<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1995
SECURITIES ACT FILE NO. 33-63413
INVESTMENT COMPANY ACT FILE NO. 811-5576
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 1 [_] POST-EFFECTIVE AMENDMENT NO.
(CHECK APPROPRIATE BOX OR BOXES)
----------------
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
----------------
(609) 282-2800
(AREA CODE AND TELEPHONE NUMBER)
----------------
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES:
NUMBER, STREET, CITY, STATE, ZIP CODE)
----------------
ARTHUR ZEIKEL
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
THOMAS R. SMITH, JR., ESQ. MICHAEL J. HENNEWINKEL, ESQ.
BROWN & WOOD MERRILL LYNCH ASSET MANAGEMENT
ONE WORLD TRADE CENTER 800 SCUDDERS MILL ROAD
NEW YORK, NEW YORK 10048-0557 PLAINSBORO, NJ 08543-9011
----------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
----------------
No filing fee is required because an indefinite number of shares have
previously been registered pursuant to Rule 24f-2 under the Investment Company
Act of 1940 pursuant to a registration statement on Form N-1A (File No. 33-
22462). The notice required for such Rule for the Registrant's most recent
fiscal year end was filed on December 28, 1994. Pursuant to Rule 429, this
Registration Statement relates to shares previously registered on Form N-1A
(File No. 33-22462).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
FORM N-14 ITEM NO. PROXY STATEMENT AND PROSPECTUS CAPTION
------------------ --------------------------------------
<C> <S> <C>
PART A
Item 1. Beginning of
Registration Statement
and Outside Front Cover
Page of Prospectus..... Registration Statement Cover Page;
Prospectus Cover Page
Item 2. Beginning and Outside
Back Cover Page of
Prospectus............. Table of Contents
Item 3. Fee Table, Synopsis
Information and Risk
Factors................ Summary; Risk Factors and Special
Considerations
Item 4. Information About the
Transaction............ Summary; The Reorganization
Item 5. Information About the
Registrant............. Prospectus Cover Page; Summary; Comparison
of the Funds; Additional Information
Item 6. Information About the
Company Being Acquired. Prospectus Cover Page; Summary; Comparison
of the Funds; Additional Information
Item 7. Voting Information...... Notice of Special Meeting of Shareholders;
Introduction; Summary; Comparison of the
Funds; Information Concerning the Special
Meeting; Additional Information
Item 8. Interest of Certain
Persons and Experts.... Not Applicable
Item 9. Additional Information
Required for Reoffering
by Persons Deemed to be
Underwriters........... Not Applicable
PART B
Item 10. Cover Page.............. Cover Page
Item 11. Table of Contents....... Table of Contents
Item 12. Additional Information
About the Registrant... General Information
Item 13. Additional Information
About the Company Being
Acquired............... General Information
Item 14. Financial Statements.... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
MERRILL LYNCH BALANCED FUND
FOR INVESTMENT AND RETIREMENT, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 21, 1995
TO THE SHAREHOLDERS OF MERRILL LYNCH BALANCED FUND
FOR INVESTMENT AND RETIREMENT, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the "Meeting")
of Merrill Lynch Balanced Fund for Investment and Retirement, Inc. ("Balanced
Fund") will be held at the offices of Merrill Lynch Asset Management, L.P., 800
Scudders Mill Road, Plainsboro, New Jersey on December 21, 1995 at 9:00 A.M.,
New York time, for the following purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization (the
"Agreement and Plan of Reorganization") providing for the acquisition of
substantially all of the assets of Balanced Fund by Merrill Lynch Global
Allocation Fund, Inc. ("Global Allocation"), and the assumption of
substantially all of the liabilities of Balanced Fund by Global Allocation,
in exchange solely for an equal aggregate value of shares of Global
Allocation. The Agreement and Plan of Reorganization also provides for
distribution of such shares of Global Allocation to shareholders of
Balanced Fund in liquidation of Balanced Fund. A vote in favor of this
proposal will constitute a vote in favor of the liquidation and dissolution
of Balanced Fund and a termination of its registration under the Investment
Company Act of 1940, as amended; and
(2) To transact such other business as properly may come before the
Meeting or any adjournment thereof.
The Board of Directors of Balanced Fund has fixed the close of business on
October 31, 1995 as the record date for the determination of shareholders
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
A complete list of the shareholders of Balanced Fund entitled to vote at the
Meeting will be available and open to the examination of any shareholders of
Balanced Fund for any purpose germane to the Meeting during ordinary business
hours from and after December 7, 1995 at the offices of Balanced Fund, 800
Scudders Mill Road, Plainsboro, New Jersey.
You are cordially invited to attend the Meeting. Shareholders who do not
expect to attend the Meeting in person are requested to complete, date and sign
the enclosed form of proxy and return it promptly in the envelope provided for
that purpose. The enclosed proxy is being solicited on behalf of the Board of
Directors of Balanced Fund.
By Order of the Board of Directors,
JERRY WEISS
Secretary
Plainsboro, New Jersey
Dated: November 21, 1995
<PAGE>
PROXY STATEMENT AND PROSPECTUS
MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT, INC.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 21, 1995
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Merrill Lynch
Balanced Fund for Investment and Retirement, Inc., a Maryland corporation
("Balanced Fund"), for use at the Special Meeting of Shareholders of Balanced
Fund (the "Meeting") called to approve or disapprove the proposed
reorganization whereby Merrill Lynch Global Allocation Fund, Inc., a Maryland
corporation ("Global Allocation"), will acquire substantially all of the
assets, and will assume substantially all of the liabilities, of Balanced Fund,
in exchange solely for an equal aggregate value of newly-issued shares of
Global Allocation (the "Reorganization"). Immediately upon the receipt by
Global Allocation of Balanced Fund's assets and the assumption by Global
Allocation of Balanced Fund's liabilities, as described in the preceding
sentence, Corresponding Shares (defined below) of Global Allocation will be
distributed to Balanced Fund shareholders. Thereafter, Balanced Fund will
terminate its registration under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), and will dissolve in accordance with the laws
of the State of Maryland.
Holders of shares in Balanced Fund will receive shares of that class of
shares of Global Allocation having the same letter designation (i.e., Class A,
Class B, Class C or Class D) and the same distribution fees, account
maintenance fees, and sales charges (including contingent deferred sales
charges ("CDSCs")), if any (the "Corresponding Shares"), as the shares of
Balanced Fund held by them immediately prior to the Reorganization. The
aggregate net asset value of the Corresponding Shares of Global Allocation to
be issued to the shareholders of Balanced Fund will equal the aggregate net
asset value of the outstanding shares of Balanced Fund as set forth in the
Agreement and Plan of Reorganization. Balanced Fund and Global Allocation
sometimes are referred to herein collectively as the "Funds" and individually
as a "Fund," as the context requires.
This Proxy Statement and Prospectus serves as a prospectus of Global
Allocation under the Securities Act of 1933, as amended (the "Securities Act"),
in connection with the issuance of shares of Global Allocation to Balanced Fund
pursuant to the terms of the Reorganization.
Both Balanced Fund and Global Allocation are open-end management investment
companies with similar, though not identical, investment objectives. Balanced
Fund seeks to provide shareholders with as high a level of total investment
return as is consistent with a reasonable and relatively low level of risk.
Global Allocation seeks to provide a high total investment return, consistent
with prudent risk. There can be no assurance that, after the Reorganization,
Global Allocation will achieve its investment objective.
The current prospectus relating to Global Allocation, dated February 27, 1995
(the "Global Allocation Prospectus"), and the current prospectus relating to
Balanced Fund, dated January 31, 1995 (the "Balanced Fund Prospectus"),
accompany this Proxy Statement and Prospectus and are incorporated herein by
reference. A statement of additional information relating to Global Allocation,
dated February 27, 1995 (the "Global Allocation Statement"), and a statement of
additional information relating to Balanced Fund, dated January 31, 1995 (the
"Balanced Fund Statement"), have been filed with the Securities and Exchange
Commission. Such Statements may be obtained, without charge, by writing either
Balanced Fund or Global Allocation at the address above, or by calling 1-800-
456-4587, ext. 123.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT AND
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
This Proxy Statement and Prospectus sets forth concisely the information
about Global Allocation that shareholders of Balanced Fund should know before
considering the Reorganization and should be retained for future reference.
Balanced Fund has authorized the solicitation of proxies in connection with the
Reorganization solely on the basis of this Proxy Statement and Prospectus and
the accompanying documents.
A statement of additional information relating to the Reorganization (the
"Statement of Additional Information"), including historical financial
statements of Balanced Fund and Global Allocation, is on file with the
Securities and Exchange Commission. It is available from Global Allocation
without charge, upon oral request by calling the toll free telephone number set
forth above or upon written request by writing Global Allocation at its
principal executive offices. The Statement of Additional Information, dated
November 21, 1995, is incorporated by reference into this Proxy Statement and
Prospectus.
The address of the principal executive offices of both Balanced Fund and
Global Allocation is 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and
the telephone number is (609) 282-2800.
----------------
THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS NOVEMBER 21, 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION.............................................................. 3
SUMMARY................................................................... 3
RISK FACTORS AND SPECIAL CONSIDERATIONS................................... 11
COMPARISON OF THE FUNDS................................................... 13
Financial Highlights.................................................... 13
Investment Objectives and Policies...................................... 18
Other Investment Policies............................................... 22
Information Regarding Futures and Options Transactions.................. 22
Investment Restrictions................................................. 23
Management.............................................................. 23
Purchase of Shares...................................................... 24
Redemption of Shares.................................................... 24
Performance............................................................. 25
Voting Rights........................................................... 33
Dividends and Distributions............................................. 34
Tax Information......................................................... 34
Portfolio Transactions.................................................. 34
Portfolio Turnover...................................................... 34
Additional Information.................................................. 35
THE REORGANIZATION........................................................ 36
General................................................................. 36
Procedure............................................................... 36
Terms of the Agreement and Plan of Reorganization....................... 37
Potential Benefits to Balanced Fund Shareholders as a Result of the Re-
organization........................................................... 38
Tax Consequences of the Reorganization.................................. 39
Capitalization.......................................................... 40
INFORMATION CONCERNING THE SPECIAL MEETING................................ 40
Date, Time and Place of Meeting......................................... 40
Solicitation, Revocation and Use of Proxies............................. 40
Record Date and Outstanding Shares...................................... 41
Security Ownership of Certain Beneficial Owners and Management of Bal-
anced Fund and Global Allocation....................................... 41
Voting Rights and Required Vote......................................... 41
ADDITIONAL INFORMATION.................................................... 42
LEGAL PROCEEDINGS......................................................... 42
LEGAL OPINIONS............................................................ 42
EXPERTS................................................................... 43
SHAREHOLDER PROPOSALS..................................................... 43
EXHIBIT I-- AGREEMENT AND PLAN OF REORGANIZATION.......................... I-1
</TABLE>
2
<PAGE>
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Balanced Fund
for use at the Meeting to be held at the offices of Merrill Lynch Asset
Management, L.P. ("MLAM"), 800 Scudders Mill Road, Plainsboro, New Jersey on
December 21, 1995, at 9:00 A.M., New York time. The mailing address for
Balanced Fund is P.O. Box 9011, Princeton, New Jersey 08543-9011. The
approximate mailing date of this Proxy Statement and Prospectus is November 29,
1995.
Any person giving a proxy may revoke it at any time prior to its exercise by
executing a superseding proxy, by giving written notice of the revocation to
the Secretary of Balanced Fund, at the address indicated above or by voting in
person at the Meeting. All properly executed proxies received prior to the
Meeting will be voted at the Meeting in accordance with the instructions marked
thereon or otherwise as provided therein. Unless instructions to the contrary
are marked, properly executed proxies will be voted "FOR" the proposal to
approve the Agreement and Plan of Reorganization between Balanced Fund and
Global Allocation (the "Agreement and Plan of Reorganization").
Approval of the Agreement and Plan of Reorganization will require the
affirmative vote of Balanced Fund shareholders representing a majority of the
total number of votes entitled to be cast thereon. Shareholders will vote as a
single class on the proposal to approve the Agreement and Plan of
Reorganization. See "Information Concerning the Special Meeting."
The Board of Directors of Balanced Fund knows of no business other than that
discussed above which will be presented for consideration at the Meeting. If
any other matter is properly presented, it is the intention of the persons
named in the enclosed proxy to vote in accordance with their best judgment.
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement and Prospectus (including documents incorporated by reference)
and is qualified in its entirety by reference to the more complete information
contained in this Proxy Statement and Prospectus and in the Agreement and Plan
of Reorganization, attached hereto as Exhibit I.
In this Proxy Statement and Prospectus, the term "Reorganization" refers
collectively to the acquisition of substantially all of the assets and the
assumption of substantially all of the liabilities of Balanced Fund by Global
Allocation in exchange for the Corresponding Shares and the subsequent
distribution of Corresponding Shares of Global Allocation to the shareholders
of Balanced Fund.
THE REORGANIZATION
At a special meeting of the Board of Directors of Balanced Fund held on
September 29, 1995, the Board of Directors of Balanced Fund considered the
proposal that Global Allocation acquire substantially all of the assets, and
assume substantially all of the liabilities, of Balanced Fund in exchange
solely for shares of Global Allocation to be distributed to the shareholders of
Balanced Fund. The Board of Directors of Balanced Fund approved the
Reorganization at the regular meeting of the Board held on October 13, 1995.
Based upon their evaluation of all relevant information, the Directors of
Balanced Fund have determined that the Reorganization will potentially benefit
the shareholders of Balanced Fund. Specifically, after the Reorganization,
Balanced Fund shareholders will remain invested in an open-end fund that has an
investment objective similar to Balanced Fund, though not identical. In
addition, although after the Reorganization, on a pro forma combined basis,
Global Allocation will pay an advisory fee to MLAM at a higher annual effective
rate than that currently paid by Balanced Fund, MLAM anticipates that Balanced
Fund shareholders will
3
<PAGE>
nonetheless benefit from a reduced overall operating expense ratio as a result
of certain economies of scale expected after the Reorganization. See "The
Reorganization--Potential Benefits to Balanced Fund Shareholders as a Result of
the Reorganization."
The Board of Directors of Balanced Fund, including all of the Directors who
are not "interested persons," as defined in the Investment Company Act, have
determined that the Reorganization is in the best interests of Balanced Fund
and that the interests of existing Balanced Fund shareholders will not be
diluted as a result of effecting the Reorganization. If all requisite
shareholder and regulatory approvals are obtained, it is anticipated that the
Reorganization will occur as early as possible in calendar year 1996. However,
the Reorganization may be postponed or abandoned under certain conditions. See
"The Reorganization--Terms of the Agreement and Plan of Reorganization--
Postponement; Termination."
4
<PAGE>
PRO FORMA FEE TABLES
PRO FORMA FEE TABLE FOR CLASS A AND CLASS B SHAREHOLDERS OF BALANCED FUND,
GLOBAL ALLOCATION
AND THE COMBINED FUND AS OF AUGUST 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
CLASS A SHARES (a)
-----------------------------------------
ACTUAL
------------------------------- PRO FORMA
BALANCED FUND GLOBAL ALLOCATION COMBINED
------------- ----------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANS-
ACTION EXPENSES:
Maximum Sales
Charge Imposed on
Purchases (as a
percentage of of-
fering price)..... 5.25%(c) 5.25%(c) 5.25%(c)
Sales Charge Im-
posed on Dividend
Reinvestments..... None None None
Deferred Sales
Charge (as a per-
centage of origi- None(d) None(d) None(d)
nal purchase price
or redemption pro-
ceeds, whichever
is lower).........
Exchange Fee...... None None None
ANNUAL FUND OPERAT-
ING EXPENSES (AS A
PERCENTAGE OF AVER-
AGE NET ASSETS):
Investment Advi-
sory Fees(e)...... 0.64% 0.69% 0.69%
12b-1 Fees(f):
Account Mainte-
nance Fees........ None None None
Distribution
Fees.............. None None None
Other Expenses:
Custodial Fees.... .02% .04% .03%
Shareholder Ser-
vicing Costs(g)... .26% .15% .14%
Other............. .09% .03% .04%
---- ---- ----
Total Other Ex- .37% .22% .21%
penses.......... ---- ---- ----
Total Fund Operat- 1.01% .91% .90%
ing Expenses....... ==== ==== ====
<CAPTION>
CLASS B SHARES (b)
--------------------------------------------------------------------
ACTUAL
--------------------------------------------- PRO FORMA
BALANCED FUND GLOBAL ALLOCATION COMBINED
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
SHAREHOLDER TRANS-
ACTION EXPENSES:
Maximum Sales
Charge Imposed on
Purchases (as a
percentage of of-
fering price)..... None None None
Sales Charge Im-
posed on Dividend
Reinvestments..... None None None
Deferred Sales
Charge (as a per-
centage of origi-
nal purchase price
or redemption pro-
ceeds, whichever
is lower)......... 4.0% during the first 4.0% during the first 4.0% during the first
Exchange Fee...... year, decreasing 1.0% year, decreasing 1.0% year, decreasing 1.0%
annually thereafter to annually thereafter to annually thereafter to
0.0% after the fourth 0.0% after the fourth 0.0% after the fourth
year year year
None None None
ANNUAL FUND OPERAT-
ING EXPENSES (AS A
PERCENTAGE OF AVER-
AGE NET ASSETS):
Investment Advi-
sory Fees(e)...... 0.64% 0.69% 0.69%
12b-1 Fees(f):
Account Mainte-
nance Fees........ 0.25% 0.25% 0.25%
Distribution
Fees.............. 0.75% 0.75% 0.75%
(Class B shares (Class B shares (Class B shares
convert to Class D convert to Class D convert to Class D
shares automatically shares automatically shares automatically
after approximately after approximately after approximately
eight years and cease eight years and cease eight years and cease
being subject to being subject to being subject to
distribution fees) distribution fees) distribution fees)
Other Expenses:
Custodial Fees.... .02% .04% .03%
Shareholder Ser-
vicing Costs(g)... .26% .15% .14%
Other............. .09% .03% .04%
---- ---- ----
Total Other Ex- .37% .22% .21%
penses.......... ---- ---- ----
Total Fund Operat- 2.01% 1.91% 1.90%
ing 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 "Comparison of the Funds--Purchase of Shares."
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Comparison of Funds--Purchase of
Shares."
(c) Reduced for Class A purchases of $25,000 and over, and waived for
purchases by certain retirement plans in connection with certain
investment programs. Purchases of $1,000,000 or more may not be subject to
an initial sales charge. See "Comparison of the Funds--Purchase of
Shares."
(d) Class A shares are not subject to a CDSC, except that certain purchases of
$1,000,000 or more which may not be subject to an initial sales charge
will instead be subject to a CDSC of 1.0% of amounts redeemed within the
first year of purchase.
(e) See "Comparison of the Funds--Management."
(f) See "Comparison of the Funds--Purchase of Shares."
(g) See "Comparison of the Funds--Additional Information--Transfer Agent,
Dividend Disbursing Agent and Registrar."
5
<PAGE>
PRO FORMA FEE TABLE FOR CLASS C AND CLASS D SHAREHOLDERS OF BALANCED FUND,
GLOBAL ALLOCATION
AND THE COMBINED FUND AS OF AUGUST 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
CLASS C SHARES CLASS D SHARES
----------------------------------------- -----------------------------------------
ACTUAL ACTUAL
------------------------------- PRO FORMA ------------------------------- PRO FORMA
BALANCED FUND GLOBAL ALLOCATION COMBINED BALANCED FUND GLOBAL ALLOCATION COMBINED
------------- ----------------- --------- ------------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price)........ None None None 5.25%(a) 5.25%(a) 5.25%(a)
Sales Charge Imposed on
Dividend Reinvestments. None None None None None None
Deferred Sales Charge
(as a percentage of
original purchase price
or redemption proceeds, 1.0% for 1.0% for 1.0% for
whichever is lower).... one year one year one year None(b) None(b) None(b)
Exchange Fee........... None None None None None None
ANNUAL FUND OPERATING
EXPENSES (AS A
PERCENTAGE OF AVERAGE
NET ASSETS)
Investment Advisory
Fees(c)................ 0.64% 0.69% 0.69% 0.64% 0.69% 0.69%
12b-1 Fees(d):
Account Maintenance
Fees................... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Distribution Fees...... 0.75% 0.75% 0.75% None None None
Other Expenses
Custodial Fees......... .02% .04% .03% .02% .04% .03%
Shareholder Servicing
Costs(e)............... .26% .15% .14% .26% .15% .14%
Other.................. .09% .03% .04% .09% .03% .04%
---- ---- ---- ---- ---- ----
Total Other Expenses. .37% .22% .21% .37% .22% .21%
---- ---- ---- ---- ---- ----
Total Fund Operating 2.01% 1.91% 1.90% 1.26% 1.16% 1.15%
Expenses............. ==== ==== ==== ==== ==== ====
</TABLE>
- ----
(a) Reduced for Class D purchases of $25,000 and over. Like Class A purchases,
certain Class D purchases of $1,000,000 or more may not be subject to an
initial sales charge. See "Comparison of the Funds--Purchase of Shares."
(b) Like Class A shares, Class D shares are not subject to a CDSC, except that
purchases of $1,000,000 or more which may not be subject to an initial
sales charge will instead be subject to a CDSC of 1.0% of amounts redeemed
within the first year of purchase.
(c) See "Comparison of the Funds--Management."
(d) See "Comparison of the Funds--Purchase of Shares."
(e) See "Comparison of the Funds--Additional Information--Transfer Agent,
Dividend Disbursing Agent and Registrar."
6
<PAGE>
EXAMPLE:
CUMULATIVE EXPENSES PAID ON CLASS A, CLASS B, CLASS C AND CLASS D SHARES FOR
THE PERIODS INDICATED:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------------- ------------------------------- -------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
An investor would
pay the following
expenses on a
$1,000 invest-
ment, including
the maximum sales
load of $52.50
(Class A and
Class D shares
only) and assum-
ing (1) the Total
Fund Operating
Expenses set
forth above for
the relevant
fund, (2) a 5%
annual return
throughout the
periods and (3)
redemption at the
end of the peri-
od:
Balanced Fund... $62 $83 $105 $170 $60 $83 $108 $214* $30 $63 $108 $234
Global Alloca-
tion............ 61 80 100 159 59 80 103 204* 29 60 103 223
Combined Fund+.. 61 80 100 157 59 80 103 203* 29 60 103 222
An investor would
pay the following
expenses on the
same $1,000
investment
assuming no
redemption at the
end of the
period:
Balanced Fund... $62 $83 $105 $170 $20 $63 $108 $214* $20 $63 $108 $234
Global Alloca-
tion............ 61 80 100 159 19 60 103 204* 19 60 103 223
Combined Fund+.. 61 80 100 157 19 60 103 203* 19 60 103 222
<CAPTION>
CLASS D SHARES
-------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would
pay the following
expenses on a
$1,000 invest-
ment, including
the maximum sales
load of $52.50
(Class A and
Class D shares
only) and assum-
ing (1) the Total
Fund Operating
Expenses set
forth above for
the relevant
fund, (2) a 5%
annual return
throughout the
periods and (3)
redemption at the
end of the peri-
od:
Balanced Fund... $65 $90 $118 $197
Global Alloca-
tion............ 64 87 113 186
Combined Fund+.. 64 87 112 185
An investor would
pay the following
expenses on the
same $1,000
investment
assuming no
redemption at the
end of the
period:
Balanced Fund... $65 $90 $118 $197
Global Alloca-
tion............ 64 87 113 186
Combined Fund+.. 64 87 112 185
</TABLE>
- ----
* Assumes conversion of Class B shares to Class D shares approximately eight
years after purchase.
+ Assuming the Reorganization had taken place on August 31, 1995.
The foregoing Fee Tables are intended to assist investors in understanding
the costs and expenses that a Balanced Fund or Global Allocation shareholder
will bear directly or indirectly as compared to the costs and expenses that
would be borne by such investors taking into account the Reorganization. The
Examples set forth above assume reinvestment of all dividends and distributions
and utilize a 5% annual rate of return as mandated by Securities and Exchange
Commission regulations. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL EXPENSES OR
ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF
THE EXAMPLES. See "Summary," "The Reorganization--Potential Benefits to
Balanced Fund Shareholders as a Result of the Reorganization," "Comparison of
the Funds--Management," "--Purchase of Shares" and "--Redemption of Shares."
7
<PAGE>
BUSINESS OF BALANCED FUND
Balanced Fund was incorporated under the laws
of the State of Maryland on May 21, 1984 and
commenced operations on November 29, 1985.
Balanced Fund is a diversified, open-end
management investment company.
As of October 31, 1995, Balanced Fund had net
assets of approximately $635,037,364.
BUSINESS OF GLOBAL Global Allocation was incorporated under the
ALLOCATION laws of the State of Maryland on June 9, 1988
and commenced operations on February 3, 1989.
Global Allocation is a non-diversified, open-
end management investment company.
As of October 31, 1995, Global Allocation had
net assets of approximately $8,535,190,459.
COMPARISON OF THE FUNDS Investment Objectives. Balanced Fund's
investment objective is to provide shareholders
with as high a level of total investment return
as is consistent with a reasonable and
relatively low level of risk. Global
Allocation's investment objective is to seek a
high total investment return, consistent with
prudent risk.
Investment Policies. Balanced Fund seeks to
achieve its objective through a policy of
investing in common stocks and other types of
securities, including fixed income securities
and convertible securities. Global Allocation
seeks to achieve its objective 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.
In seeking to achieve its investment objective
in the equity markets, Balanced Fund invests
primarily in high quality large capitalization
stocks; Global Allocation seeks to identify the
securities of companies and industry sectors
which are expected to provide high total return
relative to alternative equity investments.
Generally, Balanced Fund's fixed income
investments must be rated "AA" or better by
Standard & Poor's Ratings Group ("S&P") or "Aa"
or better by Moody's Investors Service, Inc.
("Moody's"); Global Allocation generally may
invest in securities rated "BBB" or better by
S&P or "Baa" or better by Moody's, as well as
in high yield/high risk bonds (commonly known
as "junk bonds"). Each Fund may invest in
foreign securities. However, Balanced Fund's
investment in foreign securities is limited to
20% of total assets, while Global Allocation
may invest an unlimited percentage of its
assets in foreign securities. In addition,
although many investment techniques employed by
the Funds are identical, Global Allocation may
employ certain techniques that Balanced Fund
may not use (e.g., writing covered put options
and purchasing call options). See "Comparison
of the Funds--Investment Objectives and
Policies."
Advisory Fees. The investment adviser for both
Balanced Fund and Global Allocation is MLAM.
MLAM is responsible for the
8
<PAGE>
management of each Fund's investment portfolio
and for providing administrative services to
each Fund.
The portfolio manager of Balanced Fund is Denis
B. Cummings. Bryan N. Ison serves as portfolio
manager of Global Allocation.
Pursuant to separate investment advisory
agreements with MLAM, each Fund pays MLAM a
monthly fee. Balanced Fund pays MLAM a monthly
fee based on the following annual rates: 0.65%
of average daily net assets not exceeding $500
million; 0.60% of average daily net assets
exceeding $500 million but not exceeding $1.5
billion; 0.55% of average daily net assets
exceeding $1.5 billion but not exceeding $2.5
billion; 0.50% of average daily net assets
exceeding $2.5 billion but not exceeding $3.5
billion; and 0.45% of average daily net assets
exceeding $3.5 billion. Global Allocation's
investment advisory agreement with MLAM
provides that the Fund will pay MLAM a monthly
fee at the annual rate of 0.75% of average
daily net assets, a higher annual rate than
that paid by Balanced Fund. However, MLAM has
agreed to waive a portion of its management fee
payable by Global Allocation so that such fee
is equal to 0.75% of average daily net assets
not exceeding $2.5 billion; 0.70% of average
daily net assets exceeding $2.5 billion but not
exceeding $5.0 billion; 0.65% of average daily
net assets exceeding $5.0 billion but not
exceeding $7.5 billion; 0.625% of average daily
net assets exceeding $7.5 billion but not
exceeding $10 billion; and 0.60% of average
daily net assets exceeding $10 billion. Based
on the pro forma combined net assets of the
Funds at August 31, 1995, the effective annual
advisory fee payable by Global Allocation after
the Reorganization would be 0.69%, as compared
to 0.64% for Balanced Fund at that date. See
"Summary--Pro Forma Fee Tables" and "Comparison
of the Funds--Management."
MLAM has retained Merrill Lynch Asset
Management U.K. Limited ("MLAM U.K.") as sub-
adviser to Global Allocation. Pursuant to a
sub-advisory agreement between MLAM and MLAM
U.K. with respect to Global Allocation, MLAM
pays MLAM U.K. a fee computed at the rate of
0.10% of the average daily net assets of Global
Allocation for providing investment advisory
services to MLAM with respect to Global
Allocation. Balanced Fund has no sub-adviser.
Class Structure. Like Balanced Fund, Global
Allocation offers four classes of shares under
the Merrill Lynch Select Pricing SM System. The
Class A, Class B, Class C and Class D shares
issued by Global Allocation are identical in
all respects to the Class A, Class B, Class C
and Class D shares issued by Balanced Fund,
except that they represent ownership interests
in a different investment portfolio. See
"Comparison of the Funds--Purchase of Shares."
Overall Expense Ratio. The overall operating
expense ratio as of August 31, 1995 was 1.01%
for Balanced Fund and 0.91% for Global
Allocation. If the Reorganization had taken
place on August 31, 1995, the overall operating
expense ratio for the combined Funds on a pro
forma basis would have been 0.90%.
9
<PAGE>
The foregoing expense ratios do not take into
account class specific expenses resulting from
distribution and account maintenance of the
Class A, Class B, Class C or Class D shares.
See, "Summary--Pro Forma Fee Tables."
Purchase of Shares. Shares of Global Allocation
are offered continuously for sale to the public
in exactly the same manner as shares of
Balanced Fund. See "Comparison of the Funds--
Purchase of Shares."
Redemption of Shares. The redemption procedures
for shares of Global Allocation are the same as
the redemption procedures for shares of
Balanced Fund. For purposes of computing any
CDSC that may be payable upon disposition of
Corresponding Shares of Global Allocation
acquired by Balanced Fund shareholders in the
Reorganization, the holding period of Balanced
Fund shares outstanding on the date the
Reorganization takes place will be "tacked"
onto the holding period of the Corresponding
Shares of Global Allocation acquired in the
Reorganization. See "Comparison of the Funds--
Redemption of Shares."
Dividends and Distributions. Balanced Fund's
policies with respect to dividends and
distributions are identical to those of Global
Allocation, except that Balanced Fund is
required to pay dividends from net investment
income semi-annually, while Global Allocation
is required to pay dividends from net
investment income at least annually. As a
matter of practice, however, Global Allocation
has consistently paid dividends from net
investment income semi-annually since its
inception. See "Comparison of the Funds--
Dividends and Distributions."
Net Asset Value. Both Balanced Fund and Global
Allocation determine net asset value of each
class of its shares once daily 15 minutes after
the close of business on the New York Stock
Exchange (generally, 4:00 p.m. New York time),
on each day during which the New York Stock
Exchange is open for trading. Both Funds
compute net asset value per share in the same
manner. See "Comparison of the Funds--
Additional Information--Net Asset Value."
Other Significant Considerations. Shareholder
services, including exchange privileges,
available to Balanced Fund and Global
Allocation shareholders are identical. See
"Comparison of the Funds--Additional
Information--Shareholder Services."
TAX CONSIDERATIONS Balanced Fund and Global Allocation jointly
have requested a private letter ruling from the
Internal Revenue Service ("IRS") with respect
to the Reorganization. The consummation of the
Reorganization is subject to the receipt of
such ruling to the effect that, among other
things, neither Balanced Fund nor Global
Allocation will recognize gain or loss on the
transaction, and no shareholder of either Fund
will recognize taxable gain or loss upon the
issuance of Corresponding Shares of Global
Allocation to shareholders of Balanced Fund in
the Reorganization. The Reorganization will not
affect the status of Global Allocation as a
regulated investment company. See "The
Reorganization--Tax Consequences of the
Reorganization."
10
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
Many of the investment risks associated with an investment in Global
Allocation are substantially the same as those of Balanced Fund. A discussion
of certain principal differences in risks, as a result of the differing
techniques utilized by Balanced Fund and Global Allocation (described in
"Comparison of the Funds--Investment Objectives and Policies") follows. As a
result of these differences, an investment in Global Allocation may be subject
to greater risk than an investment in Balanced Fund.
Investments in Foreign and Emerging Markets. There are no restrictions on the
percentage of Global Allocation's total assets that may be invested in foreign
securities. Balanced Fund may not invest more than 20% of its total assets in
foreign securities. Therefore, the risks of investing in foreign securities may
be more pronounced for Global Allocation than for Balanced Fund. Foreign
companies are not generally subject to uniform accounting, auditing and
financial standards and requirements comparable to those applicable to U.S.
companies. Foreign securities exchanges, brokers and listed companies may be
subject to less government supervision and regulation than exists in the United
States. Dividend and interest income may be subject to withholding and other
foreign taxes which may adversely affect the net return on such investments. In
addition, with respect to certain countries, there are risks of expropriation,
confiscatory taxation, political or social instability or diplomatic
developments which could affect assets of a Fund held in foreign countries.
There may be less publicly available information about a foreign company than
a U.S. company. Foreign securities markets may have substantially less volume
than U.S. securities markets and some foreign company securities are less
liquid and more volatile than comparable securities of U.S. companies. A
portfolio of foreign securities may also be adversely affected by fluctuations
in the rates of exchange between the currencies of different nations and by
exchange control regulations. Foreign markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have failed to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended securities purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of a
portfolio security due to settlement problems could result either in losses to
a Fund due to subsequent declines in value of such portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
In addition, the operating expense ratios of Global Allocation and Balanced
Fund can be expected to be higher than that of investment companies investing
exclusively in U.S. securities because expenses of Funds, such as custodial
costs, are higher. To the extent Global Allocation may invest more of its
assets in foreign securities than does Balanced Fund, its operating expenses
directly related to such investments may, as a result, be higher than those of
Balanced Fund.
Fixed Income Securities. Securities rated in the top four ratings categories
by either Moody's or S&P (i.e., rated Aaa, Aa, A or Baa by Moody's or AAA, AA,
A or BBB by S&P) are considered to be "investment grade." Global Allocation is
authorized to invest in debt securities of governmental issuers and of
corporate issuers, including convertible debt securities, which are rated BBB
or better by S&P or Baa or better by Moody's or in unrated securities which, in
MLAM's judgment, possess similar credit characteristics. Balanced Fund may only
invest in fixed income securities rated Aa or better by Moody's or AA or better
by S&P, or determined by MLAM to be of comparable quality. Although debt
securities ranked in the fourth highest rating category by either S&P or
Moody's are considered to be investment grade, they have more speculative
characteristics and are more likely to be downgraded than securities rated in
the three highest rating categories.
Global Allocation is also authorized to invest up to 35% of its portfolio in
fixed income securities of governmental issuers and of corporate issuers rated
below investment grade by a nationally recognized statistical rating
organization or in unrated securities which, in MLAM's judgment, possess
similar credit
11
<PAGE>
characteristics ("high yield" or "junk" bonds). Balanced Fund may not invest in
high yield bonds. Investment in high yield bonds involves substantial risk.
These securities are predominantly speculative with respect to capacity to pay
interest and to repay principal in accordance with the terms of the security
and generally involve greater volatility of price than securities in higher
ratings categories. See "Comparison of the Funds--Investment Objectives and
Policies--Risks Associated with Investments in Certain Fixed Income
Securities."
It is anticipated that, except under unusual circumstances, Balanced Fund
will maintain at least 25% of the value of its assets in fixed income senior
securities. Global Allocation has no policy specifying that a percentage of its
assets must be invested in fixed income senior securities.
Non-Diversified Status. Balanced Fund is organized as a diversified
investment company. Global Allocation is organized as a non-diversified
investment company. As a non-diversified investment company, Global Allocation
is not subject to the general limitation of diversified companies that, with
respect to 75% of its assets, it not invest more than 5% of its total assets in
the securities of any one issuer (excluding U.S. Government securities) or
purchase more than 10% of the voting securities of any one issuer (excluding
U.S. Government securities). To the extent Global Allocation may therefore make
additional investments in excess of 5% of its assets in particular issuers or
take greater than 10% voting positions in particular issuers, its exposure to
credit and market risks associated with such issuers may be greater than that
to which a more widely diversified fund such as Balanced Fund would be subject.
However, Global Allocation'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 (the "Code"). See "Comparison of the
Funds--Other Investment Policies."
12
<PAGE>
COMPARISON OF THE FUNDS
FINANCIAL HIGHLIGHTS
Global Allocation. The financial information in the table below, except for
the nine months ended July 31, 1995 which is unaudited and has been provided by
MLAM, has been audited in conjunction with the annual audit of the financial
statements of the Fund by Deloitte & Touche LLP, independent auditors.
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------
FOR THE
NINE MONTHS FOR THE YEAR ENDED OCTOBER 31,
ENDED ------------------------------------------------ FOR THE PERIOD
JULY 31, 1995++ FEB. 3, 1989+
(UNAUDITED) 1994 1993 1992 1991 1990 TO OCT. 31, 1989
--------------- ---------- -------- -------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN NET
ASSET VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period........... $ 13.07 $ 13.52 $ 11.92 $ 12.16 $ 10.37 $ 10.79 $ 10.00
---------- ---------- -------- -------- ------- ------- -------
Investment
income--net..... .60 .60 .39 .36 .55 .60 .45
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions--
net............. .90 (.31) 2.14 .89 2.24 (.16) .48
---------- ---------- -------- -------- ------- ------- -------
Total from
investment
operations....... 1.50 .29 2.53 1.25 2.79 .44 .93
---------- ---------- -------- -------- ------- ------- -------
Less dividends
and
distributions:
Investment
income--net..... (.39) (.51) (.81) (.89) (.45) (.66) (.14)
Realized gain on
investments--
net............. (.30) (.23) (.12) (.60) (.55) (.20) --
---------- ---------- -------- -------- ------- ------- -------
Total dividends
and
distributions.... (.69) (.74) (.93) (1.49) (1.00) (.86) (.14)
---------- ---------- -------- -------- ------- ------- -------
Net asset value,
end of period.... $ 13.88 $ 13.07 $ 13.52 $ 11.92 $ 12.16 $ 10.37 $ 10.79
========== ========== ======== ======== ======= ======= =======
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share............ 12.15++ 2.14% 22.61% 11.78% 28.89% 3.91% 9.34%++
========== ========== ======== ======== ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding account
maintenance and
distribution
fees............. .90%* .89% .93% 1.07% 1.29% 1.29% 1.37%*
========== ========== ======== ======== ======= ======= =======
Expenses......... .90%* .89% .93% 1.07% 1.29% 1.29% 1.37%*
========== ========== ======== ======== ======= ======= =======
Investment
income--net...... 6.22%* 4.60% 3.90% 10.82% 8.96% 4.37% 5.31%*
========== ========== ======== ======== ======= ======= =======
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)....... $1,472,359 $1,357,906 $917,806 $245,839 $72,702 $49,691 $47,172
========== ========== ======== ======== ======= ======= =======
Portfolio
turnover......... 27.84% 57.04% 50.35% 59.56% 81.21% 129.51% 88.59%
========== ========== ======== ======== ======= ======= =======
<CAPTION>
CLASS B
---------------------------------------------------------------------------------------
FOR THE
NINE MONTHS FOR THE YEAR ENDED OCTOBER 31,
ENDED ----------------------------------------------------- FOR THE PERIOD
JULY 31, 1995++ FEB. 3, 1989+
(UNAUDITED) 1994 1993 1992 1991 1990 TO OCT. 31, 1989
---------------- ----------- ----------- --------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN NET
ASSET VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period........... $ 12.91 $ 13.38 $ 11.83 $ 12.10 $ 10.33 $ 10.73 $ 10.00
---------------- ----------- ----------- --------- --------- --------- ----------------
Investment
income--net..... .49 .46 .28 .22 .44 .49 .38
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions--
net............. .88 (.31) 2.11 .91 2.22 (.16) .47
---------------- ----------- ----------- --------- --------- --------- ----------------
Total from
investment
operations....... 1.37 .15 2.39 1.13 2.66 .33 .85
---------------- ----------- ----------- --------- --------- --------- ----------------
Less dividends
and
distributions:
Investment
income--net..... (.26) (.39) (.72) (.80) (.34) (.53) (.12)
Realized gain on
investments--
net............. (.30) (.23) (.12) (.60) (.55) (.20) --
---------------- ----------- ----------- --------- --------- --------- ----------------
Total dividends
and
distributions.... (.56) (.62) (.84) (1.40) (.89) (.73) (.12)
---------------- ----------- ----------- --------- --------- --------- ----------------
Net asset value,
end of period.... $ 13.72 $ 12.91 $ 13.38 $ 11.83 $ 12.10 $ 10.33 $ 10.73
================ =========== =========== ========= ========= ========= ================
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share............ 11.19%++ 1.13% 21.42% 10.64% 27.48% 2.93% 8.50%++
================ =========== =========== ========= ========= ========= ================
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding account
maintenance and
distribution
fees............. .92%* .91% .95% 1.09% 1.31% 1.31% 1.40%*
================ =========== =========== ========= ========= ========= ================
Expenses......... 1.92%* 1.91% 1.95% 2.09% 2.31% 2.31% 2.40%*
================ =========== =========== ========= ========= ========= ================
Investment
income--net...... 5.19%* 3.58% 2.87% 11.95% 7.98% 3.35% 4.29%*
================ =========== =========== ========= ========= ========= ================
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)....... $6,568,795 $6,457,130 $4,299,545 $958,949 $161,328 $115,682 $113,649
================ =========== =========== ========= ========= ========= ================
Portfolio
turnover......... 27.84% 57.04% 50.35% 59.56% 81.21% 129.51% 88.59%
================ =========== =========== ========= ========= ========= ================
</TABLE>
- ----
+ Commencement of Operations.
++ Aggregate total investment return.
* Annualized.
** Total investment returns exclude the effects of sales loads.
++Based on average outstanding shares during the period.
13
<PAGE>
GLOBAL ALLOCATION--FINANCIAL HIGHLIGHTS (CONCLUDED)
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
CLASS C CLASS D
--------------------------------- ---------------------------------
FOR THE NINE FOR THE NINE
MONTHS ENDED FOR THE PERIOD MONTHS ENDED FOR THE PERIOD
JULY 31, 1995++ OCT. 21, 1994+ JULY 31, 1995++ OCT. 21, 1994+
(UNAUDITED) TO OCT. 31, 1994 (UNAUDITED) TO OCT. 31, 1994
--------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING PER-
FORMANCE:
Net asset value, begin-
ning of period......... $ 12.91 $12.91 $ 13.08 $13.07
------- ------ -------- ------
Investment income--net. .50 .01 .59 .01
Realized and unrealized
gain (loss) on
investments and
foreign currency
transactions--net..... .87 (.01) .87 --
------- ------ -------- ------
Total from investment
operations............. 1.37 -- 1.46 .01
------- ------ -------- ------
Less dividends and dis-
tributions:
Investment income--net. (.33) -- (.37) --
Realized gain on in-
vestments--net........ (.30) -- (.30) --
------- ------ -------- ------
Total dividends and dis-
tributions............. (.63) -- (.67) --
------- ------ -------- ------
Net asset value, end of
period................. $ 13.65 $12.91 $ 13.87 $13.08
======= ====== ======== ======
TOTAL INVESTMENT RE-
TURN:**
Based on net asset value
per share.............. 11.22%++ .00%++ 11.85%++ .08%++
======= ====== ======== ======
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding ac-
count maintenance and
distribution fees...... .94%* 1.44%* .90%* 1.44%*
======= ====== ======== ======
Expenses................ 1.94%* 2.44%* 1.15%* 1.69%*
======= ====== ======== ======
Investment income--net.. 5.16%* 3.71%* 5.95%* 4.46%*
======= ====== ======== ======
SUPPLEMENTAL DATA:
Net assets, end of pe-
riod (in thousands).... $73,767 $7,347 $213,093 $4,968
======= ====== ======== ======
Portfolio turnover...... 27.84% 57.04% 27.84% 57.04%
======= ====== ======== ======
</TABLE>
- --------
+ Commencement of Operations.
++ Aggregate total investment return.
* Annualized.
** Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding during the period.
14
<PAGE>
Balanced Fund. The financial information in the table below has been audited
in conjunction with the annual audit of the financial statements of the Fund by
Deloitte & Touche LLP, independent auditors.
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, FOR THE PERIOD
--------------------------------------------------- OCT. 27, 1988+
1995++ 1994++ 1993 1992 1991 1990 TO SEPT. 30, 1989
------- ------- ------- ------- ------- ------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING PER-
FORMANCE:
Net asset value, begin-
ning of period......... $ 11.67 $ 13.02 $ 12.57 $ 11.94 $ 10.61 $11.93 $11.18
------- ------- ------- ------- ------- ------ ------
Investment income--net. .32 .32 .43 .47 .70 .64 .24
Realized and unrealized
gain (loss) on invest-
ments and foreign cur-
rency transac-
tions(1)--net......... .88 (.07) 1.29 .61 1.63 (1.41) 1.42
------- ------- ------- ------- ------- ------ ------
Total from investment
operations............. 1.20 .25 1.72 1.08 2.33 (.77) 1.66
------- ------- ------- ------- ------- ------ ------
Less dividends and dis-
tributions:
Investment income--net. (.34) (.37) (.39) (.45) (.62) (.55) (.90)
Realized gain on in-
vestments--net........ (.97) (1.23) (.88) -- (.38) -- (.01)
------- ------- ------- ------- ------- ------ ------
Total dividends and dis-
tributions............. (1.31) (1.60) (1.27) (.45) (1.00) (.55) (.91)
------- ------- ------- ------- ------- ------ ------
Net asset value, end of
period................. $ 11.56 $ 11.67 $ 13.02 $ 12.57 $ 11.94 $10.61 $11.93
======= ======= ======= ======= ======= ====== ======
TOTAL INVESTMENT RE-
TURN:**
Based on net asset value
per share.............. 11.86% 1.81% 14.62% 9.23% 23.14% (6.86)% 15.54%++
======= ======= ======= ======= ======= ====== ======
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ 1.01% .83% .83% .81% .85% .83% .78%*
======= ======= ======= ======= ======= ====== ======
Investment income--net.. 2.93% 2.68% 3.09% 3.18% 3.64% 5.12% 4.23%*
======= ======= ======= ======= ======= ====== ======
SUPPLEMENTAL DATA:
Net assets, end of pe-
riod (in thousands).... $30,485 $39,963 $40,688 $20,320 $12,839 $4,511 $2,080
======= ======= ======= ======= ======= ====== ======
Portfolio turnover...... 86.33% 59.15% 79.55% 65.40% 173.76% 163.56% 175.47%
======= ======= ======= ======= ======= ====== ======
</TABLE>
- --------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Aggregate total investment return.
++Based on average outstanding shares during the period.
(1) Foreign currency transaction amounts have been reclassified to conform to
the 1994 presentation.
15
<PAGE>
BALANCED FUND--FINANCIAL HIGHLIGHTS (CONTINUED)
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------------------------------------
FOR THE
FOR THE YEAR ENDED SEPTEMBER 30, PERIOD
-------------------------------------------------------------------------------------------------- NOV. 29,
1985+ TO
SEPT. 30,
1995++ 1994++ 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN NET
ASSET VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period........... $ 11.75 $ 13.09 $ 12.62 $ 11.99 $ 10.60 $ 11.91 $ 10.94 $ 12.54 $ 11.17 $ 10.00
-------- -------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------
Investment
income--net..... .21 .20 .24 .29 .39 .50 .53 .57 .39 .25
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions(1)--
net............. .90 (.07) 1.37 .66 1.83 (1.39) 1.25 (1.40) 1.64 .98
-------- -------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------
Total from
investment
operations....... 1.11 .13 1.61 .95 2.22 (.89) 1.78 (.83) 2.03 1.23
-------- -------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------
Less dividends and
distributions:
Investment
income--net..... (.14) (.24) (.26) (.32) (.45) (.42) (.80) (.55) (.38) (.06)
Realized gain on
investments--
net............. (.97) (1.23) (.88) -- (.38) -- (.01) (.22) (.28) --
-------- -------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------
Total dividends
and
distributions.... (1.11) (1.47) (1.14) (.32) (.83) (.42) (.81) (.77) (.66) (.06)
-------- -------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------
Net asset value,
end of period.... $ 11.75 $ 11.75 $ 13.09 $ 12.62 $ 11.99 $ 10.60 $ 11.91 $ 10.94 $ 12.54 $ 11.17
======== ======== ======== ======== ======== ========== ========== ========== ========== ==========
TOTAL INVESTMENT
RETURN:**
Based on net asset
value per share.. 10.80% .76% 13.49% 8.01% 21.91% (7.79)% 16.93% (6.36)% 18.98% 12.29%++
======== ======== ======== ======== ======== ========== ========== ========== ========== ==========
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding account
maintenance and
distribution
fees............. 1.04% .86% .85% .85% .90% .86% .84% .82% .73% .82%*
======== ======== ======== ======== ======== ========== ========== ========== ========== ==========
Expenses.......... 2.04% 1.86% 1.85% 1.85% 1.90% 1.86% 1.84% 1.82% 1.73% 1.82%*
======== ======== ======== ======== ======== ========== ========== ========== ========== ==========
Investment
income--net...... 1.90% 1.65% 1.99% 2.10% 3.37% 3.90% 3.73% 4.66% 3.60% 4.23%*
======== ======== ======== ======== ======== ========== ========== ========== ========== ==========
SUPPLEMENTAL DATA:
Net assets, end of
period (in
thousands)....... $152,121 $709,836 $830,955 $886,920 $986,895 $1,171,567 $1,735,873 $2,264,429 $3,384,647 $2,065,752
======== ======== ======== ======== ======== ========== ========== ========== ========== ==========
Portfolio
turnover......... 86.33% 59.15% 79.55% 65.40% 173.76% 163.56% 175.47% 239.78% 145.17% 143.78%
======== ======== ======== ======== ======== ========== ========== ========== ========== ==========
</TABLE>
- --------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Aggregate total investment return.
++Based on average outstanding shares during the period.
(1) Foreign currency transaction amounts have been reclassified to conform to
the 1994 presentation.
16
<PAGE>
BALANCED FUND--FINANCIAL HIGHLIGHTS (CONCLUDED)
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
FOR THE PERIOD
OCT. 21, 1994+ TO
SEPT. 30, 1995++
---------------------
CLASS C CLASS D
-------- ---------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $ 11.74 $ 11.66
------- ---------
Investment income--net................................ .19 .27
Realized and unrealized gain on investments and for-
eign currency transactions--net...................... .92 .90
------- ---------
Total from investment operations....................... 1.11 1.17
------- ---------
Less dividends and distributions:
Investment income--net................................ (.28) (.32)
Realized gain on investments--net..................... (.97) (.97)
------- ---------
Total dividends and distributions...................... (1.25) (1.29)
------- ---------
Net asset value, end of period......................... $ 11.60 $ 11.54
======= =========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share..................... 10.93%++ 11.62%++
======= =========
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account maintenance and distribu-
tion fees............................................. 1.04%* 1.02%*
======= =========
Expenses............................................... 2.04%* 1.27%*
======= =========
Investment income--net................................. 1.94%* 2.68%*
======= =========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............... $ 1,154 $ 467,546
======= =========
Portfolio turnover..................................... 86.33% 86.33%
======= =========
</TABLE>
- --------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
++Based on average shares outstanding during the period.
17
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Investment Objective. The investment objectives of Balanced Fund and Global
Allocation are similar, though not identical. Balanced Fund seeks to provide
shareholders with as high a level of total investment return as is consistent
with a reasonable and relatively low level of risk. Global Allocation seeks to
provide a high total investment return, consistent with prudent risk.
There can be no assurance that, after the Reorganization, Global Allocation
will achieve its investment objective.
Investment Policies Generally. Balanced Fund seeks to achieve its objective
through a policy of investing in common stocks and other types of securities,
including fixed income securities (preferred stock and debt securities) and
convertible securities. Global Allocation seeks to achieve its objective
through a fully-managed investment policy utilizing United States and foreign
equity, debt and money market securities.
It is anticipated that ordinarily, Balanced Fund's emphasis on current income
and capital appreciation will be relatively equal. However, Balanced Fund may
vary its emphasis between these two elements as market or economic conditions
change. Similarly, Global Allocation may vary its emphasis on current income
and capital appreciation by varying the combination of United States and
foreign equity, debt and money market securities in its portfolio in response
to changing market and economic trends. This approach provides Global
Allocation with the opportunity to benefit from unanticipated shifts in the
relative performance of different types of securities and different capital
markets. There are no restrictions on the investment ratio between debt, equity
and money market securities in which Global Allocation may invest. Except under
unusual circumstances, Balanced Fund will maintain at least 25% of the value of
its assets in fixed income senior securities.
To reduce overall exposure to risk, each Fund may spread its investments over
many different companies in a variety of industries. However, neither Fund may
invest more than 25% of its assets, taken at market value, in the securities of
any particular industry (excluding U.S. Government securities and its agencies
and instrumentalities).
MLAM believes that the securities currently held in the Balanced Fund
portfolio are consistent with the investment objectives and policies of Global
Allocation and are not prohibited by the investment restrictions of Global
Allocation. Global Allocation has no plan or intention to sell or otherwise
dispose of any of the assets of Balanced Fund acquired in the Reorganization,
except for dispositions made in the ordinary course of business.
A more specific comparison of the investment policies of Balanced Fund and
Global Allocation follows.
Equity Securities. The common stocks through which Balanced Fund seeks to
achieve its investment objective are high quality larger capitalization common
stocks. Common stock investments of Balanced Fund will emphasize issues with
relatively low price/earnings ratios, above average dividend yields, and
relatively low price to book value ratios, as compared to prevailing market
conditions. In seeking to identify "high quality" companies, particular
emphasis is placed by management on common stocks of companies which are
believed to have internal strengths, such as good financial resources,
satisfactory rate of return on capital, a good industry position and superior
management skills.
Within the portion of Global Allocation's portfolio allocated to equity
securities, MLAM seeks to identify the securities of companies and industry
sectors which are expected to provide high total return relative to alternative
equity investments. Global Allocation generally seeks to invest in securities
that MLAM believes to be undervalued. Such undervalued issues include (i)
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, (ii) securities selling at a discount from their historic price-to-
book value or price/earnings ratio, even though these ratios may be above the
ratios for the stock market averages, and (iii) securities offering dividend
yields higher than the yields for the relevant stock market averages or higher
than such securities' historic yield. Global Allocation 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
18
<PAGE>
characterized by rapid historical growth rates, above-average returns on equity
or special investment values in their products or services, research
capabilities or other attributes. MLAM will seek to identify for investment by
Global Allocation those small and emerging growth companies that possess
superior management, marketing ability, research and product development skills
and sound balance sheets.
Fixed Income Securities. Like Balanced Fund, Global Allocation may invest in
both preferred stock and debt securities. The debt securities in which both
Global Allocation and Balanced Fund may invest include securities issued or
guaranteed by the U.S. Government and its agencies or instrumentalities, debt
obligations issued by U.S. and foreign entities, mortgage-backed securities
issued or guaranteed by governmental entities or by private issuers, securities
issued by foreign governments (including foreign states, provinces and
municipalities) and agencies or instrumentalities thereof and 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).
Balanced Fund and Global Allocation have different rating criteria for the
debt securities in which they may invest. Balanced Fund may only invest in
instruments which are rated in the top two categories by Moody's or S&P (i.e.,
rated Aa or better by Moody's or AA or better by S&P) or which are determined
by MLAM to be of quality comparable to instruments so rated. Global Allocation
is authorized to invest in debt securities of governmental issuers and of
corporate issuers including convertible debt securities, rated in the top four
categories by Moody's or S&P (i.e., rated BBB or better by S&P or Baa or better
by Moody's), or in unrated securities which, in MLAM's judgment, possess
similar credit characteristics. Global Allocation is also authorized to invest
up to 35% of its assets in fixed income securities of governmental issuers and
of corporate issuers rated below investment grade (i.e., rated below the top
four ratings categories) by a nationally recognized statistical rating
organization or in unrated securities which, in MLAM's judgment, possess
similar credit characteristics ("high yield" or "junk" bonds). Global
Allocation 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 MLAM 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.
It is anticipated that, except under unusual circumstances, Balanced Fund
will maintain at least 25% of the value of its assets in fixed income senior
securities. Global Allocation has no policy specifying that a percentage of its
assets must be invested in fixed income senior securities.
Risks Associated With Investments in Certain Fixed Income Securities. As
discussed above, Global Allocation is permitted to invest up to 35% of its
assets in high yield bonds. Such securities are considered 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.
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
19
<PAGE>
senior security holders. While the high yield bonds in which Global Allocation
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 Global Allocation receives for its high yield bonds to be reduced,
or Global Allocation may experience difficulty in liquidating a portion of its
portfolio. Under such conditions, judgment may play a greater role in valuing
certain of the Global Allocation portfolio securities than in the case of
securities trading in a more liquid market.
As discussed above, each Fund may invest in mortgage-related securities and
obligations of foreign government entities. Investment in these securities
involves certain risks. For a discussion of these risks, see "Investment
Objective and Policies--Debt Securities" in the Global Allocation Prospectus.
To the extent each Fund invests in fixed income securities, its respective
net asset value will be affected by the general level of interest rates.
Foreign Securities. In furtherance of efforts to reduce overall exposure to
investment and income risk through adequate diversification of its portfolio,
Balanced Fund may invest up to 20% of its total assets in foreign securities.
Global Allocation may invest an unlimited amount of its assets in foreign
securities.
There are no prescribed limits on the geographical allocation of the foreign
assets held by either Balanced Fund or Global Allocation. Balanced Fund has
made substantial investments in securities of issuers in Latin America, the Far
East and lesser developed capital markets. It is anticipated that Global
Allocation will invest primarily in the securities of issuers domiciled or
located in the U.S., Canada, Western Europe and the Far East, and that a
portion of Global Allocation's assets normally will be invested in the U.S.
securities markets and the other major capital markets. Under normal
conditions, Global Allocation's investments will be denominated in at least
three currencies or multinational currency units. Global Allocation reserves
the right to invest substantially all of its assets in the U.S. market or U.S.
dollar-denominated obligations when MLAM believes market conditions warrant
such investment.
In selecting securities denominated in foreign currencies for investment by
Global Allocation, MLAM will consider, among other factors, the effect of
movement in currency exchange rates on the U.S. dollar value of such
securities.
Money Market Securities. Each Fund may invest in money market securities.
Balanced Fund reserves the right to invest all or a portion of its assets in
money market securities for purposes of enhancing liquidity and avoiding the
effects of declining securities prices when it seems advisable to do so in
light of prevailing market or economic conditions. Global Allocation may invest
in money market securities in furtherance of achieving its investment objective
of high total investment return.
Specifically, Balanced Fund may invest in high quality money market
securities (such as U.S. Treasury bills, certificates of deposit issued by U.S.
banks having more than $1 billion in assets, commercial paper and repurchase
agreements with respect to U.S. Government securities and U.S. Government
agency securities). In addition, Balanced Fund may invest only in commercial
paper that is rated A-1 or A-2 by S&P, or P-1 or
20
<PAGE>
P-2 by Moody's, or, if not rated, issued by companies having an outstanding
debt issue rated A or better by S&P, or A or better by Moody's.
Global Allocation may invest in 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 $1 billion. 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).
Real Estate-Related Securities. Global Allocation may invest in real estate-
related securities. Balanced Fund generally does not invest in such securities,
although it is not prohibited from doing so. Real estate-related securities
which are emphasized by Global Allocation 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 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. Global Allocation may invest in indexed and
inverse securities. Balanced Fund generally does not invest in such securities,
although it is not prohibited from doing so. Indexed securities are securities
whose potential investment return is based on the change in particular
measurements of value and/or rate (an "index"). As an illustration, the 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, Global
Allocation may invest in securities whose potential investment return is
inversely based on the change in particular indices. For example, Global
Allocation 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 Global
Allocation 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.
MLAM believes that indexed securities, including inverse securities, represent
flexible portfolio management instruments that may allow Global Allocation to
seek potential investment rewards, hedge other portfolio positions, or vary the
degree of portfolio leverage relatively efficiently under different market
conditions.
Precious Metal-Related Securities. Global Allocation may invest in precious
metal-related securities. Balanced Fund generally does not invest in such
securities, although it is not prohibited from doing so. For a description of
precious metal-related securities, as well as a discussion of the risks
associated with investment therein, see "Investment Objective and Policies--
Equity Securities" in the Global Allocation Prospectus.
21
<PAGE>
OTHER INVESTMENT POLICIES
Both Balanced Fund and Global Allocation have adopted certain other
investment policies as set forth below:
Borrowings. Notwithstanding a less restrictive fundamental policy permitting
borrowings of up to 33 1/3% of total assets, as a matter of operating policy,
neither Fund is permitted to borrow amounts in excess of 10% of its total
assets, taken at market value. Furthermore such borrowings may be made only
from banks as a temporary measure for extraordinary or emergency purposes such
as redemption of Fund shares. Neither Fund will purchase securities while
borrowings exceed 5% (taken at market value) of its total assets.
Non-Diversified Status. Global Allocation is classified as "non-diversified"
within the meaning of the Investment Company Act, which means that the Fund is
not limited by such Act in (i) the percentage of its total assets that it may
invest in securities of a single issuer (excluding U.S. Government securities)
or (ii) the amount of voting securities of a single issuer (excluding U.S.
Government securities) that it may purchase. However, the Fund's investments
will be limited so as to qualify for the special treatment afforded regulated
investment companies under the Code. To qualify, among other requirements,
Global Allocation will limit its investments so that, at the close of each
quarter of the taxable year, (i) not more than 25% of the market value of the
Fund's total assets will be invested in the securities of a single issuer, and
(ii) with respect to 50% of the market value of its total assets, (a) not more
than 5% of the market value of its total assets will be invested in the
securities of a single issuer, and (b) the Fund will not own more than 10% of
the outstanding voting securities of a single issuer. As in the case of the
Investment Company Act requirements discussed above, investment in the
securities of the U.S. Government, its agencies and instrumentalities are not
included within the definition of "issuer" for purposes of the diversification
requirements of the Code. Balanced 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 Global Allocation assumes large positions in the securities of a small
number of issuers, the Fund's yield may fluctuate to a greater extent than that
of a diversified company as a result of changes in the financial condition or
in the market's assessment of the issuers.
Standby Commitment Agreements. Each Fund may from time to time enter into
standby commitment agreements. For a description of standby commitment
agreements and the risks associated with investment therein, see "Investment
Objective and Policies--Other Investment Policies and Practices" in the Global
Allocation Prospectus.
Repurchase Agreements. Each Fund may enter into repurchase agreements. For a
description of repurchase agreements and the risks associated with investment
therein, see "Investment Objective and Policies--Other Investment Policies and
Practices" in the Global Allocation Prospectus.
When-Issued Securities and Delayed Delivery Transactions. Each Fund may
purchase or sell securities on a delayed delivery basis or on a when-issued
basis at fixed purchase or sale terms. For a description of when-issued
securities and delayed delivery transactions, including the risks associated
with investment therein, see "Investment Objective and Policies--Other
Investment Policies and Practices" in the Global Allocation Prospectus.
Lending of Portfolio Securities. Each 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.
INFORMATION REGARDING FUTURES AND OPTIONS TRANSACTIONS
Each Fund may engage in various portfolio strategies to seek to increase its
return through the use of options on portfolio securities and to hedge its
portfolio against movements in the equity, debt and currency markets. Each Fund
has authority to write (i.e., sell) covered call options on its portfolio
securities, purchase
22
<PAGE>
put options on securities and engage in transactions in stock index options,
stock index futures and financial futures, and related options on such futures.
Each Fund may also deal in forward foreign exchange transactions and foreign
currency options and futures, and related options on such futures. In addition,
Global Allocation may write covered put options and purchase call options;
Balanced Fund may not engage in such transactions.
Certain differences exist with respect to each Fund's ability to engage in
the foregoing strategies. Specifically, Balanced Fund may not write covered
call options on underlying securities in an amount exceeding 25% of the market
value of its total assets. Global Allocation has no percentage limitation on
its ability to write covered call options.
The investment policies of each Fund with respect to futures and options
transactions are not fundamental policies and may be modified by the Board of
Directors of each Fund without the approval of the Fund's shareholders. Each
Fund is subject to the restrictions of the Commodity Futures Trading Commission
with respect to its investments in futures and options thereon.
For a detailed discussion of the Funds' investment policies regarding futures
and options, including the risks associated therewith, see "Investment
Practices and Restrictions--Portfolio Strategies Involving Options and Futures"
in the Balanced Fund Prospectus and "Investment Objective and Policies--
Portfolio Strategies Involving Options and Futures" in the Global Allocation
Prospectus.
INVESTMENT RESTRICTIONS
Other than as noted above under "Comparison of the Funds--Investment
Objectives and Policies," Balanced Fund and Global Allocation have identical
investment restrictions. See, "Investment Objective and Policies--Other
Investment Policies and Practices--Investment Restrictions" in the Global
Allocation Statement and "Investment Practices and Restrictions--Other
Investment Policies and Practices--Investment Restrictions" in the Balanced
Fund Statement.
MANAGEMENT
Directors. The Board of Directors of Global Allocation consists of six
individuals, five of whom are not "interested persons" as defined in the
Investment Company Act. The Directors are responsible for the overall
supervision of the operation of Global Allocation and perform the various
duties imposed on the directors of investment companies by the Investment
Company Act. Arthur Zeikel is a Director of both Global Allocation and Balanced
Fund. There is otherwise no overlap between the Boards of the Funds.
The Directors of Global Allocation are:
Arthur Zeikel*--President of MLAM and Fund Asset Management, L.P.; President
and Director of Princeton Services, Inc.; Executive Vice President of Merrill
Lynch & Co. Inc. ("ML & Co."); Executive Vice President of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"); Director of Merrill
Lynch Funds Distributor, Inc.
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.
23
<PAGE>
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.
Management and Advisory Arrangements. MLAM serves as the investment adviser
for both Balanced Fund and Global Allocation pursuant to separate investment
advisory agreements (each, an "Advisory Agreement") that, except for their fee
structures and certain minor differences, are identical.
MLAM is paid a monthly advisory fee by each Fund based upon the average
daily value of each Fund's net assets at the following annual rates:
BALANCED FUND GLOBAL ALLOCATION
0.65% of average daily net assets 0.75% of average daily net assets.
not exceeding $500 million; 0.60% of (However, MLAM has voluntarily
average daily net assets exceeding agreed to waive a portion of its
$500 million but not exceeding $1.5 management fee so that such fee is
billion; 0.55% of average daily net equal to 0.75% of average daily net
assets exceeding $1.5 billion but assets not exceeding $2.5 billion;
not exceeding $2.5 billion; 0.50% of 0.70% of average daily net assets
average daily net assets exceeding exceeding $2.5 billion but not
$2.5 billion but not exceeding $3.5 exceeding $5.0 billion; 0.65% of
billion; and 0.45% of average daily average daily net assets exceeding
net assets exceeding $3.5 billion. $5.0 billion but not exceeding $7.5
billion; 0.625% of average daily net
assets exceeding $7.5 billion but
not exceeding $10 billion; and 0.60%
of average daily net assets
exceeding $10 billion.)
MLAM has entered into a sub-advisory agreement (the "Sub-Advisory
Agreement") with MLAM U.K., an indirect, wholly-owned subsidiary of ML & Co.
and an affiliate of MLAM, pursuant to which MLAM pays MLAM U.K. a fee computed
at the rate of 0.10% of the average daily net assets of Global Allocation for
providing investment advisory services to MLAM with respect to Global
Allocation. The address of MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y
9HA, England. No sub-adviser has been retained in connection with management
of Balanced Fund's assets.
Although after the Reorganization on a pro forma combined basis, Global
Allocation will pay an advisory fee to MLAM at a higher annual effective rate
than that currently paid by Balanced Fund, given the economies of scale that
may result from the Reorganization and the overall lower expense ratio of
Global Allocation following the Reorganization (on a pro forma basis) compared
to that of Balanced Fund, the Board of Directors of Balanced Fund has
determined that the Reorganization would be potentially beneficial to Balanced
Fund and its shareholders. See "The Reorganization--Potential Benefits to
Balanced Fund Shareholders as a Result of the Reorganization" and "Summary--
Pro Forma Fee Tables."
PURCHASE OF SHARES
The class structure and purchase and distribution procedures for shares of
Balanced Fund are identical to those of Global Allocation. For a complete
discussion of the four classes of shares and the purchase and distribution
procedures related thereto, see "Merrill Lynch Select Pricing SM System" and
"Purchase of Shares" in either the Global Allocation Prospectus or the
Balanced Fund Prospectus.
REDEMPTION OF SHARES
The procedure for redeeming shares of Global Allocation is identical to the
procedure for redeeming shares of Balanced Fund. For purposes of computing any
CDSC that may be payable upon disposition of Corresponding Shares of Global
Allocation acquired by Balanced Fund shareholders in the Reorganization, the
holding period of Balanced Fund shares outstanding on the date the
Reorganization takes place will be tacked onto the holding period of the
Corresponding Shares of Global Allocation acquired in the Reorganization.
24
<PAGE>
PERFORMANCE
General. The following tables provide performance information for each class
of shares of Balanced Fund and Global Allocation, including and excluding
maximum applicable sales charges, for the periods indicated. Past performance
is not indicative of future performance.
BALANCED FUND
AVERAGE ANNUAL TOTAL RETURN (%)
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES*** CLASS D SHARES***
--------------- ----------------- ------------------- -------------------
WITHOUT WITH WITHOUT WITH
SALES SALES WITHOUT WITH WITHOUT WITH SALES SALES
PERIOD CHARGE CHARGE* CDSC CDSC* CDSC CDSC* CHARGE CHARGE*
- ------ ------- ------- -------- ------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11 months ended
8/31/95+............... 9.44 3.70 8.44 4.48 8.63 7.65 9.20 3.47
Year Ended 8/31/95...... 7.33 1.69 6.27 2.39 N/A N/A N/A N/A
Five Years Ended
8/31/95................ 10.69 9.50 9.57 9.57 N/A N/A N/A N/A
Inception** through
8/31/95................ 9.39 8.53 8.43 8.43 N/A N/A N/A N/A
</TABLE>
- --------
* Assumes the maximum applicable sales charge. The maximum initial sales
charge on Class A and Class D shares is 5.25%. The maximum contingent
deferred sales charge ("CDSC") on Class B shares is 4% and is reduced to 0%
after 4 years. Class C shares are subject to a 1.0% CDSC for one year.
** Class A shares commenced operations on October 27, 1988. Class B shares
commenced operations on November 29, 1985. Class C and Class D shares
commenced operations on October 21, 1994.
*** Figures are since inception (October 21, 1994).
+ Aggregate total returns.
GLOBAL ALLOCATION
AVERAGE ANNUAL TOTAL RETURN (%)
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES*** CLASS D SHARES***
--------------- ---------------- ------------------ -------------------
WITHOUT WITH WITHOUT WITH
SALES SALES WITHOUT WITH WITHOUT WITH SALES SALES
PERIOD CHARGE CHARGE* CDSC CDSC* CDSC CDSC* CDSC CHARGE*
- ------ ------- ------- -------- ------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 months ended
8/31/95+............... 13.52 7.56 12.48 8.48 12.52 11.52 13.31 7.36
Year Ended 8/31/95...... 10.56 4.75 9.43 5.43 N/A N/A N/A N/A
Five Years Ended
8/31/95................ 15.24 14.01 14.07 14.07 N/A N/A N/A N/A
Inception** through
8/31/95................ 13.71 12.78 12.55 12.55 N/A N/A N/A N/A
</TABLE>
- --------
* Assumes the maximum applicable sales charge. The maximum initial sales
charge on Class A and Class D shares is 5.25%. The maximum CDSC on Class B
shares is 4% and is reduced to 0% after 4 years. Class C shares are subject
to a 1.0% CDSC for one year.
** Class A and Class B shares commenced operations on February 3, 1989. Class
C and Class D shares commenced operations on October 21, 1994.
*** Figures are since inception (October 21, 1994).
+ Aggregate total returns.
Balanced Fund--Management's Discussion of Fund Performance for the twelve
months ended September 30, 1995.
Both equity and fixed-income markets have continued to be volatile by
historic standards during the past year. Interest rates have been declining for
most of the year, justifying the more aggressive portfolio posture we assumed
from October 1994 through early July 1995, when we thought the bond market had
modestly overdone the advance fully justified by fundamentals. Our slight
decrease in bond holdings in July has had no net consequence to Balanced Fund's
performance, since interest rates on balance have been flat since then, but the
increased allocation to bonds in the fourth quarter of 1994 at the expense of
cash equivalents was both timely and beneficial.
25
<PAGE>
Equities were the investment of choice for the past year as the popular
indexes advanced about 25%. For most of the year the equity allocation
approached 62% of portfolio resources, which is 80% of the maximum permitted in
Balanced Fund. The equity selection was weighted heavily for most of the year
in favor of capital spending issues, including several communications equipment
manufacturers which did well late in 1994 and from the second quarter of 1995
onward. On the other hand, communications utilities did not contribute to
overall performance until late in the fiscal year and in a few instances
produced little net gain until the third quarter of 1995.
Cash equivalents were slightly above 7% of portfolio resources on average
during the year, which did not enhance total return, since equities produced a
substantially higher return than the approximate 6% yield achieved on liquid
short-term instruments.
Foreign fixed-income investments produced a modestly better return than their
United States counterparts, since the U.S. dollar was weak most of the year.
Non-U.S. equities, however, represented a substantial drag on portfolio return
especially in the early months of the fiscal year through February 1995. Our
earlier emphasis on developing markets that were priced at lower price/earnings
multiples than the United States while growing faster than the United States
proved unsuccessful when the U.S. dollar weakened and the flow of funds to
developing economies dried up. Since the first quarter, our non-U.S. equity
investments have been selected with emphasis on earnings growth and their
ability to sell across country borders, which has proven successful.
Performance data for Balanced Fund's Class A, Class B, Class C and Class D
shares for the period ended September 30, 1995 is set forth below. Additional
performance information is contained in "Comparison of the Funds--Performance--
General." None of the past results shown should be considered a representation
of future performance.
26
<PAGE>
BALANCED FUND--TOTAL RETURN BASED ON $10,000 INVESTMENT
-- CLASS A AND CLASS B SHARES
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
S & P 500/
Balanced Fund+ S & P 500 ML BOAO Blended
Class A Shares* Index++ Index+++
--------------- --------- ---------------
<S> <C> <C> <C>
10/27/88** $ 9,475 $10,000 $10,000
9/89 $10,948 $13,002 $11,977
9/90 $10,197 $11,795 $11,817
9/91 $12,556 $15,469 $14,597
9/92 $13,716 $17,178 $16,378
9/93 $15,721 $19,408 $18,382
9/94 $16,005 $20,127 $18,358
9/95 $17,903 $26,113 $22,392
<CAPTION>
S & P 500/
Balanced Fund+ S & P 500 ML BOAO Blended
Class B Shares* Index++ Index+++
--------------- --------- ---------------
<S> <C> <C> <C>
11/29/85** $10,000 $10,000 $10,000
10/86 $11,229 $11,751 $11,657
10/87 $13,361 $16,862 $14,164
10/88 $12,512 $14,813 $14,215
10/89 $14,630 $19,692 $17,366
10/90 $13,491 $17,865 $17,133
10/91 $16,447 $23,428 $21,164
10/92 $17,764 $26,017 $23,746
10/93 $20,161 $29,369 $26,653
10/94 $22,815 $30,484 $26,618
10/95 $22,509 $39,550 $32,466
</TABLE>
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of Operations.
+ Balanced Fund invests primarily in high-quality, larger-capitalization
common stocks and other types of securities, including fixed-income
securities and convertible securities.
++ This unmanaged broad-based Index is comprised of common stocks.
+++ This unmanaged Index, which is an equally weighted blend of the S&P 500
Index and the ML BOAO Index, is comprised of common stocks as well as
investment-grade bonds.
Past performance is not predictive of future performance.
BALANCED FUND--AVERAGE ANNUAL TOTAL RETURN--CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
% RETURN % RETURN
WITHOUT WITH
SALES CHARGE SALES CHARGE**
------------ --------------
<S> <C> <C>
CLASS A SHARES*
Year Ended 9/30/95................................... +11.86% + 5.99%
Five Years Ended 9/30/95............................. +11.92 +10.72
Inception (10/27/88)
through 9/30/95..................................... + 9.62 + 8.77
</TABLE>
- --------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
% RETURN % RETURN
WITHOUT WITH
CDSC CDSC**
-------- --------
<S> <C> <C>
CLASS B SHARES*
Year Ended 9/30/95...................................... +10.80% + 6.80%
Five Years Ended 9/30/95................................ +10.78 +10.78
Inception (11/29/85)
through 9/30/95........................................ + 8.59 + 8.59
</TABLE>
- --------
* Maximum CDSC is 4% and is reduced to 0% after 4 years.
** Assuming payment of applicable CDSC.
27
<PAGE>
BALANCED FUND--TOTAL RETURN BASED ON $10,000 INVESTMENT
-- CLASS C AND CLASS D SHARES
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
S & P 500/
Balanced Fund+ Balanced Fund+ S & P 500 ML BOAO Blended
Class C Shares* Class D Shares* Index++ Index+++
--------------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
10/21/94** $10,000 $ 9,475 $10,000 $10,000
9/95 $10,993 $10,576 $12,891 $12,163
</TABLE>
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of Operations.
+ Balanced Fund invests primarily in high-quality, larger-capitalization
common stocks and other types of securities, including fixed-income
securities and convertible securities.
++ This unmanaged broad-based Index is comprised of common stocks.
+++ This unmanaged Index, which is an equally weighted blend of the S&P 500
Index and the ML BOAO Index, is comprised of common stocks as well as
investment-grade bonds.
Past performance is not predictive of future performance.
BALANCED FUND--AGGREGATE TOTAL RETURN--CLASS C AND CLASS D SHARES
<TABLE>
<CAPTION>
% RETURN % RETURN
WITHOUT WITH
CDSC CDSC**
-------- --------
<S> <C> <C>
CLASS C SHARES*
Inception (10/21/94)
through 9/30/95....... +10.93% + 9.93%
</TABLE>
- --------
* Maximum CDSC is 1% and is reduced to 0% after 1 year.
** Assuming payment of applicable CDSC.
<TABLE>
<CAPTION>
% RETURN % RETURN
WITHOUT WITH
SALES CHARGE SALES CHARGE**
------------ --------------
<S> <C> <C>
CLASS D SHARES*
Inception (10/21/94)
through 9/30/95........ +11.62% + 5.76%
</TABLE>
- --------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
28
<PAGE>
Global Allocation--Management's Discussion of Fund Performance.
For the Nine Months Ended July 31, 1995.
For the nine months ended July 31, 1995, Global Allocation had total
investment returns of 12.1%, 11.2%, 11.2%, and 11.9%, for Class A, Class B,
Class C and Class D shares, respectively. (Fund results do not include sales
charges, and would be lower if sales charges were deducted.)
Throughout the fiscal nine months, Global Allocation was overweighted in
fixed income investments, relative to its reference portfolio. Conversely,
Global Allocation was underweighted in equities. This position was based upon
our view that bonds offered a better risk/return trade-off than stocks. As the
fiscal nine months began, bonds were depressed in price and were experiencing
their worst year of performance since World War II. Investors had pushed down
bond prices and demanded higher yields to compensate for the perceived risk of
accelerating inflation. Indeed, economic growth had been sufficiently strong to
move the labor and commodity markets into territory regarded by some economists
as dangerous. Specifically, the unemployment rate had fallen to cyclical lows
that could be regarded as nearing "full employment," thereby creating the risk
that further declines could lead to growing wage pressures. Price indices of
crude raw materials showed sharp increases, and industrial capacity utilization
was near levels that had historically been associated with rising inflation.
However, these conditions also influenced the Federal Reserve Board to tighten
monetary policy. We expected that the Federal Reserve Board action would serve
to slow the economy, dampen inflationary pressures, and reassure investors that
policymakers were resolved to hold down inflation. At the same time, Global
Allocation was able to invest in bonds with attractive yields. For example,
early in the fiscal year the 30 year U.S. Treasury Bond reached a yield of
8.16%, representing the highest level in 39 months.
Outside the U.S. Global Allocation also stressed fixed income securities. The
largest geographic concentration was in European fixed income which accounted
for 21.7% of the total portfolio. Within Europe, German bonds were the largest
investment at 10.7% of the portfolio. Germany was particularly attractive
because of its strong and independent central bank and declining inflation
rate. A third area of fixed income investment emphasis has been U.S. dollar-
denominated bonds of Latin American issuers. These bonds offered particularly
attractive yields along with the potential for capital gains. Global Allocation
invested in securities issued by Argentinean, Mexican, and Brazilian issuers,
primarily governments and government-related entities.
Internationally, fixed income investments outperformed equities. The Salomon
Non-dollar Government Bond Index returned approximately 18.3%, substantially
exceeding the return on equities as measured by the FT/S&P A World ex-U.S.
Index return of 3.2%. This strength in international fixed income helped Global
Allocation's return. The strength of the U.S. bond market, as indicated by the
return of 10.8% for 5 year U.S. Treasury Notes, also helped Global Allocation's
performance. Results for the Fund's U.S. dollar-denominated Latin American
fixed income was mixed. In the first five months of the fiscal period, results
were poor, because of weakness due to the financial crisis stemming from
devaluation of the Mexican peso. However, as the Mexican peso stabilized,
Global Allocation's Latin American bonds rallied sharply and showed gains in
the remaining four months of the fiscal period. As noted, international equity
markets were relatively weak. This was especially true of a number of emerging
equity markets, and Global Allocation benefited from having very little
exposure to such markets. Global Allocation also benefited from its
underweighting in Japanese stocks, which declined sharply during the period.
Japan continued to suffer from a weak economy and was burdened by a substantial
asset quality problem in its banking system.
Global Allocation's performance was hindered by its underweighting in the
strong U.S. equity market. Global Allocation's cautious U.S. stock position
reflected concern over the high valuations accorded U.S. stocks. The market
appeared expensive compared to history based on a number of measures including
dividend yields and price-to-book-value ratios, among others. However, U.S.
stock prices moved sharply higher as interest rates fell, profits rose, and new
investments flowed into mutual funds. Global Allocation's results were hindered
by low exposure to the strong U.S. technology stock sector, but results were
favorably impacted by investment emphasis on U.S. financial sector stocks.
29
<PAGE>
Global Allocation consistently overweighted the U.S. dollar, relative to the
benchmark portfolio. The dollar has been undervalued on purchasing power parity
compared to other major currencies. The overweighting in dollars hurt Global
Allocation's results in the first six months of the fiscal period as foreign
currency hedges prevented the Fund from capturing the full benefit of its non-
U.S. investments. However, in the last months of the fiscal period these hedges
began to benefit Global Allocation by preventing currency losses on a
substantial portion of Global Allocation's non-U.S. investments. For the fiscal
period as a whole, the Japanese yen and Deutschemark hedges detracted from
results. Over the course of the fiscal nine months, Global Allocation
maintained a stable U.S. dollar exposure, near 88% of the portfolio.
As the U.S. bond and equity markets appreciated, Global Allocation gradually
reduced investments in those markets and added to cash reserves. As of July
month-end, Global Allocation's cash position was approximately 8.1% of net
assets, up from 2.5% at the beginning of the fiscal period. Global Allocation's
cash reserves rose largely because, in MLAM's view, there were relatively fewer
new attractive long-term investment opportunities. Therefore, MLAM believed
that it was appropriate to maintain a higher level of liquidity in Global
Allocation at that time.
Performance data for Global Allocation's Class A, Class B, Class C and Class
D shares for the period ended July 31, 1995 is set forth below. Additional
performance information is contained in "Comparison of the Funds--Performance--
General." None of the past results shown should be considered a representation
of future performance.
30
<PAGE>
GLOBAL ALLOCATION--TOTAL RETURN BASED ON $10,000 INVESTMENT
-- CLASS A AND CLASS B SHARES
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
FT/S & P
Global Allocation+ Global Allocation+ Actuaries World
Class A Shares* Class B Shares* Index++
------------------ ------------------ ---------------
<S> <C> <C> <C>
2/3/89** $ 9,475 $10,000 $10,000
10/89 $10,360 $10,850 $10,445
10/90 $10,765 $11,168 $ 9,255
10/91 $13,875 $14,236 $10,877
10/92 $15,509 $15,751 $10,261
10/93 $19,017 $19,126 $13,554
10/94 $19,423 $19,342 $14,721
10/95 $21,782 $21,505 $16,108
</TABLE>
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of Operations.
+ Global Allocation invests in a portfolio of U.S. and foreign issues, whose
composition varies with respect to types of securities and markets in
response to changing market and economic trends.
++ This unmanaged capitalization-weighted Index is comprised of 2,200 equities
from 24 countries in 12 regions, including the United States.
Past performance is not predictive of future performance.
GLOBAL ALLOCATION--AVERAGE ANNUAL TOTAL RETURN--CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
% RETURN % RETURN
WITHOUT WITH
SALES CHARGE SALES CHARGE**
------------ --------------
<S> <C> <C>
CLASS A SHARES*
Year Ended
7/31/95........ +10.68% +4.87%
Five Years Ended
7/31/95........ +13.73 +12.51
Inception
(2/3/89)
through
7/31/95........ +13.68 +12.74
</TABLE>
- --------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
% RETURN % RETURN
WITHOUT WITH
CDSC CDSC**
-------- --------
<S> <C> <C>
CLASS B SHARES*
Year Ended
7/31/95........ + 9.56% + 5.56%
Five Years Ended
7/31/95........ +12.56 +12.56
Inception (2/3/89)
through 7/31/95. +12.52 +12.52
</TABLE>
- --------
* Maximum CDSC is 4% and is reduced to 0% after 4 years.
** Assuming payment of applicable CDSC.
<TABLE>
<CAPTION>
% RETURN
WITHOUT % RETURN WITH
SALES CHARGE SALES CHARGE**
------------ --------------
<S> <C> <C>
CLASS A SHARES*
Year Ended
9/30/94........ + 4.94% - 0.57%
Five Years Ended
9/30/94........ +13.35 +12.14
Inception
(2/3/89)
through
9/30/94........ +13.62 +12.54
</TABLE>
- --------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
% RETURN % RETURN
WITHOUT WITH
CDSC CDSC**
-------- --------
<S> <C> <C>
CLASS B SHARES*
Year Ended 9/30/94..... + 3.85% - 0.11%
Five Years Ended
9/30/94............... +12.17 +12.17
Inception (2/3/89)
through 9/30/94....... +12.46 +12.46
</TABLE>
- --------
* Maximum CDSC is 4% and is reduced to 0% after 4 years.
** Assuming payment of applicable CDSC.
31
<PAGE>
GLOBAL ALLOCATION--TOTAL RETURN BASED ON $10,000 INVESTMENT
--CLASS C AND CLASS D SHARES
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
FT/S & P
Global Allocation+ Global Allocation+ Actuaries World
Class C Shares* Class D Shares* Index++
------------------ ------------------ ---------------
<S> <C> <C> <C>
10/12/94** $10,000 $ 9,475 $10,000
10/94 $10,000 $ 9,482 $10,000
7/95 $11,122 $10,606 $10,942
</TABLE>
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of Operations.
+ Global Allocation invests in a portfolio of U.S. and foreign issues, whose
composition varies with respect to types of securities and markets in
response to changing market and economic trends.
++ This unmanaged capitalization-weighted Index is comprised of 2,200 equities
from 24 countries in 12 regions, including the United States.
Past performance is not predictive of future performance.
GLOBAL ALLOCATION--AGGREGATE TOTAL RETURN--CLASS C AND CLASS D SHARES
<TABLE>
<CAPTION>
% RETURN % RETURN
WITHOUT WITH
CDSC CDSC**
-------- --------
<S> <C> <C>
CLASS C SHARES*
Inception (10/21/94)
through 7/31/95....... +11.22% +10.22%
</TABLE>
- --------
* Maximum CDSC is 1% and is reduced to 0% after 1 year.
** Assuming payment of applicable CDSC.
<TABLE>
<CAPTION>
% RETURN % RETURN
WITHOUT WITH
SALES CHARGE SALES CHARGE**
------------ --------------
<S> <C> <C>
CLASS D SHARES*
Inception
(10/21/94)
through
7/31/95........ +11.94% +6.06%
</TABLE>
- --------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
32
<PAGE>
For the Twelve Months Ended October 31, 1994. Perhaps the most significant
development during the fiscal year was the poor performance of the U.S. bond
market. Long-term Treasury bonds registered their worst total returns in more
than 50 years. With the widespread belief that inflationary pressures were
well-contained, the consensus outlook for lower short-term and long-term
interest rates was widely held for most of 1993. The lowest yields for long-
term bonds were set in mid-October 1993. Beginning in February 1994, a series
of Federal Reserve Board monetary policy tightenings brought the Federal Funds'
rate from 3% to 4.75% by October month-end.
As the U.S. central bank continued to raise short-term interest rates,
stronger-than-expected economic results increased inflationary fears in the
United States, and price weakness spread to bond markets worldwide. Investors
anticipated more short-term interest rate increases in the United States
because of the U.S. dollar's weakness. The long-term downtrend of the U.S.
dollar began to accelerate in mid-1994 and continued throughout the balance of
the fiscal year. In contrast to the fixed income markets, the U.S. and other
major world equity markets performed comparatively well over the course of the
fiscal year.
As the fiscal year began, Global Allocation had a 23.0% cash position,
because of the lack of attractively valued equity and fixed income investment
opportunities. At that time Global Allocation was underweighted in equities and
fixed income securities at 35.1% and 41.9% of net assets, respectively. With
the sharp decline in bond prices, we invested the cash reserves largely in
longer-term fixed income securities. MLAM believes that global bond markets
offer high real rates of return that are attractive to long-term investors. As
a result, by October 1994, Global Allocation had a very small 1.8% cash
position.
Global Allocation's substantial cash position insulated the portfolio from
stock and bond market volatility early in the fiscal year. MLAM's move to an
overweighting in bonds along with our underweighting of equities hampered
performance as the fiscal year progressed. The negative impact of declining
bond prices was mitigated somewhat by our focus on fixed income issues with
intermediate-term maturities which offered yields almost as high as long-term
bonds with much less price volatility. MLAM believes that on a risk-adjusted
basis these fixed-income securities offer attractive investment opportunities
and plans to continue to overweight the bond component of Global Allocation.
Looking at the equity market, we believe that since stocks have not declined
significantly despite higher interest rates, there are relatively fewer
undervalued equity investments available. Therefore, we expect to remain
underweighted in equities. Two areas that we identified as having attractively
valued equities were U.S. healthcare issues and European stocks. Global
Allocation's investments in both enhanced the portfolio's total return for the
period.
Foreign exchange market developments did not aid performance, since Global
Allocation was overweighted in U.S. dollars during the fiscal year, both
through investment positions and also by hedging the portfolio's Yen-and
Deutschemark-denominated exposures back into U.S. dollars. Global Allocation's
overweighted U.S. dollar position remains in place because we continued to be
concerned about the foreign exchange risk inherent in owning non-U.S. dollar
denominated assets when the U.S. dollar is so deeply undervalued.
Performance data for the Fund's Class A and Class B shares for the period
ended October 31, 1994 is included in the charts and tables contained in "--
Global Allocation--Management's Discussion of Fund Performance--For the Nine
Months Ended July 31, 1995." No information is provided for Global Allocation's
Class C and Class D shares for the period ended October 31, 1994 since Class C
and Class D shares commenced operations on October 21, 1994. Additional
performance information is contained in "Comparison of the Funds--Performance--
General."
VOTING RIGHTS
Shareholders of Global Allocation 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.
Global Allocation 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 distribution arrangements; and
(iv) ratification of selection of independent accountants. Voting rights for
Directors are
33
<PAGE>
not cumulative. Shares of Global Allocation to be issued to Balanced Fund
shareholders in the Reorganization will be fully paid and non-assessable, will
have no preemptive rights, and will have the conversion rights described in
this Prospectus and Proxy Statement and in the Global Allocation Prospectus.
Each share of Global Allocation common stock is entitled to participate equally
in dividends and distributions declared by the Fund and in the net assets of
the Fund on liquidation or dissolution after satisfaction of outstanding
liabilities, except that Class B, Class C and Class D shares bear certain
additional expenses. Rights attributable to shares of Balanced Fund are
identical to those described above.
DIVIDENDS AND DISTRIBUTIONS
Balanced Fund's current policy with respect to dividends and distributions is
identical to Global Allocation's policy, except that Balanced Fund is required
to pay dividends from net investment income semi-annually and Global Allocation
is required to pay dividends from net investment income at least annually. As a
matter of practice, however, Global Allocation has paid dividends from net
investment income semi-annually since its inception. It is each Fund's
intention to distribute all of its net investment income, if any. In addition,
each Fund distributes all net realized long- or short-term capital gains, if
any, to shareholders at least annually.
TAX INFORMATION
The tax consequences associated with investment in shares of Balanced Fund
are substantially identical to the tax consequences associated with investment
in shares of Global Allocation. However, because there is no limitation on the
percentage of Global Allocation's total assets that may be invested in foreign
securities, shareholders of Global Allocation may be entitled to claim foreign
tax credits with respect to their share of foreign taxes paid by the Fund on
income from investments in foreign securities held by the Fund. In this regard,
if more than 50% of value of Global Allocation'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 Fund shareholders generally will be required to include their
proportionate share of such withholding taxes in their U.S. income tax returns
as gross income, treat such proportionate share as taxes paid by them, and
deduct such proportionate share in computing their taxable income 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.
Global Allocation will report annually to its shareholders the amount per share
of such withholding taxes. Because Balanced Fund limits its investment in
foreign securities to 20% of total assets, Balanced Fund shareholders are not
entitled to claim the foreign tax credits described above.
PORTFOLIO TRANSACTIONS
The procedures for engaging in portfolio transactions are generally the same
for both Balanced Fund and Global Allocation. For a discussion of these
procedures, see "Investment Objective and Policies--Other Investment Policies
and Practices" in the Global Allocation Prospectus and "Portfolio Transactions
and Brokerage" in the Global Allocation Statement.
Each Fund may effect portfolio transactions on foreign securities exchanges
and may incur settlement delays on certain of such exchanges. In addition,
costs associated with transactions in foreign securities are generally higher
than with transactions in U.S. securities. Accordingly, to the extent Global
Allocation may invest a greater percentage of its assets in foreign securities,
the effects of settlement delays and increased transaction costs may be more
pronounced for Global Allocation than for Balanced Fund.
PORTFOLIO TURNOVER
Generally, neither Balanced Fund nor Global Allocation purchases securities
for short-term trading profits. However, either Fund may dispose of securities
without regard to the time that they have been held
34
<PAGE>
when such action, for defensive or other reasons, appears advisable to MLAM.
Balanced Fund has no limit on its rate of portfolio turnover; Global Allocation
anticipates that its annual portfolio turnover rate should not exceed 200%
under normal conditions. The portfolio turnover rates for Balanced Fund for its
fiscal years ended September 30, 1995 and 1994 were 86.33% and 59.15%,
respectively; the portfolio turnover rates for Global Allocation for its fiscal
years ended October 31, 1994 and 1993 were 57.04% and 50.35%, respectively.
ADDITIONAL INFORMATION
Net Asset Value. Both Balanced Fund and Global Allocation determine net asset
value of each class of its shares once daily 15 minutes after the close of
business on the New York Stock Exchange (generally, 4:00 p.m. New York time),
on each day during which the New York Stock Exchange is open for trading. 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.
Shareholder Services. Global Allocation offers a number of shareholder
services and investment plans designed to facilitate investment in shares of
the Fund. In addition, U.S. shareholders of each class of shares of Global
Allocation have an exchange privilege with certain other MLAM-advised mutual
funds. Shareholder services, including exchange privileges, available to
shareholders of Balanced Fund and Global Allocation are identical. For a
description of these services, see "Shareholder Services" in the Global
Allocation Prospectus.
Custodian. The Chase Manhattan Bank, N.A. ("Chase") acts as custodian of the
cash and securities of Balanced Fund. The principal business address of Chase
is 4 Chase MetroTech Center, 18th Floor, Brooklyn, New York 11245. Brown
Brothers Harriman & Co. ("Brown Brothers") acts as custodian for Global
Allocation. Brown Brothers' principal business address is 40 Water Street,
Boston, Massachusetts 02109.
Transfer Agent, Dividend Disbursing Agent and Registrar. Merrill Lynch
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484, serves as the transfer agent, dividend disbursing agent and
registrar with respect to each Fund (the "Transfer Agent"), at the same rate,
pursuant to separate registrar, transfer agency and service agreements with
each of the Funds.
Capital Stock. Balanced Fund has an authorized capital of 2,000,000,000
shares of common stock, par value $.01 per share, divided into four classes,
designated Class A, Class B, Class C and Class D common stock, each of which
consists of 500,000,000 shares. Global Allocation has an authorized capital of
2,200,000,000 shares of common stock, par value $0.10 per share, divided into
four classes, also designated Class A, Class B, Class C and Class D common
stock, of which Class A and Class C consist of 200,000,000 shares each and
Class B and Class D consist of 900,000,000 shares each. The rights, preferences
and expenses attributable to the Class A, Class B, Class C and Class D shares
of Balanced Fund are identical in all respects to those of the Class A, Class
B, Class C and Class D shares of Global Allocation.
Shareholder Inquiries. Shareholder inquiries with respect to Balanced Fund
and Global Allocation may be addressed to either Fund by telephone at (609)
282-2800 or at the address set forth on the cover page of this Proxy Statement
and Prospectus.
35
<PAGE>
THE REORGANIZATION
GENERAL
Under the Agreement and Plan of Reorganization (attached hereto as Exhibit
I), Global Allocation will acquire substantially all of the assets, and will
assume substantially all of the liabilities, of Balanced Fund, in exchange
solely for an equal aggregate value of shares to be issued by Global
Allocation. Upon receipt by Balanced Fund of such shares, Balanced Fund will
distribute the shares to the holders of shares of Balanced Fund, as described
below.
Generally, the assets transferred by Balanced Fund to Global Allocation will
equal all investments of Balanced Fund held in its portfolio as of the
Valuation Time (as defined in the Agreement and Plan of Reorganization) and all
other assets of Balanced Fund as of such time, except for any cash or cash
equivalents reserved by Balanced Fund to discharge its unpaid or contingent
liabilities existing at the Valuation Time. Any unexpended portion of the
foregoing funds retained by Balanced Fund will be disbursed by Balanced Fund
pro rata to the shareholders of Balanced Fund of record as of the date of the
Reorganization upon dissolution of the Fund as a final liquidating dividend.
Balanced Fund will distribute the shares of Global Allocation received by it
pro rata to its shareholders in exchange for such shareholders' proportional
interests in Balanced Fund. The shares of Global Allocation received by
Balanced Fund shareholders will be of the same class and have the same
aggregate net asset value as each such shareholder's interest in Balanced Fund
as of the Valuation Time (previously defined as the "Corresponding Shares").
(See, "The Agreement and Plan of Reorganization--Valuation of Assets and
Liabilities" for information concerning the calculation of net asset value.)
The distribution will be accomplished by opening new accounts on the books of
Global Allocation in the names of all shareholders of Balanced Fund, including
shareholders holding Balanced Fund shares in certificate form, and transferring
to each shareholder's account the Corresponding Shares of Global Allocation
representing such shareholder's interest previously credited to the account of
Balanced Fund. Shareholders holding Balanced Fund shares in certificate form
may receive certificates representing the Corresponding Shares of Global
Allocation credited to their account in respect of such Balanced Fund shares by
sending the certificates to the Transfer Agent accompanied by a written request
for such exchange.
Since the Corresponding Shares of Global Allocation would be issued at net
asset value in exchange for the net assets of Balanced Fund having a value
equal to the aggregate net asset value of those shares of Balanced Fund, the
net asset value per share of Global Allocation should remain virtually
unchanged solely as a result of the Reorganization. Thus, the Reorganization
should result in virtually no dilution of net asset value of Global Allocation
immediately following consummation of the Reorganization. However, as a result
of the Reorganization, a shareholder of Balanced Fund likely would hold a
reduced percentage of ownership in Global Allocation than he did in Balanced
Fund prior to the Reorganization.
PROCEDURE
On October 13, 1995, the Board of Directors of Balanced Fund, including all
of the Directors who are not "interested persons," as defined by the Investment
Company Act, approved the Agreement and Plan of Reorganization and the
submission of such Agreement and Plan to Balanced Fund shareholders for
approval. The Board of Directors of Global Allocation, including all of the
Directors who are not interested persons, approved the Agreement and Plan of
Reorganization on October 2, 1995.
If the shareholders of Balanced Fund approve the Reorganization and all
required regulatory approvals are obtained, the Reorganization will take place
as early as possible in calendar year 1996.
THE BOARD OF DIRECTORS OF BALANCED FUND RECOMMENDS THAT BALANCED FUND
SHAREHOLDERS APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION.
36
<PAGE>
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
The following is a summary of the significant terms of the Agreement and Plan
of Reorganization. This summary is qualified in its entirety by reference to
the Agreement and Plan of Reorganization, attached hereto as Exhibit I.
Valuation of Assets and Liabilities. The respective assets of Balanced Fund
and Global Allocation will be valued as of the Valuation Time. The assets in
each Fund will be valued according to the procedures set forth under
"Additional Information--Determination of Net Asset Value" in the Global
Allocation Prospectus. Purchase orders for Balanced Fund shares which have not
been confirmed as of the Valuation Time will be treated as assets of Balanced
Fund for purposes of the Reorganization; redemption requests which have not
settled as of the Valuation Time will be treated as liabilities for purposes of
the Reorganization.
Distribution of Global Allocation Shares. On the next full business day
following the Valuation Time (the "Exchange Date"), Global Allocation will
issue to Balanced Fund a number of shares the aggregate net asset value of
which will equal the aggregate net asset value of shares of Balanced Fund as of
the Valuation Time. Each holder of Balanced Fund shares will receive, in
exchange for his proportionate interest in Balanced Fund, Corresponding Shares
of Global Allocation of the same class and having the same aggregate net asset
value as the Balanced Fund shares held by such shareholder as of the Valuation
Time.
Expenses. The expenses of the Reorganization that are directly attributable
to each Fund and the conduct of its business will be deducted from the assets
of that Fund as of the Valuation Time. These expenses are expected to include
the expenses incurred in preparing materials to be distributed to each Fund's
board, legal fees incurred in preparing each Fund's board materials, attending
each Fund's board meetings and preparing the minutes and accounting fees
associated with each Fund's financial statements. The expenses of the
Reorganization that are attributable to the transaction itself, including
expenses in connection with obtaining the IRS ruling, will be borne pro rata by
each Fund according to its net assets as of the Valuation Time. These expenses
are expected to include expenses incurred in connection with the preparation of
the Agreement and Plan of Reorganization and the Registration Statement on Form
N-14 (including the Prospectus and Proxy Statement), Securities and Exchange
Commission and state securities commission filing fees and legal and audit fees
in connection with the Reorganization. Expenses associated with the dissolution
of Balanced Fund under Maryland law and termination of its registration under
the Investment Company Act will be borne by Balanced Fund.
Required Approvals. Under Balanced Fund's Articles of Incorporation (as
amended to date) and relevant Maryland law, shareholder approval of the
Agreement and Plan of Reorganization requires the affirmative vote of Balanced
Fund shareholders representing a majority of the total number of votes entitled
to be cast thereon.
Deregistration and Dissolution. Following the transfer of the assets and
liabilities of Balanced Fund to Global Allocation and the distribution of
Corresponding Shares of Global Allocation to Balanced Fund shareholders,
Balanced Fund will terminate its registration under the Investment Company Act
and its incorporation under Maryland law and will withdraw its authority to do
business in any state where it is required to do so.
Amendments and Conditions. The Agreement and Plan of Reorganization may be
amended at any time prior to the Exchange Date with respect to any of the terms
therein. The obligations of Balanced Fund and Global Allocation pursuant to the
Agreement and Plan of Reorganization are subject to various conditions,
including a registration statement on Form N-14 being declared effective by the
Securities and Exchange Commission, approval of the Reorganization by Balanced
Fund shareholders, a favorable IRS ruling being received as to tax matters, an
opinion of counsel being received as to securities matters and the continuing
accuracy of various representations and warranties of Balanced Fund and Global
Allocation being confirmed by the respective parties.
37
<PAGE>
Postponement, Termination. Under the Agreement and Plan of Reorganization,
the Board of Directors of either Balanced Fund or Global Allocation may cause
the Reorganization to be postponed or abandoned should either Board determine
that it is in the best interests of the shareholders of either Balanced Fund or
Global Allocation, respectively, to do so. The Agreement and Plan of
Reorganization may be terminated, and the Reorganization abandoned at any time,
whether before or after adoption thereof by the Balanced Fund shareholders,
prior to the Exchange Date or the Exchange Date may be postponed: (i) by mutual
consent of the Boards of Directors of Balanced Fund and Global Allocation; (ii)
by the Board of Directors of Balanced Fund if any condition to Balanced Fund's
obligations has not been fulfilled or waived by such Board; or (iii) by the
Board of Directors of Global Allocation if any condition to Global Allocation's
obligations has not been fulfilled or waived by such Board.
POTENTIAL BENEFITS TO BALANCED FUND SHAREHOLDERS AS A RESULT OF THE
REORGANIZATION
The Board of Directors of Balanced Fund has identified certain potential
benefits to Balanced Fund shareholders that are likely to result from the
Reorganization. First, following the Reorganization, Balanced Fund shareholders
will remain invested in an open-end fund that has an investment objective
similar to that of Balanced Fund, although not identical. In addition, Balanced
Fund shareholders are likely to experience certain additional benefits,
including lower expenses per share, economies of scale and greater flexibility
in portfolio management.
Specifically, although after the Reorganization, on a pro forma combined
basis, Global Allocation will pay an advisory fee to MLAM at a higher annual
effective rate than that paid by Balanced Fund, the total operating expenses of
Global Allocation after the Reorganization, as a percentage of net assets,
would be less than the current operating expenses for Balanced Fund. This could
potentially result in higher earnings per share for Balanced Fund shareholders.
In particular, certain fixed costs, such as costs of printing shareholders
reports and proxy statements, legal expenses, audit fees, registration fees,
mailing costs and other expenses would be spread across a larger asset base,
thereby lowering the expense ratio borne by Balanced Fund shareholders. To
illustrate the potential economies of scale, on August 31, 1995, the total
operating expense ratio for Balanced Fund (excluding class specific
distribution and account maintenance fees) was 1.01% (based on net assets of
$647 million), and the total operating expense ratio for Global Allocation
(excluding class specific distribution and account maintenance fees) was 0.91%
(based on net assets of $8.4 billion). If the Reorganization had taken place on
that date, the total operating expense ratio on a pro forma basis for the
combined fund (excluding class specific distribution and account maintenance
fees) would have been 0.90% (based on net assets of $9.1 billion).
The following table sets forth the net assets of Balanced Fund and Global
Allocation for each Fund's last three fiscal years.
<TABLE>
<CAPTION>
BALANCED FUND
-------------
PERIOD NET ASSETS
- ------ ------------
<S> <C>
Year ended 9/30/93...... $871,642,908
Year ended 9/30/94...... $749,798,690
Year ended 9/30/95...... $651,307,064
</TABLE>
<TABLE>
<CAPTION>
GLOBAL ALLOCATION
-----------------
PERIOD NET ASSETS
- ------ --------------
<S> <C>
Year ended 10/31/93..... $5,217,350,809
Year ended 10/31/94..... $7,827,351,042
Year ended 10/31/95..... $8,535,190,459
</TABLE>
The Board of Directors of Balanced Fund considered that Global Allocation's
net assets have been steadily increasing over the past several years, while
Balanced Fund's net assets have been decreasing over the same period. Were
these trends to continue, the Board considered that Global Allocation may
experience increasing economies of scale which, as a result, may have the
effect of reducing its overall operating expense ratio, while Balanced Fund may
experience the opposite result, that is, a higher operating expense ratio due
to a continuing reduction in assets. Although there can be no assurance that
the foregoing would in fact occur, the Board determined that the potential
economies of scale that may be realized as a result of the Reorganization would
be beneficial to Balanced Fund shareholders.
38
<PAGE>
In addition, the Board of Directors of Balanced Fund considered that the
Reorganization may potentially provide increased flexibility to MLAM in
managing Balanced Fund's assets as part of Global Allocation since Global
Allocation is organized as a non-diversified fund. As a non-diversified fund,
Global Allocation is not limited by the Investment Company Act in (i) the
proportion of its assets that it may invest in the securities of a single
issuer (excluding U.S. Government securities) or (ii) the amount of voting
securities of a single issuer (excluding U.S. Government securities) that it
may purchase. In this regard, the Board of Directors of Balanced Fund
considered it potentially advantageous that, unlike Balanced Fund, Global
Allocation does not have to forego attractive investment opportunities, or
alternatively liquidate existing positions prematurely to take advantage of
such opportunities, in order to stay within the diversification limits of the
Investment Company Act. Global Allocation would, however, continue to comply
with the diversification requirements under the Code. See "Comparison of
Funds--Other Investment Policies--Non-Diversified Status."
The Board of Directors of Balanced Fund also considered the difference in the
risks associated with certain of the investment strategies used by Global
Allocation which are not used by Balanced Fund.
Based on the foregoing, the Board concluded that the Reorganization presents
no significant risks or costs (including legal, accounting and administrative
costs) that would outweigh the benefits discussed above.
In approving the Reorganization, the Board of Directors of Balanced Fund
determined that the interests of existing shareholders of Balanced Fund would
not be diluted as a result of the Reorganization.
TAX CONSEQUENCES OF THE REORGANIZATION
General. The Reorganization has been structured with the intention that it
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. Balanced Fund and Global Allocation have
elected and qualified for the special tax treatment afforded "regulated
investment companies" under the Code, and Global Allocation intends to continue
to so qualify after the Reorganization. Balanced Fund and Global Allocation
have jointly requested a private letter ruling from the IRS to the effect that
for Federal income tax purposes: (i) the Reorganization, as described, will
constitute a reorganization within the meaning of Section 368(a)(1)(C) of the
Code and Balanced Fund and Global Allocation will each be deemed a "party" to
the Reorganization within the meaning of Section 368(b); (ii) in accordance
with Section 354(a)(1) of the Code, no gain or loss will be recognized by the
shareholders of Balanced Fund upon the receipt of Corresponding Shares of
Global Allocation in the Reorganization solely in exchange for their shares of
Balanced Fund; (iii) in accordance with Section 358 of the Code, immediately
after the Reorganization, the tax basis of the Corresponding Shares of Global
Allocation received by the shareholders of Balanced Fund in the Reorganization
will be equal, in the aggregate, to the tax basis of the shares of Balanced
Fund surrendered in exchange; (iv) in accordance with Section 1223 of the Code,
the holding period of the Corresponding Shares of Global Allocation received by
shareholders of Balanced Fund in the Reorganization will include the holding
period of the shares of Balanced Fund immediately prior to the liquidation of
Balanced Fund (provided that at the time of the Reorganization the shares of
Balanced Fund were held as capital assets); (v) in accordance with Section
361(a) of the Code, no gain or loss will be recognized by Balanced Fund on the
asset transfer solely in exchange for Global Allocation shares or on the
distribution of Global Allocation shares to Balanced Fund shareholders under
Section 361(c)(1); (vi) under Section 1032 of the Code, no gain or loss will be
recognized by Global Allocation on the exchange of its shares for Balanced Fund
assets; (vii) in accordance with Section 362(b) of the Code, the tax basis of
the assets of Balanced Fund in the hands of Global Allocation will be the same
as the tax basis of such assets in the hands of Balanced Fund immediately prior
to the Reorganization; (viii) in accordance with Section 1223 of the Code, the
holding period of the transferred assets in the hands of Global Allocation will
include the holding period of such assets in the hands of Balanced Fund; and
(ix) the taxable year of Balanced Fund will end on the effective date of the
Reorganization and pursuant to Section 381(a) of the Code and regulations
thereunder, Global Allocation will succeed to and take into account certain tax
attributes of Balanced Fund, such as earnings and profits, capital loss
carryovers and method of accounting.
To the extent Global Allocation has unrealized capital gains at the time of
the Reorganization, Balanced Fund shareholders may incur taxable gains in the
year that Global Allocation realizes and distributes those
39
<PAGE>
gains. This will be true notwithstanding that the unrealized gains were
reflected in the price of Global Allocation shares at the time they were
exchanged for assets of Balanced Fund in the Reorganization. Conversely,
shareholders of Global Allocation will share in unrealized capital gains of
Balanced Fund after the Reorganization and bear a tax consequence on the
subsequent realization of such gains. Shareholders should consult their tax
advisers regarding the effect of the Reorganization in light of their
individual circumstances. As the foregoing relates only to Federal income tax
consequences, shareholders also should consult their tax advisers as to the
foreign, state and local tax consequences of the Reorganization.
Status as a Regulated Investment Company. Both Balanced Fund and Global
Allocation have elected to be taxed as regulated investment companies under
Sections 851-855 of the Code, and after the Reorganization Global Allocation
intends to continue to operate so as to qualify as a regulated investment
company.
CAPITALIZATION
The following table sets forth as of August 31, 1995: (i) the capitalization
of Balanced Fund, (ii) the capitalization of Global Allocation and (iii) the
pro forma capitalization of the Combined Fund as adjusted to give effect to the
Reorganization.
PRO FORMA CAPITALIZATION OF BALANCED FUND, GLOBAL ALLOCATION AND COMBINED FUND
AS OF AUGUST 31, 1995
<TABLE>
<CAPTION>
BALANCED FUND
------------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
-------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Total Net Assets:....... $ 29,857,290 $ 157,693,117 $ 1,055,190 $458,866,195
Shares Outstanding:..... 2,639,705 13,709,635 92,924 40,633,328
Net Asset Value Per
Share:................ $ 11.31 $ 11.50 $ 11.36 $ 11.29
<CAPTION>
GLOBAL ALLOCATION
------------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
-------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Total Net Assets:....... $1,482,057,759 $6,623,039,071 $84,122,546 $227,992,458
Shares Outstanding:..... 105,504,531 477,178,598 6,093,041 16,238,582
Net Asset Value Per
Share:................ $ 14.05 $ 13.88 $ 13.81 $ 14.04
<CAPTION>
COMBINED FUND
------------------------------------------------------
ADJUSTED* CLASS A CLASS B CLASS C CLASS D
- --------- -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Total Net Assets:....... $1,511,915,049 $6,780,732,188 $85,177,736 $686,858,653
Shares Outstanding:..... 107,630,008 488,540,116 6,169,469 48,920,962
Net Asset Value Per
Share:................ $ 14.05 $ 13.88 $ 13.81 $ 14.04
</TABLE>
- --------
* Total Net Assets and Net Asset Value Per Share includes the aggregate value
of Balanced Fund's net assets which would have been transferred to Global
Allocation had the Reorganization been consummated on August 31, 1995. Data
does not take into account expenses incurred in connection with the
Reorganization or the actual number of shares that would have been issued. No
assurance can be given as to how many shares of Global Allocation the
Balanced Fund shareholders will receive on the date the Reorganization takes
place, and the foregoing should not be relied upon to reflect the number of
shares of Global Allocation that actually will be received on or after such
date.
INFORMATION CONCERNING THE SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING
The Meeting will be held on December 21, 1995, at the offices of Merrill
Lynch Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey at
9:00 A.M., New York time.
SOLICITATION, REVOCATION AND USE OF PROXIES
A shareholder executing and returning a proxy has the power to revoke it at
any time prior to its exercise by executing a superseding proxy or by
submitting a notice of revocation to the Secretary of Balanced Fund.
40
<PAGE>
Although mere attendance at the Meeting will not revoke a proxy, a shareholder
present at the Meeting may withdraw his proxy and vote in person.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated on a properly
executed proxy, such shares will be voted "FOR" the approval of the Agreement
and Plan of Reorganization.
It is not anticipated that any matters other than the adoption of the
Agreement and Plan of Reorganization will be brought before the Meeting. If,
however, any other business properly is brought before the Meeting, proxies
will be voted in accordance with the judgment of the persons designated on such
proxies.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of shares of Balanced Fund at the close of business on
October 31, 1995 (the "Record Date") are entitled to vote at the Meeting or any
adjournment thereof. At the close of business on the Record Date, there were
88,741 shares of Balanced Fund common stock issued and outstanding and entitled
to vote as follows: 3,669 Class A shares, 19,458 Class B shares, 133 Class C
shares and 65,481 Class D shares.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BALANCED FUND
AND GLOBAL ALLOCATION
To the knowledge of Balanced Fund, as of November 8, 1995, no person or
entity owns beneficially or of record 5% or more of any class of shares of
Balanced Fund or of all classes of Balanced Fund shares in the aggregate.
At August 31, 1995, the Directors and officers of Balanced Fund as a group
(11 persons) owned an aggregate of less than 1% of the outstanding shares of
Balanced Fund. At such date, Mr. Zeikel, a Director and officer of Balanced
Fund, and the other Directors and officers of Balanced Fund owned an aggregate
of less than 1% of the outstanding shares of common stock of ML & Co.
To the knowledge of Global Allocation, as of November 8, 1995, no person or
entity owns beneficially or of record 5% or more of any class of shares of
Global Allocation or of all classes of Global Allocation shares in the
aggregate.
As of August 31, 1995, the officers and Directors of Global Allocation as a
group (12 persons) owned an aggregate of less than 1% of the outstanding shares
of Global Allocation. At such date, Mr. Zeikel, a Director and officer of
Global Allocation, and the other Directors and officers of Global Allocation
owned less than 1% of the outstanding shares of stock of ML & Co.
VOTING RIGHTS AND REQUIRED VOTE
For purposes of this Proxy Statement and Prospectus, each share of each class
of Balanced Fund is entitled to one vote. Approval of the Agreement and Plan of
Reorganization requires the affirmative vote of Balanced Fund shareholders
representing a majority of the total votes entitled to be cast thereon, with
all shares voting as a single class.
Under Maryland law, shareholders of a registered open-end investment company
such as Balanced Fund are not entitled to demand the fair value of their shares
upon a transfer of assets and will be bound by the terms of the Reorganization
if approved at the Meeting. However, any shareholder of Balanced Fund may
redeem his Balanced Fund shares prior to the Reorganization.
A quorum for purposes of the Meeting consists of a majority of the shares
entitled to vote at the Meeting, present in person or by proxy. If, by the time
scheduled for the Meeting, a quorum of Balanced Fund's shareholders is not
present or if a quorum is present but sufficient votes in favor of the
Agreement and Plan of Reorganization are not received from the shareholders of
Balanced Fund, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies from
shareholders. Any such adjournment will require the affirmative vote of a
majority of the shares of Balanced Fund present in person or by proxy and
entitled to vote at the session of the Meeting to be adjourned. The persons
named as proxies will vote in favor of any such adjournment if they determine
that adjournment and additional solicitation are reasonable and in the
interests of the Fund's shareholders.
41
<PAGE>
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form of
proxy, the accompanying Notice and this Proxy Statement and Prospectus will be
borne by Global Allocation and Balanced Fund pro rata according to the
aggregate net assets of each Fund's portfolio on the date of Reorganization.
Such expenses are currently estimated to be $375,000.
Global Allocation and Balanced Fund likewise will reimburse banks, brokers
and others for their reasonable expenses in forwarding proxy solicitation
materials to the beneficial owners of shares of Balanced Fund and certain
persons that Balanced Fund may employ for their reasonable expenses in
assisting in the solicitation of proxies from such beneficial owners of shares
of Balanced Fund.
In order to obtain the necessary quorum at the Meeting, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of the Fund. Balanced Fund and Global Allocation also may hire proxy
solicitors at their expense. It is expected that the cost of such supplementary
solicitation, if any, will be nominal. Balanced Fund and Global Allocation have
retained, at their expense, Tritech Services, an affiliate of ML & Co., with
offices at 4 Corporate Place, Piscataway, New Jersey, to aid in the
solicitation of proxies from holders of shares held in nominee or "street" name
at a cost of approximately $2,000, plus out-of-pocket expenses.
Broker-dealer firms, including Merrill Lynch, holding Fund shares in "street
name" for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares before
the Meeting. Broker-dealer firms, including Merrill Lynch, will not be
permitted to vote without instructions with respect to the approval of the
Agreement and Plan of Reorganization. Properly executed proxies which are
returned but which are marked "abstain" or with respect to which a broker-
dealer has received no instructions and therefore has declined to vote on the
proposal ("broker non-votes") will be counted as present for the purposes of
determining a quorum. However, abstentions and broker non-votes will have the
same effect as a vote against the Agreement and Plan of Reorganization.
This Proxy Statement and Prospectus does not contain all of the information
set forth in the registration statements and the exhibits relating thereto
which Balanced Fund and Global Allocation, respectively, have filed with the
Securities and Exchange Commission, under the Securities Act and the Investment
Company Act, to which reference is hereby made.
Balanced Fund and Global Allocation both are subject to the informational
requirements of the Securities Exchange Act of 1934, and in accordance
therewith, file reports and other information with the Securities and Exchange
Commission. Reports, proxy statements, registration statements and other
information filed by Balanced Fund and Global Allocation can be inspected and
copied at the public reference facilities of the Securities and Exchange
Commission in Washington, D.C. and at the New York Regional Office of the
Securities and Exchange Commission at Seven World Trade Center, New York, New
York 10048. Copies of such materials also can be obtained by mail from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed
rates.
LEGAL PROCEEDINGS
There are no material legal proceedings to which Balanced Fund or Global
Allocation is a party.
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be passed
upon for Balanced Fund by Shereff, Friedman, Hoffman and Goodman, LLP, 919
Third Avenue, New York, New York ("Shereff, Friedman") and for Global
Allocation by Brown & Wood, One World Trade Center, New York, New York. Each of
Shereff, Friedman and Brown & Wood will rely as to matters of Maryland law on
the opinion of Galland, Kharasch, Morse & Garfinkle, P.C., Canal Square, 1054
Thirty-First Street, N.W., Washington, D.C.
42
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EXPERTS
The financial highlights of Balanced Fund and Global Allocation included in
this Proxy Statement and Prospectus have been so included in reliance on the
reports of Deloitte & Touche LLP, independent auditors, given on their
authority as experts in auditing and accounting. The principal business address
of Deloitte & Touche LLP is 117 Campus Drive, Princeton, New Jersey 08540.
SHAREHOLDER PROPOSALS
A shareholder proposal intended to be presented at any subsequent meeting of
shareholders of Balanced Fund must be received by Balanced Fund in a reasonable
time before the Board of Directors solicitation relating to such meeting is to
be made in order to be considered in Balanced Fund's proxy statement and form
of proxy relating to the meeting.
By Order of the Board of Directors of
Balanced Fund,
Jerry Weiss
Secretary
43
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EXHIBIT I
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the 20th day of November, 1995, by and between Merrill Lynch Balanced Fund for
Investment and Retirement, Inc., a Maryland corporation ("Balanced Fund"), and
Merrill Lynch Global Allocation Fund, Inc., a Maryland corporation ("Global
Allocation").
PLAN OF REORGANIZATION
The reorganization will comprise the acquisition by Global Allocation of
substantially all of the assets, and the assumption of substantially all of the
liabilities, of Balanced Fund in exchange solely for an equal aggregate value
of newly issued shares of Global Allocation's common stock, with a par value of
$.10 per share, and the subsequent distribution of Corresponding Shares
(defined below) of Global Allocation to Balanced Fund shareholders in exchange
for their shares of common stock of Balanced Fund, with a par value of $.01 per
share, all upon and subject to the terms hereinafter set forth (the
"Reorganization").
In the course of the Reorganization, shares of Global Allocation will be
distributed to Balanced Fund shareholders as follows: each holder of Balanced
Fund shares will be entitled to receive shares of that class of shares of
Global Allocation having the same letter designation (e.g., Class A, Class B,
Class C or Class D), and the same distribution fees, account maintenance fees
and sales charges (including contingent deferred sales charges), if any
("Corresponding Shares"), as the shares of Balanced Fund owned by such
shareholder as of the Valuation Time (as defined in Section 3(c) of this
Agreement). The aggregate net asset value of the Corresponding Shares of Global
Allocation to be received by each shareholder of Balanced Fund will equal the
aggregate net asset value of the Balanced Fund shares owned by such shareholder
as of the Valuation Time. In consideration therefor, on the Exchange Date (as
defined in Section 7 of this Agreement), Global Allocation shall acquire
substantially all of the assets of Balanced Fund and assume substantially all
of Balanced Fund's obligations and liabilities then existing, whether absolute,
accrued, contingent or otherwise. It is intended that the Reorganization
described in this Plan shall be a reorganization within the meaning of Section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the "Code"), and
any successor provision.
As promptly as practicable after the liquidation of Balanced Fund pursuant to
the Reorganization, Balanced Fund shall be dissolved in accordance with the
laws of the State of Maryland and will terminate its registration under the
Investment Company Act of 1940, as amended (the "1940 Act").
AGREEMENT
In order to consummate the Reorganization and in consideration of the
premises and the covenants and agreements hereinafter set forth, and intending
to be legally bound, Balanced Fund and Global Allocation hereby agree as
follows:
1. Representations and Warranties of Balanced Fund.
Balanced Fund represents and warrants to, and agrees with, Global Allocation
that:
(a) Balanced Fund is a corporation duly organized, validly existing and
in good standing in conformity with the laws of the State of Maryland, and
has the power to own all of its assets and to carry out this Agreement.
Balanced Fund has all necessary Federal, state and local authorizations to
carry on its business as it is now being conducted and to carry out this
Agreement.
(b) Balanced Fund is duly registered under the 1940 Act as a diversified,
open-end management investment company (File No. 811-4035), and such
registration has not been revoked or rescinded and
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is in full force and effect. Balanced Fund has elected and qualified for
the special tax treatment afforded regulated investment companies ("RICs")
under Sections 851-855 of the Code at all times since its inception and
intends to continue to so qualify for its taxable year ending upon the
liquidation of Balanced Fund.
(c) As used in this Agreement, the term "Investments" shall mean (i) the
investments of Balanced Fund shown on the schedule of its investments as of
the Valuation Time furnished to Global Allocation, with such additions
thereto and deletions therefrom as may have arisen in the course of
Balanced Fund's business up to the Valuation Time; and (ii) all other
assets owned by Balanced Fund or liabilities incurred as of the Valuation
Time, except that Balanced Fund shall retain cash, bank deposits or cash
equivalent securities in an estimated amount necessary to (1) discharge its
unpaid liabilities on its books at the Valuation Time (including, but not
limited to, its income dividend and capital gains distributions, if any,
payable for the period prior to the Valuation Time), and (2) pay such
contingent and other liabilities as the Directors of Balanced Fund
reasonably shall deem to exist against the Fund, if any, at Valuation Time,
for which contingent and other appropriate liability reserves shall be
established on Balanced Fund's books. Balanced Fund also shall retain any
and all rights which it may have over and against any other person which
may have accrued up to the Valuation Time. Any unexpended portion of the
foregoing funds retained by Balanced Fund shall be disbursed by Balanced
Fund pro rata to its shareholders upon dissolution of the Fund as a final
liquidating dividend.
(d) Balanced Fund has full power and authority to enter into and perform
its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary
action of its Board of Directors, and this Agreement constitutes a valid
and binding contract enforceable in accordance with its terms, subject to
the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance
and similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto.
(e) Global Allocation has been furnished with a statement of assets and
liabilities and a schedule of investments of Balanced Fund, each as of
September 30, 1995, said financial statements having been examined by
Deloitte & Touche LLP, independent public accountants. An unaudited
statement of assets and liabilities of Balanced Fund and an unaudited
schedule of investments of Balanced Fund, each as of the Valuation Time,
will be furnished to Global Allocation at or prior to the Exchange Date for
the purpose of determining the number of shares of Global Allocation to be
issued pursuant to Section 4 of this Agreement; and each will fairly
present the financial position of Balanced Fund as of the Valuation Time in
conformity with generally accepted accounting principles applied on a
consistent basis.
(f) Global Allocation has been furnished with Balanced Fund's Semi-Annual
Report to Shareholders for the six months ended March 31, 1995, and the
unaudited financial statements appearing therein fairly present the
financial position of Balanced Fund as of the respective dates indicated,
in conformity with generally accepted accounting principles applied on a
consistent basis.
(g) Global Allocation has been furnished with the prospectus and
statement of additional information of Balanced Fund, dated January 31,
1995, said prospectus and statement of additional information do not
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(h) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Balanced Fund, threatened against Balanced
Fund which assert liability on the part of Balanced Fund or which
materially affect its financial condition or its ability to consummate the
Reorganization. Balanced Fund is not charged with or, to the best of its
knowledge, threatened with any violation or investigation of any possible
violation of any provisions of any Federal, state or local law or
regulation or administrative ruling relating to any aspect of its business.
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(i) There are no material contracts outstanding to which Balanced Fund is
a party that have not been disclosed in the N-14 Registration Statement (as
defined in subsection (o) below) or will not otherwise be disclosed to
Global Allocation prior to the Valuation Time.
(j) Balanced Fund is not a party to or obligated under any provision of
its Articles of Incorporation, as amended, or its by-laws, as amended, or
any contract or other commitment or obligation, and is not subject to any
order or decree which would be violated by its execution of or performance
under this Agreement.
(k) Balanced Fund has no known liabilities of a material amount,
contingent or otherwise, other than those shown on its statements of assets
and liabilities referred to above, those incurred in the ordinary course of
its business as an investment company since September 30, 1995, and those
incurred in connection with the Reorganization. As of the Valuation Time,
Balanced Fund will advise Global Allocation in writing of all known
liabilities, contingent or otherwise, whether or not incurred in the
ordinary course of business, existing or accrued as of such time.
(l) Balanced Fund has filed, or has obtained extensions to file, all
Federal, state and local tax returns which are required to be filed by it,
and has paid or has obtained extensions to pay, all Federal, state and
local taxes shown on said returns to be due and owing and all assessments
received by it, up to and including the taxable year in which the Exchange
Date occurs. All tax liabilities of Balanced Fund have been adequately
provided for on its books, and no tax deficiency or liability of Balanced
Fund has been asserted and no question with respect thereto has been raised
by the Internal Revenue Service or by any state or local tax authority for
taxes in excess of those already paid, up to and including the taxable year
in which the Exchange Date occurs.
(m) At both the Valuation Time and the Exchange Date, Balanced Fund will
have full right, power and authority to sell, assign, transfer and deliver
the Investments. At the Exchange Date, subject only to the delivery of the
Investments as contemplated by this Agreement, Balanced Fund will have good
and marketable title to all of the Investments, and Global Allocation will
acquire all of the Investments free and clear of any encumbrances, liens or
security interests and without any restrictions upon the transfer thereof
(except those imposed by the Federal or state securities laws and those
imperfections of title or encumbrances as do not materially detract from
the value or use of the Investments or materially affect title thereto).
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Balanced Fund of
the Reorganization, except such as may be required under the Securities Act
of 1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the 1940 Act or state securities laws
(which term as used herein shall include the laws of the District of
Columbia and Puerto Rico).
(o) The registration statement filed by Global Allocation on Form N-14
relating to the shares of Global Allocation to be issued pursuant to this
Agreement which includes the proxy statement of Balanced Fund and the
prospectus of Global Allocation with respect to the transaction
contemplated herein, and any supplement or amendment thereto or to the
documents therein (as amended, the "N-14 Registration Statement"), on the
effective date of the N-14 Registration Statement, at the time of the
shareholders' meeting referred to in Section 6(a) of this Agreement and on
the Exchange Date, insofar as it relates to Balanced Fund (i) complied or
will comply in all material respects with the provisions of the 1933 Act,
the 1934 Act and the 1940 Act and the rules and regulations thereunder, and
(ii) did not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading; and the prospectus included
therein did not or will not contain any untrue statement of a material fact
or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties in
this subsection shall apply only to statements in or omissions from the N-
14 Registration Statement made in reliance upon and in conformity with
information furnished by Balanced Fund for use in the N-14 Registration
Statement as provided in Section 11 of this Agreement.
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(p) Balanced Fund is authorized to issue 2,000,000,000 shares of common
stock, par value $.01 per share, divided into four classes, designated
Class A, Class B, Class C and Class D Common Stock, each of which consists
of 500,000,000 shares, each outstanding share of which is fully paid, and
nonassessable and has full voting rights.
(q) The books and records of Balanced Fund made available to Global
Allocation and/or its counsel are substantially true and correct and
contain no material misstatements or omissions with respect to the
operations of Balanced Fund.
(r) Balanced Fund will not sell or otherwise dispose of any of the shares
of Global Allocation to be received in the Reorganization, except in
distribution to the shareholders of Balanced Fund.
2. Representations and Warranties of Global Allocation.
Global Allocation represents and warrants to, and agrees with, Balanced Fund
that:
(a) Global Allocation is a corporation duly organized, validly existing
and in good standing in conformity with the laws of the State of Maryland,
and has the power to own all of its assets and to carry out this Agreement.
Global Allocation has all necessary Federal, state and local authorizations
to carry on its business as it is now being conducted and to carry out this
Agreement.
(b) Global Allocation is duly registered under the 1940 Act as a non-
diversified, open-end management investment company (File No. 811-5576),
and such registration has not been revoked or rescinded and is in full
force and effect. Global Allocation has elected and qualified for the
special tax treatment afforded RICs under Sections 851-855 of the Code at
all times since its inception, and intends to continue to so qualify both
until consummation of the Reorganization and thereafter.
(c) Balanced Fund has been furnished with a statement of assets and
liabilities and a schedule of investments of Global Allocation, each as of
October 31, 1994, said financial statements having been examined by
Deloitte & Touche LLP, independent public accountants. An unaudited
statement of assets and liabilities of Global Allocation and an unaudited
schedule of investments of Global Allocation, each as of the Valuation
Time, will be furnished to Balanced Fund at or prior to the Exchange Date
for the purpose of determining the number of shares of Global Allocation to
be issued pursuant to Section 4 of this Agreement; and each will fairly
present the financial position of Global Allocation as of the Valuation
Time in conformity with generally accepted accounting principles applied on
a consistent basis.
(d) Balanced Fund has been furnished with the prospectus and statement of
additional information of Global Allocation, dated February 27, 1995, and
said prospectus and statement of additional information do not contain any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(e) Balanced Fund has been furnished with Global Allocation's Semi-Annual
Report to Shareholders for the six months ended April 30, 1995, and the
unaudited financial statements appearing therein fairly present the
financial position of Global Allocation as of the respective dates
indicated, in conformity with generally accepted accounting principles
applied on a consistent basis.
(f) Global Allocation has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary
action of its Board of Directors and this Agreement constitutes a valid and
binding contract enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto.
(g) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Global Allocation, threatened against
Global Allocation which assert liability on the part of Global Allocation
or which materially affect its financial condition or its ability to
consummate the
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Reorganization. Global Allocation is not charged with or, to the best of
its knowledge, threatened with any violation or investigation of any
possible violation of any provisions of any Federal, state or local law or
regulation or administrative ruling relating to any aspect of its business.
(h) Global Allocation is not a party to or obligated under any provision
of its Articles of Incorporation, as amended, or its by-laws, as amended,
or any contract or other commitment or obligation, and is not subject to
any order or decree which would be violated by its execution of or
performance under this Agreement.
(i) There are no material contracts outstanding to which Global
Allocation is a party that have not been disclosed in the N-14 Registration
Statement or will not otherwise be disclosed to Balanced Fund prior to the
Valuation Time.
(j) Global Allocation has no known liabilities of a material amount,
contingent or otherwise, other than those shown on Global Allocation's
statements of assets and liabilities referred to above, those incurred in
the ordinary course of its business as an investment company since October
31, 1994 and those incurred in connection with the Reorganization. As of
the Valuation Time, Global Allocation will advise Balanced Fund in writing
of all known liabilities, contingent or otherwise, whether or not incurred
in the ordinary course of business, existing or accrued as of such time.
(k) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Global
Allocation of the Reorganization, except such as may be required under the
1933 Act, the 1934 Act, the 1940 Act or state securities laws.
(l) The N-14 Registration Statement, on its effective date, at the time
of the shareholders' meeting referred to in Section 6(a) of this Agreement
and at the Exchange Date, insofar as it relates to Global Allocation (i)
complied or will comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) did not or will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
prospectus included therein did not or will not contain any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
representations and warranties in this subsection only shall apply to
statements in or omissions from the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by Global
Allocation for use in the N-14 Registration Statement as provided in
Section 11 of this Agreement.
(m) Global Allocation is authorized to issue 2,200,000,000 shares of
common stock, par value $.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D Common Stock, 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, each outstanding share of which
is fully paid and nonassessable and has full voting rights.
(n) The Global Allocation shares to be issued to Balanced Fund pursuant
to this Agreement will have been duly authorized and, when issued and
delivered pursuant to this Agreement, will be legally and validly issued
and will be fully paid and nonassessable and will have full voting rights,
and no shareholder of Global Allocation will have any preemptive right of
subscription or purchase in respect thereof.
(o) At or prior to the Exchange Date, the Global Allocation shares to be
transferred to Balanced Fund on the Exchange Date will be duly qualified
for offering to the public in all states of the United States in which the
sale of shares of Global Allocation presently are qualified, and there are
a sufficient number of such shares registered under the 1933 Act and with
each pertinent state securities commission to permit the transfers
contemplated by this Agreement to be consummated.
(p) At or prior to the Exchange Date, Global Allocation will have
obtained any and all regulatory, Director and shareholder approvals,
necessary to issue the shares of Global Allocation to Balanced Fund.
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3. The Reorganization.
(a) Subject to receiving the requisite approval of the shareholders of
Balanced Fund, and to the other terms and conditions contained herein,
Balanced Fund agrees to convey, transfer and deliver to Global Allocation
for the benefit of Global Allocation, and Global Allocation agrees to
acquire from Balanced Fund for the benefit of Global Allocation, on the
Exchange Date all of the Investments (including interest accrued as of the
Valuation Time on debt instruments) of Balanced Fund, and assume
substantially all of the liabilities of Balanced Fund, in exchange solely
for that number of shares of Global Allocation provided in Section 4 of
this Agreement. Pursuant to this Agreement, as soon as practicable Balanced
Fund will distribute all Global Allocation shares received by it to its
shareholders in exchange for their corresponding Balanced Fund shares. Such
distribution shall be accomplished by the opening of shareholder accounts
on the stock ledger records of Global Allocation in the amounts due the
shareholders of Balanced Fund based on their respective holdings in
Balanced Fund as of the Valuation Time.
(b) Balanced Fund will pay or cause to be paid to Global Allocation any
interest it receives on or after the Exchange Date with respect to the
Investments transferred to Global Allocation hereunder.
(c) The Valuation Time shall be 15 minutes after the close of business on
the New York Stock Exchange (generally 4:00 p.m. New York time), on March
15, 1996, or such earlier or later day and time as may be mutually agreed
upon in writing (the "Valuation Time").
(d) Global Allocation will acquire substantially all of the assets of,
and assume all of the known liabilities of, Balanced Fund, except that
recourse for such liabilities will be limited to the net assets of Balanced
Fund acquired by Global Allocation. The known liabilities of Balanced Fund
as of the Valuation Time shall be confirmed in writing to Global Allocation
by Balanced Fund pursuant to Section 1(k) of this Agreement.
(e) Global Allocation and Balanced Fund will jointly file Articles of
Transfer with the State Department of Assessments and Taxation of Maryland
and any such other instrument as may be required by the State of Maryland
to effect the transfer of Investments of Balanced Fund to Global
Allocation.
(f) Balanced Fund will be dissolved following the Exchange Date by filing
Articles of Dissolution with the State Department of Assessments and
Taxation of Maryland.
4. Issuance and Valuation of Global Allocation Shares in the Reorganization.
Full Global Allocation shares, and to the extent necessary, a fractional
Global Allocation share, of an aggregate net asset value equal to the net asset
value of the assets of Balanced Fund acquired, determined as hereinafter
provided, reduced by the amount of liabilities of Balanced Fund assumed by
Global Allocation, shall be issued by Global Allocation in exchange for such
assets of Balanced Fund. The net asset value of each of Balanced Fund and
Global Allocation shall be determined in accordance with the procedures
described in the prospectus of Global Allocation dated February 27, 1995 as of
the Valuation Time. Such valuation and determination shall be made by Global
Allocation in cooperation with Balanced Fund. Global Allocation shall issue its
Class A, Class B, Class C and Class D shares to Balanced Fund in four
certificates or share deposit receipts (one in respect of each Class)
registered in the name of Balanced Fund. Balanced Fund shall distribute
Corresponding Shares of Global Allocation to its shareholders by redelivering
such certificates to Merrill Lynch Financial Data Services, Inc.
5. Payment of Expenses.
(a) With respect to expenses incurred in connection with the
Reorganization, (i) Global Allocation shall pay all expenses incurred which
are attributable solely to Global Allocation and the conduct of its
business, (ii) Balanced Fund shall pay all expenses incurred which are
attributable solely to Balanced Fund and the conduct of its business, and
(iii) Balanced Fund and Global Allocation shall pay, subsequent to the
Exchange Date and pro rata according to each Fund's net assets as of the
Valuation Time, all expenses incurred in connection with the
Reorganization, including, but not limited to, all costs
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related to the preparation and distribution of the N-14 Registration
Statement and obtaining the private letter ruling from the Internal Revenue
Service. Such fees and expenses shall include legal, accounting and state
securities or blue sky fees, printing costs, filing fees, portfolio
transfer taxes (if any), and any similar expenses incurred in connection
with the Reorganization. Balanced Fund shall pay all expenses associated
with its dissolution under Maryland law and the termination of its
registration as an investment company under the 1940 Act.
(b) If for any reason the Reorganization is not consummated, no party
shall be liable to any other party for any damages resulting therefrom,
including, without limitation, consequential damages.
6. Covenants of Balanced Fund and Global Allocation.
(a) Balanced Fund agrees to call a special meeting of its shareholders as
soon as is practicable after the effective date of the N-14 Registration
Statement for the purpose of considering the Reorganization as described in
this Agreement, and it shall be a condition to the obligations of each of
the parties hereto that the holders of a majority of the shares of Balanced
Fund issued and outstanding and entitled to vote thereon, shall have
approved this Agreement at such a meeting at or prior to the Valuation
Time.
(b) Balanced Fund and Global Allocation each covenants to operate its
respective business as presently conducted between the date hereof and the
Exchange Date.
(c) Balanced Fund agrees that following the consummation of the
Reorganization, it will dissolve in accordance with the laws of the State
of Maryland and any other applicable law, it will not make any
distributions of any Global Allocation shares other than to the
shareholders of Balanced Fund and without first paying or adequately
providing for the payment of all of Balanced Fund's liabilities not assumed
by Global Allocation, if any, and on and after the Exchange Date it shall
not conduct any business except in connection with its dissolution.
(d) Balanced Fund undertakes that if the Reorganization is consummated,
it will file an application pursuant to Section 8(f) of the 1940 Act for an
order declaring that Balanced Fund has ceased to be a registered investment
company.
(e) Global Allocation will file the N-14 Registration Statement with the
Securities and Exchange Commission (the "Commission") and will use its best
efforts to provide that the N-14 Registration Statement becomes effective
as promptly as practicable. Balanced Fund and Global Allocation agree to
cooperate fully with each other, and each will furnish to the other the
information relating to itself to be set forth in the N-14 Registration
Statement as required by the 1933 Act, the 1934 Act, the 1940 Act, and the
rules and regulations thereunder and the state securities or blue sky laws.
(f) Global Allocation agrees to advise Balanced Fund promptly in writing
if at any time prior to the Valuation Time the assets of Balanced Fund
include any assets which Global Allocation is not permitted, or reasonably
believes to be unsuitable for it, to acquire, including without limitation
any security which, prior to its acquisition by Balanced Fund, Global
Allocation has informed Balanced Fund is unsuitable for Global Allocation
to acquire. Moreover, Global Allocation has no plan or intention to sell or
otherwise dispose of the assets of Balanced Fund to be acquired in the
Reorganization, except for dispositions made in the ordinary course of
business.
(g) Balanced Fund and Global Allocation each agrees that by the Exchange
Date all of its Federal and other tax returns and reports required to be
filed on or before such date shall have been filed and all taxes shown as
due on said returns either have been paid or adequate liability reserves
have been provided for the payment of such taxes. In connection with this
covenant, the funds agree to cooperate with each other in filing any tax
return, amended return or claim for refund, determining a liability for
taxes or a right to a refund of taxes or participating in or conducting any
audit or other proceeding in respect of taxes. Global Allocation agrees to
retain for a period of ten (10) years following the Exchange Date all
returns, schedules and work papers and all material records or other
documents relating to tax matters of Balanced Fund for its taxable period
first ending after the Exchange Date and for all prior taxable periods. Any
information obtained under this subsection shall be kept confidential
except as otherwise
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may be necessary in connection with the filing of returns or claims for
refund or in conducting an audit or other proceeding. After the Exchange
Date, Balanced Fund shall prepare, or cause its agents to prepare, any
Federal, state or local tax returns, including any Forms 1099, required to
be filed by Balanced Fund with respect to Balanced Fund's final taxable
year ending with its complete liquidation and for any prior periods or
taxable years and further shall cause such tax returns and Forms 1099 to be
duly filed with the appropriate taxing authorities. Notwithstanding the
aforementioned provisions of this subsection, any expenses incurred by
Balanced Fund (other than for payment of taxes) in connection with the
preparation and filing of said tax returns and Forms 1099 after the
Exchange Date shall be borne by Balanced Fund to the extent such expenses
have been accrued by Balanced Fund in the ordinary course without regard to
the Reorganization; any excess expenses shall be borne by Merrill Lynch
Asset Management, L.P. ("MLAM") at the time such tax returns and Forms 1099
are prepared.
(h) Balanced Fund agrees to mail to its shareholders of record entitled
to vote at the special meeting of shareholders at which action is to be
considered regarding this Agreement, in sufficient time to comply with
requirements as to notice thereof, a combined Proxy Statement and
Prospectus which complies in all material respects with the applicable
provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940
Act, and the rules and regulations, respectively, thereunder.
(i) Following the consummation of the Reorganization, Global Allocation
expects to stay in existence and continue its business as an open-end
management investment company registered under the 1940 Act.
7. Exchange Date.
(a) Delivery of the assets of Balanced Fund to be transferred, together
with any other Investments, and the Global Allocation shares to be issued,
shall be made at the offices of Shereff, Friedman, Hoffman & Goodman, LLP,
919 Third Avenue, New York, New York 10048, at 10:00 A.M. on the next full
business day following the Valuation Time, or at such other place, time and
date agreed to by Balanced Fund and Global Allocation, the date and time
upon which such delivery is to take place being referred to herein as the
"Exchange Date." To the extent that any Investments, for any reason, are
not transferable on the Exchange Date, Balanced Fund shall cause such
Investments to be transferred to Global Allocation's account with Brown
Brothers Harriman & Co. at the earliest practicable date thereafter.
(b) Balanced Fund will deliver to Global Allocation on the Exchange Date
confirmations or other adequate evidence as to the tax basis of each of the
Investments delivered to Global Allocation hereunder, certified by Deloitte
& Touche LLP.
(c) As soon as practicable after the close of business on the Exchange
Date, Balanced Fund shall deliver to Global Allocation a list of the names
and addresses of all of the shareholders of record of Balanced Fund on the
Exchange Date and the number of shares of Balanced Fund owned by each such
shareholder, certified to the best of their knowledge and belief by the
transfer agent for Balanced Fund or by its President.
8. Balanced Fund Conditions.
The obligations of Balanced Fund hereunder shall be subject to the following
conditions:
(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the affirmative vote of the holders of a
majority of the shares of Balanced Fund, issued and outstanding and
entitled to vote thereon, voting together as a single class, and by the
Board of Directors of Global Allocation; and that Global Allocation shall
have delivered to Balanced Fund a copy of the resolution approving this
Agreement adopted by Global Allocation's Board of Directors, certified by
the Secretary of Global Allocation.
(b) That Global Allocation shall have furnished to Balanced Fund a
statement of Global Allocation's assets and liabilities, with values
determined as provided in Section 4 of this Agreement,
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<PAGE>
together with a schedule of its investments, all as of the Valuation Time,
certified on Global Allocation's behalf by its President (or any Vice
President) and its Treasurer, and a certificate signed by Global
Allocation's President (or any Vice President) and its Treasurer, dated as
of the Exchange Date, certifying that as of the Valuation Time and as of
the Exchange Date there has been no material adverse change in the
financial position of Global Allocation since October 31, 1994, other than
changes in its portfolio securities since that date or changes in the
market value of its portfolio securities.
(c) That Global Allocation shall have furnished to Balanced Fund a
certificate signed by Global Allocation's President (or any Vice President)
and its Treasurer, dated as of the Exchange Date, certifying that, as of
the Valuation Time and as of the Exchange Date all representations and
warranties of Global Allocation made in this Agreement are true and correct
in all material respects with the same effect as if made at and as of such
dates, and that Global Allocation has complied with all of the agreements
and satisfied all of the conditions on its part to be performed or
satisfied at or prior to each of such dates.
(d) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement.
(e) That Balanced Fund shall have received an opinion of Galland,
Kharasch, Morse & Garfinkle, P.C., Maryland counsel to Global Allocation,
in form satisfactory to Balanced Fund and dated the Exchange Date, to the
effect that (i) Global Allocation is a corporation duly organized, validly
existing and in good standing in conformity with the laws of the State of
Maryland; (ii) the Corresponding Shares of Global Allocation to be
delivered to Balanced Fund shareholders as provided for by this Agreement
are duly authorized and, upon delivery, will be validly issued and
outstanding and fully paid and nonassessable by Global Allocation, and no
shareholder of Global Allocation has any preemptive right to subscription
or purchase in respect thereof (pursuant to the Articles of Incorporation,
as amended, or the by-laws of Global Allocation or, to the best of such
counsel's knowledge, otherwise); (iii) this Agreement has been duly
authorized, executed and delivered by Global Allocation, and represents a
valid and binding contract, enforceable in accordance with its terms,
subject to the effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto; provided, that such
counsel shall express no opinion with respect to the application of
equitable principles in any proceeding, whether at law or in equity; (iv)
the execution and delivery of this Agreement does not, and the consummation
of the Reorganization will not, violate the Articles of Incorporation, as
amended, the by-laws of Global Allocation or Maryland law; (v) no consent,
approval, authorization or order of any Maryland court or governmental
authority is required for the consummation by Global Allocation of the
Reorganization, except such as have been obtained under Maryland law; and
(vi) such opinion is solely for the benefit of Balanced Fund and its
Directors and officers. In giving the opinion set forth above, Galland,
Kharasch, Morse & Garfinkle, P.C. may state that it is relying on
certificates of officers of Balanced Fund and Global Allocation with regard
to matters of fact and certain certificates and written statements of
government officials with respect to the good standing of Balanced Fund and
Global Allocation.
(f) That Balanced Fund shall have received an opinion of Brown & Wood, as
counsel to Global Allocation, in form satisfactory to Balanced Fund and
dated the Exchange Date, to the effect that (i) no consent, approval,
authorization or order of any United States Federal court or governmental
authority is required for the consummation by Global Allocation of the
Reorganization, except such as have been obtained under the 1933 Act, the
1934 Act and the 1940 Act and the published rules and regulations of the
Commission thereunder and under state securities or blue sky laws; (ii) the
N-14 Registration Statement has become effective under the 1933 Act, no
stop order suspending the effectiveness of the N-14 Registration Statement
has been issued and no proceedings for that purpose have been instituted or
are pending or contemplated under the 1933 Act, and the N-14 Registration
Statement, and each amendment or supplement thereto, as of their respective
effective dates, appear on their face to be appropriately responsive in all
material respects to the requirements of the 1933 Act, the 1934 Act and the
1940 Act and the published rules and regulations of the Commission
thereunder; (iii) the descriptions
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<PAGE>
in the N-14 Registration Statement of statutes, legal and governmental
proceedings and contracts and other documents are accurate and fairly
present the information required to be shown; and (iv) such counsel do not
know of any statutes, legal or governmental proceedings or contracts or
other documents related to the Reorganization of a character required to be
described in the N-14 Registration Statement which are not described
therein or, if required to be filed, filed as required; (v) the execution
and delivery of this Agreement does not, and the consummation of the
Reorganization will not, violate any material provision of any agreement
(known to such counsel) to which Global Allocation is a party or by which
Global Allocation is bound; (vi) Global Allocation, to the knowledge of
such counsel, is not required to qualify to do business as a foreign
corporation in any jurisdiction except as may be required by state
securities or blue sky laws, and except where each has so qualified or the
failure so to qualify would not have a material adverse effect on Global
Allocation, or its shareholders; (vii) such counsel does not have actual
knowledge of any material suit, action or legal or administrative
proceeding pending or threatened against Global Allocation, the unfavorable
outcome of which would materially and adversely affect Global Allocation;
and (viii) all corporate actions required to be taken by Global Allocation
to authorize this Agreement and to effect the Reorganization have been duly
authorized by all necessary corporate actions on the part of Global
Allocation. Such opinion also shall state that (x) while such counsel
cannot make any representation as to the accuracy or completeness of
statements of fact in the N-14 Registration Statement or any amendment or
supplement thereto, nothing has come to their attention that would lead
them to believe that, on the respective effective dates of the N-14
Registration Statement and any amendment or supplement thereto, (1) the N-
14 Registration Statement or any amendment or supplement thereto contained
any untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading; and (2) the prospectus included in the N-14
Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (y) such counsel do not express any opinion or belief as to
the financial statements or other financial or statistical data relating to
Global Allocation contained or incorporated by reference in the N-14
Registration Statement. In giving the opinion set forth above, Brown & Wood
may state that it is relying on certificates of officers of Global
Allocation with regard to matters of fact and certain certificates and
written statements of governmental officials with respect to the good
standing of Global Allocation and on the opinion of Galland, Kharasch,
Morse & Garfinkle, P.C. as to matters of Maryland law.
(g) That Balanced Fund shall have received a private letter ruling from
the Internal Revenue Service to the effect that for Federal income tax
purposes (i) the transfer of substantially all of the Investments of
Balanced Fund to Global Allocation in exchange solely for shares of Global
Allocation as provided in this Agreement will constitute a reorganization
within the meaning of Section 368(a)(1)(C) of the Code, and Balanced Fund
and Global Allocation will each be deemed to be a "party" to the
Reorganization within the meaning of Section 368(b); (ii) in accordance
with Section 361(a) of the Code, no gain or loss will be recognized to
Balanced Fund as a result of the asset transfer solely in exchange for
Global Allocation shares or on the distribution of the Global Allocation
stock to Balanced Fund shareholders under Section 361(c)(1); (iii) under
Section 1032 of the Code, no gain or loss will be recognized to Global
Allocation on the receipt of assets of Balanced Fund in exchange for Global
Allocation shares; (iv) in accordance with Section 354(a)(1) of the Code,
no gain or loss will be recognized to the shareholders of Balanced Fund on
the receipt of Corresponding Shares of Global Allocation in exchange for
their shares of Balanced Fund; (v) in accordance with Section 362(b) of the
Code, the tax basis of the Balanced Fund assets in the hands of Global
Allocation will be the same as the tax basis of such assets in the hands of
Balanced Fund immediately prior to the consummation of the Reorganization;
(vi) in accordance with Section 358 of the Code, immediately after the
Reorganization, the tax basis of the Corresponding Shares of Global
Allocation received by the shareholders of Balanced Fund in the
Reorganization will be equal, in the aggregate, to the tax basis of the
shares of Balanced Fund surrendered in exchange; (vii) in accordance with
Section 1223 of the Code, a shareholder's holding period for the
Corresponding Shares of Global Allocation will be determined by including
the period for which such shareholder held the shares of Balanced Fund
exchanged therefor,
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<PAGE>
provided, that such Balanced Fund shares were held as a capital asset;
(viii) in accordance with Section 1223 of the Code, Global Allocation's
holding period with respect to the Balanced Fund assets transferred will
include the period for which such assets were held by Balanced Fund; and
(ix) the taxable year of Balanced Fund will end on the effective date of
the Reorganization and pursuant to Section 381(a) of the Code and
regulations thereunder, Global Allocation will succeed to and take into
account certain tax attributes of Balanced Fund, such as earnings and
profits, capital loss carryovers and method of accounting.
(h) That all proceedings taken by Global Allocation and its counsel in
connection with the Reorganization and all documents incidental thereto
shall be satisfactory in form and substance to Balanced Fund.
(i) That the N-14 Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of Global Allocation,
contemplated by the Commission.
(j) That Balanced Fund shall have received from Deloitte & Touche LLP a
letter dated as of the effective date of the N-14 Registration Statement
and a similar letter dated within five days prior to the Exchange Date, in
form and substance satisfactory to Balanced Fund, to the effect that (i)
they are independent public accountants with respect to Global Allocation
within the meaning of the 1933 Act and the applicable published rules and
regulations thereunder; (ii) in their opinion, the financial statements and
supplementary information of Global Allocation included or incorporated by
reference in the N-14 Registration Statement and reported on by them comply
as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder; and (iii) on the basis of limited procedures agreed upon by
Balanced Fund and Global Allocation and described in such letter (but not
an examination in accordance with generally accepted auditing standards)
consisting of a reading of any unaudited interim financial statements and
unaudited supplementary information of Global Allocation included in the N-
14 Registration Statement, and inquiries of certain officials of Global
Allocation responsible for financial and accounting matters, nothing came
to their attention that caused them to believe that (a) such unaudited
financial statements and related unaudited supplementary information do not
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder, (b) such unaudited financial statements are not fairly
presented in conformity with generally accepted accounting principles,
applied on a basis substantially consistent with that of the audited
financial statements, or (c) such unaudited supplementary information is
not fairly stated in all material respects in relation to the unaudited
financial statements taken as a whole; and (iv) on the basis of limited
procedures agreed upon by Balanced Fund and Global Allocation and described
in such letter (but not an examination in accordance with generally
accepted auditing standards), the information relating to Global Allocation
appearing in the N-14 Registration Statement, which information is
expressed in dollars (or percentages derived from such dollars) (with the
exception of performance comparisons, if any), if any, has been obtained
from the accounting records of Global Allocation or from schedules prepared
by officials of Global Allocation having responsibility for financial and
reporting matters and such information is in agreement with such records,
schedules or computations made therefrom.
(k) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall be instituted or threatened which
would materially affect the financial condition of Global Allocation or
would prohibit the Reorganization.
(l) That Balanced Fund shall have received from the Commission such
orders or interpretations as Shereff, Friedman, Hoffman & Goodman, LLP, as
counsel to Balanced Fund, deems reasonably necessary or desirable under the
1933 Act and the 1940 Act in connection with the Reorganization, provided,
that such counsel shall have requested such orders as promptly as
practicable, and all such orders shall be in full force and effect.
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<PAGE>
9. Global Allocation Conditions.
The obligations of Global Allocation hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the Board of Directors of Balanced Fund and by
the affirmative vote of the holders of a majority of the shares of common
stock of Balanced Fund issued and outstanding and entitled to vote thereon,
voting together as a single class; and that Balanced Fund shall have
delivered to Global Allocation a copy of the resolution approving this
Agreement adopted by Balanced Fund's Board of Directors, and a certificate
setting forth the vote Balanced Fund shareholders obtained, each certified
by the Secretary of Balanced Fund.
(b) That Balanced Fund shall have furnished to Global Allocation a
statement of Balanced Fund's assets and liabilities, with values determined
as provided in Section 4 of this Agreement, together with a schedule of
investments with their respective dates of acquisition and tax costs, all
as of the Valuation Time, certified on Balanced Fund's behalf by its
President (or any Vice President) and its Treasurer, and a certificate of
both such officers, dated the Exchange Date, certifying that as of the
Valuation Time and as of the Exchange Date there has been no material
adverse change in the financial position of Balanced Fund since September
30, 1995, other than changes in the Investments since that date or changes
in the market value of the Investments.
(c) That Balanced Fund shall have furnished to Global Allocation a
certificate signed by Balanced Fund's President (or any Vice President) and
its Treasurer, dated the Exchange Date, certifying that as of the Valuation
Time and as of the Exchange Date all representations and warranties of
Balanced Fund made in this Agreement are true and correct in all material
respects with the same effect as if made at and as of such dates and
Balanced Fund has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied at or prior to such
dates.
(d) That Balanced Fund shall have delivered to Global Allocation a letter
from Deloitte & Touche LLP, dated the Exchange Date, stating that such firm
has performed a limited review of the Federal, state and local income tax
returns of Balanced Fund for the period ended September 30, 1995 (which
returns originally were prepared and filed by Balanced Fund), and that
based on such limited review, nothing came to their attention which caused
them to believe that such returns did not properly reflect, in all material
respects, the Federal, state and local income taxes of Balanced Fund for
the period covered thereby; and that for the period from October 1, 1995,
to and including the Exchange Date and for any taxable year of Balanced
Fund ending upon the liquidation of Balanced Fund, such firm has performed
a limited review to ascertain the amount of applicable Federal, state and
local taxes, and has determined that either such amount has been paid or
reserves established for payment of such taxes, this review to be based on
unaudited financial data; and that based on such limited review, nothing
has come to their attention which caused them to believe that the taxes
paid or reserves set aside for payment of such taxes were not adequate in
all material respects for the satisfaction of Federal, state and local
taxes for the period from October 1, 1995, to and including the Exchange
Date and for any taxable year of Balanced Fund ending upon the liquidation
of Balanced Fund or that Balanced Fund would not continue to qualify as a
regulated investment company for Federal income tax purposes.
(e) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement.
(f) That Global Allocation shall have received an opinion of Galland,
Kharasch, Morse & Garfinkle, P.C., Maryland counsel to Balanced Fund, in
form satisfactory to Global Allocation and dated the Exchange Date, to the
effect that (i) Balanced Fund is a corporation duly organized, validly
existing and in good standing in conformity with the laws of the State of
Maryland; (ii) this Agreement has been duly authorized, executed and
delivered by Balanced Fund, and represents a valid and binding contract,
enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally
I-12
<PAGE>
and court decisions with respect thereto, provided, that such counsel shall
express no opinion with respect to the application of equitable principles
in any proceeding, whether at law or in equity; (iii) Balanced Fund has the
power to sell, assign, transfer and deliver the assets transferred by it
hereunder and, upon consummation of the Reorganization in accordance with
the terms of this Agreement, Balanced Fund will have duly transferred such
assets and liabilities in accordance with this Agreement; (iv) the
execution and delivery of this Agreement does not, and the consummation of
the Reorganization will not, violate the Articles of Incorporation, as
amended, the by-laws of Balanced Fund or Maryland law; (v) no consent,
approval, authorization or order of any Maryland court or governmental
authority is required for the consummation by Balanced Fund of the
Reorganization, except such as have been obtained under Maryland law; and
(vi) such opinion is solely for the benefit of Global Allocation and its
Directors and officers. In giving the opinion set forth above, Galland,
Kharasch, Morse & Garfinkle, P.C. may state that it is relying on
certificates of officers of Balanced Fund and Global Allocation with regard
to matters of fact and certain certificates and written statements of
government officials with respect to the good standing of Balanced Fund and
Global Allocation.
(g) That Global Allocation shall have received an opinion of Shereff,
Friedman, Hoffman & Goodman, LLP, as counsel to Balanced Fund, in form
satisfactory to Global Allocation and dated the Exchange Date, with respect
to the matters specified in Section 8(f) of this Agreement and such other
matters as Global Allocation reasonably may deem necessary or desirable.
(h) That Global Allocation shall have received a private letter ruling
from the Internal Revenue Service with respect to the matters specified in
Section 8(g) of this Agreement.
(i) That Global Allocation shall have received from Deloitte & Touche LLP
a letter dated as of the effective date of the N-14 Registration Statement
and a similar letter dated within five days prior to the Exchange Date, in
form and substance satisfactory to Global Allocation, to the effect that
(i) they are independent public accountants with respect to Balanced Fund
within the meaning of the 1933 Act and the applicable published rules and
regulations thereunder; (ii) in their opinion, the financial statements and
supplementary information of Balanced Fund included or incorporated by
reference in the N-14 Registration Statement and reported on by them comply
as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder; (iii) on the basis of limited procedures agreed upon by
Balanced Fund and Global Allocation and described in such letter (but not
an examination in accordance with generally accepted auditing standards)
consisting of a reading of any unaudited interim financial statements and
unaudited supplementary information of Balanced Fund included in the N-14
Registration Statement, and inquiries of certain officials of Balanced Fund
responsible for financial and accounting matters, nothing came to their
attention that caused them to believe that (a) such unaudited financial
statements and related unaudited supplementary information do not comply as
to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder, (b) such unaudited financial statements are not fairly
presented in conformity with generally accepted accounting principles,
applied on a basis substantially consistent with that of the audited
financial statements, or (c) such unaudited supplementary information is
not fairly stated in all material respects in relation to the unaudited
financial statements taken as a whole; and (iv) on the basis of limited
procedures agreed upon by Global Allocation and Balanced Fund and described
in such letter (but not an examination in accordance with generally
accepted auditing standards), the information relating to Balanced Fund
appearing in the N-14 Registration Statement, which information is
expressed in dollars (or percentages derived from such dollars) (with the
exception of performance comparisons, if any), if any, has been obtained
from the accounting records of Balanced Fund or from schedules prepared by
officials of Balanced Fund having responsibility for financial and
reporting matters and such information is in agreement with such records,
schedules or computations made therefrom.
(j) That the Investments to be transferred to Global Allocation shall not
include any assets or liabilities which Global Allocation, by reason of
charter limitations or otherwise, may not properly acquire or assume.
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<PAGE>
(k) That the N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of Balanced Fund, contemplated by
the Commission.
(l) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall be instituted or threatened which
would materially affect the financial condition of Balanced Fund or would
prohibit the Reorganization.
(m) That Global Allocation shall have received from the Commission such
orders or interpretations as Brown & Wood, as counsel to Global Allocation,
deems reasonably necessary or desirable under the 1933 Act and the 1940 Act
in connection with the Reorganization, provided, that such counsel shall
have requested such orders as promptly as practicable, and all such orders
shall be in full force and effect.
(n) That all proceedings taken by Balanced Fund and its counsel in
connection with the Reorganization and all documents incidental thereto
shall be satisfactory in form and substance to Global Allocation.
(o) That prior to the Exchange Date, Balanced Fund shall have declared a
dividend or dividends which, together with all such previous dividends,
shall have the effect of distributing to its shareholders all of its
investment company taxable income for the period from October 1, 1995 to
and including the Exchange Date, if any (computed without regard to any
deduction for dividends paid), and all of its net capital gain, if any,
realized for the period from October 1, 1995 to and including the Exchange
Date.
10. Termination, Postponement and Waivers.
(a) Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated and the Reorganization abandoned at any
time (whether before or after adoption thereof by the shareholders of
Balanced Fund) prior to the Exchange Date, or the Exchange Date may be
postponed, (i) by mutual consent of the Boards of Directors of Balanced
Fund and Global Allocation; (ii) by the Board of Directors of Balanced Fund
if any condition of Balanced Fund's obligations set forth in Section 8 of
this Agreement has not been fulfilled or waived by such Board; or (iii) by
the Board of Directors of Global Allocation if any condition of Global
Allocation's obligations set forth in Section 9 of this Agreement has not
been fulfilled or waived by such Board.
(b) If the transactions contemplated by this Agreement have not been
consummated by December 31, 1996, this Agreement automatically shall
terminate on that date, unless a later date is mutually agreed to by the
Boards of Directors of Balanced Fund and Global Allocation.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect,
and there shall not be any liability on the part of either Balanced Fund or
Global Allocation or persons who are their directors, trustees, officers,
agents or shareholders in respect of this Agreement.
(d) At any time prior to the Exchange Date, any of the terms or
conditions of this Agreement may be waived by the Board of Directors of
either Balanced Fund or Global Allocation, respectively (whichever is
entitled to the benefit thereof), if, in the judgment of such Board after
consultation with its counsel, such action or waiver will not have a
material adverse effect on the benefits intended under this Agreement to
the shareholders of their respective fund, on behalf of which such action
is taken. In addition, the Boards of Directors of Balanced Fund and Global
Allocation have delegated to MLAM the ability to make non-material changes
to the transaction if it deems it to be in the best interests of Balanced
Fund and Global Allocation to do so.
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<PAGE>
(e) The respective representations and warranties contained in Sections 1
and 2 of this Agreement shall expire with, and be terminated by, the
consummation of the Reorganization, and neither Balanced Fund nor Global
Allocation nor any of their officers, directors or trustees, agents or
shareholders shall have any liability with respect to such representations
or warranties after the Exchange Date. This provision shall not protect any
officer, director or trustee, agent or shareholder of Balanced Fund or
Global Allocation against any liability to the entity for which that
officer, director or trustee, agent or shareholder so acts or to its
shareholders, to which that officer, director or trustee, agent or
shareholder otherwise would be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties in the
conduct of such office.
(f) If any order or orders of the Commission with respect to this
Agreement shall be issued prior to the Exchange Date and shall impose any
terms or conditions which are determined by action of the Boards of
Directors of Balanced Fund and Global Allocation to be acceptable, such
terms and conditions shall be binding as if a part of this Agreement
without further vote or approval of the shareholders of Balanced Fund
unless such terms and conditions shall result in a change in the method of
computing the number of shares of Global Allocation to be issued to
Balanced Fund in which event, unless such terms and conditions shall have
been included in the proxy solicitation materials furnished to the
shareholders of Balanced Fund prior to the meetings at which the
Reorganization shall have been approved, this Agreement shall not be
consummated and shall terminate unless Balanced Fund promptly shall call a
special meeting of shareholders at which such conditions so imposed shall
be submitted for approval.
11. Indemnification.
(a) Balanced Fund hereby agrees to indemnify and hold Global Allocation
harmless from all loss, liability and expense (including reasonable counsel
fees and expenses in connection with the contest of any claim) which Global
Allocation may incur or sustain by reason of the fact that (i) Global
Allocation shall be required to pay any corporate obligation of Balanced
Fund, whether consisting of tax deficiencies or otherwise, based upon a
claim or claims against Balanced Fund which were omitted or not fairly
reflected in the financial statements to be delivered to Global Allocation
in connection with the Reorganization; (ii) any representations or
warranties made by Balanced Fund in this Agreement should prove to be false
or erroneous in any material respect; (iii) any covenant of Balanced Fund
has been breached in any material respect; or (iv) any claim is made
alleging that (a) the N-14 Registration Statement included any untrue
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading or (b) the Proxy Statement and Prospectus delivered to the
shareholders of Balanced Fund and forming a part of the N-14 Registration
Statement included any untrue statement of a material fact or omitted to
state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
except insofar as such claim is based on written information furnished to
Balanced Fund by Global Allocation.
(b) Global Allocation hereby agrees to indemnify and hold Balanced Fund
harmless from all loss, liability and expenses (including reasonable
counsel fees and expenses in connection with the contest of any claim)
which Balanced Fund may incur or sustain by reason of the fact that (i) any
representations or warranties made by Global Allocation in this Agreement
should prove false or erroneous in any material respect, (ii) any covenant
of Global Allocation has been breached in any material respect, or (iii)
any claim is made alleging that (a) the N-14 Registration Statement
included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein, not misleading or (b) the Proxy Statement and
Prospectus delivered to shareholders of Balanced Fund and forming a part of
the N-14 Registration Statement included any untrue statement of a material
fact or omitted to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except insofar as such claim is based on written information
furnished to Global Allocation by Balanced Fund.
I-15
<PAGE>
(c) In the event that any claim is made against Global Allocation in
respect of which indemnity may be sought by Global Allocation from Balanced
Fund under Section 11(a) of this Agreement, or in the event that any claim
is made against Balanced Fund in respect of which indemnity may be sought
by Balanced Fund from Global Allocation under Section 11(b) of this
Agreement, then the party seeking indemnification (the "Indemnified
Party"), with reasonable promptness and before payment of such claim, shall
give written notice of such claim to the other party (the "Indemnifying
Party"). If no objection as to the validity of the claim is made in writing
to the Indemnified Party by the Indemnifying Party within thirty (30) days
after the giving of notice hereunder, then the Indemnified Party may pay
such claim and shall be entitled to reimbursement therefor, pursuant to
this Agreement. If, prior to the termination of such thirty-day period,
objection in writing as to the validity of such claim is made to the
Indemnified Party, the Indemnified Party shall withhold payment thereof
until the validity of such claim is established (i) to the satisfaction of
the Indemnifying Party, or (ii) by a final determination of a court of
competent jurisdiction, whereupon the Indemnified Party may pay such claim
and shall be entitled to reimbursement thereof, pursuant to this Agreement,
or (iii) with respect to any tax claims, within seven (7) calendar days
following the earlier of (A) an agreement between Balanced Fund and Global
Allocation that an indemnity amount is payable, (B) an assessment of a tax
by a taxing authority, or (C) a "determination" as defined in Section
1313(a) of the Code. For purposes of this Section 11, the term "assessment"
shall have the same meaning as used in Chapter 63 of the Code and Treasury
Regulations thereunder, or any comparable provision under the laws of the
appropriate taxing authority. In the event of any objection by the
Indemnifying Party, the Indemnifying Party promptly shall investigate the
claim, and if it is not satisfied with the validity thereof, the
Indemnifying Party shall conduct the defense against such claim. All costs
and expenses incurred by the Indemnifying Party in connection with such
investigation and defense of such claim shall be borne by it. These
indemnification provisions are in addition to, and not in limitation of,
any other rights the parties may have under applicable law.
12. Other Matters.
(a) Pursuant to Rule 145 under the 1933 Act, and in connection with the
issuance of any shares to any person who at the time of the Reorganization
is, to its knowledge, an affiliate of a party to the Reorganization
pursuant to Rule 145(c), Global Allocation will cause to be affixed upon
the certificate(s) issued to such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT TO MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
(OR ITS STATUTORY SUCCESSOR) (THE "FUND") OR ITS PRINCIPAL
UNDERWRITER UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 OR (2) IN
THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE FUND, SUCH
REGISTRATION IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to Global
Allocation's transfer agent with respect to such shares. Balanced Fund will
provide Global Allocation on the Exchange Date with the name of any
Balanced Fund shareholder who is to the knowledge of Balanced Fund an
affiliate of Balanced Fund on such date.
(b) All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement
shall be deemed to have been material and relied upon by each of the
parties, notwithstanding any investigation made by them or on their behalf.
(c) Any notice, report or demand required or permitted by any provision
of this Agreement shall be in writing and shall be made by hand delivery,
prepaid certified mail or overnight service, addressed to Balanced Fund or
Global Allocation, in either case at 800 Scudders Mill Road, Plainsboro,
New Jersey 08536, Attn: Arthur Zeikel, President.
I-16
<PAGE>
(d) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the Reorganization,
constitutes the only understanding with respect to the Reorganization, may
not be changed except by a letter of agreement signed by each party and
shall be governed by and construed in accordance with the laws of the State
of New York applicable to agreements made and to be performed in said
state.
(e) Copies of the Articles of Incorporation, as amended and supplemented,
of Balanced Fund and Global Allocation are on file with the Department of
Assessments and Taxation of the State of Maryland and notice is hereby
given that this instrument is executed on behalf of the Directors of each
fund.
This Agreement may be executed in any number of counterparts, each of which,
when executed and delivered, shall be deemed to be an original but all such
counterparts together shall constitute but one instrument.
Merrill Lynch Balanced Fund for
Investment and Retirement, Inc.
/s/ Arthur Zeikel
By: _________________________________
President
Attest:
/s/ Jerry Weiss
_____________________________________
Secretary
Merrill Lynch Global Allocation
Fund, Inc.
/s/ Terry K. Glenn
By: _________________________________
Executive Vice President
Attest:
/s/ James W. Harshaw, III
_____________________________________
Assistant Secretary
I-17
<PAGE>
Please fold at perforation before detaching
MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and Jerry
Weiss as proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated on the reverse hereof,
all of the shares of common stock of Merrill Lynch Balanced Fund for Investment
and Retirement, Inc. (the "Fund") held of record by the undersigned on October
31, 1995 at a Special Meeting of Shareholders of the Fund to be held on
December 21, 1995, or any adjournment thereof. Such proxies are also authorized
to vote in their discretion on such other matters as may properly come before
the Meeting or any adjournment thereof.
This proxy when properly executed will be voted in the manner herein directed by
the undersigned shareholder. IF EXECUTED AND NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
Page 1
<PAGE>
FOR [ ] AGAINST [ ] ABSTAIN [ ]
1. TO CONSIDER AND ACT UPON A PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF
REORGANIZATION BETWEEN THE FUND AND MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
Please be sure to sign and date this Proxy.
Shareholder sign here Date
- --- ---------------------- ----------
Joint owner sign here Date
- --- ---------------------- ----------
NOTE: Please sign exactly as the name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
YOUR VOTE IS IMPORTANT. Please complete, sign and return this card as soon
as possible. Mark with an X in the box in blue or black ink.
Page 2
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT, INC.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Proxy Statement and Prospectus of Merrill Lynch
Balanced Fund for Investment and Retirement, Inc. ("Balanced Fund") and Merrill
Lynch Global Allocation Fund, Inc. ("Global Allocation") dated November 21,
1995 (the "Proxy Statement and Prospectus"), which has been filed with the
Securities and Exchange Commission and can be obtained, without charge, by
calling Global Allocation at 1-800-456-4587, ext. 123, or by writing to Global
Allocation at the above address. This Statement of Additional Information has
been incorporated by reference into the Proxy Statement and Prospectus.
Further information about Global Allocation is contained in and incorporated
by reference to its Prospectus, dated February 27, 1995, and its Statement of
Additional Information, dated February 27, 1995, which are incorporated by
reference into this Statement of Additional Information. Global Allocation's
Statement of Additional Information accompanies this Statement of Additional
Information.
Further information about Balanced Fund is contained in and incorporated by
reference to its Prospectus, dated January 31, 1995, and its Statement of
Additional Information, dated January 31, 1995, which are incorporated by
reference into this Statement of Additional Information. Balanced Fund's
Statement of Additional Information accompanies this Statement of Additional
Information.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS NOVEMBER 21, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information........................................................ 2
Financial Statements....................................................... 2
Global Allocation........................................................ F-1
Balanced Fund............................................................ F-35
</TABLE>
GENERAL INFORMATION
The shareholders of Merrill Lynch Balanced Fund for Investment and
Retirement, Inc. ("Balanced Fund") are being asked to approve the acquisition
of substantially all of the assets of Balanced Fund, and the assumption of
substantially all of the liabilities of Balanced Fund, by Merrill Lynch Global
Allocation Fund, Inc. ("Global Allocation"), in exchange solely for an equal
aggregate value of shares of Global Allocation (the "Reorganization"). Global
Allocation is an open-end management investment company organized as a Maryland
corporation. A Special Meeting of Shareholders of Balanced Fund to consider the
Reorganization will be held at 800 Scudders Mill Road, Plainsboro, New Jersey,
on Thursday, December 21, 1995 at 9:00 A.M.
For detailed information about the Reorganization, shareholders of Balanced
Fund should refer to the Proxy Statement and Prospectus. For further
information about Global Allocation, Balanced Fund shareholders should refer to
the Global Allocation Statement of Additional Information, dated February 27,
1995, which accompanies this Statement of Additional Information and is
incorporated by reference herein. For further information about Balanced Fund,
shareholders should refer to the Balanced Fund Statement of Additional
Information, dated January 31, 1995, which accompanies this Statement of
Additional Information and is incorporated by reference herein.
FINANCIAL STATEMENTS
In accordance with Part B, Item 14(a) of Form N-14, pro forma financial
statements reflecting consummation of the Reorganization have not been prepared
since the net asset value of Balanced Fund does not exceed 10% of Global
Allocation's net asset value, as of November 15, 1995. Financial statements for
Balanced Fund and Global Allocation individually are set forth below.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
Audited financial statements and accompanying notes for the year ended
October 31, 1994, and the independent auditors' report thereon, dated December
7, 1994, of Global Allocation are contained in its Statement of Additional
Information, dated February 27, 1995, which accompanies this Statement of
Additional Information and is incorporated by reference herein.
Unaudited financial statements and accompanying notes for Global Allocation
for the nine months ended July 31, 1995 are set forth below.
2
<PAGE>
THE FOLLOWING INTERIM FINANCIAL STATEMENTS FOR GLOBAL ALLOCATION FOR THE PERIOD
ENDED JULY 31, 1995 ARE UNAUDITED.
These unaudited interim financial statements reflect all adjustments which
are, in the opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a recurring
nature.
F-1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in US dollars)
COUNTRY
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Australia
Banking 2,645,800 Westpac Banking Corp. $ 5,614,396 $ 9,873,993 0.1%
Food 7,916,000 Goodman Fielder Wattie Ltd. 8,324,587 6,610,414 0.1
Insurance 1,557,557 GIO Australia Holdings, Ltd. 2,671,589 2,935,138 0.0
Multi-Industry 1,500,000 Pacific Dunlop, Ltd. 4,092,789 3,502,860 0.1
Tobacco 2,099,800 Rothmans Holdings, Ltd. 7,893,919 6,905,297 0.1
1,242,300 WD & HO Wills Holdings, Ltd. 1,389,502 1,927,925 0.0
-------------- -------------- ------
9,283,421 8,833,222 0.1
Total Common Stocks in Australia 29,986,782 31,755,627 0.4
Austria
Utilities--Electric 121,750 Oesterreichische Elektrizitats AG
(Verbund) 7,780,068 8,942,338 0.1
Total Common Stocks in Austria 7,780,068 8,942,338 0.1
Canada
Beverage 800,000 Cott Corp. (USD) 7,512,145 9,100,000 0.1
Metals 100,000 Inco Ltd. (USD) 2,132,000 3,387,500 0.0
Natural Resources 300,000 Canadian Pacific, Ltd. (USD) 3,503,161 5,362,500 0.1
440,000 Horsham Corp. (USD) 3,550,742 5,885,000 0.1
-------------- -------------- ------
7,053,903 11,247,500 0.2
Oil & Related 353,000 International Petroleum Corp. (USD) 1,000,196 1,081,063 0.0
Telecommunications 100,000 BCE Telecommunications, Inc. (USD) 3,375,484 3,112,500 0.0
Total Common Stocks in Canada 21,073,728 27,928,563 0.3
Denmark
Banking 53,500 Unidanmark A/S 1,870,730 2,769,646 0.0
Total Common Stocks in Denmark 1,870,730 2,769,646 0.0
Finland
Banking 4,194,000 Kansallis-Osake-Pankki 4,512,421 4,267,122 0.0
1,483,915 Unitas Bank Ltd. 4,285,282 4,571,890 0.1
-------------- -------------- ------
8,797,703 8,839,012 0.1
Machinery & Equipment 207,800 Rauma OY 3,747,774 4,332,682 0.1
Metals 432,500 Outokumpu OY 5,980,994 8,470,265 0.1
Paper & Forest 1,500,000 Enso-Gutzeit OY 12,019,454 14,294,244 0.2
Products 274,000 Kymmene OY 8,387,432 9,161,691 0.1
539,650 Metsa-Serla OY 22,185,795 25,132,971 0.3
560,700 Repola OY S 7,792,828 12,561,180 0.1
-------------- -------------- ------
50,385,509 61,150,086 0.7
Total Common Stocks in Finland 68,911,980 82,792,045 1.0
France
Automobiles 97,650 Peugeot S.A. 13,088,388 14,048,741 0.2
Banking 86,500 Societe Generale 9,605,405 10,397,680 0.1
Multi-Industry 26,432 EuraFrance 7,223,759 8,801,072 0.1
Total Common Stocks in France 29,917,552 33,247,493 0.4
Germany
Banking 55,680 Bayerische Vereinsbank AG 1,339,965 1,658,270 0.0
Capital Goods 369,636 Kloeckner Werke AG 17,229,762 25,468,153 0.3
Chemicals 34,000 Basf AG 6,821,542 7,881,740 0.1
32,000 Bayer AG 7,646,190 8,615,474 0.1
</TABLE>
F-2
<PAGE>
<TABLE>
<S> <C> <S> <C> <C> <C>
-------------- -------------- ------
14,467,732 16,497,214 0.2
Electronics 22,000 Siemens AG 11,059,372 11,631,324 0.2
Insurance 1,430 Munchener Ruckversich 2,688,495 3,177,318 0.0
Machinery & Equipment 36,579 Mannesmann AG 9,993,612 12,225,651 0.2
Utilities--Electric 440,000 Veba Vereinigte Elektriz 16,576,809 18,317,146 0.2
Total Common Stocks in Germany 73,355,747 88,975,076 1.1
Hong Kong
Utilities--Electric 460,300 China Light & Power Co., Ltd. 550,630 2,403,376 0.0
Total Common Stocks in Hong Kong 550,630 2,403,376 0.0
Indonesia
Paper & Pulp 2,060,000 Asia Pacific Resources International
Holdings Ltd. (USD) 15,467,500 19,312,500 0.2
1,715,000 Asia Pulp & Paper Company Ltd.
(ADR)++(USD) 19,722,500 21,866,250 0.3
Total Common Stocks in Indonesia 35,190,000 41,178,750 0.5
Ireland
Building & 1,065,600 CRH PLC 3,594,241 7,539,813 0.1
Construction
Miscellaneous-- 2,178,000 Waterford Wedgwood Units 1,080,827 1,971,144 0.0
Consumer Goods
Total Common Stocks in Ireland 4,675,068 9,510,957 0.1
Italy
Banking 533,400 IMI (Ordinary) 3,443,328 3,307,699 0.0
Building & 1,922,200 Filippo Fochi S.p.A. 6,101,165 823,731 0.0
Construction
Multi-Industry 9,117,595 Compagnie Industriali Riunite S.p.A.
(CIR) 7,816,550 7,843,154 0.1
Telecommunications 3,000,000 Societa Finanziaria Telefonica
S.p.A. (STET) 4,365,656 9,434,081 0.1
8,666,863 Societa Finanziaria Telefonica S.p.A.
(STET) RISP 16,268,796 21,820,089 0.3
3,958,000 Societa Italiana Esercizio Telecom
S.p.A. (S.I.P.) 3,323,376 6,846,931 0.1
3,958,000 Telecom Italia Mobile -- 4,976,185 0.1
-------------- -------------- ------
23,957,828 43,077,286 0.6
Total Common Stocks in Italy 41,318,871 55,051,870 0.7
</TABLE>
Portfolio
Abbreviations
To simplify the currency denominations
of Merrill Lynch Global Allocation Fund,
Inc.'s portfolio holdings in the Schedule
of Investments, we have abbreviated
the currencies according to the list
at right.
CAD Canadian Dollar
CHF Swiss Franc
DEM German Deutschemark
DKR Danish Kroner
ECU European Currency Unit
ESP Spanish Peseta
FRF French Franc
GBP Great Britain Pound
IEP Irish Punt
ITL Italian Lira
JPY Japanese Yen
MXN Mexican Peso
NLG Netherlands Guilder
NZD New Zealand Dollar
USD United States Dollar
F-3
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
COUNTRY
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Japan
Automobiles & 1,852,000 Suzuki Motor Corp. $ 16,952,079 $ 22,718,764 0.3%
Equipment
Beverage 947,000 Chukyo Coca-Cola Bottling Co., Ltd. 11,445,563 10,326,215 0.1
508,000 Hokkaido Coca-Cola Bottling Co., Ltd. 6,924,937 7,385,734 0.1
650,000 Kinki Coca-Cola Bottling Co., Ltd. 10,324,463 9,007,269 0.1
900,000 Mikuni Coca-Cola Bottling Co., Ltd. 13,165,497 12,062,699 0.1
838,400 Sanyo Coca-Cola Bottling Co., Ltd. 12,039,227 12,855,975 0.2
-------------- -------------- ------
53,899,687 51,637,892 0.6
Capital Goods 3,808,000 Mitsubishi Heavy Industries, Ltd. 23,136,107 27,552,204 0.3
Electric 435,000 Chudenko Corp. 13,597,049 16,700,363 0.2
Construction 31,000 Taihei Dengyo Kaisha Ltd. 638,911 489,437 0.0
-------------- -------------- ------
14,235,960 17,189,800 0.2
Electrical 650,000 Kinden Corporation 13,009,801 11,812,812 0.1
Engineering
Electrical 578,000 Murata Manufacturing Co., Ltd. 18,778,882 25,341,663 0.3
Equipment 1,360,000 Sumitomo Electric Industries 15,481,185 17,455,702 0.2
-------------- -------------- ------
34,260,067 42,797,365 0.5
Insurance 2,095,000 Dai-Tokyo Fire & Marine Insurance
Co., Ltd. 13,514,192 14,682,133 0.2
665,000 Fuji Fire & Marine Insurance Co., Ltd. 3,727,641 3,663,392 0.0
2,236,000 Koa Fire & Marine Insurance Co., Ltd. 12,691,892 13,867,060 0.2
620,000 Mitsui Marine & Fire Insurance
Co., Ltd. 5,004,638 4,359,155 0.0
1,669,000 Nichido Fire & Marine Insurance Co.,
Ltd. 10,892,520 13,895,695 0.2
1,351,000 Nippon Fire & Marine Insurance Co.,
Ltd. 6,970,280 8,255,770 0.1
2,408,000 Sumitomo Marine & Fire Insurance Co.,
Ltd. 18,939,904 19,911,677 0.2
2,075,000 Tokio Marine & Fire Insurance Co.,
Ltd. 22,188,264 24,747,274 0.3
1,130,000 Yasuda Fire & Marine Insurance Co.,
Ltd. 8,101,705 7,701,045 0.1
-------------- -------------- ------
102,031,036 111,083,201 1.3
Office Equipment 1,407,000 Canon, Inc. 19,624,604 25,570,195 0.3
Packaging & 901,000 Toyo Seikan Kaisha, Ltd. 23,045,380 30,906,633 0.4
Containers
Pharmaceuticals 1,061,000 Sankyo Pharmaceuticals Co., Ltd. 23,391,365 25,066,788 0.3
384,000 Taisho Pharmaceuticals Co. 7,984,458 7,153,112 0.1
-------------- -------------- ------
31,375,823 32,219,900 0.4
Restaurants 283,000 Mos Food Services, Inc. 7,699,427 7,714,675 0.1
226,000 Ohsho Food Service Corp. 5,101,983 5,082,690 0.1
-------------- -------------- ------
12,801,410 12,797,365 0.2
Retail Stores 448,000 Ito Yokado Co., Ltd. 20,618,869 24,781,463 0.3
100,000 Sangetsu Co., Ltd. 3,160,832 2,748,751 0.0
-------------- -------------- ------
23,779,701 27,530,214 0.3
Steel 250,000 Maruichi Steel Tube Ltd. 4,805,476 5,111,313 0.1
Total Common Stocks in Japan 372,957,131 418,927,658 5.0
Mexico
Foods 600,000 Grupo Industrial Maseca (ADR)++(USD) 7,107,853 6,750,000 0.1
Total Common Stocks in Mexico 7,107,853 6,750,000 0.1
Netherlands
Airlines 400,960 KLM Royal Dutch Airlines N.V. 8,407,677 15,132,522 0.2
Banking 897,150 ABN Amro Holdings N.V. 29,821,445 35,250,562 0.4
</TABLE>
F-4
<PAGE>
<TABLE>
<S> <C> <S> <C> <C> <C>
Chemicals 100,650 Akzo N.V. 9,758,201 13,269,097 0.2
217,870 European Vinyls Corp. International 9,491,849 10,461,252 0.1
-------------- -------------- ------
19,250,050 23,730,349 0.3
Electronics 500,600 Philips Electronics N.V. 16,584,619 24,683,844 0.3
Insurance 325,000 Aegon N.V. 7,013,035 11,866,680 0.1
346,700 Amev N.V. 13,640,015 19,940,739 0.2
800,965 Internationale Nederlanden Groep N.V. 30,066,279 46,482,265 0.6
-------------- -------------- ------
50,719,329 78,289,684 0.9
Miscellaneous- 10,000 Nijverdal Ten Cate V.V. 501,699 544,139 0.0
Manufacturing
Transportation 229,920 Koninklijke KNP (Warrants) (a) 793,687 922,711 0.0
Total Common Stocks in the Netherlands 126,078,506 178,553,811 2.1
Spain
Banking 587,481 Banco de Santander S.A. (Ordinary) 21,323,786 25,030,767 0.3
61,775 Banco Popular Espanol S.A. 6,511,311 10,034,016 0.1
83,000 Bank Intercontinental S.A. 4,607,612 7,520,040 0.1
-------------- -------------- ------
32,442,709 42,584,823 0.5
Energy & Petroleum 212,500 Repsol S.A. (ADR)++(USD) 6,126,375 7,092,188 0.1
618,500 Repsol S.A. 18,566,656 20,936,090 0.2
-------------- -------------- ------
24,693,031 28,028,278 0.3
Financial Services 326,000 Argentaria S.A. 12,974,203 12,434,995 0.2
Insurance 30,000 Mapfre S.A. 1,130,028 1,692,489 0.0
Manufacturing 195,000 Grupo Fosforera Espanola S.A. 1,696,601 722,465 0.0
Multi-Industry 45,750 Corporacion Financiera Alba S.A. 1,611,658 2,557,932 0.0
Real Estate 236,708 Metrovacesa 5,888,465 7,574,018 0.1
Toll Roads 144,375 Autopista Espana (ACESA) 1,363,246 1,404,119 0.0
144,375 Autopista Espana (ACESA) (Rights) (f) -- 94,824 0.0
-------------- -------------- ------
1,363,246 1,498,943 0.0
Utilities--Electric 100,000 Empresa Nacional de Electricidad S.A. 3,759,956 5,346,918 0.1
591,800 Iberdrola I S.A. 3,310,030 4,868,547 0.1
-------------- -------------- ------
7,069,986 10,215,465 0.2
Total Common Stocks in Spain 88,869,927 107,309,408 1.3
Sweden
Appliances 232,464 Electrolux AB 'B' Free 11,264,721 12,266,186 0.1
Automotive & 395,000 Volvo AB 8,006,793 7,843,972 0.1
Equipment
Banking 965,750 Stadshypotek AB 14,244,129 15,616,383 0.2
Electrical 120,000 ASEA AB 'B' Free 6,532,086 10,570,213 0.1
Equipment
Engineering &
Construction 186,010 Celsius Industrier AB 2,740,880 3,073,782 0.0
Industrial 200,000 SKF 'A' 3,713,376 4,397,163 0.1
458,500 SKF 'B' Free 8,471,575 10,275,603 0.1
-------------- -------------- ------
12,184,951 14,672,766 0.2
Multi-Industry 209,700 Svedala Industri AB Free 3,360,038 6,246,383 0.1
Total Common Stocks in Sweden 58,333,598 70,289,685 0.8
</TABLE>
F-5
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
COUNTRY
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Switzerland
Chemicals 33,040 Ciba-Geigy AG (Registered) $ 16,539,906 $ 24,538,075 0.3%
Electrical Equipment 9,335 BBC Brown Boveri & Cie (Bearer) 6,132,164 9,854,154 0.1
Financial Services 162,000 CS Holdings AG 15,391,757 14,050,732 0.2
Pharmaceuticals 1,260 Roche Holdings AG 8,104,008 8,605,387 0.1
Total Common Stocks in Switzerland 46,167,835 57,048,348 0.7
United Kingdom
Aerospace 1,377,751 Rolls Royce PLC 3,304,436 4,089,676 0.0
Automotive Parts 1,036,000 T & N PLC 2,948,994 2,868,006 0.0
Conglomerates 50,000 Hanson PLC Sponsored (ADR)++(USD) 947,577 862,500 0.0
Consumer Goods 733,600 Vendome Luxury Group (Units) 4,742,278 6,057,359 0.1
Environmental 940,000 Waste Management International PLC
(ADR)++(USD) 9,206,375 9,635,000 0.1
Food & Beverage 1,360,600 Grand Metropolitan PLC 8,858,753 8,186,393 0.1
35,000 Grand Metropolitan PLC (ADR)++(USD) 1,031,100 853,125 0.0
230,300 Tate & Lyle PLC 1,555,052 1,625,200 0.0
-------------- -------------- ------
11,444,905 10,664,718 0.1
Industrial--Other 1,148,000 Tomkins PLC 3,813,189 4,711,981 0.1
Insurance 773,800 Prudential Corp., PLC 3,735,406 4,117,131 0.1
Leisure & Entertainment 422,900 The Rank Organisation PLC 2,705,275 2,872,696 0.0
Oil/Integrated- 518,100 British Petroleum Company PLC (The) 3,783,528 3,925,616 0.0
International
Packaging & 1,179,300 Jefferson Smurfit Group PLC (IEP) 3,583,738 3,706,428 0.0
Containers
Pharmaceuticals 500,000 SmithKline Beecham Corp. PLC (ADR)++
(USD) 13,633,894 22,500,000 0.3
500,000 Zeneca Group PLC 4,710,464 8,917,115 0.1
-------------- -------------- ------
18,344,358 31,417,115 0.4
Retail Stores 4,300 Boots Co. PLC 28,682 37,742 0.0
Steel 1,500,000 British Steel PLC 4,081,599 4,512,564 0.1
Telecommunications 1,002,800 British Telecommunications PLC
(Ordinary) 6,088,156 6,386,629 0.1
646,300 NYNEX Cablecomms Group 1,420,036 1,344,472 0.0
290,300 Unilever Capital Corp. 4,372,100 5,946,087 0.1
84,600 Vodafone Group PLC 307,947 324,228 0.0
-------------- -------------- ------
12,188,239 14,001,416 0.2
Total Common Stocks in the
United Kingdom 84,858,579 103,479,948 1.2
United States
Apparel 155,000 Authentic Fitness Corp. 2,681,739 3,041,875 0.0
860,000 Fruit of the Loom, Inc. 23,555,786 19,887,500 0.3
373,900 Liz Claiborne, Inc. 8,022,626 8,552,963 0.1
-------------- -------------- ------
34,260,151 31,482,338 0.4
Automobiles 350,000 General Motors Corp. 13,282,191 17,062,500 0.2
Automotive 438,800 Collins & Aikman Group Inc. 3,416,149 3,729,800 0.0
284,900 Snap-On, Inc. 9,013,519 11,894,575 0.2
-------------- -------------- ------
12,429,668 15,624,375 0.2
Banking 300,000 Bank of New York 7,966,376 12,037,500 0.1
319,000 Bankers Trust Co. 7,620,125 7,815,500 0.1
129,500 Banknorth Group, Inc. 1,865,422 3,787,875 0.0
571,500 Barnett Banks Inc. 23,130,906 31,718,250 0.4
</TABLE>
F-6
<PAGE>
<TABLE>
<S> <C> <S> <C> <C> <C>
40,000 CalFed Goodwill (Part. Cert.) 210,000 200,000 0.0
400,000 California Federal Bank 3,600,000 5,550,000 0.1
496,700 Charter One Financial, Inc. 9,263,048 12,790,025 0.2
110,000 Chase Manhattan Corp. 3,423,214 5,898,750 0.1
1,002,300 Chemical Banking Corp. 37,278,417 51,743,738 0.6
1,372,900 City National Corp. 9,802,109 17,847,700 0.2
1,000,000 Comerica, Inc. 26,977,513 35,000,000 0.4
450,000 CoreStates Financial Corp. 12,110,483 16,425,000 0.2
980,000 First of America Bank 36,148,556 40,302,500 0.5
200,000 First Chicago Corp. 11,904,100 12,150,000 0.1
1,250,000 First Commerce Corp. 31,823,468 37,500,000 0.5
368,500 First Union Corp. 14,959,272 18,010,438 0.2
1,466,102 KeyCorp 43,401,543 46,915,264 0.6
747,900 Mellon Bank Corp. 26,731,868 30,009,488 0.4
112,950 Mercantile Bancorp., Inc. 2,920,618 5,096,869 0.1
450,000 NBD Bancorp, Inc. 13,768,555 15,300,000 0.2
700,000 Onbancorp, Inc. 19,596,626 20,475,000 0.2
294,400 Oriental Bank and Trust 5,050,248 6,182,400 0.1
45,000 Premier Bancorp. 708,437 843,750 0.0
1,100,000 Republic New York Corp. 49,526,909 61,600,000 0.7
233,500 Roosevelt Financial Group, Inc. 3,594,043 3,590,063 0.0
450,000 Southern National Corp. 8,670,728 10,800,000 0.1
-------------- -------------- ------
412,052,584 509,590,110 6.1
Communications 185,700 Comsat Corp. 4,308,767 4,294,313 0.1
104,500 GTE Corp. 3,514,166 3,709,750 0.0
-------------- -------------- ------
7,822,933 8,004,063 0.1
Computers 170,800 Boole & Babbage, Inc. 2,202,252 5,124,000 0.1
700,000 Borland International Corp. 8,054,338 8,662,500 0.1
150,000 International Business Machines Corp. 6,506,217 16,331,250 0.2
1,100,000 Unisys Corp. 12,291,367 9,762,500 0.1
-------------- -------------- ------
29,054,174 39,880,250 0.5
Conglomerates 125,000 ADT Limited 1,434,405 1,500,000 0.0
Construction & 153,800 Centex Corp. 3,880,118 4,306,400 0.1
Housing 500,000 K. Hovnanian Enterprises, Inc.
(Class A) 4,920,209 2,750,000 0.0
-------------- -------------- ------
8,800,327 7,056,400 0.1
Construction 700,000 TJ International, Inc. 12,547,379 14,525,000 0.2
Products
Electric 40,446 Great Bay Power Co. 2,549,753 313,457 0.0
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
COUNTRY
Shares Held/ Percent of
Industries Face Amount Common Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
United States
(continued)
Energy & Petroleum 163,900 Ashland Coal, Inc. $ 4,132,919 $ 4,691,637 0.1%
49,500 Cabot Oil & Gas Corp. (Class A) 529,030 693,000 0.0
34,600 Coastal Corp. 817,773 1,076,925 0.0
153,000 Coho Resources, Inc. 1,662,813 745,875 0.0
227,400 Gerrity Oil & Gas Corp. 2,934,073 852,750 0.0
130,000 Helmerich & Payne, Inc. 2,773,423 3,737,500 0.1
30,000 McMoRan Oil & Gas Co. 146,197 93,750 0.0
46,400 Mitchell Energy Development Corp.
(Class A) 675,717 788,800 0.0
174,350 Mitchell Energy Development Corp.
(Class B) 2,755,451 2,963,950 0.0
50,000 Murphy Oil Corp. 1,899,720 2,043,750 0.0
106,100 Nuevo Energy Co. 2,048,791 2,533,137 0.0
1,500,000 Occidental Petroleum Corp. 28,058,743 33,750,000 0.4
61,200 Pennzoil Co. 3,775,844 2,868,750 0.0
235,828 Plains Resources, Inc. 1,381,815 2,034,017 0.0
1,094,247 Santa Fe Energy Resources, Inc. 10,119,883 10,258,566 0.1
1,175,000 TransTexas Gas Corp. 14,200,000 17,478,125 0.2
211,514 Transamerica Refining Corp.
(Warrants) (a) 531,220 634,542 0.0
600,000 USX-Marathon Group 10,542,976 12,075,000 0.2
138,800 Unocal Corp. 3,272,336 3,903,750 0.1
-------------- -------------- ------
92,258,724 103,223,824 1.2
Engineering & 553,000 CBI Industries, Inc. 13,762,316 14,931,000 0.2
Construction
Financial Services 807,800 Student Loan Marketing Association 34,901,569 43,520,225 0.5
Food & Tobacco 400,000 Philip Morris Companies, Inc. 19,617,414 28,650,000 0.4
412,462 RJR Nabisco, Inc. 11,342,727 11,394,263 0.1
-------------- -------------- ------
30,960,141 40,044,263 0.5
Healthcare 360,000 Advocat, Inc. 3,422,500 4,590,000 0.1
Services 650,000 Baxter International, Inc. 13,870,330 24,212,500 0.3
400,000 Beverly Enterprises, Inc. 4,291,401 5,650,000 0.1
110,000 Hillhaven Corp. 1,972,850 3,176,250 0.0
546,500 US Surgical Corp. 11,871,438 13,116,000 0.1
-------------- -------------- ------
35,428,519 50,744,750 0.6
Index-Related USD 40,800 Republic of Austria Stock Index Growth
Notes due 8/15/1996 432,941 647,700 0.0
Industrial 915,000 BW/IP Holdings, Inc. 15,816,387 17,385,000 0.2
157,943 Cooper Cameron Corporation 2,529,415 3,514,232 0.0
179,803 Cooper Industries, Inc. 6,534,892 6,720,137 0.1
-------------- -------------- ------
24,880,694 27,619,369 0.3
Insurance 913,400 Ace, Ltd. 20,951,269 27,059,475 0.3
245,000 Aetna Life & Casualty Co. 12,939,855 15,159,375 0.2
200,000 Alexander & Alexander Services, Inc. 3,314,197 4,600,000 0.1
510,000 American General Corp. 13,187,448 18,551,250 0.2
571,000 Horace Mann Educators, Inc. 13,654,588 14,631,875 0.2
640,200 Lincoln National Corp. 23,466,317 26,328,225 0.3
680,000 PartnerRe Holdings, Ltd. 13,404,414 17,000,000 0.2
-------------- -------------- ------
100,918,088 123,330,200 1.5
Metals 140,000 Aluminum Co. of America 4,698,667 7,962,500 0.1
</TABLE>
F-8
<PAGE>
<TABLE>
<S> <C> <S> <C> <C> <C>
132,800 Reynolds Metals Co. 5,801,771 8,300,000 0.1
-------------- -------------- ------
10,500,438 16,262,500 0.2
Multi-Industry 340,000 Loews Corp. 31,080,454 40,927,500 0.5
Natural Resources 15,000 Freeport McMoRan Copper & Gold Inc. 327,957 399,375 0.0
210,520 Freeport McMoRan Copper & Gold Inc.
(Class B) 3,665,657 5,684,040 0.1
300,000 Freeport-McMoRan, Inc. 982,417 1,500,000 0.0
-------------- -------------- ------
4,976,031 7,583,415 0.1
Oil Services 375,000 Arethusa (Offshore) Ltd. 3,859,378 6,656,250 0.1
149,800 Atwood Oceanics, Inc. 1,238,663 2,733,850 0.0
3,614,375 Noble Drilling Corp. 25,124,880 23,493,437 0.3
-------------- -------------- ------
30,222,921 32,883,537 0.4
Pharmaceuticals/ 121,500 Alteon, Inc. 1,205,188 1,093,500 0.0
Biotechnology 435,000 Applied Immune Sciences, Inc. 6,160,143 3,208,125 0.0
600,000 Bristol-Myers Squibb Co. 33,254,124 41,550,000 0.5
450,000 Merck & Co., Inc. 15,115,266 23,231,250 0.3
-------------- -------------- ------
55,734,721 69,082,875 0.8
Pollution Control 646,900 WMX Technologies, Inc. 16,148,443 20,215,625 0.2
Publishing 175,000 Gannett Co., Inc. 8,375,486 9,581,250 0.1
301,500 New York Times Co. (Class A) 7,158,778 7,688,250 0.1
140,138 Times Mirror Co. (Class A) 3,016,629 4,028,967 0.1
-------------- -------------- ------
18,550,893 21,298,467 0.3
Real Estate 504,600 Carr Realty Corp. 10,031,714 9,335,100 0.1
Investment Trusts 500,000 First Union Real Estate Investments 3,764,840 3,750,000 0.0
661,300 Mid-America Realty Investments 6,616,640 5,621,050 0.1
100,000 Mid-Atlantic Realty Trust Co. 917,500 881,250 0.0
200,000 Nationwide Health Properties, Inc. 7,500,000 7,925,000 0.1
830,000 Prime Residential, Inc. 13,262,250 12,553,750 0.2
400,000 Taubman Centers, Inc. 3,807,537 3,950,000 0.1
-------------- -------------- ------
45,900,481 44,016,150 0.6
Restaurants 300,000 Buffets, Inc. 3,157,818 4,162,500 0.1
Retail Specialty 300,000 Toys R Us, Inc. 8,128,125 8,400,000 0.1
Retail Stores 608,500 Baker (J.), Inc. 10,187,765 5,932,875 0.1
643,200 Burlington Coat Factory Warehouse 7,035,315 8,281,200 0.1
516,900 Buttrey Food & Drug Stores Co. 4,084,486 3,489,075 0.0
105,000 Dayton-Hudson Corp. 6,995,242 7,940,625 0.1
100,000 Eagle Food Centers, Inc. 612,500 187,500 0.0
1,110,000 Filene's Basement Corp. 10,092,619 6,105,000 0.1
1,373,500 Payless Cashways, Inc. 17,027,625 10,129,562 0.1
1,292,800 Service Merchandise Co., Inc. 10,487,218 9,049,600 0.1
1,111,600 The Vons Companies, Inc. 18,500,110 24,733,100 0.3
-------------- -------------- ------
85,022,880 75,848,537 0.9
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
COUNTRY
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
United States
(concluded)
Savings Banks 106,000 Ahmanson (H.F.) & Co. $ 1,767,857 $ 2,371,750 0.0%
297,600 Bankers Corp. 1,688,842 5,319,600 0.1
695,000 Brooklyn Bancorp, Inc. (e) 16,888,752 23,630,000 0.3
1,700,768 Dime Bancorp, Inc. 11,647,480 18,070,660 0.2
196,400 Downey Savings & Loan Association 2,896,670 3,756,150 0.1
1,895,553 Glendale Federal Savings Bank 16,659,352 26,063,854 0.3
770,194 Glendale Federal Savings Bank
(Warrants) (a) -- 3,658,421 0.0
37,500 NS Bancorp, Inc. 300,000 1,279,687 0.0
204,000 Portsmouth Bank Shares, Inc. 1,396,014 2,499,000 0.0
-------------- -------------- ------
53,244,967 86,649,122 1.0
Specialty Retailing 400,000 Sotheby's Holdings, Inc. (Class A) 4,879,559 5,350,000 0.1
Telecommunications 123,057 Cox Communication, Inc. 1,820,315 2,491,904 0.0
Textiles 2,825,200 Burlington Industries, Inc. 37,451,653 35,315,000 0.4
Utilities-- 1,250,000 Allegheny Power System, Inc. 27,315,551 30,000,000 0.4
Electric & Gas 125,000 CMS Energy Corp. 2,290,025 3,125,000 0.0
2,486,200 Centerior Energy Corp. 35,099,397 25,794,325 0.3
150,000 Consolidated Edison Company, Inc. 4,390,815 4,350,000 0.1
1,780,000 Entergy Corp. 47,516,856 42,275,000 0.5
475,000 FPL Group, Inc. 14,363,265 18,168,750 0.2
300,000 General Public Utilities Corp. 8,663,891 8,662,500 0.1
1,757,900 Niagara Mohawk Power Corp. 28,627,702 24,610,600 0.3
844,600 Texas Utilities Co. 26,942,999 28,610,825 0.3
1,148,800 Unicom Corporation 27,549,620 31,879,200 0.4
-------------- -------------- ------
222,760,121 217,476,200 2.6
Utilities--Gas 115,650 Atmos Energy Corp. 1,445,257 2,313,000 0.0
Total Common Stocks in the
United States 1,498,801,634 1,739,376,156 20.9
Total Investments in Common Stocks 2,597,806,219 3,066,290,755 36.7
Equity Closed-End Funds
Austria
Financial Services 320,000 Austria Fund (USD) 2,642,432 2,680,000 0.0
Total Equity Closed-End Funds in
Austria 2,642,432 2,680,000 0.0
Ireland
Financial Services 150,000 Irish Investment Fund, Inc. (USD) 1,086,041 1,743,750 0.0
Total Equity Closed-End Funds in
Ireland 1,086,041 1,743,750 0.0
Italy
Financial Services 150,000 Italy Fund (USD) 1,198,520 1,200,000 0.0
Total Equity Closed-End Funds in Italy 1,198,520 1,200,000 0.0
Portugal
Financial Services 39,500 Capital Portugal Fund 2,052,116 3,832,551 0.1
25,600 Jakarta Growth Fund (USD) 158,080 252,800 0.0
40,000 Portugal Fund (USD) 360,368 545,000 0.0
Total Equity Closed-End Funds in
Portugal 2,570,564 4,630,351 0.1
Spain
Financial Services 300,100 Growth Fund of Spain, Inc. 2,630,827 3,263,587 0.1
Total Equity Closed-End Funds in Spain 2,630,827 3,263,587 0.1
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
United States
<S> <C> <S> <C> <C> <C>
Financial Services 166,666 European Warrant Fund 1,363,723 1,416,661 0.0
11,700 Global Yield Fund 89,798 78,975 0.0
Total Equity Closed-End Funds in the
United States 1,453,521 1,495,636 0.0
Total Investments in Equity Closed-
End Funds 11,581,905 15,013,324 0.2
Preferred Stocks
Germany
Automobiles 70,550 Volkswagen of America, Inc. 16,036,436 17,513,679 0.2
Multi-Industry 45,000 R.W.E. AG 8,725,424 12,848,303 0.2
Total Preferred Stocks in Germany 24,761,860 30,361,982 0.4
New Zealand
Finance 5,585,700 Brierly Investments, Ltd. (9%
Convertible) 3,515,477 3,951,240 0.1
Total Preferred Stocks in New Zealand 3,515,477 3,951,240 0.1
Norway
Financial Services 175,000 A/S Eksportfinans (8.70%) (USD) 4,377,500 4,462,500 0.1
Total Preferred Stocks in Norway 4,377,500 4,462,500 0.1
Spain
Banking 225,000 Santander Overseas Bank (8%, Series D)
(USD) 5,463,250 5,484,375 0.1
Total Preferred Stocks in Spain 5,463,250 5,484,375 0.1
United Kingdom
Engineering 750,000 AMEC PLC (6.50% Convertible) 968,501 744,093 0.0
Retail Stores 545,000 Signet Group (Convertible) (ADR)++
(USD) 2,194,907 3,406,250 0.0
Total Preferred Stocks in the
United Kingdom 3,163,408 4,150,343 0.0
United States
Airlines 69,400 USAir Group, Inc. (Convertible $4.375,
Series B) 3,673,689 2,264,175 0.0
Automobiles & 20,000 Ford Motor Co. (8.40% Convertible,
Equipment Series A) 1,000,000 1,902,500 0.0
Banking 75,000 California Federal Bank (10.625%) 7,500,000 7,950,000 0.1
115,000 First Nationwide Bank (11.50%) 11,500,000 12,506,250 0.2
100,000 Fourth Financial Corp. (Convertible,
Class A) 2,500,000 3,125,000 0.0
130,300 Marine Midland Banks, Inc. (Adjustable
Rate, Series A) 5,219,925 5,602,900 0.1
100,000 Onbancorp, Inc. (6.75% Convertible,
Series B) 2,668,750 2,725,000 0.0
-------------- -------------- ------
29,388,675 31,909,150 0.4
Energy & Petroleum 150,000 Grant Tensor Corp. (9.75% Convertible) 1,853,375 2,250,000 0.0
64,219 Santa Fe Energy Resources, Inc. (7%) 954,075 1,139,887 0.0
460,000 Santa Fe Energy Resources, Inc.
(Convertible, Class A) 4,082,500 4,427,500 0.1
-------------- -------------- ------
6,889,950 7,817,387 0.1
Health Care 1,080,000 US Surgical Corp. (Convertible) 24,354,000 29,160,000 0.4
Natural Resources 85,000 Alumax Inc. (Convertible, Series A) 7,240,312 12,240,000 0.1
150,000 Cyprus Amax Minerals Co. (Convertible,
Series A) 9,188,313 9,252,000 0.1
348,700 Freeport-McMoRan Copper & Gold, Inc.
(Convertible Shares) 7,918,834 8,935,437 0.1
219,000 Freeport-McMoRan Inc. (Convertible
--Gold) 7,703,330 7,692,375 0.1
-------------- -------------- ------
32,050,789 38,119,812 0.4
Oil Service 447,200 Noble Drilling Corp. (Convertible) 10,745,382 10,062,000 0.1
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
COUNTRY
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
United States
(concluded)
Paper & Forest 200,000 Boise Cascade Corp. (Convertible,
Products Series G) $ 4,225,000 $ 7,175,000 0.1%
288,200 James River Corp. of Virginia
(9% Convertible, Series P) 4,971,450 8,429,850 0.1
-------------- -------------- ------
9,196,450 15,604,850 0.2
Publishing 59,862 Times Mirror Company (Convertible,
Series B) 1,340,838 1,481,584 0.0
Real Estate 658,000 Catellus Development Corp. (7.25%
Convertible Exchangeable, Series B) 30,686,250 26,978,000 0.3
Real Estate 666,000 National Health Investors, Inc.
Investment Trusts (8.50% Convertible) 16,650,000 17,149,500 0.2
700,000 Prime Retail, Inc. (10.50%) 16,712,575 13,300,000 0.2
-------------- -------------- ------
33,362,575 30,449,500 0.4
Savings Bank 619,900 Glendale Federal Savings Bank
(8.75% Convertible, Series E) 15,070,337 23,091,275 0.3
Total Preferred Stocks in the
United States 197,758,935 218,840,233 2.6
Total Investments in Preferred Stocks 239,040,430 267,250,673 3.3
Currency Face
Denomination Amount Fixed-Income Securities
Argentina
Banking USD 22,000,000 Banco de Galicia, 9% due 11/01/2003 21,506,460 16,500,000 0.2
Banco Rio de la Plata:
USD 47,500,000 (Class 3), 8.50% due 7/15/1998 47,908,125 44,887,500 0.5
USD 56,000,000 8.75% due 12/15/2003 47,165,825 42,840,000 0.5
-------------- -------------- ------
116,580,410 104,227,500 1.2
Government Republic of Argentina:
Obligations USD 145,000,000 Discount Notes, 6.875% due 3/31/2023 105,705,577 82,831,250 1.0
USD 126,000,000 Floating Rate Bonds, 7.312% due
3/31/2005, Series L 62,510,000 77,332,500 0.9
USD 22,500,000 Global Bonds, 8.375% due 12/20/2003 16,943,750 16,987,500 0.2
USD 324,000,000 Par Bonds, 5% due 3/31/2023 163,106,086 150,660,000 1.8
-------------- -------------- ------
348,265,413 327,811,250 3.9
Total Fixed-Income Securities in
Argentina 464,845,823 432,038,750 5.1
Australia
Food USD 14,000,000 Burns, Philp & Company Ltd.,
Processing Convertible Bonds, 5.50% due
4/30/2004 11,976,950 12,040,000 0.1
Industrial USD 26,410,000 Lend Lease Finance International
Corp., Ltd., Convertible Bonds,
4.75% due 6/01/2003 28,765,793 30,635,600 0.4
Total Fixed-Income Securities in
Australia 40,742,743 42,675,600 0.5
Brazil
Government USD 35,000,000 Brazil Exit Bonds, 6% due 9/15/2013 19,537,445 16,843,750 0.2
Obligations Republic of Brazil:
USD 37,050,000 4% due 1/01/2001 (d) 28,959,563 30,010,500 0.4
USD 5,000,000 Discount Notes, 6.688% due 4/15/2024 3,100,000 2,831,250 0.0
USD 150,000,000 Par Bonds, 4% due 4/15/2024
(Series YL3) 58,390,625 65,625,000 0.8
USD 60,000,000 Par Bonds, 4% due 4/15/2024
(Series YL4) 23,047,430 26,250,000 0.3
Total Fixed-Income Securities in
Brazil 133,035,063 141,560,500 1.7
Canada
Cable CAD 6,250,000 Rogers Cablesystems, 9.65% due 1/15/2014 3,588,228 3,920,496 0.0
</TABLE>
F-12
<PAGE>
<TABLE>
<S> <C> <S> <C> <C> <C>
Government CAD 20,000,000 Canadian Government Bonds, 9.50% due
Obligations 10/01/1998 15,417,349 15,288,111 0.2
CAD 2,000,000 Macmillan Bloedel Limited, Convertible
Bonds, 5% due 5/01/2007 1,024,416 1,196,207 0.0
-------------- -------------- ------
16,441,765 16,484,318 0.2
Hotel/ USD 23,500,000 Four Seasons Hotel, Inc., 9.125% due
Leisure 7/01/2000 23,401,875 22,971,250 0.3
Industrial USD 23,000,000 Call Net Enterprise, Inc., 13.07% due
12/01/2004 (b) 13,186,310 14,173,750 0.2
USD 12,500,000 Consoltex Group, Inc., 11% due
10/01/2003 12,530,000 11,500,000 0.1
USD 77,000,000 International Semi-Tech Microelectronics
Inc., 11.50% due 8/15/2000 (b) 43,821,759 39,270,000 0.5
-------------- -------------- ------
69,538,069 64,943,750 0.8
Oil & Related Mark Resources Inc., Convertible Bonds:
CAD 7,250,000 7% due 4/15/2002 5,052,564 4,547,775 0.1
CAD 1,250,000 8% due 11/30/2004 943,556 866,156 0.0
CAD 14,500,000 Talisman Energy Inc. (Ex-Warrants),
8.50% due 12/01/2000 11,040,982 10,523,341 0.1
-------------- -------------- ------
17,037,102 15,937,272 0.2
Real Estate Olympia & York Inc.:
CAD 57,194,000 Series 1, 10.70% due 11/04/1995 29,626,733 25,655,952 0.3
CAD 34,000,000 Series 2, 11% due 11/04/1998 18,060,242 15,251,641 0.2
-------------- -------------- ------
47,686,975 40,907,593 0.5
Resources USD 20,000,000 Crown Packaging Ltd., 10.75% due
11/01/2000 20,000,000 19,800,000 0.2
Sherritt, Inc.:
USD 4,000,000 9.75% due 4/01/2003 4,002,187 4,050,000 0.0
CAD 63,500,000 11% due 3/31/2004 45,931,085 46,663,931 0.6
USD 2,000,000 10.50% due 3/31/2014 2,060,000 2,060,000 0.0
USD 35,500,000 Sifto Canada, Inc., 8.50% due
7/15/2000 32,375,188 30,712,500 0.4
-------------- -------------- ------
104,368,460 103,286,431 1.2
Total Fixed-Income Securities in
Canada 282,062,474 268,451,110 3.2
France
Automobiles FRF 5,500 Peugeot, Convertible Bonds, 2% due
1/01/2001 992,341 1,096,499 0.0
Banking FRF 58,000 Societe Generale, Convertible Bonds
(New), 3.50% due 1/01/2000 7,499,838 8,684,453 0.1
Government ECU 2,000,000 Credit Local de France, 8.683% due
Obligations 10/16/2001 (b) 1,656,263 1,671,996 0.0
Government of France:
FRF 700,000,000 8.50% due 10/25/2019 132,737,864 155,283,548 1.9
ECU 175,000,000 8.25% due 4/25/2022 202,798,464 229,617,286 2.8
-------------- -------------- ------
337,192,591 386,572,830 4.7
Industrial FRF 30,000 Alcatel Alsthom, Convertible Bonds,
2.50% due 1/01/2004 3,926,887 4,718,127 0.1
Insurance FRF 35,500 Finaxa, Convertible Bonds, 3% due
1/01/2001 9,060,172 10,407,941 0.1
Multi-- FRF 8,713 Compagnie Generale des Eaux,
Industry Convertible Bonds, 6% due 1/01/1998 4,859,722 5,922,767 0.1
Total Fixed-Income Securities in
France 363,531,551 417,402,617 5.1
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
COUNTRY
Currency Face Percent of
Industries Denomination Amount Fixed-Income Securities Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Germany
Banking DEM 2,310,000 Commerzbank AG, Floating Rate
Convertible Bonds, 2% due 6/15/2001 $ 1,556,456 $ 2,499,421 0.0%
Government DEM 204,000,000 Bundesrepublic Deutscheland,
Obligations 7.75% due 10/01/2004 148,967,081 155,912,282 1.9
DEM 290,000,000 Treuhandanstalt, 7.50% due 9/09/2004 187,088,655 218,743,577 2.6
-------------- -------------- ------
336,055,736 374,655,859 4.5
Government DEM 64,000,000 Baden-Wuerttemberg, 6.20% due
Obligations-- 11/22/2013 37,148,769 44,351,162 0.5
Regional DEM 57,500,000 Freie Hansestadt Hamburg,
6.08% due 11/29/2018 33,152,404 38,431,823 0.5
DEM 168,000,000 Land Hessen, 6% due 11/29/2013 96,916,825 112,713,324 1.4
DEM 110,000,000 Mecklenberg Vorpommern, 6.15% due
6/16/2023 61,012,437 72,550,481 0.9
DEM 133,200,000 Nordrhein-Westfalen, 6.125% due
12/21/2018 76,238,083 90,088,587 1.1
Rheinland-Pfalz:
DEM 33,000,000 5.75% due 2/24/2014 18,324,663 21,674,387 0.3
DEM 64,000,000 6.08% due 11/29/2018 36,935,547 43,077,368 0.5
DEM 47,000,000 Sachsen-Anhalt, 6% due 1/10/2014 26,915,615 31,022,653 0.4
-------------- -------------- ------
386,644,343 453,909,785 5.6
Industrial USD 1,000,000 Siemens Corp. (with Warrants),
8% due 6/24/2002 (a) 1,318,750 1,375,700 0.0
USD 41,100,000 Tarkett International, 9% due
3/01/2002 39,413,750 41,819,250 0.5
-------------- -------------- ------
40,732,500 43,194,950 0.5
Utilities-- USD 5,875,000 Veba International Finance (Warrants),
Electric 6% due 4/06/2000 (a) 7,083,300 10,545,625 0.1
Total Fixed-Income Securities in
Germany 772,072,335 884,805,640 10.7
Hong Kong
Industrial USD 9,900,000 Johnson Electric Holdings Ltd.,
Convertible Bonds, 4.50% due
11/05/2000 8,844,404 8,786,250 0.1
Retail USD 11,500,000 Dairy Farm International Holdings
Ltd., 6.50% due 5/10/2049 9,118,375 8,625,000 0.1
Total Fixed-Income Securities in
Hong Kong 17,962,779 17,411,250 0.2
Indonesia
Industrial USD 2,000,000 PT Indorayon, Convertible Bonds,
5.50% due 10/01/2002 2,363,125 2,360,000 0.0
Total Fixed-Income Securities in
Indonesia 2,363,125 2,360,000 0.0
Italy
Telecommuni- Softe SA-LUX:
cations ITL 16,760,000,000 (Ex-Warrants), 8.75% due 3/24/1997 10,756,360 10,086,841 0.1
ITL 11,500,000,000 Convertible Bonds, 4.25% due
7/30/1998 7,894,814 8,624,275 0.1
Total Fixed-Income Securities in
Italy 18,651,174 18,711,116 0.2
Japan
Automobiles JPY 400,000,000 Toyota Motor Corp., Convertible Bonds,
& Equipment 1.20% due 1/28/1998 2,477,431 4,756,929 0.1
Electronics JPY 988,000,000 Matsushita Electric Works, Convertible
Bonds, 2.70% due 5/31/2002 9,691,544 12,299,500 0.2
Insurance JPY 13,000,000 Mitsui Marine & Fire Insurance Co.,
Ltd., 0.70% due 3/31/2003 118,211 135,552 0.0
JPY 8,000,000 Nichido Fire & Marine Insurance Co.,
Ltd., 1% due 3/31/2003 75,240 87,597 0.0
-------------- -------------- ------
193,451 223,149 0.0
</TABLE>
F-14
<PAGE>
<TABLE>
<S> <C> <S> <C> <C> <C>
Total Fixed-Income Securities in
Japan 12,362,426 17,279,578 0.3
Korea
Energy USD 6,250,000 Ssangyong Oil Corp., 3.75% due
12/31/2008 6,681,062 6,656,250 0.1
Total Fixed-Income Securities in
Korea 6,681,062 6,656,250 0.1
Mexico
Government USD 165,500,000 Banco Nacional (BNCE), 7.25% due
Obligations 2/02/2004 134,186,200 124,952,500 1.5
USD 32,500,000 Petroleos Mexicanos, 8.625% due
12/01/2023 15,772,500 22,750,000 0.3
United Mexican States:
USD 18,583,000 8.50% due 9/15/2002 15,096,445 15,609,720 0.2
USD 85,000,000 Floating Notes, Series A, 6.687%
due 12/31/2019 72,668,750 60,456,250 0.7
USD 38,000,000 Floating Notes, Series B, 6.765%
due 12/31/2019 32,676,004 27,027,500 0.3
USD 25,000,000 Par Bonds, Series B, 6.25%
due 12/31/2019 11,690,643 15,000,000 0.2
United Mexican States, Rights:
USD 130,764,000 (Series A) -- -- --
USD 83,460,000 (Series B) -- -- --
-------------- -------------- ------
282,090,542 265,795,970 3.2
Total Fixed-Income Securities in
Mexico 282,090,542 265,795,970 3.2
New Zealand
Utilities NZD 2,000,000 Natural Gas Corp. Holdings,
- --Gas Convertible Bonds, 10.50%
due 10/14/1997 1,186,318 2,425,320 0.0
Total Fixed-Income Securities in
New Zealand 1,186,318 2,425,320 0.0
Norway
Industrial USD 10,000,000 Wilrig AS, 11.25% due 3/15/2004 10,000,000 10,350,000 0.1
Total Fixed-Income Securities in
Norway 10,000,000 10,350,000 0.1
Portugal
Banking ECU 19,300,000 Banco Commercial Portuguese,
Convertible Bonds, 8.75% due
5/21/2002 26,468,747 27,224,001 0.3
Total Fixed-Income Securities in
Portugal 26,468,747 27,224,001 0.3
Spain
Government ESP 30,275,000,000 Government of Spain, 10% due
Obligations 2/28/2005 218,935,863 236,367,295 2.8
Total Fixed-Income Securities in
Spain 218,935,863 236,367,295 2.8
Sweden
Industrial ECU 7,000,000 SKF--AB Lyons, Convertible Bonds,
8.01% due 7/26/2002 (b) 5,313,058 5,360,166 0.1
Multi- ECU 1,000,000 Investor International Placements,
Industry Convertible Bonds, 7.25% due
6/21/2001 1,001,412 1,481,098 0.0
Total Fixed-Income Securities in
Sweden 6,314,470 6,841,264 0.1
Switzerland
Chemicals USD 24,945,000 Ciba-Geigy Corp., Convertible Bonds,
6.25% due 3/15/2016 25,632,050 24,446,100 0.3
Industrial CHF 1,401,000 Ciba-Geigy AG, Convertible Bonds,
2% due 8/09/1998 1,178,587 1,673,091 0.0
Newspaper/ CHF 3,020,000 News International PLC, 5.375%
Publishing due 4/30/1996 1,115,703 2,655,662 0.0
Total Fixed-Income Securities in
Switzerland 27,926,340 28,774,853 0.3
Taiwan
Agriculture USD 750,000 President Enterprises, 8.30% due
7/22/2001 (b) 746,250 907,500 0.0
Metals USD 2,220,000 Tung Ho Steel Enterprise, Convertible
Bonds, 4% due 7/26/2001 2,243,700 2,575,200 0.0
Total Fixed-Income Securities in Taiwan 2,989,950 3,482,700 0.0
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
COUNTRY
Currency Face Percent of
Industries Denomination Amount Fixed-Income Securities Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Kingdom
Building GBP 3,250,000 Redland Capital PLC, Convertible
Materials Bonds, 7.25% due 1/28/2002 $ 5,382,804 $ 4,888,611 0.1%
Energy GBP 29,990,000 Elf Enterprises Finance PLC,
Convertible Bonds, 8.75% due
6/27/2006 48,109,352 47,390,123 0.6
Financial GBP 3,550,000 SG Warburg Group, Convertible Bonds,
Services 6.50% due 8/04/2008 5,416,350 4,828,603 0.1
GBP 11,600,000 TransAtlantic Holdings PLC, Convertible
Bonds, 5.50% due 4/30/2009 14,179,895 14,107,363 0.2
-------------- -------------- ------
19,596,245 18,935,966 0.3
Foods GBP 7,750,000 Tate & Lyle International, Convertible
Bonds, 5.75% due 3/21/2001 10,092,554 10,448,306 0.1
Food & GBP 750,000 Allied Domecq PLC, 6.75% due 7/07/2008 1,119,092 1,182,148 0.0
Beverage
Government GBP 32,000,000 U.K.T.N., Bond, 6.75% due 11/26/2004 47,194,258 46,277,784 0.6
Obligations
Industrial USD 1,890,000 HIH Capital Ltd., Convertible Bonds
(Bearer), 7.50% due 9/25/2006 1,005,400 1,379,700 0.0
USD 2,000,000 HIH Capital Ltd., Convertible Bonds,
7.50% due 9/25/2006 1,665,000 1,460,000 0.0
GBP 6,375,000 Hanson PLC, Convertible Bonds,
9.50% due 1/31/2006 11,769,997 10,354,294 0.1
-------------- -------------- ------
14,440,397 13,193,994 0.1
Multi-- GBP 4,875,000 English China Clays PLC, Convertible
Industry Bonds, 6.50% due 9/30/2003 8,364,034 7,820,477 0.1
Real Estate GBP 500,000 Land Securities PLC, Convertible Bonds,
6.75% due 12/31/2002 679,603 796,099 0.0
Retail GBP 8,350,000 Sainsbury (J.) PLC, Convertible Bonds,
8.50% due 11/19/2005 16,072,715 18,338,892 0.2
Utilities GBP 2,000,000 National Power PLC, Convertible Bonds,
6.25% due 9/23/2008 3,262,275 3,584,448 0.0
Total Fixed-Income Securities in the
United Kingdom 174,313,329 172,856,848 2.1
United States
Aerospace USD 3,500,000 Rohr Industries, Inc., Convertible
Bonds, 7.75% due 5/15/2004 3,500,000 5,425,000 0.1
Airlines USD 8,500,000 UAL Corporation, Convertible Bonds,
6.375% due 2/01/2025 7,631,506 8,797,500 0.1
USAir Inc.:
USD 11,000,000 10% due 7/01/2003 8,529,375 8,827,500 0.1
USD 4,337,927 9.33% due 1/01/2006 4,229,913 3,882,445 0.1
USD 19,300,000 10.375% due 3/01/2013 17,593,625 17,852,500 0.2
USD 7,500,000 USAir Pass Thru, 9.625% due
9/01/2003 (d) 7,495,625 6,900,000 0.1
-------------- -------------- ------
45,480,044 46,259,945 0.6
Automotive USD 22,000,000 AM General Corporation, 12.875%
due 5/01/2002 21,834,060 21,120,000 0.3
Banking USD 14,250,000 Berkely Federal Bank, 12% due
6/15/2005 14,250,000 14,285,625 0.2
USD 15,000,000 First City Bancorp of Texas Inc.,
9% due 9/30/1997 14,925,000 14,925,000 0.2
USD 3,000,000 Roosevelt Financial Group, Inc.,
9.50% due 8/01/2002 3,000,000 3,005,100 0.0
-------------- -------------- ------
32,175,000 32,215,725 0.4
</TABLE>
F-16
<PAGE>
<TABLE>
<S> <C> <S> <C> <C> <C>
Building & USD 39,250,000 United International Holdings, Inc.,
Construction 43.768% due 11/15/1999 (b) 21,962,824 24,138,750 0.3
Building USD 15,000,000 DalTile International, Inc., 11.955%
Materials due 7/15/1998 (b) 10,267,050 10,312,500 0.1
Chemicals USD 10,000,000 Laroche Industries Inc., 13% due
8/15/2004 10,325,000 10,300,000 0.1
Computers USD 15,000,000 Dell Computer Corp., 11% due
8/15/2000 15,077,500 16,387,500 0.2
Energy USD 12,374,000 Transamerican Refining Corp., 18.29%
due 2/15/2002(b) 7,394,649 8,228,710 0.1
USD 33,000,000 TransTexas Gas Corp., 11.50% due
6/15/2002 33,000,000 34,072,500 0.4
-------------- -------------- ------
40,394,649 42,301,210 0.5
Financial CHF 4,010,000 Chrysler Financial Corp.,
Services 5.75% due 6/18/1996 1,914,011 3,556,638 0.0
Lomas Mortgage USA, Inc.:
USD 11,000,000 9.75% due 10/01/1997 10,465,250 8,470,000 0.1
USD 7,500,000 10.25% due 10/01/2002 7,000,000 5,512,500 0.1
USD 2,008,000 US Trails, Senior Secured Notes,
12% due 7/15/1998 1,642,685 1,365,440 0.0
-------------- -------------- ------
21,021,946 18,904,578 0.2
Health Care USD 7,200,000 Cetus (Chiron) Corp., Convertible
Bonds, 5.25% due 5/21/2002 5,220,250 6,624,000 0.1
USD 8,500,000 Mediq/PRN, Senior Notes, 11.125%
due 7/01/1999 8,845,000 7,926,250 0.1
-------------- -------------- ------
14,065,250 14,550,250 0.2
Homebuilding & USD 31,950,000 Baldwin Co., 10.375% due 8/01/2003 30,215,562 18,531,000 0.2
Construction USD 37,500,000 Beazer Homes USA, Inc., 9% due
3/01/2004 35,597,000 34,406,250 0.4
USD 29,500,000 K. Hovnanian Enterprises, 9.75%
due 6/01/2005 28,874,300 23,157,500 0.3
USD 30,000,000 MDC Holdings Inc., 11.125% due
12/15/2003 28,916,500 27,375,000 0.3
USD 28,250,000 Presley Companies, Senior Notes,
12.50% due 7/01/2001 28,190,312 23,588,750 0.3
USD 10,000,000 Webb (Del E.) Corp., 9% due 2/15/2006 7,993,750 9,100,000 0.1
-------------- -------------- ------
159,787,424 136,158,500 1.6
Hospital USD 1,000,000 Novacare, Inc., Convertible Bonds,
Management 5.50% due 1/15/2000 857,500 860,000 0.0
Industrial USD 10,000,000 Easco Corp., 10% due 3/15/2001 10,005,000 10,100,000 0.1
USD 19,000,000 Envirotest Systems Corp.,
9.125% due 3/15/2001 18,412,210 15,960,000 0.2
USD 27,250,000 Genmar Holdings, Inc., 13.50% due
7/15/2001 27,127,100 27,045,625 0.3
USD 8,590,000 Hanson America, Convertible Bonds,
2.39% due 3/01/2001 6,592,268 6,786,100 0.1
USD 2,500,000 MDC Holdings, Inc., Convertible Bonds,
8.75% due 12/15/2005 2,150,000 2,600,000 0.0
USD 9,000,000 Merisel, Inc., 12.50% due 12/31/2004 9,000,000 7,920,000 0.1
USD 10,000,000 OSI Specialties Corp., 9.25% due
10/01/2003 10,000,000 10,250,000 0.1
USD 30,500,000 Plastic Specialties & Technology,
Inc., 11.25% due 12/01/2003 30,540,000 27,755,000 0.3
-------------- -------------- ------
113,826,578 108,416,725 1.2
Insurance USD 7,750,000 Horace Mann Educators, Inc.,
Convertible Bonds, 4% due
12/01/1999 (b) 7,682,500 7,682,187 0.1
USD 22,500,000 Mutual Life Insurance Co.,
11.25% due 8/15/2024 (b) 14,457,048 16,425,000 0.2
USD 12,500,000 Nacolah Holding Corp.,
9.50% due 12/01/2003 12,500,000 11,812,500 0.1
-------------- -------------- ------
34,639,548 35,919,687 0.4
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
COUNTRY
Currency Face Percent of
Industries Denomination Amount Fixed-Income Securities Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
United States
(concluded)
Leisure & USD 5,000,000 Rio Hotel & Casino Inc., 10.625%
Tourism due 7/15/2005 $ 5,000,000 $ 5,012,500 0.1%
Merchandising USD 12,000,000 Price Club Co., Convertible Bonds,
5.50% due 2/28/2012 11,213,250 11,700,000 0.1
Oil & Related USD 1,500,000 Gerrity Oil & Gas Corp., 11.75%
due 7/15/2004 1,500,000 1,342,500 0.0
PDV America, Inc.:
USD 35,000,000 7.25% due 8/01/1998 34,856,150 33,600,000 0.4
USD 10,000,000 7.75% due 8/01/2000 10,062,500 9,412,500 0.1
USD 6,000,000 USX Marathon Oil Co., 7% due
6/15/2017 5,650,000 5,505,000 0.1
-------------- -------------- ------
52,068,650 49,860,000 0.6
Real Estate USD 24,500,000 Alexander Haagen Properties Inc.,
Exchangeable Debentures, 7.25% due
12/27/2003 24,348,750 22,754,375 0.3
USD 25,000,000 First Washington Realty, 8.25%
due 6/26/1999 25,000,000 24,750,000 0.3
USD 6,500,000 LTC Properties, Inc., Convertible Bonds,
9.75% due 7/01/2004 6,500,000 9,343,750 0.1
USD 27,000,000 Malan Realty Investors, Inc.,
Convertible Bonds, 8.50% due
7/01/2003 27,000,000 27,945,000 0.3
USD 9,545,000 Phoenix Home Life-Mutual Insurance Co.,
8% due 11/25/2023 9,545,000 9,091,612 0.1
USD 23,948,889 RTC Commercial Mortgage, Class E,
8.25% due 12/25/2020 (d) 23,582,172 22,212,595 0.3
-------------- -------------- ------
115,975,922 116,097,332 1.4
Real Estate USD 7,000,000 Centerpoint Properties Corp.,
Investment Convertible Bonds, 8.22% due
Trusts 1/15/2004 7,000,000 7,866,250 0.1
USD 30,000,000 First Union Real Estate, 8.875%
due 10/01/2003 29,756,100 27,225,000 0.3
USD 12,500,000 Liberty Property Trust, Convertible
Bonds, 8% due 7/01/2001 12,500,000 12,687,500 0.1
Meditrust, Convertible Bonds:
USD 6,000,000 7% due 3/01/1998 6,035,000 6,637,500 0.1
USD 5,000,000 8.549% due 2/01/2000 5,000,000 5,000,000 0.1
USD 18,500,000 7.50% due 3/01/2001 18,500,000 18,685,000 0.2
USD 5,000,000 Mid-Atlantic Realty Trust,
Convertible Bonds, 7.625% due
9/15/2003 4,875,000 4,125,000 0.1
USD 5,000,000 National Health Investors, Inc.,
Convertible Bonds, 7.375% due
4/01/1998 5,125,000 5,150,000 0.1
USD 14,500,000 Nationwide Health Properties Inc.,
Convertible Bonds, 6.25% due
1/01/1999 14,450,000 14,355,000 0.1
USD 5,500,000 Sizeler Property Investors, Inc.,
Convertible Bonds, 8% due
7/15/2003 5,505,000 4,867,500 0.1
-------------- -------------- ------
108,746,100 106,598,750 1.3
Resources USD 32,500,000 Freeport-McMoRan Resources,
8.75% due 2/15/2004 31,378,750 31,403,125 0.4
Savings Bank USD 15,000,000 Crossland Federal Savings Bank,
9% due 9/01/2003 15,634,250 15,150,000 0.2
USD 21,400,000 First Federal Financial Corporation,
11.75% due 10/01/2004 21,401,250 21,346,500 0.2
-------------- -------------- ------
37,035,500 36,496,500 0.4
Steel USD 23,625,000 NS Group, Inc., 13.50% due
7/15/2003 22,526,813 22,680,000 0.3
Supermarkets USD 39,650,000 Eagle Food Centers Inc., 8.625%
due 4/15/2000 36,095,837 18,040,750 0.2
USD 5,000,000 Pueblo Xtra International Inc.,
9.50% due 8/01/2003 4,588,750 4,500,000 0.1
-------------- -------------- ------
40,684,587 22,540,750 0.3
</TABLE>
F-18
<PAGE>
<TABLE>
<S> <C> <S> <C> <C> <C>
Telecommuni- USD 46,500,000 Cellnet Data Systems, 9.1479% due
cations 6/15/2005 (b) 25,166,686 25,691,250 0.3
USD 95,000,000 Geotek Communications Inc.,
14.975% due 7/15/2005 (b) 46,421,106 46,787,500 0.6
Nextel Communications, Inc. (b):
USD 3,000,000 11.21% due 9/01/2003 2,158,895 1,811,250 0.0
USD 33,500,000 9.96% due 8/15/2004 22,383,911 17,545,625 0.2
-------------- -------------- ------
96,130,598 91,835,625 1.1
Textiles & USD 23,500,000 Salant Corp., Secured, 10.50%
Apparel due 12/31/1998 23,030,000 18,330,000 0.2
USD 18,250,000 Texfi Industries, Inc., 8.75%
due 8/01/1999 17,930,300 13,961,250 0.2
-------------- -------------- ------
40,960,300 32,291,250 0.4
Trans- USD 8,500,000 Eletson Holdings Inc., 9.25% due
portation 11/15/2003 8,537,500 8,096,250 0.1
USD 22,000,000 OMI Corp., 10.25% due 11/01/2003 21,910,000 18,920,000 0.2
-------------- -------------- ------
30,447,500 27,016,250 0.3
Trans- USD 5,000,000 AMR Corp., 6.125% due 11/01/2024 4,074,641 5,200,000 0.1
portation/
Airline
Utilities-- CTC Mansfield Funding Corp.:
Electric USD 5,500,000 10.25% due 3/30/2003 5,620,000 5,610,000 0.1
USD 12,000,000 11.125% due 9/30/2016 12,820,000 12,300,000 0.2
USD 40,000,000 California Energy Co., Inc.,
10.25% due 1/15/2004 (b) 34,517,325 34,000,000 0.4
USD 8,000,000 Calpine Corp., Inc., 9.25% due
2/01/2004 7,277,500 6,960,000 0.1
Cleveland Electric Illuminating
Company Inc., First Mortgage:
USD 5,000,000 9.30% due 7/26/1999 5,437,500 4,981,250 0.1
USD 12,500,000 9.25% due 7/29/1999 13,562,500 12,437,500 0.2
USD 3,000,000 9.05% due 8/15/2001 3,093,750 2,955,000 0.0
USD 7,500,000 7.625% due 8/01/2002 7,462,500 6,768,750 0.1
USD 5,000,000 7.375% due 6/01/2003 4,700,000 4,387,500 0.0
El Paso Funding:
USD 4,050,000 9.20% due 7/02/1997 3,286,000 2,349,000 0.0
USD 25,000,000 10.375% due 1/02/2011 21,170,000 14,500,000 0.2
USD 62,040,000 10.75% due 4/01/2013 52,996,150 35,983,200 0.4
USD 7,500,000 Public Service Company of
New Mexico, First PV Funding,
10.30% due 1/15/2014 7,137,750 7,612,500 0.1
USD 23,000,000 Public Service Company of
New Mexico, EIP Funding, 10.25%
due 10/01/2012 23,000,000 23,230,000 0.3
Toledo Edison Co.:
USD 2,000,000 9.30% due 4/01/1998 2,130,000 1,990,000 0.0
USD 15,425,000 7.25% due 8/01/1999 15,425,000 14,248,844 0.2
USD 3,000,000 9.50% due 4/01/2001 3,221,250 2,985,000 0.0
USD 1,500,000 7.85% due 3/31/2003 1,296,450 1,353,750 0.0
USD 2,000,000 7.91% due 4/01/2003 1,992,500 1,807,500 0.0
-------------- -------------- ------
226,146,175 196,459,794 2.4
Total Fixed-Income Securities
in the United States 1,367,603,159 1,278,462,246 15.4
Total Investments in Fixed-Income
Securities 4,232,139,273 4,281,932,908 51.4
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
COUNTRY
Currency Face Percent of
Denomination Amount Short-Term Securities Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Canada
Foreign CAD 86,217,000 Canadian Treasury Bill, 6.347%
Government due 8/24/1995 $ 63,356,530 $ 62,634,670 0.8%
Obligations*
Total Short-Term Investments in Canada 63,356,530 62,634,670 0.8
Mexico
Foreign Mexican Cetes (Certificados de
Government la Tesoreria de la Federacion):
Obligations* MXN 42,000,000 30.064% due 8/03/1995 6,290,679 6,822,422 0.1
MXN 18,653,450 60.149% due 2/01/1996 2,251,725 2,518,674 0.0
MXN 82,186,000 26.249% due 2/15/1996 11,594,050 10,962,617 0.1
MXN 212,150,560 24.749% due 2/22/1996 28,534,315 28,124,706 0.3
Total Short-Term Investments in
Mexico 48,670,769 48,428,418 0.5
United States
Commercial USD 47,000,000 ABN-AMRO North America Finance, Inc.,
Paper* 5.70% due 9/01/1995 46,769,308 46,769,308 0.6
USD 50,000,000 Ciesco L.P., 5.70% due 8/23/1995 49,825,833 49,825,833 0.6
USD 40,000,000 Deutsche Bank Finance, 5.71% due
8/11/1995 39,936,556 39,936,556 0.5
Du Pont (E.I.) de Nemours & Co:
USD 50,000,000 5.69% due 8/02/1995 49,992,097 49,992,097 0.6
USD 50,000,000 5.70% due 8/22/1995 49,833,750 49,833,750 0.6
USD 18,694,000 General Electric Capital Corp.,
5.80% due 8/01/1995 18,694,000 18,694,000 0.2
USD 50,000,000 Goldman Sachs Group L.P.,
5.70% due 8/09/1995 49,936,667 49,936,667 0.6
USD 42,082,000 Sheffield Receivables Corp.,
5.87% due 8/01/1995 42,082,000 42,082,000 0.5
USD 100,000,000 UBS Finance (Delaware) Inc.,
5.88% due 8/01/1995 100,000,000 100,000,000 1.2
Total Investments in Commercial Paper 447,070,211 447,070,211 5.4
US Government USD 15,000,000 Federal Home Loan Mortgage Corporation,
Agency 5.81% due 8/02/1995 14,997,579 14,997,579 0.2
Obligations*
Total Investments in US Government
Agency Obligations 14,997,579 14,997,579 0.2
Total Short-Term Investments in the
United States 462,067,790 462,067,790 5.6
Total Investments in Short-Term
Securities 574,095,089 573,130,879 6.9
Total Investments $7,654,662,916 8,203,618,539 98.5
==============
Unrealized Depreciation on Forward Foreign Exchange Contracts** (13,880,557) (0.2)
Variation Margin on Futures Contracts*** 688,896 0.0
Other Assets Less Liabilities 137,587,677 1.7
-------------- ------
Net Assets $8,328,014,555 100.0%
============== ======
</TABLE>
F-20
<PAGE>
[FN]
(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.
(b)Represents a zero coupon or step bond; the interest rate shown is the
effective yield at the time of purchase.
(c)Represents a pay-in-kind security.
(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.
(f)The rights may be exercised until 8/08/1995.
++American Depositary Receipt (ADR).
*Commercial Paper and certain US and Foreign Government and Agency
Obligations are traded on a discount basis. The interest rates
shown are the rates in effect on July 31, 1995.
**Forward Foreign Exchange Contracts as of July 31, 1995 were as follows:
Unrealized
Foreign Expiration Appreciation
Currency Sold Date (Depreciation)
CHF 3,000,000 August 1995 $ 612
CHF 55,000,000 September 1995 (39,618)
DEM 666,500,000 August 1995 (4,764,376)
DEM 325,000,000 September 1995 (1,430,984)
DEM 155,000,000 October 1995 285,222
DKR 7,000,000 August 1995 (6,715)
ECU 123,000,000 August 1995 (2,794,730)
ECU 30,000,000 September 1995 (752,970)
FRF 335,000,000 August 1995 (2,668,862)
FRF 200,000,000 September 1995 (828,614)
FRF 310,000,000 October 1995 (942,780)
GBP 102,000,000 August 1995 (967,613)
GBP 32,000,000 September 1995 (92,480)
NLG 108,000,000 August 1995 (409,013)
NLG 55,000,000 September 1995 (251,823)
ESP 12,500,000,000 August 1995 (1,474,604)
ESP 7,000,000,000 September 1995 (812,158)
ESP 4,500,000,000 October 1995 (594,852)
JPY 5,000,000,000 August 1995 1,713,682
JPY 24,000,000,000 September 1995 2,490,897
JPY 4,000,000,000 October 1995 461,222
Total Unrealized Depreciation--Net, on
Forward Foreign Exchange Contracts
(US$ Commitment--$2,149,759,277) $(13,880,557)
============
***Financial Futures Contracts purchased as of July 31, 1995 were as follows:
Number of Expiration
Contracts Issue Date Value
330 Standard & Poor's 500 Index September 1995 $(92,919,750)
700 US Treasury Notes September 1995 (76,234,375)
Total Financial Futures Contracts Purchased
(Total Contract Price--$167,728,750) $(169,154,125)
=============
F-21
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
AS OF JULY 31, 1995
(UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (identified cost--
$7,654,662,916) (Note 1a)......................... $8,203,618,539
Cash............................................... 6,788,215
Foreign cash (Note 1c) ............................ 4,993,020
Receivables:
Securities sold ................................. $202,946,283
Interest......................................... 125,774,426
Capital shares sold ............................. 14,100,893
Dividends........................................ 7,828,560
Variation margin (Note 1d) ...................... 688,896 351,339,058
------------
Prepaid registration fees and other assets (Note
1g)............................................... 696,869
--------------
Total assets....................................... 8,567,435,701
--------------
LIABILITIES:
Unrealized depreciation on forward foreign exchange
contracts (Note 1d) .............................. 13,880,557
Payables:
Securities purchased............................. 197,353,225
Capital shares redeemed ......................... 15,142,207
Distributor (Note 2)............................. 5,637,484
Investment adviser (Note 2) ..................... 4,871,486 223,004,402
------------
Accrued expenses and other liabilities ............ 2,536,187
--------------
Total liabilities.................................. 239,421,146
--------------
NET ASSETS:
Net assets......................................... $8,328,014,555
==============
NET ASSETS CONSIST OF:
Class A Shares of Common Stock, $0.10 par value,
200,000,000 shares authorized..................... $ 10,608,834
Class B Shares of Common Stock, $0.10 par value,
900,000,000 shares authorized..................... 47,860,816
Class C Shares of Common Stock, $0.10 par value,
200,000,000 shares authorized..................... 540,310
Class D Shares of Common Stock, $0.10 par value,
900,000,000 shares authorized..................... 1,535,855
Paid-in capital in excess of par .................. 7,610,282,943
Undistributed investment income--net .............. 235,282,298
Accumulated realized capital losses on investments
and foreign currency transactions--net............ (114,448,685)
Unrealized appreciation on investments and foreign
currency transactions--net........................ 536,352,184
--------------
Net assets......................................... $8,328,014,555
==============
NET ASSET VALUE:
Class A--Based on net assets of $1,472,359,175 and
106,088,337 shares outstanding ................... $ 13.88
==============
Class B--Based on net assets of $6,568,795,317 and
478,608,156 shares outstanding ................... $ 13.72
==============
Class C--Based on net assets of $73,766,684 and
5,403,105 shares outstanding ..................... $ 13.65
==============
Class D--Based on net assets of $213,093,379 and
15,358,550 shares outstanding .................... $ 13.87
==============
</TABLE>
See Notes to Financial Statements.
F-22
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.,
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 1995
(UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME (NOTES 1E & 1F):
Interest and discount earned (net of $30,235 foreign
withholding tax)................................... $336,000,180
Dividends (net of $3,203,775 foreign withholding
tax)............................................... 79,251,597
Other............................................... 501,615
------------
Total income........................................ 415,753,392
------------
EXPENSES:
Account maintenance and distribution fees--Class B
(Note 2)........................................... 46,881,433
Investment advisory fees (Note 2)................... 40,778,782
Transfer agent fees--Class B (Note 2)............... 7,236,243
Custodian fees...................................... 2,331,835
Transfer agent fees--Class A (Note 2)............... 1,329,603
Printing and shareholder reports.................... 715,077
Accounting services (Note 2)........................ 447,207
Registration fees (Note 1h)......................... 300,333
Account maintenance and distribution fees--Class C
(Note 2)........................................... 300,358
Account maintenance fees--Class D (Note 2).......... 252,621
Professional fees................................... 173,073
Transfer agent fees--Class D (Note 2)............... 133,347
Transfer agent fees--Class C (Note 2)............... 50,393
Directors' fees and expenses........................ 27,213
Pricing fees........................................ 11,591
Other............................................... 80,484
------------
Total expenses...................................... 101,049,593
------------
Investment income--net.............................. 314,703,799
------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS &
FOREIGN CURRENCY TRANSACTIONS--NET (NOTES 1C, 1D,
1F & 3):
Realized gain (loss) from:
Investments--net.................................. $ 170,896,774
Foreign currency transactions--net................ (126,736,459) 44,160,315
-------------
Change in unrealized appreciation/depreciation on:
Investments--net.................................. 478,482,590
Foreign currency transactions--net................ 21,861,880 500,344,470
------------- ------------
Net realized and unrealized gain on investments and
foreign currency transactions...................... 544,504,785
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERA-
TIONS.............................................. $859,208,584
============
</TABLE>
See Notes to Financial Statements.
F-23
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS FOR THE YEAR
ENDED ENDED
JULY 31, 1995 OCTOBER 31, 1994
-------------- ----------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income--net.......................... $ 314,703,799 $ 261,655,320
Realized gain on investments and foreign cur-
rency transactions--net........................ 44,160,315 27,450,270
Change in unrealized appreciation/depreciation
on investments and foreign currency
transactions--net.............................. 500,344,470 (244,977,781)
-------------- --------------
Net increase in net assets resulting from opera-
tions.......................................... 859,208,584 44,127,809
-------------- --------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE
1H):
Investment income--net:
Class A....................................... (40,572,591) (42,294,885)
Class B....................................... (127,353,416) (157,338,890)
Class C....................................... (874,590) --
Class D....................................... (3,765,243) --
Realized gain on investments--net:
Class A....................................... (31,500,182) (16,636,230)
Class B....................................... (150,016,954) (80,810,426)
Class C....................................... (426,507) --
Class D....................................... (2,156,668) --
-------------- --------------
Net decrease in net assets resulting from divi-
dends and distributions to shareholders........ (356,666,151) (297,080,431)
-------------- --------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived
from capital share transactions................ (1,878,920) 2,862,952,855
-------------- --------------
NET ASSETS:
Total increase in net assets.................... 500,663,513 2,610,000,233
Beginning of period............................. 7,827,351,042 5,217,350,809
-------------- --------------
End of period*.................................. $8,328,014,555 $7,827,351,042
============== ==============
*Undistributed investment income--net........... $ 235,282,298 $ 93,144,339
============== ==============
</TABLE>
See Notes to Financial Statements.
F-24
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
FINANCIAL HIGHLIGHTS
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM INFORMATION
PROVIDED IN THE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------
FOR THE FOR THE YEAR ENDED OCTOBER 31,
NINE MONTHS ENDED ---------------------------------------
JULY 31, 1995++ 1994 1993 1992 1991
----------------- ---------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING PER-
FORMANCE:
Net asset value, begin-
ning of period......... $ 13.07 $ 13.52 $ 11.92 $ 12.16 $ 10.37
---------- ---------- -------- -------- -------
Investment income--net.. .60 .60 .39 .36 .55
Realized and unrealized
gain (loss) on
investments and foreign
currency transactions--
net.................... .90 (.31) 2.14 .89 2.24
---------- ---------- -------- -------- -------
Total from investment
operations............. 1.50 .29 2.53 1.25 2.79
---------- ---------- -------- -------- -------
Less dividends and dis-
tributions:
Investment income--
net.................. (.39) (.51) (.81) (.89) (.45)
Realized gain on
investments--net..... (.30) (.23) (.12) (.60) (.55)
---------- ---------- -------- -------- -------
Total dividends and dis-
tributions............. (.69) (.74) (.93) (1.49) (1.00)
---------- ---------- -------- -------- -------
Net asset value, end of
period................. $ 13.88 $ 13.07 $ 13.52 $ 11.92 $ 12.16
========== ========== ======== ======== =======
TOTAL INVESTMENT RE-
TURN:**
Based on net asset
value per share...... 12.15%# 2.14% 22.61% 11.78% 28.89%
========== ========== ======== ======== =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses.............. .90%* .89% .93% 1.07% 1.29%
========== ========== ======== ======== =======
Investment income--
net.................. 6.22%* 4.60% 3.90% 10.82% 8.96%
========== ========== ======== ======== =======
SUPPLEMENTAL DATA:
Net assets, end of
period
(in thousands)....... $1,472,359 $1,357,906 $917,806 $245,839 $72,702
========== ========== ======== ======== =======
Portfolio turnover.... 27.84% 57.04% 50.35% 59.56% 81.21%
========== ========== ======== ======== =======
</TABLE>
- --------
* Annualized.
** Total investment returns exclude the effects of sales loads.
# Aggregate total investment return.
++ Based on average shares outstanding during the period.
See Notes to Financial Statements.
F-25
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
FINANCIAL HIGHLIGHTS--(CONTINUED)
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM INFORMATION
PROVIDED IN THE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------
FOR THE FOR THE YEAR ENDED OCTOBER 31,
NINE MONTHS ENDED ------------------------------------------
JULY 31, 1995++ 1994 1993 1992 1991
----------------- ---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING PER-
FORMANCE:
Net asset value, begin-
ning of period......... $ 12.91 $ 13.38 $ 11.83 $ 12.10 $ 10.33
---------- ---------- ---------- -------- --------
Investment income--net.. .49 .46 .28 .22 .44
Realized and unrealized
gain (loss) on
investments and foreign
currency transactions--
net.................... .88 (.31) 2.11 .91 2.22
---------- ---------- ---------- -------- --------
Total from investment
operations............. 1.37 .15 2.39 1.13 2.66
---------- ---------- ---------- -------- --------
Less dividends and dis-
tributions:
Investment income--
net.................. (.26) (.39) (.72) (.80) (.34)
Realized gain on in-
vestments--net....... (.30) (.23) (.12) (.60) (.55)
---------- ---------- ---------- -------- --------
Total dividends and dis-
tributions............. (.56) (.62) (.84) (1.40) (.89)
---------- ---------- ---------- -------- --------
Net asset value, end of
period................. $ 13.72 $ 12.91 $ 13.38 $ 11.83 $ 12.10
========== ========== ========== ======== ========
TOTAL INVESTMENT RE-
TURN:**
Based on net asset
value per share...... 11.19%# 1.13% 21.42% 10.64% 27.48%
========== ========== ========== ======== ========
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding
account maintenance
and distribution
fees................. .92%* .91% .95% 1.09% 1.31%
========== ========== ========== ======== ========
Expenses.............. 1.92%* 1.91% 1.95% 2.09% 2.31%
========== ========== ========== ======== ========
Investment income--
net.................. 5.19%* 3.58% 2.87% 11.95% 7.98%
========== ========== ========== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of
period (in
thousands)........... $6,568,795 $6,457,130 $4,299,545 $958,949 $161,328
========== ========== ========== ======== ========
Portfolio turnover.... 27.84% 57.04% 50.35% 59.56% 81.21%
========== ========== ========== ======== ========
</TABLE>
- --------
* Annualized.
** Total investment returns exclude the effects of sales loads.
# Aggregate total investment return.
++ Based on average shares outstanding during the period.
See Notes to Financial Statements.
F-26
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
FINANCIAL HIGHLIGHTS--(CONTINUED)
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM INFORMATION
PROVIDED IN THE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
CLASS C
--------------------------------------
FOR THE FOR THE PERIOD
NINE MONTHS ENDED OCTOBER 21, 1994+ TO
JULY 31, 1995++ OCTOBER 31, 1994
----------------- --------------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 12.91 $12.91
------- ------
Investment income--net.................. .50 .01
Realized and unrealized gain (loss) on
investments and foreign
currency transactions--net............. .87 (.01)
------- ------
Total from investment operations........ 1.37 --
------- ------
Less dividends and distributions:
Investment income--net................ (.33) --
Realized gain on investments--net..... (.30) --
------- ------
Total dividends and distributions....... (.63) --
------- ------
Net asset value, end of period.......... $ 13.65 $12.91
======= ======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.... 11.22%# .00%#
======= ======
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account mainte-
nance and distribution fees.......... .94%* 1.44%*
======= ======
Expenses.............................. 1.94%* 2.44%*
======= ======
Investment income--net................ 5.16%* 3.71%*
======= ======
SUPPLEMENTAL DATA:
Net assets, end of period (in thou-
sands)............................... $73,767 $7,347
======= ======
Portfolio turnover.................... 27.84% 57.04%
======= ======
</TABLE>
- --------
* Annualized.
** Total investment returns exclude the effects of sales loads.
# Aggregate total investment return.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
See Notes to Financial Statements.
F-27
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
FINANCIAL HIGHLIGHTS--(CONCLUDED)
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM INFORMATION
PROVIDED IN THE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
CLASS D
-------------------------------------
FOR THE FOR THE PERIOD
NINE MONTHS ENDED OCTOBER 21, 1994+
JULY 31, 1995++ TO OCTOBER 31, 1994
----------------- -------------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..... $ 13.08 $13.07
-------- ------
Investment income--net................... .59 .01
Realized and unrealized gain on
investments and foreign currency
transactions--net....................... .87 --
-------- ------
Total from investment operations......... 1.46 .01
-------- ------
Less dividends and distributions:
Investment income--net................. (.37) --
Realized gain on investments--net...... (.30) --
-------- ------
Total dividends and distributions........ (.67) --
-------- ------
Net asset value, end of period........... $ 13.87 $13.08
======== ======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share..... 11.85%# .08%#
======== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account maintenance
fees.................................. .90%* 1.44%*
======== ======
Expenses............................... 1.15%* 1.69%*
======== ======
Investment income--net................. 5.95%* 4.46%*
======== ======
SUPPLEMENTAL DATA:
Net assets, end of period (in thou-
sands)................................ $213,093 $4,968
======== ======
Portfolio turnover..................... 27.84% 57.04%
======== ======
</TABLE>
- --------
* Annualized.
** Total investment returns exclude the effects of sales loads.
# Aggregate total investment return.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
See Notes to Financial Statements.
F-28
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities
are being valued or, lacking any sales, at the last available bid price.
Securities traded in the over-the-counter market are valued at the last
available bid price prior to the time of valuation. In cases where securities
are traded on more than one exchange, the securities are valued on the
exchange designated by or under the authority of the Board of Directors as the
primary market. Securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. Options written are valued at the last sale price in
the case of exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased are valued at
the last sale price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter market, the last bid price. Short-term
securities are valued at amortized cost, which approximates market value.
Other investments, including futures contracts and related options, are stated
at market value. Securities and assets for which market value quotations are
not readily available are valued at their fair value as determined in good
faith by or under the direction of the Funds Board of Directors.
(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.
(d) Derivative financial instrument--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its portfolio
against adverse movements in the equity, debt, and currency markets. Losses
may arise due to changes in the value of the contract or if the counterparty
does not perform under the contract.
. Forward foreign exchange contracts--The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on
the Fund's records. However, the effect on operations is recorded from
the date the Fund enters into such contracts. Premium or discount is
amortized over the life of the contracts.
F-29
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
. Foreign currency options and futures--The Fund may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency
futures and related options on foreign currency futures as a short or
long hedge against possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges on non-US dollar
denominated securities owned by the Fund, sold by the Fund but not yet
delivered, or committed or anticipated to be purchased by the Fund.
. Options--The Fund is authorized to purchase and write covered call and
put options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market
to reflect the current value of the option written.
When a security is sold through an exercise of an option, the related
premium received (or paid) is deducted from (or added to) the basis of
the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to
the extent of the premiums received or paid (or gain or loss to the
extent the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
. 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.
(e) 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.
(f) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates except that if the ex-
dividend date has passed, certain dividends from foreign securities are
recorded as soon as the Fund is informed of the ex-dividend date. Interest
income (including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(g) Prepaid registration fees--Prepaid registration fees are charged to
expense as the related shares are issued.
(h) 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"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner. The Fund has
F-30
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
also entered into a Distribution Agreement and Distribution Plans with Merrill
Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly owned
subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, the Fund pays a
monthly fee 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 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 period ended July 31, 1995, MLAM paid MLAM
U.K. a fee of $5,774,203 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 at the time of such payment.
Pursuant to the distribution plans ("the Distribution Plans") adopted by the
Fund in accordance with Rule 12b-1 under the Investment Company Act of 1940,
the Fund pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates based upon
the average daily net assets of the shares as follows:
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE FEE DISTRIBUTION FEE
--------------- ----------------
<S> <C> <C>
Class B................................... 0.25% 0.75%
Class C................................... 0.25% 0.75%
Class D................................... 0.25% --
</TABLE>
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce,
Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the period ended July 31, 1995, MLFD earned underwriting discounts and
MLPF&S earned dealer concessions on sales of the Fund's Class A and Class D
shares as follows:
<TABLE>
<CAPTION>
MLFD MLPF&S
------- --------
<S> <C> <C>
Class A................................................... $36,233 $609,811
Class D................................................... $60,604 $992,396
</TABLE>
For the period ended July 31, 1995, MLPF&S received contingent deferred sales
charges of $11,401,240 and $16,937 relating to transactions in Class B and
Class C Shares, respectively.
F-31
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
In addition, MLPF&S received $108,540 in commissions on the execution of
portfolio security transactions for the Fund for the period ended July 31,
1995.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned
subsidiary of ML & Co. is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors
of MLAM, PSI, MLPF&S, MLFDS , MLFD and/or ML & Co.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the
period ended July 31, 1995, were $2,075,267,299 and $2,787,857,202
respectively.
Net realized and unrealized gains (losses) as of July 31, 1995 were as
follows:
<TABLE>
<CAPTION>
REALIZED UNREALIZED
GAINS (LOSSES) GAINS (LOSSES)
-------------- --------------
<S> <C> <C>
Long-term investments....................... $ 186,107,766 $549,919,833
Short-term investments...................... (5,576,988) (964,210)
Financial futures contracts................. (9,634,004) (1,425,375)
Forward foreign exchange contracts.......... (162,907,290) (13,880,557)
Foreign currency transactions............... 36,170,831 2,702,493
------------- ------------
Total....................................... $ 44,160,315 $536,352,184
============= ============
</TABLE>
As of July 31, 1995, net unrealized appreciation for Federal income tax
purposes aggregated $548,955,623 of which $857,331,802 related to appreciated
securities and $308,376,179 related to depreciated securities. At July 31,
1995, the aggregate cost of investments for Federal income tax purposes was
$7,654,662,916.
4. CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets derived from capital share transactions
was $(1,878,920) and $2,862,952,855 for the nine months ended July 31, 1995 and
the year ended October 31, 1994, respectively.
Transactions in capital shares for each class were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES FOR THE NINE MONTHS DOLLAR
ENDED JULY 31, 1995 SHARES AMOUNT
---------------------------------- ----------- -------------
<S> <C> <C>
Shares sold................................... 20,310,222 $ 259,610,075
Shares issued to shareholders in reinvestment
of dividends and distributions............... 5,067,208 63,395,842
----------- -------------
Total issued.................................. 25,377,430 323,005,917
Shares redeemed............................... (23,149,716) (297,393,479)
----------- -------------
Net increase.................................. 2,227,714 $ 25,612,438
=========== =============
</TABLE>
F-32
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
CLASS A SHARES FOR THE YEAR DOLLAR
ENDED OCTOBER 31, 1994 SHARES AMOUNT
--------------------------- ------------ ---------------
<S> <C> <C>
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
============ ===============
<CAPTION>
CLASS B SHARES FOR THE NINE MONTHS DOLLAR
ENDED JULY 31, 1995 SHARES AMOUNT
---------------------------------- ------------ ---------------
<S> <C> <C>
Shares sold................................ 53,600,075 $ 680,442,655
Shares issued to shareholders in
reinvestment of dividends and
distributions............................. 19,807,279 244,145,118
------------ ---------------
Total issued............................... 73,407,354 924,587,773
Automatic conversion of shares............. (1,408,932) (18,435,509)
Shares redeemed............................ (93,651,548) (1,187,253,604)
------------ ---------------
Net decrease............................... (21,653,126) $ (281,101,340)
============ ===============
<CAPTION>
CLASS B SHARES FOR THE YEAR DOLLAR
ENDED OCTOBER 31, 1994 SHARES AMOUNT
--------------------------- ------------ ---------------
<S> <C> <C>
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
============ ===============
<CAPTION>
CLASS C SHARES FOR THE NINE MONTHS DOLLAR
ENDED JULY 31, 1995 SHARES AMOUNT
---------------------------------- ------------ ---------------
<S> <C> <C>
Shares sold................................ 5,581,943 $ 70,620,108
Shares issued to shareholders in
reinvestment of dividends and
distributions............................. 91,498 1,150,744
------------ ---------------
Total issued............................... 5,673,441 71,770,852
Shares redeemed............................ (839,353) (10,583,243)
------------ ---------------
Net increase............................... 4,834,088 $ 61,187,609
============ ===============
<CAPTION>
CLASS C SHARES FOR THE PERIOD DOLLAR
OCTOBER 21, 1994+ TO OCTOBER 31, 1994 SHARES AMOUNT
------------------------------------- ------------ ---------------
<S> <C> <C>
Shares sold................................ 569,603 $ 7,333,052
Shares redeemed............................ (586) (7,533)
------------ ---------------
Net increase............................... 569,017 $ 7,325,519
============ ===============
</TABLE>
- --------
+ Commencement of Operations.
F-33
<PAGE>
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONCLUDED)
<TABLE>
<CAPTION>
CLASS D SHARES FOR THE NINE MONTHS DOLLAR
ENDED JULY 31, 1995 SHARES AMOUNT
---------------------------------- ----------- ---------------
<S> <C> <C>
Shares sold................................. 15,224,171 $ 195,184,002
Automatic conversion of shares.............. 1,392,236 18,435,509
Shares issued to shareholders in
reinvestment of dividends and
distributions.............................. 416,394 5,268,928
----------- ---------------
Total issued................................ 17,032,801 218,888,439
Shares redeemed............................. (2,054,154) (26,466,066)
----------- ---------------
Net increase................................ 14,978,647 $ 192,422,373
=========== ===============
<CAPTION>
CLASS D SHARES FOR THE PERIOD DOLLAR
OCTOBER 21, 1994+ TO OCTOBER 31, 1994 SHARES AMOUNT
------------------------------------- ----------- ---------------
<S> <C> <C>
Shares sold................................. 385,289 $ 5,017,907
Shares redeemed............................. (5,386) (70,204)
----------- ---------------
Net increase................................ 379,903 $ 4,947,703
=========== ===============
</TABLE>
- --------
+ Commencement of Operations.
5. COMMITMENTS:
At July 31, 1995 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 $1,900 and $11,828,000, respectively.
F-34
<PAGE>
MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT, INC.
The financial statements and accompanying notes for the year ended September
30, 1995, and the independent auditors' report thereon, dated October 26, 1995,
of Balanced Fund are set forth below.
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Balanced Fund for Investment and Retirement, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Balanced Fund for Investment and
Retirement, Inc. as of September 30, 1995, the related statements of operations
for the year then ended and changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the five-year period then ended. These financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
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
September 30, 1995 by correspondence with the custodian and brokers. 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
Balanced Fund for Investment and Retirement, Inc. as of September 30, 1995, 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
October 26, 1995
F-36
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Value Percent of
Industries Amount* Corporate Bonds Cost (Note 1a) Net Assets
<C> <C> <C> <S> <C> <C> <C>
Financial $ 10,000,000 Ford Capital BV, 9.375% due 1/01/1998 $ 10,037,900 $ 10,643,000 1.6%
Services 5,000,000 Landeskreditbank, N.V., 7.875% due
4/15/2004 4,972,067 5,418,250 0.8
Total Investments in Corporate Bonds 15,009,967 16,061,250 2.4
Country Foreign Government & Agency Obligations
Italy 5,000,000 Republic of Italy, 8.75% due 2/08/2001 5,373,050 5,448,445 0.8
Total Investments in Foreign
Government & Agency Obligations 5,373,050 5,448,445 0.8
US Government & Agency Obligations
United States Federal Home Loan Mortgage Corp.,
REMIC (a):
10,000,000 Series, 6.30% due 5/15/2008 9,210,937 9,440,625 1.5
4,910,000 1243-HP, 5.625% due 11/25/2015 4,788,017 4,756,563 0.7
Federal National Mortgage Association:
9,482,095 8% due 10/01/2024 9,053,920 9,698,382 1.5
19,205,450 8% due 12/01/2024 18,866,355 19,643,527 3.0
US Treasury Notes:
55,000,000 7.875% due 8/15/2001 53,943,600 59,795,450 9.2
25,000,000 6.25% due 2/15/2003 25,710,937 25,140,500 3.9
22,000,000 US Treasury STRIPS++, 5.99% due
5/15/2000 (b) 16,533,161 16,740,460 2.6
Total Investments in US Government &
Agency Obligations 138,106,927 145,215,507 22.4
Foreign Obligations
Canada C$ 17,000,000 Government of Canada, 7.50% due
9/01/2000 12,513,374 12,692,853 2.0
Germany DM 20,000,000 Bundes, 6% due 2/20/1998 13,870,415 14,397,858 2.2
Italy Lit 12,000,000,000 European Investment Bank, 10.80% due
3/15/1999 7,677,863 7,410,781 1.1
Total Investments in Foreign
Obligations 34,061,652 34,501,492 5.3
Total Investments in Corporate Bonds,
Foreign Government & Agency Obligations,
US Government & Agency Obligations
& Foreign Obligations 192,551,596 201,226,694 30.9
Shares
Held US Stocks
Basic Industry
Aluminum 125,000 Aluminum Co. of America (ALCOA) 6,893,308 6,609,375 1.0
Chemicals 61,000 Dow Chemical Company (The) 4,633,938 4,544,500 0.7
93,700 Eastman Chemical Co. 5,394,105 5,996,800 0.9
90,000 Engelhard Corporation 2,751,452 2,283,750 0.4
70,000 IMC Fertilizer Group, Inc. 4,196,080 4,436,250 0.7
55,000 PPG Industries, Inc. 2,464,430 2,557,500 0.4
Paper & Forest Producers 225,000 Scott Paper Co. 10,875,875 10,912,500 1.7
Total Basic Industry 37,209,188 37,340,675 5.8
</TABLE>
F-37
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held US Stocks Cost (Note 1a) Net Assets
Capital Spending
<C> <C> <S> <C> <C> <C>
Aerospace 125,000 Boeing Company (The) $ 7,925,190 $ 8,531,250 1.3%
56,000 Crane Company 2,046,063 1,932,000 0.3
110,000 United Technologies Corp. 8,698,059 9,721,250 1.5
Communication 150,000 +++ADC Telecommunications, Inc. 3,462,859 6,825,000 1.0
Equipment 144,000 +++DSC Communications Corp. 4,548,726 8,532,000 1.3
80,000 +++Tellabs, Inc. 2,952,585 3,360,000 0.5
Computer Equipment 90,000 +++Cisco Systems, Inc. 4,973,502 6,210,000 1.0
Computer Services 225,000 +++Computer Sciences Corp. 8,005,471 14,484,375 2.2
240,000 General Motors Corp. (Class E) 9,927,011 10,920,000 1.7
Electrical Equipment 165,000 General Electric Co. 9,160,779 10,518,750 1.6
173,218 Siebe PLC 1,605,130 1,984,156 0.3
Electronics 90,000 +++Solectron Corp. 2,554,952 3,555,000 0.5
Environmental Control 550,000 Wheelabrator Technologies, Inc. 7,310,684 8,181,250 1.3
Machinery & Equipment 150,000 York International Corp. 6,687,115 6,318,750 1.0
Office Equipment 380,000 Danka Business Systems PLC
(ADR)(c)(1) 6,702,445 13,680,000 2.1
29,200 Harris Corp. 1,755,785 1,602,350 0.2
Semiconductors 43,500 Texas Instruments, Inc. 3,357,421 3,474,562 0.5
Total Capital Spending 91,673,777 119,830,693 18.3
Consumer Cyclicals
Appliances 230,000 Singer Co. N.V. (ADR)(c)(1) 6,382,381 6,123,750 0.9
Automotive 305,000 Ford Motor Company 9,068,012 9,493,125 1.5
Automotive Equipment 55,000 Magna International, Inc. (ADR)(c)(1) 2,005,798 2,481,875 0.4
Retail 95,000 Sears, Roebuck and Co. 2,561,323 3,503,125 0.5
Retail--Specialty 170,000 +++Toys 'R' Us, Inc. 4,706,973 4,590,000 0.7
Total Consumer Cyclicals 24,724,487 26,191,875 4.0
Consumer Staples
Consumer--Services 225,000 H & R Block, Inc. 8,896,652 8,550,000 1.3
Drug Stores 80,000 +++Revco D.S., Inc. 1,725,576 1,880,000 0.3
Foods 70,000 General Mills, Inc. 3,396,222 3,902,500 0.6
Healthcare 300,000 +++Humana Inc. 5,920,005 6,037,500 0.9
203,100 +++Physician Corp. of America 4,284,714 3,198,825 0.5
Pharmaceuticals 55,000 American Home Products Corp. 3,726,541 4,668,125 0.7
Photography 160,000 Eastman Kodak Co. 8,746,145 9,480,000 1.5
Restaurants 80,000 Darden Restaurants Inc. 837,277 920,000 0.1
Total Consumer Staples 37,533,132 38,636,950 5.9
</TABLE>
F-38
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held US Stocks Cost (Note 1a) Net Assets
Credit-Sensitive and Financial Services
<S> <C> <S> <C> <C> <C>
Banking 250,000 The Bank of New York Co. $ 7,473,216 $ 11,625,000 1.8%
15,000 The Bank of New York Co. (Warrants)
(e) 168,750 481,875 0.1
200,000 BankAmerica Corp. 9,113,967 11,975,000 1.8
100,000 CoreStates Financial Corp. 3,613,740 3,662,500 0.6
Insurance 140,000 Aetna Life & Casualty Co. 8,227,835 10,272,500 1.6
104,900 Allstate Corp. 3,168,972 3,710,837 0.6
99,500 International Telephone & Telegraph
Corp. 8,599,833 12,338,000 1.9
70,000 National Re Corp. 2,016,028 2,476,250 0.4
Total Credit-Sensitive & Financial
Services 42,382,341 56,541,962 8.8
Energy
Oil--Integrated 175,000 Chevron Corp. 8,576,842 8,509,375 1.3
125,000 Mobil Oil Corp. 9,757,153 12,453,125 1.9
Total Energy 18,333,995 20,962,500 3.2
Utilities
Utilities-- 39,200 Frontier Corp. 876,071 1,043,700 0.2
Communications 180,000 GTE Corp. 5,790,102 7,065,000 1.1
180,000 SBC Communications Inc. 8,015,735 9,900,000 1.5
310,000 +++WorldCom, Inc. 7,317,231 9,958,750 1.5
Total Utilities 21,999,139 27,967,450 4.3
Total Investments in US Stocks 273,856,059 327,472,105 50.3
Foreign Stocks
Australia
Media/Publishing 600,000 +++News Corp. Ltd. (Preferred)
(ADR)(c) 10,451,056 11,925,000 1.8
Canada
Appliances 280,000 Semi-Tech Corp.(d) 4,108,297 2,236,588 0.3
Chile
Banking 40,000 Banco O'Higgins (ADR)(c) 649,848 905,000 0.1
Packaging 60,000 Christalerias de Chile S.A.
(ADR)(c) 1,105,062 1,485,000 0.2
Hong Kong
Banking 286,378 HSBC Holdings PLC 1,750,973 3,982,000 0.6
</TABLE>
F-39
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held Foreign Stocks Cost (Note 1a) Net Assets
Indonesia
<C> <C> <S> <C> <C> <C>
Telecommunications 9,000 P.T. Indonesian Satellite (ADR)(c) $ 311,138 $ 316,125 0.1%
Tobacco 74,500 P.T. Hanjaya Mandala Sampoerna 415,075 694,018 0.1
Japan
Electronics 70,000 Advantest Corp. 3,441,308 4,143,434 0.6
45,000 Kyocera Corp. 3,995,841 3,700,000 0.6
240,000 Sharp Corp. 3,564,993 3,369,697 0.5
75,000 Tokyo Electron Ltd. 2,928,405 3,265,152 0.5
Financial Services 360,000 Nomura Securities Co., Ltd. 7,080,991 7,054,545 1.1
Insurance 250,000 Tokio Marine & Fire Insurance Co. 2,976,505 2,702,020 0.4
Office Equipment 150,000 Canon, Inc. 2,752,380 2,681,818 0.4
Mexico
Multi-Industry 433,800 +++Grupo Carso, S.A. de C.V.
(ADR)(c)++++ 3,832,850 5,042,925 0.8
Utilities-- 95,000 Telefonos de Mexico, S.A. de C.V.
Communications (ADR)(c)(1) 3,301,965 3,016,250 0.5
Netherlands
Computer Services 112,800 Getronics N.V. 4,941,210 5,556,789 0.9
Norway
Telecommunications 152,425 Nera AS 4,340,748 5,247,618 0.8
Portugal
325,000 Espirito Santo Financial Holdings
S.A. (ADR)(c)(1) 4,538,463 3,818,750 0.6
United Kingdom
Leisure/Entertainment 90,000 Thorn EMI PLC 1,726,953 2,096,336 0.3
Total Investments in Foreign Stocks 68,214,061 73,239,065 11.2
Total Investments in US & Foreign
Stocks 342,070,120 400,711,170 61.5
</TABLE>
F-40
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Amount Issue Cost (Note 1a) Net Assets
Short-Term Securities
<S> <C> <S> <C> <C> <C>
Commercial Paper** $ 21,064,000 Ford Motor Credit Co., 6.50% due
10/02/1995 $ 21,056,394 $ 21,056,394 3.3%
17,000,000 National Fleet Funding Corp., 5.75%
due 10/11/1995 16,970,132 16,970,132 2.6
Total Investments in Short-Term
Securities 38,026,526 38,026,526 5.9
Total Investments $572,648,242 639,964,390 98.3
============
Other Assets Less Liabilities 11,342,674 1.7
------------ ------
Net Assets $651,307,064 100.0%
============ ======
<FN>
(a)Real Estate Mortgage Investment Conduits (REMIC).
(b)Represents the yield-to-maturity on this zero coupon issue. These
securities are purchased at a deep discount and amortized to
maturity.
(c)American Depositary Receipts (ADR).
(d)Formerly named International Semi-Tech Corp.
(e)Warrants entitle the Fund to purchase a predetermined number of
shares of Common Stock. The purchase price and number of shares are
subject to adjustment under certain conditions until the expiration
date.
*Denominated in US dollars unless otherwise indicated.
**Commercial Paper is traded on a discount basis; the interest rates
shown are the discount rates paid at the time of purchase by the
Fund.
(1)Consistent with the general policy of the Securities and Exchange
Commission, the nationality or domicile of an issuer for
determination of foreign issuer status may be (i) the country under
whose laws the issuer is organized, (ii) the country in which the
issuer's securities are principally traded, or (iii) the country in
which the issuer derives a significant proportion (at least 50%) of
its revenue or profits from goods produced or sold, investments
made, or services performed in the country, or in which at least 50%
of the assets of the issuer are situated.
++Separate Trading of Registered Interest and Principal of
Securities (STRIPS).
++++Restricted securities as to resale. The value of the Fund's
investments in restricted securities was approximately $5,043,000,
representing 0.8% of net assets.
Acquisition Value
Issue Dates Cost (Note la)
Grupo Carso, S.A. de C.V.
(ADR) 9/24/1991-1/24/1992 $3,832,850 $5,042,925
Total $3,832,850 $5,042,925
========== ==========
+++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
F-41
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of September 30, 1995
<C> <S> <C> <C>
Assets: Investments, at value (identified cost--$572,648,242)
(Note 1a) $639,964,390
Cash 4,488,255
Receivables:
Securities sold $ 6,963,402
Interest 2,720,710
Dividends 729,022
Capital shares sold 352,889 10,766,023
------------
Prepaid registration fees and other assets (Note 1f) 89,979
------------
Total assets 655,308,647
------------
Liabilities: Payables:
Securities purchased 1,965,810
Capital shares redeemed 1,154,219
Investment adviser (Note 2) 331,332
Distributor (Note 2) 216,708 3,668,069
------------
Accrued expenses and other liabilities 333,514
------------
Total liabilities 4,001,583
------------
Net Assets: Net assets $651,307,064
============
Net Assets Class A Shares of Common Stock, $.01 par value, 500,000,000
Consist of: shares authorized $ 26,373
Class B Shares of Common Stock, $.01 par value, 500,000,000
shares authorized 129,516
Class C Shares of Common Stock, $.01 par value, 500,000,000
shares authorized 996
Class D Shares of Common Stock, $.01 par value, 500,000,000
shares authorized 405,203
Paid-in capital in excess of par 560,997,385
Undistributed investment income--net 5,264,881
Undistributed realized capital gains on investments and foreign
currency transactions--net 17,172,044
Unrealized appreciation on investments and foreign currency
transactions--net 67,310,666
------------
Net assets $651,307,064
============
Net Asset Value: Class A--Based on net assets of $30,485,421 and 2,637,319 shares
outstanding $ 11.56
============
Class B--Based on net assets of $152,121,232 and 12,951,639 shares
outstanding $ 11.75
============
Class C--Based on net assets of $1,154,235 and 99,541 shares
outstanding $ 11.60
============
Class D--Based on net assets of $467,546,176 and 40,520,316 shares
outstanding $ 11.54
============
See Notes to Financial Statements.
</TABLE>
F-42
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended September 30, 1995
<C> <S> <C>
Investment Interest and discount earned (net of $14,295 foreign
Income withholding tax) $ 19,733,199
(Notes 1d & 1e): Dividends (net of $245,500 foreign withholding tax) 6,790,388
Other 41,541
------------
Total income 26,565,128
------------
Expenses: Investment advisory fees (Note 2) 4,289,001
Account maintenance and distribution fees--Class B (Note 2) 2,911,519
Transfer agent fees--Class D (Note 2) 896,673
Account maintenance fees--Class D (Note 2) 869,529
Transfer agent fees--Class B (Note 2) 843,941
Printing and shareholder reports 334,152
Professional fees 117,014
Accounting services (Note 2) 115,994
Registration fees (Note 1f) 94,249
Custodian fees 89,647
Transfer agent fees--Class A (Note 2) 84,659
Directors' fees and expenses 46,274
Pricing fees 6,456
Account maintenance and distribution fees--Class C (Note 2) 5,279
Transfer agent fees--Class C (Note 2) 1,486
Other 11,367
------------
Total expenses 10,717,240
------------
Investment income--net 15,847,888
------------
Realized & Realized gain from:
Unrealized Gain Investments--net $ 17,324,044
(Loss) on Foreign currency transactions--net 1,351,860 18,675,904
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions Investments--net 33,342,301
- --Net (Notes 1b, Foreign currency transactions--net (18,980) 33,323,321
1c, 1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions 51,999,225
------------
Net Increase in Net Assets Resulting from Operations $ 67,847,113
============
See Notes to Financial Statements.
</TABLE>
F-43
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statments of Changes in Net Assets
<CAPTION>
For the Year Ended September 30,
Increase (Decrease) in Net Assets: 1995 1994
<C> <S> <C> <C>
Operations: Investment income--net $ 15,847,888 $ 13,984,464
Realized gain on investments and foreign currency
transactions--net 18,675,904 66,569,641
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 33,323,321 (72,060,997)
------------ ------------
Net increase in net assets resulting from operations 67,847,113 8,493,108
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (1,043,247) (1,253,348)
Shareholders Class B (3,008,886) (14,802,935)
(Note 1g): Class C (10,834) --
Class D (11,100,445) --
Realized gain on investments--net:
Class A (3,297,664) (4,103,194)
Class B (27,299,110) (75,192,306)
Class C (10,962) --
Class D (29,225,123) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (74,996,271) (95,351,783)
------------ ------------
Capital Share Net decrease in net assets derived from capital share
Transactions transactions (91,342,468) (34,985,543)
(Note 4): ------------ ------------
Net Assets: Total decrease in net assets (98,491,626) (121,844,218)
Beginning of year 749,798,690 871,642,908
------------ ------------
End of year* $651,307,064 $749,798,690
============ ============
<FN>
*Undistributed investment income--net (Note 1h) $ 5,264,881 $ 3,227,255
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
F-44
<PAGE>
<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 September 30,
Increase (Decrease) in Net Asset Value: 1995* 1994* 1993 1992 1991
<C> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.67 $ 13.02 $ 12.57 $ 11.94 $ 10.61
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .32 .32 .43 .47 .70
Realized and unrealized gain (loss) on
investments and foreign currency
transactions (1)--net .88 (.07) 1.29 .61 1.63
-------- -------- -------- -------- --------
Total from investment operations 1.20 .25 1.72 1.08 2.33
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.34) (.37) (.39) (.45) (.62)
Realized gain on investments--net (.97) (1.23) (.88) -- (.38)
-------- -------- -------- -------- --------
Total dividends and distributions (1.31) (1.60) (1.27) (.45) (1.00)
-------- -------- -------- -------- --------
Net asset value, end of year $ 11.56 $ 11.67 $ 13.02 $ 12.57 $ 11.94
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 11.86% 1.81% 14.62% 9.23% 23.14%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses 1.01% .83% .83% .81% .85%
Average ======== ======== ======== ======== ========
Net Assets: Investment income--net 2.93% 2.68% 3.09% 3.18% 3.64%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 30,485 $ 39,963 $ 40,688 $ 20,320 $ 12,839
Data: ======== ======== ======== ======== ========
Portfolio turnover 86.33% 59.15% 79.55% 65.40% 173.76%
======== ======== ======== ======== ========
<FN>
*Based on average shares outstanding during the year.
**Total investment returns exclude the effect of sales loads.
(1)Foreign currency transaction amounts have been reclassified to
conform to the 1994 presentation.
See Notes to Financial Statements.
</TABLE>
F-45
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlgihts (continued)
<CAPTION>
Class B
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1995* 1994* 1993 1992 1991
<C> <S> <C> <C> <C> <C> <C>
Per-Share Net asset value, beginning of year $ 11.75 $ 13.09 $ 12.62 $ 11.99 $ 10.60
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .21 .20 .24 .29 .39
Realized and unrealized gain (loss) on
investments and foreign currency
transactions (1)--net .90 (.07) 1.37 .66 1.83
-------- -------- -------- -------- --------
Total from investment operations 1.11 .13 1.61 .95 2.22
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.14) (.24) (.26) (.32) (.45)
Realized gain on investments--net (.97) (1.23) (.88) -- (.38)
-------- -------- -------- -------- --------
Total dividends and distributions (1.11) (1.47) (1.14) (.32) (.83)
-------- -------- -------- -------- --------
Net asset value, end of year $ 11.75 $ 11.75 $ 13.09 $ 12.62 $ 11.99
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 10.80% 0.76% 13.49% 8.01% 21.91%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding account maintenance
Net Assets: and distribution fees 1.04% .86% .85% .85% .90%
======== ======== ======== ======== ========
Expenses 2.04% 1.86% 1.85% 1.85% 1.90%
======== ======== ======== ======== ========
Investment income--net 1.90% 1.65% 1.99% 2.10% 3.37%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $152,121 $709,836 $830,955 $886,920 $986,895
Data: ======== ======== ======== ======== ========
Portfolio turnover 86.33% 59.15% 79.55% 65.40% 173.76%
======== ======== ======== ======== ========
<FN>
*Based on average shares outstanding during the year.
**Total investment returns exclude the effect of sales loads.
(1)Foreign currency transaction amounts have been reclassified to
conform to the 1994 presentation.
See Notes to Financial Statements.
</TABLE>
F-46
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlgihts (concluded)
<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
September 30, 1995*
Increase (Decrease) in Net Asset Value: Class C Class D
<C> <S> <C> <C>
Per-Share Net asset value, beginning of period $ 11.74 $ 11.66
Operating ------------ ------------
Performance: Investment income--net .19 .27
Realized and unrealized gain on investments and foreign
currency transactions--net .92 .90
------------ ------------
Total from investment operations 1.11 1.17
------------ ------------
Less dividends and distributions:
Investment income--net (.28) (.32)
Realized gain on investments--net (.97) (.97)
------------ ------------
Total dividends and distributions (1.25) (1.29)
------------ ------------
Net asset value, end of period $ 11.60 $ 11.54
============ ============
Total Investment Based on net asset value per share 10.93%+++ 11.62%+++
Return:*** ============ ============
Ratios to Expenses, excluding account maintenance and distribution fees 1.04%** 1.02%**
Average ============ ============
Net Assets: Expenses 2.04%** 1.27%**
============ ============
Investment income--net 1.94%** 2.68%**
============ ============
Supplemental Net assets, end of period (in thousands) $ 1,154 $ 467,546
Data: ============ ============
Portfolio turnover 86.33% 86.33%
============ ============
<FN>
*Based on average shares outstanding during the period.
**Annualized.
***Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
F-47
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Retirement Benefit Investment Program, Inc., Full
Investment Portfolio does business under the name Merrill Lynch
Balanced Fund for Investment and Retirement. Merrill Lynch Balanced
Fund for Investment and Retirement, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Class A and
Class D Shares are sold with a front-end sales charge. Class B and
Class C Shares may be subject to a contingent deferred sales charge.
All classes of shares have identical voting, dividend, liquidation
and other rights and the same terms and conditions, except that
Class B, Class C and Class D Shares bear certain expenses related to
the account maintenance of such shares, and Class B and Class C
Shares also bear certain expenses related to the distribution of
such shares. Each class has exclusive voting rights with respect to
matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities that are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. Short-
term securities are valued at amortized cost, which approximates
market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets
for which market value quotations are not available are valued at
their fair value as determined in good faith by or under the
direction of the Fund's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such
contracts. Premium or discount is amortized over the life of the
contracts.
* Financial futures contracts--The Fund may purchase or sell
interest-rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
* Foreign currency options and futures--The Fund may also purchase
or sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be
F-48
<PAGE>
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.
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(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) and
valuing (unrealized) assets and liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange sales on
investments.
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may by imposed on interest, dividends and capital
gains at various rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend date, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund is informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(h) Reclassifications--Generally accepted accounting principles
require that certain differences between undistributed net realized
capital gains for financial reporting and tax purposes, if permanent,
be reclassified to undistributed net investment income. Accordingly,
current year's permanent book/tax differences of $1,353,150 have
been reclassified from undistributed net realized capital gains
to undistributed net investment income. These reclassifications have
no effect on net assets or net asset values per share.
2. Investment Advisory Agreement and
Transaction with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly owned
subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.65%
of the average daily net assets not exceeding $500 million; 0.60% of
the average daily net assets exceeding $500 million but not
exceeding $1.5 billion; 0.55% of the average daily net
F-49
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
assets exceeding $1.5 billion but not exceeding $2.5 billion; 0.50% of
the average daily net assets exceeding $2.5 billion but not exceeding
$3.5 billion; and 0.45% of the average daily net assets exceeding
$3.5 billion. The most restrictive annual expense limitation
requires that MLAM reimburse the Fund to the extent the Fund's
expenses (excluding interest, taxes, distribution fees, brokerage
fees and commissions, and extraordinary items) exceed 2.5% of the
Fund's first $30 million of average daily net assets, 2.0% of the
next $70 million of average daily net assets, and 1.5% of the
average daily net assets in excess thereof. No payment will be made
to MLAM during any fiscal year which will cause such expenses to
exceed the most restrictive expense limitation applicable at the
time of such payment.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor an
ongoing account maintenance fee and a distribution fee. These fees
are accrued daily and paid monthly, at the 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, and Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended September 30, 1995, MLFD earned underwriting
discounts and commissions and MLPF&S earned dealer concessions on the
sales of the Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $ 477 $ 4,620
Class D $3,598 $61,460
For the year ended September 30, 1995, MLPF&S received contingent
deferred sales charges of $199,447 relating to transactions in Class
B Shares.
In addition, MLPF&S received $92,882 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
September 30, 1995.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, MLPF&S, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended September 30, 1995 were $541,068,330 and
$676,930,218, respectively.
Net realized and unrealized gains (losses) as of September 30, 1995
were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $17,240,225 $ 67,316,148
Short-term investments (721) --
Options written
on investments 84,540 --
Foreign currency
transactions 1,351,860 (5,482)
----------- -------------
Total $18,675,904 $ 67,310,666
=========== =============
As of September 30, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $67,316,148, of which $75,277,436
related to appreciated securities and $7,961,288 related to
depreciated
F-50
<PAGE>
securities. The aggregate cost of investments at September 30, 1995
for Federal income tax purposes was $572,648,242.
Transactions in call options written for the year ended September
30, 1995 were as follows:
Number of Premiums
Call Options Written Shares Received
Outstanding call options at
beginning of year 1,000 $ 1,783
Options written 167,800 214,530
Options exercised (67,100) (106,550)
Options closed (98,500) (105,726)
Options expired (3,200) (4,037)
----------- -------------
Outstanding call options at
end of year -- $ --
=========== =============
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $91,342,468 and $34,985,543 for the years ended September 30,
1995 and September 30, 1994, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended September 30, 1995 Shares Amount
Shares sold 1,070,519 $ 11,586,869
Shares issued to shareholders
in reinvestment of dividends
and distributions 396,121 4,060,338
----------- -------------
Total issued 1,466,640 15,647,207
Shares redeemed (2,253,897) (24,043,484)
----------- -------------
Net decrease (787,257) $ (8,396,277)
=========== =============
Class A Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 1,518,510 $ 18,698,722
Shares issued to shareholders
in reinvestment of dividends
and distributions 428,291 5,110,279
----------- -------------
Total issued 1,946,801 23,809,001
Shares redeemed (1,648,302) (19,908,322)
----------- -------------
Net increase 298,499 $ 3,900,679
=========== =============
Class B Shares for the Year Dollar
Ended September 30, 1995 Shares Amount
Shares sold 2,091,731$ 23,097,445
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,431,572 25,214,963
----------- -------------
Total issued 4,523,303 48,312,408
Shares redeemed (7,383,654) (81,669,553)
Automatic conversion of
shares (44,590,058) (505,798,220)
----------- -------------
Net decrease (47,450,409) $(539,155,365)
=========== =============
Class B Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 2,858,236 $ 35,039,885
Shares issued to shareholders
in reinvestment of dividends
and distributions 6,329,365 76,402,900
----------- -------------
Total issued 9,187,601 111,442,785
Shares redeemed (12,275,154) (150,329,007)
----------- -------------
Net decrease (3,087,553) $ (38,886,222)
=========== =============
Class C Shares for the Period Dollar
Oct. 21, 1994++ to Sept. 30, 1995 Shares Amount
Shares sold 132,339 $ 1,431,442
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,002 10,249
----------- -------------
Total issued 133,341 1,441,691
Shares redeemed (33,800) (359,094)
----------- -------------
Net increase 99,541 $ 1,082,597
=========== =============
[FN]
++Commencement of Operations.
F-51
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
Class D Shares for the Period Dollar
Oct. 21, 1994++ to Sept. 30, 1995 Shares Amount
Shares sold 522,879 $ 5,601,295
Automatic conversion
of shares 45,012,054 505,798,220
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,325,210 34,178,246
----------- -------------
Total issued 48,860,143 545,577,761
Shares redeemed (8,339,827) (90,451,184)
----------- -------------
Net increase 40,520,316 $ 455,126,577
=========== =============
[FN]
++Commencement of Operations.
5. Reorganization Plan:
On October 13, 1995, the Board of Directors approved a plan of
reorganization, subject to shareholder approval and certain
conditions, whereby Merrill Lynch Global Allocation Fund, Inc.
would acquire substantially all of the assets and liabilities
of the Fund in exchange for newly issued shares of Merrill Lynch
Global Allocation Fund, Inc., which is a registered, diversified,
open-end management investment company managed by MLAM.
F-52
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. 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 the vote of a
majority of a quorum of the directors who are neither "interested persons," as
defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended,
nor parties to the proceeding ("the 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.
Article VI of the By-Laws further provides that 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.
Each officer and director of the Registrant claiming indemnification within
the scope of Article VI of Registrant's By-laws shall be entitled to advances
from the Registrant for payment of the reasonable expenses incurred by him in
connection with proceedings to which he is a party in the manner and to the
full extent permitted under the General Laws of the State of Maryland;
provided, however, that the person seeking indemnification shall provide to the
Registrant a written affirmation of his good faith belief that the standard of
conduct necessary for indemnification by the Registrant has been met and a
written undertaking to repay any such advance, if it should ultimately be
determined that the standard of conduct has not been met, and provided further
that at least one of the following additional conditions is met: (a) the person
seeking indemnification shall provide a security in form and amount acceptable
to the Registrant for his undertaking; (b) the Registrant is insured against
losses arising by reason of the advance; or (c) a majority of a quorum of non-
party independent directors, or legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the Registrant at
the time the advance is proposed to be made, that there is reason to believe
that the person seeking indemnification will ultimately be found to be entitled
to indemnification.
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties.
Article IV of the Management Agreement between Registrant and Merrill Lynch
Asset Management, Inc. (now called Merrill Lynch Asset Management L.P.)
("MLAM") (Exhibit 5(a) to Registrant's Registration Statement on Form N-1A) and
Article IV of the Sub-Advisory Agreement between MLAM and Merrill Lynch Asset
Management U.K., Limited ("MLAM U.K.") (Exhibit 5(b) to Registrant's
Registration Statement on Form N-1A) limits the liability of MLAM and MLAM
U.K., respectively, to liabilities arising
C-1
<PAGE>
from willful misfeasance, bad faith or gross negligence in the performance of
their respective duties or from reckless disregard of their respective duties
and obligations.
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 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 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1.(a) Articles of Incorporation of the Registrant. (c)
(b) Articles of Amendment to Articles of Incorporation of the Registrant.
(c)
(c) Articles Supplementary to Articles of Incorporation of the Registrant.
(c)
(d) Articles of Amendment to the Articles of Incorporation dated October
19, 1994. (f)
(e) Articles Supplementary to the Articles of Incorporation dated October
21, 1994. (f)
2. By-Laws of the Registrant. (a)
3. Not Applicable.
4. Form of Agreement and Plan of Reorganization between Merrill Lynch
Balanced Fund for Investment and Retirement, Inc. and the Registrant.
(g)
5. Copies of instruments defining the rights of shareholders, including
the relevant portions of the Articles of Incorporation, as amended,
and By-Laws of Registrant. (b)
6.(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. (d)
7.(a) Class A Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (d)
(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. (c)
(d) Class C Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (d)
(e) Class D Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (d)
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
<S> <C>
8. None
9. Custodian Agreement between Registrant and Brown Brothers Harriman & Co. (a)
10.(a) Amended and Restated Class B Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant. (c)
(b) Form of Class C Shares Distribution Plan and Class C Shares Distribution Plan Sub-
Agreement of the Registrant. (d)
(c) Form of Class D Shares Distribution Plan and Class D Shares Distribution Plan Sub-
Agreement of the Registrant. (d)
11. Opinion of Brown & Wood as to legality (including consent of such firm). (h)
12. Not Applicable.
13. Not Applicable.
14.(a) Consent of Deloitte & Touche LLP, Independent Auditors for the Registrant.
(b) Consent of Deloitte & Touche LLP, Independent Auditors for Merrill Lynch Balanced
Fund for Investment and Retirement, Inc.
15. Not Applicable.
16. Powers of Attorney. (h)
17.(a) Declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940 of the
Registrant. (e)
(b) Prospectus dated February 27, 1995, and Statement of Additional Information dated
February 27, 1995, of the Registrant. (h)
(c) Prospectus dated January 31, 1995, and Statement of Additional Information dated
January 31, 1995, of Merrill Lynch Balanced Fund for Investment and Retirement,
Inc. (h)
(d) Letter to shareholders of Balanced Fund.
</TABLE>
- --------
(a) Incorporated by reference to an exhibit to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement under the Securities Act of 1933 on
Form N-1A filed on December 15, 1988 (File No. 33-22462) (the "Registration
Statement").
(b) 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; Article V (Section 9) contained in 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 Registration's By-
Laws filed as Exhibit (2) to the Registration Statement.
(c) Filed on February 24, 1994, as an exhibit to Post-Effective Amendment No. 7
to the Registration Statement.
(d) Filed on October 18, 1994, as an exhibit to Post-Effective Amendment No. 8
to the Registration Statement.
(e) Incorporated by reference to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement.
(f) Incorporated by reference to Post-Effective Amendment No. 9 to Registrant's
Registration Statement, filed on February 25, 1995.
(g) Filed herewith as Exhibit I to the Proxy Statement and Prospectus.
(h) Incorporated by reference to Registrant's initial Registration Statement
under the Securities Act of 1933 on Form N-14 filed on October 13, 1995
(File No. 33-63413).
C-3
<PAGE>
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through use of a prospectus which is part of this
Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, as
amended, the reoffering prospectus will contain information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by other items of the
applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, as
amended, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered thereon, and the offering of securities at
that time shall be deemed to be the initial bona fide offering of them.
C-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS PRE-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED ON BEHALF OF
THE REGISTRANT, IN THE TOWNSHIP OF PLAINSBORO, AND THE STATE OF NEW JERSEY, ON
THE 20TH DAY OF NOVEMBER 1995.
MERRILL LYNCH GLOBAL ALLOCATION FUND,
INC.
(Registrant)
/s/ Terry K. Glenn
By ___________________________________
(TERRY K. GLENN, EXECUTIVE VICE
PRESIDENT)
AS REQUIRED BY THE SECURITIES ACT OF 1933, THIS PRE-EFFECTIVE AMENDMENT TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Arthur Zeikel* President and Director
- ------------------------------------ (Principal Executive
(ARTHUR ZEIKEL) Officer)
Gerald M. Richard* Treasurer (Principal
- ------------------------------------ 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)
/s/ Terry K. Glenn November 20,
*By ________________________________ 1995
(TERRY K. GLENN, ATTORNEY-IN-FACT)
C-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
14(a) --Consent of Deloitte & Touche LLP, Independent Auditors for the
Registrant.
(b) --Consent of Deloitte & Touche LLP, Independent Auditors for Merrill
Lynch Balanced Fund for Investment and Retirement, Inc.
17(d) --Letter to Shareholders of Balanced Fund.
</TABLE>
<PAGE>
EXHIBIT 14(a)
INDEPENDENT AUDITORS' CONSENT
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.:
We consent to the incorporation by reference in this Registration Statement
on Form N-14 of our report dated December 7, 1994 relating to the October 31,
1994 financial statements of Merrill Lynch Global Allocation Fund, Inc., and to
the reference to us under the captions "Financial Highlights" and "Experts"
appearing in the Proxy Statement and Prospectus, which is a part of such
Registration Statement.
Deloitte & Touche LLP
Princeton, New Jersey
November 20, 1995
<PAGE>
EXHIBIT 14(B)
INDEPENDENT AUDITORS' CONSENT
MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT, INC.:
We consent to the incorporation by reference in this Registration Statement
on Form N-14 of our report dated October 31, 1994 relating to the September 30,
1994 financial statements of Merrill Lynch Balanced Fund for Investment and
Retirement, Inc. and to the use of our report dated October 26, 1995 relating
to the September 30, 1995 financial statements appearing in the Statement of
Additional Information, which is part of such Registration Statement, and to
the reference to us under the captions "Financial Highlights" and "Experts"
appearing in the Proxy Statement and Prospectus, which also is a part of such
Registration Statement.
Deloitte & Touche LLP
Princeton, New Jersey
November 20, 1995
<PAGE>
EXHIBIT 99.17(d)
MERRILL LYNCH ASSET MANAGEMENT
Princeton Services, Inc.
General Partner
Administrative Offices
800 Scudders Mill Road
Plainsboro, New Jersey 08536
609 282-2000
Mailing address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
[Logo]
IMPORTANT NOTICE
PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD
YOUR VOTE IS IMPORTANT
Dear Merrill Lynch Balanced Fund for Investment and Retirement Shareholder:
We are writing to ask your help in approving a reorganization between
Balanced Fund and Merrill Lynch Global Allocation Fund, Inc. ("Global
Allocation") which is discussed in the enclosed Prospectus and Proxy Statement
dated November 21, 1995 (the "Reorganization").
WE BELIEVE THE REORGANIZATION WILL BENEFIT THE SHAREHOLDERS OF BALANCED
FUND. THEREFORE, WE ARE WRITING NOT MERELY TO ASK YOU TO VOTE, BUT TO ASK THAT
YOU VOTE IN FAVOR OF THE REORGANIZATION. Attached to this letter is a summary
of the Reorganization.
A proxy card and return envelope is enclosed and we would very much
appreciate your taking a few minutes to vote your shares, sign, date and return
your proxy. Thank you in advance for your help in enabling Balanced Fund to
resolve this important matter.
November 29, 1995
Arthur Zeikel
President
<PAGE>
MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT, INC.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
Summary of the Reorganization as Proposed in the November 21, 1995
Prospectus and Proxy Statement
On October 13, 1995, the Board of Directors of Balanced Fund approved an
Agreement and Plan of Reorganization between Balanced Fund and Global Allocation
pursuant to which Balanced Fund would transfer substantially all of its assets
and substantially all of its liabilities to Global Allocation in exchange for
newly issued shares of Global Allocation (the "Reorganization"), and
thereafter, deregister as an investment company under the Investment Company Act
of 1940, as amended, and dissolve in accordance with the laws of the State of
Maryland.
The Reorganization is conditioned upon: (i) approval by Balanced Fund's
shareholders of the Reorganization, and (ii) the receipt of a favorable ruling
from the Internal Revenue Service concerning the tax consequences of the
Reorganization. If all of the requisite approvals are obtained, it is
anticipated that the Reorganization will take place as early as possible in
calendar year 1996.
Comparison of the Funds. Balanced Fund and Global Allocation are open-end
management investment companies with similar, though not identical, investment
objectives. Balanced Fund seeks to provide shareholders with as high a level of
total investment return as is consistent with a reasonable and relatively low
level of risk. Global Allocation seeks to provide a high total investment
return, consistent with prudent risk. A further comparison of the investment
objectives and policies of the Funds is contained in the Prospectus and Proxy
Statement.
Potential Benefits of the Reorganization to Balanced Fund Shareholders. In
determining to approve the Reorganization, the Board of Directors of Balanced
Fund identified certain potential benefits to Balanced Fund shareholders that
are likely to result from the Reorganization. First, Balanced Fund shareholders
will remain invested in an open-end fund that has an investment objective
similar to that of Balanced Fund, although not identical. Second, Balanced Fund
shareholders are likely to experience certain additional benefits, including
lower expenses per share, economies of scale and greater flexibility in
portfolio management.
The Board of Directors of Balanced Fund also considered that Global
Allocation's net assets have been steadily increasing over the past several
years, while Balanced Fund's net assets have been decreasing over the same
period. Were these trends to continue, the Board considered that Global
Allocation may experience increasing economies of scale which, as a result, may
have the effect of reducing its overall operating expense ratio, while Balanced
Fund may experience the opposite result, that is, a higher operating expense
ratio due to a continuing reduction in assets. Although there can be no
assurance that the foregoing would in fact occur, the Board determined
<PAGE>
that the potential economies of scale that may be realized as a result of the
Reorganization would be beneficial to Balanced Fund shareholders.
A further discussion of the potential benefits to Balanced Fund
shareholders as a result of the Reorganization is contained in the Prospectus
and Proxy Statement.
If the Reorganization takes place, Balanced Fund shareholders will receive
shares of that class of shares of Global Allocation having the same letter
designation (i.e., Class A, Class B, Class C or Class D) and the same
distribution fees, account maintenance fees, and sales charges (including
contingent deferred sales charges), if any, as the shares of Balanced Fund held
by them immediately prior to the Reorganization.
