As filed with the Securities and Exchange Commission on February 1,
2000
Securities Act File No. 33-22462
Investment Company Act File No. 811-5576
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 |
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Pre-Effective Amendment
No. |
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Post-Effective
Amendment No. 15 |
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and/or |
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REGISTRATION STATEMENT
UNDER THE |
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INVESTMENT COMPANY ACT
OF 1940 |
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Amendment No.
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(Check appropriate box or boxes)
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
(Exact Name of Registrant as Specified in Charter)
800 Scudders Mill Road, Plainsboro, New Jersey
08536
(Address of Principal Executive Offices)
Registrant’s telephone number, including Area Code: (609)
282-2800
TERRY K. GLENN
Merrill Lynch Global Allocation Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address: P.O. Box 9011, Princeton, New Jersey
08543-9011
(Name and Address of Agent for Service)
Copies to:
| Counsel for the Fund: |
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Michael J. Hennewinkel,
Esq. |
| BROWN & WOOD LLP
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MERRILL LYNCH ASSET
MANAGEMENT |
| One World Trade Center |
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P.O. Box
9011 |
| New York, New York
10048-0557 |
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Princeton, New Jersey
08543-9011 |
| Attention: Thomas R. Smith, Jr.,
Esq. |
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It is
proposed that this filing will become effective (check appropriate
box)
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x
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immediately upon filing
pursuant to paragraph (b)
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on (date) pursuant to
paragraph (b)
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60 days after filing
pursuant to paragraph (a)(1)
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on (date) pursuant to
paragraph (a)(1)
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75 days after filing
pursuant to paragraph (a)(2)
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on (date) pursuant to
paragraph (a)(2) of Rule 485.
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If
appropriate, check the following box:
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¨
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This post-effective
amendment designates a new effective date for a previously filed
post-effective amendment.
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Title of Securities Being Registered: Common Stock, par value $.10
per share.
Prospectus
[LOGO] Merrill Lynch
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Merrill Lynch Global
Allocation Fund, Inc.
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February 1, 2000
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This Prospectus
contains information you should know before investing, including
information about risks. Please read it before you invest and keep it for
future reference.
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The Securities and
Exchange Commission has not approved or disapproved these securities or
passed upon the adequacy of this Prospectus. Any representation to the
contrary is a criminal offense.
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[LOGO] Table of Contents
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
[LOGO] Key Facts
MERRILL LYNCH GLOBAL ALLOCATION FUND AT A GLANCE
In an
effort to help you better understand the many concepts involved in making an
investment decision, we have defined the highlighted terms in this
prospectus in the sidebar.
Total Investment Return — the
combination of capital appreciation and investment income.
Equity Security —
shares of ownership of a corporation.
What
is the Fund’s investment objective?
The investment objective of the Fund is to provide high total
investment return 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.
What
are the Fund’s main investment strategies?
The Fund invests in a portfolio of equity, debt and money market
securities. Generally, the Fund’s portfolio will include both equity
and debt securities. At any given time, however, the Fund may emphasize
either debt securities or equity securities. In selecting equity
investments, the Fund mainly seeks securities that Fund management believes
are undervalued. The Fund may buy debt securities of varying maturities. The
Fund may invest in high yield or “junk” bonds and in certain types
of “derivative” securities. When choosing investments, Fund
management considers various factors, including opportunities for equity or
debt investments to increase in value, expected dividends and interest
rates.
Generally, the Fund will invest primarily in the securities of
corporate and governmental issuers located in North and South America,
Western Europe, Australia and the Far East. The Fund may emphasize foreign
securities when Fund management expects these investments to outperform U.S.
securities. When choosing investment markets, Fund management considers
various factors, including economic and political conditions, potential for
economic growth and possible changes in currency exchange rates.
The Fund cannot guarantee that it will achieve its
objective.
What
are the main risks of investing in the Fund?
As with any fund, the value of the Fund’s investments—and
therefore the value of Fund shares — may fluctuate. These
changes may occur because a particular stock or bond market is rising or
falling, or in response to interest rate changes. At other times, there are
specific factors that may affect the value of a particular investment.
Generally, when interest rates go up, the value of debt securities goes
down. If the value of the Fund’s investments goes down, you may lose
money.
The Fund may invest a substantial portion of its assets in non-U.S.
securities. Foreign investing involves special risks, including foreign
currency risk and the possibility of substantial volatility due to adverse
political, economic or
other developments. Foreign securities may also be less liquid and harder to
value than U.S. securities. These risks are greater for investments in
emerging markets.
Derivatives and high yield or “junk” bonds may be volatile
and subject to liquidity, leverage and credit risk.
Generally, the Fund seeks diversification across markets, industries
and issuers as one of its strategies to reduce volatility. However, the Fund
is legally classified as a non-diversified fund, which means that it may
invest more of its assets in securities of a single issuer than if it were a
diversified fund. By concentrating in a smaller number of issuers, the Fund
’s risk is increased because developments affecting an individual
issuer may have a greater impact on the Fund’s performance.
Who
should invest?
The Fund may be an appropriate investment for you if you:
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Are looking for capital
appreciation for long term goals, such as retirement or funding a child
’s education, but also seek some current income
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Want a professionally
managed portfolio
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Are willing to accept the
risk that your investment may fluctuate over the short term
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Are looking for exposure
to a variety of foreign markets
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Are willing to accept the
risks of foreign investing in order to seek high total investment
return
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Are prepared to receive
taxable distributions of ordinary income and capital gains
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MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
4
The bar chart
and table shown below provide an indication of the risks of investing in the
Fund. The bar chart shows changes in the Fund’s performance for Class B
shares for each of the past ten calendar years. Sales charges are not
reflected in the bar chart. If these amounts were reflected, returns would
be less than those shown. The table compares the average annual total
returns for each class of the Fund’s shares for the periods shown with
those of the Financial Times/Standard & Poor’s —
Actuaries World Index. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the
future.
[RISK
RETURN CHART]
1990 0.84%
1991 27.47%
1992 11.06%
1993 19.69%
1994 -2.89%
1995 22.39%
1996 14.95%
1997 10.34%
1998 -0.42%
1999 26.47%
During the period shown in the bar chart, the highest return for
a quarter was 12.20% (quarter ended June 30, 1999) and the lowest return for
a quarter was -13.21%
(quarter ended September 30, 1998).
Average Annual Total Returns (as of the
calendar year ended December 31, 1999) |
|
Past
One
Year |
|
Past
Five
Years |
|
Past Ten
Years/Since
Inception |
|
| Merrill Lynch
Global Allocation Fund* — A |
|
21.01% |
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14.28 |
% |
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13.29% |
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Financial
Times/Standard & Poor’s — Actuaries World
Index** |
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26.00% |
|
19.36 |
% |
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11.45% |
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| Merrill Lynch
Global Allocation Fund* — B |
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22.47% |
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14.35 |
% |
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12.70%† |
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Financial
Times/Standard & Poor’s — Actuaries World
Index** |
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26.00% |
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19.36 |
% |
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11.45% |
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| Merrill Lynch
Global Allocation Fund* — C |
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25.41% |
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14.34 |
% |
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13.20%# |
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Financial
Times/Standard & Poor’s — Actuaries World
Index** |
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26.00% |
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19.36 |
% |
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17.96%## |
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| Merrill Lynch
Global Allocation Fund* — D |
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20.74% |
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14.00 |
% |
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12.92%# |
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Financial
Times/Standard & Poor’s — Actuaries World
Index** |
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26.00% |
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19.36 |
% |
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17.96%## |
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**
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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.
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†
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The performance does not
reflect the effect of the conversion of Class B to Class D shares after
approximately eight years.
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#
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Inception date is October
21, 1994.
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##
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Since October 21,
1994.
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MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
5
[LOGO] Key Facts
UNDERSTANDING EXPENSES
Fund
investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds
may charge:
Expenses paid directly by the shareholder:
Shareholder Fees — these include sales
charges which you may pay when you buy or sell shares of the
Fund.
Expenses paid indirectly by the shareholder:
Annual Fund Operating Expenses — expenses
that cover the costs of operating the Fund.
Management Fee — a fee paid to the Manager for
managing the Fund.
Distribution Fees — fees used to support the
Fund’s marketing and distribution efforts, such as compensating
Financial Consultants, advertising and promotion.
Service (Account Maintenance) Fees — fees
used to compensate securities dealers for account maintenance
activities.
The Fund offers four different classes of shares. Although your money
will be invested the same way no matter which class of shares you buy, there
are differences among the fees and expenses associated with each class. Not
everyone is eligible to buy every class. After determining which classes you
are eligible to buy, decide which class best suits your needs. Your Merrill
Lynch Financial Consultant can help you with this decision.
This table shows the different fees and expenses that you may pay if
you buy and hold the different classes of shares of the Fund. Future
expenses may be greater or less than those indicated below.
Shareholders Fees (fees paid directly
from your investment)(a) |
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Class A |
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Class B(b) |
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Class C |
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Class D |
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Maximum
Sales Charge (Load) imposed on purchases
(as a percentage of offering price) |
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5.25%(c) |
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None |
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None |
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5.25%(c) |
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Maximum
Deferred Sales Charge (Load) (as a
percentage of original purchase price or redemption
proceeds, whichever is lower) |
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None(d) |
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4.0%(c) |
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1.0%(c) |
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None(d) |
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Maximum
Sales Charge (Load) imposed on Dividend
Reinvestments |
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None |
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None |
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None |
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None |
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| Redemption
Fee |
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None |
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None |
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None |
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None |
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| Exchange
Fee |
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None |
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None |
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None |
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None |
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Annual Fund
Operating Expenses (expenses
that are deducted from Fund assets) |
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Management Fee(e) |
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0.75% |
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0.75% |
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0.75% |
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0.75% |
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Distribution and/or Service (12b-1) Fees(f) |
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None |
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1.00% |
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1.00% |
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0.25% |
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| Other
Expenses (including transfer agency fees)(g) |
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0.22% |
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0.24% |
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0.26% |
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0.21% |
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| Total Annual Fund
Operating Expenses |
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0.97% |
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1.99% |
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2.01% |
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1.21% |
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(a)
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In addition, Merrill Lynch
may charge clients a processing fee (currently $5.35) when a client buys
or sells shares.
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(b)
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Class B shares
automatically convert to Class D shares about eight years after you buy
them and will no longer be subject to distribution fees.
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(c)
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Some investors may qualify
for reductions in the sales charge (load).
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(d)
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You may pay a deferred
sales charge if you purchase $1 million or more and you redeem within one
year.
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(e)
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The Fund has agreed to pay
the Manager a fee at the annual rate of 0.75% of the average daily net
assets of the Fund. The Manager agreed to voluntarily waive a portion of
the fee so that the Fund pays the Manager a fee at the annual rate of
0.75% of the average daily net assets of the Fund for the first $2.5
billion; 0.70% of the average daily net assets from $2.5 billion to $5.0
billion; 0.65% of the average daily net assets from $5.0 billion to $7.5
billion; 0.625% of the average daily net assets from $7.5 billion to $10
billion; and 0.60% of the average daily net assets above $10 billion. The
Manager may discontinue or reduce this waiver of fees at any time without
notice. For the fiscal year ended October 31, 1999, the Manager received a
fee equal to 0.69% of the Fund’s average daily net
assets.
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(f)
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The Fund calls the
“Service Fee” an “Account Maintenance Fee.” Account
Maintenance Fee is the term used elsewhere in this Prospectus and in all
other Fund materials. If you hold Class B or Class C shares for a long
time, it may cost you more in distribution (12b-1) fees than the maximum
sales charge that you would have paid if you had bought one of the other
classes.
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MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
6
|
(Footnotes continued
from previous page)
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(g)
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The Fund pays the Transfer
Agent $11.00 for each Class A and Class D shareholder account and $14.00
for each Class B and Class C shareholder account and reimburses the
Transfer Agent’s out-of-pocket expenses. The Fund pays a 0.10% fee
for certain accounts that participate in the Merrill Lynch Mutual Fund
Advisor program. The Fund also pays a $0.20 monthly closed account charge,
which is assessed upon all accounts that close during the year. This fee
begins the month following the month the account is closed and ends at the
end of the calendar year. For the fiscal year ended October 31, 1999, the
Fund paid the Transfer Agent fees totaling $14,822,335. The Manager
provides accounting services to the Fund at its cost. For the fiscal year
ended October 31, 1999, the Fund reimbursed the Manager $582,004 for these
services.
|
Examples:
These examples are intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.
These examples assume that you invest $10,000 in the Fund for the
time periods indicated, that your investment has a 5% return each year, that
you pay the sales charges, if any, that apply to the particular class and
that the Fund’s operating expenses remain the same. This assumption is
not meant to indicate you will receive a 5% annual rate of return. Your
annual return may be more or less than the 5% used in this example. Although
your actual costs may be higher or lower, based on these assumptions your
costs would be:
EXPENSES IF YOU DID REDEEM YOUR SHARES:
| |
|
1 Year |
|
3 Years |
|
5 Years |
|
10 Years |
|
| Class A |
|
$619 |
|
$818 |
|
$1,033 |
|
$1,652 |
|
|
| Class B |
|
$602 |
|
$824 |
|
$1,073 |
|
$2,123 |
* |
|
| Class C |
|
$304 |
|
$631 |
|
$1,083 |
|
$2,338 |
|
|
| Class D |
|
$642 |
|
$889 |
|
$1,155 |
|
$1,914 |
|
|
|
| EXPENSES IF YOU DID NOT REDEEM YOUR SHARES: |
|
| |
|
1 Year |
|
3 Years |
|
5 Years |
|
10 Years |
|
| Class A |
|
$619 |
|
$818 |
|
$1,033 |
|
$1,652 |
|
|
| Class B |
|
$202 |
|
$624 |
|
$1,073 |
|
$2,123 |
* |
|
| Class C |
|
$204 |
|
$631 |
|
$1,083 |
|
$2,338 |
|
|
| Class D |
|
$642 |
|
$889 |
|
$1,155 |
|
$1,914 |
|
|
*
|
Assumes conversion to
Class D shares approximately eight years after purchase. See note (b) to
the Fees and Expenses table above.
|
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
7
[LOGO] Details About the Fund
The Fund’s investment objective is to seek a high total return
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 other
words, the Fund seeks to achieve a combination of capital growth and
income. The Fund tries to do this by investing in both equity and debt
securities of issuers located around the world.
There is no limit on the percentage of assets the Fund can invest in
a particular type of security. Generally, the Fund seeks diversification
across markets, industries and issuers as one of its strategies to reduce
volatility. However, the Fund is legally classified as non-diversified,
which means that the Fund may invest more than 5% of its assets in the
securities of a single company or issuer. The Fund has no geographic limits
on where its investments may be located. This flexibility allows Fund
management to look for investments in markets around the world that it
believes will provide the best relative asset allocation to meet the Fund
’s objective.
Fund management uses the Fund’s investment flexibility to
create a portfolio of assets which, over time, tends to be relatively
balanced between equity and debt securities and that is widely diversified
among many individual investments. While the Fund can, and does, look for
investments in all the markets of the world, it will typically invest a
majority of its assets in the securities of companies and governments
located in North and South America, Western Europe and the Far East. In
making investment decisions, Fund management tries to identify the long
term trends and changes that could benefit particular markets and/or
industries relative to other markets and industries. Fund management will
consider such factors as the rate of economic growth, natural resources,
capital reinvestment and the social and political environment when
selecting the markets. In deciding between equity and debt investments,
Fund management looks at a number of factors, including the relative
opportunity for capital appreciation, dividend yields and the level of
interest rates paid on debt securities of different maturities.
Fund management may also, from time to time, identify certain real
assets, such as real estate or precious metals that Fund management
believes will increase in value because of economic trends and cycles or
political or other events. The Fund may invest a portion of its assets in
securities related to those real assets such as stock or convertible bonds
issued by real estate
ABOUT THE
PORTFOLIO MANAGEMENT TEAM
The
Fund is managed by members of a team of investment professionals who
participate in the team’s research process and stock selection. Bryan
N. Ison and Dennis W. Stattman are primarily responsible for the day-to-day
management of the Fund.
ABOUT THE MANAGER
The
Fund is managed by Merrill Lynch Asset Management.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
8
investment trusts. The Fund may invest up to 25% of its total
assets in any particular industry sector.
The Fund may also invest in securities that provide a return based
on fluctuations in a stock or other financial index. For example, the Fund
may invest in a security that increases in value with the price of a
particular securities index. In some cases, the return of the security may
be inversely related to the price of the index. This means that the value
of the security will rise as the price of the index falls and vice versa.
Although these types of securities can make it easier for the Fund to
access certain markets or hedge risks of other assets held by the Fund,
these securities are subject to the risks related to the underlying index
or other assets.
Equity Securities — The Fund
can invest in all types of equity securities, including common stock,
preferred stock, warrants and stock purchase rights. In selecting stocks
and other securities that are convertible into stocks, Fund management
emphasizes stocks that it believes are undervalued. Fund management places
particular emphasis on companies with below average price/earnings ratios
or that may pay above average dividends. Fund management may also seek to
invest in the stock of smaller or emerging growth companies that it expects
will provide a higher total return than other equity investments. Investing
in smaller or emerging growth companies involves greater risk than
investing in more established companies.
Debt Securities — The Fund can
invest in all types of debt securities, including U.S. and foreign
government bonds, corporate bonds and convertible bonds, mortgage and asset
backed securities, and securities issued or guaranteed by certain
international organizations such as the World Bank.
The Fund may invest up to 35% of its total assets in “junk
” bonds, corporate loans and “distressed securities.” Junk
bonds are bonds that are rated below investment grade by independent rating
agencies or are bonds that are not rated but which Fund management
considers to be of comparable quality. Corporate loans are direct
obligations of U.S. or foreign corporations that are purchased by the Fund
in the secondary market. Distressed securities are securities that are in
default on payments of interest or principal at the time the Fund buys the
securities or are issued by a bankrupt entity. These securities offer the
possibility of relatively higher returns but are significantly riskier than
higher rated debt securities. Fund management will invest in these
securities only when it believes that they will
provide an attractive total return, relative to their risk, as compared to
higher quality debt securities.
Money Market Securities — The Fund
can invest in high quality short term debt securities, such as U.S.
government securities, commercial paper and money market instruments issued
by commercial banks. Fund management may increase its investment in these
instruments in times of market volatility or when it believes that it is
prudent or timely to be invested in lower yielding but less risky
securities.
Options, Futures and Other Derivatives —
The Fund may use derivatives, including options, futures and forward
contracts both to increase the return of the Fund and to hedge, or protect,
the value of its assets against adverse movements in currency exchange
rates and interest rates and movements in the securities markets.
Derivatives are financial instruments whose value is derived from another
security, a commodity (such as oil or gas) or an index such as the Standard
& Poor’s 500 Index. The use of options, futures and forward
contracts can be effective in protecting or enhancing the value of the Fund
’s assets. While these instruments involve certain risks, the Fund
will not engage in certain strategies that are considered highly risky and
speculative.
This section contains a summary discussion of the general risks of
investing in the Fund. As with any mutual fund, there can be no guarantee
that the Fund will meet its goals or that the Fund’s performance will
be positive for any period of time.
Market and Selection Risk — Market
risk is the risk that the stock or bond markets in one or more countries in
which the Fund invests will go down in value, including the possibility
that the markets will go down sharply and unpredictably. Selection risk is
the risk that the investments that Fund management selects will
underperform the markets or other funds with similar investment objectives
and investment strategies.
Foreign Market Risk — Since the
Fund invests in foreign securities, it offers the potential for more
diversification than an investment only in the United States. This is
because securities traded on foreign markets have often
(though not always) performed differently than securities in the United
States. However, such investments involve special risks not present in U.S.
investments that can increase the chances that the Fund will lose money. In
particular, the Fund is subject to the risk that because there are
generally fewer investors on foreign exchanges and a smaller number of
shares traded each day, it may make it difficult for the Fund to buy and
sell securities on those exchanges. In addition, prices of foreign
securities may go up and down more than prices of securities traded in the
United States.
Foreign Economy Risk — The
economies of certain foreign markets often do not compare favorably with
the economy of the United States with respect to such issues as growth of
gross national product, reinvestment of capital, resources and balance of
payments position. Certain such economies may rely heavily on particular
industries or foreign capital and are more vulnerable to diplomatic
developments, the imposition of economic sanctions against a particular
country or countries, changes in international trading patterns, trade
barriers and other protectionist or retaliatory measures.
Investments in foreign markets may also be adversely affected by
governmental actions such as the imposition of capital controls,
nationalization of companies or industries, expropriation of assets or the
imposition of punitive taxes. In addition, the governments of certain
countries may prohibit or impose substantial restrictions on foreign
investing in their capital markets or in certain industries. Any of these
actions could severely affect security prices, impair the Fund’s
ability to purchase or sell foreign securities or transfer the Fund’s
assets or income back into the United States, or otherwise adversely affect
the Fund’s operations.
Other foreign market risks include foreign exchange controls,
difficulties in pricing securities, defaults on foreign government
securities, difficulties in enforcing favorable legal judgments in foreign
courts, and political and social instability. Legal remedies available to
investors in certain foreign countries may be less extensive than those
available to investors in the United States or other foreign
countries.
Currency Risk — Securities in which the
Fund invests are usually denominated or quoted in currencies other than the
U.S. dollar. Changes in foreign currency exchange rates affect the value of
the Fund’s portfolio. Generally, when the U.S. dollar rises in value
against a foreign currency, a security denominated in that currency loses
value because the currency is worth fewer U.S. dollars. Conversely, when
the U.S. dollar decreases in value
against a foreign currency, a security denominated in that currency gains
value because the currency is worth more U.S. dollars. This risk, generally
known as “currency risk,” means that a strong U.S. dollar will
reduce returns for U.S. investors while a weak U.S. dollar will increase
those returns.
Governmental Supervision and Regulation/Accounting
Standards —Many foreign governments supervise and regulate
stock exchanges, brokers and the sale of securities less than the United
States does. Some countries may not have laws to protect investors the way
that the U.S. securities laws do. For example, some foreign countries may
have no laws or rules against insider trading. Insider trading occurs when
a person buys or sells a company’s securities based on non-public
information about that company. Accounting standards in other countries are
not necessarily the same as in the United States. If the accounting
standards in another country do not require as much detail as U.S.
accounting standards, it may be harder for Fund management to completely
and accurately determine a company’s financial condition. Also,
brokerage commissions and other costs of buying or selling securities often
are higher in foreign countries than they are in the United States. This
reduces the amount the Fund can earn on its investments.
Certain Risks of Holding Fund Assets Outside the United
States — The Fund generally holds its foreign
securities and cash in foreign banks and securities depositories. Some
foreign banks and securities depositories may be recently organized or new
to the foreign custody business. In addition there may be limited or no
regulatory oversight over their operations. Also, the laws of certain
countries may put limits on the Fund’s ability to recover its assets
if a foreign bank, depository or issuer of a security, or any of their
agents, goes bankrupt. In addition, it is often more expensive for the Fund
to buy, sell and hold securities in certain foreign markets than in the
U.S. The increased expense of investing in foreign markets reduces the
amount the Fund can earn on its investments and typically results in a
higher operating expense ratio for the Fund than investment companies
invested only in the U.S.
Dividends or interest on, or proceeds from the sale of, foreign
securities may be subject to foreign withholding and other taxes.
Shareholders may be able to take a credit or a deduction for foreign taxes
paid by the Fund, if certain requirements are met.
Settlement Risk —
Settlement and clearance procedures in certain foreign markets differ
significantly from those in the United States. Foreign settlement
and clearance procedures and trade regulations also may involve certain risks
(such as delays in payment for or delivery of securities) not typically
generated by the settlement of U.S. investments. Communications between the
United States and emerging market countries may be unreliable, increasing
the risk of delayed settlements or losses of security certificates.
Settlements in certain foreign countries at times have not kept pace with
the number of securities transactions; these problems may make it difficult
for the Fund to carry out transactions. If the Fund cannot settle or is
delayed in settling a purchase of securities, it may miss attractive
investment opportunities and certain of its assets may be uninvested with
no return earned thereon for some period. If the Fund cannot settle or is
delayed in settling a sale of securities, it may lose money if the value of
the security then declines or, if it has contracted to sell the security to
another party, the Fund could be liable for any losses
incurred.
European Economic And Monetary Union
(EMU) — Certain European countries have entered into EMU
in an effort to, among other things, reduce barriers between countries,
increase competition among companies, reduce government subsidies in
certain industries and reduce or eliminate currency fluctuations among
these countries. EMU established a single common European currency (the
“euro”) that was introduced on January 1, 1999 and is expected to
replace the existing national currencies of all EMU participants by July 1,
2002. Certain securities (beginning with government and corporate bonds)
were redenominated in the euro, and are listed, trade and make dividend and
other payments only in euros. Although EMU is generally expected to have a
beneficial effect, it could negatively affect the Fund in a number of
situations, including as follows:
|
Ÿ
|
If the transition to the
euro, or EMU as a whole, does not proceed as planned, the Fund’s
investments could be adversely affected. For example, sharp currency
fluctuations, exchange rate volatility and other market disruptions could
occur.
|
|
Ÿ
|
Withdrawal from EMU by a
participating country could also have a negative effect on the Fund
’s investments, for example, if securities redenominated in euros
are transferred back into that country’s national
currency.
|
Concentration Risk — The Fund
is a nondiversified fund. By concentrating in a smaller number of
investments, the Fund’s risk is increased because each investment has
a greater effect on the Fund’s performance.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
13
[LOGO] Details About the Fund
Credit Risk — Credit risk is the risk
that the issuer will be unable to pay the interest or principal when due.
The degree of credit risk depends on both the financial condition of the
issuer and the terms of the obligation.
Interest Rate Risk — Interest
rate risk is the risk that prices of bonds generally increase when interest
rates decline and decrease when interest rates increase. Prices of longer
term securities generally change more in response to interest rate changes
than prices of shorter term securities.
Call and Redemption Risk — A bond
’s issuer may call a bond for redemption before it matures. If this
happens to a bond the Fund holds, the Fund may lose income and may have to
invest the proceeds in bonds with lower yields.
Borrowing and Leverage — The Fund
may borrow for temporary or emergency purposes including to meet
redemptions. Borrowing may exaggerate changes in the net asset value of
Fund shares and in the yield on the Fund’s portfolio. Borrowing will
cost the Fund interest expense and other fees. The costs of borrowing may
reduce the Fund’s return. Certain derivative securities that the Fund
buys may create leverage.
Securities Lending — The Fund
may lend securities to financial institutions which provide government
securities as collateral. Securities lending involves the risk that the
borrower may fail to return the securities in a timely manner or at all. As
a result, the Fund may lose money and there may be a delay in recovering
the loaned securities. The Fund could also lose money if it does not
recover the securities and the value of the collateral falls. These events
could trigger adverse tax consequences to the Fund.
Risks associated with certain types of obligations in which the Fund
may invest include:
Small Cap and Emerging Growth
Securities — Small cap or emerging growth companies may
have limited product lines or markets. They may be less financially secure
than larger, more established companies. They may depend on a small number
of key personnel. If a product fails, or if management changes, or there
are other adverse developments, the Fund’s investment in a small cap
or emerging growth company may lose substantial value.
Small cap or emerging growth securities generally trade in lower
volumes and are subject to greater and more unpredictable price changes
than larger cap
securities or the stock market as a whole. Investing in small cap and
emerging growth securities requires a long term view.
Warrants — A warrant gives the Fund
the right to buy a quantity of stock. The warrant specifies the amount of
underlying stock, the purchase (or “exercise”) price, and the
date the warrant expires. The Fund has no obligation to exercise the
warrant and buy the stock.
A warrant has value only if the Fund can exercise it before it
expires. If the price of the underlying stock does not rise above the
exercise price before the warrant expires, the warrant generally expires
without any value and the Fund loses any amount it paid for the warrant.
Thus, investments in warrants may involve substantially more risk than
investments in common stock. Warrants may trade in the same markets as
their underlying stock; however, the price of the warrant does not
necessarily move with the price of the underlying stock.
Derivatives — The Fund may use
derivative instruments, including futures, forwards, options, indexed
securities, inverse securities and swaps. Derivatives allow the Fund to
increase or decrease its risk exposure more quickly and efficiently than
other types of instruments. Derivatives are volatile and involve
significant risks, including:
|
|
Credit
risk — the risk that the counterparty (the party on the
other side of the transaction) on a derivative transaction will be unable
to honor its financial obligation to the Fund.
|
|
|
Currency
risk — the risk that changes in the exchange rate
between currencies will adversely affect the value (in U.S. dollar terms)
of an investment.
|
|
|
Leverage
risk — the risk associated with certain types of
investments or trading strategies (such as borrowing money to increase
the amount of investments) that relatively small market movements may
result in large changes in the value of an investment. Certain
investments or trading strategies that involve leverage can result in
losses that greatly exceed the amount originally invested.
|
|
|
Liquidity
risk — the risk that certain securities may be
difficult or impossible to sell at the time that the seller would like or
at the price that the seller believes the security is currently
worth.
|
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
15
[LOGO] Details About the Fund
The Fund may use derivatives for hedging purposes, including
anticipatory hedges. Hedging is a strategy in which the Fund uses a
derivative to offset the risk that other Fund holdings may decrease in
value. While hedging can reduce losses, it can also reduce or eliminate
gains if the market moves in a different manner than anticipated by the
Fund or if the cost of the derivative outweighs the benefit of the hedge.
Hedging also involves the risk that changes in the value of the derivative
will not match those of the holdings being hedged as expected by the Fund,
in which case any losses on the holdings being hedged may not be reduced.
There can be no assurance that the Fund’s hedging strategy will reduce
risk or that hedging transactions will be either available or cost
effective. The Fund is not required to use hedging and may not choose to do
so.
Swap Agreements — Swap agreements
involve the risk that the party with whom the Fund has entered into the
swap will default on its obligation to pay the Fund and the risk that the
Fund will not be able to meet its obligations to pay the other party to the
agreement.
Convertibles — Convertibles are
generally debt securities or preferred stocks that may be converted into
common stock. Convertibles typically pay current income as either interest
(debt security convertibles) or dividends (preferred stocks). A convertible
’s value usually reflects both the stream of current income payments
and the value of the underlying common stock. The market value of a
convertible performs like regular debt securities; that is, if market
interest rates rise, the value of a convertible usually falls. Since it is
convertible into common stock, the convertible also has the same types of
market and issuer risk as the value of the underlying common
stock.
Asset Backed Securities — Like
traditional fixed income securities, the value of asset backed securities
typically increases when interest rates fall and decreases when interest
rates rise. Certain asset backed securities may also be subject to the risk
of prepayment. In a period of declining interest rates, borrowers may pay
what they owe on the underlying assets more quickly than anticipated.
Prepayment reduces the yield to maturity and the average life of the asset
backed securities. In addition, when the Fund reinvests the proceeds of a
prepayment it may receive a lower interest rate than the rate on the
security that was prepaid. In a period of rising interest rates,
prepayments may occur at a slower rate than expected. As a result, the
average maturity of the Fund’s portfolio will increase. The value of
longer term securities generally changes more widely in response to changes
in interest rates than shorter term securities.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
16
Mortgage Backed Securities — Mortgage
backed securities represent the right to receive a portion of principal
and/or interest payments made on a pool of residential or commercial
mortgage loans. When interest rates fall, borrowers may refinance or
otherwise repay principal on their mortgages earlier than scheduled. When
this happens, certain types of mortgage backed securities will be paid off
more quickly than originally anticipated and the Fund will have to invest
the proceeds in securities with lower yields. This risk is known as
“prepayment risk.” When interest rates rise, certain types of
mortgage backed securities will be paid off more slowly than originally
anticipated and the value of these securities will fall. This risk is known
as “extension risk.”
Because of prepayment risk and extension risk, mortgage backed
securities react differently to changes in interest rates than other fixed
income securities. Small movements in interest rates (both increases and
decreases) may quickly and significantly reduce the value of certain
mortgage backed securities.
Corporate Loans —
Commercial banks and other financial institutions make corporate
loans to companies that need capital to grow or restructure. Borrowers
generally pay interest on corporate loans at rates that change in response
to changes in market interest rates such as the London Interbank Offered
Rate (LIBOR) or the prime rates of U.S. banks. As a result, the value of
corporate loan investments is generally less responsive to shifts in market
interest rates. Because the trading market for corporate loans is less
developed than the secondary market for bonds and notes, the Fund may
experience difficulties in selling its corporate loans. Borrowers
frequently provide collateral to secure repayment of these obligations.
Leading financial institutions often act as agent for a broader group of
lenders, generally referred to as a syndicate. The syndicate’s agent
arranges the corporate loans, holds collateral and accepts payments of
principal and interest. If the agent develops financial problems, the Fund
may not recover its investment or recovery may be delayed. By investing in
a corporate loan, the Fund becomes a member of the syndicate.
The corporate loans in which the Fund invests can be expected to
provide higher yields than bonds and notes that have investment grade
ratings, but may be subject to greater risk of loss of principal and
income. Borrowers do not always provide collateral for corporate loans, or
the value of the collateral may not completely cover the borrower’s
obligations at the time of a default. If a borrower files for protection
from its creditors under the U.S.
bankruptcy laws, these laws may limit the Fund’s rights to its
collateral. In addition, the value of collateral may erode during a
bankruptcy case. In the event of a bankruptcy the holder of a corporate
loan may not recover its principal, may experience a long delay in
recovering its investment and may not receive interest during the
delay.
Indexed and Inverse Floating Rate
Securities — The Fund may invest in securities whose
potential returns are directly related to changes in an underlying index or
interest rate, known as indexed securities. The return on indexed
securities will rise when the underlying index or interest rate rises and
fall when the index or interest rate falls. The Fund may also invest in
securities whose return is inversely related to changes in an interest rate
(inverse floaters). In general, income on inverse floaters will decrease
when interest rates increase and increase when interest rates decrease.
Investments in inverse floaters may subject the Fund to the risks of
reduced or eliminated interest payments and losses of principal. In
addition, certain indexed securities and inverse floaters may increase or
decrease in value at a greater rate than the underlying interest rate,
which effectively leverages the Fund’s investment. Indexed securities
and inverse floaters are derivative securities and can be considered
speculative. Indexed and inverse securities involve credit risk, and
certain indexed and inverse securities may involve currency risk, leverage
risk and liquidity risk.
Illiquid Securities — The Fund
may invest up to 15% of its assets in illiquid securities that it cannot
easily resell within seven days at current value or that have contractual
or legal restrictions on resale. If the Fund buys illiquid securities it
may be unable to quickly resell them or may be able to sell them only at a
price below current value.
Restricted Securities —
Restricted securities have contractual or legal restrictions on their
resale. They include private placement securities that the Fund buys
directly from the issuer. Private placement and other restricted securities
may not be listed on an exchange and may have no active trading
market.
Restricted securities may be illiquid. The Fund may be unable to
sell them on short notice or may be able to sell them only at a price below
current value. The Fund may get only limited information about the issuer,
so it may be less able to predict a loss. In addition, if Fund management
receives material adverse nonpublic information about the issuer, the Fund
will not be able to sell the securities.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
18
Rule 144A Securities — Rule 144A securities are
restricted securities that can be resold to qualified institutional buyers
but not to the general public. Rule 144A securities may have an active
trading market, but carry the risk that the active trading market may not
continue.
Junk Bonds — Junk bonds are debt
securities that are rated below investment grade by the major rating
agencies or are unrated securities that Fund management believes are of
comparable quality. Although junk bonds generally pay higher rates of
interest than investment grade bonds, they are high risk investments that
may cause income and principal losses for the Fund. Junk bonds generally
are less liquid and experience more price volatility than higher rated debt
securities. The issuers of junk bonds may have a larger amount of
outstanding debt relative to their assets than issuers of investment grade
bonds. In the event of an issuer’s bankruptcy, claims of other
creditors may have priority over the claims of junk bond holders, leaving
few or no assets available to repay junk bond holders. Junk bonds may be
subject to greater call and redemption risk than higher rated debt
securities.
Distressed Securities —
Distressed securities are securities that are subject to bankruptcy
proceedings or are in default, or at risk of being in default. Distressed
securities are speculative and involve substantial risks. Generally, the
Fund will invest in distressed securities when Fund management believes
they offer significant potential for higher returns or can be exchanged for
other securities that offer this potential. However, there can be no
assurance that the issuer will make an exchange offer or adopt a plan of
reorganization. The Fund will generally not receive interest payments on
the distressed securities and may incur costs to protect its investment. In
addition, the Fund’s principal may not be repaid. Distressed
securities and any securities received in an exchange may be difficult to
sell and may be subject to restriction on resale.
Sovereign Debt — The Fund
may invest in sovereign debt securities. These securities are issued or
guaranteed by foreign government entities. Investments in sovereign debt
subject the Fund to the risk that a government entity may delay or refuse
to pay interest or repay principal on its sovereign debt. Reasons may
include cash flow problems, insufficient foreign currency reserves,
political considerations, the relative size of the entity’s debt
position to its economy or its failure to put in place economic reforms
required by the International Monetary Fund or other multilateral agencies.
If a government entity defaults, it may ask for more time in which to pay
or for further loans.
There
is no legal process for collecting sovereign debts that a government does
not pay nor bankruptcy proceeding by which all or part of a sovereign debt
that a government entity has not repaid may be collected.
Standby Commitment Agreements — Standby
commitment agreements involve the risk that the security the Fund buys will
lose value prior to its delivery to the Fund. These agreements also involve
the risk that if the security goes up in value, the counterparty will
decide not to issue the security. If this occurs, the Fund will lose the
investment opportunity for the assets it has set aside to pay for the
security and any gain in the security’s price.
When Issued Securities, Delayed Delivery Securities and
Forward Commitments — When issued and delayed
delivery securities and forward commitments involve the risk that the
security the Fund buys will lose value prior to its delivery. There is also
the risk that the security will not be issued or that the other party will
not meet its obligation. If this occurs, the Fund will lose both the
investment opportunity for the assets it has set aside to pay for the
security and any gain in the security’s price.
Precious Metal Related Securities —
Securities of precious metals historically have been very volatile.
The high volatility of precious metal prices may adversely affect the
financial condition of companies involved with precious metals. The
production and sale of precious metals by governments or central banks or
other larger holders can be affected by various economic, financial, social
and political factors, which may be unpredictable and may have a
significant impact on the prices of precious metals. Other factors that may
affect the prices of precious metals and securities related to them include
changes in inflation, the outlook for inflation and changes in industrial
and commercial demand for precious metals.
Real Estate Related Securities —
Real estate related securities are subject to the risks associated
with real estate. The main risk of real estate related securities is that
the value of the real estate may go down. Many factors may affect real
estate values. These factors include both the general and local economies,
the laws and regulations (including zoning and tax laws) affecting real
estate and the costs of owning, maintaining and improving real estate. The
availability of mortgages and changes in interest rates may also affect
real estate values.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
20
If the Fund’s real estate related investments are concentrated
in one geographic area or in one property type, the Fund will be
particularly subject to the risks associated with that area or property
type.
Repurchase Agreements; Purchase and Sale
Contracts — The Fund may enter into certain types of
repurchase agreements or purchase and sale contracts. Under a repurchase
agreement, the seller agrees to repurchase a security (typically a security
issued or guaranteed by the U.S. Government) at a mutually agreed upon time
and price. This insulates the Fund from changes in the market value of the
security during the period, except for currency fluctuations. A purchase
and sale contract is similar to a repurchase agreement, but purchase and
sale contracts provide that the purchaser receives any interest on the
security paid during the period. If the seller fails to repurchase the
security in either situation and the market value declines, the Fund may
lose money.
STATEMENT OF ADDITIONAL INFORMATION
If you would like further information about the Fund, including how
it invests, please see the Statement of Additional Information.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
21
[LOGO] Your Account
MERRILL LYNCH SELECT PRICING
SM
SYSTEM
The Fund offers four share classes, each with its own sales charge
and expense structure, allowing you to invest in the way that best suits
your needs. Each share class represents an ownership interest in the same
investment portfolio. When you choose your class of shares you should
consider the size of your investment and how long you plan to hold your
shares. Your Merrill Lynch Financial Consultant can help you determine
which share class is best suited to your personal financial
goals.
For example, if you select Class A or D shares, you generally pay a
sales charge at the time of purchase. If you buy Class D shares, you also
pay an ongoing account maintenance fee of 0.25%. You may be eligible for a
sales charge reduction or waiver.
If you select Class B or C shares, you will invest the full amount
of your purchase price, but you will be subject to a distribution fee of
0.75% and an account maintenance fee of 0.25%. Because these fees are paid
out of the Fund’s assets on an ongoing basis, over time these fees
increase the cost of your investment and may cost you more than paying an
initial sales charge. In addition, you may be subject to a deferred sales
charge when you sell Class B or C shares.
The Fund’s shares are distributed by Merrill Lynch Funds
Distributor, a division of Princeton Funds Distributor, Inc., an affiliate
of Merrill Lynch.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
22
The table below summarizes key features of the Merrill Lynch Select
Pricing
SM
System.
| |
|
Class A |
|
Class B |
|
Class C |
|
Class D |
|
| Availability |
|
Limited to certain
investors including:
Ÿ
Current Class A
shareholders
Ÿ
Certain Retirement
Plans
Ÿ
Participants in
certain Merrill Lynch
sponsored programs
Ÿ
Certain affiliates of
Merrill Lynch. |
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
| |
|
Initial Sales
Charge? |
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments. |
|
Deferred Sales
Charge? |
|
No. (May be charged
for purchases over $1
million that are
redeemed within one
year.) |
|
Yes. Payable if you
redeem within four
years of purchase. |
|
Yes. Payable if you
redeem within one
year of purchase. |
|
No. (May be charged
for purchases over
$1 million that are
redeemed within one
year.) |
| |
|
Account
Maintenance and
Distribution Fees? |
|
No. |
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee No
Distribution Fee. |
|
Conversion to
Class D shares? |
|
No. |
|
Yes, automatically
after approximately
eight years. |
|
No. |
|
No. |
| |
|
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
23
[LOGO] Your Account
Right of Accumulation — permits you to
pay the sales charge that would apply to the cost or value (whichever is
higher) of all shares you own in the Merrill Lynch mutual funds that offer
Select Pricing options.
Letter of Intent — permits you to pay the sales
charge that would be applicable if you add up all shares of Merrill Lynch
Select Pricing System funds that you agree to buy within a 13 month
period. Certain restrictions apply.
Class A and Class D Shares — Initial Sales Charge
Options
If you select Class A or Class D shares, you will pay a sales
charge at the time of purchase.
| Your Investment |
|
As a % of
Offering Price |
|
As a % of
Your Investment* |
|
Dealer
Compensation
as a % of
Offering Price |
|
| Less than
$25,000 |
|
5.25% |
|
5.54% |
|
5.00% |
|
$25,000 but
less than
$50,000 |
|
4.75% |
|
4.99% |
|
4.50% |
|
$50,000 but
less than
$100,000 |
|
4.00% |
|
4.17% |
|
3.75% |
|
$100,000 but
less
than $250,000 |
|
3.00% |
|
3.09% |
|
2.75% |
|
$250,000 but
less
than $1,000,000 |
|
2.00% |
|
2.04% |
|
1.80% |
|
| $1,000,000 and
over** |
|
0.00% |
|
0.00% |
|
0.00% |
|
*
|
Rounded to the
nearest one-hundredth percent.
|
**
|
If you invest
$1,000,000 or more in Class A or Class D shares, you may not pay an
initial sales charge. In that case, the Manager compensates the selling
dealer from its own funds. If you redeem your shares within one year
after purchase, you may be charged a deferred sales charge. This charge
is 1% of the lesser of the original cost of the shares being redeemed or
your redemption proceeds. A sales charge of 0.75% will be charged on
purchases of $1,000,000 or more of Class A or Class D shares by certain
employer sponsored retirement or savings plans.
|
No initial sales charge applies to Class A or Class D shares that
you buy through reinvestment of dividends.
A reduced or waived sales charge on a purchase of Class A or Class
D shares may apply for:
|
Ÿ
|
Purchases under
a Right of Accumulation or Letter of Intent
|
|
Ÿ
|
Merrill Lynch
Blueprint
SM
Program participants
|
|
Ÿ
|
Certain Merrill
Lynch investment or central asset accounts
|
|
Ÿ
|
Certain
employer sponsored retirement or savings plans
|
|
Ÿ
|
Purchases using
proceeds from the sale of certain Merrill Lynch closed-end funds under
certain circumstances
|
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
24
|
Ÿ
|
Certain
investors, including directors of Merrill Lynch mutual funds and Merrill
Lynch employees
|
|
Ÿ
|
Certain Merrill
Lynch fee-based programs
|
Only certain investors are eligible to buy Class A shares. Your
Merrill Lynch Financial Consultant can help you determine whether you are
eligible to buy Class A shares or to participate in any of these
programs.
If you decide to buy shares under the initial sales charge
alternative and you are eligible to buy both Class A and Class D shares,
you should buy Class A since Class D shares are subject to a 0.25% account
maintenance fee, while Class A shares are not.
If you redeem Class A or Class D shares and within 30 days buy new
shares of the same class, you will not pay a sales charge on the new
purchase amount. The amount eligible for this “Reinstatement Privilege
” may not exceed the amount of your redemption proceeds. To exercise
the privilege, contact your Merrill Lynch Financial Consultant or the Fund
’s Transfer Agent at 1-800-MER-FUND.
Class B and Class C Shares — Deferred Sales
Charge Options
If you select Class B or Class C shares, you do not pay an initial
sales charge at the time of purchase. However, if you redeem your Class B
shares within four years after purchase, or your Class C shares within one
year after purchase, you may be required to pay a deferred sales charge.
You will also pay distribution fees of 0.75% and account maintenance fees
of 0.25% each year under distribution plans that the Fund has adopted
under Rule 12b-1. Because these fees are paid out of the Fund’s
assets on an ongoing basis, over time these fees increase the cost of your
investment and may cost you more than paying an initial sales charge. The
Distributor uses the money that it receives from the deferred sales
charges and the distribution fees to cover the costs of marketing,
advertising and compensating the Merrill Lynch Financial Consultant or
other securities dealer who assists you in purchasing Fund
shares.
Class B Shares
If you redeem Class B shares within four years after purchase, you
may be charged a deferred sales charge. The amount of the charge gradually
decreases as you hold your shares over time, according to the following
schedule:
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
25
[LOGO] Your Account
| Years Since Purchase |
|
Sales Charge* |
|
| 0 –
1 |
|
4.00% |
|
| 1 –
2 |
|
3.00% |
|
| 2 –
3 |
|
2.00% |
|
| 3 –
4 |
|
1.00% |
|
| 4 and
thereafter |
|
0.00% |
|
|
| * The percentage charge will apply to the
lesser of the original cost of the shares being redeemed or the proceeds
of your redemption. Shares acquired through reinvestment of dividends
are not subject to a deferred sales charge. Not all Merrill Lynch funds
have identical deferred sales charge schedules. If you exchange your
shares for shares of another fund, the higher charge will
apply. |
|
| The deferred sales charge relating to Class B shares
may be reduced or waived in certain circumstances, such as: |
|
|
Ÿ Certain
post-retirement withdrawals from an IRA or other retirement plan if
you are over 59 1
/2 years old |
|
|
Ÿ Redemption by
certain eligible 401(a) and 401(k) plans, certain related accounts,
group plans participating in the Merrill Lynch Blueprint Program and
certain retirement plan rollovers |
|
|
Ÿ
Redemption in connection with participation in certain Merrill
Lynch fee-based programs |
|
|
Ÿ Withdrawals resulting from shareholder death
or disability as long as the waiver request is made within one year
of death or disability or, if later, reasonably promptly following
completion of probate, or in connection with involuntary
termination of an account in which Fund shares are held |
|
|
Ÿ Withdrawal through the Merrill Lynch
Systematic Withdrawal Plan of up to 10% per year of your Class B
account value at the time the plan is established |
|
| Your Class B shares convert
automatically into Class D shares approximately eight years after
purchase. Any Class B shares received through reinvestment of
dividends paid on converting shares will also convert at that
time. Class D shares are subject to lower annual expenses than
Class B shares. The conversion of Class B to Class D shares is
not a taxable event for federal income tax purposes. |
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
26
Different conversion schedules apply to Class B shares of different
Merrill Lynch mutual funds. For example, Class B shares of a fixed
income fund typically convert approximately ten years after
purchase compared to approximately eight years for equity funds.
If you acquire your Class B shares in an exchange from another
fund with a shorter conversion schedule, the Fund’s eight
year conversion schedule will apply. If you exchange your Class B
shares in the Fund for Class B shares of a fund with a longer
conversion schedule, the other fund’s conversion schedule
will apply. The length of time that you hold both the original and
exchanged Class B shares in both funds will count toward the
conversion schedule. The conversion schedule may be modified in
certain other cases as well.
Class C Shares
If you redeem Class C shares within one year after
purchase, you may be charged a deferred sales charge of 1.00%. The
charge will apply to the lesser of the original cost of the shares
being redeemed or the proceeds of your redemption. You will not be
charged a deferred sales charge when you redeem shares that you
acquire through reinvestment of Fund dividends. The deferred sales
charge relating to Class C shares may be reduced or waived in
connection with involuntary termination of an account in which
Fund shares are held and withdrawals through the Merrill Lynch
Systematic Withdrawal Plan.
Class C shares do not offer a conversion
privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The chart on the following pages summarizes how to
buy, sell, transfer and exchange shares through Merrill Lynch or
other securities dealers. You may also buy shares through the
Transfer Agent. To learn more about buying, selling, transferring
or exchanging shares through the Transfer Agent, call
1-800-MER-FUND. Because the selection of a mutual fund involves
many considerations, your Merrill Lynch Financial Consultant may
help you with this decision.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
27
[LOGO] Your Account
| If You Want
To |
|
Your
Choices |
|
Information Important
for You to Know |
|
| Buy Shares |
|
First, select the share
class
appropriate for you |
|
Refer to the Merrill
Lynch Select Pricing table on page 23. Be sure
to read this Prospectus carefully. |
|
| |
|
Next, determine the
amount of your investment |
|
The minimum initial
investment for the Fund is $1,000 for all
accounts except: |
| |
|
|
|
Ÿ $250 for certain Merrill Lynch fee-based
programs |
| |
|
|
|
Ÿ $100 for retirement plans |
| |
|
| |
|
|
|
(The minimums for
initial investments may be waived under certain
circumstances.) |
|
| |
|
Have your Merrill Lynch
Financial Consultant or
securities dealer submit
your purchase order |
|
The price of your shares
is based on the next calculation of net
asset value after your order is placed. Any purchase orders placed
prior to the close of business on the New York Stock Exchange
(generally 4:00 p.m. Eastern time) will be priced at the net asset
value determined that day. |
| |
|
| |
|
|
|
Purchase orders placed
after that time will be priced at the net
asset value determined on the next business day. The Fund may
reject any order to buy shares and may suspend the sale of shares
at any time. Merrill Lynch may charge a processing fee to confirm
a purchase. This fee is currently $5.35. |
|
| |
|
Or contact the Transfer
Agent |
|
To purchase shares
directly, call the Transfer Agent at 1-800-MER-
FUND and request a purchase application. Mail the completed
purchase application to the Transfer Agent at the address on the
inside back cover of this Prospectus. |
|
Add to Your
Investment |
|
Purchase additional
shares |
|
The minimum investment
for additional purchases is generally $50
except that retirement plans have a minimum additional purchase
of $1 and certain programs, such as automatic investment plans,
may have higher minimums. |
| |
|
| |
|
|
|
(The minimums for
additional purchases may be waived under
certain circumstances.) |
|
| |
|
Acquire additional shares
through the automatic
dividend reinvestment plan |
|
All dividends are
automatically reinvested without a sales charge. |
|
| |
|
Participate in the
automatic
investment plan |
|
You may invest a
specific amount on a periodic basis through
certain Merrill Lynch investment or central asset
accounts. |
|
Transfer Shares to
Another Securities
Dealer |
|
Transfer to a
participating
securities dealer |
|
You may transfer your
Fund shares only to another securities
dealer that has entered into an agreement with Merrill Lynch.
Certain shareholder services may not be available for the
transferred shares. You may only purchase additional shares of
funds previously owned before the transfer. All future trading of
these assets must be coordinated by the receiving firm. |
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
28
| If You Want
To |
|
Your
Choices |
|
Information Important
for You to Know |
|
Transfer Shares to
Another Securities
Dealer
(continued) |
|
Transfer to a non-
participating securities
dealer |
|
You must either:
Ÿ Transfer your shares to an account with
the Transfer Agent; or
Ÿ Sell your shares, paying any applicable
deferred sales charge. |
|
| Sell Your
Shares |
|
Have your Merrill Lynch
Financial Consultant or
securities dealer submit
your sales order |
|
The price of your shares
is based on the next calculation of net
asset value after your order is placed. For your redemption request
to be priced at the net asset value on the day of your request, you
must submit your request to your dealer prior to that day’s
close of
business on the New York Stock Exchange (generally 4:00 p.m.
Eastern time). Any redemption request placed after that time will
be priced at the net asset value at the close of business on the
next business day. |
| |
|
| |
|
|
|
Securities dealers,
including Merrill Lynch, may charge a fee to
process a redemption of shares. Merrill Lynch currently charges a
fee of $5.35. No processing fee is charged if you redeem shares
directly through the Transfer Agent. |
| |
|
| |
|
|
|
The Fund may reject an
order to sell shares under certain
circumstances. |
|
| |
|
Sell through the Transfer
Agent |
|
You may sell shares held
at the Transfer Agent by writing to the
Transfer Agent at the address on the inside back cover of this
Prospectus. All shareholders on the account must sign the letter. A
signature guarantee will generally be required but may be waived
in certain limited circumstances. You can obtain a signature
guarantee from a bank, securities dealer, securities broker, credit
union, savings association, national securities exchange or
registered securities association. A notary public seal will not be
acceptable. If you hold share certificates, return the certificates
with the letter. The Transfer Agent will normally mail redemption
proceeds within seven days following receipt of a properly
completed request. If you make a redemption request before the
Fund has collected payment for the purchase of shares, the Fund
or the Transfer Agent may delay mailing your proceeds. This delay
will usually not exceed ten days. |
| |
|
| |
|
|
|
If you hold share
certificates, they must be delivered to the
Transfer Agent before they can be converted. Check with the
Transfer Agent or your Merrill Lynch Financial Consultant for
details. |
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
29
[LOGO] Your Account
| If You Want
To |
|
Your
Choices |
|
Information Important
for You to Know |
|
Sell Shares
Systematically |
|
Participate in the Fund
’s
Systematic Withdrawal
Plan |
|
You can choose to
receive systematic payments from your Fund
account either by check or through direct deposit to your bank
account on a monthly or quarterly basis. If you hold Fund shares in
a Merrill Lynch CMA®, CBA® or Retirement Account you can
arrange for systematic redemptions of a fixed dollar amount on a
monthly, bi-monthly, quarterly, semi-annual or annual basis,
subject to certain conditions. Under either method you must have
dividends automatically reinvested. For Class B and C shares your
total annual withdrawals cannot be more than 10% per year of
the value of your shares at the time your plan is established. The
deferred sales charge is waived for systematic redemptions. Ask
your Merrill Lynch Financial Consultant for details. |
|
Exchange Your
Shares |
|
Select the fund into
which
you want to exchange. Be
sure to read that fund’s
prospectus |
|
You can exchange your
shares of the Fund for shares of many
other Merrill Lynch mutual funds. You must have held the shares
used in the exchange for at least 15 calendar days before you can
exchange to another fund. |
| |
|
| |
|
|
|
Each class of Fund
shares is generally exchangeable for shares of
the same class of another fund. If you own Class A shares and wish
to exchange into a fund in which you have no Class A shares (and
are not eligible to purchase Class A shares), you will exchange
into
Class D shares. |
| |
|
| |
|
|
|
Some of the Merrill
Lynch mutual funds impose a different initial
or deferred sales charge schedule. If you exchange Class A or D
shares for shares of a fund with a higher initial sales charge than
you originally paid, you will be charged the difference at the time
of exchange. If you exchange Class B shares for shares of a fund
with a different deferred sales charge schedule, the higher
schedule will apply. The time you hold Class B or C shares in both
funds will count when determining your holding period for
calculating a deferred sales charge at redemption. If you exchange
Class A or D shares for money market fund shares, you will receive
Class A shares of Summit Cash Reserves Fund. Class B or C shares of
the Fund will be exchanged for Class B shares of
Summit. |
| |
|
| |
|
|
|
Although there is
currently no limit on the number of exchanges
that you can make, the exchange privilege may be modified or
terminated at any time in the future. |
|
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
30
Net Asset Value —
the market value of the Fund’s total assets after
deducting liabilities, divided by the number of shares
outstanding.
HOW SHARES ARE PRICED
When you buy shares, you pay the net asset value, plus any
applicable sales charge. This is the offering price. Shares are
also redeemed at their net asset value, minus any applicable
deferred sales charge. The Fund calculates its net asset value
(generally by using market quotations) each day the New York Stock
Exchange is open as of the close of business on the Exchange based
on the prices at the time of closing. The Exchange generally
closes at 4:00 p.m. Eastern time. The net asset value used in
determining your price is the next one calculated after your
purchase or redemption order is placed. Foreign securities owned
by the Fund may trade on weekends or other days when the Fund does
not price its shares. As a result, the Fund’s net asset value
may change on days when you will not be able to purchase or redeem
the Fund’s shares.
Generally, Class A shares will have the highest net
asset value because that class has the lowest expenses, and Class
D shares will have a higher net asset value than Class B or Class
C shares. Also dividends paid on Class A and Class D shares will
generally be higher than dividends paid on Class B and Class C
shares because Class A and Class D shares have lower
expenses.
PARTICIPATION IN MERRILL LYNCH FEE-BASED PROGRAMS
If you participate in certain fee-based programs
offered by Merrill Lynch, you may be able to buy Class A shares at
net asset value, including by exchanges from other share classes.
Sales charges on the shares being exchanged may be reduced or
waived under certain circumstances.
You generally cannot transfer shares held through a
fee-based program into another account. Instead, you will have to
redeem your shares held through the program and purchase shares of
another class, which may be subject to distribution and account
maintenance fees. This may be a taxable event and you will pay any
applicable sales charges.
If you leave one of these programs, your shares may
be redeemed or automatically exchanged into another class of Fund
shares or into a money market fund. The class you receive may be
the class you originally owned when you entered the program, or in
certain cases, a different class. If the exchange is into Class B
shares, the period before conversion to Class D shares may be
modified. Any redemption or exchange will be at net asset
value. However, if you participate in the program for less than a
specified period, you may be charged a fee in accordance with the
terms of the program.
Details about these features and the relevant
charges are included in the client agreement for each fee-based
program and are available from your Merrill Lynch Financial
Consultant.
DIVIDENDS AND TAXES
The Fund will distribute any net investment income
and any net realized long or short term capital gains at least
annually. The Fund may also pay a special distribution at or about
the end of the calendar year to comply with Federal tax
requirements. If your account is with Merrill Lynch and you would
like to receive dividends in cash, contact your Merrill Lynch
Financial Consultant. If your account is with the Transfer Agent
and you would like to receive dividends in cash, contact the
Transfer Agent. The Fund intends to make distributions that will
either be taxed as ordinary income or capital gains.
You will pay tax on dividends from the Fund whether
you receive them in cash or additional shares. If you redeem Fund
shares or exchange them for shares of another fund, any gain on
the transaction may be subject to tax. Capital gain dividends are
generally taxed at different rates than ordinary income
dividends.
If you are neither a lawful permanent resident nor
a citizen of the U.S. or if you are a foreign entity, the Fund
’s ordinary income dividends (which include distributions of
net short term capital gains) will generally be subject to a 30%
U.S. withholding tax, unless a lower treaty rate
applies.
Dividends and interest received by the Fund may
give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. You may be able
to claim a credit or take a deduction for foreign taxes paid by
the Fund if certain requirements are met.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
32
By law, the Fund must withhold 31% of your dividends and proceeds if
you have not provided a taxpayer identification number or social
security number or if the number you have provided is
incorrect.
This section summarizes some of the consequences
under current Federal tax law of an investment in the Fund. It is
not a substitute for personal tax advice. Consult your personal
tax adviser about the potential tax consequences of an investment
in the Fund under all applicable tax laws.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
33
[LOGO] Management of the Fund
MERRILL LYNCH ASSET MANAGEMENT
Merrill Lynch Asset Management, the Fund’s Manager, manages the
Fund’s investments and its business operations under the
overall supervision of the Fund’s Board of Directors. The
Manager has the responsibility for making all investment decisions
for the Fund. The Manager has a sub-advisory agreement with
Merrill Lynch Asset Management U.K. Limited, an affiliate, under
which the Manager may pay a fee for services it receives. The Fund
has agreed to pay the Manager a fee at the annual rate of 0.75% of
the average daily net assets of the Fund. The Manager agreed to
voluntarily waive a portion of the fee so that the Fund pays the
Manager a fee at the annual rate of 0.75% of the average daily net
assets of the Fund for the first $2.5 billion; 0.70% of the
average daily net assets from $2.5 billion to $5.0 billion; 0.65%
of the average daily net assets from $5.0 billion to $7.5 billion;
0.625% of the average daily net assets from $7.5 billion to $10
billion; and 0.60% of the average daily net assets above $10
billion. The Manager may discontinue or reduce this waiver of fees
at any time without notice. For the fiscal year ended October 31,
1999, the Manager received a fee equal to 0.69% of the Fund’s
average daily net assets.
Merrill Lynch Asset Management was organized as an
investment adviser in 1977 and offers investment advisory services
to more than 40 registered investment companies. Merrill Lynch
Asset Management is part of the Asset Management Group of ML &
Co. The Asset Management Group had approximately $557 billion in
investment company and other portfolio assets under management as
of December 1999. This amount includes assets managed for Merrill
Lynch affiliates.
A Note About Year 2000
As the year 2000 began, there were few problems
caused by the inability of certain computer systems to tell the
difference between the year 2000 and the year 1900 (commonly known
as the “Year 2000 Problem”). It is still possible that
some computer systems could malfunction in the future because of
the Year 2000 Problem or as a result of actions taken to address
the Year 2000 Problem. Fund management does not anticipate that
its services or those of the Fund’s other service providers
will be adversely affected, but Fund management will continue to
monitor the situation. If malfunctions related to the Year 2000
Problem do arise, the Fund and its investments could be negatively
affected.
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
34
The Financial Highlights table is intended to help
you understand the Fund’s financial performance for the past
five years. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the
rate an investor would have earned on an investment in the Fund
(assuming reinvestment of all dividends). This information has
been audited by Deloitte & Touche LLP
, whose report, along with the Fund’s financial statements, is
included in the Fund’s annual report to shareholders, which
is available upon request.
| |
|
Class A
†
|
|
Class B
†
|
| Increase (Decrease)
in |
|
For the Year
Ended October 31,
|
|
For the Year
Ended October 31,
|
| Net Asset
Value: |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
1995 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
1995 |
|
Per Share Operating
Performance: |
|
Net asset value,
beginning
of year |
|
$
13.25 |
|
|
$
15.92 |
|
|
$
15.17 |
|
|
$
14.21 |
|
|
$
13.07 |
|
|
$
13.01 |
|
|
$
15.65 |
|
|
$
14.95 |
|
|
$
14.01 |
|
|
$
12.91 |
|
|
| Investment income
— net |
|
.67 |
|
|
.67 |
|
|
.71 |
|
|
.78 |
|
|
.79 |
|
|
.52 |
|
|
.52 |
|
|
.55 |
|
|
.62 |
|
|
.65 |
|
|
Realized and unrealized
gain
(loss) on investments and foreign
currency transactions — net |
|
2.53 |
|
|
(1.28 |
) |
|
1.57 |
|
|
1.59 |
|
|
1.04 |
|
|
2.49 |
|
|
(1.26 |
) |
|
1.52 |
|
|
1.59 |
|
|
1.01 |
|
|
Total from investment
operations |
|
3.20 |
|
|
(.61 |
) |
|
2.28 |
|
|
2.37 |
|
|
1.83 |
|
|
3.01 |
|
|
(.74 |
) |
|
2.07 |
|
|
2.21 |
|
|
1.66 |
|
|
| Less dividends and
distributions: |
|
Investment income — net |
|
(.61 |
) |
|
(.86 |
) |
|
(.88 |
) |
|
(.98 |
) |
|
(.39 |
) |
|
(.45 |
) |
|
(.70 |
) |
|
(.72 |
) |
|
(.84 |
) |
|
(.26 |
) |
Realized gain on
investments — net |
|
(1.05 |
) |
|
(1.20 |
) |
|
(.65 |
) |
|
(.43 |
) |
|
(.30 |
) |
|
(1.05 |
) |
|
(1.20 |
) |
|
(.65 |
) |
|
(.43 |
) |
|
(.30 |
) |
|
| Total dividends and
distributions |
|
(1.66 |
) |
|
(2.06 |
) |
|
(1.53 |
) |
|
(1.41 |
) |
|
(.69 |
) |
|
(1.50 |
) |
|
(1.90 |
) |
|
(1.37 |
) |
|
(1.27 |
) |
|
(.56 |
) |
|
| Net asset value, end of
year |
|
$
14.79 |
|
|
$
13.25 |
|
|
$
15.92 |
|
|
$
15.17 |
|
|
$
14.21 |
|
|
$
14.52 |
|
|
$
13.01 |
|
|
$
15.65 |
|
|
$
14.95 |
|
|
$
14.01 |
|
|
| Total Investment
Return:* |
|
Based on net asset value
per share |
|
26.30 |
% |
|
(4.43 |
)% |
|
16.08 |
% |
|
17.81 |
% |
|
14.81 |
% |
|
25.08 |
% |
|
(5.37 |
)% |
|
14.82 |
% |
|
16.71 |
% |
|
13.54 |
% |
|
| Ratios to Average Net
Assets: |
|
| Expenses, net of
reimbursement |
|
.91 |
% |
|
.84 |
% |
|
.83 |
% |
|
.86 |
% |
|
.90 |
% |
|
1.94 |
% |
|
1.86 |
% |
|
1.85 |
% |
|
1.87 |
% |
|
1.93 |
% |
|
| Expenses |
|
.97 |
% |
|
.93 |
% |
|
.91 |
% |
|
.93 |
% |
|
.90 |
% |
|
1.99 |
% |
|
1.95 |
% |
|
1.93 |
% |
|
1.95 |
% |
|
1.93 |
% |
|
| Investment income —
net |
|
4.86 |
% |
|
4.62 |
% |
|
4.64 |
% |
|
5.31 |
% |
|
5.98 |
% |
|
3.84 |
% |
|
3.60 |
% |
|
3.62 |
% |
|
4.29 |
% |
|
4.96 |
% |
|
| Supplemental
Data: |
|
Net assets, end of year
(in thousands) |
|
$1,305,473 |
|
|
$1,513,999 |
|
|
$2,132,254 |
|
|
$1,841,974 |
|
|
$1,487,805 |
|
|
$4,496,037 |
|
|
$6,743,780 |
|
|
$9,879,603 |
|
|
$8,660,279 |
|
|
$6,668,499 |
|
|
| Portfolio
turnover |
|
26.95 |
% |
|
49.67 |
% |
|
55.42 |
% |
|
51.26 |
% |
|
36.78 |
% |
|
26.95 |
% |
|
49.67 |
% |
|
55.42 |
% |
|
51.26 |
% |
|
36.78 |
% |
|
|
| * Total investment
returns exclude the effects of sales charges. |
|
| † Based on
average shares outstanding. |
MERRILL LYNCH GLOBAL ALLOCATION FUND,
INC.
35
[LOGO] Management of the Fund
FINANCIAL HIGHLIGHTS (concluded)
| |
|
Class C
†
|
|
Class D
†
|
| Increase (Decrease)
in |
|
For the
Year Ended October 31,
|
|
For the
Year Ended October 31,
|
| Net Asset
Value: |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
1995 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
1995 |
|
Per Share
Operating
Performance: |
|
Net asset
value, beginning
of year |
|
$
12.86 |
|
|
$
15.50 |
|
|
$
14.83 |
|
|
$
13.94 |
|
|
$
12.91 |
|
|
$
13.23 |
|
|
$
15.89 |
|
|
$
15.15 |
|
|
$
14.19 |
|
|
$
13.08 |
|
|
| Investment
income — net |
|
.51 |
|
|
.51 |
|
|
.54 |
|
|
.61 |
|
|
.64 |
|
|
.64 |
|
|
.64 |
|
|
.68 |
|
|
.77 |
|
|
.77 |
|
|
Realized and
unrealized gain
(loss) on investments and foreign
currency transactions — net |
|
2.46 |
|
|
(1.24 |
) |
|
1.52 |
|
|
1.58 |
|
|
1.02 |
|
|
2.52 |
|
|
(1.28 |
) |
|
1.55 |
|
|
1.57 |
|
|
1.01 |
|
|
Total from
investment
operations |
|
2.97 |
|
|
(.73 |
) |
|
2.06 |
|
|
2.19 |
|
|
1.66 |
|
|
3.16 |
|
|
(.64 |
) |
|
2.23 |
|
|
2.34 |
|
|
1.78 |
|
|
| Less
dividends and distributions: |
|
Investment income — net |
|
(.45 |
) |
|
(.71 |
) |
|
(.74 |
) |
|
(.87 |
) |
|
(.33 |
) |
|
(.57 |
) |
|
(.82 |
) |
|
(.84 |
) |
|
(.95 |
) |
|
(.37 |
) |
Realized gain on
investments — net |
|
(1.05 |
) |
|
(1.20 |
) |
|
(.65 |
) |
|
(.43 |
) |
|
(.30 |
) |
|
(1.05 |
) |
|
(1.20 |
) |
|
(.65 |
) |
|
(.43 |
) |
|
(.30 |
) |
|
| Total
dividends and distributions |
|
(1.50 |
) |
|
(1.91 |
) |
|
(1.39 |
) |
|
(1.30 |
) |
|
(.63 |
) |
|
(1.62 |
) |
|
(2.02 |
) |
|
(1.49 |
) |
|
(1.38 |
) |
|
(.67 |
) |
|
| Net asset
value, end of year |
|
$
14.33 |
|
|
$
12.86 |
|
|
$
15.50 |
|
|
$
14.83 |
|
|
$
13.94 |
|
|
$
14.77 |
|
|
$
13.23 |
|
|
$
15.89 |
|
|
$
15.15 |
|
|
$
14.19 |
|
|
| Total
Investment Return:* |
|
Based on net
asset value
per share |
|
25.05 |
% |
|
(5.38 |
)% |
|
14.84 |
% |
|
16.68 |
% |
|
13.58 |
% |
|
26.01 |
% |
|
(4.63) |
% |
|
15.76 |
% |
|
17.59 |
% |
|
14.43 |
% |
|
| Ratios to
Average Net Assets: |
|
| Expenses, net
of reimbursement |
|
1.95 |
% |
|
1.88 |
% |
|
1.86 |
% |
|
1.88 |
% |
|
1.95 |
% |
|
1.16 |
% |
|
1.10 |
% |
|
1.08 |
% |
|
1.10 |
% |
|
1.16 |
% |
|
| Expenses |
|
2.01 |
% |
|
1.96 |
% |
|
1.94 |
% |
|
1.95 |
% |
|
1.95 |
% |
|
1.21 |
% |
|
1.18 |
% |
|
1.16 |
% |
|
1.18 |
% |
|
1.16 |
% |
|
| Investment
income — net |
|
3.84 |
% |
|
3.61 |
% |
|
3.60 |
% |
|
4.24 |
% |
|
4.80 |
% |
|
4.61 |
% |
|
4.40 |
% |
|
4.38 |
% |
|
5.04 |
% |
|
5.63 |
% |
|
| Supplemental Data: |
|
Net assets,
end of year
(in thousands) |
|
$322,238 |
|
|
$503,556 |
|
|
$671,467 |
|
|
$385,753 |
|
|
$102,361 |
|
|
$1,229,415 |
|
|
$1,316,994 |
|
|
$1,479,711 |
|
|
$1,044,136 |
|
|
$256,525 |
|
|
| Portfolio
turnover |
|
26.95 |
% |
|
49.67 |
% |
|
55.42 |
% |
|
51.26 |
% |
|
36.78 |
% |
|
26.95 |
% |
|
49.67 |
% |
|
55.42 |
% |
|
51.26 |
% |
|
36.78 |
% |
|
|
|
*Total investment returns exclude the effects
of sales charges.
|
† Based
on average shares outstanding.
MERRILL LYNCH GLOBAL ALLOCATION FUND,
INC.
36
[This page intentionally left blank]
MERRILL LYNCH GLOBAL ALLOCATION FUND,
INC.
[This
page intentionally left blank]
MERRILL LYNCH GLOBAL ALLOCATION FUND,
INC.
[CHART]
POTENTIAL
INVESTORS
1 2
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT
OR SECURITIES DEALER Financial Data Services, Inc.
Advises shareholders on their ADMINISTRATIVE OFFICES
Fund investments. 4800 Deer Lake Drive East
Jacksonville, Florida 33246-6864
MAILING ADDRESS
P.O. Box 45289
Jacksonville, Florida 32232-5289
Performs recordkeeping and reporting
services.
DISTRIBUTOR
Merrill Lynch Funds Distributor
a division of Princeton Funds Distributor, Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Arranges for the sale of Fund shares.
COUNSEL CUSTODIAN
Brown & Wood LLP THE FUND Brown Brothers
One World Trade Center The Board of Directors Harriman & Co.
New York, New York 10048-0557 oversees the Fund. 40 Water Street
Provides legal advice to the Fund. Boston, Massachusetts
02109
Holds the Fund's
assets for safekeeping.
INDEPENDENT AUDITORS MANAGER
Deloitte & Touche LLP Merrill Lynch Asset Management, L.P.
Princeton Forrestal Village ADMINISTRATIVE OFFICES
116-300 Village Boulevard 800 Scudders Mill Road
Princeton, New Jersey 08540-6400 Plainsboro, New Jersey 08536
Audits the financial MAILING ADDRESS
statements of the Fund on behalf of P.O. Box 9011
the shareholders. Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Fund's day-to-day
activities.
MERRILL LYNCH GLOBAL ALLOCATION FUND,
INC.
[LOGO] Prospectus
February 1, 2000
Additional information about the Fund’s
investments is available in the Fund’s annual and
semi-annual reports to shareholders. In the Fund’s annual
report you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund
’s performance during its last fiscal year. You may obtain
these reports at no cost by calling 1-800-MER-FUND.
The Fund will send you one copy of each shareholder
report and certain other mailings, regardless of the number of
Fund accounts you have. To receive separate shareholder reports
for each account, call your Merrill Lynch Financial Consultant
or write to the Transfer Agent at its mailing address. Include
your name, address, tax identification number and Merrill Lynch
brokerage or mutual fund account number. If you have any
questions, please call your Merrill Lynch Financial Consultant
or the Transfer Agent at 1-800-MER-FUND.
Statement of Additional Information
The Fund’s Statement of Additional Information
contains further information about the Fund and is incorporated
by reference (legally considered to be part of this prospectus).
You may request a free copy by writing the Fund at Financial
Data Services, Inc., P.O. Box 45289, Jacksonville, Florida
32232-5289 or by calling 1-800-MER-FUND.
Contact your Merrill Lynch Financial Consultant or
the Fund at the telephone number or address indicated on the
inside back cover of this prospectus if you have any
questions.
Information about the Fund (including the Statement
of Additional Information) can be reviewed and copied at the SEC
’s Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC
’s Internet site at http://www.sec.gov and copies may be
obtained upon payment of a duplicating fee by writing the Public
Reference Section of the SEC, Washington, D.C.
20549-6009.
You should rely only on the information
contained in this Prospectus. No one is authorized to provide
you with information that is different from information
contained in this Prospectus.
Investment Company Act file #811-5576
Code #10810-02-00
©
Merrill Lynch Asset Management, L.P.
[LOGO] Merrill Lynch
[LOGO] For More Information
STATEMENT OF ADDITIONAL
INFORMATION
Merrill Lynch Global Allocation Fund,
Inc.
P.O. Box 9011, Princeton, New Jersey
08543-9011 Ÿ Phone No.
(609) 282-2800
Merrill Lynch Global Allocation Fund, Inc. (the
“Fund”) is a non-diversified, open-end investment
company that seeks high total investment return through a
fully-managed investment policy utilizing United States and
foreign equity, debt and money market securities, the
combination of which will be varied from time to time both with
respect to types of securities and markets in response to
changing market and economic trends. Total investment return is
the aggregate of capital value changes and income. There can be
no assurance that the Fund’s investment objective will be
achieved. The Fund may employ a variety of instruments and
techniques to enhance income and to hedge against market and
currency risk. For more information on the Fund’s
investment objectives and policies, see “Investment
Objective and Policies.”
Pursuant to the Merrill Lynch Select
Pricing
SM
System, the Fund offers four classes of shares, each
with a different combination of sales charges, ongoing fees and
other features. The Merrill Lynch Select Pricing
SM
System permits an investor to choose the method of
purchasing shares that the investor believes is most beneficial
given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant
circumstances. See “Purchase of Shares.”
This Statement of Additional Information of the Fund
is not a prospectus and should be read in conjunction with the
Prospectus of the Fund, dated February 1, 2000 (the
“Prospectus”), which has been filed with the
Securities and Exchange Commission (the “Commission”)
and can be obtained, without charge, by calling (800) MER-FUND
or by writing the Fund at the above address. The Prospectus is
incorporated by reference into this Statement of Additional
Information, and this Statement of Additional Information is
incorporated by reference into the Prospectus. The Fund’s
audited financial statements are incorporated in this Statement
of Additional Information by reference to its 1999 annual report
to shareholders. You may request a copy of the annual report at
no charge by calling (800) 456-4587 ext. 789 between 8:00 a.m.
and 8:00 p.m. on any business day.
Merrill Lynch Asset Management —
Manager
Merrill Lynch Funds Distributor —
Distributor
The date of this Statement of Additional
Information is February 1, 2000.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES
Reference is made to “How the Fund Invests
” and “Investment Risks” in the
Prospectus.
The Fund will invest in a portfolio of U.S. and
foreign equity, debt and money market securities. The
composition of the portfolio among these securities and markets
will be varied from time to time by Merrill Lynch Asset
Management, L.P. (“MLAM” or the “Manager”),
the Fund’s manager, in response to changing market and
economic trends. This fully managed investment approach provides
the Fund with the opportunity to benefit from anticipated shifts
in the relative performance of different types of securities and
different capital markets. For example, at times the Fund may
emphasize investments in equity securities in anticipation of
significant advances in stock markets and at times may emphasize
debt securities in anticipation of significant declines in
interest rates. Similarly, the Fund may emphasize foreign
markets in its security selection when such markets are expected
to outperform, in U.S. dollar terms, the U.S. markets. The Fund
will seek to identify longer-term structural or cyclical changes
in the various economies and markets of the world which are
expected to benefit certain capital markets and certain
securities in those markets to a greater extent than other
investment opportunities. The Fund may invest in individual
securities, baskets of securities or particular measurements of
value or rate (an “index”), such as an index of the
price of treasury securities or an index representative of
short-term interest rates. The Fund may employ a variety of
instruments and techniques to enhance income and to hedge
against market and currency risk.
In determining the allocation of assets among
capital markets, the Manager will consider, among other factors,
the relative valuation, condition and growth potential of the
various economies, including current and anticipated changes in
the rates of economic growth, rates of inflation, corporate
profits, capital reinvestment, resources, self-sufficiency,
balance of payments, governmental deficits or surpluses and
other pertinent financial, social and political factors which
may affect such markets. In allocating among equity, debt and
money market securities within each market, the Manager also
will consider the relative opportunity for capital appreciation
of equity and debt securities, dividend yields and the level of
interest rates paid on debt securities of various
maturities.
In selecting securities denominated in foreign
currencies, the Manager will consider, among other factors, the
effect of movement in currency exchange rates on the U.S. dollar
value of such securities. An increase in the value of a currency
will increase the total return to the Fund of securities
denominated in such currency. Conversely, a decline in the value
of the currency will reduce the total return. The Manager may
seek to hedge all or a portion of the Fund’s foreign
securities through the use of forward foreign currency
contracts, currency options, futures contracts and options
thereon. See “Portfolio Strategies Involving Derivatives
” below.
While there are no prescribed limits on the
geographical allocation of the Fund’s assets, the Manager
anticipates that it will invest primarily in the securities of
corporate and governmental issuers domiciled or located in North
and South America, Western Europe and the Far East. In addition,
the Manager anticipates that a portion of the Fund’s assets
normally will be invested in the U.S. securities markets and the
other major capital markets. Under normal conditions, the Fund
’s investments will be denominated in at least three
currencies or multinational currency units. However, the Fund
reserves the right to invest substantially all of its assets in
U.S. markets or U.S. dollar-denominated obligations when the
Manager believes market conditions warrant such
investment.
The U.S. Government has from time to time in the
past imposed restrictions, through taxation and otherwise, on
foreign investments by U.S. investors such as the Fund. If such
restrictions should be reinstituted, it might become necessary
for the Fund to invest all or substantially all of its assets in
U.S. securities. In such event, the Fund would review its
investment objective and investment policies to determine
whether changes are appropriate. Any changes in the investment
objective or fundamental policies set forth under
“Investment Restrictions” below would require the
approval of the holders of a majority of the Fund’s
outstanding voting securities, as defined in the Investment
Company Act of 1940, as amended (the “Investment Company Act
”).
Similarly, there are no prescribed limits on the
allocation of the Fund’s assets among equity, debt and
money market securities. Therefore, at any given time, the Fund
’s assets may be primarily invested in equity, debt or
money market securities or in any combination thereof. However,
the Manager anticipates that the Fund’s portfolio generally
will include both equity and debt securities.
Within the portion of the Fund’s portfolio
allocated to equity securities, the Manager will seek to
identify the securities of companies and industry sectors that
are expected to provide high total return relative to
alternative equity investments. The Fund generally will seek to
invest in securities the Manager believes to be undervalued.
Undervalued issues include securities selling at a discount from
the price-to-book value ratios and price/earnings ratios
computed with respect to the relevant stock market averages. The
Fund may also consider as undervalued securities selling at a
discount from their historic price-to-book value or
price/earnings ratios, even though these ratios may be above the
ratios for the stock market averages. Securities offering
dividend yields higher than the yields for the relevant stock
market averages or higher than such securities’ historic
yield may also be considered to be undervalued. The Fund may
also invest in the securities of small and emerging growth
companies when such companies are expected to provide a higher
total return than other equity investments. Such companies are
characterized by rapid historical growth rates, above-average
returns on equity or special investment value in terms of their
products or services, research capabilities or other unique
attributes. The Manager will seek to identify small and emerging
growth companies that possess superior management, marketing
ability, research and product development skills and sound
balance sheets.
There may be periods when market and economic
conditions exist that favor certain types of tangible assets as
compared to other types of investments. For example, the value
of precious metals can be expected to benefit from such factors
as rising inflationary pressures or other economic, political or
financial uncertainty or instability. Real estate values, which
are influenced by a variety of economic, financial and local
factors, tend to be cyclical in nature. During periods when the
Manager believes that conditions favor a particular real asset
as compared to other investment opportunities, the Fund may
emphasize investments related to that asset, such as investments
in precious metal-related securities or real estate-related
securities as described below. The Fund may invest up to 25% of
its total assets in any particular industry sector.
Securities of Smaller or Emerging Growth
Companies. The securities of smaller
or emerging growth companies may be subject to more abrupt or
erratic market movements than larger, more established companies
or the market average in general. These companies may have
limited product lines, markets or financial resources, or they
may be dependent on a limited management group. While such
issuers may offer greater opportunities for capital appreciation
than large cap issuers, investments in smaller or emerging
growth companies may involve greater risks and thus may be
considered speculative. Management believes that properly
selected companies of this type have the potential to increase
their earnings or market valuation at a rate substantially in
excess of the general growth of the economy. However, full
development of these companies and trends frequently takes
time.
The securities of smaller or emerging growth
companies will often be traded only in the over-the-counter (
“OTC”) market or on a regional securities exchange and
may not be traded every day or in the volume typical of trading
on a national securities exchange. As a result, the disposition
by the Fund of portfolio securities to meet redemptions or
otherwise may require the Fund to sell these securities at a
discount from market prices or during periods when in management
’s judgment such disposition is not desirable or to make
many small sales over a lengthy period of time.
While the process of selection and continuous
supervision by management does not, of course, guarantee
successful investment results, it does provide access to an
asset class not available to the average individual
due
to the time and cost involved. Careful initial
selection is particularly important in this area as many new
enterprises have promise but lack certain of the fundamental
factors necessary to prosper. Investing in small and
emerging growth companies requires specialized research and
analysis. In addition, many investors cannot invest sufficient
assets in such companies to provide wide
diversification.
Small companies are generally little known to most
individual investors although some may be dominant in their
respective industries. Management of the Fund believes that
relatively small companies will continue to have the opportunity
to develop into significant business enterprises. The Fund may
invest in securities of small issuers in the relatively early
stages of business development which have a new technology, a
unique or proprietary product or service, or a favorable market
position. Such companies may not be counted upon to develop into
major industrial companies, but management believes that
eventual recognition of their special value characteristics by
the investment community can provide above-average long-term
growth to the portfolio.
Equity securities of specific small cap issuers may
present different opportunities for long-term capital
appreciation during varying portions of economic or securities
markets cycles, as well as during varying stages of their
business development. The market valuation of small cap issuers
tends to fluctuate significantly during economic or market
cycles, presenting attractive investment opportunities at
various points during these cycles.
Smaller companies, due to the size and kinds of
markets that they serve, may be less susceptible than large
companies to intervention from the federal government by means
of price controls, regulations or litigation.
Precious Metal-Related Securities.
The Fund may invest in the equity securities of
companies that explore for, extract, process or deal in precious
metals, i.e., gold, silver and platinum, and in
asset-based securities indexed to the value of such metals. Such
securities may be purchased when they are believed to be
attractively priced in relation to the value of a company’s
precious metal-related assets or when the values of precious
metals are expected to benefit from inflationary pressure or
other economic, political or financial uncertainty or
instability. Based on historical experience, during periods of
economic or financial instability the securities of companies
involved in precious metals may be subject to extreme price
fluctuations, reflecting the high volatility of precious metal
prices during such periods. In addition, the instability of
precious metal prices may result in volatile earnings of
precious metal-related companies which, in turn, may affect
adversely the financial condition of such companies.
The major producers of gold include the Republic of
South Africa, Russia, Canada, the United States, Brazil and
Australia. Sales of gold by Russia are largely unpredictable and
often relate to political and economic considerations rather
than to market forces. Economic, financial, social and political
factors within South Africa may significantly affect South
African gold production.
The Fund may also invest in debt securities,
preferred stock or convertible securities, the principal amount,
redemption terms or conversion terms of which are related to the
market price of some precious metals such as gold bullion. These
securities are referred to herein as “asset-based
securities.” The Fund will purchase only asset-based
securities which are rated, or are issued by issuers that have
outstanding debt obligations rated, BBB or better by Standard
& Poor’s (“Standard & Poor’s”) or
Baa or better by Moody’s Investors Service, Inc. (
“Moody’s”) or commercial paper rated A-1 by
Standard & Poor’s or Prime-1 by Moody’s or of
issuers that the Manager has determined to be of similar
creditworthiness. If the asset-based security is backed by a
bank letter of credit or other similar facility, the Manager may
take such backing into account in determining the
creditworthiness of the issuer. While the market prices for an
asset-based security and the related natural resource asset
generally are expected to move in the same direction, there may
not be perfect correlation in the two price movements.
Asset-based securities may not be secured by a security interest
in or claim on the underlying natural resource asset. The
asset-based securities in which the Fund may invest may bear
interest or pay preferred dividends at below market (or even at
relatively nominal) rates. As an example, assume gold is selling
at a market price of $300 per ounce and an issuer sells a $1,000
face amount gold-related note with a seven year maturity,
payable at maturity at the greater of either $1,000 in cash or
the then market price of three ounces of gold. If at maturity,
the market price of gold is $400 per ounce, the amount payable
on the note would be $1,200. Certain asset-based securities may
be payable at maturity in cash at the stated principal amount
or, at the option of the holder, directly in a stated amount of
the asset to which it is related. In such instance, because the
Fund presently
does not intend to invest directly in natural resource assets, the
Fund would sell the asset-based security in the secondary
market, to the extent one exists, prior to maturity if the value
of the stated amount of the asset exceeds the stated principal
amount and thereby realize the appreciation in the underlying
asset.
Real Estate Related Securities.
Although the Fund does not invest directly in real
estate, it does invest in equity securities of issuers that are
principally engaged in the real estate industry. Therefore, an
investment in the Fund is subject to certain risks associated
with the ownership of real estate and with the real estate
industry in general. These risks include, among others: possible
declines in the value of real estate; risks related to general
and local economic conditions; possible lack of availability of
mortgage funds or other limitations on access to capital;
overbuilding; risks associated with leverage; market
illiquidity; extended vacancies of properties; increase in
competition, property taxes, capital expenditures and operating
expenses; changes in zoning laws or other governmental
regulation; costs resulting from the clean-up of, and liability
to third parties for damages resulting from, environmental
problems; tenant bankruptcies or other credit problems; casualty
or condemnation losses; uninsured damages from floods,
earthquakes or other natural disasters; limitations on and
variations in rents, including decreases in market rates for
rents; investment in developments that are not completed or that
are subject to delays in completion; and changes in interest
rates. To the extent that assets underlying the Fund’s
investments are concentrated geographically, by property type or
in certain other respects, the Fund may be subject to certain of
the foregoing risks to a greater extent. Investments by the Fund
in securities of companies providing mortgage servicing will be
subject to the risks associated with refinancings and their
impact on servicing rights.
In addition, if the Fund receives rental income or
income from the disposition of real property acquired as a
result of a default on securities the Fund owns, the receipt of
such income may adversely affect the Fund’s ability to
retain its tax status as a regulated investment company because
of certain income source requirements applicable to regulated
investment companies under the Internal Revenue Code of 1986, as
amended (the “Code”).
Real Estate Investment Trusts (“REITs
”). Investing in REITs involves
certain unique risks in addition to those risks associated with
investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying
property owned by the REITs, while mortgage REITs may be
affected by the quality of any credit extended. REITs are
dependent upon management skills, may not be diversified
geographically or by property type, and are subject to heavy
cash flow dependency, default by borrowers and self-liquidation.
REITs must also meet certain requirements under the Code to
avoid entity level tax and be eligible to pass-through certain
tax attributes of their income to shareholders. REITs are
consequently subject to the risk of failing to meet these
requirements for favorable tax treatment and failing to maintain
their exemptions from registration under the Investment Company
Act of 1940. REITs are also subject to changes in the Code,
including changes involving their tax status.
REITs (especially mortgage REITS) are also subject
to interest rate risks. When interest rates decline, the value
of a REIT’s investment in fixed rate obligations can be
expected to rise. Conversely, when interest rates rise, the
value of a REIT’s investment in fixed rate obligations can
be expected to decline. In contrast, as interest rates on
adjustable rate mortgage loans are reset periodically, yields on
a REIT’s investments in such loans will gradually align
themselves to reflect changes in market interest rates, causing
the value of such investments to fluctuate less dramatically in
response to interest rate fluctuations than would investments in
fixed rate obligations.
Investing in REITs involves risks similar to those
associated with investing in small capitalization companies,
REITs may have limited financial resources, may trade less
frequently and in limited volume and may be subject to more
abrupt or erratic price movements than larger company
securities. Historically, small capitalization stocks, such as
REITs, have been more volatile in price than the larger
capitalization stocks included in the S&P Index of 500
Common Stocks. The management of a REIT may be subject to
conflicts of interest with respect to the operation of the
business of the REIT and may be involved in real estate
activities competitive with the REIT. REITs may own properties
through joint ventures or in other circumstances in which the
REIT may not have control over its investments. REITs may incur
significant amounts of leverage.
Warrants. Buying a
warrant does not make the Fund a shareholder of the underlying
stock. The warrant holder has no right to dividends or votes on
the underlying stock. A warrant does not carry any right to
assets of the issuer, and for this reason investments in
warrants may be more speculative than other equity-based
investments.
The net asset value of the Fund’s shares, to
the extent the Fund invests in fixed income securities, will be
affected by changes in the general level of interest rates. When
interest rates decline, the value of a portfolio of fixed income
securities can be expected to rise. Conversely, when interest
rates rise, the value of a portfolio of fixed income securities
can be expected to decline.
The debt securities in which the Fund may invest
include securities issued or guaranteed by the U.S. Government
and its agencies or instrumentalities, by foreign governments
(including foreign states, provinces and municipalities) and
agencies or instrumentalities thereof and debt obligations
issued by U.S. and foreign entities. Such securities may include
mortgage-backed securities issued or guaranteed by governmental
entities or by private issuers. In addition, the Fund may invest
in debt securities issued or guaranteed by international
organizations designed or supported by multiple governmental
entities (which are not obligations of the U.S. Government or
foreign governments) to promote economic reconstruction or
development (“supranational entities”), such as the
International Bank for Reconstruction and Development (the
“World Bank”).
U.S. Government securities include: (i) U.S.
Treasury obligations (bills, notes and bonds), which differ in
their interest rates, maturities and times of issuance, all of
which are backed by the full faith and credit of the United
States; 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).
The obligations of foreign governmental entities
have various kinds of government support and include obligations
issued or guaranteed by foreign governmental entities with
taxing power. These obligations may or may not be supported by
the full faith and credit of a foreign government. The Fund will
invest in foreign government securities of issuers considered
stable by the Manager. The Manager does not believe that the
credit risk inherent in the obligations of stable foreign
governments is significantly greater than that of U.S.
Government securities.
The Fund has not established any rating criteria for
the fixed income securities in which it may invest. The Fund is
authorized to invest in debt securities of governmental issuers
and of corporate issuers, including convertible debt securities,
rated BBB or better by Standard & Poor’s or Baa or
better by Moody’s or which, in the Manager’s judgment,
possess similar credit characteristics (“investment grade
bonds”). Debt securities ranked in the fourth highest
rating category, while considered “investment grade,”
have more speculative characteristics and are more likely to be
downgraded than securities rated in the three highest rating
categories. The Manager considers the ratings assigned by
Standard & Poor’s and Moody’s as one of several
factors in its independent credit analysis of
issuers.
The average maturity of the Fund’s portfolio of
debt securities will vary based on the Manager’s assessment
of pertinent economic market conditions. As with all debt
securities, changes in market yields will affect the value of
such securities. Prices generally increase when interest rates
decline and decrease when interest rates rise. Prices of longer
term securities generally fluctuate more in response to interest
rate changes than do shorter term securities.
Mortgage-Backed Securities.
Mortgage-backed securities are “pass-through”
securities, meaning that principal and interest payments made by
the borrower on the underlying mortgages are passed through to
the
Fund. The value of mortgage-backed securities, like that of
traditional fixed-income securities, typically increases when
interest rates fall and decreases when interest rates rise.
However, mortgage-backed securities differ from traditional
fixed-income securities because of their potential for
prepayment without penalty. The price paid by the Fund for its
mortgage-backed securities, the yield the Fund expects to
receive from such securities and the average life of the
securities are based on a number of factors, including the
anticipated rate of prepayment of the underlying mortgages. In a
period of declining interest rates, borrowers may prepay the
underlying mortgages more quickly than anticipated, thereby
reducing the yield to maturity and the average life of the
mortgage-backed securities. Moreover, when the Fund reinvests
the proceeds of a prepayment in these circumstances, it will
likely receive a rate of interest that is lower than the rate on
the security that was prepaid.
To the extent that the Fund purchases
mortgage-backed securities at a premium, mortgage foreclosures
and principal prepayments may result in a loss to the extent of
the premium paid. If the Fund buys such securities at a
discount, both scheduled payments of principal and unscheduled
prepayments will increase current and total returns and will
accelerate the recognition of income which, when distributed to
shareholders, will be taxable as ordinary income. In a period of
rising interest rates, prepayments of the underlying mortgages
may occur at a slower than expected rate, creating maturity
extension risk. This particular risk may effectively change a
security that was considered short- or intermediate-term at the
time of purchase into a long-term security. Since long-term
securities generally fluctuate more widely in response to
changes in interest rates than do short-term securities,
maturity extension risk could increase the inherent volatility
of the Fund.
High Yield/High Risk Securities (Junk Bonds).
Investments in high yield/high risk
securities will be made only when, in the judgment of the
Manager, such securities provide attractive total return
potential, relative to the risk of such securities, as compared
to higher quality debt securities. Securities rated BB or lower
by Standard & Poor’s or Ba or lower by Moody’s are
considered by those rating agencies to have varying degrees of
speculative characteristics. The Fund’s Board of Directors
has adopted a policy that the Fund will not invest more than 35%
of its assets in obligations rated below Baa or BBB by Moody
’s or Standard & Poor’s, respectively. The Fund
will not invest in debt securities in the lowest rating
categories (CC or lower for Standard & Poor’s or Ca or
lower for Moody’s) unless the Manager believes that the
financial condition of the issuer or the protection afforded the
particular securities is stronger than would otherwise be
indicated by such low ratings. Although the Fund may invest in
preferred stock rated below investment grade, an investment in
an equity security such as preferred stock is not subject to the
above noted percentage restriction applicable to the Fund’s
investments in non-investment grade debt securities.
Although junk bonds generally pay higher rates of
interest than investment grade bonds, they are high-risk
investments that may cause income and principal losses for the
Fund. The major risks in junk bond investments
include:
Junk bonds may be issued by less creditworthy
companies. These securities are vulnerable to adverse changes in
the issuer’s industry and to general economic conditions.
Issuers of junk bonds may be unable to meet their interest or
principal payment obligations because of an economic downturn,
specific issuer developments or the unavailability of additional
financing.
The issuers of junk bonds may have a larger amount
of outstanding debt relative to their assets than issuers of
investment grade bonds. If the issuer experiences financial
stress, it may be unable to meet its debt obligations. The issuer
’s ability to pay its debt obligations also may be lessened
by specific issuer developments or the unavailability of
additional financing.
Junk bonds are frequently ranked junior to claims of
other creditors. If the issuer cannot meet its obligations, the
senior obligations are generally paid off before the junior
obligations.
Junk bonds frequently have redemption features that
permit an issuer to repurchase the security from the Fund before
it matures. If the issuer redeems the junk bonds the Fund may
have to invest the proceeds in bonds with lower yields and may
lose income.
Prices of junk bonds are subject to extreme price
fluctuations. Negative economic developments may have a greater
impact on the prices of junk bonds than on other higher rated
fixed income securities.
Junk bonds may be less liquid than higher rated
fixed income securities even under normal economic conditions.
There are fewer dealers in the junk bond market, and there may
be significant differences in the prices quoted for junk bonds
by the dealers. Because they are less liquid, judgment may play
a greater role in valuing certain of the Fund’s portfolio
securities than would be the case with securities trading in a
more liquid market.
The Fund may incur expenses to the extent necessary
to seek recovery upon default or to negotiate new terms with a
defaulting issuer.
Within the 35% limitation with respect to investment
in high yield/high risk securities, the Fund may purchase in the
secondary market senior collateralized loans and senior
unsecured loans made by banks or other financial institutions
(the “Corporate Loans”). The Corporate Loans in which
the Fund invests primarily consist of direct obligations of U.S.
or non-U.S. corporations undertaken to finance the growth of
that corporation’s business or to finance a capital
restructuring. The Fund may invest in a Corporate Loan by, among
other means, acquiring participations in, assignments of or
novations of a Corporate Loan in the secondary market. Certain
of the Corporate Loans in which the Fund may invest may be the
subject of bankruptcy proceedings or otherwise in default as to
the repayment of principal and/or payment of interest at the
time of acquisition by the Fund.
Distressed Securities.
Within the 35% investment limitation described above, the
Fund may invest in securities, including Corporate Loans
purchased in the secondary market, which are the subject of
bankruptcy proceedings or otherwise in default as to the
repayment of principal and/or interest at the time of
acquisition by the Fund or are rated in the lower rating
categories (Ca or lower by Moody’s and CC or lower by
Standard & Poor’s) or which, if unrated, are in the
judgment of the Manager of equivalent quality (“Distressed
Securities”). Investment in Distressed Securities is
speculative and involves significant risks.
The Fund will generally make such investments only
when the Manager believes it is reasonably likely that the
issuer of the Distressed Securities will make an exchange offer
or will be the subject of a plan of reorganization pursuant to
which the Fund will receive new securities. However, there can
be no assurance that such an exchange offer will be made or that
such a plan of reorganization will be adopted. In addition, a
significant period of time may pass between the time at which
the Fund makes its investment in Distressed Securities and the
time that any such exchange offer or plan of reorganization is
completed. During this period, it is unlikely that the Fund will
receive any interest payments on the Distressed Securities, the
Fund will be subject to significant uncertainty as to whether or
not the exchange offer or plan of reorganization will be
completed and the Fund may be required to bear certain
extraordinary expenses to protect and recover its investment.
Even if an exchange offer is made or plan of reorganization is
adopted with respect to Distressed Securities held by the Fund,
there can be no assurance that the securities or other assets
received by the Fund in connection with such exchange offer or
plan of reorganization will not have a lower value or income
potential than may have been anticipated when the investment was
made. Moreover, any securities received by the Fund upon
completion of an exchange offer or plan of reorganization may be
restricted as to resale. As a result of the Fund’s
participation in negotiations with respect to any exchange offer
or plan of reorganization with respect to an issuer of
Distressed Securities, the Fund may be restricted from disposing
of such securities. The Fund generally will not invest more than
5% of its total assets in Distressed Securities.
Sovereign Debt.
Investment in sovereign debt involves a high degree of
risk. The governmental entity that controls the repayment of
sovereign debt may not be able or willing to repay the principal
and/or interest when due in accordance with the terms of such
debt. A governmental entity’s willingness or ability to
repay principal and interest due in a timely manner may be
affected by, among other factors, its cash flow situation, the
extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size
of the debt service burden to the economy as a whole, the
governmental entity’s policy towards the International
Monetary Fund and the political constraints to which a
governmental entity may be subject. Governmental entities may
also be dependent on expected disbursements from foreign
governments, multilateral
agencies and others abroad to reduce principal and interest
arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may
be conditioned on a governmental entity’s implementation of
economic reforms and/or economic performance and the timely
service of such debtor’s obligations. Failure to implement
such reforms, achieve such levels of economic performance or
repay principal or interest when due may result in the
cancellation of such third parties’ commitments to lend
funds to the governmental entity, which may further impair such
debtor’s ability or willingness to timely service its
debts. Consequently, governmental entities may default on their
sovereign debt.
Holders of sovereign debt may be requested to
participate in the rescheduling of such debt and to extend
further loans to governmental entities. In the event of a
default by a governmental entity, there may be few or no
effective legal remedies available to a Fund and there can be no
assurance a Fund will be able to collect on defaulted sovereign
debt in whole or in part.
Convertible securities entitle the holder to receive
interest paid on corporate debt securities or the dividend
preference on a preferred stock until such time as the
convertible security matures or is redeemed or until the holder
elects to exercise the conversion privilege.
The characteristics of convertible securities make
them appropriate investments for an investment company seeking
high total return from capital appreciation and investment
income. These characteristics include the potential for capital
appreciation as the value of the underlying common stock
increases, the relatively high yield received from dividend or
interest payments as compared to common stock dividends and
decreased risks of decline in value relative to the underlying
common stock due to their fixed income nature. As a result of
the conversion feature, however, the interest rate or dividend
preference on a convertible security is generally less than
would be the case if the securities were issued in
nonconvertible form.
In analyzing convertible securities, the Manager
will consider both the yield on the convertible security and the
potential capital appreciation that is offered by the underlying
common stock.
Convertible securities are issued and traded in a
number of securities markets. For the past several years, the
principal markets have been the United States, the Euromarket
and Japan. Issuers during this period have included major
corporations domiciled in the United States, Japan, France,
Switzerland, Canada and the United Kingdom. Even in cases where
a substantial portion of the convertible securities held by the
Fund are denominated in United States dollars, the underlying
equity securities may be quoted in the currency of the country
where the issuer is domiciled. With respect to convertible
securities denominated in a currency different from that of the
underlying equity securities, the conversion price may be based
on a fixed exchange rate established at the time the security is
issued. As a result, fluctuations in the exchange rate between
the currency in which the debt security is denominated and the
currency in which the share price is quoted will affect the
value of the convertible security. As described below, the Fund
is authorized to enter into foreign currency hedging
transactions in which it may seek to reduce the effect of such
fluctuations.
Apart from currency considerations, the value of
convertible securities is influenced by both the yield of
nonconvertible securities of comparable issuers and by the value
of the underlying common stock. The value of a convertible
security viewed without regard to its conversion feature
(i.e., strictly on the basis of its yield) is sometimes
referred to as its “investment value.” To the extent
interest rates change, the investment value of the convertible
security typically will fluctuate. However, at the same time,
the value of the convertible security will be influenced by its
“conversion value,” which is the market value of the
underlying common stock that would be obtained if the
convertible security were converted. Conversion value fluctuates
directly with the price of the underlying common stock. If,
because of a low price of the common stock the conversion value
is substantially below the investment value of the convertible
security, the price of the convertible security will be governed
principally by its investment value.
To the extent the conversion value of a
convertible security increases to a point that approximates or
exceeds its investment value, the price of the convertible
security will be influenced principally by its conversion value.
A convertible security will sell at a premium over the
conversion value to the extent investors place value on the
right to acquire the underlying common stock while holding a
fixed income security. The yield and conversion premium of
convertible securities issued in Japan and the Euromarket are
frequently determined at levels that cause the conversion value
to affect their market value more than the securities’
investment value.
Holders of convertible securities generally have a
claim on the assets of the issuer prior to the common
stockholders but may be subordinated to other debt securities of
the same issuer. A convertible security may be subject to
redemption at the option of the issuer at a price established in
the charter provision, indenture or other governing instrument
pursuant to which the convertible security was issued. If a
convertible security held by the Fund is called for redemption,
the Fund will be required to redeem the security, convert it
into the underlying common stock or sell it to a third party.
Certain convertible debt securities may provide a put option to
the holder which entitles the holder to cause the security to be
redeemed by the issuer at a premium over the stated principal
amount of the debt security under certain
circumstances.
Money market securities in which the Fund may invest
consist of short-term securities issued or guaranteed by the
U.S. Government and its agencies and instrumentalities;
commercial paper, including variable amount master demand notes,
rated at least “A” by Standard & Poor’s 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).
As a global fund, the Fund may invest in U.S. and
foreign securities. Investments in securities of foreign
entities and securities denominated in foreign currencies
involve risks not typically involved in domestic investment,
including, but not limited to, fluctuations in foreign exchange
rates, future foreign political and economic developments, and
the possible imposition of exchange controls or other foreign or
U.S. governmental laws or restrictions applicable to such
investments. Since the Fund may invest in securities denominated
or quoted in currencies other than the U.S. dollar, changes in
foreign currency exchange rates may affect the value of
investments in the portfolio and the unrealized appreciation or
depreciation of investments insofar as U.S. investors are
concerned. Changes in foreign currency exchange rates relative
to the U.S. dollar will affect the U.S. dollar value of the Fund
’s assets denominated in those currencies and the Fund
’s yield on such assets. Foreign currency exchange rates
are determined by forces of supply and demand on the foreign
exchange markets. These forces are, in turn, affected by the
international balance of payments and other economic and
financial conditions, government intervention, speculation and
other factors. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects
as growth of gross national product, rate of inflation, capital
reinvestment, resources, self-sufficiency and balance of
payments position.
With respect to certain foreign countries, there is
the possibility of expropriation of assets, confiscatory
taxation, political or social instability or diplomatic
developments that could affect investment in those countries.
There may be less publicly available information about a foreign
financial instrument than about a U.S. instrument, and foreign
entities may not be subject to accounting, auditing and
financial reporting standards and requirements comparable to
those to which U.S. entities are subject. In addition, certain
foreign investments may be subject to foreign withholding taxes.
Investors may be able to deduct such taxes in computing their
taxable income or to use such amounts as credits against their
U.S. income taxes if certain requirements are met. See
“Taxes.” Foreign financial markets, while generally
growing in volume, typically have substantially less volume
than U.S. markets, and securities of many foreign companies are
less liquid and their prices more volatile than securities of
comparable domestic companies. Foreign markets also have
different clearance and settlement procedures and in certain
markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making
it difficult to conduct such transactions. Delays or other
problems in settlement could result in temporary periods when
assets of the Fund are uninvested and no return is earned
thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose
of portfolio securities due to settlement problems could result
either in losses to the Fund due to subsequent declines in value
of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the
purchaser. Brokerage commissions and costs associated with
transactions in foreign securities are generally higher than
with transactions in U.S. securities. There is generally less
government supervision and regulation of exchanges, financial
institutions and issuers in foreign countries than there is in
the United States. For example, there may be no provisions under
certain foreign laws comparable to insider trading and similar
investor protection provisions of the securities laws that apply
with respect to securities transactions consummated in the
United States.
The operating expense ratio of the Fund can be
expected to be higher than that of an investment company
investing exclusively in U.S. securities because the expenses of
the Fund, such as custodial costs, are higher.
The Fund’s ability and decisions to purchase or
sell portfolio securities may be affected by laws or regulations
relating to the convertibility and repatriation of assets.
Because the shares of the Fund are redeemable on a daily basis
on each day the Fund determines its net asset value in U.S.
dollars, the Fund intends to manage its portfolio so as to give
reasonable assurance that it will be able to obtain U.S. dollars
to the extent necessary to meet anticipated redemptions. See
“Redemption of Shares.” Under present conditions, the
Manager does not believe that these considerations will have any
significant effect on its portfolio strategy, although there can
be no assurance in this regard.
European Economic and Monetary Union (“EMU”).
For a number of years, certain European
countries have been seeking economic unification that would,
among other things, reduce barriers between countries, increase
competition among companies, reduce government subsidies in
certain industries, and reduce or eliminate currency
fluctuations among these European countries. The Treaty on
European Union (the “Maastricht Treaty”) set out a
framework for the European Economic and Monetary Union (“EMU
”) among the countries that comprise the European Union (
“EU”). EMU established a single common European
currency (the “euro”) that was introduced on January
1, 1999 and is expected to replace the existing national
currencies of all EMU participants by July 1, 2002. EMU took
effect for the initial EMU participants on January 1, 1999.
Certain securities issued in participating EU countries
(beginning with government and corporate bonds) were
redenominated in the euro, and are listed, traded, and make
dividend and other payments only in euros.
No assurance can be given that EMU will take effect,
that all the changes planned for the EU can be successfully
implemented or that these changes will result in the economic
and monetary unity and stability intended. There is a
possibility that EMU will not be completed, or will be completed
but then partially or completely unwound. Because any
participating country may opt out of EMU within the first three
years, it is also possible that a significant participant could
choose to abandon EMU, which could diminish its credibility and
influence. Any of these occurrences could have adverse effects
on the markets of both participating and non-participating
countries, including sharp appreciation or depreciation of the
participants’ national currencies and a significant
increase in exchange rate volatility, a resurgence in economic
protectionism, an undermining of confidence in the European
markets, an undermining of European economic stability, the
collapse or slowdown of the drive toward European economic
unity, and/or reversion of the attempts to lower government debt
and inflation rates that were introduced in anticipation of EMU.
Also, withdrawal from EMU by an initial participant could cause
disruption of the financial markets as securities redenominated
in euros are transferred back into that country’s national
currency, particularly if the withdrawing country is a major
economic power. Such developments could have an adverse impact
on the Fund’s investments in Europe generally or in specific
countries participating in EMU. Gains or losses from euro
conversion may be taxable to Fund shareholders under foreign or,
in certain limited circumstances, U.S. tax laws.
Portfolio Strategies Involving Derivatives
The Fund may engage in various portfolio strategies
involving derivatives to seek to increase its return through the
use of options on portfolio securities and to hedge its
portfolio against adverse effects from movements in interest
rates or in the equity, debt and currency markets. Derivatives
are financial instruments the value of which is derived from
another security, a commodity (such as gold or oil) or an index
(a measure of value or rates, such as the Standard & Poor
’s Composite 500 Index or the prime lending rate).
Derivatives allow the Fund to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently
than transactions in other types of instruments.
The Fund has authority to write (i.e., sell) covered
put and call options on its portfolio securities, purchase put
and call options on securities and engage in transactions in
stock index options, stock index futures and stock futures and
financial futures, and related options on such futures. The Fund
may also deal in forward foreign exchange transactions and
foreign currency options and futures, and related options on
such futures. Each of these portfolio strategies is described
below. Although certain risks are involved in options and
futures transactions (as discussed in the Prospectus and below),
the Manager believes that, because the Fund will (i) write only
covered options on portfolio securities either owned by the Fund
or which the Fund will receive upon immediate conversion or
exchange of securities owned by the Fund and (ii) engage in
other options and futures transactions for hedging purposes, the
options and futures portfolio strategies of the Fund will not
subject the Fund to the risks frequently associated with the
speculative use of options and futures transactions.
Hedging. The Fund may
use derivatives for hedging purposes. Hedging is a strategy in
which a derivative is used to offset the risk that other Fund
holdings may decrease in value. Losses on the other investment
may be substantially reduced by gains on a derivative that
reacts in an opposite manner to market movements. While hedging
can reduce losses, it can also reduce or eliminate gains if the
market moves in a different manner than anticipated by the Fund
or if the cost of the derivative outweighs the benefit of the
hedge. Hedging also involves the risk that changes in the value
of the derivative will not match those of the holdings being
hedged as expected by the Fund, in which case any losses on the
holdings being hedged may not be reduced.
There can be no assurance that the Fund’s
hedging transactions will be effective. Furthermore, the Fund
will only engage in hedging activities from time to time and may
not necessarily be engaging in hedging activities when movements
in interest rates or in the equity, debt and currency markets
occur.
The Fund may use the following types of derivative
instruments and trading strategies:
Indexed and Inverse Floating Rate Securities.
The Fund may invest in securities
the potential return of which is based on an index. As an
illustration, the Fund may invest in a debt security that pays
interest based on the current value of an interest rate index,
such as the prime rate. The Fund may also invest in a debt
security which returns principal at maturity based on the level
of a securities index or a basket of securities, or based on the
relative changes of two indices. In addition, the Fund may
invest in securities the potential return of which is based
inversely on the change in an index (that is, a security the
value of which will move in the opposite direction of changes to
an index). For example, the Fund may invest in securities that
pay a higher rate of interest when a particular index decreases
and pay a lower rate of interest (or do not fully return
principal) when the value of the index increases. If the Fund
invests in such securities, it may be subject to reduced or
eliminated interest payments or loss of principal in the event
of an adverse movement in the relevant index or indices. Indexed
and inverse securities involve credit risk, and certain indexed
and inverse securities may involve leverage risk, liquidity risk
and currency risk. The Fund may invest in indexed and inverse
securities for both hedging and speculative purposes. When used
for hedging purposes, indexed and inverse securities involve
correlation risk.
|
Options on Securities and Securities
Indices
|
Purchasing Put Options.
The Fund may purchase put options on securities held in
its portfolio or securities or interest rate indices which are
correlated with securities held in its portfolio. When the Fund
purchases a put option, in consideration for an up front payment
(the “option premium”) the Fund acquires a right to
sell to another party specified securities owned by the Fund at
a specified price (the “exercise price”) on or before
a specified date (the “expiration date”), in the case
of an option on securities, or to receive from another party a
payment based on the amount a specified securities index
declines below a specified level on or before the expiration
date, in the case of an option on a securities index. The
purchase of a put option limits the Fund’s risk of loss in
the event of a decline in the market value of the portfolio
holdings underlying the put option prior to the option’s
expiration date. If the market value of the portfolio holdings
associated with the put option increases rather than decreases,
however, the Fund will lose the option premium and will
consequently realize a lower return on the portfolio holdings
than would have been realized without the purchase of the put.
Purchasing a put option may involve correlation risk, and may
also involve liquidity and credit risk.
Purchasing Call Options.
The Fund may also purchase call options on securities
it intends to purchase or securities or interest rate indices,
which are correlated with the types of securities it intends to
purchase. When the Fund purchases a call option, in
consideration for the option premium the Fund acquires a right
to purchase from another party specified securities at the
exercise price on or before the expiration date, in the case of
an option on securities, or to receive from another party a
payment based on the amount a specified securities index
increases beyond a specified level on or before the expiration
date, in the case of an option on a securities index. The
purchase of a call option may protect the Fund from having to
pay more for a security as a consequence of increases in the
market value for the security during a period when the Fund is
contemplating its purchase, in the case of an option on a
security, or attempting to identify specific securities in which
to invest in a market the Fund believes to be attractive, in the
case of an option on an index (an “anticipatory hedge
”). In the event the Fund determines not to purchase a
security underlying a call option, however, the Fund may lose
the entire option premium. Purchasing a call option involves
correlation risk, and may also involve liquidity and credit
risk.
The Fund will not purchase options on securities
(including stock index options) if, as a result of such
purchase, the aggregate cost (premiums paid) of all outstanding
options on securities held by the Fund would exceed 5% of the
market value of the Fund’s total assets.
Writing Call Options.
The Fund may write (i.e., sell) call options on
securities held in its portfolio or securities indices the
performance of which correlates with securities held in its
portfolio. When the Fund writes a call option, in return for an
option premium, the Fund gives another party the right to buy
specified securities owned by the Fund at the exercise price on
or before the expiration date, in the case of an option on
securities, or agrees to pay to another party an amount based on
any gain in a specified securities index beyond a specified
level on or before the expiration date, in the case of an option
on a securities index. The Fund may write call options to earn
income, through the receipt of option premiums. In the event the
party to which the Fund has written an option fails to exercise
its rights under the option because the value of the underlying
securities is less than the exercise price, the Fund will
partially offset any decline in the value of the underlying
securities through the receipt of the option premium. By writing
a call option, however, the Fund limits its ability to sell the
underlying securities, and gives up the opportunity to profit
from any increase in the value of the underlying securities
beyond the exercise price, while the option remains outstanding.
Writing a call option may involve correlation risk.
Writing Put Options.
The Fund may also write put options on securities or
securities indices. When the Fund writes a put option, in return
for an option premium the Fund gives another party the right to
sell to the Fund a specified security at the exercise price on
or before the expiration date, in the case of an option on a
security, or agrees to pay to another party an amount based on
any decline in a specified securities index below a specified
level on or before the expiration date, in the case of an option
on a securities index. The Fund may write put options to earn
income, through the receipt of option premiums. In the event the
party to which the Fund has written an option fails to exercise
its rights under the option because the value of the underlying
securities is greater than the exercise price, the Fund will
profit by the amount of the option premium. By writing a put
option, however, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the
market value of the security at the time of exercise as long as
the put option is outstanding, in the case of an option on a
security, or make a cash payment reflecting any decline in the
index, in the case of an option on an index. Accordingly, when
the Fund writes a put option it is exposed to a risk of loss in
the event the value of the underlying securities falls below the
exercise price, which loss potentially may substantially exceed
the amount of option premium received by the Fund for writing
the put option. The Fund will write a put option on a security
or a securities index only if the Fund would be willing to
purchase the security at the exercise price for investment
purposes (in the case of an option on a security) or is writing
the put in connection with trading strategies involving
combinations of options—for example, the sale and purchase
of options with identical expiration dates on the same security
or index but different exercise prices (a technique called a
“spread”). Writing a put option may involve
substantial leverage risk.
The Fund is also authorized to sell call or put
options in connection with closing out call or put options it
has previously purchased.
Other than with respect to closing transactions, the
Fund will only write call or put options that are “covered.
” A call or put option will be considered covered if the
Fund has segregated assets with respect to such option in the
manner described in “Risk Factors in Derivatives.” A
call option will also be considered covered if the Fund owns the
securities it would be required to deliver upon exercise of the
option (or, in the case of an option on a securities index,
securities which substantially correlate with the performance of
such index) or owns a call option, warrant or convertible
instrument which is immediately exercisable for, or convertible
into, such security.
Types of Options. The
Fund may engage in transactions in options on securities or
securities indices on exchanges and in the OTC markets. In
general, exchange-traded options have standardized exercise
prices and expiration dates and require the parties to post
margin against their obligations, and the performance of the
parties’ obligations in connection with such options is
guaranteed by the exchange or a related clearing corporation.
OTC options have more flexible terms negotiated between the
buyer and the seller, but generally do not require the parties
to post margin and are subject to greater credit risk. OTC
options also involve greater liquidity risk. See
“Additional Risk Factors of OTC Transactions; Limitations
on the Use of OTC Derivatives” below.
The Fund may engage in transactions in futures and
options thereon. Futures are standardized, exchange-traded
contracts which obligate a purchaser to take delivery, and a
seller to make delivery, of a specific amount of an asset at a
specified future date at a specified price. No price is paid
upon entering into a futures contract. Rather, upon purchasing
or selling a futures contract the Fund is required to deposit
collateral (“margin”) equal to a percentage (generally
less than 10%) of the contract value. Each day thereafter until
the futures position is closed, the Fund will pay additional
margin representing any loss experienced as a result of the
futures position the prior day or be entitled to a payment
representing any profit experienced as a result of the futures
position the prior day. Futures involve substantial leverage
risk.
The sale of a futures contract limits the Fund
’s risk of loss through a decline in the market value of
portfolio holdings correlated with the futures contract prior to
the futures contract’s expiration date. In the event the
market value of the portfolio holdings correlated with the
futures contract increases rather than decreases, however, the
Fund will realize a loss on the futures position and a lower
return on the portfolio holdings than would have been realized
without the purchase of the futures contract.
The purchase of a futures contract may protect the
Fund from having to pay more for securities as a consequence of
increases in the market value for such securities during a
period when the Fund was attempting to identify specific
securities in which to invest in a market the Fund believes to
be attractive. In the event that
such securities decline in value or the Fund determines not to
complete an anticipatory hedge transaction relating to a futures
contract, however, the Fund may realize a loss relating to the
futures position.
The Fund will limit transactions in futures and
options on futures to financial futures contracts (i.e.,
contracts for which the underlying asset is a currency or
securities or interest rate index) purchased or sold for hedging
purposes (including anticipatory hedges). The Fund will further
limit transactions in futures and options on futures to the
extent necessary to prevent the Fund from being deemed a
“commodity pool” under regulations of the Commodity
Futures Trading Commission.
The Fund is authorized to enter into equity swap
agreements, which are OTC contracts in which one party agrees to
make periodic payments based on the change in market value of a
specified equity security, basket of equity securities or equity
index in return for periodic payments based on a fixed or
variable interest rate or the change in market value of a
different equity security, basket of equity securities or equity
index. Swap agreements may be used to obtain exposure to an
equity or market without owning or taking physical custody of
securities in circumstances in which direct investment is
restricted by local law or is otherwise impractical.
Swap agreements entail the risk that a party will
default on its payment obligations to the Fund thereunder. The
Fund will seek to lessen the risk to some extent by entering
into a transaction only if the counterparty meets the current
credit requirement for OTC option counterparties. Swap
agreements also bear the risk that the Fund will not be able to
meet its obligation to the counterparty. The Fund, however, will
deposit in a segregated account with its custodian high quality
liquid fixed income instruments or cash or cash equivalents or
other assets permitted to be so segregated by the Commission in
an amount equal to or greater than the market value of the
liabilities under the swap agreement or the amount it would have
cost the Fund initially to make an equivalent direct investment,
plus or minus any amount the Fund is obligated to pay or is to
receive under the swap agreement.
The Fund will enter into an equity swap transaction
only if, immediately following the time the Fund enters into the
transaction, the aggregate notional principal amount of equity
swap transactions to which the Fund is a party would not exceed
5% of the Fund’s net assets.
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Foreign Exchange
Transactions
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The Fund may engage in spot and forward foreign
exchange transactions and currency swaps, purchase and sell
options on currencies and purchase and sell currency futures and
related options thereon (collectively, “Currency Instruments
”) for purposes of hedging against the decline in the value
of currencies in which its portfolio holdings are denominated
against the U.S. dollar.
Forward Foreign Exchange Transactions.
Forward foreign exchange transactions are OTC
contracts to purchase or sell a specified amount of a specified
currency or multinational currency unit at a price and future
date set at the time of the contract. Spot foreign exchange
transactions are similar but require current, rather than
future, settlement. The Fund will enter into foreign exchange
transactions only for purposes of hedging either a specific
transaction or a portfolio position. The Fund may enter into a
foreign exchange transaction for purposes of hedging a specific
transaction by, for example, purchasing a currency needed to
settle a security transaction or selling a currency in which the
Fund has received or anticipates receiving a dividend or
distribution. The Fund may enter into a foreign exchange
transaction for purposes of hedging a portfolio position by
selling forward a currency in which a portfolio position of the
Fund is denominated or by purchasing a currency in which the
Fund anticipates acquiring a portfolio position in the near
future. The Fund may also hedge portfolio positions through
currency swaps, which are transactions in which one currency is
simultaneously bought for a second currency on a spot basis and
sold for the second currency on a forward basis. Forward foreign
exchange transactions involve substantial currency risk, and
also involve credit and liquidity risk.
Currency Futures.
The Fund may also hedge against the decline in the
value of a currency against the U.S. dollar through use of
currency futures or options thereon. Currency futures are
similar to forward foreign exchange transactions except that
futures are standardized, exchange-traded contracts. See
“Futures” above. Currency futures involve substantial
currency risk, and also involve leverage risk.
Currency Options. The
Fund may also hedge against the decline in the value of a
currency against the U.S. dollar through the use of currency
options. Currency options are similar to options on securities,
but in consideration for an option premium the writer of a
currency option is obligated to sell (in the case of a call
option) or purchase (in the case of a put option) a specified
amount of a specified currency on or before the expiration date
for a specified amount of another currency. The Fund may engage
in transactions in options on currencies either on exchanges or
OTC markets. See “Types of Options” above and
“Additional Risk Factors of OTC Transactions; Limitations
on the Use of OTC Derivatives” below. Currency options
involve substantial currency risk, and may also involve credit,
leverage or liquidity risk.
The Fund may not incur potential net liabilities of
more than 20% of its total assets from foreign currency options,
futures or related options.
Limitations on Currency Hedging.
The Fund will not speculate in Currency Instruments.
Accordingly, the Fund will not hedge a currency in excess of the
aggregate market value of the securities which it owns
(including receivables for unsettled securities sales), or has
committed to or anticipates purchasing, which are denominated in
such currency. The Fund may, however, hedge a currency by
entering into a transaction in a Currency Instrument denominated
in a currency other than the currency being hedged (a
“cross-hedge”). The Fund will only enter into a
cross-hedge if the Manager believes that (i) there is a
demonstrable high correlation between the currency in which the
cross-hedge is denominated and the currency being hedged, and
(ii) executing a cross-hedge through the currency in which the
cross-hedge is denominated will be significantly more
cost-effective or provide substantially greater liquidity than
executing a similar hedging transaction by means of the currency
being hedged.
Risk Factors in Hedging Foreign Currency Risks.
Hedging transactions involving
Currency Instruments involve substantial risks, including
correlation risk. While the Fund’s use of Currency
Instruments to effect hedging strategies is intended to reduce
the volatility of the net asset value of the Fund’s shares,
the net asset value of the Fund’s shares will fluctuate.
Moreover, although Currency Instruments will be used with the
intention of hedging against adverse currency movements,
transactions in Currency Instruments involve the risk that
anticipated currency movements will not be accurately predicted
and that the Fund’s hedging strategies will be ineffective.
To the extent that the Fund hedges against anticipated currency
movements which do not occur, the Fund may realize losses, and
decrease its total return, as the result of its hedging
transactions. Furthermore, the Fund will only engage in hedging
activities from time to time and may not be engaging in hedging
activities when movements in currency exchange rates
occur.
It may not be possible for the Fund to hedge against
currency exchange rate movements, even if correctly anticipated,
in the event that (i) the currency exchange rate movement is so
generally anticipated that the Fund is not able to enter into a
hedging transaction at an effective price, or (ii) the currency
exchange rate movement relates to a market with respect to which
Currency Instruments are not available and it is not possible to
engage in effective foreign currency hedging.
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Risk Factors in Derivatives
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Derivatives are volatile and involve significant
risks, including:
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Credit
risk — the risk that the counterparty on a
derivative transaction will be unable to honor its financial
obligation to the Fund.
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Currency
risk — the risk that changes in the
exchange rate between two currencies will adversely affect the
value (in U.S. dollar terms) of an investment.
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Leverage risk — the risk associated with
certain types of investments or trading strategies (such as
borrowing money to increase the amount of investments) that
relatively small market movements may result in large changes
in the value of an investment. Certain investments or trading
strategies that involve leverage can result in losses that
greatly exceed the amount originally invested.
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Liquidity
risk — the risk that certain securities may
be difficult or impossible to sell at the time that the seller
would like or at the price that the seller believes the
security is currently worth.
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Use of derivatives for hedging purposes involves
correlation risk. If the value of the derivative moves more or
less than the value of the hedged instruments the Fund will
experience a gain or loss which will not be completely offset by
movements in the value of the hedged instruments.
The Fund intends to enter into transactions
involving derivatives only if there appears to be a liquid
secondary market for such instruments or, in the case of
illiquid instruments traded in OTC transactions, such
instruments satisfy the criteria set forth below under
“Additional Risk Factors of OTC Transactions; Limitations
on the Use of OTC Derivatives.” However, there can be no
assurance that, at any specific time, either a liquid secondary
market will exist for a derivative or the Fund will otherwise be
able to sell such instrument at an acceptable price. It may
therefore not be possible to close a position in a derivative
without incurring substantial losses, if at all.
Certain transactions in derivatives (such as futures
transactions or sales of put options) involve substantial
leverage risk and may expose the Fund to potential losses, which
exceed the amount originally invested by the Fund. When the Fund
engages in such a transaction, the Fund will deposit in a
segregated account at its custodian liquid securities with a
value at least equal to the Fund’s exposure, on a
mark-to-market basis, to the transaction (as calculated pursuant
to requirements of the Commission). Such segregation will ensure
that the Fund has assets available to satisfy its obligations
with respect to the transaction, but will not limit the Fund
’s exposure to loss.
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Additional Risk Factors of OTC Transactions;
Limitations on the Use of OTC Derivatives
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Certain derivatives traded in OTC markets, including
indexed securities, swaps and OTC options, involve substantial
liquidity risk. The absence of liquidity may make it difficult
or impossible for the Fund to sell such instruments promptly at
an acceptable price. The absence of liquidity may also make it
more difficult for the Fund to ascertain a market value for such
instruments. The Fund will therefore acquire illiquid OTC
instruments (i) if the agreement pursuant to which the
instrument is purchased contains a formula price at which the
instrument may be terminated or sold, or (ii) for which the
Manager anticipates the Fund can receive on each business day at
least two independent bids or offers, unless a quotation from
only one dealer is available, in which case that dealer’s
quotation may be used.
Because derivatives traded in OTC markets are not
guaranteed by an exchange or clearing corporation and generally
do not require payment of margin, to the extent that the Fund
has unrealized gains in such instruments or has deposited
collateral with its counterparty the Fund is at risk that its
counterparty will become bankrupt or otherwise fail to honor its
obligations. The Fund will attempt to minimize the risk that a
counterparty will become bankrupt or otherwise fail to honor its
obligations by engaging in transactions in derivatives traded in
OTC markets only with financial institutions which have
substantial capital or which have provided the Fund with a
third-party guaranty or other credit enhancement.
Other Investment Policies, Practices and Risk
Factors
Securities Lending.
The Fund may lend securities with a value not exceeding
33 1
/3% of its total assets (subject
to investment restriction (4) below). In return, the Fund
receives collateral in an amount equal to at least 100% of the
current market value of the loaned securities in cash or
securities issued or guaranteed by the United States Government.
The Fund receives securities as collateral for the loaned
securities and the Fund and the borrower negotiate a rate for
the loan premium to be received by the Fund for the loaned
securities, which
increases the Fund’s yield. The Fund may receive a flat fee
for its loans. The loans are terminable at any time and the
borrower, after notice, is required to return borrowed
securities within five business days. The Fund may pay
reasonable finder’s, administrative and custodial fees in
connection with its loans. In the event that the borrower
defaults on its obligation to return borrowed securities because
of insolvency or for any other reason, the Fund could experience
delays and costs in gaining access to the collateral and could
suffer a loss to the extent the value of the collateral falls
below the market value of the borrowed securities.
Illiquid or Restricted Securities.
The Fund may invest up to 15% of its net assets in
securities that lack an established secondary trading market or
otherwise are considered illiquid. Liquidity of a security
relates to the ability to dispose easily of the security and the
price to be obtained upon disposition of the security, which may
be less than would be obtained for a comparable more liquid
security. Illiquid securities may trade at a discount from
comparable, more liquid investments. Investment of the Fund
’s assets in illiquid securities may restrict the ability
of the Fund to dispose of its investments in a timely fashion
and for a fair price as well as its ability to take advantage of
market opportunities. The risks associated with illiquidity will
be particularly acute where the Fund’s operations require
cash, such as when the Fund redeems shares or pays dividends,
and could result in the Fund borrowing to meet short-term cash
requirements or incurring capital losses on the sale of illiquid
investments.
The Fund may invest in securities that are not
registered (“restricted securities”) under the
Securities Act of 1933, as amended (the “Securities Act
”). Restricted securities may be sold in private placement
transactions between issuers and purchasers, and may be neither
listed on an exchange nor traded in other established markets.
In many cases, privately placed securities may not be freely
transferable under the laws of the applicable jurisdiction or
due to contractual restrictions on resale. As a result of the
absence of a public trading market, privately placed securities
may be less liquid and more difficult to value than publicly
traded securities. To the extent that privately placed
securities may be resold in privately negotiated transactions,
the prices realized from the sales, due to illiquidity, could be
less than those originally paid by the Fund or less than their
fair market value. In addition, issuers whose securities are not
publicly traded may not be subject to the disclosure and other
investor protection requirements that may be applicable if their
securities were publicly traded. If any privately placed
securities held by the Fund are required to be registered under
the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expenses of
registration. Certain of the Fund’s investments in private
placements may consist of direct investments and may include
investments in smaller, less-seasoned issuers, which may involve
greater risks. These issuers may have limited product lines,
markets or financial resources, or they may be dependent on a
limited management group. In making investments in such
securities, the Fund may obtain access to material nonpublic
information which may restrict the Fund’s ability to
conduct portfolio transactions in such securities.
144A Securities. The
Fund may purchase restricted securities that can be offered and
sold to “qualified institutional buyers” under Rule
144A under the Securities Act. The Board of Directors has
determined to treat as liquid Rule 144A securities that are
either freely tradable in their primary markets offshore or have
been determined to be liquid in accordance with the policies and
procedures adopted by the Fund’s Board. The Board has
adopted guidelines and delegated to the Manager the daily
function of determining and monitoring liquidity of restricted
securities. The Board, however, will retain sufficient oversight
and be ultimately responsible for the determinations. Since it
is not possible to predict with assurance exactly how this
market for restricted securities sold and offered under Rule
144A will continue to develop, the Board of Directors will
carefully monitor the Fund’s investments in these
securities. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent
that qualified institutional buyers become for a time
uninterested in purchasing these securities.
When-Issued Securities, Delayed Delivery
Securities and Forward Commitments.
The Fund may purchase or sell securities that it is
entitled to receive on a when-issued basis. The Fund may also
purchase or sell securities on a delayed delivery basis or
through a forward commitment. These transactions involve the
purchase or sale of securities by the Fund at an established
price with payment and delivery taking place in the future. The
Fund enters into these transactions to obtain what is considered
an advantageous price to the Fund at the time of
entering into the transaction. The Fund has not established any
limit on the percentage of its assets that may be committed in
connection with these transactions. When the Fund purchases
securities in these transactions, the Fund segregates liquid
securities in an amount equal to the amount of its purchase
commitments.
There can be no assurance that a security purchased
on a when-issued basis will be issued or that a security
purchased or sold through a forward commitment will be
delivered. The value of securities in these transactions on the
delivery date may be more or less than the Fund’s purchase
price. The Fund may bear the risk of a decline in the value of
the security in these transactions and may not benefit from an
appreciation in the value of the security during the commitment
period.
Standby Commitment Agreements.
The Fund may enter into standby commitment
agreements. These agreements commit the Fund, for a stated
period of time, to purchase a stated amount of securities which
may be issued and sold to the Fund at the option of the issuer.
The price of the security is fixed at the time of the
commitment. At the time of entering into the agreement the Fund
is paid a commitment fee, regardless of whether or not the
security is ultimately issued. The Fund will enter into such
agreements for the purpose of investing in the security
underlying the commitment at a price that is considered
advantageous to the Fund. The Fund will not enter into a standby
commitment with a remaining term in excess of 90 days and will
limit its investment in such commitments so that the aggregate
purchase price of securities subject to such commitments,
together with the value of portfolio securities subject to legal
restrictions on resale that affect their marketability, will not
exceed 15% of its net assets taken at the time of the
commitment. The Fund segregates liquid assets in an aggregate
amount equal to the purchase price of the securities underlying
the commitment.
There can be no assurance that the securities
subject to a standby commitment will be issued, and the value of
the security, if issued, on the delivery date may be more or
less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the
Fund may bear the risk of a decline in the value of such
security and may not benefit from an appreciation in the value
of the security during the commitment period.
The purchase of a security subject to a standby
commitment agreement and the related commitment fee will be
recorded on the date on which the security can reasonably be
expected to be issued, and the value of the security thereafter
will be reflected in the calculation of the Fund’s net
asset value. The cost basis of the security will be adjusted by
the amount of the commitment fee. In the event the security is
not issued, the commitment fee will be recorded as income on the
expiration date of the standby commitment.
Repurchase Agreements and Purchase and Sale
Contracts. The Fund may invest in
securities pursuant to repurchase agreements and purchase and
sale contracts. Repurchase agreements may be entered into only
with financial institutions which (i) have, in the opinion of
the Manager, substantial capital relative to the Fund’s
exposure, or (ii) have provided the Fund with a third-party
guaranty or other credit enhancement. Under a repurchase
agreement or a purchase and sale contract, the counterparty
agrees, upon entering into the contract, to repurchase the
security at a mutually agreed upon time and price in a specified
currency, thereby determining the yield during the term of the
agreement. This results in a fixed rate of return insulated from
market fluctuations during such period although it may be
affected by currency fluctuations. Such agreements usually cover
short periods, such as under one week. Repurchase agreements may
be construed to be collateralized loans by the purchaser to the
seller secured by the securities transferred to the purchaser.
In the case of a repurchase agreement, as a purchaser, the Fund
will require the seller to provide additional collateral if the
market value of the securities falls below the repurchase price
at any time during the term of the repurchase agreement; the
Fund does not have the right to seek additional collateral in
the case of purchase and sale contracts. In the event of default
by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by
the Fund but constitute only collateral for the seller’s
obligation to pay the repurchase price. Therefore, the Fund may
suffer time delays and incur costs or possible losses in
connection with the disposition of the collateral. In the event
of a default under such a repurchase agreement or under a
purchase and sale contract, instead of the contractual fixed
rate of return, the rate of return to the Fund shall be
dependent upon intervening fluctuations of the market value of
such securities and the accrued interest on the securities. In
such
event, the Fund would have rights against the seller for breach of
contract with respect to any losses arising from market
fluctuations following the failure of the seller to perform. The
Fund may not invest more than 15% of its net assets in
repurchase agreements or purchase and sale contracts maturing in
more than seven days, together with all other illiquid
investments.
Borrowing and Leverage.
The use of leverage by the Fund creates an opportunity for
greater total return, but, at the same time, creates special
risks. For example, leveraging may exaggerate changes in the net
asset value of Fund shares and in the yield on the Fund’s
portfolio. Although the principal of such borrowings will be
fixed, the Fund’s assets may change in value during the
time the borrowings are outstanding. Borrowings will create
interest expenses for the Fund which can exceed the income from
the assets purchased with the borrowings. To the extent the
income or capital appreciation derived from securities purchased
with borrowed funds exceeds the interest the Fund will have to
pay on the borrowings, the Fund’s return will be greater
than if leverage had not been used. Conversely, if the income or
capital appreciation from the securities purchased with such
borrowed funds is not sufficient to cover the cost of
borrowings, the return to the Fund will be less than if leverage
had not been used, and therefore the amount available for
distribution to shareholders as dividends will be reduced. In
the latter case, the Manager in its best judgment nevertheless
may determine to maintain the Fund’s leveraged position if
it expects that the benefits to the Fund’s shareholders of
maintaining the leveraged position will outweigh the current
reduced return.
Certain types of borrowings by the Fund may result
in the Fund being subject to covenants in credit agreements
relating to asset coverage, portfolio composition requirements
and other matters. It is not anticipated that observance of such
covenants would impede the Manager from managing the Fund’s
portfolio in accordance with the Fund’s investment
objectives and policies. However, a breach of any such covenants
not cured within the specified cure period may result in
acceleration of outstanding indebtedness and require the Fund to
dispose of portfolio investments at a time when it may be
disadvantageous to do so.
The Fund at times may borrow from affiliates of the
Manager, provided that the terms of such borrowings are no less
favorable than those available from comparable sources of funds
in the marketplace. The fee paid to the Manager will be
calculated on the basis of the Fund’s average daily net
assets including proceeds from any borrowings.
Suitability. The
economic benefit of an investment in the Fund depends upon many
factors beyond the control of the Fund, the Manager and its
affiliates. Because the Fund invests worldwide, the Fund should
be considered a vehicle for diversification and not as a
balanced investment program. The suitability for any particular
investor of a purchase of shares in the Fund will depend upon,
among other things, such investor’s investment objectives
and such investor’s ability to accept the risks associated
with investing in foreign securities, including the risk of loss
of principal.
The Fund has adopted a number of fundamental and
non-fundamental restrictions and policies relating to the
investment of its assets and its activities. The fundamental
policies set forth below may not be changed without the approval
of the holders of a majority of the Fund’s outstanding
voting securities (which for this purpose and under the
Investment Company Act means the lesser of (i) 67% of the Fund
’s shares present at a meeting at which more than 50% of
the outstanding shares of the Fund are represented or (ii) more
than 50% of the Fund’s outstanding shares).
Under the fundamental investment restrictions, the
Fund may not:
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(1)
Invest more than 25% of its assets, taken at market
value at the time of each investment, in the securities of
issuers in any particular industry (excluding the U.S.
Government and its agencies and
instrumentalities).
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(2)
Make investments for the purpose of exercising control
or management.
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(3)
Purchase or sell real estate, except that, to the extent
permitted by applicable law, the Fund may invest in securities
directly or indirectly secured by real estate or interests
therein or issued by companies that invest in real estate or
interests therein.
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(4)
Make loans to other persons, except that the acquisition
of bonds, debentures or other corporate debt securities and
investment in government obligations, commercial paper,
pass-through instruments, certificates of deposit, bankers
acceptances, repurchase agreements or any similar instruments
shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities,
provided that the lending of portfolio securities may be made
only in accordance with applicable law and the guidelines set
forth in its Prospectus and Statement of Additional
Information, as they may be amended from time to
time.
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(5)
Issue senior securities to the extent such issuance
would violate applicable law.
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(6)
Borrow money, except that (i) the Fund may borrow from
banks (as defined in the Investment Company Act) in amounts up
to 33 1
/3% of its total assets
(including the amount borrowed), (ii) the Fund may, to the
extent permitted by applicable law, borrow up to an additional
5% of its total assets for temporary purposes, (iii) the Fund
may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and
(iv) the Fund may purchase securities on margin to the extent
permitted by applicable law. The Fund may not pledge its
assets other than to secure such borrowings or, to the extent
permitted by the Fund’s investment policies as set forth
in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with
hedging transactions, short sales, when-issued and forward
commitment transactions and similar investment strategies.
|
|
(7)
Underwrite securities of other issuers except insofar as
the Fund technically may be deemed an underwriter under the
Securities Act in selling portfolio securities.
|
|
(8)
Purchase or sell commodities or contracts on
commodities, except to the extent that the Fund may do so in
accordance with applicable law and the Fund’s Prospectus
and Statement of Additional Information, as they may be
amended from time to time, and without registering as a
commodity pool operator under the Commodity Exchange
Act.
|
Under the Fund’s non-fundamental investment
restrictions, which may be changed by the Board of Directors
without shareholder approval, the Fund may not:
|
(a)
Purchase securities of other investment companies,
except to the extent permitted by applicable law. As a matter
of policy, however, the Fund will not purchase shares of any
registered open-end investment company or registered unit
investment trust, in reliance on Section 12(d)(1)(F) or (G)
(the “fund of funds” provisions) of the Investment
Company Act, at any time the Fund’s shares are owned by
another investment company that is part of the same group of
investment companies as the Fund.
|
|
(b)
Make short sales of securities or maintain a short
position, except to the extent permitted by applicable law.
The Fund does intend to engage, from time to time, in short
sales “against the box” and in short sales that are
covered by securities immediately convertible or exchangeable
into the security which is being sold short.
|
|
(c)
Invest in securities that cannot be readily resold
because of legal or contractual restrictions or that cannot
otherwise be marketed, redeemed or put to the issuer or a
third party, if at the time of acquisition more than 15% of
its total assets would be invested in such securities. This
restriction shall not apply to securities that mature within
seven days or securities that the Board of Directors of the
Fund has otherwise determined to be liquid pursuant to
applicable law. Securities purchased in accordance with Rule
144A under the Securities Act and determined to be liquid by
the Fund’s Board of Directors are not subject to the
limitations set forth in this investment
restriction.
|
|
(d)
Notwithstanding fundamental investment restriction (6)
above, borrow amounts in excess of 10% of its total assets,
taken at market value, and then only from banks as a temporary
measure for extraordinary or emergency purposes, such as the
redemption of Fund shares. The Fund will not purchase
securities while borrowings exceed 5% (taken at market value)
of its total assets.
|
The staff of the Commission has taken the position
that purchased OTC options and the assets used as cover for
written OTC options are illiquid securities. Therefore, the Fund
has adopted an investment policy pursuant to which it will not
purchase or sell OTC options (including OTC options on futures
contracts) if, as a result of such transaction, the sum of the
market value of OTC options currently outstanding which are held
by the Fund, the market value of the underlying securities
covered by OTC call options currently outstanding which were
sold by the Fund and margin deposits on the Fund’s existing
OTC options on futures contracts exceeds 15% of the net assets
of the Fund, taken at market value, together with all other
assets of the Fund which are illiquid or are not otherwise
readily marketable. However, if the OTC option is sold by the
Fund to a primary U.S. Government securities dealer recognized
by the Federal Reserve Bank of New York and if the Fund has the
unconditional contractual right to repurchase such OTC option
from the dealer at a predetermined price, then the Fund will
treat as illiquid such amount of the underlying securities as is
equal to the repurchase price less the amount by which the
option is “in-the-money” (i.e., current market value
of the underlying security minus the option’s strike
price). The repurchase price with the primary dealers is
typically a formula price which is generally based on a multiple
of the premium received for the option, plus the amount by which
the option is “in-the-money.” This policy as to OTC
options is not a fundamental policy of the Fund and may be
amended by the Directors of the Fund without the approval of the
Fund’s shareholders. However, the Fund will not change or
modify this policy prior to the change or modification by the
Commission staff of its position.
Because of the affiliation of Merrill Lynch, Pierce,
Fenner & Smith Incorporated (“Merrill Lynch”) with
the Manager, the Fund is prohibited from engaging in certain
transactions involving Merrill Lynch or its affiliates except
for brokerage transactions permitted under the Investment
Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment
Company Act. See “Portfolio Transactions and Brokerage.
” Without such an exemptive order the Fund would be
prohibited from engaging in portfolio transactions with Merrill
Lynch or any of its affiliates acting as principal.
Non-Diversified Status.
The Fund is classified as non-diversified within the
meaning of the Investment Company Act, which means that the Fund
is not limited by such Act in the proportion of its assets that
it may invest in securities of a single issuer. The Fund’s
investments will be limited, however, in order to qualify as a
“regulated investment company” for purposes of the
Code. To qualify, the Fund will comply with certain
requirements, including limiting its investments so that at the
close of each quarter of the taxable year, (i) not more than 25%
of the market value of the Fund’s total assets will be
invested in the securities of a single issuer and (ii) with
respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets will be invested
in the securities of a single issuer, and the Fund will not own
more than 10% of the outstanding voting securities of a single
issuer. A fund that elects to be classified as “diversified
” under the Investment Company Act must satisfy the
foregoing 5% and 10% requirements with respect to 75% of its
total assets. To the extent that the Fund assumes large
positions in the securities of a small number of issuers, the
Fund’s net asset value may fluctuate to a greater extent
than that of a diversified company as a result of changes in the
financial condition or in the market’s assessment of the
issuers, and the Fund may be more susceptible to any single
economic, political or regulatory occurrence than a diversified
company.
For purposes of the diversification requirements set
forth above with respect to regulated investment companies, and
to the extent required by the Commission, the Fund, as a
non-fundamental policy, will consider securities issued or
guaranteed by the government of any one foreign country as the
obligations of a single issuer.
The Manager will effect portfolio transactions
without regard to the time the securities have been held if, in
its judgment, such transactions are advisable in light of a
change in circumstances of a particular company or
within a particular industry or in general market, economic or
financial conditions. As a result of its investment policies,
under certain market conditions the Fund’s portfolio
turnover rate may be higher than that of other investment
companies; however, it is extremely difficult to predict
portfolio rates with any degree of accuracy. The portfolio
turnover rate is calculated by dividing the lesser of the Fund
’s annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities
at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the
year. A high portfolio turnover may result in negative tax
consequences, such as an increase in capital gain dividends or
in dividends of accrued market discount. High portfolio turnover
may also involve correspondingly greater transaction costs in
the form of dealer spreads and brokerage commissions which are
borne directly by the Fund.
The Board of Directors of the Fund consists of five
individuals, three of whom are not “interested persons
” of the Fund as defined in the Investment Company Act (the
“non-interested Directors”). The Directors are
responsible for the overall supervision of the operations of the
Fund and perform the various duties imposed on the directors of
investment companies by the Investment Company Act.
Information about the Directors, executive officers
and the portfolio manager of the Fund, including their ages and
their principal occupations for at least the last five years, is
set forth below. Unless otherwise noted, the address of each
Director, executive officer and the portfolio manager is P.O.
Box 9011, Princeton, New Jersey 08543-9011.
TERRY
K. GLENN
(59) — President and Director(1)(2)
— Executive Vice President of the Manager and Fund
Asset Management, L.P. (“FAM”) (which terms as used
herein include their corporate predecessors) since 1983;
Executive Vice President and Director of Princeton Services,
Inc. (“Princeton Services”) since 1993; President of
Princeton Funds Distributor, Inc. (“PFD”) since 1986
and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
CHARLES
C. REILLY
(68) — Director(2)(3) — 9
Hampton Harbor Road, Hampton Bays, New York 11946. Self-employed
financial consultant since 1990; President and Chief Investment
Officer of Verus Capital, Inc. from 1979 to 1990; Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to
1990; Adjunct Professor, Columbia University Graduate School of
Business from 1990 to 1991; Adjunct Professor, Wharton School,
University of Pennsylvania from 1989 to 1990; Partner, Small
Cities Cable Television from 1986 to 1997.
RICHARD
R. WEST
(61) — Director(2)(3) — Box
604, Genoa, Nevada 89411. Professor of Finance since 1984, Dean
from 1984 to 1993, and currently Dean Emeritus of New York
University Leonard N. Stern School of Business Administration;
Director of Bowne & Co., Inc. (financial printers), Vornado
Realty Trust, Inc. (real estate holding company) and Alexander
’s, Inc. (real estate company).
ARTHUR
ZEIKEL
(67) — Director(1)(2) — 300
Woodland Avenue, Westfield, New Jersey 07090. Chairman of the
Manager and FAM from 1997 to 1999 and President thereof from
1977 to 1997; Chairman of Princeton Services from 1997 to 1999,
Director thereof from 1993 to 1999 and President thereof from
1993 to 1997; Executive Vice President of Merrill Lynch &
Co., Inc. (“ML & Co.”) from 1990 to
1999.
EDWARD
D. ZINBARG
(65) — Director(2)(3) — 5
Hardwell Road, Short Hills, New Jersey 07078-2117. Executive
Vice President of The Prudential Insurance Company of America
from 1988 to 1994; former Director of Prudential Reinsurance
Company and former Trustee of The Prudential
Foundation.
BRYAN
N. ISON
(44) — Senior Vice President and Co-Portfolio
Manager(1) — First Vice President of the
Manager since 1997; Vice President of the Manager from 1985 to
1997; Portfolio Manager of the Manager since 1984.
DENNIS
W. STATTMAN
(48) — Vice President and Co-Portfolio
Manager(1) — First Vice President of the
Manager since 1998; Vice President of the Manager from 1989 to
1998.
ROBERT
C. DOLL
(45) — Senior Vice President(1)(2)
— Senior Vice President of the Manager and FAM since
1999; Senior Vice President of Princeton Services since 1999;
Chief Investment Officer of Oppenheimer Funds, Inc. in 1999 and
Executive Vice President thereof from 1991 to 1999.
DONALD
C. BURKE
(39) — Vice President and Treasurer(1)(2)
— Senior Vice President and Treasurer of the
Manager and FAM since 1999; Senior Vice President and Treasurer
of Princeton Services since 1999; Vice President of PFD since
1999; First Vice President of the Manager from 1997 to 1999;
Vice President of the Manager from 1990 to 1997; Director of
Taxation of the Manager since 1990.
PHILLIP
S. GILLESPIE
(35) — Secretary(1)(2) —
Attorney associated with the Manager and FAM since 1998;
Assistant General Counsel of Chancellor LGT Asset Management,
Inc. from 1997 to 1998; Senior Counsel and Attorney in the
Division of Investment Management and the Office of General
Counsel at the U.S. Securities and Exchange Commission from 1993
to 1997.
(1)
|
Interested person, as defined in the Investment
Company Act, of the Fund.
|
(2)
|
Such Director or officer is a director, trustee
or officer of certain other investment companies for which the
Manager or FAM acts as the investment adviser or
manager.
|
(3)
|
Member of the Fund’s Audit and Nominating
Committee, which is responsible for the selection of the
independent auditors and the selection and nomination of
non-interested Directors.
|
As of January 1, 2000, the Directors and officers of
the Fund as a group (10 persons) owned an aggregate of less than
1% of the outstanding shares of the Fund. At such date, Mr.
Zeikel, a Director of the Fund, Mr. Glenn, a Director and
officer of the Fund, and the other officers of the Fund owned an
aggregate of less than 1% of the outstanding shares of common
stock of ML & Co.
Compensation of Directors
The Fund pays each non-interested Director a fee of
$3,500 per year plus $500 per Board meeting attended. The Fund
also compensates members of its Audit and Nominating Committee
(the “Committee”), which consists of all the
non-interested Directors, at a rate of $500 per Committee
meeting attended. The Chairman of the Committee receives an
additional fee of $250 per Committee meeting
attended.
The following table shows the compensation earned by
the non-interested Directors for the fiscal year ended October
31, 1999 and the aggregate compensation paid to them from all
registered investment companies advised by the Manager and its
affiliate, FAM (“MLAM/FAM-advised funds”), for the
calendar year ended December 31, 1999.
Name
|
|
Position
with
Fund
|
|
Compensation
From Fund
|
|
Pension
or
Retirement Benefits
Accrued as Part of
Fund Expense
|
|
Estimated
Annual
Benefits upon
Retirement
|
|
Aggregate
Compensation From
Fund and Other
MLAM/FAM-
Advised Funds(1)
|
| Donald Cecil(2) |
|
Director |
|
$8,500 |
|
None |
|
None |
|
$292,350 |
| Roland M. Machold(3) |
|
Director |
|
$7,000 |
|
None |
|
None |
|
$
99,875 |
| Edward H. Meyer(2) |
|
Director |
|
$7,000 |
|
None |
|
None |
|
$253,475 |
| Charles C. Reilly |
|
Director |
|
$7,500 |
|
None |
|
None |
|
$400,025 |
| Richard R. West |
|
Director |
|
$7,500 |
|
None |
|
None |
|
$388,775 |
| Edward D. Zinbarg |
|
Director |
|
$7,500 |
|
None |
|
None |
|
$140,875 |
(1)
|
The Directors serve on the boards of
MLAM/FAM-advised funds as follows: Mr. Reilly (60 registered
investment companies consisting of 72 portfolios); Mr. West
(62 registered investment companies consisting of 86
portfolios); and Mr. Zinbarg (18 registered investment
companies consisting of 18 portfolios).
|
(2)
|
Messrs. Cecil and Meyer retired as Directors of
the Fund and as directors or trustees of certain other
MLAM/FAM-advised funds on December 31, 1999.
|
(3)
|
Mr. Machold resigned as a Director of the Fund
and as director or trustee of certain other MLAM/FAM-advised
funds on August 20, 1999.
|
Directors of the Fund may purchase Class A shares
of the Fund at net asset value. See “Purchase of Shares
—Initial Sales Charge Alternatives—Class A and Class D
Shares—Reduced Initial Sales Charges—Purchase
Privilege of Certain Persons.”
Management and Advisory Arrangements
Management Services.
The Manager provides the Fund with investment advisory and
management services. Subject to the supervision of the Board of
Directors, the Manager is responsible for the actual management
of the Fund’s portfolio and constantly reviews the Fund
’s holdings in light of its own research analysis and that
from other relevant sources. The responsibility for making
decisions to buy, sell or hold a particular security rests with
the Manager. The Manager performs certain of the other
administrative services and provides all the office space,
facilities, equipment and necessary personnel for management of
the Fund.
Management Fee. The
Fund has entered into a management agreement with the Manager
(the “Management Agreement”), pursuant to which the
Manager receives for its services to the Fund monthly
compensation at the annual rate of 0.75% of the average daily
net assets of the Fund. Effective July 25, 1995, the Manager has
voluntarily agreed to waive the amount of compensation set forth
in the Management Agreement and instead has agreed to receive
from the Fund a monthly fee based upon the average daily net
assets of the Fund at the following annual rates: 0.75% of the
average daily net assets not exceeding $2.5 billion; 0.70% of
the average daily net assets exceeding $2.5 billion but not
exceeding $5.0 billion; 0.65% of the average daily net assets
exceeding $5.0 billion but not exceeding $7.5 billion; 0.625% of
the average daily net assets exceeding $7.5 billion but not
exceeding $10 billion; and 0.60% of the average daily net assets
exceeding $10 billion. The table below sets forth information
about the total management fees paid by the Fund to the Manager
for the periods indicated.
Fiscal Year
Ended October 31,
|
|
Management
Fee
|
|
Management
Fee Waived
|
| 1999 |
|
$61,370,937 |
|
$
4,625,985 |
| 1998 |
|
$97,510,560 |
|
$11,390,534 |
| 1997 |
|
$99,812,816 |
|
$11,605,587 |
The Manager has also entered into a sub-advisory
agreement with Merrill Lynch Asset Management U.K. Limited (
“MLAM U.K.”) pursuant to which MLAM U.K. provides
investment advisory services to the Manager with respect to the
Fund. The table below sets forth information about the total
investment advisory fees paid by the Manager to MLAM U.K. for
the periods indicated.
Fiscal Year
Ended October 31,
|
|
Sub-Advisory Fee
|
| 1999 |
|
$
6,089,987 |
| 1998 |
|
$11,436,228 |
| 1997 |
|
$10,062,279 |
Payment of Fund Expenses.
The Management Agreement obligates the Manager to
provide investment advisory services and to pay all compensation
of and furnish office space for officers and employees of the
Fund connected with investment and economic research, trading
and investment management of the Fund, as well as the fees of
all Directors of the Fund who are affiliated persons of ML &
Co. or any of its affiliates. The Fund pays all other expenses
incurred in the operation of the Fund, including among other
things: taxes, expenses for legal and auditing services, costs
of printing proxies, stock certificates, shareholder reports,
prospectuses and statements of additional information, except to
the extent paid by Merrill Lynch Funds Distributor, a division
of PFD (the “Distributor”); charges of the custodian
and the transfer agent; expenses of redemption of shares;
Commission fees; expenses of registering the shares under
Federal, state or foreign securities laws; fees and expenses of
non-interested Directors; accounting and pricing costs
(including the daily calculations of net asset value);
insurance; interest; brokerage costs; litigation and other
extraordinary or non-recurring expenses; and other expenses
properly payable by the Fund. Accounting services are provided
for the Fund by the Manager
and the Fund reimburses the Manager for its costs in connection
with such services. See “Purchase of Shares
—Distribution Plans.”
Organization of the Manager.
The Manager is a limited partnership, the partners of
which are ML & Co., a financial services holding company and
the parent of Merrill Lynch, and Princeton Services. ML &
Co. and Princeton Services are “controlling persons”
of the Manager as defined under the Investment Company Act
because of their ownership of its voting securities or their
power to exercise a controlling influence over its management or
policies.
The following entities may be considered
“controlling persons” of MLAM U.K.: Merrill Lynch
Europe PLC (MLAM U.K.’s parent), a subsidiary of Merrill
Lynch International Holdings, Inc., a subsidiary of Merrill
Lynch International, Inc., a subsidiary of ML &
Co.
Duration and Termination.
Unless earlier terminated as described herein, the
Management Agreement and sub-advisory agreement will remain in
effect from year to year if approved annually (a) by the Board
of Directors of the Fund or by a majority of the outstanding
shares of the Fund and (b) by a majority of the Directors who
are not parties to such contract or interested persons (as
defined in the Investment Company Act) of any such party. Such
contracts are not assignable and may be terminated without
penalty on 60 days’ written notice at the option of either
party or by vote of the shareholders of the Fund.
Transfer Agency Services.
Financial Data Services, Inc. (the “Transfer Agent
”), a subsidiary of ML & Co., acts as the Fund’s
Transfer Agent pursuant to a Transfer Agency, Dividend
Disbursing Agency and Shareholder Servicing Agency Agreement
(the “Transfer Agency Agreement”). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening
and maintenance of shareholder accounts. Pursuant to the
Transfer Agency Agreement, the Transfer Agent receives a fee of
$11.00 per Class A or Class D account and $14.00 per Class B or
Class C account and is entitled to reimbursement for certain
transaction charges and out-of-pocket expenses incurred by the
Transfer Agent under the Transfer Agency Agreement.
Additionally, a $.20 monthly closed account charge will be
assessed on all accounts which close during the calendar year.
Application of this fee will commence the month following the
month the account is closed. At the end of the calendar year, no
further fees will be due. For purposes of the Transfer Agency
Agreement, the term “account” includes a shareholder
account maintained directly by the Transfer Agent and any other
account representing the beneficial interest of a person in the
relevant share class on a recordkeeping system, provided the
recordkeeping system is maintained by a subsidiary of ML &
Co.
Distribution Expenses.
The Fund has entered into four separate distribution
agreements with the Distributor in connection with the
continuous offering of each class of shares of the Fund (the
“Distribution Agreements”). The Distribution
Agreements obligate the Distributor to pay certain expenses in
connection with the offering of each class of shares of the
Fund. After the prospectuses, statements of additional
information and periodic reports have been prepared, set in type
and mailed to shareholders, the Distributor pays for the
printing and distribution of copies thereof used in connection
with the offering to dealers and investors. The Distributor also
pays for other supplementary sales literature and advertising
costs. The Distribution Agreements are subject to the same
renewal requirements and termination provisions as the
Investment Advisory Agreement described above.
The Board of Directors of the Fund has adopted a
Code of Ethics under Rule 17j-1 of the Investment Company Act
that incorporates the Code of Ethics of the Manager (together,
the “Codes”). The Codes significantly restrict the
personal investing activities of all employees of the Manager
and, as described below, impose additional, more onerous,
restrictions on fund investment personnel.
The Codes require that all employees of the Manager
pre-clear any personal securities investment (with limited
exceptions, such as government securities). The pre-clearance
requirement and associated procedures are
designed to identify any substantive prohibition or limitation
applicable to the proposed investment. The substantive
restrictions applicable to all employees of the Manager include
a ban on acquiring any securities in a “hot” initial
public offering and a prohibition from profiting on short-term
trading in securities. In addition, no employee may purchase or
sell any security that at the time is being purchased or sold
(as the case may be), or to the knowledge of the employee is
being considered for purchase or sale, by any fund advised by
the Manager. Furthermore, the Codes provide for trading
“blackout periods” which prohibit trading by
investment personnel of the Fund within periods of trading by
the Fund in the same (or equivalent) security (15 or 30 days
depending upon the transaction).
Reference is made to “How to Buy, Sell,
Transfer and Exchange Shares” in the
Prospectus.
The Fund offers four classes of shares under the
Merrill Lynch Select Pricing
SM
System: shares of Class A and Class D are sold
to investors choosing the initial sales charge alternatives and
shares of Class B and Class C are sold to investors choosing the
deferred sales charge alternatives. Each Class A, Class B, Class
C or Class D share of the Fund represents an identical interest
in the investment portfolio of the Fund and has the same rights,
except that Class B, Class C and Class D shares bear the
expenses of the ongoing account maintenance fees (also known as
service fees) and Class B and Class C shares bear the expenses
of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge
arrangements. The contingent deferred sales charges (“CDSCs
”), distribution fees and account maintenance fees that are
imposed on Class B and Class C shares, as well as the account
maintenance fees that are imposed on Class D shares, are imposed
directly against those classes and not against all assets of the
Fund and, accordingly, such charges do not affect the net asset
value of any other class or have any impact on investors
choosing another sales charge option. Dividends paid by the Fund
for each class of shares are calculated in the same manner at
the same time and differ only to the extent that account
maintenance and distribution fees and any incremental transfer
agency costs relating to a particular class are borne
exclusively by that class. Each class has different exchange
privileges. See “Shareholder Services—Exchange
Privilege.”
Investors should understand that the purpose and
function of the initial sales charges with respect to the Class
A and Class D shares are the same as those of the CDSCs and
distribution fees with respect to the Class B and Class C shares
in that the sales charges and distribution fees applicable to
each class provide for the financing of the distribution of the
shares of the Fund. The distribution-related revenues paid with
respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive
different compensation for selling different classes of
shares.
The Merrill Lynch Select Pricing
SM
System is used by more than 50 registered
investment companies advised by MLAM or FAM. Funds advised by
MLAM or FAM that use the Merrill Lynch Select Pricing
SM
System are referred to herein as “Select Pricing
Funds.”
The Fund offers its shares at a public offering
price equal to the next determined net asset value per share
plus any sales charge applicable to the class of shares selected
by the investor. The applicable offering price for purchase
orders is based upon the net asset value of the Fund next
determined after receipt of the purchase order by the
Distributor. As to purchase orders received by securities
dealers prior to the close of business on the New York Stock
Exchange (the “NYSE”) (generally 4:00 p.m., Eastern
time) which includes orders received after the determination of
net asset value on the previous day, the applicable offering
price will be based on the net asset value on the day the order
is placed with the Distributor, provided that the orders are
received by the Distributor prior to 30 minutes after the close
of business on the NYSE on that day. If the purchase orders are
not received prior to 30 minutes after the close of business on
the NYSE on that day, such orders shall be deemed received on
the next business day. Dealers have the responsibility of
submitting purchase orders to the Fund not later than 30 minutes
after the close of business on the NYSE in order to purchase
shares at that day’s offering price.
The Fund or the Distributor may suspend the continuous offering of
the Fund’s shares of any class at any time in response to
conditions in the securities markets or otherwise and may
thereafter resume such offering from time to time. Any order may
be rejected by the Fund or the Distributor. Neither the
Distributor nor the dealers are permitted to withhold placing
orders to benefit themselves by a price change. Merrill Lynch
may charge its customers a processing fee (presently $5.35) to
confirm a sale of shares to such customers. Purchases made
directly through the Transfer Agent are not subject to the
processing fee.
Initial Sales Charge Alternatives—Class A and Class D
Shares
Investors who prefer an initial sales charge
alternative may elect to purchase Class D shares or, if an
eligible investor, Class A shares. Investors choosing the
initial sales charge alternative who are eligible to purchase
Class A shares should purchase Class A shares rather than Class
D shares because there is an account maintenance fee imposed on
Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge
alternative particularly attractive because similar sales charge
reductions are not available with respect to the deferred sales
charges imposed in connection with purchases of Class B or Class
C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended
period of time also may elect to purchase Class A or Class D
shares, because over time the accumulated ongoing account
maintenance and distribution fees on Class B or Class C shares
may exceed the initial sales charge and, in the case of Class D
shares, the account maintenance fee. Although some investors who
previously purchased Class A shares may no longer be eligible to
purchase Class A shares of other Select Pricing Funds, those
previously purchased Class A shares, together with Class B,
Class C and Class D share holdings, will count toward a right of
accumulation which may qualify the investor for a reduced
initial sales charge on new initial sales charge purchases. In
addition, the ongoing Class B and Class C account maintenance
and distribution fees will cause Class B and Class C shares to
have higher expense ratios, pay lower dividends and have lower
total returns than the initial sales charge shares. The ongoing
Class D account maintenance fees will cause Class D shares to
have a higher expense ratio, pay lower dividends and have a
lower total return than Class A shares.
The term “purchase,” as used in the
Prospectus and this Statement of Additional Information in
connection with an investment in Class A and Class D shares of
the Fund, refers to a single purchase by an individual or to
concurrent purchases, which in the aggregate are at least equal
to the prescribed amounts, by an individual, his or her spouse
and their children under the age of 21 years purchasing shares
for his, her or their own account and to single purchases by a
trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account although more than one
beneficiary is involved. The term “purchase” also
includes purchases by any “company,” as that term is
defined in the Investment Company Act, but does not include
purchases by any such company that has not been in existence for
at least six months or which has no purpose other than the
purchase of shares of the Fund or shares of other registered
investment companies at a discount; provided, however, that it
shall not include purchases by any group of individuals whose
sole organizational nexus is that the participants therein are
credit cardholders of a company, policyholders of an insurance
company, customers of either a bank or broker-dealer or clients
of an investment adviser.
|
Eligible Class A Investors
|
Class A shares are offered to a limited group of
investors and also will be issued upon reinvestment of dividends
on outstanding Class A shares. Investors who currently own Class
A shares in a shareholder account, including participants in the
Merrill Lynch Blueprint
SM
Program, are entitled to purchase additional
Class A shares of the Fund in that account. Certain Employer
Sponsored Retirement or Savings Plans, including eligible 401(k)
plans, may purchase Class A shares at net asset value provided
such plans meet the required minimum number of eligible
employees or required amount of assets advised by MLAM or any of
its affiliates. Class A shares are available at net asset value
to corporate warranty insurance reserve fund programs and U.S.
branches of foreign banking institutions provided that the
program or bank has $3 million or more initially invested in
Select Pricing Funds. Also eligible to purchase Class A shares
at net asset value are participants in certain investment
programs including TMA
SM
Managed Trusts to which Merrill Lynch Trust
Company provides
discretionary trustee services, collective investment trusts for
which Merrill Lynch Trust Company serves as trustee and certain
purchases made in connection with certain fee-based programs. In
addition, Class A shares are offered at net asset value to ML
& Co. and its subsidiaries and their directors and employees
and to members of the Boards of MLAM/FAM-advised investment
companies. Certain persons who acquired shares of certain
MLAM/FAM-advised closed-end funds in their initial offerings who
wish to reinvest the net proceeds from a sale of their
closed-end fund shares of common stock in shares of the Fund
also may purchase Class A shares of the Fund if certain
conditions are met. In addition, Class A shares of the Fund and
certain other Select Pricing Funds are offered at net asset
value to shareholders of Merrill Lynch Senior Floating Rate
Fund, Inc. and, if certain conditions are met, to shareholders
of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch
High Income Municipal Bond Fund, Inc. who wish to reinvest the
net proceeds from a sale of certain of their shares of common
stock pursuant to a tender offer conducted by such funds in
shares of the Fund and certain other Select Pricing
Funds.
Class A and Class D Sales Charge
Information
| Class A Shares |
|
For the Fiscal
Year
Ended
October 31,
|
|
Gross Sales
Charges
Collected
|
|
Sales Charges
Retained by
Distributor
|
|
Sales Charges
Paid to
Merrill Lynch
|
|
CDSCs Received
on
Redemption of
Load-Waived Shares
|
| 1999 |
|
$
75,220 |
|
$
5,246 |
|
$
69,974 |
|
$
0 |
| 1998 |
|
$
285,971 |
|
$
20,456 |
|
$
265,515 |
|
$70,285 |
| 1997 |
|
$
705,874 |
|
$
47,810 |
|
$
658,064 |
|
$
0 |
|
| Class D Shares |
|
For the Fiscal
Year
Ended
October 31,
|
|
Gross Sales
Charges
Collected
|
|
Sales Charges
Retained by
Distributor
|
|
Sales Charges
Paid to
Merrill Lynch
|
|
CDSCs Received
on
Redemption of
Load-Waived Shares
|
| 1999 |
|
$
228,663 |
|
$
14,609 |
|
$
214,054 |
|
$
0 |
| 1998 |
|
$
963,279 |
|
$
66,131 |
|
$
897,148 |
|
$
0 |
| 1997 |
|
$3,242,398 |
|
$237,188 |
|
$3,005,210 |
|
$
6,066 |
The Distributor may reallow discounts to selected
dealers and retain the balance over such discounts. At times the
Distributor may reallow the entire sales charge to such dealers.
Since securities dealers selling Class A and Class D shares of
the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the
Securities Act.
Reduced Initial Sales Charges
Reductions in or exemptions from the imposition of a
sales load are due to the nature of the investors and/or the
reduced sales efforts that will be needed to obtain such
investments.
Reinvested Dividends.
No initial sales charges are imposed upon Class A and
Class D shares issued as a result of the automatic reinvestment
of dividends.
Right of Accumulation.
Reduced sales charges are applicable through a right of
accumulation under which eligible investors are permitted to
purchase shares of the Fund subject to an initial sales charge
at the offering price applicable to the total of (a) the public
offering price of the shares then being purchased plus (b) an
amount equal to the then current net asset value or cost,
whichever is higher, of the purchaser’s combined holdings
of all classes of shares of the Fund and of any other Select
Pricing Funds. For any such right of accumulation to be made
available, the Distributor must be provided at the time of
purchase, by the purchaser or the purchaser’s securities
dealer, with sufficient information to permit confirmation of
qualification. Acceptance of the purchase order is subject to
such confirmation. The right of accumulation may be amended or
terminated at any time.
Shares held in the name of a nominee or custodian under pension,
profit-sharing or other employee benefit plans may not be
combined with other shares to qualify for the right of
accumulation.
Letter of Intent.
Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of
the Fund or any Select Pricing Funds made within a 13-month
period starting with the first purchase pursuant to a Letter of
Intent. The Letter of Intent is available only to investors
whose accounts are established and maintained at the Fund’s
Transfer Agent. The Letter of Intent is not available to
employee benefit plans for which Merrill Lynch provides plan
participant recordkeeping services. The Letter of Intent is not
a binding obligation to purchase any amount of Class A or Class
D shares; however, its execution will result in the purchaser
paying a lower sales charge at the appropriate quantity purchase
level. A purchase not originally made pursuant to a Letter of
Intent may be included under a subsequent Letter of Intent
executed within 90 days of such purchase if the Distributor is
informed in writing of this intent within such 90-day period.
The value of Class A and Class D shares of the Fund and of other
Select Pricing Funds presently held, at cost or maximum offering
price (whichever is higher), on the date of the first purchase
under the Letter of Intent, may be included as a credit toward
the completion of such Letter, but the reduced sales charge
applicable to the amount covered by such Letter will be applied
only to new purchases. If the total amount of shares does not
equal the amount stated in the Letter of Intent (minimum of
$25,000), the investor will be notified and must pay, within 20
days of the expiration of such Letter, the difference between
the sales charge on the Class A or Class D shares purchased at
the reduced rate and the sales charge applicable to the shares
actually purchased through the Letter. Class A or Class D shares
equal to at least 5.0% of the intended amount will be held in
escrow during the 13-month period (while remaining registered in
the name of the purchaser) for this purpose. The first purchase
under the Letter of Intent must be at least 5.0% of the dollar
amount of such Letter. If a purchase during the term of such
Letter would otherwise be subject to a further reduced sales
charge based on the right of accumulation, the purchaser will be
entitled on that purchase and subsequent purchases to the
further reduced percentage sales charge that would be applicable
to a single purchase equal to the total dollar value of the
Class A or Class D shares then being purchased under such
Letter, but there will be no retroactive reduction of the sales
charge on any previous purchase.
The value of any shares redeemed or otherwise
disposed of by the purchaser prior to termination or completion
of the Letter of Intent will be deducted from the total
purchases made under such Letter. An exchange from the Summit
Cash Reserves Fund into the Fund that creates a sales charge
will count toward completing a new or existing Letter of Intent
from the Fund.
Merrill Lynch Blueprint
SM
Program. Class
D shares of the Fund are offered to participants in the Merrill
Lynch Blueprint
SM
Program (“Blueprint”). In addition,
participants in Blueprint who own Class A shares of the Fund may
purchase additional Class A shares of the Fund through
Blueprint. The Blueprint program is directed to small investors,
group IRAs and participants in certain affinity groups such as
credit unions, trade associations and benefit plans. Investors
placing orders to purchase Class A or Class D shares of the Fund
through Blueprint will acquire the Class A or Class D shares at
net asset value plus a sales charge calculated in accordance
with the Blueprint sales charge schedule (i.e., up to
$300 at 4.25%, from $300.01 to $5,000 at 3.25% plus $3.00, and
$5,000.01 or more at the standard sales charge rates disclosed
in the Prospectus). In addition, Class A or Class D shares of
the Fund are being offered at net asset value plus a sales
charge of 0.50% for corporate or group IRA programs placing
orders to purchase their Class A or Class D shares through
Blueprint. Services, including the exchange privilege, available
to Class A and Class D investors through Blueprint, however, may
differ from those available to other investors in Class A or
Class D shares.
Class A and Class D shares are offered at net asset
value to Blueprint participants through the Merrill Lynch
Directed IRA Rollover Program (the “IRA Rollover Program
”) available from Merrill Lynch Business Financial
Services, a business unit of Merrill Lynch. The IRA Rollover
Program is available to custodian rollover assets from
employer-sponsored retirement and savings plans (as defined
below) whose trustee and/or plan sponsor has entered into the
IRA Rollover Program.
Orders for purchases and redemptions of Class A or
Class D shares of the Fund may be grouped for execution purposes
which, in some circumstances, may involve the execution of such
orders two business days following the day such orders are
placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no
minimum initial or subsequent purchase requirements for
participants who are part of an automatic investment plan.
Additional information concerning purchases through Blueprint,
including any annual fees and transaction charges, is available
from Merrill Lynch, Pierce, Fenner & Smith Incorporated, The
Blueprint
SM
Program, P.O. Box 30441, New Brunswick, New
Jersey 08989-0441.
TMA
SM
Managed Trusts.
Class A shares are offered at net asset value to
TMA
SM
Managed Trusts to which Merrill Lynch Trust
Company provides discretionary trustee services.
Employee Access
SM
Accounts.
Provided applicable threshold requirements are met, either
Class A or Class D shares are offered at net asset value to
Employee Access
SM
Accounts available through authorized employers.
The initial minimum investment for such accounts is $500, except
that the initial minimum investment for shares purchased for
such accounts pursuant to the Automatic Investment Program is
$50.
Employer-Sponsored Retirement or Savings Plans
and Certain Other Arrangements.
Certain employer-sponsored retirement or savings plans and
certain other arrangements may purchase Class A or Class D
shares at net asset value, based on the number of employees or
number of employees eligible to participate in the plan, the
aggregate amount invested by the plan in specified investments
and/or the services provided by Merrill Lynch to the plan.
Additional information regarding purchases by employer-sponsored
retirement or savings plans and certain other arrangements is
available toll-free from Merrill Lynch Business Financial
Services at (800) 237-7777.
Purchase Privilege of Certain Persons.
Directors of the Fund, members of the Boards
of other MLAM/FAM-advised investment companies, ML & Co. and
its subsidiaries (the term “subsidiaries,” when used
herein with respect to ML & Co., includes MLAM, FAM and
certain other entities directly or indirectly wholly owned and
controlled by ML & Co.) and their directors and employees,
and any trust, pension, profit-sharing or other benefit plan for
such persons, may purchase Class A shares of the Fund at net
asset value. The Fund realizes economies of scale and reduction
of sales-related expenses by virtue of the familiarity of these
persons with the Fund. Employees and directors or trustees
wishing to purchase shares of the Fund must satisfy the Fund
’s suitability standards.
Class D shares of the Fund are offered at net asset
value, without a sales charge, to an investor that has a
business relationship with a Financial Consultant who joined
Merrill Lynch from another investment firm within six months
prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise
Merrill Lynch that it will purchase Class D shares of the Fund
with proceeds from a redemption of shares of a mutual fund that
was sponsored by the Financial Consultant’s previous firm
and was subject to a sales charge either at the time of purchase
or on a deferred basis; and, second, the investor must establish
that such redemption had been made within 60 days prior to the
investment in the Fund and the proceeds from the redemption had
been maintained in the interim in cash or a money market
fund.
Class D shares of the Fund are also offered at net
asset value, without a sales charge, to an investor that has a
business relationship with a Merrill Lynch Financial Consultant
and that has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as
a selected dealer and where Merrill Lynch has either received or
given notice that such arrangement will be terminated (
“notice”) if the following conditions are satisfied:
first, the investor must purchase Class D shares of the Fund
with proceeds from a redemption of shares of such other mutual
fund and the shares of such other fund were subject to a sales
charge either at the time of purchase or on a deferred basis;
and, second, such purchase of Class D shares must be made within
90 days after such notice.
Class D shares of the Fund are offered at net asset
value, without a sales charge, to an investor that has a
business relationship with a Merrill Lynch Financial Consultant
and that has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following
conditions are satisfied: first, the investor must advise
Merrill Lynch that it will purchase Class D shares of the Fund
with proceeds from the redemption of shares of such other mutual
fund and that such shares have been outstanding for a period of
no less than six months; and, second, such purchase of Class D
shares must be made within 60 days after the redemption and the
proceeds from the redemption must be maintained in the interim
in cash or a money market fund.
Closed-End Fund Investment Option.
Class A shares of the Fund and certain other Select
Pricing Funds (“Eligible Class A Shares”) are offered
at net asset value to shareholders of certain closed-end funds
advised by FAM or MLAM who purchased such closed-end fund shares
prior to October 21, 1994 (the date the Merrill Lynch Select
Pricing
SM
System commenced operations) and wish to reinvest the
net proceeds from a sale of their closed-end fund shares of
common stock in Eligible Class A Shares, if the conditions set
forth below are satisfied. Alternatively, closed-end fund
shareholders who purchased such shares on or after October 21,
1994 and wish to reinvest the net proceeds from a sale of their
closed-end fund shares are offered Class A shares (if eligible
to buy Class A shares) or Class D shares of the Fund and other
Select Pricing Funds (“Eligible Class D Shares”), if
the following conditions are met. First, the sale of closed-end
fund shares must be made through Merrill Lynch, and the net
proceeds therefrom must be immediately reinvested in Eligible
Class A or Eligible Class D Shares. Second, the closed-end fund
shares must either have been acquired in the initial public
offering or be shares representing dividends from shares of
common stock acquired in such offering. Third, the closed-end
fund shares must have been continuously maintained in a Merrill
Lynch securities account. Fourth, there must be a minimum
purchase of $250 to be eligible for the investment
option.
Shareholders of certain MLAM/FAM-advised
continuously offered closed-end funds may reinvest at net asset
value the net proceeds from a sale of certain shares of common
stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating
Rate Fund, Inc. will receive Class A shares of the Fund and
shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch High Income Municipal Bond Fund, Inc. will receive
Class D shares of the Fund, except that shareholders already
owning Class A shares of the Fund will be eligible to purchase
additional Class A shares pursuant to this option, if such
additional Class A shares will be held in the same account as
the existing Class A shares and the other requirements
pertaining to the reinvestment privilege are met. In order to
exercise this investment option, a shareholder of one of the
above-referenced continuously offered closed-end funds (an
“eligible fund”) must sell his or her shares of common
stock of the eligible fund (the “eligible shares”)
back to the eligible fund in connection with a tender offer
conducted by the eligible fund and reinvest the proceeds
immediately in the designated class of shares of the Fund. This
investment option is available only with respect to eligible
shares as to which no Early Withdrawal Charge or CDSC (each as
defined in the eligible fund’s prospectus) is applicable.
Purchase orders from eligible fund shareholders wishing to
exercise this investment option will be accepted only on the day
that the related tender offer terminates and will be effected at
the net asset value of the designated class of the Fund on such
day.
Aquisition of Certain Investment Companies.
Class D shares may be offered at net
asset value in connection with the acquisition of the assets of
or merger or consolidation with a personal holding company or a
public or private investment company.
Deferred Sales Charge Alternatives—Class B And Class C
Shares
Investors choosing the deferred sales charge
alternatives should consider Class B shares if they intend to
hold their shares for an extended period of time and Class C
shares if they are uncertain as to the length of time they
intend to hold their assets in Select Pricing Funds.
Because no initial sales charges are deducted at the
time of the purchase, Class B and Class C shares provide the
benefit of putting all of the investor’s dollars to work
from the time the investment is made. The deferred sales charge
alternatives may be particularly appealing to investors that do
not qualify for the reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing
account maintenance and distribution fees potentially may be
offset to the extent any
return is realized on the additional funds initially invested in
Class B or Class C shares. In addition, Class B shares will be
converted into Class D shares of the Fund after a conversion
period of approximately eight years, and thereafter investors
will be subject to lower ongoing fees.
The public offering price of Class B and Class C
shares for investors choosing the deferred sales charge
alternatives is the next determined net asset value per share
without the imposition of a sales charge at the time of
purchase. See “Pricing of Shares—Determination of Net
Asset Value” below.
|
Contingent Deferred Sales Charges—Class
B Shares
|
Class B shares that are redeemed within four years
of purchase may be subject to a CDSC at the rates set forth
below charged as a percentage of the dollar amount subject
thereto. In determining whether a CDSC is applicable to a
redemption, the calculation will be determined in the manner
that results in the lowest applicable rate being charged. The
charge will be assessed on an amount equal to the lesser of the
proceeds of redemption or the cost of the shares being redeemed.
Accordingly, no CDSC will be imposed on increases in net asset
value above the initial purchase price. In addition, no CDSC
will be assessed on shares derived from reinvestment of
dividends. It will be assumed that the redemption is first of
shares held for over four years or shares acquired pursuant to
reinvestment of dividends and then of shares held longest during
the four-year period. A transfer of shares from a shareholder
’s account to another account will be assumed to be made in
the same order as a redemption.
The following table sets forth the Class B
CDSC:
Year Since
Purchase Payment Made
|
|
CDSC as
a Percentage
of Dollar Amount
Subject to Charge
|
| 0-1 |
|
4.0% |
| 1-2 |
|
3.0% |
| 2-3 |
|
2.0% |
| 3-4 |
|
1.0% |
| 4 and
thereafter |
|
None |
To provide an example, assume an investor purchased
100 shares at $10 per share (at a cost of $1,000) and in the
third year after purchase, the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
shares upon dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of
$600), 10 shares will not be subject to a CDSC because of
dividend reinvestment. With respect to the remaining 40 shares,
the charge is applied only to the original cost of $10 per share
and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged
at a rate of 2.0% (the applicable rate in the third year after
purchase).
The Class B CDSC may be waived on redemptions of
shares in connection with certain post-retirement withdrawals
from an Individual Retirement Account (“IRA”) or other
retirement plan or following the death or disability (as defined
in the Code) of a shareholder (including one who owns the Class
B shares as joint tenant with his or her spouse), provided the
redemption is requested within one year of the death or initial
determination of disability, or, if later, reasonably promptly
following completion of probate. The Class B CDSC also may be
waived on redemptions of shares by certain eligible 401(a) and
eligible 401(k) plans. The CDSC may also be waived for any Class
B shares that are purchased by eligible 401(k) or eligible
401(a) plans that are rolled over into a Merrill Lynch or
Merrill Lynch Trust Company custodied IRA and held in such
account at the time of redemption. The Class B CDSC may also be
waived for any Class B shares that were acquired and held at the
time of the redemption in an Employee Access
SM
Account available through employers providing eligible
401(k) plans. The Class B CDSC may also be waived for any Class
B shares that are purchased by a Merrill Lynch rollover IRA that
was funded by a rollover from a terminated 401(k) plan managed
by the MLAM Private Portfolio Group and held in such account at
the time of redemption. The Class B CDSC may be waived or its
terms may be modified in connection with certain fee-based
programs. The Class B CDSC may also be waived
in connection with involuntary termination of an account in which
Fund shares are held or for withdrawal through the Merrill Lynch
Systematic Withdrawal Plan. See “Shareholder Services
—Fee-Based Programs” and “—Systematic
Withdrawal Plan.”
Employer-Sponsored Retirement or Savings Plans
and Certain Other Arrangements.
Certain employer-sponsored retirement or savings plans
and certain other arrangements may purchase Class B shares with
a waiver of the CDSC upon redemption, based on the number of
employees or number of employees eligible to participate in the
plan, the aggregate amount invested by the plan in specified
investments and/or the services provided by Merrill Lynch to the
plan. Such Class B shares will convert into Class D shares
approximately ten years after the plan purchases the first share
of any Select Pricing Fund. Minimum purchase requirements may be
waived or varied for such plans. Additional information
regarding purchases by employer-sponsored retirement or savings
plans and certain other arrangements is available toll-free from
Merrill Lynch Business Financial Services at (800)
237-7777.
Merrill Lynch Blueprint
SM
Program. Class B shares
are offered to certain participants in Blueprint. Blueprint is
directed to small investors, group IRAs and participants in
certain affinity groups such as trade associations, credit
unions and benefit plans. Class B shares of the Fund are offered
through Blueprint only to members of certain affinity groups.
The CDSC is waived in connection with purchase orders placed
through Blueprint. Services, including the exchange privilege,
available to Class B investors through Blueprint, however, may
differ from those available to other Class B investors. Orders
for purchases and redemptions of Class B shares of the Fund may
be grouped for execution purposes which, in some circumstances,
may involve the execution of such orders two business days
following the day such orders are placed. The minimum initial
purchase price is $100, with a $50 minimum for subsequent
purchases through Blueprint. There is no minimum initial or
subsequent purchase requirement for investors who are part of a
Blueprint automatic investment plan. Additional information
concerning these Blueprint programs, including any annual fees
or transaction charges, is available from Merrill Lynch, Pierce,
Fenner & Smith Incorporated, The Blueprint
SM
Program, P.O. Box 30441, New Brunswick, New Jersey
08989-0441.
Conversion of Class B Shares to Class D Shares.
After approximately eight years (the
“Conversion Period”), Class B shares will be converted
automatically into Class D shares of the Fund. Class D shares
are subject to an ongoing account maintenance fee of 0.25% of
the average daily net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic
conversion of Class B shares into Class D shares will occur at
least once each month (on the “Conversion Date”) on
the basis of the relative net asset value of the shares of the
two classes on the Conversion Date, without the imposition of
any sales load, fee or other charge. Conversion of Class B
shares to Class D shares will not be deemed a purchase or sale
of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment
of dividends on Class B shares also will convert automatically
to Class D shares. The Conversion Date for dividend reinvestment
shares will be calculated taking into account the length of time
the shares underlying such dividend reinvestment shares were
outstanding. If at the Conversion Date the conversion of Class B
shares to Class D shares of the Fund in a single account will
result in less than $50 worth of Class B shares being left in
the account, all of the Class B shares of the Fund held in the
account on the Conversion Date will be converted to Class D
shares of the Fund.
In general, Class B shares of equity Select Pricing
Funds will convert approximately eight years after initial
purchase and Class B shares of taxable and tax-exempt fixed
income Select Pricing Funds will convert approximately ten years
after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year
Conversion Period for Class B shares with a ten-year Conversion
Period, or vice versa, the Conversion Period applicable to the
Class B shares acquired in the exchange will apply and the
holding period for the shares exchanged will be tacked on to the
holding period for the shares acquired. The Conversion Period
also may be modified for investors that participate in certain
fee-based programs. See “Shareholder Services
—Fee-Based Programs.”
Class B shareholders of the Fund exercising the
exchange privilege described under “Shareholder Services
—Exchange Privilege” will continue to be subject to
the Fund’s CDSC schedule if such schedule is higher than
the CDSC schedule relating to the Class B shares acquired as a
result of the exchange.
Share certificates for Class B shares of the Fund to
be converted must be delivered to the Transfer Agent at least
one week prior to the Conversion Date applicable to those
shares. In the event such certificates are not received by the
Transfer Agent at least one week prior to the Conversion Date,
the related Class B shares will convert to Class D shares on the
next scheduled Conversion Date after such certificates are
delivered.
|
Contingent Deferred Sales Charges—Class
C Shares
|
Class C shares that are redeemed within one year of
purchase may be subject to a 1.0% CDSC charged as a percentage
of the dollar amount subject thereto. In determining whether a
Class C CDSC is applicable to a redemption, the calculation will
be determined in the manner that results in the lowest possible
rate being charged. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed. Accordingly, no Class C CDSC will be
imposed on increases in net asset value above the initial
purchase price. In addition, no Class C CDSC will be assessed on
shares derived from reinvestment of dividends. It will be
assumed that the redemption is first of shares held for over one
year or shares acquired pursuant to reinvestment of dividends
and then of shares held longest during the one-year period. The
charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A
transfer of shares from a shareholder’s account to another
account will be assumed to be made in the same order as a
redemption. The Class C CDSC may be waived in connection with
involuntary termination of an account in which Fund shares are
held and withdrawals through the Merrill Lynch Systematic
Withdrawal Plan. See “Shareholder Services —
Systematic Withdrawal Plan.” The Class C CDSC of the
Fund and certain other Select Pricing Funds may be waived with
respect to Class C shares purchased by an investor with the net
proceeds of a tender offer made by certain MLAM/FAM-advised
closed end funds, including Merrill Lynch Senior Floating Rate
Fund II, Inc. Such waiver is subject to the requirement that the
tendered shares shall have been held by the investor for a
minimum of one year and to such other conditions as are set
forth in the prospectus for the related closed end
fund.
|
Class B and Class C Sales Charge
Information
|
Class B Shares*
For the Fiscal
Year
Ended October 31,
|
|
CDSCs Received
by Distributor
|
|
CDSCs Paid to
Merrill Lynch
|
|
|
|
|
|
|
| 1999 |
|
$
10,510,572 |
|
$
10,510,572 |
| 1998 |
|
$
10,325,527 |
|
$
10,325,527 |
| 1997 |
|
$
10,035,794 |
|
$
10,035,794 |
|
*
Additional Class B CDSCs payable to the Distributor may
have been waived or converted to a contingent obligation in
connection with a shareholder’s participation in certain
fee-based programs.
|
Class C Shares
For the Fiscal
Year
Ended October 31,
|
|
CDSCs Received
by Distributor
|
|
CDSCs Paid to
Merrill Lynch
|
| 1999 |
|
$145,149 |
|
$145,149 |
| 1998 |
|
$242,453 |
|
$242,453 |
| 1997 |
|
$215,161 |
|
$215,161 |
Merrill Lynch compensates its Financial Consultants for selling
Class B and Class C shares at the time of purchase from its own
funds. Proceeds from the CDSC and the distribution fee are paid
to the Distributor and are used in whole or in part by the
Distributor to defray the expenses of dealers (including Merrill
Lynch) related to providing distribution-related services to the
Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial
consultants for selling Class B and Class C shares from the
dealer’s own funds. The combination of the CDSC and the
ongoing distribution fee facilitates the ability of the Fund to
sell the Class B and Class C shares without a sales charge being
deducted at the time of purchase. See “Distribution Plans
” below. Imposition of the CDSC and the distribution fee on
Class B and Class C shares is limited by the National
Association of Securities Dealers, Inc. (the “NASD”)
asset-based sales charge rule. See “Limitations on the
Payment of Deferred Sales Charges” below.
Reference is made to “Fees and Expenses”
in the Prospectus for certain information with respect to the
separate distribution plans for Class B, Class C and Class D
shares pursuant to Rule 12b-1 under the Investment Company Act
(each a “Distribution Plan”) with respect to the
account maintenance and/or distribution fees paid by the Fund to
the Distributor with respect to such classes.
The Distribution Plans for Class B, Class C and
Class D shares each provides that the Fund pays the Distributor
an account maintenance fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual
rate of 0.25% of the average daily net assets of the Fund
attributable to shares of the relevant class in order to
compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) in connection with account maintenance activities
with respect to Class B, Class C and Class D shares. Each of
those classes has exclusive voting rights with respect to the
Distribution Plan adopted with respect to such class pursuant to
which account maintenance and/or distribution fees are paid
(except that Class B shareholders may vote upon any material
changes to expenses charged under the Class D Distribution
Plan).
The Distribution Plans for Class B and Class C
shares each provides that the Fund also pays the Distributor a
distribution fee relating to the shares of the relevant class,
accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the
shares of the relevant class in order to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) for
providing shareholder and distribution services and bearing
certain distribution-related expenses of the Fund, including
payments to financial consultants for selling Class B and Class
C shares of the Fund. The Distribution Plans relating to Class B
and Class C shares are designed to permit an investor to
purchase Class B and Class C shares through dealers without the
assessment of an initial sales charge and at the same time
permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C
shares.
The Fund’s Distribution Plans are subject to
the provisions of Rule 12b-1 under the Investment Company Act.
In their consideration of each Distribution Plan, the Directors
must consider all factors they deem relevant, including
information as to the benefits of the Distribution Plan to the
Fund and each related class of shareholders. Each Distribution
Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Independent
Directors shall be committed to the discretion of the
Independent Directors then in office. In approving each
Distribution Plan in accordance with Rule 12b-1, the Independent
Directors concluded that there is reasonable likelihood that
each Distribution Plan will benefit the Fund and its related
class of shareholders. Each Distribution Plan can be terminated
at any time, without penalty, by the vote of a majority of the
Independent Directors or by the vote of the holders of a
majority of the outstanding related class of voting securities
of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the
approval of the related class of shareholders and all material
amendments are required to be approved by the vote of Directors,
including a majority of the Independent Directors who have no
direct or indirect financial interest in the Distribution Plan,
cast in person at a meeting called for that purpose. Rule 12b-1
further requires that the Fund preserve copies of the
Distribution Plan and any report made pursuant to such plan for
a period of not less than six years from the date of the
Distribution Plan or such report, the first two years in an
easily accessible place.
Among other things, each Distribution Plan
provides that the Distributor shall provide and the Directors
shall review quarterly reports of the disbursement of the
account maintenance and/or distribution fees paid to the
Distributor. Payments under the Distribution Plans are based on
a percentage of average daily net assets attributable to the
shares regardless of the amount of expenses incurred and,
accordingly, distribution-related revenues from the Distribution
Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues
and expenses is presented to the Directors for their
consideration in connection with their deliberations as to the
continuance of the Class B and Class C Distribution Plans
annually, as of December 31 of each year, on a “fully
allocated accrual” basis and quarterly on a “direct
expense and revenue/cash” basis. On the fully allocated
accrual basis, revenues consist of the account maintenance fees,
distribution fees, the CDSCs and certain other related revenues,
and expenses consist of financial consultant compensation,
branch office and regional operation center selling and
transaction processing expenses, advertising, sales promotion
and marketing expenses, corporate overhead and interest expense.
On the direct expense and revenue/cash basis, revenues consist
of the account maintenance fees, distribution fees and CDSCs and
the expenses consist of financial consultant
compensation.
As of December 31, 1998, the last date for which
fully allocated accrual data is available, the fully allocated
accrual revenues of the Distributor and Merrill Lynch for the
period since the commencement of operations of Class B shares
exceeded the fully allocated accrual expenses by approximately
$77,042,000 (1.25% of Class B net assets at that date). As of
October 31, 1999, direct cash revenues for the period since the
commencement of operations of Class B shares exceeded direct
cash expenses by $469,288,891 (10.44% of Class B net assets at
that date). As of December 31, 1998, the fully allocated accrual
expenses incurred by the Distributor and Merrill Lynch for the
period since the commencement of operations of Class C shares
exceeded the fully allocated accrual revenues by approximately
$1,109,000 (.25% of Class C net assets at that date). As of
October 31, 1999, direct cash revenues for the period since the
commencement of operations of Class C shares exceeded direct
cash expenses by $13,378,867 (4.15% of Class C net assets at
that date).
For the fiscal year ended October 31, 1999, the Fund
paid the Distributor $52,225,942 pursuant to the Class B
Distribution Plan (based on average daily net assets subject to
such Class B Distribution Plan of approximately $5.2 billion),
all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in
connection with Class B shares. For the fiscal year ended
October 31, 1999, the Fund paid the Distributor $3,728,640
pursuant to the Class C Distribution Plan (based on average
daily net assets subject to such Class C Distribution Plan of
approximately $373.9 million), all of which was paid to Merrill
Lynch for providing account maintenance and distribution-related
activities and services in connection with Class C shares. For
the fiscal year ended October 31, 1999, the Fund paid the
Distributor $3,058,510 pursuant to the Class D Distribution Plan
(based on average daily net assets subject to such Class D
Distribution Plan of approximately $1.2 billion), all of which
was paid to Merrill Lynch for providing account maintenance
activities in connection with Class D shares.
Limitations on the Payment of Deferred Sales
Charges
The maximum sales charge rule in the Conduct Rules
of the NASD imposes a limitation on certain asset-based sales
charges such as the distribution fee and the CDSC borne by the
Class B and Class C shares but not the account maintenance fee.
The maximum sales charge rule is applied separately to each
class. As applicable to the Fund, the maximum sales charge rule
limits the aggregate of distribution fee payments and CDSCs
payable by the Fund to (1) 6.25% of eligible gross sales of
Class B shares and Class C shares, computed separately (defined
to exclude shares issued pursuant to dividend reinvestments and
exchanges), plus (2) interest on the unpaid balance for the
respective class, computed separately, at the prime rate plus 1%
(the unpaid balance being the maximum amount payable minus
amounts received from the payment of the distribution fee and
the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on
the unpaid balance in excess of 0.50% of eligible gross sales.
Consequently, the maximum amount payable to the Distributor
(referred to as the “voluntary maximum”) in connection
with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest
charges at any time. To the extent
payments would exceed the voluntary maximum, the Fund will not
make further payments of the distribution fee with respect to
Class B shares and any CDSCs will be paid to the Fund rather
than to the Distributor; however, the Fund will continue to make
payments of the account maintenance fee. In certain
circumstances the amount payable pursuant to the voluntary
maximum may exceed the amount payable under the NASD formula. In
such circumstances payment in excess of the amount payable under
the NASD formula will not be made.
The following table sets forth comparative
information as of October 31, 1999 with respect to the Class B
and Class C shares of the Fund indicating the maximum allowable
payments that can be made under the NASD maximum sales charge
rule and, with respect to the Class B shares, the Distributor
’s voluntary maximum.
|
|
|
Data Calculated as of October
31, 1999
|
|
|
|
(in
thousands) |
|
|
|
Eligible
Gross
Sales(1)
|
|
Allowable
Aggregate
Sales
Charge(2)
|
|
Allowable
Interest On
Unpaid
Balance(3)
|
|
Maximum
Amount
Payable
|
|
Amounts
Previously
Paid to
Distributor(4)
|
|
Aggregate
Unpaid
Balance
|
|
Annual
Distribution
Fee at
Current
Net
Asset
Level(5)
|
Class B Shares for the period
February 3, 1989 (commencement
of operations) to October 31,
1999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Under
NASD Rule as Adopted |
|
$14,021,757 |
|
$868,657 |
|
$485,298 |
|
$1,353,955 |
|
$568,497 |
|
$785,458 |
|
$33,720 |
| Under
Distributor’s Voluntary Waiver |
|
$14,021,757 |
|
$876,360 |
|
$
70,109 |
|
$
946,469 |
|
$568,497 |
|
$377,972 |
|
$33,720 |
Class C Shares, for the period
October 21, 1994 (commencement
of operations) to October 31,
1999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Under
NASD Rule as Adopted |
|
$
831,010 |
|
$
51,485 |
|
$
13,055 |
|
$
64,540 |
|
$
14,736 |
|
$
49,804 |
|
$
2,417 |
(1)
|
Purchase price of all eligible Class B or Class
C shares sold during the periods indicated other than shares
acquired through dividend reinvestment and the exchange
privilege.
|
(2)
|
Includes amounts attributable to exchanges from
Summit Cash Reserves Fund (“Summit”) which are not
reflected in Eligible Gross Sales. Shares of Summit can only
be purchased by exchange from another fund (the “redeemed
fund”). Upon such an exchange, the maximum allowable
sales charge payment to the redeemed fund is reduced in
accordance with the amount of the redemption. This amount is
then added to the maximum allowable sales charge payment with
respect to Summit. Upon an exchange out of Summit, the
remaining balance of this amount is deducted from the maximum
allowable sales charge payment to Summit and added to the
maximum allowable sales charge payment to the fund into which
the exchange is made.
|
(3)
|
Interest is computed on a monthly basis based
upon the prime rate, as reported in The Wall Street
Journal, plus 1.0%, as permitted under the NASD
Rule.
|
(4)
|
Consists of CDSC payments, distribution fee
payments and accruals. Of the distribution fee payments made
with respect to Class B shares prior to July 7, 1993 under the
distribution plan in effect at that time, at a 1.0% rate,
0.75% of average daily net assets has been treated as a
distribution fee and 0.25% of average daily net assets has
been deemed to have been a service fee and not subject to the
NASD maximum sales charge rule. See “What are the Fund
’s fees and expenses?” in the Prospectus. This
figure may include CDSCs that were deferred when a shareholder
redeemed shares prior to the expiration of the applicable CDSC
period and invested the proceeds, without the imposition of a
sales charge, in Class A shares in conjunction with the
shareholder’s participation in the Merrill Lynch Mutual
Fund Advisor (Merrill Lynch MFA
SM
) Program (the “MFA Program”). The CDSC is
booked as a contingent obligation that may be payable if the
shareholder terminates participation in the MFA
Program.
|
(5)
|
Provided to illustrate the extent to which the
current level of distribution fee payments (not including any
CDSC payments) is amortizing the unpaid balance. No assurance
can be given that payments of the distribution fee will reach
either the voluntary maximum (with respect to Class B shares)
or the NASD maximum (with respect to Class B and Class C
shares).
|
Reference is made to “How to Buy, Sell,
Transfer and Exchange Shares” in the
Prospectus.
The Fund is required to redeem for cash all shares
of the Fund upon receipt of a written request in proper form.
The redemption price is the net asset value per share next
determined after the initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there
will be no charge for redemption if the redemption request is
sent directly to the Transfer Agent. Shareholders liquidating
their holdings will receive upon redemption all dividends
reinvested through the date of redemption.
The right to redeem shares or to receive payment
with respect to any such redemption may be suspended for more
than seven days only for any period during which trading on the
NYSE is restricted as determined by the Commission or the NYSE
is closed (other than customary weekend and holiday closings),
for any period during which an emergency exists as defined by
the Commission as a result of which disposal of portfolio
securities or determination of the net asset value of the Fund
is not reasonably practicable, and for such other periods as the
Commission may by order permit for the protection of
shareholders of the Fund.
The value of shares at the time of redemption may be
more or less than the shareholder’s cost, depending in part
on the market value of the securities held by the Fund at such
time.
A shareholder wishing to redeem shares held with the
Transfer Agent may do so without charge by tendering the shares
directly to the Transfer Agent at Financial Data Services, Inc.,
P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption
requests delivered other than by mail should be delivered to
Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484. Proper notice of redemption in
the case of shares deposited with the Transfer Agent may be
accomplished by a written letter requesting redemption. Proper
notice of redemption in the case of shares for which
certificates have been issued may be accomplished by a written
letter as noted above accompanied by certificates for the shares
to be redeemed. Redemption requests should not be sent to the
Fund. The redemption request in either event requires the
signature(s) of all persons in whose name(s) the shares are
registered, signed exactly as such name(s) appear(s) on the
Transfer Agent’s register. The signature on the redemption
request may require a guarantee by an “eligible guarantor
institution” as defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934 (the “Exchange Act”),
the existence and validity of which may be verified by the
Transfer Agent through the use of industry publications. In the
event a signature guarantee is required, notarized signatures
are not sufficient. In general, signature guarantees are waived
on redemptions of less than $50,000 as long as the following
requirements are met: (i) all requests require the signature(s)
of all persons in whose name(s) shares are recorded on the
Transfer Agent’s register; (ii) all checks must be mailed
to the stencil address of record on the Transfer Agent’s
register and (iii) the stencil address must not have changed
within 30 days. Certain rules may apply regarding certain
account types such as but not limited to UGMA/UTMA accounts,
Joint Tenancies With Rights of Survivorship, contra broker
transactions, and institutional accounts. In certain instances,
the Transfer Agent may require additional documents such as, but
not limited to, trust instruments, death certificates,
appointments as executor or administrator, or certificates of
corporate authority. For shareholders redeeming directly with
the Transfer Agent, payments will be mailed within seven days of
receipt of a proper notice of redemption.
At various times the Fund may be requested to redeem
shares for which it has not yet received good payment (e.g.,
cash, Federal funds or certified check drawn on a U.S. bank).
The Fund may delay or cause to be delayed the mailing of a
redemption check until such time as it has assured itself that
good payment (e.g., cash, Federal funds or certified check drawn
on a U.S. bank) has been collected for the purchase of such Fund
shares, which usually will not exceed 10 days.
The Fund also will repurchase Fund shares through a
shareholder’s listed securities dealer. The Fund normally
will accept orders to repurchase Fund shares by wire or
telephone from dealers for their customers at the net asset
value next computed after the order is placed. Shares will be
priced at the net asset value calculated on the day the request
is received, provided that the request for repurchase is
submitted to the dealer prior to the close of business on the
NYSE (generally, the NYSE closes at 4:00 p.m., Eastern time) and
such request is received by the Fund from such dealer not later
than 30 minutes after the close of business on the NYSE on the
same day. Dealers have the responsibility of submitting such
repurchase requests to the Fund not later than 30 minutes after
the close of business on the NYSE, in order to obtain that day
’s closing price.
The foregoing repurchase arrangements are for the
convenience of shareholders and do not involve a charge by the
Fund (other than any applicable CDSC). Securities firms that do
not have selected dealer agreements with the Distributor,
however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Merrill Lynch
may charge its customers a processing fee (presently $5.35) to
confirm a repurchase of shares to such customers. Repurchases
made directly through the Transfer Agent on accounts held at the
Transfer Agent are not subject to the processing fee. The Fund
reserves the right to reject any order for repurchase, which
right of rejection might adversely affect shareholders seeking
redemption through the repurchase procedure. However, a
shareholder whose order for repurchase is rejected by the Fund
may redeem Fund shares as set forth above.
Reinstatement Privilege—Class A and Class D
Shares
Shareholders who have redeemed their Class A or
Class D shares of the Fund have a privilege to reinstate their
accounts by purchasing Class A or Class D shares, as the case
may be, of the Fund at net asset value without a sales charge up
to the dollar amount redeemed. The reinstatement privilege may
be exercised by sending a notice of exercise along with a check
for the amount to be reinstated to the Transfer Agent within 30
days after the date the request for redemption was accepted by
the Transfer Agent or the Distributor. Alternatively, the
reinstatement privilege may be exercised through the investor
’s Merrill Lynch Financial Consultant within 30 days after
the date the request for redemption was accepted by the Transfer
Agent or the Distributor. The reinstatement will be made at the
net asset value per share next determined after the notice of
reinstatement is received and cannot exceed the amount of the
redemption proceeds.
Determination of Net Asset Value
Reference is made to “How Shares are Priced
” in the Prospectus.
The net asset value of the shares of all classes of
the Fund is determined once daily Monday through Friday as of
the close of business on the NYSE on each day the NYSE is open
for trading based on prices at the time of closing. The NYSE
generally closes at 4:00 p.m., Eastern time. Any assets or
liabilities initially expressed in terms of non-U.S. dollar
currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the
day of valuation. The NYSE is not open for trading on New Year
’s Day, Martin Luther King, Jr. Day, Presidents’ Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Net asset value is computed by dividing the value of
the securities held by the Fund plus any cash or other assets
(including interest and dividends accrued but not yet received)
minus all liabilities (including accrued expenses) by the total
number of shares outstanding at such time, rounded to the
nearest cent. Expenses, including the fees payable to the
Manager and Distributor, are accrued daily.
The per share net asset value of Class B, Class C and Class D
shares generally will be lower than the per share net asset
value of Class A shares, reflecting the daily expense accruals
of the account maintenance, distribution and higher transfer
agency fees applicable with respect to Class B and Class C
shares, and the daily expense accruals of the account
maintenance fees applicable with respect to the Class D shares;
moreover, the per share net asset value of the Class B and Class
C shares generally will be lower than the per share net asset
value of Class D shares reflecting the daily expense accruals of
the distribution fees and higher transfer agency fees applicable
with respect to Class B and Class C shares of the Fund. It is
expected, however, that the per share net asset value of the
four classes will tend to converge (although not necessarily
meet) immediately after the payment of dividends, which will
differ by approximately the amount of the expense accrual
differentials between the classes.
Portfolio securities that are traded on stock
exchanges are valued at the last sale price (regular way) on the
exchange on which such securities are traded as of the close of
business on the day the securities are being valued or, lacking
any sales, at the last available bid price for long positions,
and at the last available ask price for short positions. In
cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated by or under the
authority of the Directors as the primary market. Long positions
in securities traded in the OTC market are valued at the last
available bid price in the OTC market prior to the time of
valuation. Portfolio securities that are traded both in the OTC
market and on a stock exchange are valued according to the
broadest and most representative market. Short positions in
securities traded in the OTC market are valued at the last
available ask price in the OTC market prior to the time of
valuation. When the Fund writes an option, the amount of the
premium received is recorded on the books of the Fund as an
asset and an equivalent liability. The amount of the liability
is subsequently valued to reflect the current market value of
the option written, based upon the last sale price in the case
of exchange-traded options or, in the case of options traded in
the OTC market, the last asked price. Options purchased by the
Fund are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the
OTC market, the last bid price. Other investments, including
financial futures contracts and related options, are stated at
market value.
Corporate Loans will be valued in accordance with
guidelines established by the Board of Directors. Under the Fund
’s current guidelines, Corporate Loans for which an active
secondary market exists to a reliable degree in the opinion of
the Manager and for which the Manager can obtain at least two
quotations from banks or dealers in Corporate Loans will be
valued by the Manager by calculating the mean of the last
available bid and asked prices for such Corporate Loans provided
by each of two dealers, and then using the mean of those two
means. If only one quote for a particular Corporate Loan is
available, such Corporate Loan will be valued on the basis of
the mean of the bid and asked prices provided by the dealer. In
the event no quotes are available, such Corporate Loan will be
valued by a Pricing Committee of the Board of
Directors.
Securities and assets for which market quotations
are not readily available are valued at fair value as determined
in good faith by or under the direction of the Directors of the
Fund. Such valuations and procedures will be reviewed
periodically by the Directors.
Generally, trading in non-U.S. securities, as well
as U.S. Government securities and money market instruments, is
substantially completed each day at various times prior to the
close of business on the NYSE. The values of such securities
used in computing the net asset value of the Fund’s shares
are determined as of such times. Foreign currency exchange rates
are also generally determined prior to the close of business on
the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times
at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Fund
’s net asset value.
Computation of Offering Price Per Share
An illustration of the computation of the offering
price for Class A, Class B, Class C and Class D shares of the
Fund based on the value of the Fund’s net assets and number
of shares outstanding on October 31, 1999 is set forth
below.
|
|
|
Class
A
|
|
Class
B
|
|
Class
C
|
|
Class
D
|
| Net
Assets |
|
$1,305,472,987 |
|
$4,496,036,853 |
|
$322,237,973 |
|
$1,229,415,251 |
| |
|
|
|
|
|
|
|
|
| Number of Shares Outstanding |
|
88,239,373 |
|
309,636,594 |
|
22,493,181 |
|
83,260,724 |
| |
|
|
|
|
|
|
|
|
Net
Asset Value Per Share (net assets
divided by number of shares
outstanding) |
|
$
14.79 |
|
$
14.52 |
|
$
14.33 |
|
$
14.77 |
Sales
Charge (for Class A and Class D
shares: 5.25% of offering price;
5.54%
of net asset value per
share)* |
|
.82 |
|
** |
|
** |
|
.82 |
| |
|
|
|
|
|
|
|
|
| Offering Price |
|
$
15.61 |
|
$
14.52 |
|
$
14.33 |
|
$
15.59 |
| |
|
|
|
|
|
|
|
|
*
|
Rounded to the nearest one-hundredth percent;
assumes maximum sales charge is applicable.
|
**
|
Class B and Class C shares are not subject to
an initial sales charge but may be subject to a CDSC on
redemption of shares. See “Purchase of Shares
—Deferred Sales Charge Alternatives—Class B and
Class C Shares—Contingent Deferred Sales Charges
—Class B Shares” and “—Contingent Deferred
Sales Charges—Class C Shares” herein.
|
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of
Directors, the Manager is primarily responsible for the
execution of the Fund’s portfolio transactions and the
allocation of brokerage. The Fund has no obligation to deal with
any dealer or group of dealers in the execution of transactions
in portfolio securities of the Fund. Where possible, the Fund
deals directly with the dealers who make a market in the
securities involved except in those circumstances where better
prices and execution are available elsewhere. It is the policy
of the Fund to obtain the best results in conducting portfolio
transactions for the Fund, taking into account such factors as
price (including the applicable dealer spread or commission),
the size, type and difficulty of the transaction involved, the
firm’s general execution and operations facilities and the
firm’s risk in positioning the securities involved. The
portfolio securities of the Fund generally are traded on a
principal basis and normally do not involve either brokerage
commissions or transfer taxes. The cost of portfolio securities
transactions of the Fund primarily consists of dealer or
underwriter spreads. While reasonable competitive spreads or
commissions are sought, the Fund will not necessarily be paying
the lowest spread or commission available. Transactions with
respect to the securities of small and emerging growth companies
in which the Fund may invest may involve specialized services on
the part of the broker or dealer and thereby entail higher
commissions or spreads than would be the case with transactions
involving more widely traded securities.
Subject to obtaining the best net results, dealers
who provide supplemental investment research (such as
information concerning tax-exempt securities, economic data and
market forecasts) to the Investment Adviser may receive orders
for transactions by the Fund. Information so received will be in
addition to and not in lieu of the services required to be
performed by the Manager under its Management Agreement and the
expense of the Manager will not necessarily be reduced as a
result of the receipt of such supplemental information.
Supplemental investment research obtained from such dealers
might be used by the Manager in servicing all of its accounts
and all such research might not be used by the Manager in
connection with the Fund. Consistent with the Conduct Rules of
the NASD and policies established by the Directors of the Fund,
the Manager may consider sales of shares of the Fund as a factor
in the selection of brokers or dealers to execute portfolio
transactions for the Fund.
The Fund anticipates that its brokerage transactions involving
securities of issuers domiciled in countries other than the
United States generally will be conducted primarily on the
principal stock exchanges of such countries. Brokerage
commissions and other transaction costs of foreign stock
exchange transactions generally are higher than in the United
States, although the Fund will endeavor to achieve the best net
results in effecting its portfolio transactions. There generally
is less government supervision and regulation of foreign stock
exchanges and brokers than in the United States.
Foreign equity securities may be held by the Fund in
the form of ADRs, EDRs, GDRs or other securities convertible
into foreign equity securities. ADRs, EDRs and GDRs may be
listed on stock exchanges, or traded in over-the-counter markets
in the United States or Europe, as the case may be. ADRs, like
other securities traded in the United States, will be subject to
negotiated commission rates. The Fund’s ability and
decisions to purchase or sell portfolio securities of foreign
issuers may be affected by laws or regulations relating to the
convertibility and repatriation of assets. Because the shares of
the Fund are redeemable on a daily basis in United States
dollars, the Fund intends to manage its portfolio so as to give
reasonable assurance that it will be able to obtain United
States dollars to the extent necessary to meet anticipated
redemptions. Under present conditions, it is not believed that
these considerations will have any significant effect on its
portfolio strategy.
Information about the brokerage commissions paid by
the Fund including commissions paid to Merrill Lynch, is set
forth in the following table:
Fiscal Year
Ended October 31,
|
|
Aggregate
Brokerage
Commissions Paid
|
|
Commissions
Paid to
Merrill Lynch
|
| 1999 |
|
$
7,055,875 |
|
$323,941 |
| 1998 |
|
$10,092,521 |
|
$655,667 |
| 1997 |
|
$
8,287,221 |
|
$238,952 |
For the fiscal year ended October 31, 1999, the
brokerage commissions paid to Merrill Lynch represented 4.59% of
the aggregate brokerage commissions paid and involved 4.20% of
the Fund’s dollar amount of transactions involving payment
of commissions during the year.
The Fund anticipates that its brokerage transactions
involving securities of companies domiciled in countries other
than the United States will be conducted primarily on the
principal stock exchanges of such countries. Brokerage
commissions and other transaction costs on foreign stock
exchange transactions are generally higher than in the United
States, although the Fund will endeavor to achieve the best net
results in effecting its portfolio transactions. There is
generally less governmental supervision and regulation of
foreign stock exchanges and brokers than in the United
States.
The Fund’s ability and decisions to purchase or
sell portfolio securities may be affected by laws or regulations
relating to the convertibility and repatriation of assets.
Because the shares of the Fund are redeemable on a daily basis
in U.S. dollars, the Fund intends to manage its portfolio so as
to give reasonable assurance that it will be able to obtain U.S.
dollars to the extent necessary to meet anticipated redemptions.
Under present conditions, it is not believed that these
considerations will have any significant effect on its portfolio
strategy.
Under the Investment Company Act, persons affiliated
with the Fund and persons who are affiliated with such persons
are prohibited from dealing with the Fund as principal in the
purchase and sale of securities unless a permissive order
allowing such transactions is obtained from the Commission.
Since transactions in the OTC market usually involve
transactions with dealers acting as principal for their own
accounts, affiliated persons of the Fund, including Merrill
Lynch and any of its affiliates, will not serve as the Fund
’s dealer in such transactions. However, affiliated persons
of the Fund may serve as its broker in listed or OTC
transactions conducted on an agency basis provided that, among
other things, the fee or commission received by such affiliated
broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable
transactions. In addition, the Fund may not purchase securities
during the existence of any underwriting syndicate for such
securities of which Merrill Lynch is a member or in a private
placement in which
Merrill Lynch serves as placement agent except pursuant to
procedures adopted by the Board of Directors of the Fund that
either comply with rules adopted by the Commission or with
interpretations of the Commission staff.
Certain court decisions have raised questions as to
the extent to which investment companies should seek exemptions
under the Investment Company Act in order to seek to recapture
underwriting and dealer spreads from affiliated entities. The
Directors have considered all factors deemed relevant and have
made a determination not to seek such recapture at this time.
The Directors will reconsider this matter from time to
time.
Section 11(a) of the Exchange Act generally
prohibits members of the U.S. national securities exchanges from
executing exchange transactions for their affiliates and
institutional accounts that they manage unless the member (i)
has obtained prior express authorization from the account to
effect such transactions, (ii) at least annually furnishes the
account with a statement setting forth the aggregate
compensation received by the member in effecting such
transactions, and (iii) complies with any rules the Commission
has prescribed with respect to the requirements of clauses (i)
and (ii). To the extent Section 11(a) would apply to Merrill
Lynch acting as a broker for the Fund in any of its portfolio
transactions executed on any such securities exchange of which
it is a member, appropriate consents have been obtained from the
Fund and annual statements as to aggregate compensation will be
provided to the Fund. Securities may be held by, or be
appropriate investments for, the Fund as well as other funds or
investment advisory clients of the Manager or FAM.
Because of different objectives or other factors, a
particular security may be bought for one or more clients of the
Manager or an affiliate when one or more clients of the Manager
or an affiliate are selling the same security. If purchases or
sales of securities arise for consideration at or about the same
time that would involve the Fund or other clients or funds for
which the Manager or an affiliate act as manager, transactions
in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to
all. To the extent that transactions on behalf of more than one
client of the Manager or an affiliate during the same period may
increase the demand for securities being purchased or the supply
of securities being sold, there may be an adverse effect on
price.
The Fund offers a number of shareholder services and
investment plans described below that are designed to facilitate
investment in shares of the Fund. Full details as to each of
such services, copies of the various plans and instructions as
to how to participate in the various services or plans, or how
to change options with respect thereto, can be obtained from the
Fund, by calling the telephone number on the cover page hereof,
or from the Distributor or Merrill Lynch. Certain of these
services are available only to U.S. investors and certain of
such services are not available to investors who place purchase
orders for the Fund’s shares through the Merrill Lynch
Blueprint
SM
Program.
Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive
statements, at least quarterly, from the Transfer Agent. These
statements will serve as transaction confirmations for automatic
investment purchases and the reinvestment of dividends. The
statements will also show any other activity in the account
since the preceding statement. Shareholders will also receive
separate confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestment
of dividends. A shareholder with an account held at the Transfer
Agent may make additions to his or her Investment Account at any
time by mailing a check directly to the Transfer Agent. A
shareholder may also maintain an account through Merrill Lynch.
Upon the transfer of shares out of a Merrill Lynch brokerage
account, an Investment Account in the transferring shareholder
’s name may be opened automatically at the Transfer
Agent.
Share certificates are issued only for full shares
and only upon the specific request of a shareholder who has an
Investment Account. Issuance of certificates representing all or
only part of the full shares in an Investment Account may be
requested by a shareholder directly from the Transfer
Agent.
Shareholders may transfer their Fund shares from
Merrill Lynch to another securities dealer that has entered into
a selected dealer agreement with Merrill Lynch. Certain
shareholder services may not be available for the transferred
shares. After the transfer, the shareholder may purchase
additional shares of funds owned before the transfer and all
future trading of these assets must be coordinated by the new
firm. If a shareholder wishes to transfer his or her shares to a
securities dealer that has not entered into a selected dealer
agreement with Merrill Lynch, the shareholder must either (i)
redeem his or her shares, paying any applicable CDSC or (ii)
continue to maintain an Investment Account at the Transfer Agent
for those shares. The shareholder may also request the new
securities dealer to maintain the shares in an account at the
Transfer Agent registered in the name of the securities dealer
for the benefit of the shareholder whether the securities dealer
has entered into a selected dealer agreement or not.
Shareholders considering transferring a tax-deferred
retirement account, such as an individual retirement account,
from Merrill Lynch to another securities dealer should be aware
that, if the firm to which the retirement account is to be
transferred will not take delivery of shares of the Fund, a
shareholder must either redeem the shares, paying any applicable
CDSC, so that the cash proceeds can be transferred to the
account at the new firm, or such shareholder must continue to
maintain a retirement account at Merrill Lynch for those
shares.
U.S. shareholders of each class of shares of the
Fund have an exchange privilege with certain other Select
Pricing Funds and Summit Cash Reserves Fund (“Summit
”), a series of Financial Institutions Series Trust, which
is a Merrill Lynch-sponsored money market fund specifically
designated for exchange by holders of Class A, Class B, Class C
and Class D shares of Select Pricing Funds. Shares with a net
asset value of at least $100 are required to qualify for the
exchange privilege and any shares utilized in an exchange must
have been held by the shareholder for at least 15 days. Before
effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to
be made. Exercise of the exchange privilege is treated as a sale
of the exchanged shares and a purchase of the acquired shares
for Federal income tax purposes.
Exchanges of Class A and Class D Shares.
Class A shareholders may exchange Class A
shares of the Fund for Class A shares of a second Select Pricing
Fund if the shareholder holds any Class A shares of the second
fund in his or her account in which the exchange is made at the
time of the exchange or is otherwise eligible to purchase Class
A shares of the second fund. If the Class A shareholder wants to
exchange Class A shares for shares of a second Select Pricing
Fund, but does not hold Class A shares of the second fund in his
or her account at the time of the exchange and is not otherwise
eligible to acquire Class A shares of the second fund, the
shareholder will receive Class D shares of the second fund as a
result of the exchange. Class D shares also may be exchanged for
Class A shares of a second Select Pricing Fund at any time as
long as, at the time of the exchange, the shareholder holds
Class A shares of the second fund in the account in which the
exchange is made or is otherwise eligible to purchase Class A
shares of the second fund. Class D shares are exchangeable with
shares of the same class of other Select Pricing
Funds.
Exchanges of Class A or Class D shares outstanding (
“outstanding Class A or Class D shares”) for Class A
or Class D shares of other Select Pricing Funds or Class A
shares of Summit (“new Class A or Class D shares”),
are transacted on the basis of relative net asset value per
Class A or Class D share, respectively, plus an amount equal to
the difference, if any, between the sales charge previously paid
on the outstanding Class A or Class D shares and the sales
charge payable at the time of the exchange on the new Class A or
Class D shares. With respect to outstanding Class A or Class D
shares as to which previous exchanges have taken place, the
“sales charge previously paid” shall include the
aggregate of the sales charges paid with respect to such Class A
or Class D shares in the initial purchase and any subsequent
exchange. Class A or Class D shares issued pursuant to dividend
reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For
purposes of the exchange privilege, Class A or Class D shares
acquired through dividend reinvestment shall be deemed to have
been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the
dividend was paid. Based on this formula, Class A and Class D
shares generally may be exchanged into the Class A or Class D
shares, respectively, of the other funds with a reduced sales
charge or without a sales charge.
Exchanges of Class B and Class C Shares.
Certain Select Pricing Funds with Class B or
Class C shares outstanding (“outstanding Class B or Class C
shares”) offer to exchange their Class B or Class C shares
for Class B or Class C shares, respectively, of certain other
Select Pricing Funds or for Class B shares of Summit (“new
Class B or Class C shares”) on the basis of relative net
asset value per Class B or Class C share, without the payment of
any CDSC that might otherwise be due on redemption of the
outstanding shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to the Fund
’s CDSC schedule if such schedule is higher than the CDSC
schedule relating to the new Class B shares acquired through use
of the exchange privilege. In addition, Class B shares of the
fund acquired through use of the exchange privilege will be
subject to the Fund’s CDSC schedule if such schedule is
higher than the CDSC schedule relating to the Class B or Class C
shares of the fund from which the exchange has been made. For
purposes of computing the CDSC that may be payable on a
disposition of the new Class B or Class C shares, the holding
period for the outstanding Class B shares is “tacked”
to the holding period of the new Class B shares. For example, an
investor may exchange Class B or Class C shares of the Fund for
those of Merrill Lynch Special Value Fund, Inc. (“Special
Value Fund”) after having held the Fund’s Class B
shares for two and a half years. The 2% CDSC that generally
would apply to a redemption would not apply to the exchange.
Three years later the investor may decide to redeem the Class B
shares of Special Value Fund and receive cash. There will be no
CDSC due on this redemption, since by “tacking” the
two and a half year holding period of Fund Class B shares to the
three-year holding period for the Special Value Fund Class B
shares, the investor will be deemed to have held the Special
Value Fund Class B shares for more than five years.
Exchanges for Shares of a Money Market Fund.
Class A and Class D shares are
exchangeable for Class A shares of Summit and Class B and Class
C shares are exchangeable for Class B shares of Summit. Class A
shares of Summit have an exchange privilege back into Class A or
Class D shares of Select Pricing Funds; Class B shares of Summit
have an exchange privilege back into Class B or Class C shares
of Select Pricing Funds and, in the event of such an exchange,
the period of time that Class B shares of Summit are held will
count toward satisfaction of the holding period requirement for
purposes of reducing any CDSC and toward satisfaction of any
Conversion Period with respect to Class B shares. Class B shares
of Summit will be subject to a distribution fee at an annual
rate of 0.75% of average daily net assets of such Class B
shares. This exchange privilege does not apply with respect to
certain Merrill Lynch fee-based programs for which alternative
exchange arrangements may exist. Please see your Merrill Lynch
Financial Consultant for further information.
Prior to October 12, 1998, exchanges from the Fund
and other Select Pricing Funds into a money market fund were
directed to certain Merrill Lynch-sponsored money market funds
other than Summit. Shareholders who exchanged Select Pricing
Fund shares for shares of such other money market funds and
subsequently wish to exchange those money market fund shares for
shares of the Fund will be subject to the CDSC schedule
applicable to such Fund shares, if any. The holding period for
the money market fund shares will not count toward satisfaction
of the holding period requirement for reduction of the CDSC
imposed on such shares, if any, and, with respect to Class B
shares, toward satisfaction of the Conversion Period. However,
the holding period for Class B or Class C shares received in
exchange for such money market fund shares will be aggregated
with the holding period for the fund shares originally exchanged
for such money market fund shares for purposes of reducing the
CDSC or satisfying the Conversion Period.
Exchanges by Participants in the MFA Program.
The exchange privilege is modified with
respect to certain retirement plans which participate in the MFA
Program. Such retirement plans may exchange Class B, Class C or
Class D shares that have been held for at least one year for
Class A shares of the same fund on the basis of relative net
asset values in connection with the commencement of
participation in the MFA Program, i.e., no CDSC will
apply. The one year holding period does not apply to shares
acquired through reinvestment of
dividends. Upon termination of participation in the MFA Program,
Class A shares will be re-exchanged for the class of shares
originally held. For purposes of computing any CDSC that may be
payable upon redemption of Class B or Class C shares so
reacquired, or the Conversion Period for Class B shares so
reacquired, the holding period for the Class A shares will be
“tacked” to the holding period for the Class B or
Class C shares originally held. The Fund’s exchange
privilege is also modified with respect to purchases of Class A
and Class D shares by non-retirement plan investors under the
MFA Program. First, the initial allocation of assets is made
under the MFA Program. Then, any subsequent exchange under the
MFA Program of Class A or Class D shares of a Select Pricing
Fund for Class A or Class D shares of the Fund will be made
solely on the basis of the relative net asset values of the
shares being exchanged. Therefore, there will not be a charge
for any difference between the sales charge previously paid on
the shares of the other Select Pricing Fund and the sales charge
payable on the shares of the Fund being acquired in the exchange
under the MFA Program.
Exercise of the Exchange Privilege.
To exercise the exchange privilege, a
shareholder should contact his or her Merrill Lynch Financial
Consultant, who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of the other Select
Pricing Funds with shares for which certificates have not been
issued, may exercise the exchange privilege by wire through
their securities dealers. The Fund reserves the right to require
a properly completed Exchange Application. This exchange
privilege may be modified or terminated in accordance with the
rules of the Commission. The Fund reserves the right to limit
the number of times an investor may exercise the exchange
privilege. Certain funds may suspend the continuous offering of
their shares to the general public at any time and may
thereafter resume such offering from time to time. The exchange
privilege is available only to U.S. shareholders in states where
the exchange legally may be made. It is contemplated that the
exchange privilege may be applicable to other new mutual funds
whose shares may be distributed by the Distributor.
Certain Merrill Lynch fee-based programs, including
pricing alternatives for securities transactions (each referred
to in this paragraph as a “Program”), may permit the
purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit
other classes of shares which will be exchanged for Class A
shares. Initial or deferred sales charges otherwise due in
connection with such exchanges may be waived or modified, as may
the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the
redemption of shares held therein or the automatic exchange
thereof to another class at net asset value, which may be shares
of a money market fund. In addition, upon termination of
participation in a Program, shares that have been held for less
than specified periods within such Program may be subject to a
fee based upon the current value of such shares. These Programs
also generally prohibit such shares from being transferred to
another account at Merrill Lynch, to another broker-dealer or to
the Transfer Agent. Except in limited circumstances (which may
also involve an exchange as described above), such shares must
be redeemed and another class of shares purchased (which may
involve the imposition of initial or deferred sales charges and
distribution and account maintenance fees) in order for the
investment not to be subject to Program fees. Additional
information regarding a specific Program (including charges and
limitations on transferability applicable to shares that may be
held in such Program) is available in such Program’s client
agreement and from the Transfer Agent at 1-800-MER-FUND
(1-800-637-3863).
Retirement and Education Savings Plans
Individual retirement accounts and other retirement
and education savings plans are available from Merrill Lynch.
Under these plans, investments may be made in the Fund and
certain of the other mutual funds sponsored by Merrill Lynch as
well as in other securities. Merrill Lynch may charge an initial
establishment fee and an annual fee for each account.
Information with respect to these plans is available on request
from Merrill Lynch.
Capital gains and ordinary income received in each
of the plans referred to above are exempt from Federal taxation
until distributed from the plans. Different tax rules apply to
Roth IRA plans and education savings plans. Investors
considering participation in any retirement or education savings
plan should review specific tax laws
relating thereto and should consult their attorneys or tax
advisers with respect to the establishment and maintenance of
any such plan.
Automatic Investment Plans
A shareholder may make additions to an Investment
Account at any time by purchasing Class A shares (if he or she
is an eligible Class A investor) or Class B, Class C or Class D
shares at the applicable public offering price. These purchases
may be made either through the shareholder’s securities
dealer, or by mail directly to the Transfer Agent, acting as
agent for such securities dealer. Voluntary accumulation also
can be made through a service known as the Fund’s Automatic
Investment Plan. The Fund would be authorized, on a regular
basis, to provide systematic additions to the Investment Account
of such shareholder through charges of $50 or more to the
regular bank account of the shareholder by either pre-authorized
checks or automated clearing house debits. For investors that
buy shares of the Fund through Blueprint
SM
, no minimum charge to the investor’s bank
account is required. Alternatively, an investor that maintains a
CMA® or CBA® Account may arrange to have periodic
investments made in the Fund in amounts of $100 or more ($1 for
retirement accounts) through the CMA® or CBA® Automated
Investment Program.
Automatic Dividend Reinvestment Plan
Unless specific instructions are given as to the
method of payment, dividends will be automatically reinvested,
without sales charge, in additional full and fractional shares
of the Fund. Such reinvestment will be at the net asset value of
shares of the Fund determined as of the close of business on the
NYSE on the monthly payment date for such dividends. No CDSC
will be imposed upon redemption of shares issued as a result of
the automatic reinvestment of dividends.
Shareholders may, at any time, by written
notification to Merrill Lynch if their account is maintained
with Merrill Lynch, or by written notification or by telephone
(1-800-MER-FUND) to the Transfer Agent, if their account is
maintained with the Transfer Agent, elect to have subsequent
dividends paid in cash, rather than reinvested in shares of the
Fund or vice versa (provided that, in the event that a payment
on an account maintained at the Transfer Agent would amount to
$10.00 or less, a shareholder will not receive such payment in
cash and such payment will automatically be reinvested in
additional shares). Commencing ten days after the receipt by the
Transfer Agent of such notice, those instructions will be
effected. The Fund is not responsible for any failure of
delivery to the shareholder’s address of record and no
interest will accrue on amounts represented by uncashed dividend
checks. Cash payments can also be directly deposited to the
shareholder’s bank account.
Systematic Withdrawal Plan
A shareholder may elect to receive systematic
withdrawals from his or her Investment Account by check or
through automatic payment by direct deposit to his or her bank
account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders that
have acquired shares of the Fund having a value, based on cost
or the current offering price, of $5,000 or more, and monthly
withdrawals are available for shareholders with shares having a
value of $10,000 or more.
At the time of each withdrawal payment, sufficient
Class A, Class B, Class C or Class D shares are redeemed from
those on deposit in the shareholder’s account to provide
the withdrawal payment specified by the shareholder. The
shareholder may specify the dollar amount and the class of
shares to be redeemed. Redemptions will be made at net asset
value determined as of the close of business on the NYSE
(generally, the NYSE closes at 4:00 p.m., Eastern time) on the
24th day of each month or the 24th day of the last month of each
quarter, whichever is applicable. If the NYSE is not open for
business on such date, the shares will be redeemed at the net
asset value determined as of the close of business on the NYSE
on the following business day. The check for the withdrawal
payment will be mailed, or the direct deposit of the withdrawal
payment will be made, on the next business day following
redemption. When a shareholder is making systematic withdrawals,
dividends on all shares in the Investment Account are reinvested
automatically in Fund shares. A shareholder’s Systematic
Withdrawal Plan may be terminated at any time, without charge or
penalty, by the shareholder, the Fund, the Transfer Agent or the
Distributor.
With respect to redemptions of Class B or Class C
shares pursuant to a systematic withdrawal plan, the maximum
number of Class B or Class C shares that can be redeemed from an
account annually shall not exceed 10% of the value of shares of
such class in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that otherwise
might be due on such redemption of Class B or Class C shares
will be waived. Shares redeemed pursuant to a systematic
withdrawal plan will be redeemed in the same order as Class B or
Class C shares are otherwise redeemed. See “Purchase of
Shares—Deferred Sales Charge Alternatives —Class B and
Class C Shares.” Where the systematic withdrawal plan is
applied to Class B shares, upon conversion of the last Class B
shares in an account to Class D shares, the systematic
withdrawal plan will be applied thereafter to Class D shares if
the shareholder so elects. If an investor wishes to change the
amount being withdrawn in a systematic withdrawal plan the
investor should contact his or her Merrill Lynch Financial
Consultant.
Withdrawal payments should not be considered as
dividends. Each withdrawal is a taxable event. If periodic
withdrawals continuously exceed reinvested dividends, the
shareholder’s original investment may be reduced
correspondingly. Purchases of additional shares concurrent with
withdrawals are ordinarily disadvantageous to the shareholder
because of sales charges and tax liabilities. The Fund will not
knowingly accept purchase orders for shares of the Fund from
investors that maintain a Systematic Withdrawal Plan unless such
purchase is equal to at least one year’s scheduled
withdrawals or $1,200, whichever is greater. Automatic
investments may not be made into an Investment Account in which
the shareholder has elected to make systematic
withdrawals.
Alternatively, a shareholder whose shares are held
within a CMA®, CBA® Account or Retirement Account may
elect to have shares redeemed on a monthly, bimonthly,
quarterly, semiannual or annual basis through the CMA® or CBA
® Systematic Redemption Program. The minimum fixed dollar
amount redeemable is $50. The proceeds of systematic redemptions
will be posted to the shareholder’s account three business
days after the date the shares are redeemed. All redemptions are
made at net asset value. A shareholder may elect to have his or
her shares redeemed on the first, second, third or fourth Monday
of each month, in the case of monthly redemptions, or of every
other month, in the case of bimonthly redemptions. For
quarterly, semiannual or annual redemptions, the shareholder may
select the month in which the shares are to be redeemed and may
designate whether the redemption is to be made on the first,
second, third or fourth Monday of the month. If the Monday
selected is not a business day, the redemption will be processed
at net asset value on the next business day. The CMA® or CBA
® Systematic Redemption Program is not available if Fund
shares are being purchased within the account pursuant to the
Automated Investment Program. For more information on the CMA
® or CBA® Systematic Redemption Program, eligible
shareholders should contact their Merrill Lynch Financial
Consultant.
It is the Fund’s intention to distribute all of
its net investment income, if any. Dividends from such
investment income are paid annually. All net realized capital
gains, if any, are distributed to the Fund’s shareholders
at least annually. Premiums from expired call options written by
the Fund and net gains from closing purchase transactions are
treated as short-term capital gains to the Fund for Federal
income tax purposes. Shareholders may elect in writing to
receive any such dividends in cash. See “Shareholder
Services—Automatic Dividend Reinvestment Plan” for
information concerning the manner in which dividends may be
reinvested automatically in shares of the Fund. Dividends are
taxable to shareholders, as described below, whether they are
invested in shares of the Fund or received in cash. The per
share dividends on Class B and Class C shares will be lower than
the per share dividends on Class A and Class D shares as a
result of the account maintenance, distribution and higher
transfer agency fees applicable with respect to the Class B and
Class C shares; similarly, the per share dividends on Class D
shares will be lower than the per share dividends on Class A
shares as a result of the account maintenance fees applicable
with respect to the Class D shares. See “Pricing of Shares
—Determination of Net Asset Value.”
The Fund intends to continue to qualify for the
special tax treatment afforded regulated investment companies (
“RICs”) under the Code. As long as the Fund so
qualifies, the Fund (but not its shareholders) will not be
subject to Federal income tax on the part of its net ordinary
income and net realized capital gains that it distributes to
Class A, Class B, Class C and Class D shareholders (together,
the “shareholders”). The Fund intends to distribute
substantially all of such income.
The Code requires a RIC to pay a nondeductible 4%
excise tax to the extent the RIC does not distribute, during
each calendar year, 98% of its ordinary income, determined on a
calendar year basis, and 98% of its capital gains, determined,
in general, on an October 31 year end, plus certain
undistributed amounts from previous years. While the Fund
intends to distribute its income and capital gains in the manner
necessary to minimize imposition of the 4% excise tax, there can
be no assurance that sufficient amounts of the Fund’s
taxable income and capital gains will be distributed to avoid
entirely the imposition of the tax. In such event, the Fund will
be liable for the tax only on the amount by which it does not
meet the foregoing distribution requirements.
Dividends paid by the Fund from its ordinary income
or from an excess of net short-term capital gains over net
long-term capital losses (together referred to hereafter as
“ordinary income dividends”) are taxable to
shareholders as ordinary income. Distributions made from an
excess of net long-term capital gains over net short-term
capital losses (including gains or losses from certain
transactions in warrants, futures and options) (“capital
gain dividends”) are taxable to shareholders as long-term
gains, regardless of the length of time the shareholder has
owned Fund shares. Any loss upon the sale or exchange of Fund
shares held for six months or less will be treated as long-term
capital loss to the extent of any capital gain dividends
received by the shareholder. Distributions in excess of the Fund
’s earnings and profits will first reduce the adjusted tax
basis of a holder’s shares and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset).
Certain categories of capital gains are taxable at different
rates. Generally not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a
written notice designating the amount of any capital gain
dividends, as well as any amount of capital gain dividends in
the different categories of capital gain referred to
above.
Dividends are taxable to shareholders even though
they are reinvested in additional shares of the Fund. A portion
of the Fund’s ordinary income dividends may be eligible for
the dividends received deduction allowed to corporations under
the Code, if certain requirements are met. For this purpose, the
Fund will allocate dividends eligible for the dividends received
deduction among the Class A, Class B, Class C and Class D
shareholders according to a method (which it believes is
consistent with the Commission rule permitting the issuance and
sale of multiple classes of stock) that is based on the gross
income allocable to Class A, Class B, Class C and Class D
shareholders during the taxable year, or such other method as
the Internal Revenue Service may prescribe. If the Fund pays a
dividend in January that was declared in the previous October,
November or December to shareholders of record on a specified
date in one of such months, then such dividend will be treated
for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend
was declared.
No gain or loss will be recognized by Class B
shareholders on the conversion of their Class B shares into
Class D shares. A shareholder’s basis in the Class D shares
acquired will be the same as such shareholder’s basis in
the Class B shares converted, and the holding period of the
acquired Class D shares will include the holding period of the
converted Class B shares.
If a shareholder exercises an exchange privilege
within 90 days of acquiring the shares, then the loss the
shareholder can recognize on the exchange will be reduced (or
the gain increased) to the extent any sales charge paid to the
Fund reduces any sales charge the shareholder would have owed
upon the purchase of the new shares in the absence of the
exchange privilege. Instead, such sales charge will be treated
as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of
the Fund will be disallowed if other Fund shares are acquired
(whether through the automatic reinvestment of dividends or
otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date that
the shares are disposed of. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed
loss.
Ordinary income dividends paid to shareholders who
are nonresident aliens or foreign entities will be subject to a
30% United States withholding tax under existing provisions of
the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders
are urged to consult their own tax advisers concerning
applicability of the United States withholding tax.
Under certain provisions of the Code, some
shareholders may be subject to a 31% withholding tax on ordinary
income dividends, capital gain dividends and redemption payments
(“backup withholding”). Generally, shareholders
subject to backup withholding will be those for whom no
certified taxpayer identification number is on file with the
Fund or who, to the Fund’s knowledge, have furnished an
incorrect number. When establishing an account, an investor must
certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup
withholding.
Dividends and interest received by the Fund may give
rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Shareholders
may be able to claim U.S. foreign tax credits with respect to
such taxes, subject to certain conditions and limitations
contained in the Code. For example, certain retirement accounts
cannot claim foreign tax credits on investments in foreign
securities held in the Fund. In addition, recent legislation
permits a foreign tax credit to be claimed with respect to
withholding tax on a dividend only if the shareholder meets
certain holding period requirements. The Fund also must meet
these holding requirements, and if the Fund fails to do so, it
will not be able to “pass through” to shareholders the
ability to claim a credit or a deduction for the related foreign
taxes paid by the Fund. If the Fund satisfies the holding period
requirements and if more than 50% in value of its total assets
at the close of its taxable year consists of securities of
foreign corporations, the Fund will be eligible, and intends, to
file an election with the Internal Revenue Service pursuant to
which shareholders of the Fund will be required to include their
proportionate shares of such withholding taxes in their U.S.
income tax returns as gross income, treat such proportionate
shares as taxes paid by them, and deduct such proportionate
shares in computing their taxable incomes or, alternatively, use
them as foreign tax credits against their U.S. income taxes. No
deductions for foreign taxes, moreover, may be claimed by
noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign
corporation may be subject to U.S. withholding tax on the income
resulting from the Fund’s election described in this
paragraph but may not be able to claim a credit or deduction
against such U.S. tax for the foreign taxes treated as having
been paid by such shareholder. The Fund will report annually to
its shareholders the amount per share of such withholding taxes
and other information needed to claim the foreign tax credit.
For this purpose, the Fund will allocate foreign taxes and
foreign source income among the Class A, Class B, Class C and
Class D shareholders according to a method similar to that
described above for the allocation of dividends eligible for the
dividends received deduction.
The Fund may invest in securities rated in the
medium to lower rating categories of nationally recognized
rating organizations, and in unrated securities (“high
yield/high risk securities”), as previously described. Some
of these high yield/high risk securities may be purchased at a
discount and may therefore cause the Fund to accrue and
distribute income before amounts due under the obligations are
paid. In addition, a portion of the interest payments on such
high yield/high risk securities may be treated as dividends for
Federal income tax purposes; in such case, if the issuer of such
high yield/high risk securities is a domestic corporation,
dividend payments by the Fund will be eligible for the dividends
received deduction to the extent of the deemed dividend portion
of such interest payments.
The Fund may make investments that produce taxable
income that is not matched by a corresponding receipt of cash or
an offsetting loss deduction. Such investments would include
obligations that have original issue discount, obligations that
accrue discount and obligations that are subordinated in the
mortgage-backed or asset-backed securities structure. Such
taxable income would be treated as income earned by the Fund and
would be
subject to the distribution requirements of the Code. Because such
income may not be matched by a corresponding receipt of cash by
the Fund or an offsetting deduction, the Fund may be required to
borrow money or dispose of other securities to be able to make
distributions to shareholders. The Fund intends to make
sufficient and timely distributions to shareholders so as to
qualify for treatment as a RIC at all times.
Tax Treatment of Options, Futures and Forward Foreign Exchange
Transactions
The Fund may write, purchase or sell options,
futures and forward foreign exchange contracts. Options and
futures contracts that are “Section 1256 contracts”
will be “marked to market” for Federal income tax
purposes at the end of each taxable year, i.e., each such
option or futures contract will be treated as sold for its fair
market value on the last day of the taxable year. Unless such
contract is a forward foreign exchange contract, or is a
non-equity option or a regulated futures contract for a non-U.S.
currency for which the Fund elects to have gain or loss treated
as ordinary gain or loss under Code Section 988 (as described
below), gain or loss from Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss. Application
of these rules to Section 1256 contracts held by the Fund may
alter the timing and character of distributions to shareholders.
The mark-to-market rules outlined above, however, will not apply
to certain transactions entered into by the Fund solely to
reduce the risk of changes in price or interest rates with
respect to its investments.
A forward foreign exchange contract that is a
Section 1256 contract will be marked to market, as described
above. However, the character of gain or loss from such a
contract will generally be ordinary under Code Section 988. The
Fund may, nonetheless, elect to treat the gain or loss from
certain forward foreign exchange contracts as capital. In this
case, gain or loss realized in connection with a forward foreign
exchange contract that is a Section 1256 contract will be
characterized as 60% long-term and 40% short-term capital gain
or loss.
Code Section 1092, which applies to certain
“straddles,” may affect the taxation of the Fund
’s sales of securities and transactions in equity swaps,
options, futures and forward foreign exchange contracts. Under
Section 1092, the Fund may be required to postpone recognition
for tax purposes of losses incurred in certain sales of
securities and certain closing transactions in equity swaps,
options, futures and forward foreign exchange
contracts.
Special Rules for Certain Foreign Currency
Transactions
In general, gains from “foreign currencies
” and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to
investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund
qualifies as a RIC. It is currently unclear, however, who will
be treated as the issuer of a foreign currency instrument or how
foreign currency options, foreign currency futures and forward
foreign exchange contracts will be valued for purposes of the
RIC diversification requirements applicable to the
Fund.
Under Code Section 988, special rules are provided
for certain transactions in a currency other than the taxpayer
’s functional currency (i.e. unless certain special
rules apply, currencies other than the U.S. dollar). In general,
foreign currency gains or losses from certain debt instruments,
from certain forward contracts, from future contracts that are
not “regulated futures contracts” and from unlisted
options will be treated as ordinary income or loss under Code
Section 988. In certain circumstances, the Fund may elect
capital gain or loss treatment for such transactions. Regulated
futures contracts, as described above, will be taxed under Code
Section 1256 unless application of Section 988 is elected by the
Fund. In general, however, Code Section 988 gains or losses will
increase or decrease the amount of the Fund’s investment
company taxable income available to be distributed to
shareholders as ordinary income. Additionally, if Code Section
988 losses exceed other investment company taxable income during
a taxable year, the Fund would not be able to make any ordinary
income dividend distributions, and all or a portion of
distributions made before the losses were realized but in the
same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing the basis of each
shareholder’s Fund shares and resulting in a capital gain
for any shareholder who received a distribution greater than
such shareholder’s basis in Fund shares (assuming the
shares were held as a capital asset). These
rules and the mark-to-market rules described above, however, will
not apply to certain transactions entered into by the Fund
solely to reduce the risk of currency fluctuations with respect
to its investments.
The foregoing is a general and abbreviated summary
of the applicable provisions of the Code and Treasury
regulations presently in effect. For the complete provisions,
reference should be made to the pertinent Code sections and the
Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative,
judicial or administrative action either prospectively or
retroactively.
Ordinary income and capital gain dividends may also
be subject to state and local taxes.
Certain states exempt from state income taxation
dividends paid by RICs which are derived from interest on United
States Government obligations. State law varies as to whether
dividend income attributable to United States Government
obligations is exempt from state income tax.
Shareholders are urged to consult their tax advisers
regarding specific questions as to Federal, foreign, state or
local taxes. Foreign investors should consider applicable
foreign taxes in their evaluation of investment in the
Fund.
From time to time the Fund may include its average
annual total return and other total return data in
advertisements or information furnished to present or
prospective shareholders. Total return figures are based on the
Fund’s historical performance and are not intended to
indicate future performance. Average annual total return is
determined separately for Class A, Class B, Class C and Class D
shares in accordance with formulas specified by the
Commission.
Average annual total return quotations for the
specified periods are computed by finding the average annual
compounded rates of return (based on net investment income and
any realized and unrealized capital gains or losses on portfolio
investments over such periods) that would equate the initial
amount invested to the redeemable value of such investment at
the end of each period. Average annual total return is computed
assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of
Class A and Class D shares and the CDSC that would be applicable
to a complete redemption of the investment at the end of the
specified period in the case of Class B and Class C
shares.
The Fund also may quote annual, average annual and
annualized total return and aggregate total return performance
data, both as a percentage and as a dollar amount based on a
hypothetical $1,000 investment, for various periods other than
those noted below. Such data will be computed as described
above, except that (1) as required by the periods of the
quotations, actual annual, annualized or aggregate data, rather
than average annual data, may be quoted and (2) the maximum
applicable sales charges will not be included with respect to
annual or annualized rates of return calculations. Aside from
the impact on the performance data calculations of including or
excluding the maximum applicable sales charges, actual annual or
annualized total return data generally will be lower than
average annual total return data since the average rates of
return reflect compounding of return; aggregate total return
data generally will be higher than average annual total return
data since the aggregate rates of return reflect compounding
over a longer period of time.
Set forth in the tables below is total return
information for the Class A, Class B, Class C and Class D shares
of the Fund for the periods indicated.
|
|
|
Class A Shares
|
|
Class B Shares
|
Period
|
|
Expressed as a
percentage based
on a hypothetical
$1,000 investment
|
|
Redeemable
Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
Expressed as a
percentage based
on a hypothetical
$1,000 investment
|
|
Redeemable
Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
|
|
|
Average Annual Total Return |
|
|
|
(including maximum applicable sales
charges) |
|
| One
Year Ended October 31, 1999 |
|
19.67 |
% |
|
$1,196.70 |
|
21.08 |
% |
|
$1,210.80 |
| Five
Years Ended October 31, 1999 |
|
12.42 |
% |
|
$1,795.60 |
|
12.48 |
% |
|
$1,800.80 |
| Ten
Years Ended October 31, 1999 |
|
12.91 |
% |
|
$3,366.60 |
|
12.37 |
% |
|
$3,210.20 |
|
|
|
|
Annual Total Return |
|
|
|
(excluding maximum applicable sales
charges) |
|
|
| Year
Ended October 31, |
|
|
|
|
|
|
|
|
|
|
| 1999 |
|
26.30 |
% |
|
$1,263.00 |
|
25.08 |
% |
|
$1,250.80 |
| 1998 |
|
(4.43 |
)% |
|
$
955.70 |
|
(5.37 |
)% |
|
$
946.30 |
| 1997 |
|
16.08 |
% |
|
$1,160.80 |
|
14.82 |
% |
|
$1,148.20 |
| 1996 |
|
17.81 |
% |
|
$1,178.10 |
|
16.71 |
% |
|
$1,167.10 |
| 1995 |
|
14.81 |
% |
|
$1,148.10 |
|
13.54 |
% |
|
$1,135.40 |
| 1994 |
|
2.14 |
% |
|
$1,021.40 |
|
1.13 |
% |
|
$1,011.30 |
| 1993 |
|
22.61 |
% |
|
$1,226.10 |
|
21.42 |
% |
|
$1,214.20 |
| 1992 |
|
11.78 |
% |
|
$1,117.80 |
|
10.64 |
% |
|
$1,106.40 |
| 1991 |
|
28.89 |
% |
|
$1,288.90 |
|
27.48 |
% |
|
$1,274.80 |
| 1990 |
|
3.91 |
% |
|
$1,039.10 |
|
2.93 |
% |
|
$1,029.30 |
|
|
|
|
Aggregate Total Return |
|
|
|
(including maximum applicable sales
charges) |
|
Inception (February 3, 1989)
to October 31, 1999 |
|
268.10 |
% |
|
$3,681.00 |
|
248.30 |
% |
|
$3,483.00 |
|
|
|
|
Class C Shares
|
|
Class D Shares
|
Period
|
|
Expressed as a
percentage based
on a hypothetical
$1,000 investment
|
|
Redeemable
Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
Expressed as a
percentage based
on a hypothetical
$1,000 investment
|
|
Redeemable
Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
|
|
|
Average Annual Total Return |
|
|
|
(including maximum applicable sales
charges) |
|
| One
Year Ended October 31, 1999 |
|
24.05 |
% |
|
$1,240.50 |
|
19.40 |
% |
|
$1,194.00 |
| Five
Years Ended October 31, 1999 |
|
12.49 |
% |
|
$1,800.90 |
|
12.14 |
% |
|
$1,773.70 |
Inception (October 21, 1994)
to October 31, 1999 |
|
12.41 |
% |
|
$1,800.90 |
|
12.09 |
% |
|
$1,775.10 |
|
|
|
|
Annual Total Return |
|
|
|
(excluding maximum applicable sales
charges) |
| Year
Ended October 31, |
|
|
|
|
|
|
|
|
|
|
| 1999 |
|
25.05 |
% |
|
$1,250.50 |
|
26.01 |
% |
|
$1,260.10 |
| 1998 |
|
(5.38 |
)% |
|
$
946.20 |
|
(4.63 |
)% |
|
$
953.70 |
| 1997 |
|
14.84 |
% |
|
$1,148.40 |
|
15.76 |
% |
|
$1,157.60 |
| 1996 |
|
16.68 |
% |
|
$1,166.80 |
|
17.59 |
% |
|
$1,175.90 |
| 1995 |
|
13.58 |
% |
|
$1,135.80 |
|
14.43 |
% |
|
$1,144.30 |
Inception (October 21, 1994)
to October 31, 1994 |
|
0.00 |
% |
|
$1,000.00 |
|
0.08 |
% |
|
$1,000.80 |
|
|
|
|
Aggregate Total Return |
|
|
|
(including maximum applicable sales
charges) |
|
|
Inception (October 21, 1994)
to October 31, 1999 |
|
80.09 |
% |
|
$1,800.90 |
|
77.51 |
% |
|
$1,775.10 |
Total return figures are based on the Fund’s historical
performance and are not intended to indicate future performance.
The Fund’s total return will vary depending on market
conditions, the securities comprising the Fund’s portfolio,
the Fund’s operating expenses and the amount of realized
and unrealized net capital gains or losses during the period.
The value of an investment in the Fund will fluctuate and an
investor’s shares, when redeemed, may be worth more or less
than their original cost.
In order to reflect the reduced sales charges in the
case of Class A or Class D shares or the waiver of the CDSC in
the case of Class B or Class C shares applicable to certain
investors, as described under “Purchase of Shares” the
total return data quoted by the Fund in advertisements directed
to such investors may take into account the reduced, and not the
maximum, sales charge or may take into account the waiver of the
CDSC and therefore may reflect greater total return since, due
to the reduced sales charges or the waiver of sales charges, a
lower amount of expenses is deducted.
On occasion, the Fund may compare its performance to
various indices, including the Financial Times/Standard &
Poor’s—Actuaries World Index, the Dow Jones Industrial
Average, the Standard & Poor’s Composite 500 Index,
other market indices, or to performance data published by Lipper
Analytical Services, Inc., Morningstar Publications, Inc. (
“Morningstar”), CDA Investment Technology, Inc.,
Money Magazine, U.S. News & World Report, Business Week,
Forbes Magazine, Fortune Magazine or other industry
publications. When comparing its performance to a market index,
the Fund may refer to various statistical measures derived from
the historic performance of the Fund and the index, such as
standard deviation and beta. In addition, from time to time the
Fund may include its Morningstar risk-adjusted performance
ratings in advertisements or supplemental sales literature. As
with other performance data, performance comparisons should not
be considered indicative of the Fund’s relative performance
for any future period.
The Fund was incorporated under Maryland law on June
9, 1988. It has an authorized capital of 3,550,000,000 shares of
Common Stock, par value $0.10 per share, divided into four
classes, designated Class A, Class B, Class C and Class D Common
Stock. Class A consists of 450,000,000 shares, Class B consists
of 2,000,000,000 shares, Class C consists of 200,000,000 shares
and Class D consists of 900,000,000 shares. Class A, Class B,
Class C and Class D Common Stock represent an interest in the
same assets of the Fund and are identical in all respects except
that the Class B, Class C and Class D shares bear certain
expenses related to the account maintenance and/or distribution
of such shares and have exclusive voting rights with respect to
matters relating to such account maintenance and/or distribution
expenditures. The Board of Directors of the Fund may classify
and reclassify the shares of the Fund into additional classes of
Common Stock at a future date.
Shareholders are entitled to one vote for each share
held and fractional votes for fractional shares held and will
vote on the election of Directors and any other matter submitted
to a shareholder vote. The Fund does not intend to hold meetings
of shareholders in any year in which the Investment Company Act
does not require shareholders to act on any of the following
matters: (i) election of Directors; (ii) approval of an
investment advisory agreement; (iii) approval of a distribution
agreement; and (iv) ratification of selection of independent
auditors. In addition, the by-laws of the Fund require that a
special meeting of shareholders be held on the written request
of at least 10% of the outstanding shares of the Fund entitled
to vote at the meeting, if such request is in compliance with
applicable Maryland law. Voting rights for Directors are not
cumulative. Shares issued are fully paid and non-assessable and
have no preemptive rights. Redemption and conversion rights are
discussed elsewhere herein and in the Prospectus. Each share is
entitled to participate equally in dividends and distributions
declared by the Fund and in the net assets of the Fund on
liquidation or dissolution after satisfaction of outstanding
liabilities. Stock certificates are issued by the transfer agent
only on specific request. Certificates for fractional shares are
not issued in any case.
Deloitte & Touche LLP
, Princeton Forrestal Village, 116-300 Village Boulevard,
Princeton, New Jersey 08540-6400, has been selected as the
independent auditors of the Fund. The selection of independent
auditors is subject to approval by the non-interested Directors
of the Fund. The independent auditors are responsible for
auditing the annual financial statements of the
Fund.
Brown Brothers Harriman & Co. (the
“Custodian”), 40 Water Street, Boston, Massachusetts
02109, acts as custodian of the Fund’s assets. Under its
contract with the Fund, the Custodian is authorized to establish
separate accounts in foreign currencies and to cause foreign
securities owned by the Fund to be held in its offices outside
the United States and with certain foreign banks and securities
depositories. The Custodian is responsible for safeguarding and
controlling the Fund’s cash and securities, handling the
receipt and delivery of securities and collecting interest and
dividends on the Fund’s investments.
Financial Data Services, Inc., 4800 Deer Lake Drive
East, Jacksonville, Florida 32246-6484, acts as the Fund’s
Transfer Agent. The Transfer Agent is responsible for the
issuance, transfer and redemption of shares and the opening,
maintenance and servicing of shareholder accounts. See “How
to Buy, Sell, Transfer and Exchange Shares—Through the
Transfer Agent” in the Prospectus.
Brown & Wood LLP
, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
The fiscal year of the Fund ends on October 31 of
each year. The Fund sends to its shareholders, at least
semi-annually, reports showing the Fund’s portfolio and
other information. An annual report, containing financial
statements audited by independent auditors, is sent to
shareholders each year. After the end of each year, shareholders
will receive Federal income tax information regarding dividends
and capital gains distributions.
Shareholder inquiries may be addressed to the Fund
at the address or telephone number set forth on the cover page
of this Statement of Additional Information.
The Prospectus and this Statement of Additional
Information do not contain all the information set forth in the
Registration Statement and the exhibits relating thereto, which
the Fund has filed with the Securities and Exchange Commission,
Washington, D.C., under the Securities Act and the Investment
Company Act, to which reference is hereby made.
To the knowledge of the Fund, the following persons
or entities owned beneficially 5% or more of any class of the
Fund’s shares as of January 1, 2000.
Name
|
|
Address
|
|
Percent of
Class
|
| Merrill Lynch
Trust Co. |
|
PO Box 30532
New Brunswick, NY 08989 |
|
54% of Class
A |
|
|
Merrill Lynch
Trust Co. of America
Trustee FBO MLSIP Investment Acct.
ATTN: Robert Arimenta Jr. |
|
PO Box 30532
New Brunswick, NY 08989 |
|
10.77% of
Class A |
|
|
Merrill Lynch
Trust Co. of America
Trustee FBO Employee Savings Plan
of Mobil Oil Corp.
ATTN: Mary Anne Bulick |
|
PO Box 30532
New Brunswick, NY 08989 |
|
5.33% of Class
A |
|
|
| Merrill Lynch
Trust Co. |
|
PO Box 30532
New Brunswick, NY 08989 |
|
19.8% of Class
D |
The Fund’s audited financial statements are
incorporated in this Statement of Additional Information by
reference to its 1999 annual report to shareholders. You may
request a copy of the annual report at no charge by calling
(800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any
business day.
RATINGS OF FIXED INCOME
SECURITIES
Description of Moody’s Investors Service,
Inc.’s (“Moody’s”) Corporate
Ratings
| Aaa |
|
Bonds which
are rated “Aaa” are judged to be of the best
quality. They carry the smallest degree of
investment risk and are generally referred to as “gilt
edged.” Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While
the various protective elements are likely
to change, such changes as can be visualized are most unlikely
to impair the fundamentally strong position
of such issues. |
|
| Aa |
|
Bonds which
are rated “Aa” are judged to be of high quality by
all standards. Together with the “Aaa”
group they comprise what are generally known as high-grade
bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in
“Aaa” securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term
risks appear somewhat larger than in “Aaa”
securities. |
|
| A |
|
Bonds which
are rated “A” possess many favorable investment
attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future. |
|
| Baa |
|
Bonds which
are rated “Baa” are considered as medium-grade
obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and principal
security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics
as well. |
|
| Ba |
|
Bonds which
are rated “Ba” are judged to have speculative
elements; their future cannot be considered as
well-assured. Often the protection of interest and principal
payments may be very moderate and thereby
not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes
bonds in this class. |
|
| B |
|
Bonds which
are rated “B” generally lack characteristics of the
desirable investment. Assurance of interest
and principal payments or of maintenance of other terms of the
contract over any long period of time may
be small. |
|
| Caa |
|
Bonds which
are rated “Caa” are of poor standing. Such issues
may be in default or there may be present
elements of danger with respect to principal or
interest. |
|
| Ca |
|
Bonds which
are rated “Ca” represent obligations which are
speculative in a high degree. Such issues are
often in default or have other marked shortcomings. |
|
| C |
|
Bonds which
are rated “C” are the lowest rated class of bonds,
and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real
investment standing. |
Note. Moody’s
applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates
that the obligation ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates a ranking in the lower end of that
generic rating category.
Description of Moody’s Short-Term Debt
Ratings
Moody’s short-term debt ratings are opinions of
the ability of issuers to repay punctually senior debt
obligations. These obligations have an original maturity not
exceeding one year, unless explicitly noted. Moody’s makes
no representation that rated bank or insurance company
obligations are exempt from registration under the Securities
Act of 1933 or issued in conformity with any other applicable
law or regulation. Nor does Moody’s
represent that any specific bank or insurance company obligation
is legally enforceable or a valid senior obligation of a rated
issuer. Moody’s employs the following three designations,
all judged to be investment grade, to indicate the relative
repayment ability of rated issuers:
|
Prime-1.
Issuers rated Prime-1 (or supporting
institutions) have a superior ability for repayment of senior
short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following
characteristics:
|
|
Ÿ
|
Leading market positions in well-established
industries.
|
|
Ÿ
|
High rates of return on funds
employed.
|
|
Ÿ
|
Conservative capitalization structure with
moderate reliance on debt and ample asset
protection.
|
|
Ÿ
|
Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
|
|
Ÿ
|
Well-established access to a range of financial
markets and assured sources of alternate
liquidity.
|
|
Prime-2.
Issuers rated Prime-2 (or supporting
institutions) have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may
be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is
maintained.
|
|
Prime-3.
Issuers rated Prime-3 (or supporting
institutions) have an acceptable ability for repayment of
senior short-term obligations. The effect of industry
characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection measurements
and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
|
Not Prime. Issuers
rated Not Prime do not fall within any of the Prime rating
categories.
If an issuer represents to Moody’s that its
short-term debt obligations are supported by the credit of
another entity or entities, then the name or names of such
supporting entity or entities are listed within the parenthesis
beneath the name of the issuer, or there is a footnote referring
the reader to another page for the name or names of the
supporting entity or entities. In assigning ratings to such
issuers, Moody’s evaluates the financial strength of the
affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in
the total rating assessment. Moody’s makes no
representation and gives no opinion on the legal validity or
enforceability of any support arrangement.
Moody’s ratings are opinions, not
recommendations to buy or sell, and their accuracy is not
guaranteed. A rating should be weighed solely as one factor in
an investment decision and you should make your own study and
evaluation of any issuer whose securities or debt obligations
you consider buying or selling.
Description of Moody’s Preferred Stock
Ratings
Because of the fundamental differences between
preferred stocks and bonds, a variation of our familiar bond
rating symbols is used in the quality ranking of preferred
stock. The symbols, presented below, are designed to avoid
comparison with bond quality in absolute terms. It should always
be borne in mind that preferred stock occupies a junior position
to bonds within a particular capital structure and that these
securities are rated within the universe of preferred
stocks.
Preferred stock rating symbols and their definitions
are as follows:
| aaa |
|
An issue which
is rated “aaa” is considered to be a top-quality
preferred stock. This rating indicates good
asset protection and the least risk of dividend impairment
within the universe of preferred stocks. |
|
| aa |
|
An issue which
is rated “aa” is considered to be a high-grade
preferred stock. This rating indicates that
there is a reasonable assurance the earnings and asset
protection will remain relatively well maintained in
the foreseeable future. |
| a |
|
An issue which
is rated “a” is considered to be an upper-medium
grade preferred stock. While risks are
judged to be somewhat greater than in the “aaa” and
“aa” classification, earnings and asset protection
are,
nevertheless, expected to be maintained at adequate
levels. |
|
| baa |
|
An issue which
is rated “baa” is considered to be a medium-grade
preferred stock, neither highly protected
nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over
any great length of time. |
|
| ba |
|
An issue which
is rated “ba” is considered to have speculative
elements and its future cannot be considered
well assured. Earnings and asset protection may be very moderate
and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks
in this class. |
|
| b |
|
An issue which
is rated “b” generally lacks the characteristics of
a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue
over any long period of time may be small. |
|
| caa |
|
An issue which
is rated “caa” is likely to be in arrears on
dividends payments. This rating designation
does not purport to indicate the future status of
payments. |
|
| ca |
|
An issue which
is rated “ca” is speculative in a high degree and is
likely to be in arrears on dividends
with little likelihood of eventual payments. |
|
| c |
|
This is the
lowest rated class of preferred or preference stock. Issues so
rated can thus be regarded as
having extremely poor prospects of ever attaining any real
investment standing. |
Note: Moody’s
applies numerical modifiers 1, 2 and 3 in each rating
classification; the modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking and the modifier 3 indicates that
the issuer ranks in the lower end of its generic rating
category.
Description of Standard & Poor’s, a
Division of The McGraw-Hill Companies, Inc. (“Standard
& Poor’s”) Corporate Debt Ratings
A Standard & Poor’s corporate or municipal
debt rating is a current opinion of the creditworthiness of an
obligor with respect to a specific financial obligation, a
specific class of financial obligations, or a specific financial
program. It takes into consideration the creditworthiness of
guarantors, insurers, or other forms of credit enhancement on
the obligation.
The debt rating is not a recommendation to purchase,
sell or hold a financial obligation, inasmuch as it does not
comment as to market price or suitability for a particular
investor.
The ratings are based on current information
furnished by the obligors or obtained by Standard & Poor
’s from other sources it considers reliable. Standard &
Poor’s does not perform any audit in connection with any
rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended or withdrawn
as a result of changes in, or unavailability of, such
information, or based on other circumstances.
The ratings are based, in varying degrees, on the
following considerations:
|
I.
|
Likelihood of payment—capacity and
willingness of the obligor to meet its financial commitment on
an obligation in accordance with the terms of the
obligation;
|
|
II.
|
Nature of and provisions of the obligation;
and
|
|
III.
|
Protection afforded by, and relative position
of, the obligation in the event of bankruptcy, reorganization
or other arrangement under the laws of bankruptcy and other
laws affecting creditors’ rights.
|
AAA
|
Debt rated “AAA” has the highest
rating assigned by Standard & Poor’s. The obligor
’s capacity to meet its financial commitment on the
obligation is extremely strong.
|
AA
|
Debt rated “AA” differs from the
highest rated obligations only in small degree. The obligor
’s capacity to meet its financial commitment on the
obligation is very strong.
|
A
|
Debt rated “A” is somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories.
However, the obligor’s capacity to meet its financial
commitment on the obligation is still strong.
|
BBB
|
Debt rated “BBB” exhibits adequate
protection parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on
the obligation.
|
|
Debt rated “BB”, “B”,
“CCC”, “CC” and “C” are regarded
as having significant speculative characteristics. “BB
” indicates the least degree of speculation and “C
” the highest. While such debt will likely have some
quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to
adverse conditions.
|
BB
|
Debt rated “BB” is less vulnerable to
non-payment than other speculative issues. However, it faces
major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the
obligor’s inadequate capacity to meet its financial
commitment on the obligation.
|
B
|
Debt rated “B” is more vulnerable to
non-payment than obligations rated “BB”, but the
obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor’s
capacity or willingness to meet its financial commitments on
the obligation.
|
CCC
|
Debt rated “CCC” is currently
vulnerable to non-payment, and is dependent upon favorable
business, financial, and economic conditions for the obligor
to meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic conditions,
the obligator is not likely to have the capacity to meet its
financial commitment on the obligation.
|
CC
|
The rating “CC” is currently highly
vulnerable to non-payment.
|
C
|
The “C” rating may be used to cover a
situation where a bankruptcy petition has been filed or
similar action has been taken, but payments on this obligation
are being continued.
|
D
|
The “D” rating, unlike other ratings,
is not prospective; rather, it is used only where a default
has actually occurred—and not where a default is only
expected. Standard & Poor’s changes ratings to “D
” either:
|
|
Ÿ
|
On the day an interest and/or principal payment
is due and is not paid. An exception is made if there is a
grace period and Standard & Poor’s believes that a
payment will be made, in which case the rating can be
maintained; or
|
|
Ÿ
|
Upon voluntary bankruptcy filing or similar
action. An exception is made if Standard & Poor’s
expects that debt service payments will continue to be made on
a specific issue. In the absence of a payment default or
bankruptcy filing, a technical default (i.e., covenant
violation) is not sufficient for assigning a “D”
rating.
|
|
An issuer credit rating (also known as a
corporate credit rating, counterparty credit rating, natural
rating, senior implied rating, or default risk rating) is
changed to “N.M.” (for “not meaningful”)
upon:
|
|
Ÿ
|
The first occurrence of a payment default on
any financial obligation, rated or unrated, other than a
financial obligation subject to a bona fide commercial
dispute. (In this context, preferred stock is not
considered to be a financial obligation. Thus, a missed
preferred stock dividend does not necessarily mean that the
issuer credit rating is changed to “N.M.
”);
|
|
Ÿ
|
A voluntary bankruptcy filing by the issuer, or
similar action—even if the issuer continues debt service
payments on some financial obligations; or
|
|
Ÿ
|
Seizure of a rated bank by a regulator or
placement of an insurer under regulatory supervision owing to
its financial condition. Such regulatory actions imply
substantial uncertainty about the issuer’s ability to
continue meeting financial obligations. (An insurer’s
claims-paying ability rating would go to “R” if the
insurer were placed under regulatory supervision because of
its financial condition.)
|
Plus (+) or minus (-):
The ratings from “AA” to “CCC” may be
modified by the addition of a plus or minus sign to show
relative standing within the major rating
categories.
N.R. indicates not rated.
Debt obligations of issuers outside the United
States and its territories are rated on the same basis as
domestic corporate and municipal issues. The ratings measure the
creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under
present commercial bank regulations issued by the Comptroller of
the Currency, bonds rated in the top four categories (“AAA
”, “AA”, “A”, “BBB”, commonly
known as “investment grade” ratings) are generally
regarded as eligible for bank investment. Also, the laws of
various states governing legal investments impose certain rating
or other standards for obligations eligible for investment by
savings banks, trust companies, insurance companies and
fiduciaries in general.
Description of Standard & Poor’s
Commercial Paper Ratings
A Standard & Poor’s commercial paper rating
is a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from
“A-1” for the highest-quality obligations to “D
” for the lowest. These categories are as
follows:
A-1
|
A short-term obligation rated A-1 is rated in
the highest category by Standard & Poor’s. The obligor
’s capacity to meet its financial commitment on the
obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This
indicates that the obligor’s capacity to meet its
financial commitment on these obligations is extremely
strong.
|
A-2
|
A short-term obligation rated A-2 is somewhat
more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in
higher rating categories. However, the obligor’s capacity
to meet its financial commitment on the obligation is
satisfactory.
|
A-3
|
A short-term obligation rated A-3 exhibits
adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
|
B
|
A short-term obligation rated B is regarded as
having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on
the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor’s inadequate capacity to
meet its financial commitment on the obligation.
|
C
|
A short-term obligation rated C is currently
vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor
to meet its financial commitment on the
obligation.
|
D
|
Debt rated “D” is in payment default.
The “D” rating category is used when interest
payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless
Standard & Poor’s believes that such payments will be
made during such grace period.
|
A commercial paper rating is not a recommendation
to purchase, sell or hold a security inasmuch as it does not
comment as to market price or suitability for a particular
investor. The ratings are based on current information furnished
to Standard & Poor’s by the issuer or obtained by
Standard & Poor’s from other sources it considers
reliable. Standard & Poor’s does not perform an audit
in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or
unavailability of, such information or based on other
circumstances.
Description of Standard & Poor’s
Preferred Stock Ratings
A Standard & Poor’s preferred stock rating
is an assessment of the capacity and willingness of an issuer to
pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which is
intrinsically different from, and subordinated to, a debt issue.
Therefore, to reflect this difference, the preferred stock
rating symbol will normally not be higher than the debt rating
symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
A preferred stock rating is not a recommendation to
purchase, sell, or hold a security, inasmuch as it does not
comment as to market price or suitability for a particular
investor.
The ratings are based on current information
furnished to Standard & Poor’s by the issuer or
obtained by Standard & Poor’s from other sources it
considers reliable. Standard & Poor’s does not perform
an audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or based on other
circumstances.
The ratings are based on the following
considerations:
|
I.
|
Likelihood of payment-capacity and willingness
of the issuer to meet the timely payment of preferred stock
dividends and any applicable sinking fund requirements in
accordance with the terms of the obligation;
|
|
II.
|
Nature of, and provisions of, the
issue;
|
|
III.
|
Relative position of the issue in the event of
bankruptcy, reorganization, or other arrangement under the
laws of bankruptcy and other laws affecting creditors’
rights.
|
AAA
|
This is the highest rating that may be assigned
by Standard & Poor’s to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred
stock obligations.
|
AA
|
A preferred stock issue rated AA also qualifies
as a high-quality, fixed-income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated AAA.
|
A
|
An issue rated A is backed by a sound capacity
to pay the preferred stock obligations, although it is
somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
|
BBB
|
An issue rated BBB is regarded as backed by an
adequate capacity to pay the preferred stock obligations.
Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the A
category.
|
BB
|
Preferred stock rated BB, B, and CCC are
regarded, on balance, as predominantly speculative with
|
B
|
respect to issuer’s capacity to pay
preferred stock obligations. BB indicates the lowest degree of
|
CCC
|
speculation and CCC the highest. While such
issues will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
|
CC
|
The rating CC is reserved for a preferred stock
issue that is in arrears on dividends or sinking fund
payments, but that is currently paying.
|
C
|
A preferred stock rated C is a nonpaying
issue.
|
D
|
A preferred stock rated D is a nonpaying issue
with the issuer in default on debt instruments.
|
N.R.
|
This indicates that no rating has been
requested, that there is insufficient information on which to
base a rating, or that Standard & Poor’s does not
rate a particular type of obligation as a matter of
policy.
|
Plus (+) or minus (-): To provide more
detailed indications of preferred stock quality, ratings from AA
to CCC may be modified by the addition of a plus or minus sign
to show relative standing within the major rating
categories.
[This page intentionally left
blank]
CODE #10811-01-00
PART C. OTHER
INFORMATION
Item 23.
Exhibits.
Exhibit
Number
|
|
Description
|
| 1(a) |
|
|
—Articles
of Incorporation of the Registrant, dated June 7,
1988.(a) |
|
|
|
(b) |
|
|
—Articles
of Amendment to the Articles of Incorporation of the
Registrant, dated November 28,
1988.(a) |
|
|
|
(c) |
|
|
—Articles
Supplementary to the Articles of Incorporation of the
Registrant, dated December 7, 1992.(a) |
|
|
|
(d) |
|
|
—Articles
Supplementary to the Articles of Incorporation of the
Registrant, dated July 13, 1993.(d) |
|
|
|
(e) |
|
|
—Articles
Supplementary to the Articles of Incorporation of the
Registrant, dated December 16,
1993.(d) |
|
|
|
(f) |
|
|
—Articles
of Amendment to the Articles of Incorporation of the
Registrant, dated October 17, 1994.(b) |
|
|
|
(g) |
|
|
—Articles
Supplementary to the Articles of Incorporation of the
Registrant, dated October 17, 1994.(b) |
|
|
|
(h) |
|
|
—Articles
Supplementary to the Articles of Incorporation of the
Registrant, dated September 9, 1996.(d) |
|
|
|
(i) |
|
|
—Articles
Supplementary to the Articles of Incorporation of the
Registrant, dated November 6, 1996
(including Certificate of Correction dated February 19, 1997
filed with respect thereto).(d) |
|
|
|
(j) |
|
|
—Articles
Supplementary to the Articles of Incorporation of the
Registrant, dated November 12,
1997.(h) |
|
|
| 2 |
|
|
—By-Laws
of the Registrant.(c) |
|
|
| 3 |
|
|
—Portions
of the Articles of Incorporation, as amended and supplemented,
and the By-Laws of the
Registrant defining rights of Shareholders.(e) |
|
|
| 4 |
(a) |
|
—Management Agreement between the Registrant and Merrill
Lynch Asset Management, Inc., dated
December 13, 1988.(c) |
|
|
|
(b) |
|
|
—Sub-Advisory Agreement between Merrill Lynch Asset
Management, Inc. and Merrill Lynch Asset
Management U.K. Limited, dated January 18, 1989.(c) |
|
|
|
(c) |
|
|
—Supplement to Management Agreement between the
Registrant and Merrill Lynch Asset Management,
L.P., dated January 3, 1994.(f) |
|
|
| 5 |
(a) |
|
—Class A
Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor,
Inc.(f) |
|
|
|
(b) |
|
|
—Class B
Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor,
Inc.(e) |
|
|
|
(c) |
|
|
—Letter
Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to
the Merrill Lynch Mutual Fund Adviser Program.(a) |
|
|
|
(d) |
|
|
—Class C
Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor,
Inc.(f) |
|
|
|
(e) |
|
|
—Class D
Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor,
Inc.(f) |
|
|
| 6 |
|
|
—None. |
Exhibit
Number
|
|
Description
|
|
7 |
|
—Custodian Agreement between the Registrant and Brown
Brothers Harriman & Co.(c) |
|
|
|
8(a) |
|
—Transfer
Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement
between the Registrant and Merrill Lynch Financial Data
Services, Inc. (now known as Financial Data
Services, Inc.)(c) |
|
|
| (b)
|
|
—Form of
License Agreement relating to the use of name between the
Registrant and Merrill Lynch,
Pierce, Fenner & Smith Incorporated.(c) |
|
|
| (c)
|
|
—Credit
Agreement between the Registrant and a syndicate of
banks.(j) |
|
|
|
9 |
|
—Opinion
of Brown & Wood LLP
, counsel to the Registrant.(i) |
|
|
| 10 |
|
—Consent
of Deloitte & Touche LLP
, independent auditors for the Registrant. |
|
|
| 11 |
|
—None. |
|
|
| 12 |
|
—Certificate of Merrill Lynch Asset Management,
Inc.(c) |
|
|
| 13(a) |
|
—Amended
and Restated Class B Distribution Plan and Class B
—Distribution Plan Sub-Agreement of
the Registrant.(a) |
|
|
|
(b) |
|
—Class C
Distribution Plan and Class C Distribution Plan Sub-Agreement
of the Registrant.(f) |
|
|
|
(c) |
|
—Class D
Distribution Plan and Class D Distribution Plan Sub-Agreement
of the Registrant.(f) |
|
|
| 14 |
|
—Merrill
Lynch Select Pricing
SM
System Plan pursuant to Rule
18f-3.(g) |
(a)
|
Filed on February 24, 1994, as an Exhibit to
Post-Effective Amendment No. 7 to Registrant’s
Registration Statement on Form N-1A under the Securities Act
of 1933, as amended (File No. 33-22462) (the
“Registration Statement”).
|
(b)
|
Filed on February 27, 1995, as an Exhibit to
Post-Effective Amendment No. 9 to the Registration
Statement.
|
(c)
|
Filed on February 27, 1996, as an Exhibit to
Post-Effective Amendment No. 10 to the Registration
Statement.
|
(d)
|
Filed on February 25, 1997, as an Exhibit to
Post-Effective Amendment No. 11 to the Registration
Statement.
|
(e)
|
Reference is made to Article III (Sections 3
and 4), Article V, Article VI (Sections 2, 3, 5 and 6),
Article VII, Article VIII and Article X of the Registrant
’s Articles of Incorporation as amended and supplemented,
filed as Exhibits 1(a), 1(b), 1(c), 1(d), 1(e), 1(f), 1(g),
1(h), 1(i) and 1(j) to this Registration Statement, and
Article II, Article III (Sections 1, 3, 5, 6 and 17), Article
IV (Section I), Article V (Section 7), Article VI, Article
VII, Article XII, Article XIII, and Article XIV of the
Registrant’s By-Laws filed as Exhibit 2 to the
Registration Statement.
|
(f)
|
Filed on October 18, 1994, as an Exhibit to
Post-Effective Amendment No. 8 to the Registration
Statement.
|
(g)
|
Incorporated by reference to Exhibit 18 to
Post-Effective Amendment No. 13 to the Registration Statement
on Form N-1A under the Securities Act of 1933, as amended,
filed on January 25, 1996, relating to shares of Merrill Lynch
New York Municipal Bond Fund series of Merrill Lynch
Multi-State Municipal Series Trust (File No.
2-99473).
|
(h)
|
Filed on February 12, 1998, as an Exhibit to
Post-Effective Amendment No. 12 to the Registration
Statement.
|
(i)
|
Filed on December 15, 1988, as an Exhibit to
Pre-Effective Amendment No. 2 to the Registration Statement;
refiled with this Post-Effective Amendment No. 15 pursuant to
Electronic Data Gathering, Analysis and Retrieval (EDGAR)
requirements.
|
(j)
|
Incorporated by reference to Exhibit 8(b) to
the Registration Statement on Form N-1A of Master Premier
Growth Trust (File No. 811-09733), filed December 21,
1999.
|
Item 24. Persons Controlled by or
under Common Control with Registrant.
The Registrant is not controlled by or under common
control with any other person.
Item 25.
Indemnification.
Reference is made to Article VI of the Registrant
’s Articles of Incorporation, Article VI of the Registrant
’s By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Distribution
Agreements.
Article VI of the By-Laws provides that each officer
and director of the Registrant shall be indemnified by the
Registrant to the full extent permitted under the General Laws
of the State of Maryland, except that such indemnity shall not
protect any such person against any liability to the Registrant
or any stockholder thereof to which such person would otherwise
be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office. Absent a court determination that an
officer or director seeking indemnification was not liable on
the merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office, the decision by the Registrant to
indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent
directors, after review of the facts, that such officer or
director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office.
The Registrant may purchase insurance on behalf of
an officer or director protecting such person to the full extent
permitted under the General Laws of the State of Maryland from
liability arising from his activities as officer or director of
the Registrant. The Registrant, however, may not purchase
insurance on behalf of any officer or director of the Registrant
that protects or purports to protect such person from liability
to the Registrant or to its stockholders to which such officer
or director would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard
of the duties involved in the conduct of his office.
Insofar as the conditional advancing of
indemnification moneys for actions based upon the Investment
Company Act of 1940, as amended (the “1940 Act”), may
be concerned, such payments will be made only on the following
conditions: (i) the advances must be limited to amounts used, or
to be used, for the preparation or presentation of a defense to
the action, including costs connected with the preparation of a
settlement; (ii) advances may be made only upon receipt of a
written promise by, or on behalf of, the recipient to repay that
amount of the advance which exceeds the amount which it is
ultimately determined he or she is entitled to receive from the
Registrant by reason of indemnification; and (iii)(a) such
promise must be secured by a surety bond, other suitable
insurance or an equivalent form of security which assures that
any repayments may be obtained by the Registrant without delay
or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) a
majority of a quorum of the Registrant’s disinterested,
non-party Directors, or an independent legal counsel in a
written opinion, shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately
will be found entitled to indemnification.
In Section 9 of the Distribution Agreements relating
to the securities being offered hereby, the Registrant agrees to
indemnify the Distributor and each person, if any, who controls
the Distributor within the meaning of the Securities Act of
1933, as amended (the “1933 Act”), against certain
types of civil liabilities arising in connection with the
Registration Statement, the Prospectus or the Statement of
Additional Information.
Insofar as indemnification for liabilities arising
under the 1933 Act may be permitted to Directors, officers and
controlling persons of the Registrant and the principal
underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a Director,
officer, or controlling person of the Registrant and the
principal underwriter in connection with the successful defense
of any action, suit or proceeding) is asserted by such
Director, officer or controlling person or the principal
underwriter in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the 1933 Act and will be governed by the final adjudication of
such issue.
Item 26. Business
and Other Connections of Investment Adviser.
Merrill Lynch Asset Management, L.P. (the
“Manager” or “MLAM”), acts as the investment
adviser for the following open-end registered investment
companies: Merrill Lynch Adjustable Rate Securities Fund, Inc.,
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset
Builder Program, Inc., Merrill Lynch Asset Growth Fund, Inc.,
Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Capital
Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Disciplined
Equity Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement,
Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill
Lynch Global SmallCap Fund, Inc., Merrill Lynch Global
Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth
Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Index
Funds, Inc., Merrill Lynch Intermediate Government Bond Fund,
Merrill Lynch International Equity Fund, Merrill Lynch Latin
America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc.,
Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific
Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Real
Estate Fund, Inc., Merrill Lynch Retirement Series Trust,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global
Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A.
Government Reserves, Merrill Lynch Utility Income Fund, Inc.,
Merrill Lynch Variable Series Funds, Inc. and Hotchkis and Wiley
Funds (advised by Hotchkis and Wiley, a division of MLAM); and
for the following closed-end registered investment companies:
Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill
Lynch Senior Floating Rate Fund, Inc., and Merrill Lynch Senior
Floating Rate Fund II, Inc. MLAM also acts as sub-adviser to
Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic
Value Equity Portfolio, two investment portfolios of EQ Advisors
Trust.
Fund Asset Management, L.P. (“FAM”), an
affiliate of the Manager, acts as the investment adviser for the
following open-end registered investment companies: CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA
Treasury Fund, The Corporate Fund Accumulation Program, Inc.,
Financial Institutions Series Trust, Master Focus Twenty Trust,
Master Large Cap Series Trust, Master Premier Growth Trust,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc.,
Merrill Lynch Corporate High Yield Fund, Inc., Merrill Lynch
Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust,
Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch World
Income Fund, Inc., and The Municipal Fund Accumulation Program,
Inc.; and for the following closed-end registered investment
companies: Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Corporate High Yield
Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund
II, Inc., Debt Strategies Fund III, Inc., Income Opportunities
Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc.,
MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings
Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings California
Insured Fund, Inc., MuniHoldings California Insured Fund II,
Inc., MuniHoldings California Insured Fund III, Inc.,
MuniHoldings California Insured Fund IV, Inc., MuniHoldings
California Insured Fund V, Inc., MuniHoldings Florida Insured
Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida
Insured Fund III, MuniHoldings Florida Insured Fund IV,
MuniHoldings Florida Insured Fund V, MuniHoldings Insured Fund,
Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings Insured
Fund III, Inc., MuniHoldings Insured Fund IV, Inc., MuniHoldings
Michigan Insured Fund, Inc., MuniHoldings Michigan Insured Fund
II, Inc., MuniHoldings New Jersey Insured Fund, Inc.,
MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings New
Jersey Insured Fund III, Inc., MuniHoldings New Jersey Insured
Fund IV, Inc., MuniHoldings New York Fund, Inc.,
MuniHoldings New York Insured Fund, Inc., MuniHoldings New York
Insured Fund II, Inc., MuniHoldings New York Insured Fund III,
Inc., MuniHoldings New York Insured Fund IV, Inc., MuniHoldings
Pennsylvania Insured Fund, MuniInsured Fund, Inc., MuniVest
Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund,
MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona
Fund, Inc., MuniYield California Fund, Inc., MuniYield
California Insured Fund, Inc., MuniYield California Insured Fund
II, Inc., MuniYield Florida Fund, MuniYield Florida Insured
Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund,
Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey
Insured Fund, Inc., MuniYield New York Insured Fund, Inc.,
MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania
Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc. and Worldwide
DollarVest Fund, Inc.
The address of each of these registered investment
companies is P.O. Box 9011, Princeton, New Jersey 08543-9011,
except that the address of Merrill Lynch Funds for Institutions
Series and Merrill Lynch Intermediate Government Bond Fund is
One Financial Center, 23rd Floor, Boston, Massachusetts
02111-2665. The address of the Manager, FAM, Princeton Services,
Inc. (“Princeton Services”) and Princeton
Administrators, L.P. (“Princeton Administrators”) is
also P.O. Box 9011, Princeton, New Jersey 08543-9011. The
address of Princeton Funds Distributor, Inc. (“PFD”)
and of Merrill Lynch Funds Distributor (“MLFD”) is
P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of
Merrill Lynch, Pierce, Fenner & Smith Incorporated (
“Merrill Lynch”) and Merrill Lynch & Co., Inc. (
“ML & Co.”) is World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281-1201. The
address of the Fund’s transfer agent, Financial Data
Services, Inc. (“FDS”), is 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer
and partner of the Manager indicating each business, profession,
vocation or employment of a substantial nature in which each
such person or entity has been engaged since November 1, 1997
for his, her or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Glenn is President
and Mr. Burke is Vice President and Treasurer of all or
substantially all of the investment companies described in the
first two paragraphs of this Item 26, and Messrs. Doll, Giordano
and Monagle are officers of one or more of such
companies.
Name
|
|
Position(s) with the
Manager
|
|
Other
Substantial Business,
Profession, Vocation or Employment
|
| ML &
Co |
|
Limited
Partner |
|
Financial
Services Holding Company;
Limited Partner of FAM |
|
|
| Princeton
Services |
|
General
Partner |
|
General
Partner of FAM |
|
|
| Jeffrey M.
Peek |
|
President |
|
President of
FAM; President and
Director of Princeton Services;
Executive Vice President of ML &
Co.; Managing Director and Co-Head
of the Investment Banking Division
of Merrill Lynch in 1997; Senior Vice
President and Director of the Global
Securities and Economics Division of
Merrill Lynch from 1995 to 1997 |
|
|
| Terry K.
Glenn |
|
Executive Vice
President |
|
Executive Vice
President of FAM;
Executive Vice President and Director
of Princeton Services; President and
Director of PFD; Director of FDS;
President of Princeton Administrators |
|
|
Name
|
|
Position(s) with the
Manager
|
|
Other
Substantial Business,
Profession, Vocation or Employment
|
| Donald C.
Burke |
|
Senior Vice
President, Treasurer
and Director of Taxation |
|
Senior Vice
President and Treasurer
of FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President of PFD; First Vice President
of FAM from 1997 to 1999; Vice
President of FAM from 1990 to 1997 |
|
|
| Michael G.
Clark |
|
Senior Vice
President |
|
Senior Vice
President of FAM; Senior
Vice President of Princeton Services;
Treasurer and Director of PFD; First
Vice President of the Manager from
1997 to 1999; Vice President of the
Manager from 1996 to 1997 |
|
|
| Robert C.
Doll |
|
Senior Vice
President |
|
Senior Vice
President of FAM; Senior
Vice President of Princeton Services;
Chief Investment Officer of
Oppenheimer Funds, Inc. in 1999 and
Executive Vice President thereof from
1991 to 1999 |
|
|
| Linda L.
Federici |
|
Senior Vice
President |
|
Senior Vice
President of FAM; Senior
Vice President of Princeton Services |
|
|
| Vincent R.
Giordano |
|
Senior Vice
President |
|
Senior Vice
President of FAM; Senior
Vice President of Princeton Services |
|
| Michael J.
Hennewinkel |
|
Senior Vice
President, Secretary
and General Counsel |
|
Senior Vice
President, Secretary and
General Counsel of FAM; Senior Vice
President of Princeton Services |
|
|
| Philip L.
Kirstein |
|
Senior Vice
President |
|
Senior Vice
President of FAM; Senior
Vice President, Secretary, General
Counsel and Director of Princeton
Services |
|
|
| Debra W.
Landsman-Yaros |
|
Senior Vice
President |
|
Senior Vice
President of FAM; Senior
Vice President of Princeton Services;
Vice President of PFD |
|
|
| Stephen M. M.
Miller |
|
Senior Vice
President |
|
Executive Vice
President of Princeton
Administrators; Senior Vice President
of Princeton Services |
|
|
| Joseph T.
Monagle, Jr. |
|
Senior Vice
President |
|
Senior Vice
President of FAM; Senior
Vice President of Princeton Services |
|
|
| Brian A.
Murdock |
|
Senior Vice
President |
|
Senior Vice
President of FAM; Senior
Vice President of Princeton Services |
|
|
| Gregory D.
Upah |
|
Senior Vice
President |
|
Senior Vice
President of FAM; Senior
Vice President of Princeton Services |
Merrill Lynch Asset Management U.K. Limited (
“MLAM U.K.”) acts as sub-adviser for the following
registered investment companies: The Corporate Fund Accumulation
Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt
Strategies Fund, Inc., Debt
Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch
Asset Builder Program, Inc., Merrill Lynch Asset Growth Fund,
Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Basic
Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill
Lynch Consults International Portfolio, Merrill Lynch
Convertible Fund, Inc., Merrill Lynch Corporate Bond Fund, Inc.,
Merrill Lynch Developing Capital Markets Fund, Inc., Merrill
Lynch Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund,
Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch
EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill
Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond
Fund for Investment and Retirement, Merrill Lynch Global Growth
Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch
Global Resources Trust, Merrill Lynch Global SmallCap Fund,
Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Global Value Fund,
Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund,
Inc., Merrill Lynch International Equity Fund, Merrill Lynch
Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Pacific Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Real Estate Fund, Inc., Merrill Lynch
Series Fund, Inc., Merrill Lynch Senior Floating Rate Fund,
Inc., Merrill Lynch Senior Floating Rate Fund II, Inc., Merrill
Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Special
Value Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill
Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series
Funds, Inc., Merrill Lynch World Income Fund, Inc., The
Municipal Fund Accumulation Program, Inc. and Worldwide
DollarVest Fund, Inc. The address of each of these registered
investment companies is P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of MLAM U.K. is 33 King William Street,
London EC4R 9AS, England.
Set forth below is a list of each executive officer
and director of MLAM U.K. indicating each business, profession,
vocation or employment of a substantial nature in which each
such person has been engaged since November 1, 1997, for his or
her own account or in the capacity of director, officer, partner
or trustee. In addition, Messrs. Glenn and Burke are officers of
one or more of the registered investment companies listed in the
first two paragraphs of this Item 26:
Name
|
|
Position(s) with MLAM U.K.
|
|
Other
Substantial Business,
Profession, Vocation or Employment
|
| Terry K.
Glenn |
|
Director and
Chairman |
|
Executive Vice
President of MLAM
and FAM; Executive Vice President
and Director of Princeton Services;
President and Director of PFD;
President of Princeton Administrators |
|
|
| Nicholas C.D.
Hall |
|
Director |
|
Director of
Mercury Asset
Management Ltd. and the Institutional
Liquidity Fund PLC; First Vice
President and General Counsel for
Merrill Lynch Mercury Asset
Management |
|
|
| James T.
Stratford |
|
Director |
|
Director of
Mercury Asset
Management Group Ltd; Head of
Compliance, Merrill Lynch Mercury
Asset Management |
|
|
| Donald C.
Burke |
|
Treasurer |
|
Senior Vice
President and Treasurer
of MLAM and FAM; Director of
Taxation of MLAM; Senior Vice
President and Treasurer of Princeton
Services; Vice President of PFD; First
Vice President of MLAM from 1997
to 1999; Vice President of MLAM
from 1990 to 1997 |
|
| Carol Ann
Langham |
|
Company
Secretary |
|
None |
|
|
| Debra Anne
Searle |
|
Assistant
Company Secretary |
|
None |
|
|
Item 27. Principal
Underwriters.
(a) MLFD, a division of PFD, acts as the
principal underwriter for the Registrant and for each of the
open-end registered investment companies referred to in the
first two paragraphs of Item 26 except CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund,
The Corporate Fund Accumulation Program, Inc. and The Municipal
Fund Accumulation Program, Inc. MLFD also acts as the principal
underwriter for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc.,
Merrill Lynch Municipal Strategy Fund, Inc., Merrill Lynch
Senior Floating Rate Fund, Inc. and Merrill Lynch Senior
Floating Rate Fund II, Inc. A separate division of PFD acts as
the principal underwriter of a number of other investment
companies.
(b) Set forth below is information
concerning each director and officer of PFD. The principal
business address of each such person is P.O. Box 9081,
Princeton, New Jersey 08543-9081, except that the address of
Messrs. Breen, Crook, Fatseas and Wasel is One Financial
Center, 23rd Floor, Boston, Massachusetts
02111-2665.
Name
|
|
Position(s)
and
Office(s) with PFD
|
|
Position(s)
and
Office(s) with Registrant
|
| Terry
K. Glenn |
|
President and
Director |
|
Executive Vice
President |
|
|
| Michael G. Clark |
|
Treasurer and
Director |
|
None |
|
|
| Thomas J. Verage |
|
Director |
|
None |
|
|
| Robert W. Crook |
|
Senior Vice
President |
|
None |
|
|
| Michael J. Brady |
|
Vice
President |
|
None |
|
|
| William M. Breen |
|
Vice
President |
|
None |
|
|
| Donald C. Burke |
|
Vice
President |
|
Vice President
and Treasurer |
|
|
| James
T. Fatseas |
|
Vice
President |
|
None |
|
|
| Debra
W. Landsman-Yaros |
|
Vice
President |
|
None |
|
|
| Michelle T. Lau |
|
Vice
President |
|
None |
|
|
| Salvatore Venezia |
|
Vice
President |
|
None |
|
|
| William Wasel |
|
Vice
President |
|
None |
|
|
| Robert Harris |
|
Secretary |
|
None |
(c) Not applicable.
Item 28. Location of
Accounts and Records.
All accounts, books and other documents required to
be maintained by Section 31(a) of the 1940 Act and the rules
thereunder are maintained at the offices of the Registrant (800
Scudders Mill Road, Plainsboro, New Jersey 08536), and its
transfer agent, Financial Data Services, Inc. (4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484).
Item 29. Management
Services.
Other than as set forth under the caption
“Management of the Fund—Merrill Lynch Asset Management
” in the Prospectus constituting Part A of the Registration
Statement and under “Management of the Fund—Management
and Advisory Arrangements” in the Statement of Additional
Information constituting Part B of the Registration Statement,
the Registrant is not a party to any management-related service
contract.
Item 30.
Undertakings.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act
and the Investment Company Act, the Registrant certifies that it
meets all the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the
Securities Act and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, duly authorized,
in the Township of Plainsboro, and the State of New Jersey, on
the 1st day of February, 2000.
|
MERRILL
LYNCH
GLOBAL
ALLOCATION
FUND
, INC
.
|
|
(Donald C. Burke, Vice President and
Treasurer)
|
Pursuant to the requirements of the Securities Act,
this registration statement has been signed below by the
following person in the capacities and on the date
indicated.
Signature
|
|
Title
|
|
Date
|
| |
|
TERRY
K. GLENN
*
(Terry K. Glenn) |
|
President and
Director
(Principal Executive Officer) |
|
|
| |
|
DONALD
C. BURKE
*
(Donald C. Burke) |
|
Vice President
and Treasurer
(Principal Financial and
Accounting Officer) |
|
|
| |
|
CHARLES
C. REILLY
*
(Charles C. Reilly) |
|
Director |
|
|
| |
|
RICHARD
R. WEST
*
(Richard R. West) |
|
Director |
|
|
| |
|
ARTHUR
ZEIKEL
*
(Arthur Zeikel) |
|
Director |
|
|
| |
|
EDWARD
D. ZINBARG
*
(Edward D. Zinbarg) |
|
Director |
|
|
| |
|
/s/
DONALD
C. BURKE
*By:
(Donald C. Burke,
Attorney-in-Fact) |
|
|
|
February 1,
2000 |
EXHIBIT INDEX
Exhibit
Number
|
|
Description
|
|
9 |
|
Opinion of
Brown & Wood LLP. |
|
| 10 |
|
Consent of
Deloitte & Touche LLP
, independent auditors for the Registrant. |
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