IV (Section 1), Article V
(Section 7), Article VI, Article VII, Article XII, Article XIII, and
Article XIV of the Registrant's By-Laws previously filed as Exhibit (2) to
the Registration Statement.
(e) Filed on February 24, 1994, as an exhibit to Post-Effective Amendment No. 7
to the Registration Statement.
(f) Filed on October 18, 1994, as an exhibit to Post-Effective Amendment No. 8
to the Registration Statement.
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 306 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission file due to ASCII-incompatibility and cross-
references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MERRILL LYNCH GLOBAL ALLOCATION FUND, INC. - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 7,701,777,115
<INVESTMENTS-AT-VALUE> 7,770,824,773
<RECEIVABLES> 224,033,882
<ASSETS-OTHER> 2,525,328
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,997,383,983
<PAYABLE-FOR-SECURITIES> 100,798,857
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69,234,084
<TOTAL-LIABILITIES> 170,032,941
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,672,707,678
<SHARES-COMMON-STOCK> 103,860,623
<SHARES-COMMON-PRIOR> 67,887,067
<ACCUMULATED-NII-CURRENT> 93,144,339
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25,491,311
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,007,714
<NET-ASSETS> 1,357,905,506
<DIVIDEND-INCOME> 73,919,529
<INTEREST-INCOME> 308,032,977
<OTHER-INCOME> 218,581
<EXPENSES-NET> 120,515,767
<NET-INVESTMENT-INCOME> 261,655,320
<REALIZED-GAINS-CURRENT> 27,450,270
<APPREC-INCREASE-CURRENT> (244,977,781)
<NET-CHANGE-FROM-OPS> 44,127,809
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 42,294,885
<DISTRIBUTIONS-OF-GAINS> 16,636,230
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 51,696,255
<NUMBER-OF-SHARES-REDEEMED> 19,692,065
<SHARES-REINVESTED> 3,969,366
<NET-CHANGE-IN-ASSETS> 2,610,000,233
<ACCUMULATED-NII-PRIOR> 31,215,711
<ACCUMULATED-GAINS-PRIOR> 95,392,147
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49,037,363
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 120,515,767
<AVERAGE-NET-ASSETS> 1,199,662,175
<PER-SHARE-NAV-BEGIN> 13.52
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> (.31)
<PER-SHARE-DIVIDEND> .51
<PER-SHARE-DISTRIBUTIONS> .23
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.07
<EXPENSE-RATIO> .89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> MERRILL LYNCH GLOBAL ALLOCATION FUND, INC. - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 7701777115
<INVESTMENTS-AT-VALUE> 7770824773
<RECEIVABLES> 224033882
<ASSETS-OTHER> 2525328
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7997383983
<PAYABLE-FOR-SECURITIES> 100798857
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69234084
<TOTAL-LIABILITIES> 170032941
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7672707678
<SHARES-COMMON-STOCK> 500261282
<SHARES-COMMON-PRIOR> 321429250
<ACCUMULATED-NII-CURRENT> 93144339
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25491311
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36007714
<NET-ASSETS> 6457130497
<DIVIDEND-INCOME> 73919529
<INTEREST-INCOME> 308032977
<OTHER-INCOME> 218581
<EXPENSES-NET> 120515767
<NET-INVESTMENT-INCOME> 261655320
<REALIZED-GAINS-CURRENT> 27450270
<APPREC-INCREASE-CURRENT> (244977781)
<NET-CHANGE-FROM-OPS> 44127809
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 157338890
<DISTRIBUTIONS-OF-GAINS> 80810426
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 225442147
<NUMBER-OF-SHARES-REDEEMED> 62873994
<SHARES-REINVESTED> 16263879
<NET-CHANGE-IN-ASSETS> 2610000233
<ACCUMULATED-NII-PRIOR> 31215711
<ACCUMULATED-GAINS-PRIOR> 95392147
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49037363
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 120515767
<AVERAGE-NET-ASSETS> 5726304701
<PER-SHARE-NAV-BEGIN> 13.38
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> (.31)
<PER-SHARE-DIVIDEND> .39
<PER-SHARE-DISTRIBUTIONS> .23
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.91
<EXPENSE-RATIO> 1.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> MERRILL LYNCH GLOBAL ALLOCATION FUND, INC. - CLASS C
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> OCT-21-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 7,701,777,115
<INVESTMENTS-AT-VALUE> 7,770,824,773
<RECEIVABLES> 224,033,882
<ASSETS-OTHER> 2,525,328
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,997,383,983
<PAYABLE-FOR-SECURITIES> 100,798,857
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69,234,084
<TOTAL-LIABILITIES> 170,032,941
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,672,707,678
<SHARES-COMMON-STOCK> 569,017
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 93,144,339
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25,491,311
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,007,714
<NET-ASSETS> 7,347,309
<DIVIDEND-INCOME> 73,919,529
<INTEREST-INCOME> 308,032,977
<OTHER-INCOME> 218,581
<EXPENSES-NET> 120,515,767
<NET-INVESTMENT-INCOME> 261,655,320
<REALIZED-GAINS-CURRENT> 27,450,270
<APPREC-INCREASE-CURRENT> (244,977,781)
<NET-CHANGE-FROM-OPS> 44,127,809
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 569,603
<NUMBER-OF-SHARES-REDEEMED> 586
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,610,000,233
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49,037,363
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 120,515,767
<AVERAGE-NET-ASSETS> 4,438,154
<PER-SHARE-NAV-BEGIN> 12.91
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> (.01)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.91
<EXPENSE-RATIO> 2.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> MERRILL LYNCH GLOBAL ALLOCATION FUND, INC. - CLASS D
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> OCT-21-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 7701777115
<INVESTMENTS-AT-VALUE> 7770824773
<RECEIVABLES> 224033882
<ASSETS-OTHER> 2525328
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7997383983
<PAYABLE-FOR-SECURITIES> 100798857
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69234084
<TOTAL-LIABILITIES> 170032941
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7672707678
<SHARES-COMMON-STOCK> 379903
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 93144339
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25491311
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36007714
<NET-ASSETS> 4967730
<DIVIDEND-INCOME> 73919529
<INTEREST-INCOME> 308032977
<OTHER-INCOME> 218581
<EXPENSES-NET> 120515767
<NET-INVESTMENT-INCOME> 261655320
<REALIZED-GAINS-CURRENT> 27450270
<APPREC-INCREASE-CURRENT> (244977781)
<NET-CHANGE-FROM-OPS> 44127809
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 385289
<NUMBER-OF-SHARES-REDEEMED> 5386
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2610000233
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49037363
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 120515767
<AVERAGE-NET-ASSETS> 3154284
<PER-SHARE-NAV-BEGIN> 13.07
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> (.01)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.08
<EXPENSE-RATIO> 1.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.1(D)
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC., a Maryland corporation having
its principal Maryland office c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202 (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by adding the
following provision at the end of Article V:
(9) The Board of Directors may classify and reclassify any issued shares
of capital stock into one or more additional or other classes or series as may
be established from time to time by setting or changing in any one or more
respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series; provided, however, that any
such classification or reclassification shall not substantially adversely affect
the rights of holders of such issued shares. The Board's authority pursuant to
this paragraph shall include, but not be limited to, the power to vary among all
the holders of a particular class or series (a) the length of time shares must
be held prior to reclassification to shares of another class or series (the
"Holding Period(s)"), (b) the manner in which the time for such Holding
Period(s) is determined and (c) the class or series into which the particular
class or series is being reclassified; provided, however, that, subject to the
first sentence of this section, with respect to holders of the Corporation's
shares issued on or after the date of the Corporation's first effective
prospectus which sets forth Holding Period(s) (the "First Holding Period
Prospectus"), the Holding Period(s), the manner in which the time for such
Holding Period(s) is determined and the class or series into which the
particular class or series is being reclassified shall be disclosed in the
Corporation's prospectus or statement of additional information in effect at the
time such shares, which are the subject of the reclassification, were issued;
and provided, further, that, subject to the first sentence of this section, with
respect to holders of the Corporation's Class B shares issued prior to the date
of the
<PAGE>
Corporation's First Holding Period Prospectus, the Holding Period shall be ten
(10) years for retirement plan (as recognized by the Internal Revenue Code of
1986, as amended from time to time) holders of issued Class B shares purchased
without a contingent deferred sales charge (a "CDSC-Waived Retirement Plan") and
shall be the Holding Period set forth in the Corporation's First Holding Period
Prospectus, for all other holders of issued Class B shares; Class B shares held
by a CDSC-Waived Retirement Plan shall be reclassified to Class D shares in the
month following the month in which the first Class B share of any mutual fund
advised by Merrill Lynch Asset Management, L.P., Fund Asset Management, L.P., or
their affiliates or successors, held by such CDSC-Waived Retirement Plan has
been held for the ten (10) year Holding Period established by the Corporation's
Board of Directors for such CDSC-Waived Retirement Plan Class B shareholder; and
the Class B shares of every shareholder other than CDSC-Waived Retirement Plans
shall be reclassified to Class D shares in the month following the month in
which such shares have been held for the Holding Period established by the
Corporation's Board of Directors for shareholders other than CDSC-Waived
Retirement Plans in the Corporation's First Holding Period Prospectus.
SECOND: The foregoing Articles of Amendment have been effected in the
manner and by the vote required by the Corporation's charter and the laws of the
State of Maryland. Pursuant to Section 2-604 of the Maryland Corporations and
Associations Code, the amendment was advised by the Board of Directors of the
Corporation and approved by the stockholders.
THIRD: Except as amended hereby, the Corporation's charter shall remain in
full force and effect.
FOURTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.
FIFTH: These Articles of Amendment shall be effective at the very
beginning of the day on October 21, 1994.
The President acknowledges these Articles of Amendment to be the corporate
act of the Corporation and states that to the best of his knowledge, information
and belief, the matters set forth in these Articles of Amendment with respect to
the authorization and approval of the amendment of the Corporation's charter are
true in all material respects, and that this statement is made under the
penalties for perjury.
2
<PAGE>
IN WITNESS WHEREOF, MERRILL LYNCH GLOBAL ALLOCATION FUND, INC. has caused
these Articles of Amendment to be signed in its name and on its behalf by its
President, a duly authorized officer of the Corporation, and attested by its
Secretary as of the __ day of October, 1994.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
------------------------------------------
Arthur Zeikel
President
Attest:
- ---------------------------------
Michael J. Hennewinkel, Secretary
3
<PAGE>
EXHIBIT 99.1(E)
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION
INCREASING THE AUTHORIZED CAPITAL STOCK OF THE
CORPORATION AND CREATING TWO ADDITIONAL CLASSES
OF COMMON STOCK
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC., a Maryland corporation having
its principal Maryland office c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202 (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation, that:
FIRST: The Corporation is registered as an open-end company under the
Investment Company Act of 1940, as amended, with authority to issue ONE BILLION
ONE HUNDRED MILLION (1,100,000,000) shares of capital stock. The Corporation
has two classes of capital stock consisting of TWO HUNDRED MILLION (200,000,000)
shares of Class A Common Stock and NINE HUNDRED MILLION (900,000,000) shares of
Class B Common Stock. All shares of all classes and series of the Corporation's
capital stock have a par value of Ten Cents ($.10) per share and an aggregate
par value of ONE HUNDRED TEN MILLION Dollars ($110,000,000).
SECOND: The Board of Directors of the Corporation, acting in accordance
with Section 2-105(c) of the Maryland Corporations and Associations Code, hereby
increases the total number of authorized shares of Class B Common Stock of the
Corporation by ONE BILLION ONE HUNDRED MILLION (1,100,000,000) shares.
THIRD: After this increase in the number of authorized shares of capital
stock of the Corporation, the Corporation will have authority to issue TWO
BILLION TWO HUNDRED MILLION (2,200,000,000) shares of capital stock and the
capital stock will consist of TWO HUNDRED MILLION (200,000,000) shares of Class
A Common Stock and TWO BILLION (2,000,000,000) shares of Class B Common Stock.
FOURTH: After this increase in the number of authorized shares of capital
stock of the Corporation, all shares of all classes and series of the
Corporation's capital stock will have a par value of Ten Cents ($.10) per share
and an aggregate par value of TWO HUNDRED TWENTY MILLION Dollars ($220,000,000).
FIFTH: Pursuant to authority expressly vested in the Board of Directors of
the Corporation by its charter, the Board of Directors has reclassified TWO
HUNDRED MILLION (200,000,000) authorized and unissued shares of the Class B
Common Stock of the Corporation as Class C Common Stock of par value of Ten
Cents
<PAGE>
($.10) per share and of the aggregate par value of TWENTY MILLION Dollars
($20,000,000).
SIXTH: The preferences, designations, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of Class C Common Stock are as follows:
The Class C Common Stock of the Corporation shall represent the same
interest in the Corporation and have identical preferences, designations,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption as the Class B
Common Stock as of the date of these Articles Supplementary, except as otherwise
set forth in the Corporation's charter and further except that:
(i) Expenses related to the distribution of the Class C Common Stock
shall be borne solely by such class and such class shall have exclusive voting
rights with respect to matters relating to the expenses being borne solely by
such class;
(ii) Such distribution expenses borne solely by Class C Common Stock shall
be appropriately reflected (in the manner determined by the Board of Directors)
in the net asset value, dividends, distribution and liquidation rights of the
shares of such class; and
(iii) Class C Common Stock shall not be reclassified into Class D shares.
SEVENTH: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by its charter, the Board of Directors has reclassified NINE
HUNDRED MILLION (900,000,000) authorized and unissued shares of the Class B
Common Stock of the Corporation as Class D Common Stock of par value of Ten
Cents ($.10) per share and of the aggregate par value of NINETY MILLION Dollars
($90,000,000).
EIGHTH: The preferences, designations, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of Class D Common Stock are as follows:
The Class D Common Stock of the Corporation shall represent the same
interest in the Corporation and have identical preferences, designations,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption as the Class B
Common Stock as of the date of these Articles Supplementary,
2
<PAGE>
except as otherwise set forth in the Corporation's charter and further except
that:
(i) Expenses related to the distribution of the Class D Common Stock
shall be borne solely by such class and such class shall have exclusive voting
rights with respect to matters relating to the expenses being borne solely by
such class; and
(ii) Such distribution expenses borne solely by Class D Common Stock shall
be appropriately reflected (in the manner determined by the Board of Directors)
in the net asset value, dividends, distribution and liquidation rights of the
shares of such class.
3
<PAGE>
IN WITNESS WHEREOF, MERRILL LYNCH GLOBAL ALLOCATION FUND, INC. has caused
these Articles Supplementary to be signed in its name and on its behalf by its
President and attested by its Secretary on October __, 1994.
MERRILL LYNCH GLOBAL ALLOCATION
FUND, INC.
By__________________________________
Arthur Zeikel
President
Attest:
_________________________________
Michael J. Hennewinkel, Secretary
THE UNDERSIGNED, President of MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.,
who executed on behalf of said Corporation the foregoing Articles Supplementary,
of which this certificate is made a part, hereby acknowledges, in the name and
on behalf of said Corporation, the foregoing Articles Supplementary to be the
corporate act of said Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects, and that this statement is made under the penalties for perjury.
___________________________
Arthur Zeikel
President
4
<PAGE>
EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Global Allocation Fund, Inc.:
We consent to the use in Post-Effective Amendment No. 9 to Registration
Statement No. 33-22462 of our report dated December 7, 1994 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
Deloitte & Touche LLP
Princeton, New Jersey
February 22, 1995
<PAGE>
EXHIBIT 99.16(C)
<TABLE>
<CAPTION>
Global Allocation Fund - Class C
10/21/94 - 10/31/94 Since Since
Inception Inception
Avg Annual Total
Return Return*
---------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 12.91 12.91
---------- ---------
Equals Shares Purchased 77.46 77.46
Plus Shares Acquired through
Dividend Reinvestment 0.00 0.00
---------- ---------
Equals Shares Held at 10/31/94 77.46 77.46
Multiplied by Net Asset Value at 10/31/94 12.91 12.91
---------- ---------
Equals Ending Value before deduction for
contingent deferred sales charge 1,000.00 1,000.00
Less deferred sales charge (10.00) 0.00
---------- ---------
Equals Ending Redeemable Value at
$1000 Investment (ERV) at 12/31/94 $ 990.00 $1,000.00
---------- ---------
Divided by $1,000 (P) 0.9900 1.0000
Subtract 1 -0.0100 0.0000
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) $ -1.00%
==========
Expressed as a percentage equals the
Aggregate Total Return for the Period 0.00%
=========
ERV divided by P 0.9900
Raised to the power of 36.5000
Equals 0.6929
Subtract 1 -0.3071
Expressed as a percentage equals the
Average Annualized Total Return -30.71%
==========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
EXHIBIT 99.16(D)
<TABLE>
<CAPTION>
Global Allocation Fund - Class D
10/21/94 - 10/31/94 Since Since
Inception Inception
Avg Annual Total
Return Return*
---------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 13.79
----------
Divided by Net Asset Value 13.07
---------
Equals Shares Purchased 72.49 76.51
Plus Shares Acquired through
Dividend Reinvestment 0.00 0.00
---------- ---------
Equals Shares Held at 10/31/94 72.49 76.51
Multiplied by Net Asset Value at 10/31/94 13.08 13.08
---------- ---------
Equals Ending Redeemable Value at
$1000 Investment (ERV) at 12/31/94 $ 948.22 $1,000.77
Divided by $1,000 (P) 0.9482 1.0008
Subtract 1 -0.0518 0.0008
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) -5.18%
==========
Expressed as a percentage equals the
Aggregate Total Return for the Period 0.08%
=========
ERV divided by P 0.9482
Raised to the power of 36.5000
Equals 0.1436
Subtract 1 -0.8564
Expressed as a percentage equals the
Average Annualized Total Return -85.64%
==========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
EXHIBIT 99.18
POWER OF ATTORNEY
I, Edward D. Zinbarg, hereby authorize Arthur Zeikel, Terry K. Glenn,
Gerald M. Richard, Mark B. Goldfus, Robert Harris or Michael J. Hennewinkel, or
any of them, as attorney-in-fact, to sign on my behalf any amendments to the
Registration Statement for each of the following registered investment companies
and to file the same, with all exhibits thereto, with the Securities and
Exchange Commission: Emerging Tigers Fund, Inc.; Merrill Lynch Americas Income
Fund, Inc.; Merrill Lynch Developing Capital Markets Fund, Inc.; Merrill Lynch
Dragon Fund, Inc.; Merrill Lynch EuroFund; Merrill Lynch Global Allocation Fund,
Inc.; Merrill Lynch Global Bond Fund for Investment and Retirement; Merrill
Lynch Global Holdings, Inc.; Merrill Lynch Global SmallCap Fund, Inc.; Merrill
Lynch Healthcare Fund, Inc.; Merrill Lynch International Equity Fund; Merrill
Lynch Latin America Fund, Inc.; Merrill Lynch Middle East/Africa Fund, Inc.;
Merrill Lynch Pacific Fund, Inc.; Merrill Lynch Short-Term Global Income Fund,
Inc.; Merrill Lynch Technology Fund, Inc.; and Worldwide DollarVest Fund, Inc.
Dated: February 21, 1995 /s/ Edward D. Zinbarg
-------------------------------------
Edward D. Zinbarg
(Director of each above referenced
Maryland corporation and Trustee
of each above referenced
Massachusetts business trust)
