Exhibit 1(a)
WORLD INCOME FUND, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
WORLD INCOME FUND, INC., a Maryland corporation (the
"Corporation"), having its principal office in Princeton, New
Jersey, and having The Corporation Trust Incorporated as its
resident agent located at 32 South Street, Baltimore, Maryland
21202, does hereby certify to the State Department of Assessments
and Taxation of Maryland that:
FIRST: The name of the Corporation is World Income Fund,
Inc. The Corporation desires to amend and restate its charter as
currently in effect. The original Articles of Incorporation were
filed with the Maryland State Department of Assessments and
Taxation on July 1, 1988.
SECOND: The Articles of Amendment and Restatement contain
a provision changing the name of the Corporation from the "World
Income Fund, Inc." to "Merrill Lynch World Income Fund, Inc."
THIRD: Pursuant to Section 2-609 of the Maryland General
Corporation Law, these Articles of Amendment and Restatement
restate and integrate and further amend the provisions of the
Articles of Incorporation of the Corporation.
FOURTH: The text of the charter of the Corporation as
heretofore amended or supplemented is hereby restated and further
amended to read in its entirety as follows:
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AMENDED AND RESTATED
ARTICLES OF INCORPORATION
or
MERRILL LYNCH WORLD INCOME FUND,, INC.
ARTICLE I
THE UNDERSIGNED, Jonathan B. Miller, whose post-office
address is One World Trade Center, New York, New York 10048,
being at least eighteen years of age, does hereby act as an
incorporator, under and by virtue of the General Laws of the
State of Maryland authorizing the formation of corporations and
with the intention of forming a corporation.
ARTICLE II
NAME
The name of the corporation is
MERRILL LYNCH WORLD INCOME FUND, INC.
ARTICLE III
PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed
and the business or objects to be transacted, carried on and
promoted by it are as follows:
(1) To conduct and carry on the business of an
investment company of the management type.
(2) To hold, invest and reinvest its assets in
securities, and in connection therewith to hold part or
all of its assets in cash.
(3) To issue and sell shares of its own capital
stock in such amounts and on such terms and conditions,
for such purposes and for such amount or kind of
consideration now or hereafter permitted by the General
Laws of the State of Maryland and by these Articles of
Incorporation, as its Board of Directors may determine;
provided, however, that the value of the consideration
per share to be received by the Corporation upon the
sale or other disposition of any shares of its capital
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stock shall not be less than the net asset value per
share of such capital stock outstanding at the time of
such event.
(4) To redeem, purchase or otherwise acquire,
hold, dispose of, resell, transfer, reissue or cancel
(all without the vote or consent of the stockholders of
the Corporation) shares of its capital stock, in any
manner and to the extent now or hereafter permitted by
the General Laws of the State of Maryland and by these
Articles of Incorporation.
(5) To do any and all such further acts or things
and to exercise any and all such future powers or
rights as may be necessary, incidental, relative,
conducive, appropriate or desirable for the
accomplishment, carrying out or attainment of all or
any of the foregoing purposes or objects.
The Corporation shall be authorized to exercise and enjoy
all of the powers, rights and privileges granted to, or conferred
upon, corporations by the General Laws of the State of Maryland
now or hereafter in force, and the enumeration of the foregoing
shall not be deemed to exclude any powers, rights or privileges
so granted or conferred.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post-office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202. The
name of the resident agent of the Corporation in this State is
The Corporation Trust Incorporated, a corporation of this State,
and the post-office address of the resident agent is 32 South
Street, Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock which the
Corporation shall have authority to issue is Two Hundred Million
(200,000,000) shares, of the par value of Ten Cents ($.lo) per
share and of the aggregate par value of Twenty Million Dollars
($20,000,000). The capital stock initially is classified into
two classes, consisting of One Hundred Million (100,000,000)
shares of Class A Common Stock and One Hundred Million
(100,000,000) shares of Class B Common Stock.
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(2) The Board of Directors may classify and reclassify any
unissued shares of capital stock into one or more additional or
other classes or series as may be established from time to time
by setting or changing in any one or more respects the
designations, preferences, conversion or other rights, voting
powers,, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of stock and
pursuant to such classification or reclassification to increase
or decrease the number of authorized shares of any existing class
or series.
(3) Unless otherwise expressly provided in the charter of
the Corporation, including any Articles Supplementary creating
any class or series of capital stock, the holders of each class
or series of capital stock shall be entitled to dividends and
distributions in such amounts and at such times as may be
determined by the Board of Directors, and the dividends and
distributions paid with respect to the various classes or series
of capital stock may vary among such classes and series.
Expenses related to the distribution of, and other identified
expenses that should properly be allocated to, the shares of a
particular class or series of capital stock may be charged to and
borne solely by such class or series and the bearing of expenses
solely by a class or series of capital stock may be appropriately
reflected (in a manner determined by the Board of Directors) and
cause differences in the net asset value attributable to, and the
dividend, redemption and liquidation rights of, the shares of
each class or series of capital stock.
(4) Unless otherwise expressly provided in the charter of
the Corporation, including any Articles Supplementary creating
any class or series of capital stock, on each matter submitted to
a vote of stockholders, each holder of a share of capital stock
of the Corporation shall be entitled to one vote for each share
standing in such holder's name on the books of the Corporation,
irrespective of the class or series thereof, and all shares of
all classes and series shall vote together as a single class;
provided, however, that (a) as to any matter with respect to
which a separate vote of any class or series is required by the
Investment Company Act of 1940, as amended, and in effect from
time to time, or any rules, regulations or orders issued
thereunder, or by the Maryland General Corporation Law, such
requirement as to a separate vote by that class or series shall
apply in lieu of a general vote of all classes and series as
described above, (b) in the event that the separate vote
requirements referred to in (a) above apply with respect to one
or more classes or series, then, subject to paragraph (c) below,
the shares of all other classes and series not entitled to a
separate class vote shall vote as a single class, and (c) as to
any matter which does not affect the interest of a particular
class or series, such class or series shall not be entitled to
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any vote and only the holders of shares of the one or more
affected classes and series shall be entitled to vote.
(5) Notwithstanding any provision of the Maryland General
corporation Law requiring a greater proportion than a majority of
the votes of all classes or series of capital stock of the
Corporation (or of any class or series entitled to vote thereon
as a separate class or series) to take or authorize any action,
the Corporation is hereby authorized (subject to the requirements
of the Investment Company Act of 1940, as amended, and in effect
from time to time, and any rules, regulations and orders issued
thereunder) to take such action upon the concurrence of a
majority of the aggregate number of shares of capital stock of
the Corporation entitled to vote thereon (or a majority of the
aggregate number of shares of a class or series entitled to vote
thereon as a separate class or series).
(6) Unless otherwise expressly provided in the charter of
the Corporation, including any Articles Supplementary creating
any class or series of capital stock, in the event of any
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of all classes and
series of capital stock of the Corporation shall be entitled,
after payment or provision for payment of the debts and other
liabilities of the Corporation, to share ratably in the remaining
net assets of the Corporation.
(7) Any fractional shares shall carry proportionately all
the rights of a whole share, excepting any right to receive a
certificate evidencing such fractional share, but including,
without limitation, the right to vote and the right to receive
dividends.
(8) All persons who shall acquire stock in the Corporation
shall acquire the same subject to the provisions of the charter
and By-Laws of the Corporation. As used in the charter of the
Corporation, the terms "charter" and "Articles of Incorporation"
shall mean and include the Articles of Incorporation of the
Corporation as amended, supplemented and restated from time to
time by Articles of Amendment, Articles Supplementary, Articles
of Restatement or otherwise.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE DIRECTORS
AND STOCKHOLDERS
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(1) The number of directors of the Corporation shall be
five (5), which number may be increased or decreased pursuant to
the By-Laws of the Corporation but shall never be less than (3).
The names of the directors who shall act until the next annual
meeting or until their successors are duly elected and qualify
are:
Joseph L. May
Andre F. Perold
Kenneth S. Axelson
Herbert I. London
Arthur Zeikel
(2) The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of shares
of capital stock, whether now or hereafter authorized, for such
consideration as the Board of Directors may deem advisable,
subject to such limitations as may be set forth in these Articles
of Incorporation or in the By-Laws of the Corporation or in the
General Laws of the State of Maryland.
(3) No holder of stock of the Corporation shall, as such
holder, have any right to purchase or subscribe for any shares of
the capital stock of the Corporation or any other security of the
Corporation which it may issue or sell (whether out of the number
of shares authorized by these Articles of Incorporation, or-out
of any shares of the capital stock of the Corporation acquired by
it after the issue thereof, or otherwise) other than such right,
if any, as the Board of Directors, in its discretion, may
determine.
(4) Each director and each officer of the Corporation shall
be indemnified by the Corporation to the full extent permitted by
the General Laws of the State of Maryland, subject to the
requirements of the Investment Company Act of 1940, as amended.
No amendment of these Articles of Incorporation or repeal of any
provision hereof shall limit or eliminate the benefits provided
to directors and officers under this provision in connection with
any act or omission that occurred prior to such amendment or
repeal.
(5) To the fullest extent permitted by the General Laws of
the State of-Maryland, subject to the requirements of the
Investment Company Act of 1940, as amended, no director or
officer of the Corporation shall be personally liable to the
Corporation or its security holders for money damages. No
amendment of these Articles of Incorporation or repeal of any
provision hereof shall limit or eliminate the benefits provided
to directors and officers under this provision in connection with
any act or omission that occurred prior to such amendment or
repeal.
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(6) The Board of Directors of the Corporation may make,
alter or repeal from time to time any of the By-Laws of the
Corporation except any particular By-Law which is specified as
not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act of
1940, as amended.
ARTICLE VII
REDEMPTION
Each holder of shares of capital stock of the Corporation
shall be entitled to require the Corporation to redeem all or any
part of the shares of capital stock of the Corporation standing
in the name of such holder on the books of the Corporation, and
all shares of capital stock issued by the Corporation shall be
subject to redemption by the Corporation, at the redemption price
of such shares as in effect from time to time as may be
determined by the Board of Directors of the Corporation in
accordance with the provisions hereof, subject to the right of
the Board of Directors of the Corporation to suspend the right of
redemption of shares of capital stock of the Corporation or
postpone the date of payment of such redemption price in
accordance with provisions of applicable law. The redemption
price of shares of capital stock of the Corporation shall be the
net asset value thereof as determined by the Board of Directors
of the Corporation from time to time in accordance with the
provisions of applicable law, less such redemption fee or other
charge, if any, as may be fixed by resolution of the Board of
Directors of the Corporation. Payment of the redemption price
shall be made in cash by the Corporation at such time and in such
manner as may be determined from time to time by the Board of
Directors of the Corporation.
ARTICLE VIII
DETERMINATION BINDING
Any determination made in good faith, so far as accounting
matters are involved, in accordance with accepted accounting
practice by or pursuant to the direction of the Board of
Directors, as to the amount of assets, obligations or liabilities
of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts
at any time legally available for the payment of dividends, as to
the amount of any reserves or charges set up and the propriety
thereof, as to the time of or purpose for creating reserves or as
to the use, alteration or cancellation of any reserves or charges
(whether or not any obligation or liability for which such
reserves or charges shall have been created, shall have been paid
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or discharged or shall be then or thereafter required to be paid
or discharged), as to the price of any security owned by the
Corporation or as to any other matters relating to the issuance,
sale, redemption or other acquisition or disposition of
securities or shares of capital stock of the Corporation, and any
reasonable determination made in good faith by the Board of
Directors as to whether any transaction constitutes a purchase of
securities on "margin," a sale of securities "short," or an
underwriting of the sale of, or a participation in any
underwriting or selling group in connection with the public
distribution of, any securities, shall be final and conclusive,
and shall be binding upon the Corporation and all holders of its
capital stock, past, present, and future, and shares of the
capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares
of capital stock or acceptance of share certificates, that any
and all such determinations shall be binding as aforesaid. No
provision of these Articles of Incorporation shall be effective
to (a) require a waiver of compliance with any provision of the
Securities Act of 1933, as amended, or the Investment Company Act
of 1940, as amended, or of any valid rule, regulation or order of
the Securities and Exchange Commission thereunder or (b) protect
or purport to protect any director or officer of the Corporation
against any liability to the Corporation or its security holders
to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of this office.
ARTICLE IX
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
ARTICLE X
AMENDMENT
The Corporation reserves the right to amend, alter, change
or repeal any provision contained in these Articles of
Incorporation, in any manner now or hereafter prescribed by
statute, including any amendment which alters the contract
rights, as expressly set forth in the charter, of any outstanding
stock and substantially adversely affects the stockholder's
rights, and all rights conferred upon stockholders herein are
granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned incorporator of WORLD
INCOME FUND, INC. hereby executes the foregoing Articles of
Incorporation and acknowledges the same to be his act and further
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acknowledges that, to the best of his knowledge, the matters and
facts set forth therein are true in all material respects under
the penalties of perjury.
Dated the 30th day of June, 1988.
/s/ Jonathan B. Miller
--------------------------
Jonathan B. Miller
FIFTH: (a) As of immediately before the effectiveness of
these Articles of Amendment and Restatement, the total number of
shares of stock of all classes which the Corporation has
authority to issue is 150,000,000 shares, all of which are Common
Stock (par value $.10 per share).
(b) As amended, the total number of shares of
stock of all classes which the Corporation has authority to issue
is 200,000,000 shares, of which 100,000,000 shares are Class A
Common Stock (par value $.lo per share) and 100,000,000 shares
are Class B Common Stock (par value $.10 per share).
(c) The aggregate par value of all shares having
a par value is $15,000,000 before the effectiveness of these
Articles of Amendment and Restatement, and $20,000,000 as amended
by these Articles of Amendment and Restatement.
(d) The shares of stock of the Corporation are
divided into two classes, Class A Common Stock and Class B Common
Stock, and a description of each class, including the
preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption, is set forth in the Articles
of Amendment and Restatement.
SIXTH: These Articles of Amendment and Restatement have
been approved by the Board of Directors of the Corporation and by
thi holders of a majority of the outstanding shares of capital
stock of the Corporation entitled to vote on the matter.
SEVENTH: These Articles of Amendment and Restatement shall
be effective on the date of acceptance for record by the Maryland
State Department of Assessments and Taxation.
IN WITNESS WHEREOF, WORLD INCOME FUND, INC. has caused these
presents to be signed in its name and on its behalf by its
President and witnessed by its Secretary on November _A, 1991.
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WITNESS: WORLD INCOME FUND, INC.
(a Maryland Corporation
By: /s/ Arthur Zeikel
/s/ Mark B. Goldfus, Secretary President
THE UNDERSIGNED, President of WORLD INCOME INC., a
-Maryland corporation, who executed on behalf of the Corporation
the foregoing Articles of Amendment and Restatement of which this
certificate is made a part, hereby acknowledges in the name and
on behalf of said Corporation the foregoing Articles of Amendment
and Restatement to be the corporate act of said Corporation and
hereby certifies that to the best of his knowledge, information
and belief the matters and facts set forth therein with respect
to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
/s/Arthur Zeikel, President
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Exhibit 1(b)
MERRILL LYNCH WORLD INCOME FUND, INC.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
MERRILL LYNCH WORLD INCOME FUND, INC., a Maryland
corporation having its principal Maryland office c/o The
Corporation Trust Incorporated, 32 South Street, Baltimore,
Maryland 21202 (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The charter of the Corporation is hereby amended
by adding the following provision at the end of Article V:
(9) The Board of Directors may classify and reclassify any
issued shares of capital stock into one or more additional or
other classes or series as may be established from time to time
by setting or changing in any one or more respects the
designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of stock and
pursuant to such classification or reclassification to increase
or decrease the number of authorized shares of any existing class
or series; provided, however, that any such classification or
reclassification shall not substantially adversely affect the
rights of holders of such issued shares. The Board's authority
pursuant to this paragraph shall include, but not be limited to,
the power to vary among all the holders of a particular class or
series (a) the length of time shares must be held prior to
reclassification to shares of another class or series (the
"Holding Period(s)"), (b) the manner in which the time for such
Holding Period(s) is determined and (c) the class or series into
which the particular class or series is being reclassified;
provided, however, that, subject to the first sentence of this
section, with respect to holders of the Corporation's shares
issued on or after the date of the Corporation's first effective
prospectus which sets forth Holding Period(s) (the "First Holding
Period Prospectus"), the Holding Period(s), the manner in which
the time for such Holding Period(s) is determined and the class
or series into which the particular class or series is being
reclassified shall be disclosed in the Corporation's prospectus
or statement of additional information in effect at the time such
shares, which are the subject of the reclassification, were
issued; and provided, further, that, subject to the first
sentence of this section, with respect to holders of the
`orporation's Class B shares issued prior to the date of the
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Corporation's First Holding Period Prospectus, the Holding Period
shall be ten (10) years for retirement plan (as recognized by the
Internal Revenue Code of 1986, as amended from time to time)
holders of issued Class B shares purchased without a contingent
deferred sales charge (a "CDSC-Waived Retirement Plan") and shall
be the Holding Period set forth in the Corporation's First
Holding Period Prospectus, for all other holders of issued Class
B shares; Class B shares held by a CDSC-Waived Retirement Plan
shall be reclassified to Class D shares in the month following
the month in which the first Class B share of any mutual fund
advised by Merrill Lynch Asset Management, L.P., Fund Asset
Management, L.P., or their affiliates or successors, held by such
CDSC-Waived Retirement Plan has been held for the ten (10) year
Holding Period established by the Corporation's Board of
Directors for such CDSC-Waived Retirement Plan Class B
shareholder; and the Class B shares of every shareholder other
than CDSC-Waived Retirement Plans shall be reclassified to Class
D shares in the month following the month in which such shares
have been held for the Holding Period established by the
Corporation's Board of Directors for shareholders other than
CDSC-Waived Retirement Plans in the Corporation's First Holding
Period Prospectus.
SECOND: The foregoing Articles of Amendment have been
effected in the manner and by the vote required by the
Corporation's charter and the laws of the State of Maryland.
Pursuant to Section 2-604 of the Maryland Corporations and
Associations Code, the amendment was advised by the Board of
Directors of the Corporation and approved by the stockholders.
THIRD: Except as amended hereby, the Corporation's charter
shall remain in full force and effect.
FOURTH: The authorized capital stock of the Corporation has
not been increased by these Articles of Amendment.
FIFTH: These Articles of Amendment shall be effective at
the very beginning of the day on October 21. 1994.
The President acknowledges these Articles of Amendment to be
the corporate act of the Corporation and states that to the best
of his knowledge, information and belief, the matters set forth
in these Articles of Amendment with respect to the authorization
and approval of the amendment of the Corporation's charter are
true in all material respects, and that this statement is made
under the penalties for perjury.
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IN WITNESS WHEREOF, MERRILL LYNCH WORLD INCOME FUND, INC.
has caused these Articles of Amendment to be signed in its name
and on its behalf by its President, a duly authorized officer of
the Corporation, and attested by its Secretary the 17th day
of October, 1994.
MERRILL LYNCH WORLD INCOME FUND, INC.
/s/ Arthur Zeikel
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President
Attest:
/s/ Mark B. Goldfus
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Secretary
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Exhibit 1(c)
MERRILL LYNCH WORLD INCOME FUND, INC.
ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION
INCREASING THE AUTHORIZED CAPITAL STOCK OF THE
CORPORATION AND CREATING TWO ADDITIONAL CLASSES
OF COMMON STOCK
MERRILL LYNCH WORLD INCOME FUND, INC., a Maryland
corporation having its principal Maryland office c/o The
Corporation Trust Incorporated, 32 South Street, Baltimore,
Maryland 21202 (hereinafter called the Corporation), hereby
certifies to the State Department of Assessments and Taxation,
that:
FIRST: The Corporation is registered as an open-end company
under the Investment Company Act of 1940, as amended, with
authority to issue TWO BILLION (2,000,000,000) shares of capital
stock. The Corporation has two classes of capital stock
consisting of ONE BILLION (1,000,000,000) shares of Class A
Common Stock and ONE BILLION (1,000,000,000) shares of Class B
Common Stock. All shares of all classes and series of the
Corporation's capital stock have a par value of Ten Cents ($.lo)
per share and an aggregate par value of TWO HUNDRED MILLION
Dollars ($200,000,000).
SECOND: The Board of Directors of the Corporation, acting
in accordance with Section 2-105(c) of the Maryland Corporations
and Associations Code, hereby increases the total number of
authorized shares of Class B Common Stock of the Corporation by
TWO BILLION (2,000,000,000) shares.
THIRD: After this increase in the number of authorized
shares of capital stock of the Corporation, the Corporation will
have authority to issue FOUR BILLION (4,000,000,000) shares of
capital stock and the capital stock will consist of ONE BILLION
(1,000,000,000) shares of Class A Common Stock and THREE BILLION
(3,000,000,000) shares of Class B Common Stock.
FOURTH: After this increase in the number of authorized
shares of capital stock of the Corporation, all shares of all
classes and series of the Corporation's capital stock will have a
par value of Ten Cents ($.lo) per share and an aggregate par
value of FOUR HUNDRED MILLION Dollars ($400,000,000).
FIFTH: Pursuant to authority expressly vested in the Board
of Directors of the Corporation by its charter, the Board of
Directors has reclassified ONE BILLION (1,000,000,000) authorized
and unissued shares of the Class B Common Stock of the
Corporation as Class C Common Stock of par value of Ten Cents
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($.lo) per share and of the aggregate par value of ONE HUNDRED
MILLION Dollars ($100,000,000).
SIXTH: The preferences, designations, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of lass C
Common Stock are as follows:
The Class C Common Stock of the Corporation shall represent
the same interest in the Corporation and have identical
preferences, designations, conversion or other rights, voting
powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Class
B Common Stock as of the date of these Articles Supplementary,
except as otherwise set forth in the Corporation's charter and
further except that:
(i) Expenses related to the distribution of the Class C
Common Stock shall be borne solely by such class and such class
shall have exclusive voting rights with respect to matters
relating to the expenses being borne solely by such class;
(ii) Such distribution expenses borne solely by Class C
Common Stock shall be appropriately reflected (in the manner
determined by the Board of Directors) in the net asset value,
dividends, distribution and liquidation rights of the shares of
such class; and
(iii) class C Common Stock shall not be reclassified into
Class D shares.
SEVENTH: Pursuant to authority expressly vested in the
Board of Directors of the Corporation by its charter, the Board
of Directors has reclassified ONE BILLION (1,000,000,000)
authorized and unissued shares of the Class B Common Stock of the
Corporation as Class D Common Stock of par value of Ten Cents
($.10) per share and of the aggregate par value of ONE HUNDRED
MILLION Dollars ($100,000,000).
EIGHTH: The preferences, designations, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of Class D
Common Stock are as follows:
The Class D Common Stock of the Corporation shall represent
the same interest in the Corporation and have identical
preferences, designations, conversion or other rights, voting
powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Class
B Common Stock as of the date of these Articles Supplementary,
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except as otherwise set forth in the Corporation's charter and
further except that:
(i) Expenses related to the distribution of the Class D
Common Stock shall be borne solely by such class and such class
shall have exclusive voting rights with respect to matters
relating to the expenses being borne solely by such class; and
(ii) Such distribution expenses borne solely by Class D
Common Stock shall be appropriately reflected (in the manner
determined by the Board of Directors) in the net asset value,
dividends, distribution and liquidation rights of the shares of
such class.
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IN WITNESS WHEREOF, MERRILL LYNCH WORLD INCOME FUND, INC.
has caused these Articles Supplementary to be signed in its name
and on its behalf by its President and attested by its Secretary
on October 17th, 1994.
MERRILL LYNCH WORLD INCOME FUND,INC.
BY: /s/ Arthur Zeikel
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Arthur Zeikel
President
ATTEST:
/s/ Mark B. Goldfus
- -------------------
Secretary
UNDERSIGNED, President of MERRILL LYNCH WORLD INCOME
FUND, INC., who executed on behalf of said Corporation the
foregoing Articles Supplementary, of which this certificate is
made a part, hereby acknowledges, in the name and on behalf of
said Corporation, the foregoing Articles Supplementary to be the
corporate act of said Corporation and further certifies that, to
the best of his knowledge, information and belief, the/matters
and facts set forth therein with respect to the authorization and
approval thereof are true in all material respects, and that this
statement is made under the penalties for purjury
/s/ Arthur Zeikel
-------------------------
Arthur Zeikel
President
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Exhibit 2
BY-LAWS
OF
WORLD INCOME FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the
Corporation shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal
executive office of the Corporation shall be at 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.
Section 3. Other Offices. The Corporation may have such
other offices in such places as the Board of Directors may from
time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. The annual meeting of the
stockholders of the Corporation for the election of directors and
for the transaction of such other business as may properly be
brought before the meeting shall be held on such day in March of
each year as shall be designated annually by the Board of
Directors.
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Section 2. Special Meetings. special meetings of the
stockholders, unless otherwise provided by law or by the Articles
of Incorporation, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, or on the
written request of the holders of the outstanding shares of
capital stock of the Corporation entitled to vote at such meeting
to the extent permitted by Maryland law.
Section 3. Place of Meetings. The annual meeting and any
special meeting of the stockholders shall be held at such place
within the United States as the Board of Directors may from time
to time determine.
Section 4. Notice of Meetings; Waiver of notice. Notice of
the place, date and time of the holding of each annual and
special meeting of the stockholders and the purpose or purposes
of each special meeting shall be given personally or by mail, not
less than ten nor more than ninety days before the date of such
meeting, to each stockholder entitled to vote at such meeting and
to each other stockholder entitled to notice of the meeting.
Notice by mail shall be deemed to be duly given when deposited in
the United States mail addressed to the stockholder at his
address as it appears on the records of the Corporation, with
postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived
by any stockholder who shall attend such meeting in person or by
proxy, or who shall, either before or after the meeting, submit a
signed waiver of notice which is filed with the records of the
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meeting. When a meeting is adjourned to another time and place,
unless the Board of Directors, after the adjournment, shall fix a
new record date for an adjourned meeting, or the adjournment is
for more than one hundred and twenty days after the original
record date, notice of such adjourned meeting need not be given
if the time and place to which the meeting shall be adjourned
were announced at the meeting at which the adjournment is taken.
Section 5. Quorum. At all meetings of the stockholders,
the holders of a majority of the shares of stock of the Corpor-
ation entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for the transaction of any
business, except as otherwise provided by statute or by the
Articles of Incorporation. in the absence of a quorum no busi-
niess may be transacted, except that the holders of a majority of
the shares of stock present in person or by proxy and entitled to
vote may adjourn the meeting from time to time, without notice
other than announcement thereat except as otherwise required by
these BY-Laws, until the holders of the requisite amount of
shares of stock shall be so present. At any such adjourned
meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as
originally called. The absence from any meeting, in person or by
proxy, of holders of the number of shares of stock of the Corpor-
ation in excess of a majority thereof which may be required by
the laws of the State of Maryland, the Investment Company Act of
1940, as amended, or other applicable statute, the Articles of
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Incorporation, or these By-Laws, for action upon any given matter
shall not prevent action at such meeting upon any other matter or
matters which may properly come before the meeting, if there
shall be present thereat, in person or by proxy, holders of the
number of shares of stock of the Corporation required for action
in respect of such other matter or matters.
Section 6. Organization. At each meeting of the stock-
holders, the Chairman of the Board (if one has been designated by
the Board), or in his absence or inability to act, the President,
or in the absence or inability to act of the Chairman of the
Board and the President, a Vice President, shall act as chairman
of the meeting. The Secretary, or in his absence or inability to
act, any person appointed by the chairman of the meeting, shall
act as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all
meetings of the stockholders shall be as determined by the chair-
man of the meeting.
Section S. Voting. Except as otherwise provided by statute
or the Articles of Incorporation, each holder of record of shares
of stock of the Corporation having voting power shall be entitled
at each meeting of the stockholders to one vote for every share
of such stock standing in his name on the record of stockholders
of the Corporation as of the record date determined pursuant to
section 9 of this Article or if such record date shall not have
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been so fixed, then at the later of (i) the close of business on
the day on which notice of the meeting is mailed or (ii) the
thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stock-
holders may authorize another person or persons to act for him by
a proxy signed by such stockholder or his attorney-in-fact. No
proxy shall be valid after the expiration of eleven months from
the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that
it is irrevocable and where an irrevocable proxy is permitted by
law. Except as otherwise provided by statute, the Articles of
Incorporation or these By-Laws, any corporate action to be taken
by vote of the stockholders shall be authorized by a majority of
the total votes cast at a meeting of stockholders by the holders
of shares present in person or represented by proxy and entitled
to vote on such action.
If a vote shall be taken on any question other than the
election of directors, which shall be by written ballot, then
unless required by statute or these By-Laws, or determined by the
chairman of the meeting to be advisable, any such vote need not
be by ballot. on a vote by ballot, each ballot shall be signed
by the stockholder voting, or by his proxy, if there be such
proxy, and shall state the number of shares voted.
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Section 9. Fixing of Record Date. The Board of Directors
may set a record date for the purpose of determining stockholders
entitled to vote at any meeting of the stockholders. The record
date, which may not be prior to the close of business on the day
the record date is fixed, shall be not more than ninety nor less
than ten days before the date of the meeting of the stockholders.
All persons who were holders of record of shares at such time,
and not others, shall be entitled to vote at such meeting and any
adjournment thereof.
Section 10. Inspectors. The Board may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at
such meeting or any adjournment thereof. If the inspectors shall
not be so appointed or if any of them shall fail to appear or
act, the chairman of the meeting may, and on the request of any
stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of
inspector at such meeting with strict impartiality and according
to the best of his ability. The inspectors shall determine the
number of shares outstanding and the voting powers of each, the
number of shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result,
and do such acts as are proper to conduct the election or vote
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with fairness to all stockholders. on request of the chairman of
the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certifi-
cate of any fact found by them. No director or candidate for the
office of director shall act as inspector of an election of
directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting.
Except as otherwise provided by statute or the Articles of Incor-
poration, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken
at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote,
if the following are filed with the records of stockholders
meetings: (i) a unanimous written consent which sets forth the
action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed
by each stockholder entitled to notice of the meeting but not
entitled to vote thereat.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in
the Articles of Incorporation, the business and affairs of the
Corporation shall be managed under the direction of the Board of
Directors. All powers of the Corporation may be exercised by or
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under authority of the Board of Directors except as conferred on
or reserved to the stockholders by law or by the Articles of
incorporation or these By-Laws.
Section 2. Number of Directors. The number of directors
shall be fixed from time to time by resolution of the Board of
Directors adopted by a majority of the Directors then in office;
provided, however, that the number of directors shall in no event
be less than three nor more than fifteen. Any vacancy created by
an increase in Directors may be filled in accordance with Section
6 of this Article III. No reduction in the number of directors
shall have the effect of removing any director from office prior
to the expiration of his term unless such director is specifi-
cally removed pursuant to Section 5 of this Article III at the
time of such decrease. Directors need hot be stockholders.
Section 3. Election and Term of Directors. Directors shall
be elected annually, by written ballot at the annual meeting of
stockholders, or a special meeting held for that purpose. The
term of-office of each director shall be from the time of his
election and qualification until the annual election of directors
next succeeding his election and until his successor shall have
been elected and shall have qualified, or until his death, or
until he shall have resigned, or have been removed as hereinafter
provided in these By-Laws, or as otherwise provided by statute or
the Articles of Incorporation.
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Section 4. Resignation. A director of the Corporation may
resign at any time by giving written notice of his resignation to
the Board or the Chairman of the Board or the President or the
Secretary. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective
shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any director of the
Corporation may be removed for cause (but not without cause) by
the stockholders by a vote of seventy-five percent (75%) of the
outstanding shares of capital stock then entitled to vote in the
election of directors.
Section 6. Vacancies. Subject to the provisions of the
Investment Company Act of 1940, as amended, any vacancies in the
Board, whether arising from death, resignation, removal, an
increase in the number of directors or any other cause, shall be
filled by a vote of the Board of Directors in accordance with the
Articles of Incorporation.
Section 7. Place of Meetings. Meetings of the Board may be
held at such place as the Board may from time to time determine
or as shall be specified in the notice of such meeting.
Section S. Regular Meeting. Regular meetings of the Board
may be held without notice at such time and place as may be
determined by the Board of Directors.
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Section 9. Special Meetings. Special meetings of the Board
may be called by two or more directors of the Corporation or by
the Chairman of the Board or the President.
Section 10. Telephone Meetings. Members of the Board of
Directors or of any committee thereof may participate in a
meeting by means of a conference telephone or similar
communications equipment if all persons participating in the
meeting can hear each other at the same time. Subject to the
provisions of the Investment Company Act of 1940, as amended,
participation in a meeting by these means constitutes presence in
person at the meeting.
Section 11. Notice of Special Meetings. Notice of each
special meeting of the Board shall be given by the Secretary as
hereinafter provided, in which notice shall be stated the time
and place of the meeting. Notice of each such meeting shall be
delivered to each director, either personally or by telephone or
any standard form of telecommunication, at least twenty-four
hours before the time at which such meeting is to be held, or by
first-class mail, postage prepaid, addressed to him at his resi-
dence or usual place of business, at least three days before the
day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any
special meeting need not be given to any director who shall,
either before or after the meeting, sign a written waiver of
notice which is filed with the records of the meeting or who
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shall attend such meeting. Except as otherwise specifically
required by these By-Laws, a notice or waiver or notice of any
meeting need not state the purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less
than two, of the members of the entire Board shall be present in
person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and
except as otherwise expressly required by statute, the Articles
of Incorporation, these By-Laws, the Investment Company Act of
1940, as amended, or other applicable statute, the act of a
majority of the directors present at any meeting at which a
quorum is present shall be the act of the Board. In the absence
of a quorum at any meeting of the Board, a majority of the
directors present thereat may adjourn such meeting to another
time and place until a quorum shall be present thereat. Notice
of the time and place of any such adjourned meeting shall be
given to the directors who were not present at the time of the
adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other direc-
tors. At any adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at
the meeting as originally called.
Section 14 Organization. The Board may, by resolution
adopted by a majority of the entire Board, designate a Chairman
of the Board, who shall preside at each meeting of the Board. In
the absence or inability of the Chairman of the Board to preside
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at a meeting, the President or, in his absence of inability to
act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside there-
at. The Secretary (or, in his absence or inability to act, any
person appointed by the Chairman) shall act as secretary of the
meeting and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a
Meeting. Subject to the provisions of the Investment Company Act
of 1940, as amended, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in
writing, and the writings or writing are filed with the minutes
of the proceedings of the Board or committee.
Section 16. Compensation. Directors may receive compen-
sation for services to the Corporation in their capacities as
directors or otherwise in such manner and in such amounts as may
be fixed from time to time by the Board.
Section 17. Investment Policies. It shall be the duty of
the Board of Directors to direct that the purchase, sale, reten-
tion and disposal of portfolio securities and the other invest-
ment practices of the Corporation are at all times consistent
with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as re-
cited in the Prospectus of the Corporation included in the
registration statement of the Corporation relating to the initial
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public offering of its capital stock, as filed with the
Securities and Exchange Commission (or as such investment
policies and restrictions may be modified by the Board of
Directors, or, if required, by majority vote of the stockholders
of the Corporation in accordance with the Investment Company Act
of 1940, as amended) and as required by the Investment Company
Act of 1940, as amended. The Board however, may delegate the
duty of management of the assets and the administration of its
day to day operations to an individual or corporate management
company and/or investment adviser pursuant to a written contract
or contracts which have obtained the requisite approvals,
including the requisite approvals of renewals thereof, of the
Board of Directors and/or the stockholders of the Corporation in
accordance with the provisions of the Investment Company Act of
1940, as amended.
ARTICLE IV
Committees
Section 1. Executive Committee. The Board may, by resolu-
tion adopted by a majority of the entire board, designate an
Executive Committee consisting of two or more of the directors of
the corporation, which committee shall have and may exercise all
the powers and authority of the Board with respect to all matters
other than:
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(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles
of Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving
on the Board or on any committee of the Board, including the
Executive Committee;
(d) the approval or termination of any contract with an
investment adviser or principal underwriter, as such terms are
defined in the Investment Company Act of 1940, as amended, or the
taking of any other action required to be taken by the Board of
Directors by the Investment Company Act of 1940, as amended;
(e) the amendment or repeal of these By-Laws or the adop-
tion of new By-Laws;
(f) the amendment or repeal of any resolution of the Board
which by its terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capi-
tal stock of the Corporation; and
(h) the approval of any merger or share exchange which does
not require stockholder approval.
The Executive Committee shall keep written minutes of its
proceedings and shall report such minutes to the Board. All such
proceedings shall be subject to revision or alteration by the
Board; provided, however, that third parties shall not be pre-
judiced by such revision or alteration.
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Section 2. 'Other Committees of the Board. The Board of
Directors may from time to time, by resolution adopted by a
majority of the whole Board, designate one or more other com-
mittees of the Board, each such committee to consist of two or
more directors and to have such powers and duties as the Board of
Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two, of
the members of any committee shall be present in person at any
meeting of such committee in order to constitute a quorum for the
transaction of business at such meeting, and the act of a major-
ity present shall be the act of such committee. The Board may
designate a chairman of any committee and such chairman or any
two members of any committee may fix the time and place of its
meetings unless the Board shall otherwise provide. In the
absence or disqualification of any member of any committee, the
member or members thereof present at any meeting and not dis-
qualified from voting, whether or not he or they constitute a
quorum,, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent
or disqualified member. The Board shall have the power at any
time to change the membership of any committee, to fill all
vacancies, to designate alternate members to replace any absent
or disqualified member, or to dissolve any such committee.
Nothing herein shall be deemed to prevent the Board from appoint-
ing one or more committees consisting in whole or in part of
persons who are not directors of the Corporation; provided,
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however, that no such committee shall have or may exercise any authority or
power of the Board in the management of the business or affairs of the
Corporation.
ARTICLE V
Officers, Agents and Employees
------------------------------
Section 1. Number of Qualifications. The officers of the
------------------------
Corporation shall be a President, who shall be a director of the
Corporation, a Secretary and a Treasurer, each of whom shall be elected by
the Board of Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and may also appoint such other officers, agents and
employees as it may deem necessary or proper. Any two or more offices may
be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity. Such officers shall be elected by
the Board of Directors each year at its first meeting held after the annual
meeting of stockholders, each to hold office until the meeting of the
stockholders and until his successor shall have been duly elected and shall
have qualified, or until his death, or until he shall have resigned, or
have been removed, as hereinafter provided in these By-Laws. The Board may
from time to time elect, or delegate to the President the power to appoint,
such officers (including one or more Assistant Vice Presidents, one or more
Assistant Treasurers and one or more Assistant Secretaries) and such
agents, as may be necessary or desirable for the busi-
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ness of the Corporation. Such officers and agents shall have
such duties and shall hold their offices for such terms as may be
prescribed by the Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of resignation to the
Board, the Chairman of the Board, President or the Secretary. Any
such resignation shall take effect at the time specified therein or,
if the time when it shall become effective shall not be specified
therein, immediately upon its receipt; and, unless otherwise speci-
fied therein, the acceptance of such resignation shall be necessary
to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of
Directors with or without cause at any time, and the Board may dele-
gate such power of removal as to agents and employees not elected or
appointed by the Board of Directors. Such removal shall be without
prejudice to such person's contract rights, if any, but the appoint-
ment of any person as an officer, agent or employee of the Corpor-
ation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising
from death, resignation, removal or any other cause, may be filled
for the unexpired portion of the term of the office which shall be
vacant, in the manner prescribed in these By-Laws for the regular
election or appointment to such office.
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Section 5. Compensation. The compensation of the officers of
the Corporation shall be fixed by the Board of Directors, but this
power may be delegated to any officer in respect of other officers
under his control.
Section 6. Bonds or Other Security. If required by the Board,
any officer, agent or employee of the Corporation shall give a bond
or other security for the faithful performance of his duties, in such
amount and with such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief execu-
tive officer of the Corporation. In the absence of the Chairman of
the Board (or if there be none), he shall preside at all meetings of
the stockholders and of the Board Directors. He shall have, subject
to the control of the Board of Directors, general charge of the
business and affairs of the Corporation. He may employ and discharge
employees and agents of the Corporation, except such as shall be
appointed by the Board, and he may delegate these powers.
Section S. Vice President. Each Vice President shall have such
powers and perform such duties as the Board of Directors or the
President may from time to time prescribe.
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Section 9. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the
funds and securities of the Corporation, except those which the Cor-
poration has placed in the custody of a bank or trust company or
member of a national securities exchange (as that term is defined in
the Securities Exchange Act of 1934, as amended) pursuant to a
written agreement designating such bank or trust company or member of
a national securities exchange as custodian of the property of the
corporation;
(b) keep full and accurate accounts of receipts and disburse-
ments in books belonging to the Corporation;
(c) cause all moneys and other valuable to be deposited to the
credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to
the corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board, taking
proper vouchers therefor; and
(f) in general, perform all the duties incident to the office
of Treasurer and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 10. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board, the committees
of the Board and the stockholders;
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(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation
and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates
shall be a facsimile, as hereinafter provided) and affix and attest
the seal to all other documents to be executed on behalf of the
Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are
properly kept and filed; and
(e) in general, perform all the duties incident to the office
of Secretary and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 11. Delegation of Duties. In case of the absence of
any officer of the Corporation, or for any other reason that the
Board may deem sufficient, the Board may confer for the time being
the powers or duties, or any of them, of such officer upon any other
officer or upon any director.
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ARTICLE VI
Indemnification
Each officer and director of the Corporation shall be indemni-
fied by the Corporation to the full extent permitted under the
General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Cor-
poration or any stockholder thereof to which such person would other-
wise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the con-
duct 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 reck-
less disregard of the duties involved in the conduct of his office,
the decision by the Corporation to indemnify such person must be
based upon the reasonable determination of independent legal counsel
or the vote of a majority of a quorum of the directors who are
neither "interested persons", as defined in section 2(a)(19) of the
Investment Company Act of 1940, as amended, nor parties to the
proceeding ("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.
Each officer and director of the Corporation claiming
indemnification within the scope of this Article VI shall be entitled
to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with proceedings to which he
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is a party in the manner and to the full extent permitted under the
General Laws of the State of Maryland; provided, however, that the
person seeking indemnification shall provide to the Corporation a
written affirmation of his good faith belief that the standard of
conduct necessary for indemnification by the Corporation has been met
and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been
met, and provided further that at least one of the following
additional conditions is met: (a) the person seeking indemnification
shall provide a security in form and amount acceptable to the
Corporation for his undertaking; (b) the Corporation is insured
against losses arising by reason of the advance; (c) a majority of a
quorum of non-party independent directors, or independent legal
counsel in a written opinion, shall determine, based on a review of
facts readily available to the Corporation at the time the advance is
proposed to be made, that there is reason to believe that the person
seeking indemnification will ultimately be found to be entitled to
indemnification.
The Corporation may purchase insurance on behalf of an officer
or director protecting such person to the full extent permitted under
the General Laws of the State of Maryland, from liability arising
from his activities as officer or director of the Corporation. The
Corporation, however, may not purchase insurance on behalf of any
officer or director of the Corporation that protects or purports to
protect such person from liability to the Corporation or to its
stockholders to which such officer or director would otherwise be
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subject by reason of willful misfeasance, bad faith, gross negli-
gence, or reckless disregard of the duties involved in the conduct of
his office.
The Corporation may indemnify, make advances or purchase
insurance to the extent provided in this Article VI on behalf of an
employee or agent who is not an officer or director of the
Corporation.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, repre-
senting the number of shares of stock of the Corporation owned by
him, provided, however, that certificates for fractional shares will
not be delivered in any case. The certificates representing shares
of stock shall be signed by or in the name of the Corporation by the
President or a Vice President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer and sealed with
the seal of the Corporation. Any or all of the signatures or the
seal on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile sig-
nature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate
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shall be issued, it may be issued by the Corporation with the same
effect as if such officer, transfer agent or registrar were still in
office at the date of issue.
Section 2. Books of Account and Record of Stockholders. There
shall be kept at the principal executive office of the Corporation
correct and complete books and records of account of all the business
and transactions of the Corporation. There shall be made available
upon request of any stockholder, in accordance with Maryland law, a
record containing the number of shares of stock issued during a
specified period not to exceed twelve months and the consideration
received by the Corporation for each such share.
Section 3. Transfers of Shares. Transfers of shares of stock
of the Corporation shall be made on the stock records of the Corpor-
ation only by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney duly executed and filed
with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such
shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as
otherwise provided by law, the Corporation shall be entitled to
recognize the exclusive right of a person in whose name any share or
shares stand on the record of stockholders as the owner of such share
or shares for all purposes, including, without limitation, the rights
to receive dividends or other distributions, and to vote as such
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<PAGE>
owner, and the Corporation shall not be bound to recognize any equit-
able or legal claim to or interest in any such share or shares on the
part of any other person.
Section 4. Regulations. The Board may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may
deem expedient concerning the issue, transfer and registration of
certificates for shares of stock of the Corporation. It may appoint,
or authorize any officer or officers to appoint, one or more transfer
agents or one or more transfer clerks and one or more registrars and
may require all certificates for shares of stock to bear the signa-
ture or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The
holder of any certificates representing shares of stock of the Cor-
poration shall immediately notify the Corporation of any loss,
destruction or mutilation of such certificate, and the Corporation
may issue a new certificate of stock in the place of any certificate
theretofore issued by it which the owner thereof shall allege to have
been lost or destroyed or which shall have been mutilated, and the
Board may, in its discretion, require such owner or his legal repre-
sentatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the
Board in its absolute discretion shall determine, to indemnify the
Corporation against any claim that may be made against it on account
of the alleged loss or destruction of any such certificate, or issu-
ance of a new certificate. Anything herein to the contrary notwith-
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<PAGE>
standing, the Board, in its absolute discretion, may refuse to issue
any such new certificate, except pursuant to legal proceedings under
the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distri-
butions. The Board may fix, in advance, a date not more than ninety
days preceding the date fixed for the payment of any dividend or the
making of any distribution or the allotment of rights to subscribe
for securities of the Corporation, or for the delivery of evidences
of rights or evidences of interests arising out of any change, con-
version or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to
receive any such dividend, distribution, allotment, rights or inter-
ests, and in such case only the stockholders of record at the time so
fixed shall be entitled to receive such dividend, distribution,
allotment, rights or interests.
Section 7. Information to Stockholders and Others. Any stock-
holder of the Corporation or his agent may inspect and copy during
usual business hours the Corporation's By-Laws, minutes of the pro-
ceedings of its stockholders, annual statements of its affairs, and
voting trust agreements on file at its principal office.
ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and shall
bear, in addition to any other emblem or device approved by the Board
of Directors, the name of the Corporation, the year of its incorpor-
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<PAGE>
ation and the words "Corporate Seal" and "Maryland". Said seal may
be used by causing it or a facsimile thereof to be impressed or
affixed or in any other manner reproduced.
ARTICLE IX
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the day of
ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of
Directors of the Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments
shall be deposited in the safe keeping of such banks or, other com-
panies as the Board of Directors of the Corporation may from time to
time determine. Every arrangement entered into with any bank or
other company for the safe keeping of the securities and investments
of the Corporation shall contain provisions complying with the
Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.
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<PAGE>
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for
the payment of money shall be signed by such officer or officers or
person or persons as the Board of Directors by resolution shall from
time to time designate.
Section 2. Sale or Transfer of Securities. Stock certificates,
bonds or other securities at any time owned by the Corporation may be
held on behalf of the Corporation or sold, transferred or otherwise
disposed of subject to any limits imposed by these By-Laws and pur-
suant to authorization by the Board and, when so authorized to be
held on behalf of the Corporation or sold, transferred or otherwise
disposed of, may be transferred from the name of the Corporation by
the signature of the President or a Vice President or the Treasurer
or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XII
Independent Public Accountants
The firm of independent public accountants which shall sign or
certify the financial statements of the Corporation which are filed
with the Securities and Exchange Commission shall be selected annu-
ally by the Board of Directors and ratified by the stockholders in
accordance with the provisions of the Investment Company Act of 1940,
as amended.
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<PAGE>
ARTICLE XIII
Annual Statement
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual
period of the Corporation and at such other times as may be directed
by the Board. A report to the stockholders based upon each such
examination shall be mailed to each stockholder of the Corporation of
record on such date with respect to each report as may be determined
by the Board, at his address as the same appears on the books of the
Corporation. Such annual statement shall also be available at the
annual meeting of stockholders and be placed on file at the Corpor-
ation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the
close of the annual or quarterly period covered by the report and the
securities in which the funds of the Corporation were then invested.
Such report shall also show the Corporation's income and expenses for
the period from the end of the Corporation's preceding fiscal year to
the close of the annual or quarterly period covered by the report and
any other information required by the Investment Company Act of 1940,
as amended, and shall set forth such other matters as the Board or
such firm of independent public accountants shall determine.
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<PAGE>
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed
at any regular meeting of the stockholders or at any special meeting
of the stockholders by a favorable vote of the holders of at least
seventy-five percent (75%) of the outstanding shares of capital stock
of the Corporation entitled to be voted on the matter, provided that
notice of the proposed amendment, alteration or repeal be contained
in the notice of such special meeting. These By-Laws may also be
amended, altered or repealed by the affirmative vote of a majority of
the Board of Directors at any regular or special meeting of the Board
of Directors, except any particular By-Law which is specified as not
subject to alteration or repeal by the Board of Directors, subject to
the requirements of the Investment Company Act of 1940, as amended.
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Exhibit 5(a)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 14th day of June, 1991, by and between
MERRILL LYNCH WORLD INCOME FUND, INC., a Maryland corporation
(hereinafter referred to as the "Fund"), and FUND ASSET
MANAGEMENT, INC., a Delaware corporation (hereinafter referred to
as the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end
investment company registered under the Investment Company Act of
1940, as amended (hereinafter referred to as the "Investment
Company Act"); and
WHEREAS, the Investment Adviser is engaged principally in
rendering management and investment advisory services and is
registered as an investment adviser under the Investment
Adviser's Act of 1940; and
WHEREAS, the Fund desires to retain the Investment Adviser
to provide management and investment advisory services to the
Fund in the 'manner and on the terms hereinafter set forth; and
WHEREAS, the Investment Adviser is willing to provide
management and investment advisory services to the Fund on the
terms and conditions hereinafter set forth;
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<PAGE>
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, the Fund and the Investment
Adviser hereby agree as follows:
ARTICLE I
DUTIES OF THE INVESTMENT ADVISER
The Fund hereby employs the Investment Adviser to act as a
manager and investment adviser of the Fund and to furnish, or
arrange for affiliates to furnish, the management and investment
advisory services described below, subject to the policies of,
review by and overall control of the Board of Directors of the
Fund, for the period and on the terms and conditions set-forth in
this Agreement. The Investment Adviser hereby accepts such
employment and agrees during such period, at its own expense, to
render, or arrange for the rendering of, such services and to
assume the obligations herein set forth for the compensation
provided for herein. The Investment Adviser and its affiliates
shall for all purposes herein be deemed to be independent
contractors and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in
any way or otherwise be deemed agents of the Fund.
(a) Management Services. The Investment Adviser shall
perform (or arrange for the performance by affiliates of) the
management and administrative services necessary for the oper-
ation of the Fund including administering shareholder accounts
and handling shareholder relations. The Investment Adviser shall
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<PAGE>
provide the Fund with office space, facilities, equipment and
necessary personnel and such other services as the Investment
Adviser, subject to review by the Board of Directors, shall from
time to time determine to be necessary or useful to perform its
obligations under this Agreement. The Investment Adviser shall
also, on behalf of the Fund, conduct relations with custodians,
depositories, transfer agents, dividend disbursing agents, other
shareholder servicing agents, pricing agents, accountants, attor-
neys, underwriters, brokers and dealers, corporate fiduciaries,
insurers, banks and such other persons in any such other capacity
deemed to be necessary or desirable. The Investment Adviser
shall generally monitor the Fund's compliance with investment
policies and restrictions as set forth in the currently effective
prospectus and statement of additional information relating to
the shares of the Fund under the Securities Act of 1933, as
amended (the "Prospectus" and "Statement of Additional Informa-
tion," respectively). The Investment Adviser shall make reports
to the Board of Directors of its performance of obligations
hereunder and furnish advice and recommendations with respect to
such other aspects of the business and affairs of the Fund as it
shall determine to be desirable.
(b) Investment Advisory Services. The Investment Adviser
shall provide the Fund with such investment research, advice and
supervision as the latter may from time to time consider
necessary for the proper supervision of the assets of the Fund,
shall furnish continuously an investment program for the Fund and
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<PAGE>
shall determine from time to time which securities shall be
purchased, sold or exchanged and what portion of the assets of
the Fund shall be held in the various securities in which the
Fund invests, options, futures, options on futures or cash,
subject always to the restrictions of the Articles of
Incorporation and By-Laws of the Fund, as amended from time to
time, the provisions of the Investment Company Act and the
statements relating to the Fund's investment objectives,
investment policies and investment restrictions as the same are
set forth in the Prospectus and Statement of Additional
Information. The Investment Adviser shall make decisions for the
Fund as to the manner in which voting rights, rights to consent-..
to corporate action and any other rights pertaining to the Fund's
portfolio securities shall be exercised. Should the Board of
Directors at any time, however, make any definite determination
as to investment policy and notify the Investment Adviser thereof
in writing, the Investment Adviser shall be bound by such
determination for the period, if any, specified in such notice or
until similarly notified that such determination has been
revoked. The Investment Adviser shall take, on behalf of the
Fund, all actions which it deems necessary to implement the
investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of
portfolio securities for the Fund's account with brokers or
dealers selected by it, and to that end, the Investment Adviser
is authorized as the agent of the Fund to give instructions to
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<PAGE>
the Custodian of the Fund as to deliveries of securities and
payments of cash for the account of the Fund. In connection with
the selection of such brokers or dealers and the placing of such
orders with respect to assets of the Fund, the Investment Adviser
is directed at all times to seek to obtain execution and prices
within the policy guidelines determined by the Board of Directors
and set forth in the Prospectus and Statement of Additional
Information. Subject to this requirement and the provisions of
the Investment Company Act, the Securities Exchange Act of 1934,
as amended, and other applicable provisions of law, the
Investment Adviser may select brokers or dealers with which it or
the Fund is affiliated.
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<PAGE>
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
(a) The Investment Adviser. The Investment Adviser assumes
and shall pay for maintaining the staff and personnel necessary
to perform its obligation under this Agreement, and shall at its
own expense, provide the office space, facilities, equipment and
necessary personnel which it is obligated to provide under
Article I hereof, and shall pay all compensation of officers of
the Fund and all Directors of the Fund who are affiliated persons
of the Investment Adviser.
(b) The Fund. The Fund assumes and shall pay or cause to
be paid all other expenses of the Fund (except for the expenses-..-
paid by the Distributor), including, without limitation: taxes,
expenses for legal and auditing services, costs of printing
proxies, stock certificates, shareholder reports, prospectuses,
and statements of additional information, charges of the
Custodian, any Sub-Custodian and Transfer Agent, expenses of
portfolio transactions, expenses of redemption of shares,
Securities and Exchange Commission fees, expenses of registering
the shares under Federal, state and foreign laws, fees and actual
out-of-pocket expenses of Directors who are not affiliated per-
sons of the Investment Adviser, accounting and pricing costs
(including the daily calculation of the net asset value), insur-
ance, interest, brokerage costs, litigation and other extraordi-
nary or non-recurring expenses, and other expenses properly
payable by-the Fund. It is also understood that the Fund will
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<PAGE>
reimburse the Investment Adviser for its costs in providing
accounting services to the Fund. The Distributor will pay
certain of the expenses of the Fund in connection with the
continuous offering of Fund shares.
ARTICLE III
COMPENSATION OF THE INVESTMENT ADVISER
(a) Investment Advisory Fee. For the services rendered,
the facilities furnished and expenses assumed by the Investment
Adviser, the Fund shall pay to the Investment Adviser at the end
of each calendar month a fee based upon the average daily value
of the net assets of the Fund as determined and computed in
accordance with the description of the determination of net asset
value contained in the Prospectus and Statement of Additional
Information at the annual rate of 0.60 of 1.0% (0.60%) of the
average daily net assets of the Fund, commencing on the day
following effectiveness hereof. If this Agreement becomes
effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated
in a manner consistent with the calculation of the fee as set
forth above. Subject to the provisions of subsection (b) hereof,
payment of-the Investment Adviser's compensation for the
preceding month shall be made as promptly as possible after
completion of the computations contemplated by subsection (b)
hereof. During any period when the determination of net asset
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<PAGE>
value is suspended by the Board of Directors, the average net
asset value of a share for the last week prior to such suspension
shall for this purpose be deemed to be the net asset value at the
close of each succeeding week until it is again determined.
(b) Expense Limitations. In the event that the operating
expenses of the Fund, including amounts payable to the Investment
Adviser pursuant to subsection (a) hereof, for any fiscal year
ending on a date on which this Agreement is in effect exceed the
expense limitations applicable to the Fund imposed by applicable
state securities laws or regulations thereunder, as such
limitations may be raised or lowered from time to time, the
Investment Adviser shall reduce its management and investment
advisory fee by the extent of such excess and, if required
pursuant to any such laws or regulations, will reimburse the Fund
in the amount of such excess; provided, however, to the extent
permitted by law, there shall be excluded from such expenses the
amount of any interest, taxes, brokerage fees and commissions,
distribution fees and extraordinary expenses (including but not
limited to legal claims and liabilities and litigation costs and
any indemnification related thereto) paid or payable by the Fund.
Whenever the expenses of the Fund exceed a pro rata portion of
the applicable annual expense limitations, the estimated amount
of reimbursement under such limitations shall be applicable as an
offset against the monthly payment of the fee due to the
Investment Adviser. Should two or more such expense limitations
be applicable as at the end of the last business day of the
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<PAGE>
month, that expense limitation which results in the largest
reduction in the Investment Adviser's fee shall be applicable.
ARTICLE IV
LIMITATION OF LIABILITY OF THE INVESTMENT ADVISER
The Investment Adviser shall not be liable for any error of
judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the management of the
Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. As
used in this Article IV, the term "Investment Adviser" shall
include any affiliates of the Investment Adviser performing
services for the Fund contemplated hereby and directors, officers
and employees of the Investment Adviser and such affiliates.
ARTICLE V
ACTIVITIES OF THE INVESTMENT ADVISER
The services of the Investment Adviser to the Fund are not
to be deemed to be exclusive: the Investment Adviser and any
person controlled by or under common control with the Investment
Adviser (for purposes of the Article V referred to as "affili-
ates") are free to render services to others. It is understood
that Board of Directors, officers, employees and shareholders of
the Fund are or may become interested in the Investment Adviser
and its affiliates, as directors, officers, employees, partners,
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<PAGE>
and shareholders or otherwise and that directors, officers,
employees, partners, and shareholders of the Investment Adviser
and its affiliates are or may become similarly interested in the
Fund, and that the Investment Adviser and directors, officers,
employees, partners, and shareholders of its affiliates may
become interested in the Fund as shareholder or otherwise.
ARTICLE VI
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date first
above written and shall remain in force until August 31, 1993 and
thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Board of Directors of the
Fund, or by the vote of a majority of the outstanding voting
securities of the Fund, and (ii) a majority of those Directors
who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose
of voting on such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund, or by
the Investment Adviser, on sixty days' written notice to the
other party. This Agreement shall automatically terminate in the
event of its assignment.
ARTICLE VII
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<PAGE>
AMENDMENTS OF THIS AGREEMENT
This Agreement may be amended by the parties only if such
amendment is specifically approved by (i) the vote of a majority
of outstanding voting securities of the Fund, and (ii) a majority
of those Directors who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
ARTICLE VIII
DEFINITIONS OF CERTAIN TERMS
The terms "vote of a majority of the outstanding voting
securities",, "assignment", "affiliated person" and "interested
person", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act of 1940 and the
Rules and Regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange
Commission under said Act.
ARTICLE IX
GOVERNING LAW
This Agreement shall be construed in accordance with laws of
the State of New York and the applicable provisions of the
Investment Company Act. To the extent that the applicable laws
of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company
Act, the latter shall control.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
MERRILL LYNCH WORLD INCOME FUND, INC.
By
----------------------------------
Vice President
FUND ASSET MANAGEMENT, INC.
By
----------------------------------
Vice President
C-12
Exhibit 6(b)
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 18th day of November, 1991, between
MERRILL LYNCH WORLD INCOME FUND, INC., a Maryland corporation
(the "Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a
Delaware corporation (the "Distributor").
W I T N E S S E T H
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act") , as an
open-end investment company and it is affirmatively in the in-
terest of the Fund to offer its shares for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either direct-
ly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
of the Fund's Class B shares in order to promote the growth of
the Fund and facilitate the distribution of its Class B shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby
appoints the Distributor as the principal underwriter and
distributor of the Fund to sell Class B shares of common stock of
<PAGE>
the Fund (sometimes herein referred to as "Class B shares") to
the public and hereby agrees during the term of this Agreement to
sell shares of the Fund to the Distributor upon the terms and
conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as prin-
cipal underwriter and distributor of the Class B shares, except
that:
(a) The Fund may, upon written notice to the Distributor,
from time to tire designate other principal underwriters and
distributors of Class B shares with respect to areas other than
the United States as to which the Distributor may have expressly
waived in writing its right to act as such. If such designation
is deemed exclusive, the right of the Distributor under this
Agreement to sell Class B shares in the areas so designated shall
terminate, but this Agreement shall remain otherwise in full
effect until terminated in accordance with the other provisions
hereof.
(b) The exclusive rights granted to the Distributor to
purchase Class B shares from the Fund shall not apply to Class B
shares of the Fund issued in connection with the merger or conso-
lidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise
of all (or substantially all) the assets or the outstanding Class
B shares of any such company by the Fund.
2
<PAGE>
(c) Such exclusive rights also shall not apply to Class B
shares issued by the Fund pursuant to reinvestment of dividends
or capital gains distributions.
(d) Such exclusive rights also shall not apply to Class B
shares issued by the Fund pursuant to any reinstatement privilege
afforded redeeming shareholders.
Section 3. Purchase of Class B Shares from the Fund.
(a) The Fund will commence an offering of its Class B
shares and thereafter the Distributor shall have the right to buy
from the Fund the Class B shares needed, but not more than the
Class B shares needed (except for clerical errors in
transmission) to fill unconditional orders for Class B shares of
the Fund placed with the Distributor by investors or securities
dealers. The price which the Distributor shall pay for the Class
B shares so purchased from the Fund shall be the net asset value,
determined as set forth in Section 3(d) hereof.
(b) The Class B shares are to be resold by the Distributor
to investors at net asset value, as set forth in Section 3(c)
hereof, or to securities dealers having agreements with the Dis-
tributor upon the terms and conditions set forth in Section 7
hereof.
(c) The net asset value of Class B shares of the Fund shall
be determined by the Fund or any agent of the Fund in accordance
with the method set forth in the currently effective prospectus
and statement of additional information of the Fund (the
3
<PAGE>
"prospectus" and "statement of additional information,to
respectively) under the Securities Act of 1933, as amended (the
"Securities Act"), and guidelines established by the Board of
Directors.
(d) The Fund shall have the right to suspend the sale of
its Class B shares at times when redemption is suspended pursuant
to the conditions set forth in Section 4(b) hereof. The Fund
shall also have the right to suspend the sale of its Class B
shares if trading on the New York Stock Exchange shall have been
suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or, if there shall have been some
other event, which, in the judgment of the Fund, makes it imprac-
ticable or inadvisable to sell the shares.
(e) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class B shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund
will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class B shares. The Fund
(or its agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts or
certificates for such Class B shares pursuant to the instructions
of the Distributor. Payment shall be made to the Fund in New
York Clearing House funds. The Distributor agrees to cause such
4
<PAGE>
payment and such instructions to be delivered promptly to the
Fund (or its agent).
Section 4. Repurchase or Redemption of Class B Shares by
the Fund.
(a) Any of the outstanding Class B shares may be tendered
for redemption at any time, and the Fund agrees to repurchase or
redeem the Class B shares so tendered in accordance with its
obligations as set forth in Article VII of its Articles of Incor-
poration, as amended from time to time, and in accordance with
the applicable provisions set forth in the prospectus and state-
ment of additional information of the Fund. The price to be paid
to redeem or repurchase the Class B shares shall be equal to the
net asset value calculated in accordance with the provisions of
Section 3(d) hereof, less the redemption fee or other charge, if
any, set forth in the prospectus and statement of additional
information of the Fund. All payments by the Fund hereunder
shall be made in the nanner set forth below.
The Fund shall pay the total amount of the redemption price
as defined in the above paragraph pursuant to the instructions of
the Distributor on or before the seventh business day subsequent
to its having received the notice of redemption in proper form.
The proceeds of any redemption of shares shall be paid by the
Fund as follows: (i) any applicable contingent deferred sales
charge shall be paid to the Distributor and (ii) the balance
shall be paid to or for the account of the shareholder, in each
5
<PAGE>
case in accordance with the applicable provisions of the prospec-
tus and statement of additional information.
(b) Redemption of Class B shares or payment may be sus-
pended at times when the New York Stock Exchange is closed, when
trading on said Exchange is closed, when trading on said Exchange
is restricted, when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange commission, by
order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class B shares of the Fund, and this shall in-
clude, upon request by the Distributor, one certified copy of all
financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor
such number of copies of its prospectus and statement of addi-
tional information as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to
the necessary approval of the shareholders, all necessary action
to fix the number of authorized shares and such steps as may be
necessary to register the same under the Securities Act to the
6
<PAGE>
end that there will be available for sale such number of Class B
shares as the Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its Class
B shares for sale under the securities laws of such states as the
Distributor and the Fund may approve. Any such qualification may
be withheld, terminated or withdrawn by the Fund at any time in
its discretion. As provided in Section B(c) hereof, the expense
of qualification and maintenance of qualification shall be borne
by the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports
of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort
to effect sales of Class B shares of the Fund, but shall not be
obligated to sell any specific number of shares. The services of
the Distributor to the Fund hereunder are not to be deemed exclu-
sive and nothing herein contained shall prevent the Distributor
from entering into like arrangements with other investment com-
panies so long as the performance of its obligations hereunder is
not impaired thereby.
7
<PAGE>
(b) In selling the Class B shares of the Fund, the Distri-
butor shall use its best efforts in all respects duly to conform
with the requirements of all Federal and state laws relating to
the sale of such securities. Neither the Distributor nor any se-
lected dealer, as defined in Section 7 hereof, nor any other
person is authorized by the Fund to give any information or to
make any representations, other than those contained in the
registration statement or related prospectus and statement of
additional information and any sales literature specifically
approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of
sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales,
and the cancellation of unsettled transactions, as may be neces-
sary to comply with the requirements of the National Association
of Securities Dealers, Inc. (the "NASD") , as such requirements
may from tine to tine exist.
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice
("selected dealers") for the sale of Class B shares; provided,
that the Fund shall approve the forms of agreements with dealers.
Class B shares sold to selected dealers shall be for resale by
such dealers only at net asset value determined as set forth in
8
<PAGE>
Section 3 (c) hereof The form of agreement with selected dealers
to be used in the continuous offering of the shares is attached
hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer
and sell Class B shares only to such selected dealers that are
members in good standing of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required
registration statements and/or prospectuses and statements of
additional information under the Investment Company Act, the
Securities Act, and all amendments and supplements thereto, and
preparing and nailing annual and interim reports and proxy
materials to Class B shareholders (including but not limited to
the expense of setting in type any such registration statements,
prospectuses, statements of additional information, annual or
interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses
associated with payments of sales commissions to financial con-
sultants. In addition, after the prospectuses, statements of
additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs
and expenses of printing and distributing any copies thereof
9
<PAGE>
which are to be used in connection with the offering of Class B
shares to selected dealers or investors pursuant to this
Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by
the Distributor or furnished by it for use by selected dealers in
connection with the offering of the Class B shares for sale to
the public and any expenses of advertising incurred by the Dis-
tributor in connection with such offering. It is understood and
agreed that, so long as the Fund's Class B Shares Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act
remains in effect, any expenses incurred by the Distributor here-
under nay be paid from amounts recovered by it from the Fund
under such Plan.
(c) The Fund shall bear the cost and expenses of qualifi-
cation of the Class B shares for sale pursuant to this Agreement,
and, if necessary or advisable in connection therewith, of quali-
fying the Fund as a broker or dealer, in such states of the
United States or other jurisdictions as shall be selected by the
Fund and the Distributor pursuant to Section 5(c) hereof and the
cost and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distri-
butor and each person, if any, who controls the Distributor
10
<PAGE>
against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by
reason of any person acquiring any Class B shares, which may be
based upon the Securities Act, or on any other statute or at
common law, on the ground that the registration statement or
related prospectus and statement of additional information, as
from tine to time amended and supplemented, or an annual or
interim report to Class B shareholders of the Fund, includes an
untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make
the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, in-
formation furnished to the Fund in connection therewith by or on
behalf of the Distributor; provided, however, that in no case (i)
is the indemnity of the Fund in favor of the Distributor and any
such controlling persons to be deemed to protect such Distributor
or any such controlling persons thereof against any liability to
the Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the
performance of their duties or by reason of the reckless
disregard of their obligations and duties under this Agreement;
or (ii) is the Fund to be liable under its indemnity agreement
11
<PAGE>
contained in this paragraph with respect to any claim made
against the Distributor or any such controlling persons, unless
the Distributor or such controlling persons, as the case may be,
shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information
of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor
or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund
of any such claim shall not relieve it from any liability which
it may have to the person against whom such action is brought
otherwise than on account of its indemnity agreement contained in
this paragraph. The Fund will be entitled to participate at its
own expense in the defense, or, if it so elects, to assume the
defense of any suit brought to en-force any such liability, but if
the Fund elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or
defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the
Distributor or such controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses, as
incurred, of any additional counsel retained by them, but, in
case the Fund does not elect to assume the defense of any such
suit, it will reimburse the Distributor or such controlling
12
<PAGE>
person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses, as incurred, of any counsel
retained by them. The Fund shall promptly notify the Distributor
of the commencement of any litigation or proceedings against it
or any of its officers or Directors in connection with the
issuance or sale of any of the Class B shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Directors and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage or expense. as incurred, described in the foregoing indem-
nity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Fund in writing by
or on behalf of the Distributor for use in connection with the
registration statement or related prospectus and statement of
additional information, as from time to time amended, or the
annual or interim reports to shareholders. In case any action
shall be brought against the Fund or any person so indemnified,
in respect of which indemnity may be sought against the Distri-
butor, the Distributor shall have the rights and duties given to
the Fund, and the Fund and each person so indemnified shall have
the rights and duties given to the Distributor by the provisions
of subsection (a) of this Section 9.
Section 10. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first
13
<PAGE>
above written and shall remain in force until may 31, 1993 and
thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Directors, or by the vote
of a majority of the outstanding voting securities of the Fund,
and (ii) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on
such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Directors or by vote of a majority
of the outstanding voting securities of the Fund, or by the
Distributor, on sixty days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
The terms "vote of a majority of the outstanding voting
securities," "assignment," "affiliated person" and "interested
person," when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 11. Amendments of this Agreement. This Agreement
may be amended by the parties only if such amendment is specifi-
cally approved by (i) the Directors, or by the vote of a majority
of outstanding voting securities of the Fund, and (ii) by the
vote of a majority of those Directors of the Fund who are not
parties to this Agreement or interested persons of any such party
14
<PAGE>
cast in person at a meeting called for the purpose of voting on
such approval.
Section 12. Governing Law. The provisions of this Agree-
ment shall be construed and interpreted in accordance with the
laws of the State of New York as at the time in effect and the
applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any
of the provisions herein, conflict with the applicable provisions
of the Investment Company Act, the latter shall control.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MERRILL LYNCH WORLD INCOME FUND, INC.
By /s/ David B. Walter
--------------------------------
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ Mark A. DeSario
--------------------------------
16
<PAGE>
EXHIBIT A
MERRILL LYNCH WORLD INCOME FUND, INC.
CLASS B SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Merrill Lynch World Income Fund, Inc., a
Maryland corporation (the "Fund"), pursuant to which it acts as
the distributor for the sale of Class B shares of common stock,
par value $0.10 per share (herein referred to as the "Class B
shares"), of the Fund, and as such has the right to distribute
Class B shares of the Fund for resale. The Fund is an open-end
investment company registered under the Investment Company Act of
1940, as amended, and its Class B shares being offered to the
public are registered under the Securities Act of 1933, as
amended. You have received a copy of the Class B shares
Distribution Agreement (the "Distribution Agreement") between
ourself and the Fund and reference is made herein to certain
provisions of such Distribution Agreement. The terms "Prospec-
tus" and "Statement of Additional Information" as used herein
refer to the prospectus and statement of additional information,
respectively, on file with the Securities and Exchange Commission
which is part of the most recent effective registration statement
pursuant to the Securities Act of 1933, as amended. As princi-
pal, we offer to sell to you, as a member of the Selected Dealers
Group, Class B shares of the Fund upon the following terms and
conditions:
1. In all sales of these Class B shares to the public you
shall act as dealer for your own account, and in no transaction
shall you have any authority to act as agent for the Fund, for us
or for any other member of the Selected Dealers Group.
2. Orders received from you will be accepted through us
only at the public offering price applicable to each order, as
set forth in the current Prospectus and Statement of Additional
Information of the Fund. The procedure relating to the handling
of orders shall be subject to Section 4 hereof and instructions
which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor
or the Fund in the sole discretion of either. The minimum ini-
tial and subsequent purchase requirements are as set forth in the
current Prospectus and Statement of Additional Information of the
Fund.
1
<PAGE>
3. You shall not place orders for any of the Class B shares
unless you have already received purchase orders for such Class B
shares at the applicable public offering prices and subject to
the terms hereof and of the Distribution Agreement. You agree
that you will not offer or sell any of the Class B shares except
under circumstances that will result in compliance with the
applicable Federal and state securities laws and that in
connection with sales and offers to sell Class B shares you will
furnish to each person to whom any such sale or offer is made a
copy of the Prospectus and, if requested, the Statement of Addi-
tional Information (as then amended or supplemented) and will not
furnish to any person any information relating to the Class B
shares of the Fund, which is inconsistent in any respect with the
information contained in the Prospectus and Statement of Addi-
tional Information (as then amended or supplemented) or cause any
advertisement to be published in any newspaper or posted in any
public place without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to
place orders directly with the Fund for Class B shares of the
Fund to be resold by us to you subject to the applicable terms
and conditions governing the placement of orders by us set forth
in Section 3 of the Distribution Agreement, and (ii) to tender
Class B shares directly to the Fund or its agent for redemption
subject to the applicable terms and conditions set forth in Sec-
tion 4 of the Distribution Agreement.
5. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such with-
holding: e.g., by a change in the "net asset value" from that
used in determining the offering price to your customers.
6. No person is authorized to make any representations
concerning Class B shares of the Fund except those contained in
the current Prospectus and Statement of Additional Information of
the Fund and in such printed information subsequently issued by
us or the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing Class B
shares through us you shall rely solely on the representations
contained in the Prospectus and Statement of Additional Informa-
tion and supplemental information above mentioned. Any printed
information which we furnish you other than the Fund's Prospec-
tus, Statement of Additional Information, periodic reports and
proxy solicitation material are our sole responsibility and not
the responsibility of the Fund, and you agree that the Fund shall
have no liability or responsibility to you in these respects
unless expressly assumed in connection therewith.
7. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if
2
<PAGE>
requested, the Statement of Additional Information at or prior to
the time of offering or sale and you agree thereafter to deliver
to such purchasers copies of the annual and interim reports and
proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional
copies of the Prospectus and Statement of Additional Information,
annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon re-
quest.
8. We reserve the right in our discretion, without notice,
to suspend sales or withdraw the offering of Class B shares
entirely. Each party hereto has the right to cancel this Agree-
ment upon notice to the other party.
9. we shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the
continuous offering. We shall be under no liability to you
except for lack of good faith and for obligations expressly
assumed by us herein. Nothing contained in this paragraph is
intended to operate as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of
compliance with any provision of the Securities Act of 1933, as
amended, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
10. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any
sales in the United States, we both hereby agree to abide by the
Rules of Fair Practice of such Association.
11. Upon application to us, we will inform you as to the
states in which we believe the Class B shares have been qualified
for sale under, or are exempt from the requirements of, the
respective securities laws of such states, but we assume no
responsibility or obligation as to your right to sell Class B
shares in any jurisdiction. We will file with the Department of
State in New York a Further State Notice with respect to the
Class B shares, if necessary.
12. All communications to us should be sent to the address
below. Any notice to you shall be duly given if mailed or tele-
graphed to you at the address specified by you below.
3
<PAGE>
13. Your first order placed pursuant to this Agreement for
the purchase of Class B shares of the Fund will represent your
acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ Mark A. DeSario
----------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
--------------------------------
By:
--------------------------------
Address:
--------------------------------
-------------------------------------------
Date:
--------------------------------
4
Exhibit 6(e)
September 15, 1993
Merrill Lynch Funds Distributor, Inc.
Post Office Box 9011
Princeton, New Jersey 08543-9011
Each of the undersigned open-end investment companies (the "Funds")
has entered into a Distribution Agreement with Merrill Lynch Funds
Distributor, Inc. (the "Distributor"). Under the terms of such agreements,
the Distributor is authorized to offer shares of each Fund and to purchase,
as principal, such number of shares from each of the Funds as are needed to
fill unconditional orders for shares of such Fund placed with the
Distributor by investors or by securities dealers.
This letter confirms the agreement by each Fund with the Distributor
that, in connection with the Merrill Lynch Mutual Fund Adviser program, the
Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are also authorized
<PAGE>
to offer and sell shares of such Fund, as agent for the Fund, as agent for
the Fund, to participants in such program. This letter further confirms
that the terms of the Distribution Agreement between each Fund and the
Distributor shall apply to such sales, including terms as to the offering
price of shares, the proceeds to be paid to each Fund, the duties of the
Distributor, the payment of expenses and indemnification obligations of
each Fund and the Distributor.
If the foregoing is consistent with your understanding of our
agreement, please sign and return one copy of the enclosed agreement.
Very truly yours,
The Investment Companies listed
on Schedule A hereto
By:
------------------------------
Authorized Signatory
Accepted as of the date
set forth above
Merrill Lynch Funds Distributor, Inc.
By:
----------------------------
Authorized Signatory
<PAGE>
The Declaration of Trust establishing each investment company listed
on Schedule A hereto which has been organized as a Massachusetts trust
(each, a "Fund"), a copy of which, together with all amendments thereto, is
on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name of the Fund refers to the Trustees
under the Declaration collectively as Trustees, but not as individuals or
personally; and no trustee, shareholders, officer, employee or agent of the
Fund shall be held to any personal liability, nor shall resort be had to
their private property for the satisfaction of any obligation or claim or
otherwise in connection with the affairs of the Fund, but the Fund estate
only shall be liable.
<PAGE>
SCHEDULE A
----------
EQUITY FUNDS:
Merrill Lynch Balanced Fund for Investment and Retirement
Merrill Lynch Basic Value Fund, Inc.
Merrill Lynch Capital Fund, Inc.
Merrill Lynch Developing Capital Markets Fund, Inc.
Merrill Lynch Dragon Fund, Inc.
Merrill Lynch EuroFund
Merrill Lynch Fundamental Growth Fund, Inc.
Merrill Lynch Fund for Tomorrow, Inc.
Merrill Lynch Global Allocation Fund, Inc.
Merrill Lynch Global Utility Fund, Inc.
Merrill Lynch Growth Fund for Investment and Retirement
Merrill Lynch Healthcare Fund, Inc.
Merrill Lynch International Equity Fund
Merrill Lynch International Holdings, Inc.
Merrill Lynch Latin America Fund, Inc.
Merrill Lynch Natural Resources Trust
Merrill Lynch Pacific Fund, Inc.
Merrill Lynch Phoenix Fund, Inc.
Merrill Lynch Special Value Fund, Inc.
Merrill Lynch Strategic Dividend Fund
Merrill Lynch Technology Fund, Inc.
Merrill Lynch Utility Income Fund, Inc.
FIXED INCOME FUNDS:
Merrill Lynch Adjustable Rate Securities Fund, Inc.
Merrill Lynch Americas Income Fund, Inc.
Merrill Lynch Corporate Bond Fund, Inc.
Merrill Lynch Federal Securities Trust
Merrill Lynch Global Bond Fund for Investment and Retirement
Merrill Lynch Global Convertible Fund, Inc.
Merrill Lynch Short-Term Global Income Fund, Inc.
Merrill Lynch World Income Fund, Inc.
TAX-EXEMPT FIXED INCOME FUNDS:
Merrill Lynch Arizona Municipal Bond Fund
Merrill Lynch California Municipal Bond Fund
Merrill Lynch California Insured Municipal Bond Fund
Merrill Lynch Florida Municipal Bond Fund
Merrill Lynch Massachusetts Municipal Bond Fund
Merrill Lynch Michigan Municipal Bond Fund
Merrill Lynch Minnesota Municipal Bond Fund
Merrill Lynch Municipal Bond Fund, Inc.
A-1
<PAGE>
Merrill Lynch Municipal Income Fund
Merrill Lynch New Jersey Municipal Bond Fund
Merrill Lynch New York Municipal Bond Fund
Merrill Lynch North Carolina Municipal Bond Fund
Merrill Lynch Ohio Municipal Bond Fund
Merrill Lynch Pennsylvania Municipal Bond Fund
Merrill Lynch Texas Municipal Bond Fund
INSTITUTIONAL MONEY MARKET FUNDS:
Merrill Lynch Institutional Fund
Merrill Lynch Government Fund
Merrill Lynch Treasury Fund
Merrill Lynch Institutional Tax-Exempt Fund
A-2
Exhibit 8
CUSTODIAN CONTRACT
Between
WORLD INCOME FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Employment of Custodian and Property to be
Held By It . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States . . . . . . . 2
2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . 2
2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . 3
2.3 Registration of Securities . . . . . . . . . . . . . . . . 7
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . 8
2.5 Availability of Federal Funds . . . . . . . . . . . . . . . 8
2.6 Collection of Income . . . . . . . . . . . . . . . . . . . 9
2.7 Payment of Fund Monies . . . . . . . . . . . . . . . . . 10
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased . . . . . . . . . . . . . 12
2.9 Appointment of Agents . . . . . . . . . . . . . . . . . . 13
2.10A Fund Assets Held in the Custodians'
Direct Paper System . . . . . . . . . . . . . . . . . . . 16
2.11 Segregated Account . . . . . . . . . . . . . . . . . . . 18
2.12 Ownership Certificates for Tax Purposes . . . . . . . . . 19
3.13 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.14 Communications Relating to Fund
Portfolio Securities . . . . . . . . . . . . . . . . . . 19
2.15 Reports to Fund by Independent Public
Accountants . . . . . . . . . . . . . . . . . . . . . . . 20
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States . . . . . . . . . . 21
3.1 Appointment of Foreign Sub-Custodians . . . . . . . . . . 21
3.2 Assets to be Held . . . . . . . . . . . . . . . . . . . . 21
3.3 Foreign Securities Depositories . . . . . . . . . . . . . 22
3.4 Segregation of Securities . . . . . . . . . . . . . . . . 22
3.5 Agreements with Foreign Banking Institutions . . . . . . 23
3.6 Access of Independent Accountants of the Fund . . . . . . 23
3.7 Reports by Custodian . . . . . . . . . . . . . . . . . . 24
3.8 Transactions in Foreign Custody Account . . . . . . . . . 24
3.9 Liability of Foreign Sub-Custodians . . . . . . . . . . . 25
3.10 Liability of Custodian . . . . . . . . . . . . . . . . . 26
3.11 Reimbursement of Advances . . . . . . . . . . . . . . . . 27
3.12 Monitoring Responsibilities . . . . . . . . . . . . . . . 27
3.13 Branches of U.S. Banks . . . . . . . . . . . . . . . . . 28
4. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . 28
5. Actions Permitted Without Express Authority . . . . . . . . . . 29
6. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . 30
7. Duties of Custodian with Respect to the Books of
Account and Calculations of Net Asset Value and
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . 30
<PAGE>
8. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9. Opinion of Fund's Independent Accountant . . . . . . . . . . . 31
10. Compensation of Custodian . . . . . . . . . . . . . . . . . . . 32
11. Expense Reimbursement . . . . . . . . . . . . . . . . . . . . . 32
12. Responsibility of Custodian . . . . . . . . . . . . . . . . . . 32
13. Effective Period, Termination and Amendment . . . . . . . . . . 34
14. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . 35
15. Interpretive and Additional Provisions . . . . . . . . . . . . 37
16. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . 37
17. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . 38
<PAGE>
CUSTODIAN CONTRACT
This Contract between World Income Fund, Inc., a
corporation organized and existing under the laws of Maryland,
living its principal place of business at 800 Scudders Mill Road,
Plainsboro, NJ, hereinafter called the "Fund", and State Street
Beak and Trust Company, a Massachusetts trust company, having its
principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the -Custodian",
WITNESSETH: That in consideration of the mutual
covenants and agreements hereinafter contained, the parties
hereto agree as follows:
Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of
its assets,, including securities it desires to be held in places
within the United States ("domestic securities") and securities
it desires to be held outside the United States ("foreign
securities") pursuant to the provisions of the Articles of
Incorporation. The Fund agrees to deliver to the Custodian all
securities and cash owned by it, and all payments of income,
payments of principal or capital distributions received by it
with respect to all securities owned by the Fund from time to
time, and the cash consideration received by it for such new or
treasury shares of capital stock, $.10 par value, ("Shares") of
the Fund as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of the Fund
held or received by the Fund and not delivered to the Custodian.
<PAGE>
Upon receipt of "Proper Instructions' (within the meaning
of Article 4), the Custodian shall from time to time employ
one or more sub-custodians located in the United States, but only
in accordance with an applicable vote by the Board of Directors
of the Fund, and provided that the Custodian shall have no more
or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any
such sub-custodian has to the Custodian. The Custodian may
employ as sub-custodians for the Fund's securities and other
assets the foreign banking institutions and foreign securities
depositories designated in Schedule 'A" hereto but only in
accordance with the provisions of Article 3.
2. 'Duties of the Custodian with Respect to Property_of the
Fund Held By the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and
physically segregate for the account of the Fund all
non-cash property, to be held.by it in the United States,
including all domestic securities owned by the Fund,
other than securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a
securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury,
collectively referred to herein as 'Securities System'
and (b) commercial paper of an issuer for which State
Street Bank and Trust Company acts as issuing and paying
agent ("Direct Paper') which is deposited and/or
maintained in the Direct Paper System of the Custodian
pursuant to Section 2.10.A.
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<PAGE>
2 Delivery of Securities. The Custodian shall release and
deliver domestic securities owned by the Fund held by the
Custodian or in a Securities System account of the
Custodian or in the Custodian's Direct Paper book entry
system account ('Direct Paper Account') only upon receipt
of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and
only in the following cases:
1) Upon sale of such securities for the account
of the Fund and receipt of payment therefor;
2) Upon the receipt of payment in connection
with any repurchase agreement related to such
securities entered into by the Fund;
3) In the case of a sale effected through a
Securities System, in accordance with the
provisions of Section 2.10 hereof;
4) To the depository agent in connection with
tender or other similar offers for portfolio
securities of the Fund;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or
otherwise become payable; provided that, in
any such case, the cash or other
consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for
transfer into the name of the Fund or into
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<PAGE>
the name of any nominee or nominees of the
Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9
or into the name or nominee name of any
sub-custodian appointed pursuant to Article
1; or for exchange for a different number of
bonds, certificates or other evidence
representing the same aggregate face amount
or number of units; provided that, in any
such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the
account of the Fund, to the broker or its
clearing agent, against a receipt, for
examination in accordance with 'street
delivery- custom; provided that in any such
case, the Custodian shall have no
responsibility or liability for any loss
arising from the delivery of such securities
prior to receiving payment for such
securities except as may arise from the
Custodian's own negligence or willful
misconduct;
8) For exchange or conversion pursuant to any
plan of merger, consolidation,
recapitalization, reorganization or
readjustment of the securities of the issuer
-4-
<PAGE>
of such securities, or pursuant to provisions
for conversion contained in such securities,
or pursuant to any deposit agreement;
provided that, in any such case, the new
securities and cash, if any, are to be
delivered to the Custodian;
9) In the case of warrants, rights or similar
securities, the surrender thereof in the
exercise of such warrants, rights or similar
securities or the surrender of interim
receipts or temporary securities for
definitive securities; provided that, in any
such case, the new securities and cash, if
any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of
securities made by the Fund, but only against
receipt of adequate collateral as agreed upon
from time to time by the Custodian and the
Fund, which may be in the form of cash or
obligations issued by the United States
government, its agencies or
instrumentalities, except that in connection
with any loans for which collateral is to be
credited to the Custodian's account in the
book-entry system authorized by the U.S.
Department of the Treasury, the Custodian
will not be held liable or responsible for
-5-
<PAGE>
the delivery of securities owned by the Fund
prior to the receipt of such collateral;
11) For delivery as security in connection with
any borrowings by the Fund requiring a pledge
of assets by the Fund, but only against
receipt of amounts borrowed;
12) For delivery in accordance with the
provisions of any agreement among the Fund,
the Custodian and a broker-dealer registered
under the Securities Exchange Act of 1934
(the "Exchange Act") and a member of The
National Association of Securities Dealers,
Inc. ("NASD'), relating to compliance with
the rules of The Options Clearing Corporation
and of any registered national securities
exchange, or of any similar organization or
organizations, regarding escrow or other
arrangements in connection with transactions
by the Fund;
13) For delivery in accordance with the
provisions of any agreement among the Fund,
the Custodian, and a Futures Commission
Merchant registered under the Commodity
Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any
similar organization or organizations,
-6-
<PAGE>
regarding account deposits in connection with
transactions by the Fund;
14) For any other proper corporate purpose, but
only upon receipt of, in addition to Proper
Instructions, a certified copy of a
resolution of the Board of Directors or of
the Executive Committee signed by an officer
of the Fund and certified by the Secretary or
an Assistant Secretary, specifying the
securities to be delivered, setting forth the
purpose for which such delivery is to be
made, declaring such purpose to be a proper
corporate purpose, and naming the person or
persons to whom delivery of such securities
shall be made.
2.3 Registration of Securities. Domestic securities held by
the Custodian (other than bearer securities) shall be
registered in the name of the Fund or in the name of any
nominee of the Fund or of any aominee of the Custodian
which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment
of a nominee to be used in common with other registered
investment companies having the same investment adviser
as the Fund, or in the name or nominee name of any agent
appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to
Article I. All securities accepted by the Custodian on
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<PAGE>
behalf of the Fund under the terms of this Contract shall
be in "street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a
separate bank account or accounts in the United States in
the name of the Fund, subject only to draft or order by
the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by 4t
from or for the account of the Fund, other than cash
maintained by the Fund in a bank account established and
used in accordance with Rule 17f-3 under the Investment
Company Act of 1940. Funds held by the Custodian for the
Fund may be deposited by it to its credit as Custodian in
the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every
such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and
that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall be
approved by vote of a majority of the Board of Directors
of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement
between the Fund and the Custodian, the Custodian shall,
upon the receipt of Proper Instructions, make federal
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<PAGE>
funds available to the Fund as of specified times agreed
upon from time to time by the Fund and the Custodian in
the amount of checks received in payment for Shares of
the Fund which are deposited into the Fund's account.
2.6 Collection of Income. The Custodian shall collect on a
timely basis all income and other payments with respect
to United States registered securities held hereunder to
which the Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall
collect on a timely basis all income and other payments
with respect to United States bearer securities if, on
the date of payment by the issuer, such securities are
held bv the Custodian or its agent thereof and shall
credit such income, as collected, to the Fund's custodian
account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring
presentation as and when they become due and shall
collect interest when due on securities held hereunder.
Income due the Fund on United States securities loaned
pursuant to the provisions of Section 2.2.(10) shall be
the responsibility of the Fund. The Custodian will have
no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as
may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which
the Fund is properly entitled.
<PAGE>
2 7 Payment of Fund Monies. Upon receipt of Proper
Instrucions. which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall
pay out monies of the Fund in the following cases only:
1) Upon the purchase of domestic securities,
options, futures contracts or options on
futures contracts for the account of the Fund
but only (a) against the delivery of such
securities or evidence of title to such
options, futures contracts or options on
futures contracts to the Custodian (or any
bank, banking firm or trust company doing
business in the United States or abroad which
is qualified under the Iavestment Company Act
of 1940, as amended, to act as a custodian
and has been designated by the Custodian as
its agent for this purpose) registered in the
name of the Fund or in the name of a nominee
of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in
the case of a purchase effected through a
Securities System, in accordance with the
conditions set forth in Section 2.10 hereof;
(e) in the case of a purchase involving the
Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; (d) in
the case of repurchase agreements entered
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<PAGE>
into between the Fund and the Custodian, or
another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the
securities either in certificate form or
through an entry crediting the Custodian's
account at the Federal Reserve Bank with such
securities or (ii) against delivery of the
receipt evidencing purchase by the Fund of
securities owned by the Custodian along with
written evidence of the agreement by the
Custodian to repurchase such securities from
the Fund or (e) for transfer to a time
deposit account of the Fund in any bank,
whether domestic or foreign; such transfer
may be effected prior to receipt of a
confirmation from a broker and/or the
applicable bank pursuant to Proper
Instructions from the Fund as defined in
Article 4;
2) In connection with conversion, exchange or
surrender of securities owned by the Fund as
set forth in Section 2.2 hereof;
3) For the payment of any expense or liability
incurred by the Fund, including but not
limited to the following payments for the
account of the Fund: interest, taxes,
management, accounting, transfer agent and
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<PAGE>
legal fees, and operating expenses of the
Fund whether or not such expenses are to be
in whole or part capitalized or treated as
deferred expenses;
4) For the payment of any dividends declared
pursuant to the governing documents of the
Fund;
5) For payment of the amount of dividends
received in respect of securities sold short;
6) For any other proper purpose, but only upon
receipt of, in addition to Proper
Instructions, a certified copy of a
resolution of the Board of Directors or of
the Executive Committee of the Fund signed by
an officer of the Fund and certified by its
Secretary or an Assistant Secretary,
specifying the amount of such payment,
setting forth the purpose for which such
payment is to be made, declaring such purpose
to be a proper purpose, and naming the person
or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased. Except as specifically stated otherwise in
this Contract, in any and every case where payment for
purchase of domestic securities for the account of the
Fund is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific
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<PAGE>
written instructions from the Fund to so pay in advance,
the Custodian shall be absolutely liable to the Fund for
such securities to the same extent as if the securities
had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or
times in its discretion appoint (and may at any time
remove) any other bank or trust company which is itself
qualified under the Investment Company Act of 1940, as
amended, to act as a custodian, as its agent to carry out
such of the provisions of this Article 2 as the Custodian
may from time to time direct; provided, however, that the
appointment of any agent shall not relieve the Custodian
of its responsibilities or liabilities hereunder.
2.10 Deposit of Securities in Securities Systems. The
Custodian may deposit and/or maintain domestic securities
owned by the Fund in a clearing agency registered with
the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system
authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein
as 'Securities System' in accordance with applicable
Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to
the following provisions:
1) The Custodian may keep domestic securities of
the Fund in a Securities System provided that
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<PAGE>
such securities are represented in an account
("Account") of the Custodian in the
Securities System which shall not include any
assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise
for customers;
2) The records of the Custodian with respect to
domestic securities of the Fund which are
maintained in a Securities System shall
identify by book-entry those securities
belonging to the Fund;
3) The Custodian shall pay for domestic
securities purchased for the account of the
Fund upon (i) receipt of advice from the
Securities System that such securities have
been transferred to the Account, and (ii) the
making of an entry on the records of the
Custodian to reflect such payment and
transfer for the account of the Fund. The
Custodian shall transfer domestic securities
sold for the account of the Fund upon (i)
receipt of advice from the Securities System
that payment for such securities has been
transferred to the Account, and (ii) the
making of an entry on the records of the
Custodian to reflect such transfer and
payment for the account of the Fund. Copies
-14-
<PAGE>
of all advices from the Securities System of
transfers of domestic securities for the
account of the Fund shall identify the Fund,
be maintained for the Fund by the Custodian
and be provided to the Fund at its request.
Upon request, the Custodian shall furnish the
Fund confirmation of each transfer to or from
the account of the Fund in the form of a
written advice or notice and shall furnish to
the Fund copies of daily transaction sheets
reflecting each day's transactions in the
Securities System for the account of the Fund.
4) The Custodian shall provide the Fund with any
report obtained by the Custodian on the
Securities System's accounting system,
internal accounting control and procedures
for safeguarding domestic securities
deposited in the Securities System;
5) The Custodian shall have received the initial
or annual certificate, as the case may be,
required by Article 12 hereof;
6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be
liable to the Fund for any loss or damage to
the Fund resulting from use of the Securities
System by reason of any negligence,
misfeasance or misconduct of the Custodian or
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<PAGE>
any of its agents or of any of its or their
employees or from failure of the Custodian or
any such agent to enforce effectively such
rights as it may have against the Securities
System; at the election of the Fund, it shall
be entitled to be subrogated to the rights of
the Custodian with respect to any claim
against the Securities System or any other
person which the Custodian may have as a
consequence of any such loss or damage if and
to the extent that the Fund has not been made
whole for any such loss or damage.
2.10.A Fund Assets Held in the Custodian's Direct Paper System.
The Custodian may deposit and/or maintain securities
owned by the Fund in the Direct Paper System of the
Custodian subject to the following provisions:
1) No transaction relating to securities in the
Direct Paper System will be effected in the
absence of Proper Instructions;
2) The Custodian may keep securities of the Fund
in the Direct Paper System only if such
securities are represented in an account
('Account") of the Custodian in the Direct
Paper System which shall not include any
assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise
for customers;
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<PAGE>
3) The records of the Custodian with respect to
securities of the Fund which are maintained
in the Direct Paper System shall identify by
book-entry those securities belonging to the
Fund;
4) The Custodian shall pay for securities
purchased for the account of the Fund upon
the making of an entry on the records of the
Custodian to reflect such payment and
transfer of securities to the account of the
Fund. The Custodian shall transfer
securities sold for the account of the Fund
upon the making of an entry on the records of
the Custodian to reflect such transfer and
receipt of payment for the account of the
Fund;
5) The Custodian shall furnish the Fund
confirmation of each transfer to or from the
account of the Fund, in the form of a written
advice or notice, of Direct Paper on the next
business day following such transfer and
shall furnish to the Fund copies of daily
transaction sheets reflecting each day's
transaction in the Securities System for the
account of the Fund;
6) The Custodian shall provide the Fund with any
report on its system of internal accounting
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<PAGE>
control as the Fund may reasonably request
from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of
Proper In structions establish and maintain a segregated
account or accounts for and on behalf of the Fund, into
which account or accounts may be transferred cash and/or
securities, including securities maintained in an account
by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the
Fund, the Custodian and a broker-dealer registered under
the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of
The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or
of any similar organization or organizations, regarding
escrow or other arrangements in connection with
transactions by the Fund, (ii) for purposes of
segregating cash or government securities in connection
with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased
or sold by the Fund, (iii) for the purposes of compliance
by the Fund with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release
or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by
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<PAGE>
registered investment companies and (iv) for other proper
corporate purposes, but only, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board of Directors
or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be
proper corporate purposes.
2.12 ownership Certificates for Tax Purposes. The Custodian
shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in
connection with receipt of income or other payments with
respect to domestic securities of the Fund held by it and
in connection with transfers of such securities.
2.13 Proxies. The Custodian shall, with respect to the
domestic securities held hereunder, cause to be promptly
executed by the registered holder of such securities, if
the securities are registered otherwise than in the name
of the Fund or a nominee of the Fund, all proxies,
without indication of the manner in which such proxies
are to be voted, and shall promptly deliver to the Fund
such proxies, all proxy soliciting materials and all
notices relating to such securities.
2.14 Communications Relating to Fund Portfolio Securities.
The Custodian shall transmit promptly to the Fund all
written information (including, without limitation,
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<PAGE>
pendency of calls and maturities of domestic securities
and expirations of rights in connection therewith and
notices of exercise of call and put options written by
the Fund and the maturity of futures contracts purchased
or sold by the Fund) received by the Custodian from
issuers of the domestic securities being held for the
Fund. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Fund all written
information received by the Custodian from issuers of the
domestic securities whose tender or exchange is sought
and from the party (or his agents) making the tender or
exchange offer. If the Fund desires to take action with
respect to any tender offer, exchange offer or any other
similar transaction, the Fund shall notify the Custodian
at least three business days prior to the date on which
the Custodian is to take such action.
2.15 Reports to Fund by Independent Public Accountants.
The Custodian shall provide the Fund, at such times as
the Fund may reasonably require, with reports by
independent public accountants on the accounting system,
internal accounting control and procedures for
safeguarding securities, futures contracts and options on
futures contracts, including domestic securities
deposited and/or maintained in a Securities System,
relating to the services provided by the Custodian under
this Contract; such reports shall be of sufficient scope
and in sufficient detail, as may reasonably be required
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<PAGE>
by the Fund, to provide reasonable assurance that any
material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the
reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians.
The Fund hereby authorizes and instructs the Custodian to
employ as sub-custodians for the Fund's securities and
other assets maintained outside the United States the
foreign banking institutions and foreign securities
depositories designated on Schedule A hereto ('foreign
sub-custodians"). Upon receipt of "Proper Instructions',
as defined in Section 4 of this Contract, together with a
certified resolution of the Fund's Board of Directors,
the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign
banking institutions and foreign securities depositories
to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to
cease the employment of any one or more such
sub-custodians for maintaining custody of the Fund's
assets.
3.2 Assets to be Held. The Custodian shall limit the
securities and other assets maintained in the custody of
the foreign sub-custodians to: (a) 'foreign securities',
as defined in paragraph (c)(1) of Rule 17f-5 under the
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<PAGE>
Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund
may determine to be reasonably necessary to effect the
Fund's foreign securities transactions.
3.3 Foreign securities Depositories. Except as may otherwise
be agreed upon in writing by the Custodian and the Fund,
assets of the Fund shall be maintained in foreign
securities depositories only through arrangements
implemented by the foreign banking institutions serving
as sub-custodians pursuant to the terms hereof. Where
possible, such arrangements shall include entry into
agreements containing the provisions set forth in Section
3.5 hereof.
3.4 Segregation of Securities
The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each
foreign sub-custodian. Each agreement pursuant to which
the Custodian employs a foreign banking institution shall
require that such institution establish a custody account
for the Custodian on behalf of the Fund and physically
segregate in that account, securities and other assets of
the Fund, and, in the event that such institution
deposits the Fund's securities in a foreign securities
depository, that it shall identify on its books as
belonging to the Custodian, as agent for the Fund, the
securities so deposited.
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<PAGE>
3.5 Agreements with Foreign Banking Institutions. Each
agreement with a foreign banking institution shall be
substantially in the form set forth in Exhibit 1 hereto
and shall provide that: (a) the Fund's assets will not
be subject to any right, charge, security interest, lien
or claim of any kind in favor of the foreign banking
Institution or its creditors or agent, except a claim of
payment for their safe custody or administration; (b)
beneficial ownership of the Fund's assets will be freely
transferable without the payment of money or value other
than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to
the Fund; (d) officers of or auditors employed by, or
other representatives of the Custodian, including to the
extent permitted under applicable law the independent
public accountants for the Fund, will be given access to
the books and records of the foreign banking institution
relating to its actions under its agreement with the
Custodian; and (e) assets of the Fund held by the foreign
sub-custodian will be subject only to the instructions of
the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon
request of the Fund, the Custodian will use its best
efforts to arrange for the independent accountants of the
Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to
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<PAGE>
the performance of such foreign banking institution under
its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the
Fund from time to time, as mutually agreed upon,
statements in respect of the securities and other assets
of the Fund held by foreign sub-custodians, including but
not limited to an identification of entities having
possession of the Fund's securities and other assets and
advices or notifications of any transfers of securities
to or from each custodial account maintained by a foreign
banking institution for the Custodian on behalf of the
Fund indicating, as to securities acquired for the Fund,
the identity of the entity having physical possession of
such securities.
3.8 Transactions in Foreign Custody Account.
(a) Except as otherwise provided in paragraph (b) of this
Section 3.8, the provision of Sections 2.2 and 2.7 of
this Contract shall apply, mutatis mutandis to the
foreign securities of the Fund held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received
for the account of the Fund and delivery of securities
maintained for the account of the Fund may be effected in
accordance with the customary established securities
trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction
-24-
<PAGE>
occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer)
against a receipt with the expectation of receiving later
payment for such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign
sub-custodian may be maintained in the name of such
entity's nominee to the same extent as set forth in
Section 2.3 of this Contract, and the Fund agrees to hold
any such nominee harmless from any liability as a holder
of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement
pursuant to which the Custodian employs a foreign banking
institution as a foreign sub-custodian shall require the
institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold
harmless, the Custodian and each Fund from and against
any loss) damage costs expense, liability or claim
arising out of or in connection with the institution's
performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claims against a
foreign banking Institution as a consequence of any such
loss, damage, cost, expense, liability or claim if and to
the extent that the Fund has not been made whole for any
such loss, damage, cost, expense, liability or claim.
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<PAGE>
3.10 Liability of Custodian. The Custodian shall be liable
for the, acts or omissions of a foreign banking
institution to the same extent as set forth with respect
to sub-custodians generally in this Contract and,
are maintained in the
regardless of whether assets
custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.13 hereof, the Custodian
shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization,
expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the
foregoing provisions of this paragraph 3.10, in
delegating custody duties to State Street London Ltd.,
the Custodian shall not be relieved of any responsibility
co the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk
(including, but not limited to, exchange control
restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed
hostilities) or (b) other losses (excluding a bankruptcy
or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or
other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
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<PAGE>
3.11 Reimbursement for Advances. If the Fund requires the
Custodian to advance cash or securities for any purpose
including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the
Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this
Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act
or willful misconduct, any property at any time held for
the account of the Fund shall be security therefor and
should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and
to dispose of the Fund assets to the extent necessary to
obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish
annually to the Fund, during the month of June.
information concerning the foreign sub-custodians
employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund
in connection with the initial approval of this
Contract. In addition. the Custodian will promptly
inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a
foreign sub-custodian or any material loss of the assets
of the Fund or in the case of any foreign sub-custodian
not the subject of an exemptive order from the Securities
-27-
<PAGE>
and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial
likelihood that its shareholders' equity will decline
below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders equity has declined
below $2OO million (in each case computed in accordance
with generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks.
(a) Except as otherwise set forth in this Contract, the
provisions hereof shall not apply where the custody of
the Fund assets are maintained in a foreign branch of a
banking institution which is a 'bank' as defined by
Section 2(a)(5) of the Investment Company Act of 1940
meeting the qualification set forth in Section 26(a) of
said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this
Contract.
(b) Cash held for the Fund in the United Kingdom shall be
maintained in an interest bearing account established for
the Fund with the Custodian's London branch, which
account shall be subject to the direction of the
Custodian, State Street London Ltd. or both.
4. Proper Instructions
Proper Instructions as used herein means a writing signed
or initialled by one or more person or persons as the Board of
Directors shall have from time to time authorized. Each such
writing shall set forth the specific transaction or type of
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<PAGE>
transaction involved, including a specific statement of the
purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian
reasonably believes them to have been given by a person
authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions
to be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by
the Board of Directors of the Fund accompanied by a detailed
description of procedures approved by the Board of Directors,
Proper Instructions may include communications effected directly
between electromechanical or electronic devices provided that
the Board of Directors and the Custodian are satisfied that such
procedures afford adequate safeguards for the Fund's assets. For
purposes of this Section, Proper Instructions shall include
instructions received by the Custodian pursuant to any
three-party agreement which requires a segregated asset account
In accordance with Section 2.11.
5. Actions Permitted without Express Authority
The Custodian may in its discretion, without express
authority from the Fund:
1) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the Fund,
checks, drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details
in connection with the sale, exchange, substitution, purchase,
-29-
<PAGE>
transfer and other dealings with the securities and property of
the Fund except as otherwise directed by the Board of Directors
of the Fund.
6. Evidence of Authority
The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other
instrument or paper believed by it to be genuine and to have been
properly executed by or on behalf of the Fund. The Custodian may
receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority
of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Directors pursuant
to the Articles of Incorporation as described in such vote, and
such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
7. Duties of Custodian with Respect_to the Books of Account
and Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board of
Directors of the Fund to keep the books of account of the Fund
and/or compute the net asset value per share of the outstanding
shares of the Fund or, if directed in writing to do so by the
Fund, shall itself keep such books of account and/or compute such
net asset value per share. If so directed, the Custodian shall
also calculate weekly the net income of the Fund as described in
the Fund's currently effective prospectus and shall advise the.
Fund and the Transfer Agent weekly of the total amounts of such
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<PAGE>
net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of
the division of such net income among its various components.
The calculations of the net asset value per share and the weekly
income of the Fund shall be made at the time or times described
from time to time in the Fund's currently effective prospectus.
8. Records
The Custodian shall create and maintain all records
relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the
Investment Company Act of 1940, with particular attention to
Section 31 thereof and Rules 3la-1 and 3la-2 thereunder,
applicable federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the
Fund. All such records shall be the property of the Fund and
shall at all times during the regular business hours of the
Custodian be open for inspection by duly authorized officers,
employees or agents of the Fund and employees and agents of the
Securities and Exchange Commission. The Custodian shall, at the
Fund's request, supply the Fund with a tabulation of securities
owned by the Fund and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall
be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
9. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the
Fund may from time to time request, to obtain from year to year
-31-
<PAGE>
favorable opinions from the Fund's independent accountants with
respect to its activities hereunder in connection with the
preparation of the Fund's Form N-2, and Form N-SAR or other
annual reports to the Securities and Exchange Commission and with
respect to any other requirements of such Commission.
10. Compensation of Custodian
The Custodian shall be entitled to reasonable
compensation for its services and expenses as Custodian, as
agreed upon from time to time between the Fund and the Custodian.
11. Expense Reimbursement
The Custodian shall be entitled to receive from the Fund
on demand reimbursement for its cash disbursements, out of pocket
expenses and charges in connection with its routine duties as
Custodian.
12. Responsibility of Custodian
So long as and to the extent that it is in the exercise
of reasonable care, the Custodian shall not be responsible for
the title, validity or genuineness of any property or evidence of
title thereto received by it or delivered by it pursuant to this
Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party
or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options
agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability
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<PAGE>
to the Fund for any action taken or omitted by it in good faith
without negligence. It shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Fund) on all
matters, and shall'be without liability for any action reasonably
taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions
of a foreign banking institution appointed pursuant to the
provisions of Article 3 to the same extent as set forth in
Article 1 hereof with respect to sub-custodians located in the
United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated
by paragraph 3.11 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense,, liability or claim resulting
from, or caused by, the direction of or authorization by the Fund
to maintain custody or any securities or cash of the Fund in a
foreign country including, but not limited to, losses resulting
from nationalization, expropriation, currency restrictions, or
acts of war or terrorism.
If the Fund requires the Custodian to take any action
with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian,
result in the Custodian or its nominee assigned to the Fund being
liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the
Custodian in an amount and form satisfactory to it.
-33-
<PAGE>
If the Fund requires the Custodian to advance cash or
securities for any purpose or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to
act or willful misconduct, any property at any time held for the
account of the Fund shall be security therefor and should the
Fund fail to repay the Ccstodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement.
i3. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution,
shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual
agreement of the parties hereto and may be terminated by either
party by an instrument in writing delivered or mailed, postage
prepaid to the other party, such termination to take effect not
sooner than ninety (90) days after the date of such delivery or
mailing; provided, however that the Custodian shall not act under
Section 2.10 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the
Board of Directors of the Fund has approved the initial use of a
particular Securities System and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the
Board of Directors has reviewed the use by the Fund of such
Securities System, as required in each case by Rule 17f-4 under
-34-
<PAGE>
the Investment Company Act of 1940, as amended and that the
Custodian shall not act under Section 2.10.A hereof in the
absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Directors has approved
the initial use of the Direct Paper System and the receipt of an
annual certificate of the Secretary or an Assistant Secretary
that the Board of Directors has reviewed the use by the Fund of
the Direct Paper System; provided further, however, that the Fund
shall not amend or terminate this Contract in contravention of
any applicable federal or state regulations, or any provision of
the Articles of incorporation, and further provided, that the
Fund may at any time by action of its Board of Directors (i)
substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event
at the direction of an appropriate regulatory agency or court of
competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to
the Custodian such compensation as may be due as of the date of
such termination and shall likewise reimburse the Custodian for
its costs, expenses and disbursements.
14. Successor Custodian
If a successor custodian shall be appointed by the Board
of Directors of the Fund, the Custodian shall, upon termination,
deliver to such successor custodian at the office of the
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<PAGE>
custodian, duly endorsed and in the form for transfer, all
securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities
held in a Securities System.
If no such successor custodian shall be appointed, the
custodian shall, in like manner, upon receipt of a certified copy
of a vote of the Board of Directors of the Fund, deliver at the
office of the Custodian and transfer such securities, funds and
other properties in accordance with such vote.
In the event that no written order designating a
successor custodian or certified copy of a vote of the Board of
Directors shall have been delivered to the Custodian on or before
the date when such termination shall become effective, then the
Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company
Act of 1940, doing business in Boston,' Massachusetts, of its own
selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than
$25,000,000, all securities, funds and other properties held by
the Custodian and all instruments held by the Custodian relative
thereto and all other property held by it under this Contract and
to transfer to an account of such successor custodian all of the
Fund's securities held in any Securities System. Thereafter,
such bank or trust company shall be the successor of the
Custodian under this Contract.
In the event that securities, funds and other properties
remain in the possession of the Custodian after the date of
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<PAGE>
termination hereof owing to failure of the Fund to procure the
certified copy of the vote referred to or of the Board of
Directors to appoint a successor custodian, the Custodian shall
be entitled to fair compensation for its services during such
period as the Custodian retains possession of such securities,
funds and other properties and the provisions of this Contract
relating to the duties and obligations of the Custodian shall
remain in full force and effect.
15. Interpretive and Additional Provisions
In connection with the operation of this Contract, the
Custodian and the Fund may from time to time agree on such
provisions interpretive of or in addition to the provisions of
this Contract as may in their joint opinion be consistent with
the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the
Articles of Incorporation of the Fund. No interpretive or
additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
16. Massachusetts Law to AppLy
This Contract shall be construed and the provisions
thereof interpreted under and in accordance with laws of The
Commonwealth of Massachusetts.
-37-
<PAGE>
17. Prior Contracts
This Contract supersedes and terminates, as of the date
hereof, all prior contracts between the Fund and the Custodian
relating to the custody of the Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly
authorized representative and it hereunder affixed as
of the 27th day of September, 1988.
ATTEST: WORLD INCOME FUND, INC.
/s/ Mark B. Goldfus By: /s/ Gerald Richard
------------------- -----------------------
Treasurer
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ L. Moretti By: /s/
------------------- -----------------------
Assistant Secretary Vice President
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<PAGE>
Schedule A
The following foreign banking institutions and foreign
securities depositories have been approved by the Board of
Directors of World Income Fund, Inc. for use as sub-custodians
for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
----------------------------
Fund's Authorized Officer
Date:
--------------
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<PAGE>
Schedule A
The following foreign banking institutions and foreign
securities depositories have been approved by the Board of
Directors of World Income Fund, Inc. for use as sub-custodians for
the Fund's securities and other assets:
ANZ BANKING GROUP LTD.
GIROZENTRALE UND BANK DER OSTERREICHISCHEN
BANQUE BRUXELLES LAMBERT
CANADA TRUST COMPANY
DEN DANSKE BANK
KANSALLIS-OSAKF, PANKKI
C'REDIT COMERCIAL DE FRANCE
BERLINER HANDELS UND FRANKFURTER BANK
STANDARD CHARTERED BANK
CREDITO ITALIANO
SUMITOMO TRUST & BANKING COMPANY LIMITED
STANDARD CHARTERED BANK
CITIBANK MEXICO
BANK MEES & HOPE, N.V.
WESTPAC BANKING CORP.
CHRISTIANIA BANK OG KREDITKASSE
STANDARD CHARTERED BANK
DBS BANK
BANCO HISPANO AMERICANO
SKANDINAVISKA ENSKILDA BANKEN
UNION BANK OF SWITZERLAND
STANDARD CHARTERED BANK
STATE STREET LONDON LIMITED
OESTERREICHISCHEN KONTROLLBANK AG WESTPAPIERSAMMELBANK BEIDER
CAISSE INTERPROFESSIONELLE DE DEPOTS ET DE VIREMENTS DE
TITRES S.A.
THE CANADIAN DEPOSITORY FOR SECURITIES LTD.
VAERDIPAPIRCENTRALEN
SOCIETE INTERPROFESSIONNELLE POUR LA COMPENSATION DES VALEURS
MIBILIERES
KASSENVEREIN
MONTE TITOLI, SPA
INSTITUTO NACIONEL DE VALARES
NETHERLANDS CLEARING INSTITUTE -FOR GIRO SECUTITIES DELIVERIES
SCHWEIZERISCHE EFFEKTEN GIRO A.G.
EUROCLEAR (BRUSSELS, BELGIUM)
CEDEL (LUXEMBOURG)
Certified: /s/ Gerald Richard
Funds Authorized Officer
Date: September 27, 1988
Exhibit 9
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the 18th day of November,
1991 by and between Merrill Lynch World Income Fund, Inc. (the
"Fund") and Merrill Lynch Financial Data Services, Inc. ("FDS"),
a New Jersey corporation.
WITNESSETH:
WHEREAS, the Fund wishes to appoint FDS to be the
Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent upon, and subject to, the terms and provisions of
this Agreement, and FDS is desirous of accepting such appointment
upon, and subject to, such terms and provisions:
NOW THEREFORE, in consideration of mutual covenants
contained in this Agreement, the Fund and FDS agree as follows:
I. Appointment of FDS as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent.
A. The Fund hereby appoints FDS to act as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the
Fund upon, and subject to, the terms and provisions of this
Agreement.
B. FDS hereby accepts the appointment as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the
Fund, and agrees to act as such upon, and subject to, the terms
and provisions of this Agreement.
II. Definitions.
A. In this Agreement:
1. The term "Act" means the Investment Company Act of
1940 as amended from time to time and any rule or regulation
thereunder;
2. The term "Account" means any account of a
Shareholder, or, if the shares are held in an account in the name
of MLPF&S for benefit of an identified customer, such account,
including a Plan Account, any account under a plan (by whatever
name referred to in the Prospectus) pursuant to the Self-Employed
Individuals Retirement Act of 1962 ("Keogh Act Plan") and any
plan (by whatever name referred to in the Prospectus) in
conjunction with Section 401 of the Internal Revenue Code
("Corporation Master Plan");
<PAGE>
3. The term "application" means an application made by
a Shareholder or prospective Shareholder respecting the opening
of an Account;
4. The term "MLFD" means Merrill Lynch Funds
Distributor, Inc., a Delaware corporation;
5. The term "MLPF&S" means Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a Delaware corporation;
6. The term "Officer's Instruction" means an
instruction in writing given on behalf of the Fund to FDS, and
signed on behalf of the Fund by the President, any Vice
President, the Secretary or the Treasurer of the Fund;
7. The term "Prospectus" means the Prospectus and the
Statement of Additional Information of the Fund as from time to
time in effect;
S. The term "Shares" means shares of stock or
beneficial interest, as the case may be, of the Fund,
irrespective of class or series;
9. The term "Shareholder" means the holder of record
of Shares;
10. The term "Plan Account" means an account opened by
a Shareholder or prospective Shareholder in respect to an open
account, monthly payment or withdrawal plan (in each case by
whatever name referred to in the Prospectus), and may also
include an account relating to any other ' Plan if and when
provision is made for such plan in the Prospectus.
III. Duties of FDS as Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent.
A. Subject to the succeeding provisions of the
Agreement, FDS hereby agrees to perform the following functions
as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent for the Fund;
1. Issuing, transferring and redeeming Shares;
2. Opening, maintaining, servicing and closing
Accounts;
3. Acting as agent for the Fund Shareholders and/or
customers of MLPF&S in connection with Plan Accounts, upon the
terms and subject to the conditions contained in the Prospectus
and application relating to the specific Plan Account;
2
<PAGE>
4. Acting as agent of the Fund and/or MLPF&S,
maintaining such records as may permit the imposition of such
contingent deferred sales charges as may be described in the
Prospectus, including such reports as may be reasonably requested
by the Fund with respect to such Shares as may be subject to a
contingent deferred sales charge;
5. Upon the redemption of Shares subject to such a
contingent deferred sales charge, calculating and deducting from
the redemption proceeds thereof the amount of such charge in the
manner set forth in the Prospectus. FDS shall pay, on behalf of
MLFD, to MLPF&S such deducted contingent deferred sales charges
imposed upon all Shares maintained in the name of MLPF&S, or
maintained in the name of an account identified as a customer
account of MLPF&S. Sales charges imposed upon any other Shares
shall be paid by FDS to MLFD.
6. Exchanging the investment of an investor into, or
from the shares of.other open-end investment companies or other
series portfolios of the Fund, if any, if and to the extent
permitted by the Prospectus at the direction of such investor.
7. Processing redemptions;
8. Examining and approving legal transfers;
9. Replacing lost, stolen or destroyed certificates
representing Shares, in accordance with, and subject to,
procedures and conditions adopted by the Fund;
10. Furnishing such confirmations of transactions
relating to their Shares as required by applicable law;
11. Acting as agent for the Fund and/or MLPF&S,
furnishing such appropriate periodic statements relating to
Accounts, together with additional enclosures, including
appropriate income tax information and income tax forms duly
completed, as required by applicable law;
12. Acting as agent for the Fund and/or MLPF&S,
mailing annual, semi-annual and quarterly reports prepared by or
on behalf of the Fund, and mailing new Prospectuses upon their
issue to Shareholders as required by applicable law;
13. Furnishing such periodic statements of
transactions effected by FDS, reconciliations, balances and
summaries as the Fund may reasonably request;
14. Maintaining such books and records relating to
transactions effected by FDS as are required by the Act, or by
any other applicable provision of law, rule or regulation, to be
maintained by the Fund or its transfer agent with respect to such
3
<PAGE>
transactions, and preserving, or causing to be preserved any such
books and records for such periods as may be required by any such
law, rule or regulation and as may be agreed upon from time to
time between FDS and the Fund. In addition, FDS agrees to
maintain and preserve master files and historical computer tapes
on a daily basis in multiple separate locations a sufficient
distance apart to insure preservation of at least one copy of
such information;
15. Withholding taxes on non-resident alien Accounts,
preparing and filing U.S. Treasury Department Form 1099 and other
appropriate forms as required by applicable law with respect to
dividends and distributions; and
16. Reinvesting dividends for full and fractional
shares and disbursing cash dividends, as applicable.
B. FDS agrees to act as proxy agent in connection with
the holding of annual, if any, and special meetings of
Shareholders, mailing such notices, proxies and proxy statements
in connection with the holding of such meetings as may be
required by applicable law, receiving and tabulating votes cast.
by proxy and communicating to the Fund the results of such
tabulation accompanied by appropriate certifications, and
preparing and furnishing to the Fund certified lists of
Shareholders as of such date, in such form and containing such
information as may be required by the Fund.
C. FDS agrees to deal with, and answer in a timely
manner, all correspondence and inquiries relating to the
functions of FDS under this Agreement with respect to Accounts.
D. FDS agrees to furnish to the Fund such information
and at such intervals as is necessary for the Fund to comply with
the registration and/or the reporting requirements (including
applicable escheat laws) of the Securities and Exchange
Commission, Blue Sky authorities or other governmental
authorities.
E. FDS agrees to provide to the Fund such information
as may reasonably be required to enable the Fund to reconcile the
number of outstanding Shares between FDS's records and the
account books of the Fund.
F. Notwithstanding anything in the foregoing
provisions of this paragraph, FDS agrees to perform its functions
thereunder subject to such modification (whether in respect of
particular cases or in any particular class of cases) as may from
time to time be contained in an Officer's Instruction.
4
<PAGE>
IV. Compensation.
The charges for services described in this Agreement,
including "out-of-pocket" expenses, will be set forth in the
Schedule of Fees attached hereto.
V. Right of Inspection.
FDS agrees that it will in a timely manner make
available to, and permit, any officer, accountant, attorney or
authorized agent of the Fund to examine and make transcripts and
copies (including photocopies and computer or other electronical
information storage media and print-outs) of any and all of its
books and records which relate to any transaction or function
performed by FDS under or pursuant to this Agreement.
VI. Confidential Relationship.
FDS agrees that it will, on behalf of itself and its
officers and employees, treat all transactions contemplated by
this Agreement, and All information germane thereto, as
confidential and not to be disclosed to any person (other than
the Shareholder concerned, or the Fund, or as may be disclosed in
the examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the
Fund by way of an Officer's Instruction.
VII. Indemnification.
The Fund shall indemnify and hold FDS harmless from any
loss, costs, damage and reasonable expenses, including reasonable
attorney's fees (provided that such attorney is appointed with
the Fund's consent, which consent shall not be unreasonably
withheld), incurred by it resulting from any claim, demand,
action,-or suit in connection with the performance of its duties
hereunder, provided that this indemnification shall not apply to
actions or omissions of FDS in cases of willful misconduct,
failure to act in good faith or negligence by FDS, it's officers,
employees or agents, and further provided, that prior to
confessing any claim against it which may be subject to this
indemnification, FDS shall give the Fund reasonable opportunity
to defend against said claim in its own name or in the name of
FDS. An action taken by FDS upon any Officer's Instruction
reasonably believed by it to have been properly executed shall
not constitute willful misconduct, failure to act in good faith
or negligence under this Agreement.
VIII. Regarding FDS.
A. FDS hereby agrees to hire, purchase, develop and
maintain such dedicated personnel, facilities, equipment,
software, resources and capabilities as may be reasonably
5
<PAGE>
determined by the Fund to be necessary for the satisfactory
performance of the duties and responsibilities of FDS. FDS
warrants and represents that its officers and supervisory
personnel charged with carrying out its functions as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent
for the Fund possess the special skill and technical knowledge
appropriate for that purpose. FDS shall at all times exercise
due care and diligence in the performance of its functions as
Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent for the Fund. FDS agrees that, in determining
whether it has exercised due care and diligence, its conduct
shall be measured by the standard applicable to persons
possessing such special skill and technical knowledge.
B. FDS warrants and represents that is duly authorized
and permitted to act as Transfer Agent, Dividend Disbursing
Agent, and Shareholder Servicing Agent under all applicable laws
and that it will immediately notify the Fund of any revocation of
such authority or, permission or of the commencement of any
proceeding or other action which may lead to such revocation.
IX. Termination.
A. This Agreement shall become effective as of the
date first above written and shall thereafter continue from year
to year. This Agreement may be terminated by the Fund or FDS
(without penalty to the Fund or FDS) provided that the
terminating party gives the other party written notice of such
termination at least sixty (60) days in advance, except that the
Fund may terminate this Agreement immediately upon written notice
to FDS if the authority or permission of FDS to act as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent
has been revoked or if any proceeding or other action which the
Fund reasonably believes will lead to such revocation has been
commenced.
B. Upon termination of this Agreement, FDS shall
deliver all unissued and canceled stock certificates representing
Shares remaining in its possession, and all Shareholder records,
books, stock ledgers, instruments and other documents (including
computerized or other electronically stored information) made or
accumulated in the performance of its duties as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the
Fund along with a certified locator document clearly indicating
the complete contents therein, to such successor as may be
specified in a notice of termination or officer's Instruction;
and the Fund assumes all responsibility for failure thereafter to
produce any paper, record or documents so delivered and
identified in the locator document, if and when required to be
produced.
6
<PAGE>
X. Amendment.
Except to the extent that the performance by FDS or its functions
under this Agreement may form time to time be modified
by an Officer's Instruction, this Agreement may be amended or
modified only by further written Agreement between the parties.
XI. Governing Law.
This Agreement shall be governed by the laws of the
State of New Jersey.
IN WITNESS WHEREOF, the parities hereto have caused this
Agreement to be signed by their respective duly authorized
officers and their respective corporate seals hereunto duly
affixed and attested, as of the day and year above written.
MERRILL LYNCH WORLD INCOME FUND, INC.
By: /s/ David B. Walter
----------------------------
Title: Vice President
-------------------------
FINANCIAL DATA SERVICES, INC.
By: /s/ Richard J. Hopkins
------------------------------
Title: Vice President
--------------------------
7
Exhibit 15(a)
AMENDED AND RESTATED
CLASS B DISTRIBUTION PLAN
OF
MERRILL LYNCH WORLD INCOME FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the 18th day of November, 1991, and
amended and restated as of September 18, 1992, by and between Merrill Lynch
World Income Fund, Inc., a Maryland corporation (the "Fund"), and Merrill
Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H :
-------------------
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund has entered into a Class B Shares Distribution
Agreement with MLFD, pursuant to which MLFD acts as the exclusive
distributor and representative of the Fund in the offer and sale of Class B
shares of common stock, par value $0.10 per share (the "Class B shares"),
of the Fund to the public; and
WHEREAS, the Fund has entered into a Class B Distribution Plan (the
"Prior Plan") pursuant to Rule 12b-1 under the Investment Company Act; and
WHEREAS, the Fund desires to adopt this Amended and Restated Class B
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account maintenance fee
and a distribution fee to MLFD with respect to the Fund's Class B shares;
and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and
its Class B shareholders;
<PAGE>
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the
terms of, the Plan in accordance with Rule 12b-1 under the Investment
Company Act on the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan
at the end of each month at the annual rate of 0.25% of average daily net
assets of the Fund relating to Class B shares to compensate MLFD and
securities firms with which MLFD enters into related agreements pursuant to
Paragraph 3 hereof ("Sub-Agreements") for account maintenance activities
with respect to Class B shareholders of the Fund.
2. The Fund shall pay MLFD a distribution fee under the Plan at the
end of each month at the annual rate of 0.50% of average daily net assets
of the Fund relating to Class B shares to compensate MLFD and securities
firms with which MLFD entered into related Sub-Agreements for providing
sales and promotional activities and services. Such activities and
services will relate to the sale, promotion and marketing of the Class B
shares of the Fund. Such expenditures may consist of sales commissions to
financial consultants for selling Class B shares of the Fund, compensation,
sales incentives and payments to sales and marketing personnel, and the
payment of expenses incurred in its sales and promotional activities,
including advertising expenditures related to the Fund and the costs of
preparing and distributing promotional materials. The distribution fee may
also be used to pay the financing costs of carrying the unreimbursed
expenditures described in this Paragraph 2. Payment of the distribution
fee described in this Paragraph 2 shall be subject to any limitations set
forth in any applicable regulation of the National Association of
Securities Dealers, Inc.
3. The Fund hereby authorized MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch,
Pierce, Fenner & Smith Incorporated, to provide compensation to such
Securities Firms for activities and services of the type referred to in
Paragraphs 1 and 2 hereof. MLFD may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities Firms as
compensation for the above-mentioned activities and services. Such Sub-
Agreement shall provide that the Securities Firms shall provide MLFD with
such information as is reasonably necessary to permit MLFD to comply with
the reporting requirements set forth in Paragraph 4 hereof.
2
<PAGE>
4. MLFD shall provide the Fund for review by the Board of Directors,
and the Directors shall review, at least quarterly, a written report
complying with the requirements of Rule 12b-1 regarding the disbursement of
the account maintenance fee and the distribution fee during such period.
5. The Plan will be submitted for approval by a vote of at least a
majority, as defined in the Investment Company Act, of the outstanding
Class B voting securities of the Fund held by the public.
6. The Plan shall not take effect until it has been approved,
together with any related agreements, by (a) the Directors of the Fund and
(b) those Directors of the Fund who are not "interested persons" of the
Fund, as defined in the Investment Company Act, and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on the Plan and such related
agreements.
7. The Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for
approval of the Plan in Paragraph 6.
8. The Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Directors, or by vote of a majority of the outstanding Class
B voting securities of the Fund.
9. The Plan may not be amended to increase materially the rate of
payments by the Fund provided for herein unless such amendment is approved
by at least a majority, as defined in the Investment Company Act, of the
outstanding Class B voting securities of the Fund, and by the Directors of
the Fund in the manner provided for in Paragraph 6 hereof, and no material
amendment to the Plan shall be made unless approved in the manner provided
for approval and annual renewal in Paragraph 6 hereof.
10. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment
Company Act, of the Fund shall be committed to the discretion of the
Directors who are not interested persons.
11. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a
period of not less than six years from the date of the Plan, or the
agreements or such report, as the case may be, the first two years in an
easily accessible place.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Plan as of
the date first above written.
MERRILL LYNCH WORLD INCOME FUND, INC
By /s/ Gerald Richard
-----------------------------------
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ Mark A. DeSario
-----------------------------------
4
<PAGE>
AMENDED AND RESTATED
CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the 18th day of November, 1991, and amended and
restated as of September 18, 1992, by and between Merrill Lynch Funds
Distributor, Inc. ("MLFD"), and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Securities Firm").
W I T N E S S E T H :
--------------------
WHEREAS, MLFD has entered into an agreement with Merrill Lynch World
Income Fund, Inc., A Maryland corporation (the "Fund"), pursuant to which
it acts as the exclusive distributor for the sale of Class B shares of
common stock, par value $0.10 per share (the "Class B shares"), of the
Fund; and
WHEREAS, MLFD and the Fund have entered into an Amended and Restated
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "Act") pursuant to which MLFD receives an account
maintenance fee from the Fund at the annual rate of 0.25% of average daily
net assets of the Fund relating to Class B shares for account maintenance
activities related to Class B shares of the Fund and a distribution fee
from the Fund at the annual rate of 0.50% of average daily net assets of
the Fund relating to Class B shares for providing sales and promotional
activities and services related to the distribution of Class B shares of
the Fund; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services
for the Fund's Class B shareholders and the Securities Firm is willing to
perform such activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities
with respect to the Class B shares of the Fund of the types referred to in
Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional
activities and services with respect to the sale of the Class B shares of
the Fund, and incur distribution expenditures, of the types referred to in
Paragraph 2 of the Plan.
1
<PAGE>
3. As compensation for its activities and services performed under
this Sub-Agreement, MLFD shall pay the Securities Firm an account
maintenance fee and a distribution fee at the end of each calendar month in
an amount agreed upon by the parties hereto.
4. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with
the reporting requirements of Rule 12b-1 regarding the disbursement of the
account maintenance fee and the distribution fee during such period
referred to in Paragraph 4 of the Plan.
5. This Sub-Agreement shall not take effect until it has been
approved by votes of a majority of both (a) the Directors of the Fund and
(b) those Directors of the Fund who are not "interested persons" of the
Fund, as defined in the Act, and have no direct or indirect financial
interest in the operation of the Plan, this Agreement or any agreements
related to the Plan or this Agreement (the "Rule 12b-1 Directors"), cast in
person at a meeting or meetings called for the purpose of voting on this
Agreement.
6. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner
provided for approval of the Plan in Paragraph 6.
7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment
to the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTORS, INC
By
-----------------------------------
MERRILL LYNCH PIERCE, FENNER & SMITH
INCORPORATED
By
-----------------------------------
2
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1995
SECURITIES ACT FILE NO. 33-42681
INVESTMENT COMPANY ACT FILE NO. 811-5603
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 5 X
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
AMENDMENT NO. 6 X
(CHECK APPROPRIATE BOX OR BOXES)
-------------------
MERRILL LYNCH WORLD INCOME FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH WORLD INCOME FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-------------------
COPIES TO:
<TABLE>
<S> <C>
COUNSEL FOR THE FUND: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD FUND ASSET MANAGEMENT
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, NEW JERSEY 08543-9011
ATTENTION: THOMAS R. SMITH, JR., ESQ.
BRIAN M. KAPLOWITZ, ESQ.
</TABLE>
-------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX):
<TABLE>
<S> <C>
X IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)
/ / ON (DATE) PURSUANT TO PARAGRAPH (B)
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)
/ / ON (DATE) PURSUANT TO PARAGRAPH (A)(1)
/ / 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)
/ / ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485.
</TABLE>
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
<TABLE>
<S> <C>
/ / THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
</TABLE>
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF COMMON
STOCK UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE
REGISTRANT'S MOST RECENT FISCAL YEAR WAS FILED ON FEBRUARY 27, 1995.
-------------------
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
PROPOSED PROPOSED
AMOUNT OF MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES SHARES BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE* FEE
<S> <C> <C> <C> <C>
Shares of Common Stock
(par value $0.10 per share).............. 65,530,679 $ 8.68 $ 289,998 $ 100
</TABLE>
*(1) The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940.
(2) The total amount of securities redeemed or repurchased during Registrant's
previous fiscal year was 90,705,808 Shares of Common Stock.
(3) 25,208,539 of the Shares described in (2) above have been used for
reduction pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment
Company Act of 1940 in previous filings during Registrant's current fiscal
year.
(4) 65,497,269 of the Shares redeemed during Registrant's previous fiscal year
are being used for the reduction of the registration fee in this amendment
to the Registration Statement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH WORLD INCOME FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
------------------------------------- -------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Fee Table
Item 3. Condensed Financial Information...... Financial Highlights
Item 4. General Description of Registrant.... Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund............... Fee Table; Management of the Fund;
Inside Back Cover Page
Item 5A. Management's Discussion of Fund
Performance.......................... Not Applicable
Item 6. Capital Stock and Other Securities... Cover Page; Additional Information
Item 7. Purchase of Securities Being
Offered.............................. Cover Page; Fee Table; Merrill Lynch
Select PricingSM System; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase............. Fee Table; Merrill Lynch Select
PricingSM System; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal Proceedings............ Not Applicable
PART B
Item 10. Cover Page........................... Cover Page
Item 11. Table of Contents.................... Back Cover Page
Item 12. General Information and History...... General Information
Item 13. Investment Objective and Policies.... Investment Objective and Policies
Item 14. Management of the Fund............... Management of the Fund
Item 15. Control Persons and Principal Holders
of Securities........................ Management of the Fund; Additional
Information
Item 16. Investment Advisory and Other
Services............................. Management of the Fund; Purchase of
Shares; General Information
Item 17. Brokerage Allocation and Other
Practices............................ Portfolio Transactions
Item 18. Capital Stock and Other Securities... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............. Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services
Item 20. Tax Status........................... Dividends, Distributions and Taxes
Item 21. Underwriters......................... Purchase of Shares
Item 22. Calculation of Performance Data...... Performance Data
Item 23. Financial Statements................. Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate Item,
so numbered, in Part C to this Registration Statement.
</TABLE>
<PAGE>
PROSPECTUS
APRIL 27, 1995
MERRILL LYNCH WORLD INCOME FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
-------------------
Merrill Lynch World Income Fund, Inc. (the "Fund") is a non-diversified
mutual fund seeking to provide shareholders with high current income by
investing in a global portfolio of fixed income securities denominated in
various currencies, including multinational currency units. The Fund may invest
in United States and foreign government and corporate fixed income securities,
including high yield high risk, lower rated and unrated securities. In pursuing
its investment objective, the Fund will allocate its investments among different
types of fixed income securities denominated in various currencies based upon
management's analysis of the yield, maturity and currency considerations
affecting such securities. Under normal conditions, the Fund's investments will
be denominated in at least three currencies. The Fund presently contemplates
that it will invest primarily in obligations denominated in the currencies of
the United States, Canada, Western European nations, New Zealand and Australia
as well as in European Currency Units. The Fund may seek to hedge against
interest rate and currency risks through the use of options, futures and foreign
currency transactions. For more information on the Fund's investment objective
and policies, please see "Investment Objective and Policies" on page 12. There
can be no assurance that the investment objective of the Fund will be realized.
Investment on an international basis and in lower rated or unrated
securities (commonly referred to as "junk bonds") involves special
considerations and certain risks, including risks of untimely payment of
interest and principal, default and price volatility. Investors should carefully
consider these risks before investing. See "Risk Factors and Special
Considerations".
Pursuant to the Merrill Lynch Select PricingSM 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 PricingSM System permits an
investor to choose the method of purchasing shares that the investor believes is
most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select PricingSM System" on page 4.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.,
(the "Distributor"), Box 9011, Princeton, New Jersey 08543-9011 [(609)
282-2800], or from securities dealers which have entered into selected dealer
agreements with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000, and the
minimum subsequent purchase is $50, except that for retirement plans the minimum
initial purchase is $100, and the minimum subsequent purchase is $1. Merrill
Lynch may charge its customers a processing fee (presently $4.85) for confirming
purchases and repurchases. Purchases and redemptions directly through the Fund's
Transfer Agent are not subject to the processing fee. See "Purchase of Shares"
and "Redemption of Shares".
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------
This Prospectus is a concise statement of information about the Fund that is
relevant to making an investment in the Fund. This Prospectus should be retained
for future reference. A statement containing additional information about the
Fund dated April 27, 1995 (the "Statement of Additional Information") has been
filed with the Securities and Exchange Commission and is available, without
charge, by calling or by writing the Fund at the above telephone number or
address. The Statement of Additional Information is hereby incorporated by
reference into this Prospectus.
-------------------
FUND ASSET MANAGEMENT--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
<TABLE><CAPTION>
CLASS A(A) CLASS B(B) CLASS C CLASS D
------------ --------------------- ------------ ------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)................... 4.00%(c) None None 4.00%(c)
Sales Charge Imposed on Dividend
Reinvestments........................ None None None None
Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower).................. None(d) 4.0% during the 1.0% for one None(d)
first year, year
decreasing 1.0%
annually thereafter
to 0.0% after the
fourth year
Exchange Fee........................ None None None None
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)(E)
Investment Advisory Fees(f)....... 0.60% 0.60% 0.60% 0.60%
12b-1 Fees(g):
Account Maintenance Fees...... None 0.25% 0.25% 0.25%
Distribution Fees............. None 0.50% 0.55% None
(Class B shares
convert to Class D
shares automatically
after approximately
ten years and cease
being subject to
distribution fees)
Other Expenses:
Custodial Fees.................... 0.03% 0.03% 0.03% 0.03%
Shareholder Servicing Costs(h).... 0.09% 0.11% 0.11% 0.09%
Other............................. 0.05% 0.05% 0.05% 0.05%
Total Other Expenses............ 0.17% 0.19% 0.19% 0.17%
TOTAL FUND OPERATING EXPENSES........ 0.77% 1.54% 1.59% 1.02%
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Class A shares are sold to a limited group of investors including existing Class A
shareholders, certain retirement plans and investment programs. See "Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D Shares"-- page 28.
(b) Class B shares convert to Class D shares automatically approximately ten years after
initial purchase. See "Purchase of Shares--Deferred Sales Charge Alternatives--Class B
and Class C Shares"--page 30.
(c) Reduced for purchases of $25,000 and over. Class A or Class D purchases of $1,000,000 or
more may not be subject to an initial sales charge. See "Purchase of Shares--Initial
Sales Charge Alternatives--Class A and Class D Shares"--page 28.
(d) Class A and Class D shares are not subject to a contingent deferred sales charge
("CDSC"), except that purchases of $1,000,000 or more which may not be subject to an
initial sales charge will instead be subject to a CDSC of 1.0% of amounts redeemed
within the first year after purchase.
(e) Information for Class A and Class B shares is stated for the fiscal year ended December
31, 1994. Information under "Other Expenses" for Class C and Class D shares is estimated
for the fiscal year ending December 31, 1995.
(f) See "Management of the Fund--Management and Advisory Arrangements"--page 24.
(g) See "Purchase of Shares--Distribution Plans"--page 34.
(h) See "Management of the Fund--Transfer Agency Services"--page 26.
</TABLE>
2
<PAGE>
EXAMPLE:
<TABLE><CAPTION>
CUMULATIVE EXPENSES PAID
FOR THE PERIOD OF:
----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
An investor would pay the following expenses on a $1,000
investment including the maximum $40 initial sales charge
(Class A and Class D shares only) and assuming (1) the Total
Fund Operating Expenses for each class set forth above, (2)
a 5% annual return throughout the periods and (3) redemption
at the end of the period:
<S> <C> <C> <C> <C>
Class A................................................... $ 48 $64 $81 $132
Class B................................................... $ 56 $69 $84 $183
Class C................................................... $ 26 $50 $87 $189
Class D................................................... $ 50 $71 $94 $160
<CAPTION>
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of the
period:
<S> <C> <C> <C> <C>
Class A................................................... $ 48 $64 $81 $132
Class B................................................... $ 16 $49 $84 $183
Class C................................................... $ 16 $50 $87 $189
Class D................................................... $ 50 $71 $94 $160
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission ("Commission") regulations. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL
RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and Class C
shareholders who hold their shares for an extended period of time may pay more
in Rule 12b-1 distribution fees than the economic equivalent of the maximum
front end sales charges permitted under the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD"). Merrill Lynch may
charge its customers a processing fee (presently $4.85) for confirming purchases
and repurchases. Purchases and redemptions directly through the Fund's Transfer
Agent are not subject to the processing fee. See "Purchase of Shares" and
"Redemption of Shares".
3
<PAGE>
MERRILL LYNCH SELECT PRICINGSM SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
PricingSM System. The shares of each class may be purchased at a price equal to
the next determined net asset value per share subject to the sales charges and
ongoing fee arrangements described below. Shares of Class A and Class D are sold
to investors choosing the initial sales charge alternatives, and shares of Class
B and Class C are sold to investors choosing the deferred sales charge
alternatives. The Merrill Lynch Select PricingSM System is used by more than 50
mutual funds advised by Merrill Lynch Asset Management, L.P. ("MLAM") or an
affiliate of MLAM, Fund Asset Management, L.P. ("FAM" or the "Investment
Adviser"). Funds advised by MLAM or FAM are referred to herein as "MLAM-advised
mutual funds".
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges and account maintenance fees that are imposed on Class B
and Class C shares, as well as the account maintenance fees that are imposed on
the Class D shares, are imposed directly against those classes and not against
all assets of the Fund and, accordingly, such charges will not affect the net
asset value of any other class or have any impact on investors choosing another
sales charge option. Dividends paid by the Fund for each class of shares will be
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Each class has different exchange privileges. See "Shareholder
Services--Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select PricingSM System that the investor
believes is most beneficial under his particular circumstances. More detailed
information as to each class of shares is set forth under "Purchase of Shares".
4
<PAGE>
<TABLE><CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
<C> <S> <C> <C> <C>
A Maximum 4.00% initial sales No No No
charge(2)(3)
B CDSC for a period of 4 years, at a rate 0.25% 0.50% B shares
of 4.0% during the first year, convert to D shares
decreasing 1.0% annually to 0.0% automatically
after approximately
ten years(4)
C 1.0% CDSC for one year 0.25% 0.55% No
D Maximum 4.00% initial sales charge(3) 0.25% No No
</TABLE>
- ------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. Contingent deferred sales charges ("CDSCs") are imposed
if the redemption occurs within the applicable CDSC time period. The charge
will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors".
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year. See "Class
A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have an eight
year conversion period. If Class B shares of the Fund are exchanged for
Class B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
Class A: Class A shares incur an initial sales charge when they are
purchased and bear no ongoing distribution or account maintenance fees. Class A
shares are offered to a limited group of investors and also will be issued upon
reinvestment of dividends on outstanding Class A shares. Investors that
currently own Class A shares of the Fund in a shareholder account are entitled
to purchase additional Class A shares of the Fund in that account. Other
eligible investors include certain retirement plans and participants in certain
investment programs. In addition, Class A shares will be offered to Merrill
Lynch & Co., Inc. ("ML & Co."), and its subsidiaries (the term "subsidiaries",
when used herein with respect to ML & Co. includes MLAM, the Investment Adviser
and certain other entities directly or indirectly wholly-owned and controlled by
ML & Co.), and their directors and employees, and to members of the Boards of
MLAM-advised mutual funds. The maximum initial sales charge is 4.0%, which is
reduced for purchases of $25,000 and over. Purchases of $1,000,000 or more may
not be subject to an initial sales charge but if the initial sales charge is
waived, such purchases may be subject to a 1.0% CDSC if the shares are redeemed
within one year after purchase. Sales charges also are reduced under a right of
accumulation which takes into account the investor's holdings of all classes of
all MLAM-advised mutual funds. See "Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares".
Class B: Class B shares do not incur a sales charge when they are
purchased, but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.50% of the Fund's average net assets
attributable to the Class B shares, and a CDSC if they are redeemed within four
years of purchase. Approximately ten years after issuance, Class B shares will
convert automatically
5
<PAGE>
into Class D shares of the Fund, which are subject to an account maintenance fee
but no distribution fee; Class B shares of certain other MLAM-advised mutual
funds into which exchanges may be made convert into Class D shares automatically
after approximately eight years. If Class B shares of the Fund are exchanged for
Class B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, as will
the Class D account maintenance fee of the acquired fund upon conversion, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired. Automatic conversion of Class B shares into
Class D shares will occur at least once a month on the basis of the relative net
asset values of the shares of the two classes on the conversion date, without
the imposition of any sales load, fee or other charge. Conversion of Class B
shares to Class D shares will not be deemed a purchase or sale of the shares for
Federal income tax purposes. Shares purchased through reinvestment of dividends
on Class B shares also will convert automatically to Class D shares. The
conversion period for dividend reinvestment shares and for certain retirement
plans is modified as described under "Purchase of Shares-- Deferred Sales Charge
Alternatives--Class B and Class C Shares--Conversion of Class B Shares to Class
D Shares".
Class C: Class C shares do not incur a sales charge when they are
purchased, but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.55% of the Fund's average net assets
attributable to Class C shares. Class C shares are also subject to a CDSC if
they are redeemed within one year of purchase. Although Class C shares are
subject to a 1.0% CDSC for only one year (as compared to four years for Class
B), Class C shares have no conversion feature and, accordingly, an investor that
purchases Class C shares will be subject to distribution fees that will be
imposed on Class C shares for an indefinite period subject to annual approval by
the Fund's Board of Directors and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are
purchased and are subject to an ongoing account maintenance fee of 0.25% of the
Fund's average net assets attributable to Class D shares. Class D shares are not
subject to an ongoing distribution fee or any CDSC when they are redeemed.
Purchases of $1,000,000 or more may not be subject to an initial sales charge
but, if the initial sales charge is waived, such purchases will be subject to a
CDSC of 1.0% if the shares are redeemed within one year after purchase. The
schedule of initial sales charges and reductions for Class D shares is the same
as the schedule for Class A shares. Class D shares also will be issued upon
conversion of Class B shares as described above under "Class B". See "Purchase
of Shares--Initial Sales Charge Alternatives--Class A and Class D Shares".
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
PricingSM System that the investor believes is most beneficial under his
particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative particularly
attractive because similar sales charge reductions are not available with
respect
6
<PAGE>
to the deferred sales charges imposed in connection with purchases of Class B or
Class C shares. Investors not qualifying for reduced initial sales charges who
expect to maintain their investment for an extended period of time also may
elect to purchase Class A or Class D shares, because over time the accumulated
ongoing account maintenance and distribution fees on Class B or Class C shares
may exceed the initial sales charge and, in the case of Class D shares, the
account maintenance fee. Although some investors that previously purchased Class
A shares may no longer be eligible to purchase Class A shares of other
MLAM-advised mutual funds, those previously purchased Class A shares, together
with Class B, Class C and Class D share holdings, will count toward a right of
accumulation which may qualify the investor for reduced initial sales charges on
new initial sales charge purchases. In addition, the ongoing Class B and Class C
account maintenance and distribution fees will cause Class B and Class C shares
to have higher expense ratios, pay lower dividends and have lower total returns
than the initial sales charge shares. The ongoing Class D account maintenance
fees will cause Class D shares to have a higher expense ratio, pay lower
dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. The deferred sales charge alternatives may be particularly appealing to
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account maintenance fees and
distribution fees; however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return is realized on the
additional funds initially invested in Class B or Class C shares. In addition,
Class B shares will be converted into Class D shares of the Fund after a
conversion period of approximately ten years, and thereafter investors will be
subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. Investors in Class B shares
should take into account whether they intend to redeem their shares within the
CDSC period and, if not, whether they intend to remain invested until the end of
the conversion period and thereby take advantage of the reduction in ongoing
fees resulting from the conversion into Class D shares. Other investors,
however, may elect to purchase Class C shares if they determine that it is
advantageous to have all their assets invested initially and they are uncertain
as to the length of time they intend to hold their assets in MLAM-advised mutual
funds. Although Class C shareholders are subject to a shorter CDSC period at a
lower rate, they forego the Class B conversion feature, making their investment
subject to account maintenance and distribution fees for an indefinite period of
time. In addition, while both Class B and Class C distribution fees are subject
to the limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See "Purchase of Shares--Limitations on the Payment of Deferred
Sales Charges".
7
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Fund by Deloitte &
Touche LLP, independent auditors. Financial statements for the fiscal year ended
December 31, 1994, with respect to Class A and Class B shares, and for the
fiscal period October 21, 1994 to December 31, 1994 with respect to Class C and
Class D shares, and the independent auditors' report thereon, are included in
the Statement of Additional Information. Financial information is not presented
for Class B shares for the period September 29, 1988 to November 18, 1991 since
no shares of that class were publicly issued prior to November 18, 1991. No
financial information is presented for Class C and Class D shares prior to
October 21, 1994 since no shares of those classes were publicly issued prior to
October 21, 1994. Further information about the performance of the Fund is
contained in the Fund's most recent annual report to shareholders which may be
obtained, without charge, by calling or by writing the Fund at the telephone
number or address on the front cover of this Prospectus.
The following per share data and ratios have been derived from information
provided in the Financial Statements.
<TABLE><CAPTION>
CLASS A
-----------------------------------------------------------------------------
FOR THE FOR THE
PERIOD PERIOD
SEPTEMBER 1, SEPTEMBER 29,
INCREASE (DECREASE) IN NET FOR THE YEAR ENDED 1992 TO FOR THE YEAR ENDED AUGUST 1988+ TO
ASSET VALUE: DECEMBER 31, DECEMBER 31, 31, AUGUST 31,
PER SHARE OPERATING ----------------------- ------------ -------------------------- -------------
PERFORMANCE: 1994## 1993 1992 1992 1991* 1990* 1989*
---------- ------------ ------------ -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................... $ 9.28 $ 8.85 $ 9.34 $ 9.07 $ 9.48 $ 9.32 $ 9.35
---------- ------------ ------------ -------- -------- -------- -------------
Investment income--net..... .72 .75 .29 .99 1.12 1.23 1.03
Realized and unrealized
gain (loss) on
investments and foreign
currency
transactions--net........... (1.09) .46 (.41) .40 (.16) .15 (.12)
---------- ------------ ------------ -------- -------- -------- -------------
Total from investment
operations.................. (.37) 1.21 (.12) 1.39 .96 1.38 .91
---------- ------------ ------------ -------- -------- -------- -------------
Less dividends and
distributions:
Investment income--net..... (.45) (.58) (.35) (1.12) (1.37) (1.17) (.94)
Realized gain on
investments--net............ -- (.03) (.02) -- -- (.05) --
Return of capital--net..... (.26) (.17) -- -- -- -- --
---------- ------------ ------------ -------- -------- -------- -------------
Total dividends and
distributions............... (.71) (.78) (.37) (1.12) (1.37) (1.22) (.94)
---------- ------------ ------------ -------- -------- -------- -------------
Net asset value, end of
period...................... $ 8.20 $ 9.28 $ 8.85 $ 9.34 $ 9.07 $ 9.48 $ 9.32
---------- ------------ ------------ -------- -------- -------- -------------
---------- ------------ ------------ -------- -------- -------- -------------
TOTAL INVESTMENT RETURN:++
Based on net asset value
per share................... (4.05%) 14.12% (1.26%)# 16.09% 11.50% 16.48% 9.86%#
---------- ------------ ------------ -------- -------- -------- -------------
---------- ------------ ------------ -------- -------- -------- -------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding
distribution fees........... .77% .78% .76%** .88% .85% .86% .81%**
---------- ------------ ------------ -------- -------- -------- -------------
---------- ------------ ------------ -------- -------- -------- -------------
Expenses................... .77% .78% .76%** .88% .85% .86% .81%**
---------- ------------ ------------ -------- -------- -------- -------------
---------- ------------ ------------ -------- -------- -------- -------------
Investment income--net..... 8.17% 8.22% 8.09%** 11.16% 12.38% 16.27% 10.87%**
---------- ------------ ------------ -------- -------- -------- -------------
---------- ------------ ------------ -------- -------- -------- -------------
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)........... $311,181 $467,625 $455,672 $526,631 $292,709 $299,700 $ 296,247
---------- ------------ ------------ -------- -------- -------- -------------
---------- ------------ ------------ -------- -------- -------- -------------
Portfolio turnover......... 115.95% 182.88% 68.42% 76.18% 63.83% 99.86% 157.67%
---------- ------------ ------------ -------- -------- -------- -------------
---------- ------------ ------------ -------- -------- -------- -------------
</TABLE>
- ------------
* The above financial information reflects the Fund's performance as a
closed-end investment company and, therefore, may not be indicative of its
performance as an open-end investment company. Shares of the Fund existing at
November 15, 1991, the time of its conversion to an open-end investment
company, have been classified as Class A shares.
** Annualized.
+ Commencement of operations.
++ Total investment returns exclude the effects of sales loads.
# Aggregate total investment return.
## Based on average shares outstanding during the period.
8
<PAGE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
<TABLE><CAPTION>
CLASS C CLASS D
CLASS B ------------ ------------
-------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD PERIOD
SEPTEMBER 1, NOVEMBER 18, OCTOBER 21, OCTOBER 21,
FOR THE YEAR ENDED 1992 TO 1991+ TO 1994+ TO 1994+ TO
INCREASE (DECREASE) IN NET ASSET DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, DECEMBER 31,
VALUE: ----------------------- ------------ ------------ ------------ ------------
PER SHARE OPERATING PERFORMANCE: 1994## 1993 1992 1992 1994## 1994##
---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 9.28 $ 8.85 $ 9.33 $ 9.26 $ 8.42 $ 8.43
---------- ---------- ---------- ---------- -------- --------
Investment income--net............ .65 .70 .27 .77 .10 .11
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions--net............... (1.10) .44 (.40) -- (.20) (.20)
---------- ---------- ---------- ---------- -------- --------
Total from investment operations... (.45) 1.14 (.13) .77 (.10) (.09)
---------- ---------- ---------- ---------- -------- --------
Less dividends and distributions:
Investment income--net............ (.40) (.53) (.33) (.70) (.08) (.09)
Realized gain on
investments--net................ -- (.03) (.02) -- -- --
Return of capital--net............ (.24) (.15) -- -- (.05) (.05)
---------- ---------- ---------- ---------- -------- --------
Total dividends and
distributions.................... (.64) (.71) (.35) (.70) (.13) (.14)
---------- ---------- ---------- ---------- -------- --------
Net asset value, end of period..... $ 8.19 $ 9.28 $ 8.85 $ 9.33 $ 8.19 $ 8.20
---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- -------- --------
TOTAL INVESTMENT RETURN:++
Based on net asset value per
share........................... (4.90%) 13.27% (1.42%)# 8.61%# (1.20%)# (1.09%)#
---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding distribution
fees............................ .79% .80% .78%** .88%** .84%** .79%**
---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- -------- --------
Expenses.......................... 1.54% 1.55% 1.53%** 1.63%** 1.64%** 1.04%**
---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- -------- --------
Investment income--net............ 7.41% 7.42% 7.08%** 8.02%** 8.00%** 8.60%**
---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands).................. $1,490,507 $2,106,120 $1,582,270 $1,514,406 $ 1,204 $ 1,410
---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- -------- --------
Portfolio turnover................ 115.95% 182.88% 68.42% 76.18% 115.95% 115.95%
---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- -------- --------
</TABLE>
- ------------
** Annualized.
+ Commencement of operations.
++ Total investment returns exclude the effects of sales loads.
# Aggregate total investment return.
## Based on average shares outstanding during the period.
9
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in the Fund involves special considerations including the fact
that the Fund makes investments on an international basis and in high yield high
risk, lower rated or unrated securities.
International Investing. Investments in securities of foreign entities and
securities denominated in foreign currencies involve risks not typically
involved in domestic investment including fluctuations in foreign exchange
rates, future foreign political and economic developments, and the possible
imposition of exchange controls or other foreign or United States governmental
laws or restrictions applicable to such investments. Since the Fund may invest
in securities denominated or quoted in currencies other than the United States
dollar, changes in foreign currency exchange rates may affect the value of
investments in the portfolio and the unrealized appreciation or depreciation of
investments insofar as United States investors are concerned. Changes in foreign
currency exchange rates relative to the U.S. dollar will affect the U.S. dollar
value of the Fund's assets denominated in that currency and the Fund's yield on
such assets. Foreign currency exchange rates are determined by forces of supply
and demand on the foreign exchange markets. These forces are, in turn, affected
by the international balance of payments and other economic and financial
conditions, government intervention, speculation, and other factors. Moreover,
individual foreign economies may differ favorably or unfavorably from the United
States economy in such respects as growth of 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, economic, political or social
instability or diplomatic developments which could affect investment in those
countries. There may be less publicly available information about a foreign
financial instrument than about a United States instrument, and foreign entities
may not be subject to accounting, auditing and financial reporting standards and
requirements comparable to those of United States entities. In addition, certain
foreign investments may be subject to foreign withholding taxes. See "Taxes".
Foreign financial markets, while growing in volume, have, for the most part,
substantially less volume than United States markets, and securities of many
foreign companies are less liquid and their prices more volatile than securities
of comparable domestic companies. Foreign markets also have different clearance
and settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Since the securities in which the Fund invests are
traded primarily in the over-the-counter market, and therefore, portfolio
transactions will generally not be effected on foreign securities exchanges, the
Fund does not expect typically to incur these potential settlement delays. Costs
associated with transactions in foreign securities are generally higher than
with transactions in United States securities. There is generally less
10
<PAGE>
government supervision and regulation of exchanges, financial institutions and
corporate issuers in foreign countries than there is in the United States.
The operating expense ratio of the Fund can be expected to be higher than
that of an investment company investing exclusively in United States securities
since the expenses of the Fund, such as custodial costs, are higher. The
portfolio turnover of the Fund may be higher than that of many investment
companies. See "Portfolio Transactions--Portfolio Turnover".
Lower-Rated Securities. Investment in the Fund's shares involves special
risk considerations because the Fund has no established rating criteria, and a
substantial portion of the portfolio may consist of securities rated in the
lower rating categories of established rating services (Baa or lower by Moody's
Investors Service, Inc. ("Moody's"), BBB or lower by Standard & Poor's
Corporation ("Standard & Poor's") and BBB or lower by IBCA, Ltd. or IBCA, Inc.
(both "IBCA"), or in unrated securities of comparable quality ("high yield high
risk securities")). Such lower rated securities are commonly called "junk bonds"
and entail a greater risk of default than higher rated securities. Because
investments in high yield high risk securities entail higher risk of loss of
income or principal than investment in higher rated securities, an investment in
the Fund should not constitute a complete investment program and may not be
appropriate for all investors. The Fund has no minimum credit rating criteria.
See "Investment Objective and Policies--Allocation of Investments and Risks of
High Yield High Risk Securities".
Options, Futures and Currency Transactions. The Fund may engage in a variety
of options, futures and currency transactions. Subject to its investment
restrictions, the Fund also may make loans of its portfolio securities secured
by collateral and borrow money. These investment strategies involve certain
special risks. See "Investment Objective and Policies--Hedging Techniques",
"--Other Investment Policies and Practices--Lending of Portfolio Securities" and
"--Other Investment Policies and Practices--Borrowing".
Portfolio Turnover. The Investment Adviser will effect portfolio
transactions without regard to holding period, if, in its judgment, such
transactions are advisable in light of a change in circumstance in general
market, economic or financial conditions. As a result of its investment
policies, the Fund may engage in a substantial number of portfolio transactions.
Accordingly, while the Fund anticipates that its annual turnover rate should not
exceed 200% under normal conditions, it is impossible to predict portfolio
turnover rates. High portfolio turnover involves correspondingly greater
transaction costs in the form of dealer spreads and brokerage commissions, which
are borne directly by the Fund. Such turnover also has certain tax consequences
for the Fund. See "Taxes".
Non-Diversified Status. The Fund has registered as a "non-diversified"
investment company so that it will be able to invest more than 5% of the value
of its assets in the obligations of a single issuer, subject to the
diversification requirements of subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), applicable to the Fund. To the extent the Fund
invests a relatively high percentage of its assets in obligations of a limited
number of issuers, the Fund may be more susceptible than a more widely
diversified fund to any single economic, political or regulatory occurrence.
11
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek to provide shareholders with
high current income by investing in a global portfolio of fixed income
securities denominated in various currencies, including multi-national currency
units. The Fund may invest in United States and foreign government and corporate
fixed income securities, including high yield high risk, lower rated and unrated
securities. The Fund will, under normal conditions, invest at least 90% of its
total assets in such fixed income securities and may invest up to 100% of its
total assets in lower rated, high yield high risk securities. In pursuing its
investment objective, the Fund will allocate its investments among different
types of fixed income securities denominated in various currencies based upon
the Investment Adviser's analysis of the yield, maturity and currency
considerations affecting such securities. The investment objective set forth in
the first sentence of this paragraph is a fundamental policy of the Fund which
may not be changed without a vote of a majority of its outstanding shares as
defined below under "Investment Restrictions". There can be no assurance that
this investment objective will be realized.
The Fund may purchase fixed income securities issued by United States or
foreign corporations or financial institutions, including debt securities of all
types and maturities, convertible securities and preferred stocks. The Fund also
may purchase securities issued or guaranteed by United States or foreign
governments (including foreign states, provinces and municipalities) or their
agencies and instrumentalities ("governmental entities") or issued or guaranteed
by international organizations designated or supported by multiple governmental
entities to promote economic reconstruction or development ("supranational
entities").
INTERNATIONAL INVESTING
The Fund may invest in fixed income securities denominated in any currency
or multinational currency unit. An illustration of a multinational currency unit
is the European Currency Unit ("ECU") which is a "basket" consisting of
specified amounts of the currencies of certain of the twelve member states of
the European Community, a Western European economic cooperative association
including France, Germany, the Netherlands and the United Kingdom. The specific
amounts of currencies comprising the ECU may be adjusted by the Council of
Ministers of the European Community to reflect changes in relative values of the
underlying currencies. The Investment Adviser does not believe that such
adjustments will adversely affect holders of ECU-denominated obligations or the
marketability of such securities. European supranational entities (described
further below), in particular, issue ECU-denominated obligations. The Fund may
invest in securities denominated in the currency of one nation although issued
by a governmental entity, corporation or financial institution of another
nation. For example, the Fund may invest in a British pound sterling-denominated
obligation issued by a United States corporation. Such investments involve
credit risks associated with the issuer and currency risks associated with the
currency in which the obligation is denominated.
It is anticipated that under current conditions the Fund will invest
primarily in marketable securities denominated in the currencies of the United
States, Canada, Western European nations, New Zealand and Australia, as well as
in ECUs. Further, it is anticipated that such securities will be issued
primarily by entities located in such countries and by supranational entities.
Under normal conditions, the Fund's investments will be denominated in at least
three currencies or multinational currency units.
12
<PAGE>
Under certain adverse conditions, the Fund may restrict the financial markets or
currencies in which its assets will be invested. The Fund presently intends to
invest its assets solely in the United States financial markets or United States
dollar-denominated obligations only for temporary defensive purposes.
United States 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
or asset-backed 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).
In the case of mortgage-related securities, prepayments occur when the
holder of an individual mortgage prepays the remaining principal before the
mortgage's scheduled maturity date. As a result of the pass-through of
prepayments of principal on the underlying securities, a mortgage-related
security is often subject to more rapid prepayment of principal than its stated
maturity would indicate. Because the prepayment characteristics of the
underlying mortgages vary, it is not possible to predict accurately the realized
yield or average life of a particular issue of the mortgage-related securities.
(Asset-backed securities, other than those backed by home equity loans,
generally do not prepay in response to changes in interest rates but may be
subject to prepayment in response to other factors.) Prepayment rates are
important because of their effect on the yield and price of the securities.
Accelerated prepayments adversely impact yields for securities purchased at a
premium (i.e., a price in excess of principal amount) and may involve additional
risk of loss of principal because the premium may not have been fully amortized
at the time the obligation is repaid. The opposite is true for securities
purchased at a discount. The Fund may purchase mortgage-related (and
asset-backed) securities at a premium or at a discount.
The obligations of foreign governmental entities have various kinds of
government support and include obligations issued or guaranteed by foreign
governmental entities with taxing power. These obligations may or may not be
supported by the full faith and credit of a foreign government. The Fund will
invest in foreign government securities of issuers considered stable by the
Fund's Investment Adviser. The Investment Adviser 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.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Steel and Coal Community, the Asian
Development Bank and the Inter-American Development Bank. The government
members, or "stockholders", usually make initial capital contributions to the
supranational entity and in many cases are committed to make additional capital
contributions if the supranational entity is unable to repay its borrowings.
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ALLOCATION OF INVESTMENTS AND RISKS OF HIGH YIELD HIGH RISK SECURITIES
In seeking high current income, the Fund will allocate its investments among
fixed income securities of various types, maturities and issuers in the various
global markets based upon the analysis of the Investment Adviser of yield and
price differentials, currency considerations and general market and economic
conditions. In making such allocations, the Investment Adviser will assess the
overall quality of the portfolio considering in particular the extent to which
the differences in yield justify investments in higher risk securities. In its
evaluations, the Investment Adviser will utilize its internal financial,
economic and credit analysis resources as well as information in this regard
obtained from other sources.
No Rating Criteria for Debt Securities. The Fund has established no rating
criteria for the fixed income securities in which it may invest, and a
substantial portion of the securities in the Fund's portfolio may be securities
rated in the medium to lower rating categories of nationally recognized
statistical rating organizations such as Moody's, Standard & Poor's or IBCA, or
in unrated securities of comparable quality. See the Appendix to this Prospectus
for a description of these rating categories. High yield high risk securities
are predominantly speculative with respect to the capacity to pay interest and
repay principal in accordance with the terms of the security and generally
involve a greater volatility of price than securities in higher rating
categories. In purchasing such securities, the Fund will rely on the Investment
Adviser's judgment, analysis and experience in evaluating the creditworthiness
of an issuer of such securities. The Investment Adviser will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. The Fund does not
intend to purchase securities that are in default.
The market values of high yield high risk securities tend to reflect
individual issuer developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Issuers of high yield high risk securities may be highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of such
issuers generally is greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, issuers of high yield high risk securities may be more likely to
experience financial stress, especially if such issuers are highly leveraged.
During periods of economic recession, such issuers may not have sufficient
revenues to meet their interest payment obligations. The issuer's ability to
service its debt obligations also may be adversely affected by specific issuer
developments or the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. The risk of loss due to
default by the issuer is significantly greater for the holders of high yield
high risk securities because such securities may be unsecured and may be
subordinated to other creditors of the issuer.
High yield high risk securities may have call or redemption features which
would permit an issuer to repurchase the securities from the Fund. If a call
were exercised by the issuer during a period of declining interest rates, the
Fund likely would have to replace such called securities with lower yielding
securities, thus decreasing the net investment income to the Fund and dividends
to shareholders.
The Fund may have difficulty disposing of certain high yield high risk
securities because there may be a thin trading market for such securities. To
the extent that a secondary trading market for high yield
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high risk securities does exist, it is generally not as liquid as the secondary
market for higher rated securities. Reduced secondary market liquidity may have
an adverse impact on market price and the Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for certain
high yield high risk securities also may make it more difficult for the Fund to
obtain accurate market quotations for purposes of valuing the Fund's portfolio.
Market quotations are generally available on many high yield high risk
securities only from a limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual sales. The Fund's
Directors, or the Investment Adviser pursuant to guidelines which may be adopted
by the Directors, will carefully consider the factors affecting the market for
high yield high risk, lower rated securities in determining whether any
particular security is liquid or illiquid and whether market quotations are
readily available for purposes of valuing portfolio securities.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
high risk securities, particularly in a thinly traded market. Factors adversely
affecting the market value of high yield high risk securities are likely to
affect adversely the Fund's net asset value. In addition, the Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
on a portfolio holding or participate in the restructuring of the obligation.
The weighted average ratings of all bonds held by the Fund during its most
recent fiscal year, as percentages of total investments, were as follows:
RATED BONDS* UNRATED BONDS**
- -------------------------------------- ---------------
Moody's
Aaa, 1.53%; Aa, 0.00%; A, .09%
Baa, 3.94%; Ba, 25.35%; B, 62.40%
Caa, 1.87%; Ca 0.00%; and C 0.00% 4.82%**
- ------------
* This data was calculated on a dollar weighted basis, computed no less
frequently than monthly.
** Percent of portfolio which is not rated by any nationally recognized
statistical rating organization. With respect to such securities, the
Fund's Investment Adviser believes that 0.05% are of comparable quality to
securities rated Baa or above by Moody's and 4.77% are of comparable
quality to securities rated below Baa.
For a description of the above referenced ratings, see the appendix to this
Prospectus. The Fund has established no rating criteria for the fixed income
securities in which it may invest and such securities may not be rated at all
for creditworthiness. The above percentages are as of its most recent fiscal
year; the rating composition of the portfolio will change over time .
Average Maturity. The average maturity of the Fund's portfolio securities
will vary based upon the Investment Adviser's assessment of economic and market
conditions. As with all fixed income securities, changes in market yields will
affect the Fund's asset value as the prices of portfolio securities 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. The Fund does not expect
the average maturity of its portfolio to exceed ten years.
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<PAGE>
HEDGING TECHNIQUES
The Fund may engage in various portfolio strategies to hedge its portfolio
against interest rate and currency risks. These strategies include use of
options on portfolio positions or currencies, financial and currency futures,
options on such futures and forward foreign currency transactions. The Fund may
enter into such transactions only in connection with its hedging strategies.
While the Fund's use of hedging strategies is intended to reduce the volatility
of the net asset value of Fund shares, the Fund's net asset value will
fluctuate. When the Fund engages in transactions denominated in foreign
currencies, it will be subject to the risks of adverse changes in the exchange
rates between such foreign currencies and the U.S. dollar, the currency used to
value the Fund's assets. There can be no assurance that the Fund's hedging
transactions will be effective. Furthermore, the Fund may only engage in hedging
activities from time to time and may not necessarily be engaging in hedging
activities when movements in interest rates or currency exchange rates occur.
Reference is made to the Statement of Additional Information for further
information concerning these strategies.
Although certain risks are involved in options and futures transactions (as
discussed below in "Risk Factors in Options, Futures and Currency
Transactions"), the Investment Adviser believes that, because the Fund will only
engage in these 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. Tax requirements may limit the Fund's ability to engage in the
hedging transactions and strategies described below. See "Taxes".
The following is a description of the hedging instruments the Fund may
utilize with respect to interest rate and currency risks.
Hedging Interest Rate Risks. The Fund may purchase and write (i.e., sell)
call options and put options on securities and engage in transactions in
financial futures and related options, as described below.
The Fund may write covered call options with respect to securities it owns
and enter into closing purchase transactions with respect to such options. A
covered call option provides the holder of the option with the right to buy the
underlying security covered by the option at the stated exercise price until the
option expires. A covered call option is an option where the Fund, in return for
a premium, gives another party a right to buy particular securities held by the
Fund at a specified price for a certain period of time. In return for the
premium income realized from the sale of the option, the Fund gives up the
opportunity to profit from a price increase in the underlying security above the
option exercise price while the option is in effect. In addition, the Fund's
ability to sell the underlying security will be limited until the option is
closed or expires. A closing purchase transaction cancels out the Fund's
position as the writer of an option by means of an offsetting purchase of an
identical option prior to the expiration of the option it has written. The Fund
also may purchase call options on securities held in its portfolio on which it
has written call options or on securities which it intends to purchase. There is
no percentage limitation with respect to portfolio securities on which the Fund
may write call options.
The Fund may purchase put options on portfolio securities. In return for
payment of a premium, the purchase of a put option gives the holder thereof the
right to sell the security underlying the option to another party at a specified
price until the put option is closed out, expires or is exercised. The Fund will
purchase put options to seek to reduce the risk of a decline in value of the
underlying security owned by the Fund. The Fund does not intend to purchase
uncovered puts in excess of 10% of its total assets.
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<PAGE>
The total return on the security may be reduced by the amount of the premium
paid for the option. The Fund may write put options which give the holder of the
option the right to sell the underlying security to the Fund at the stated
exercise price. The Fund will receive a premium for writing a put option which
increases the Fund's return. The Fund writes only covered put options which
means that so long as the Fund is obligated as the writer of the option it will
have deposited and maintained with its custodian cash or liquid securities with
a value equal to or greater than the exercise price of the underlying
securities. By writing a put, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of that
security at the time of exercise for as long as the option is outstanding. The
Fund may engage in closing transactions in order to terminate put options that
it has written or purchased. The Fund intends to limit its writing of covered
puts so that the aggregate value of the obligations underlying the puts will not
exceed 50% of its net assets.
The Fund may also purchase and sell financial futures contracts ("futures
contracts") as a hedge against adverse changes in interest rates, as described
below. A futures contract is an agreement between two parties which obligates
the purchaser of the futures contract to buy and the seller of a futures
contract to sell a security for a set price on a future date. The Fund may
effect transactions in futures contracts in United States and foreign agency and
government securities and corporate debt securities. Transactions by the Fund in
financial futures are subject to limitation as described below under
"Restrictions on the Use of Futures Transactions".
The Fund may sell futures contracts in anticipation of an increase in the
general level of interest rates. Generally, as interest rates rise, the market
value of securities held by the Fund will fall, thus reducing the net asset
value of the Fund. As interest rates rise, however, the value of the Fund's
short position in the futures contract also will tend to increase, thus
offsetting all or a portion of the depreciation in the market value of the
Fund's investments which are being hedged. While the Fund will incur commission
expenses in selling and closing out futures positions, these commissions are
generally less than the transaction expenses which would have been incurred had
the Fund sold portfolio securities in order to reduce its exposure to increases
in interest rates.
The Fund may purchase futures contracts in anticipation of a decline in
interest rates when it is not fully invested in a particular market in which it
intends to make investments to gain market exposure that may in part or entirely
offset an increase in the cost of securities it intends to purchase. The Fund
does not consider purchases of futures contracts to be a speculative practice
under these circumstances. In a substantial majority of these transactions, the
Fund will purchase securities upon termination of the futures contract.
The Fund also may purchase and write call and put options on futures
contracts in connection with its hedging activities. Generally, these strategies
are utilized under the same market and market sector conditions (i.e.,
conditions relating to specific types of investments) in which the Fund enters
into futures transactions. The Fund may purchase put options or write call
options on futures contracts rather than selling the underlying futures contract
in anticipation of an increase in interest rates. Similarly, the Fund may
purchase call options, or write put options on futures contracts, as a
substitute for the purchase of such futures to hedge against the increased cost
resulting from a decline in interest rates of securities which the Fund intends
to purchase. Limitations on transactions in options on futures contracts are
described below.
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<PAGE>
The Fund may engage in options and futures transactions on exchanges and in
the over-the-counter ("OTC") markets. In general, exchange-traded contracts are
third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. OTC transactions are two-party contracts with price
and terms negotiated by the buyer and seller. The Fund will engage in OTC
options only with member banks of the Federal Reserve System and primary dealers
in U.S. Government securities or with affiliates of such banks or dealers which
have capital of at least $50 million or whose obligations are guaranteed by an
entity having capital of at least $50 million.
The staff of the Securities and Exchange Commission (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
exceed 15% (10% to the extent required by certain state laws) 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 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.
To trade futures contracts, the Fund is not required to deposit funds equal
to the value of the futures contract. The Fund need only make a deposit, called
an "initial margin deposit", equal to a percentage (typically 15% or less) of
the value of the futures contract. As a result, a relatively small adverse move
in the price of a futures contract may result in a substantial loss. For
example, if at the time of purchase 10% of the price of a futures contract is
deposited as margin, a 10% decrease in the price of that contract would, if the
contract were then closed out, result in a total loss of the initial margin
deposit before any deduction for brokerage commissions and other transaction
costs. A decrease of more than 10% would result in a loss of more than the total
initial margin deposit. Options on futures contracts are generally similarly or
even more highly leveraged. However, when the Fund purchases a futures contract,
or writes a put option or purchases a call option thereon, an amount of cash and
cash equivalents will be deposited in a segregated account with the Fund's
custodian so that the amount so segregated, plus the amount of initial and
variation margin held in the account of its broker, equals the market value of
the futures contract, thereby minimizing the effect of leverage from such
futures contract.
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<PAGE>
Hedging Foreign Currency Risks. The Fund is authorized to deal in forward
foreign exchange between currencies of the different countries in which it will
invest and multinational currency units as a hedge against possible variations
in the foreign exchange rate between these currencies. This is accomplished
through contractual agreements to purchase or sell one specified currency for
another currency at a specified future date (up to one year) and price at the
time of the contract. The Fund's dealings in forward foreign exchange will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of one forward foreign
currency for another currency with respect to specific receivables or payables
of the Fund accruing in connection with the purchase and sale of its portfolio
securities, the sale and redemption of shares of the Fund or the payment of
dividends and distributions by the Fund. Position hedging is the purchase or
sale of one forward foreign currency for another currency with respect to
portfolio security positions denominated or quoted in such foreign currency to
offset the effect of an anticipated substantial appreciation or depreciation,
respectively, in the value of such currency relative to the U.S. dollar. In this
situation, the Fund also may, for example, enter into a forward contract to sell
or purchase a different foreign currency for a fixed U.S. dollar amount where it
is believed that the U.S. dollar value of the currency to be sold or bought
pursuant to the forward contract will fall or rise, as the case may be, whenever
there is a decline or increase, respectively, in the U.S. dollar value of the
currency in which portfolio securities of the Fund are denominated (this
practice being referred to as a "cross-hedge").
The Fund will not speculate in forward foreign exchange. Hedging against a
decline in the value of a currency does not eliminate fluctuations in the prices
of portfolio securities or prevent losses if the prices of such securities
decline. Such transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be possible for the
Fund to hedge against a devaluation that is so generally anticipated that the
Fund is not able to contract to sell the currency at a price above the
devaluation level it anticipates.
The Fund also is authorized to purchase or sell listed or OTC foreign
currency options, foreign currency futures and related options on foreign
currency futures as a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to hedges on
non-U.S. dollar denominated securities (including securities denominated in the
ECU) owned by the Fund, sold by the Fund but not yet delivered, or committed or
anticipated to be purchased by the Fund. As an illustration, the Fund may use
such techniques to hedge the stated value in United States dollars of an
investment in a Japanese yen-denominated security. In such circumstances, for
example, the Fund may purchase a foreign currency put option enabling it to sell
a specified amount of yen for dollars at a specified price by a future date. To
the extent the hedge is successful, a loss in the value of the dollar relative
to the yen will tend to be offset by an increase in the value of the put option.
To offset, in whole or in part, the cost of acquiring such a put option, the
Fund also may sell a call option which, if exercised, requires it to sell a
specified amount of yen for dollars at a specified price by a future date (a
technique called a "straddle"). By selling such call option in this
illustration, the Fund gives up on the opportunity to profit without limit from
increases in the relative value of the yen to the dollar.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the right to
buy or to sell a currency at a fixed price on a future date. Listed options are
third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) which are issued by a
clearing corporation, traded on an exchange and have standardized strike prices
and expiration dates. OTC options are two-party contracts and have
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<PAGE>
negotiated strike prices and expiration dates. The Fund will engage in OTC
options only with member banks of the Federal Reserve System or primary dealers
in U.S. Government securities or with affiliates of such banks or dealers which
have capital of at least $50 million or whose obligations are guaranteed by an
entity having capital of at least $50 million. The Fund will acquire only those
OTC options for which management believes the Fund can receive on each business
day at least two independent bids or offers (one of which will be from an entity
other than a party to the option).
A futures contract on a foreign currency is an agreement between two parties
to buy and sell a specified amount of a currency for a set price on a future
date. Futures contracts and options on futures contracts are traded on boards of
trade or futures exchanges. The Fund will not speculate in foreign currency
options, futures or related options. Accordingly, the Fund will not hedge a
currency substantially in excess of the market value of the securities
denominated in such currency which it owns, the expected acquisition price of
securities which it has committed or anticipates to purchase which are
denominated in such currency, and, in the case of securities which have been
sold by the Fund but not yet delivered, the proceeds thereof in its denominated
currency. Further, the Fund will segregate at its custodian U.S. Government or
other high quality securities having a market value substantially representing
any subsequent net decrease in the market value of such hedged positions,
including net positions with respect to cross-currency hedges. The Fund may not
incur potential net liabilities with respect to currencies and securities
positions, including net liabilities with respect to cross-currency hedges, of
more than 33 1/3% of its total assets from foreign currency options, futures,
related options and forward currency transactions.
In connection with its trading in forward foreign currency contracts, the
Fund will contract with a foreign or domestic bank, or foreign or domestic
securities dealer, to make or take future delivery of a specified amount of a
particular currency. There are no limitations on daily price moves in such
forward contracts, and banks and dealers are not required to continue to make
markets in such contracts. There have been periods during which certain banks
and dealers have refused to quote prices for such forward contracts or have
quoted prices with an unusually wide spread between the price at which the bank
or dealer is prepared to buy and that at which it is prepared to sell.
Governmental imposition of credit controls might limit any such forward contract
trading. With respect to its trading of forward contracts, if any, the Fund will
be subject to the risk of bank or dealer failure and the inability of, or
refusal by, a bank or dealer to perform with respect to such contracts. Any such
default would deprive the Fund of any profit potential or force the Fund to
cover its commitments for resale, if any, at the then-market price and could
result in a loss to the Fund.
Restrictions on the Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission ("CFTC") applicable to the Fund permit the
Fund's futures and options on futures transactions to include (i) bona fide
hedging transactions without regard to the percentage of the Fund's assets
committed to margin and option premiums, and (ii) non-hedging transactions,
provided that the Fund not enter into such non-hedging transactions if,
immediately thereafter, the sum of the amount of initial margin and option
premiums required to establish non-hedging transactions would exceed 5% of the
market value of the Fund's liquidation value, after taking into account
unrealized profits and unrealized losses on any such transactions. However, as
stated above, the Fund intends to engage in options and futures transactions
only for hedging purposes.
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<PAGE>
When the Fund purchases a futures contract or writes a put option or
purchases a call option thereon, it will maintain an amount of cash, cash
equivalents (e.g., high grade commercial paper and daily tender adjustable
notes) or short-term high grade fixed income securities in a segregated account
with the Fund's custodian so that the amount so segregated, plus the amount of
initial and variation margin held in the account of its broker, equals the
market value of the futures contract, thereby ensuring that the use of such
futures is unleveraged.
An order has been obtained from the Commission which exempts the Fund from
certain provisions of the Investment Company Act in connection with transactions
involving futures contracts and options thereon.
Risk Factors in Options, Futures and Currency Transactions. Utilization of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts and movements in the price of the securities and
currencies which are the subject of the hedge. If the price of the futures
contract moves more or less than the price of the security or currency, the Fund
will experience a gain or loss which will not be completely offset by movements
in the price of the debt securities which are the subject of the hedge. There is
also a risk of imperfect correlations where the securities underlying futures
contracts have different maturities than the portfolio securities being hedged.
Transactions in options on futures contracts involve similar risks.
The Fund intends to enter into options and futures transactions, on an
exchange or in the OTC market, only if there appears to be a liquid secondary
market for such options or futures or, in the case of OTC transactions,
management believes the Fund can receive on each business day a bid or offer.
There can be no assurance, however, that a liquid secondary market will exist at
any specific time. Thus, it may not be possible to close an options or futures
transaction. The inability to close options and futures positions also could
have an adverse impact on the Fund's ability to effectively hedge its portfolio.
There is also the risk of loss by the Fund of margin deposits or collateral in
the event of bankruptcy of a broker with whom the Fund has an open position in
an option, a futures contract or related option.
The exchanges on which options on portfolio securities and currency are
traded have generally established limitations governing the maximum number of
call or put options on the same underlying security and currency (whether or not
covered) which may be written by a single investor, whether acting alone or in
concert with others (regardless of whether such options are written on the same
or different exchanges or are held or written on one or more accounts or through
one or more brokers). "Trading limits" are imposed on the maximum number of
contracts which any person may trade on a particular trading day. The Investment
Adviser does not believe that these trading and position limits will have any
adverse impact on the portfolio strategies for hedging the Fund's portfolio.
OTHER INVESTMENT POLICIES AND PRACTICES
Convertible Securities. The convertible securities to be held by the Fund
include any corporate debt security or preferred stock which may be converted
into underlying shares of common stock. Convertible securities entitle the
holder to receive interest payments paid on corporate debt securities or the
dividend preference on a preferred stock until such time as the convertible
security matures or is redeemed or until the holder elects to exercise the
conversion privilege. Although the Fund generally
21
<PAGE>
expects that it will sell convertible securities rather than convert such
securities into common stock, the Fund may, at various times, exercise
conversion rights on convertible securities called for redemption to establish
holding periods for tax purposes or for other reasons. The Fund may not invest
more than 10% of its total assets in such common stock.
Borrowing. The Fund is authorized to borrow money from banks in amounts of
up to 33 1/3% of the value of its total assets at the time of such borrowings,
provided that such borrowings will be made only to meet redemption requests,
settle investment transactions or for temporary or emergency purposes. See
"Investment Objective and Policies--Investment Restrictions" in the Statement of
Additional Information.
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Foreign currency-denominated agreements will be limited to purchase and sale
contracts entered into with financial institutions that have at least $50
million in capital or whose obligations are guaranteed by an entity having at
least $50 million in capital. U.S. dollar-denominated repurchase agreements and
purchase and sale contracts may be entered into only with a member bank of the
Federal Reserve System or a primary dealer in U.S. Government securities or an
affiliate thereof. Under such agreements, the bank or primary dealer or an
affiliate thereof agrees, upon entering into the contract, to repurchase the
security at a mutually agreed upon time and price in a specified currency,
thereby determining the yield during the term of the agreement. This results in
a fixed rate of return insulated from market fluctuations during such period
although it may be affected by currency fluctuations. In the case of repurchase
agreements, the prices at which the trades are conducted do not reflect accrued
interest on the underlying obligations, whereas, in the case of purchase and
sale contracts, the prices take into account accrued interest. Such agreements
usually cover short periods, 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 only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs or possible losses in connection with disposition of
the collateral. A purchase and sale contract differs from a repurchase agreement
in that the contract arrangements stipulate that the securities are owned by the
Fund. In the event of a default under such a repurchase agreement or under a
purchase and sale contract, instead of the contractual fixed rate, the rate of
return to the Fund shall be dependent upon intervening fluctuations of the
market value of such security and the accrued interest on the security. In such
event, the Fund would have rights against the seller for breach of contract with
respect to any losses arising from market fluctuations following the failure of
the seller to perform.
Indexed and Inverse Securities. The Fund may invest in securities whose
potential investment return is based on the change in particular measurements of
value and or rate (an "index"). As an illustration, the Fund may invest in a
security that pays interest and returns principal based on the
22
<PAGE>
change in an index of interest rates or of the value of a precious or industrial
metal. Interest and principal payable on a security may also be based on
relative changes among particular indices. In addition, the Fund may invest in
securities whose potential investment return is inversely based on the change in
particular indices. For example, the Fund may invest in securities that pay a
higher rate of interest and principal when a particular index decreases and pay
a lower rate of interest and principal when the value of the index increases. To
the extent that the Fund invests in such types of securities, it will be subject
to the risks associated with changes in the particular indices, which may
include reduced or eliminated interest payments and losses of invested
principal.
Certain indexed securities, including certain inverse securities, may have
the effect of providing a degree of investment leverage, because they may
increase or decrease in value at a rate that is a multiple of the changes in
applicable indices. As a result, the market value of such securities will
generally be more volatile than the market values of fixed-rate securities. The
Fund believes that indexed securities, including inverse securities, represent
flexible portfolio management instruments that may allow the Fund to seek
potential investment rewards, hedge other portfolio positions, or vary the
degree of portfolio leverage relatively efficiently under different market
conditions.
Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the United States
Government which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. During the period of
this loan, the Fund receives the income on the loaned securities and either
receives the income on the collateral or other compensation (i.e., negotiated
loan premium or fee) for entering into the loan and thereby increases its yield.
In the event that the borrower defaults on its obligation to return borrowed
securities, because of insolvency or otherwise, the Fund could experience delays
and costs in gaining access to the collateral and could suffer a loss to the
extent that the value of the collateral falls below the market value of the
borrowed securities.
Non-Diversified Status. The Fund is classified as non-diversified within the
meaning of the Investment Company Act, which means that the Fund is not limited
by such Act in the proportion of its assets that it may invest in securities of
a single issuer. However, the Fund's investments will be limited so as to
qualify as a "regulated investment company" for purposes of the Code. See
"Taxes". To qualify, among other requirements, the Fund will limit its
investments so that, at the close of each quarter of the taxable year, (i) not
more than 25% of the market value of the Fund's total assets will be invested in
the securities of a single issuer (other than U.S. Government securities), 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 (other than U.S. Government securities), and the Fund will not
own more than 10% of the outstanding voting securities of a single issuer. A
fund which elects to be classified as "diversified" under the Investment Company
Act must satisfy the foregoing 5% and 10% requirements with respect to 75% of
its total assets. To the extent that the Fund assumes large positions in the
securities of a small number of issuers, the Fund's yield may fluctuate to a
greater extent than that of a diversified company as a result of changes in the
financial condition or in the market's assessment of the issuers.
23
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted a number of restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
Among the more significant restrictions, the Fund may not borrow amounts in
excess of 33 1/3% of its total assets taken at market value (including the
amount borrowed), and an additional 5% of its total assets for temporary
purposes. As a non-fundamental restriction, the Fund is further limited and may
not borrow amounts in excess of 33 1/3% of its total assets taken at market
value (including the amount borrowed), and then only from banks as a temporary
measure for extraordinary or emergency purposes.
Investors are referred to the Statement of Additional Information for a
complete description of such restrictions and policies.
MANAGEMENT OF THE FUND
DIRECTORS
The Directors of the Fund consist of five individuals, four of whom are not
"interested persons" of the Fund as defined in the Investment Company Act. The
Directors are responsible for the overall supervision of the operations of the
Fund and perform the various duties imposed on the directors of investment
companies by the Investment Company Act.
The Directors are:
ARTHUR ZEIKEL*--President of FAM and MLAM; President and Director of
Princeton Services, Inc.; Executive Vice President of Merrill Lynch & Co.,
Inc. ("ML & Co.") and of Merrill Lynch; and Director of the Distributor.
HERBERT I. LONDON--John M. Olin Professor of Humanities, Gallatin
Division of New York University.
ROBERT R. MARTIN--Director, WTC Industries, Inc.
JOSEPH L. MAY--Attorney in private practice.
ANDRE F. PEROLD--Professor, Harvard Business School.
- ------------
* Interested person, as defined by the Investment Company Act, of the Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Fund's investment adviser is Fund Asset Management, L.P. (the
"Investment Adviser" or "FAM"), which is an affiliate of MLAM and is owned and
controlled by ML & Co., a financial services holding company and the parent of
Merrill Lynch. The Investment Adviser or MLAM acts as the investment adviser to
more than 130 other registered investment companies. MLAM also provides
investment advisory services to individuals and institutional accounts. As of
March 31, 1995, the Investment Adviser and MLAM had a total of approximately
$170.3 billion in investment company and other portfolio assets under
management, including accounts of certain affiliates of MLAM.
24
<PAGE>
Subject to the direction of the Directors, the Investment Adviser 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 responsibilities for making decisions to buy, sell
or hold a particular security rest with the Investment Adviser. The Investment
Adviser performs certain of the other administrative services and provides all
the office space, facilities, equipment and necessary personnel for management
of the Fund.
Vincent T. Lathbury, III and Robert Parish are the Portfolio Managers for
the Fund. Vincent T. Lathbury, III has been Portfolio Manager and Vice President
of the Investment Adviser and MLAM since 1982. Robert Parish has been Portfolio
Manager and Vice President of the Investment Adviser since 1991 and was
Portfolio Manager of Templeton International from 1986 to 1991.
Pursuant to the management agreement between the Investment Adviser and the
Fund (the "Investment Advisory Agreement"), the Investment Adviser is entitled
to receive from the Fund a monthly fee based upon the average daily net assets
of the Fund at an annual rate of 0.60%. For the fiscal year ended December 31,
1994, the total fee paid by the Fund to the Investment Adviser was $13,289,517
(based on average net assets of approximately $2.2 billion). At March 31, 1995,
the net assets of the Fund aggregated approximately $1.7 billion. At this asset
level, the annual management fee would aggregate approximately $10.1 million.
The Investment Advisory Agreement obligates the Fund to pay certain expenses
incurred in the Fund's operations, including, among other things, the management
fee, legal and audit fees, unaffiliated Directors' fees and expenses,
registration fees, custodian and transfer agency fees, accounting and pricing
costs, and certain of the costs of printing proxies, shareholder reports,
prospectuses and statements of additional information. Accounting services are
provided to the Fund by the Investment Adviser, and the Fund reimburses the
Investment Adviser for its costs in connection with such services. For the
fiscal year ended December 31, 1994, the Fund reimbursed the Investment Adviser
$315,069 for accounting services. For the fiscal year ended December 31, 1994,
the ratio of total expenses, net of distribution fees, to average net assets was
0.77% for the Class A shares and 0.79% for the Class B shares. For the fiscal
period October 21, 1994 (commencement of operations for Class C and Class D
shares) to December 31, 1994, the ratio of total expenses, net of distribution
fees, to average net assets was 0.84% (annualized) and 0.79% (annualized) for
Class C and Class D shares, respectively.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-l of the Investment Company Act which incorporates the Code of Ethics of the
Investment Adviser (together, the "Codes"). The Codes significantly restrict the
personal investing activities of all employees of the Investment Adviser and, as
described below, impose additional, more onerous, restrictions on fund
investment personnel.
The Codes require that all employees of the Investment Adviser preclear any
personal securities investment (with limited exceptions such as governmental
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Investment Adviser include a ban on acquiring any securities in a "hot" initial
public offering and a prohibition
25
<PAGE>
from profiting on short-term trading in securities. In addition, no employee may
purchase or sell any security which at the time is being purchased or sold (as
the case may be), or to the knowledge of the employee is being considered for
purchase or sale, by any fund advised by the Investment Adviser. Furthermore,
the Codes provide for trading "blackout periods" which prohibit trading by
investment personnel of the Fund within periods of trading by the Fund in the
same (or equivalent) security (15 or 30 days depending upon the transaction).
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the "Transfer Agent"), which is a
wholly-owned subsidiary of ML & Co., acts as the Fund's transfer agent pursuant
to a transfer agency, dividend disbursing agency and shareholder servicing
agency agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer
Agency Agreement, the Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the Fund pays the Transfer
Agent an annual fee of $11.00 per Class A or Class D shareholder account and
$14.00 per Class B or Class C shareholder account, and the Transfer Agent is
entitled to reimbursement for out-of-pocket expenses incurred by it under the
Transfer Agency Agreement. For the year ended December 31, 1994, the Fund paid
the Transfer Agent a total fee of $2,407,287 pursuant to the Transfer Agency
Agreement for providing Transfer Agency services. At March 31, 1995, the Fund
had 25,716 Class A shareholder accounts, 91,271 Class B shareholder accounts,
683 Class C shareholder accounts and 223 Class D shareholder accounts. At this
level of accounts, the annual fee payable to the Transfer Agent would aggregate
approximately $1.6 million plus miscellaneous and out-of-pocket expenses.
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
MLAM, the Investment Adviser and Merrill Lynch, acts as the distributor of
shares of the Fund. Shares of the Fund are offered continuously for sale by the
Distributor and other eligible securities dealers (including Merrill Lynch).
Shares of the Fund may be purchased from securities dealers or by mailing a
purchase order directly to the Transfer Agent. The minimum initial purchase is
$1,000, except that the minimum initial purchase for retirement plans is $100.
The minimum subsequent purchase is $50 ($1 for retirement plans).
The Fund offers its shares in four classes at a public offering price equal
to the next determined net asset value per share plus sales charges imposed
either at the time of purchase or on a deferred basis depending upon the class
of shares selected by the investor under the Merrill Lynch Select PricingSM
System, as described below. The applicable offering price for purchase orders is
based upon the net asset value of the Fund next determined after receipt of the
purchase orders by the Distributor. As to purchase orders received by securities
dealers prior to the close of business on the New York Stock Exchange (generally
4:00 p.m., New York time), which includes orders received after the the close of
business on the previous day, the applicable offering price will be based on the
net asset value determined as of 15 minutes after the close of business on the
New Stock Exchange on that day, provided the Distributor in turn receives the
order from the securities dealer prior to 30 minutes after the close of business
on the New York Stock Exchange on that day. If the purchase orders are not
received by the Distributor prior to 30 minutes after the close of business on
the New York Stock
26
<PAGE>
Exchange, such orders shall be deemed received on the next business day. The
Fund or the Distributor may suspend the continuous offering of the Fund's shares
of any class at any time in response to conditions in the securities markets or
otherwise and may thereafter resume such offering from time to time. Any order
may be rejected by the Distributor or the Fund. Neither the Distributor nor the
dealers are permitted to withhold placing orders to benefit themselves by a
price change. Merrill Lynch may charge its customers a processing fee (presently
$4.85) to confirm a sale of shares to such customers. Purchases directly through
the Fund's Transfer Agent are not subject to the processing fee.
The Fund issues four classes of shares under the Merrill Lynch Select
PricingSM System, which permits each investor to choose the method of purchasing
shares that the investor believes is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares and other
relevant circumstances. Shares of Class A and Class D are sold to investors
choosing the initial sales charge alternatives and shares of Class B and Class C
are sold to investors choosing the deferred sales charge alternatives. Investors
should determine whether under their particular circumstances it is more
advantageous to incur an initial sales charge or to have the entire initial
purchase price invested in the Fund with the investment thereafter being subject
to a contingent deferred sales charge and ongoing distribution fees. A
discussion of the factors that investors should consider in determining the
method of purchasing shares under the Merrill Lynch Select PricingSM System is
set forth under "Merrill Lynch Select PricingSM System" on page 4.
Each Class A, Class B, Class C and Class D share of the Fund represents
identical interests in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges and account maintenance fees that are imposed on Class B
and Class C shares, as well as the account maintenance fees that are imposed on
Class D shares, will be imposed directly against those classes and not against
all assets of the Fund and, accordingly, such charges will not affect the net
asset value of any other class or have any impact on investors choosing another
sales charge option. Dividends paid by the Fund for each class of shares will be
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect to
such class pursuant to which account maintenance and/or distribution fees are
paid. See "Distribution Plans" below. Each class has different exchange
privileges. See "Shareholder Services--Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in that
the sales charges applicable to each class provide for the financing of the
distribution of the shares of the Fund. The distribution-related revenues paid
with respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised that
only Class A and Class D shares may be available for purchase through securities
dealers, other than Merrill Lynch, which are eligible to sell shares.
27
<PAGE>
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM System.
<TABLE><CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
<S> <C> <C> <C> <C>
A Maximum 4.00% initial sales charge(2)(3) No No No
B CDSC for a period of 4 years, at a rate 0.25% 0.50% B shares convert to
of 4.0% during the first year, D shares
decreasing 1.0% annually to 0.0% automatically after
approximately ten
years(4)
C 1.0% CDSC for one year 0.25% 0.55% No
D Maximum 4.00% initial sales charge(3) 0.25% No No
</TABLE>
- ------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs may be imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead may be subject to a 1.0% CDSC if redeemed within one
year.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have an
eight-year conversion period. If Class B shares of the Fund are exchanged
for Class B shares of another MLAM-advised mutual fund, the conversion
period applicable to the Class B shares acquired in the exchange will apply,
and the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible to
purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
28
<PAGE>
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternative is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE><CAPTION>
SALES CHARGE AS DISCOUNT TO
SALES CHARGE AS PERCENTAGE* SELECTED DEALERS
PERCENTAGE OF OF THE NET AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED THE OFFERING PRICE
- ----------------------------------------------- --------------- ---------------- ------------------
<S> <C> <C> <C>
Less than $25,000.............................. 4.00% 4.17% 3.75%
$25,000 but less than $50,000.................. 3.75 3.90 3.50
$50,000 but less than $100,000................. 3.25 3.36 3.00
$100,000 but less than $250,000................ 2.50 2.56 2.25
$250,000 but less than $1,000,000.............. 1.50 1.52 1.25
$1,000,000 and over**.......................... .00 .00 .00
</TABLE>
- ------------
* Rounded to the nearest one-hundredth percent.
** Class A and Class D purchases of $1,000,000 or more made on or after October
21, 1994 (the date Class D shares were initially offered to the public) will
be subject to a CDSC of 1.0% if the shares are redeemed within one year after
purchase. Class A purchases made prior to October 21, 1994 may be subject to
a CDSC if the shares are redeemed within one year of purchase at the
following rates: 0.75% on purchases of $1,000,000 to $2,500,000; 0.40% on
purchases of $2,500,001 to $3,500,000; 0.25% on purchases of $3,500,001 to
$5,000,000; and 0.20% on purchases of more than $5,000,000 in lieu of paying
an initial sales charge. The charge will be assessed as an amount equal to
the lesser of the proceeds of redemption or the cost of the shares being
redeemed. A sales charge of 0.75% will be charged on purchases of $1 million
or more of Class A or Class D shares by certain Employer Sponsored Retirement
or Savings Plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act of 1933,
as amended (the "Securities Act"). For the fiscal year ended December 31, 1994,
the Distributor received no CDSCs with respect to redemptions within one year
after purchase of Class A shares purchased subject to front-end sales charge
waivers.
Eligible Class A Investors. Class A shares are offered to a limited group of
investors and also will be issued upon reinvestment of dividends on outstanding
Class A shares. Investors that currently own Class A shares of the Fund in a
shareholder account 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 provided that the program has $3 million or more initially
invested in MLAM-advised mutual funds. Also eligible to purchase Class A shares
at net asset value are participants in certain investment programs including
TMASM Managed Trusts to which Merrill Lynch Trust Company provides discretionary
trustee services and certain purchases made in connection with the Merrill Lynch
Mutual Fund Adviser program. In addition, Class A shares are offered at net
asset value to ML & Co. and its subsidiaries and their directors and employees
and to members of the Boards of MLAM-advised investment companies, including the
Fund. Certain persons who acquired shares of certain MLAM-advised closed-end
funds who wish to reinvest the net proceeds from a sale of their closed-end fund
29
<PAGE>
shares of common stock in shares of the Fund also may purchase Class A shares of
the Fund if certain conditions set forth in the Statement of Additional
Information are met. For example, Class A shares of the Fund and certain other
MLAM-advised mutual funds are offered at net asset value to shareholders of
Merrill Lynch Senior Floating Rate Fund, Inc. who wish to reinvest the net
proceeds from a sale of certain of their shares of common stock of Merrill Lynch
Senior Floating Rate Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges also
may be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A
investors as set forth above under "Eligible Class A Investors".
Class D shares are offered at net asset value, without a sales charge, to an
investor who has a business relationship with a Merrill Lynch financial
consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Additional information concerning these reduced initial sales charges,
including information regarding investments by Employee Sponsored Retirement or
Savings Plans, is set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year CDSC,
while Class C shares are subject only to a one year 1.0% CDSC. On the other
hand, approximately ten years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those shares, are automatically converted into Class D shares of the Fund and
thereafter will be subject to lower continuing fees. See "Conversion of Class B
Shares to Class D Shares" below. Both Class B and Class C shares are subject to
an account maintenance fee of 0.25% of net assets and Class B and Class C shares
are subject to distribution fees of 0.50% and 0.55%, respectively, of net assets
as discussed below under "Distribution Plans".
30
<PAGE>
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below. The proceeds from the account maintenance fees are used to
compensate Merrill Lynch for providing continuing account maintenance
activities.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for selling
Class B and Class C shares from the dealers' own funds. The combination of the
CDSC and the ongoing distribution fee facilitates the ability of the Fund to
sell the Class B and Class C shares without a sales charge being deducted at the
time of purchase. Approximately ten years after issuance, Class B shares will
convert automatically into Class D shares of the Fund, which are subject to an
account maintenance fee but no distribution fee; Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately eight years. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange will
apply, and the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations on
the Payment of Deferred Sales Charges" below. The proceeds from the ongoing
account maintenance fees are used to compensate Merrill Lynch for providing
continuing account maintenance activities. Class B shareholders of the Fund
exercising the exchange privilege described under "Shareholder Services-Exchange
Privilege" will continue to be subject to the Fund's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the Class B shares
acquired as a result of the exchange.
Contingent Deferred Sales Charges--Class B Shares. Class B shares which are
redeemed within four years of purchase may be subject to a CDSC at the rates set
forth below charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no charge will be assessed on shares derived from reinvestment of
dividends or capital gains distributions. For the year ended December 31, 1994,
the Distributor received CDSCs of $6,980,132 with respect to redemptions of
Class B shares, all of which was paid to Merrill Lynch.
31
<PAGE>
The following table sets forth the rates of the Class B CDSC:
<TABLE><CAPTION>
CLASS B
CDSC AS A
PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE (SUBJECT TO CHANGE)
- --------------------------------------------------------------------------- -------------------
<S> <C>
0-1........................................................................ 4.0%
1-2........................................................................ 3.0%
2-3........................................................................ 2.0%
3-4........................................................................ 1.0%
4 and thereafter........................................................... None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be determined in the manner that results in the lowest applicable rate
being charged. Therefore, it will be assumed that the redemption is first of
shares held until such time as the CDSC is no longer applicable or shares
acquired pursuant to reinvestment of dividends or distributions and then of
shares held longest during the four-year period. The charge will not be applied
to dollar amounts representing an increase in the net asset value since the time
of purchase. A transfer of shares from a shareholder's account to another
account will be assumed to be made in the same order as a redemption.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to a CDSC because of dividend reinvestment. With respect to
the remaining 40 shares, the charge is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase).
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plans or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of a shareholder. The
Class B CDSC also is waived on redemptions of shares by certain eligible 401(a)
and eligible 401(k) plans. The CDSC also is waived for any Class B shares which
are purchased by eligible 401(a) or eligible 401(k) plans which are rolled over
into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and held in
such account at the time of redemption. The Class B CDSC also is waived for any
Class B shares which are purchased by a Merrill Lynch rollover IRA that was
funded by a rollover from a terminated 401(k) plan managed by the MLAM Private
Portfolio Group and held in such account at the time of redemption. Additional
information concerning the waiver of the Class B CDSC is set forth in the
Statement of Additional Information.
Contingent Deferred Sales Charges--Class C Shares. Class C shares which are
redeemed within one year after purchase may be subject to a 1.0% CDSC charged as
a percentage of the dollar amount subject thereto. The charge will be assessed
on an amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed. Accordingly, no Class C CDSC will be imposed on
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increases in net asset value above the initial purchase price. In addition, no
Class C CDSC will be assessed on shares derived from reinvestment of dividends
or capital gains distributions. For the period October 21, 1994 (commencement of
the public offering of Class C shares) to December 31, 1994, the Distributor
received CDSCs of $64 with respect to Class C shares, all of which was paid to
Merrill Lynch.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately ten
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Fund. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a ten-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
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The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("Class B Retirement Plans").
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of the
appropriate funds. Subsequent to such conversion, that Class B Retirement Plan
will be sold Class D shares of the appropriate funds at net asset value.
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
"Distribution Plan") with respect to the account maintenance and/or distribution
fees paid by the Fund to the Distributor with respect to such classes. The Class
B and Class C Distribution Plans provide for the payment of account maintenance
fees and distribution fees, and the Class D Distribution Plan provides for the
payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.50% and
0.55%, respectively, of the average daily net assets of the Fund attributable to
the shares of the relevant class in order to compensate the Distributor and
Merrill Lynch (pursuant to a sub-agreement) for providing shareholder and
distribution services, and bearing certain distribution-related expenses of the
Fund, including payments to financial consultants for selling Class B and Class
C shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Fund in that the deferred sales charges provide for the financing
of the distribution of the Fund's Class B and Class C shares.
For the fiscal year ended December 31, 1994, the Fund paid the Distributor
$4,564,843 for the account maintenance fee and $9,129,686 for the distribution
fee pursuant to the Class B Distribution Plan. From October 21, 1994
(commencement of the public offering of Class C and Class D shares) to December
31, 1994, the Fund paid the Distributor account maintenance fees of $242 and
distribution fees of $531 under the Class C Distribution Plan. For the same
period, the Fund paid the Distributor account maintenance fees of $320 under the
Class D Distribution Plan. At March 31, 1995, the net assets of the Fund subject
to the Class B Distribution Plan aggregated approximately $1.4 billion. At
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this asset level, the annual fee payable pursuant to the Class B Distribution
Plan would aggregate approximately $10.4 million. At March 31, 1995, the net
assets of the Fund subject to the Class C Distribution Plan aggregated
approximately $2.7 million. At this asset level, the annual fee payable pursuant
to the Class C Distribution Plan would aggregate approximately $21,493. At March
31, 1995, the net assets of the Fund subject to the Class D Distribution Plan
aggregated approximately $1.8 million. At this asset level, the annual fee
payable pursuant to the Class D Distribution Plan would aggregate approximately
$4,592.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSCs and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs
and the expenses consist of financial consultant compensation. The Fund operated
as a closed-end investment company from September 29, 1988 to November 15, 1991
and commenced operations as an open-end investment company on November 18, 1991.
As of December 31, 1994, the last date for which fully allocated accrual data is
available, the fully allocated accrual expenses incurred by the Distributor and
Merrill Lynch for the period since the commencement of operations as an open-end
investment company exceeded fully allocated accrual revenues for such period by
approximately $28,007,000 (1.88% of Class B net assets at that date). As of
December 31, 1994, direct cash expenses for the period since the commencement of
operations as an open-end investment company exceeded direct cash revenues by
$14,208,466 (0.95% of Class B net assets at that date). Similar fully allocated
accrual data is not yet available with respect to Class C shares which the Fund
commenced offering to the public on October 21, 1994. As of December 31, 1994,
for Class C shares, direct cash expenses for the period since October 21, 1994
(commencement of public offering) exceeded direct cash revenues by $3,731 (0.31%
of Class C net assets at that date).
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Directors of the Fund will approve the continuance of the Distribution
Plans from year to year. However, the Distributor intends to seek annual
continuation of the Distribution Plans. In their review of the Distribution
Plans, the Directors will be asked to take into consideration expenses incurred
in connection with the account maintenance and/or distribution of each class of
shares separately. The initial sales charges, the account maintenance fee, the
distribution fee and/or the CDSCs received with respect to one class will not be
used to subsidize the sale of shares of another class. Payments of the
distribution fee on Class B shares will terminate upon conversion of those
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Class B shares into Class D shares as set forth under "Deferred Sales Charge
Alternatives--Class B and Class C Shares--Conversion of Class B Shares to Class
D Shares".
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the NASD
imposes a limitation on certain asset-based sales charges such as the
distribution fee and the CDSC borne by the Class B and Class C shares but not
the account maintenance fee. The maximum sales charge rule is applied separately
to each class. As applicable to the Fund, the maximum sales charge rule limits
the aggregate of distribution fee payments and CDSCs payable by the Fund to (1)
6.25% of eligible gross sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to dividend reinvestments
and exchanges), plus (2) interest on the unpaid balance for the respective
class, computed separately, at the prime rate plus 1% (the unpaid balance being
the maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Fund will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSCs will be paid to the Fund rather than to the Distributor; however,
the Fund will continue to make payments of the account maintenance fee. In
certain circumstances the amount payable pursuant to the voluntary maximum may
exceed the amount payable under the NASD formula. In such circumstances payments
in excess of the amount payable under the NASD formula will not be made.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares of the Fund upon receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC which may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive on redemption all dividends
reinvested through the date of redemption. The value of shares at the time of
redemption may be more or less than the shareholder's cost, depending on the
market value of the securities held by the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Fund's Transfer Agent, Financial Data Services, Inc., Transfer
Agency Mutual Fund Operations, P.O. Box 45289, Jacksonville, Florida 32232-5289.
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
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requests delivered other than by mail should be delivered to Financial Data
Services, Inc., Transfer Agency Mutual Fund Operations, 4800 Deer Lake Drive
East, Jacksonville, Florida 32246-6484. Redemption requests should not be sent
to the Fund. A redemption request requires the signature(s) of all persons in
whose name(s) the shares are registered, signed exactly as such name(s)
appear(s) on the Transfer Agent's register or on the certificate, as the case
may be. The signature(s) on the redemption request must be guaranteed by an
"eligible guarantor institution" as such is defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, the existence and validity of which
may be verified by the Transfer Agent through the use of industry publications.
Notarized signatures are not sufficient. In certain instances, the Transfer
Agent may require additional documents such as, but not limited to, trust
instruments, death certificates, appointments as executor or administrator, or
certificates of corporate authority. For shareholders redeeming directly with
the Transfer Agent, 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 United States 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 has been collected for the purchase of such Fund shares, which will not
exceed 10 days.
REPURCHASE
The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund will normally accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request for
repurchase is received by the dealer prior to the normal close of business on
the New York Stock Exchange on the day received (generally 4:00 P.M., New York
time) and is received by the Fund from such dealer not later than 30 minutes
after the close of business on the New York Stock Exchange on the same day.
Dealers have the responsibility of submitting such repurchase requests to the
Fund not later than 30 minutes after the close of business on the New York Stock
Exchange in order to obtain that day's closing price.
The repurchase arrangements are for the convenience of shareholders and do
not involve a charge by the Fund (other than any applicable CDSC). However,
securities firms which do not have selected dealer agreements with the
Distributor, may impose a transaction charge on the shareholder for transmitting
the notice of repurchase to the Fund. Merrill Lynch may charge its customers a
processing fee (presently $4.85) to confirm a repurchase of shares. Redemptions
directly through the Fund's Transfer Agent are not subject to the processing
fee. The Fund reserves the right to reject any order for repurchase, which right
of rejection might adversely affect shareholders seeking redemption through the
repurchase procedure. However, a shareholder whose order for repurchase is
rejected by the Fund may redeem shares as set forth above.
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REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
one-time privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Fund at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor. The
reinstatement will be made at the net asset value per share next determined
after the notice of reinstatement is received and cannot exceed the amount of
the redemption proceeds. The reinstatement privilege is a one-time privilege and
may be exercised by the Class A or Class D shareholder only the first time such
shareholder makes a redemption.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in shares of the
Fund. Full details as to each of such services, copies of the various plans
described below and instructions as to how to participate in the various
services or plans, or to change options with respect thereto, can be obtained
from the Fund by calling the telephone number on the cover page hereof or from
the Distributor or Merrill Lynch. Included in such services are the following:
Investment Account. Each shareholder whose account (an "Investment Account")
is maintained at the Transfer Agent will receive statements, at least quarterly,
from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends, and long-term capital gain distributions. The
statements also will show any other activity in the account since the preceding
statement. Shareholders also will receive separate transaction confirmations for
each purchase or sale transaction other than the automatic investment purchase
and the reinvestment of ordinary income dividends and long-term capital gain
distributions. Shareholders may make additions to their Investment Accounts at
any time by mailing a check directly to the Transfer Agent. Shareholders also
may maintain their accounts through Merrill Lynch. Upon the transfer of shares
out of a Merrill Lynch brokerage account, an Investment Account in the
transferring shareholder's name will be opened at the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the Fund, a shareholder either must redeem
the Class A or Class D shares (paying any applicable CDSC) so that the cash
proceeds can be transferred to the account at the new firm or such shareholder
must continue to maintain an Investment Account at the Transfer Agent for those
Class A or Class D shares. Shareholders interested in transferring their Class B
or Class C shares from Merrill Lynch and who do not wish to have an Investment
Account maintained for such shares at the Transfer Agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder at the Transfer Agent.
Shareholders considering transferring a tax deferred retirement account such as
an Individual Retirement Account from Merrill Lynch to another brokerage firm or
financial institution should be aware that, if the firm to which the retirement
account is to be transferred will not take delivery of
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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.
Exchange Privilege. Shareholders of each class of shares of the Fund have an
exchange privilege with certain other MLAM-advised mutual funds. There is
currently no limitation on the number of times a shareholder may exercise the
exchange privilege. The exchange privilege may be modified or terminated in
accordance with the rules of the Commission.
Under the Merrill Lynch Select PricingSM System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
his account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second MLAM-advised
mutual fund, and the shareholder does not hold Class A shares of the second fund
in his account at the time of the exchange and is not otherwise eligible to
acquire Class A shares of the second fund, the shareholder will receive Class D
shares of the second fund as a result of the exchange. Class D shares also may
be exchanged for Class A shares of a second MLAM-advised mutual fund at any time
as long as, at the time of the exchange, the shareholder holds Class A shares of
the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the same
class of other MLAM-advised mutual funds.
Shares of the Fund which are subject to a CDSC are exchangeable on the basis
of relative net asset value per share without the payment of any CDSC that might
otherwise be due upon redemption of the shares of the Fund. For purposes of
computing the CDSC that may be payable upon a disposition of the shares acquired
in the exchange, the holding period for the previously owned shares of the Fund
is "tacked" to the holding period of the newly acquired shares of the other
Fund.
Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Fund acquired through use of the exchange privilege will be
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subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes. For further information, see "Shareholder Services--Exchange
Privilege" in the Statement of Additional Information.
The Fund's exchange privilege is modified with respect to purchases of Class
A and Class D shares under the Merrill Lynch Mutual Fund Adviser ("MFA")
program. First, the initial allocation of assets is made under the MFA program.
Then, any subsequent exchange under the MFA program of Class A or Class D shares
of a MLAM-advised mutual fund for Class A or Class D shares of the Fund will be
made solely on the basis of the relative net asset values of the shares being
exchanged. Therefore, there will not be a charge for any difference between the
sales charge previously paid on the shares of the other MLAM-advised mutual fund
and the sales charge payable on the shares of the Fund being acquired in the
exchange under the MFA program.
Automatic Reinvestment of Dividends and Capital Gains Distributions. All
dividends and capital gains distributions are reinvested automatically in full
and fractional shares of the Fund, without a sales charge, at the net asset
value per share at the close of business on the payable date for such dividends
or distributions. A shareholder may at any time, by written notification or by
telephone (1-800-MER-FUND) to the Transfer Agent, elect to have subsequent
dividends or capital gains distributions, or both, paid in cash, rather than
reinvested, in which event payment will be mailed monthly. Cash payments also
can be directly deposited to the shareholder's bank account. No CDSC will be
imposed on redemption of shares issued as a result of the automatic reinvestment
of dividends or capital gains distributions.
Systematic Withdrawal. A Class A or Class D shareholder may elect to receive
systematic withdrawal payments from his Investment Account through automatic
payment by check or through automatic payment by direct deposit to his bank
account on either a monthly or quarterly basis. A Class A or Class D shareholder
whose shares are held within a CMA(R), CBA(R) or Retirement Account may elect to
have shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual
basis through the CMA(R)/CBA(R) Systematic Redemption Program, subject to
certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C
or Class D shares may be made to an investor's Investment Account by prearranged
charges of $50 or more to his regular bank account. Investors who maintain
CMA(R) or CBA(R) accounts may arrange to have periodic investments made in the
Fund in their CMA(R) or CBA(R) account or in certain related accounts in amounts
of $100 or more through the CMA(R)/CBA(R) Automated Investment Program.
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TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, the Fund (but not its
shareholders) will not be subject to Federal income tax on the part of its net
ordinary income and net realized capital gains which it distributes to Class A,
Class B, Class C and Class D shareholders (together, the "shareholders"). The
Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in futures and options)
("capital gain dividends") are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund shares.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or capital
gains, generally will not be eligible for the dividends received deduction
allowed to corporations under the Code. If the Fund pays a dividend in January
which was declared in the previous October, November or December to shareholders
of record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% 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 the applicability of the
United States withholding tax.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Shareholders
may be able to claim United States foreign tax credits with respect to such
taxes, subject to certain conditions and limitations contained in the Code. For
example, certain retirement accounts cannot claim foreign tax credits on
investments in foreign securities held in the Fund. If more than 50% in value of
the Fund's total assets at the close of its taxable year consists of securities
of foreign corporations, the Fund will be eligible, and intends, to file an
election with the Internal Revenue Service pursuant to which shareholders of the
Fund will be required to include their proportionate shares of such withholding
taxes in their United States income tax returns as gross income, treat such
proportionate shares as taxes paid by them, and deduct such proportionate shares
in computing their taxable incomes or, alternatively, use them as foreign tax
credits against their United States income taxes. No deductions for foreign
taxes, however, may be claimed by noncorporate
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shareholders who do not itemize deductions. A shareholder that is a nonresident
alien individual or a foreign corporation may be subject to United States
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
United States tax for the foreign taxes treated as having been paid by such
shareholder. The Fund will report annually to its shareholders the amount per
share of such withholding taxes.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Under Code Section 988, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are not
"regulated futures contracts" and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
income dividend distributions, and any distributions made before the losses were
realized but in the same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing the basis of each shareholder's Fund
shares and resulting in a capital gain for any shareholder who received a
distribution greater than such shareholder's basis in Fund shares (assuming the
shares were held as a capital asset).
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class D shares. A shareholder's basis in the Class
D shares acquired will be the same as such shareholder's basis in the Class B
shares converted, and the holding period of the acquired Class D shares will
include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
the shares, then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent any sales charge paid to the Fund
on the exchanged shares reduces any sales charge the shareholder would have owed
upon the purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
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<PAGE>
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
yield for various specified time periods in advertisements or information
furnished to present or prospective shareholders. Average annual total return
and yield are computed separately for Class A, Class B, Class C and Class D
shares in accordance with formulas specified by the Commission.
Average annual total return quotations for the specified period will be
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return will be computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including any CDSC that would be applicable to a
complete redemption of the investment at the end of the specified period such as
in the case of Class B and Class C shares and the maximum sales charge in the
case of Class A and Class D shares. Dividends paid by the Fund with respect to
all shares, to the extent any dividends are paid, will be calculated in the same
manner at the same time on the same day and will be in the same amount, except
that account maintenance fees and distribution charges and any incremental
transfer agency costs relating to each class of shares will be borne exclusively
by that class. The Fund will include performance data for all classes of shares
of the Fund in any advertisement or information including performance data of
the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return and (2) the maximum applicable sales charges will not
be included with respect to annual or annualized rates of return calculations.
Aside from the effect on the performance data calculations of including or
excluding the maximum applicable sales charges, actual annual or annualized
total return data generally will be lower than average annual total return data
since the average annual rates of return reflect compounding; aggregate total
return data generally will be higher than average annual total return data since
the aggregate rates of return reflect compounding over a longer period of time.
In advertisements distributed to investors whose purchases are subject to waiver
of the CDSC in the case of Class B shares (such as investors in certain
retirement plans) or to reduced sales charges in the case of Class A and Class D
shares, the performance data may take into account the reduced, and not the
maximum, sales charges or may not take into account the CDSC and therefore may
reflect greater total return since, due to the reduced sales charges or waiver
of the CDSC, a lower
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<PAGE>
amount of expenses is deducted. See "Purchase of Shares". The Fund's total
return may be expressed either as a percentage or as a dollar amount in order to
illustrate such total return on a hypothetical $1,000 investment in the Fund at
the beginning of each specified period.
Yield quotations will be computed based on a 30-day period by dividing (a)
net income based on the yield of each security earned during the period by (b)
the average daily number of shares outstanding during that period that were
entitled to receive dividends multiplied by the maximum offering price per share
on the last day of the period. The yield for the 30-day period ended March 31,
1995 was 9.40% for Class A shares, 9.01% for Class B shares, 8.91% for Class C
shares and 9.16% for Class D shares.
Total return and yield figures are based on the Fund's historical
performance and are not intended to indicate future performance. The Fund's
total return and yield will vary depending on market conditions, the securities
comprising the Fund's portfolio, the Fund's operating expenses and the amount of
realized and unrealized net capital gains or losses during the period. The value
of an investment in the Fund will fluctuate and an investor's shares, when
redeemed, may be worth more or less than their original cost.
On occasion, the Fund may compare its performance to performance data
published by Lipper Analytical Services, Inc., Morningstar Publications, Inc.
("Morningstar"), Money Magazine, U.S. News & World Report, Business Week, CDA
Investment Technology, Inc., Forbes Magazine and Fortune Magazine. From time to
time, the Fund may include the Fund's Morningstar risk-adjusted performance
ratings in advertisements or supplemental sales literature. As with other
performance data, performance comparisons should not be considered indicative of
the Fund's relative performance for any future period.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions. In executing such transactions, the Investment Adviser
seeks to obtain the best results for the Fund, taking into account such factors
as price (including the applicable brokerage commission or dealer spread), size
of order, difficulty of execution and operational facilities of the firm
involved and the firm's risk in positioning a block of securities. While the
Investment Adviser generally seeks reasonably competitive commission rates or
spreads, the Fund does not necessarily pay the lowest commission or spread
available.
The Fund has no obligation to deal with any broker or dealer in execution of
transactions in portfolio securities. Subject to obtaining the best price and
execution, securities firms which provided supplemental investment research to
the Investment Adviser, including Merrill Lynch, 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 Investment Adviser under
the Investment Advisory Agreement, and the expenses of the Investment Adviser
will not necessarily be reduced as a result of the receipt of such supplemental
information.
The securities in which the Fund invests are traded primarily in the
over-the-counter market. Since portfolio transactions will generally not be
effected on foreign securities exchanges, the Fund does not
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<PAGE>
expect typically to incur potential settlement delays which may occur on certain
of such exchanges. Where possible, the Fund will deal directly with the dealers
who make a market in the securities involved except in those circumstances where
better prices and execution are available elsewhere. Such dealers usually are
acting as principal for their own account. On occasion, securities may be
purchased directly from the issuer. Such portfolio securities are generally
traded on a net basis and do not normally involve either brokerage commissions
or transfer taxes. Securities firms may receive brokerage commissions on certain
portfolio transactions, including options, futures and options on futures
transactions and the purchase and sale of underlying securities upon exercise of
options. Under the Investment Company Act, persons affiliated with the Fund,
including Merrill Lynch, are prohibited from dealing with the Fund as a
principal in the purchase and sale of securities unless a permissive order
allowing such transactions is obtained from the Commission. Affiliated persons
of the Fund may serve as its broker in transactions conducted on an exchange and
in over-the-counter transactions conducted on an agency basis. Costs associated
with transactions in foreign securities are generally higher than with
transactions in United States securities, although, as noted above, the Fund
will endeavor to achieve the best net results in effecting such transactions.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of United States national securities exchanges from executing
exchange transactions for their affiliates and institutional accounts which they
manage unless the member (i) has obtained prior express authorization from the
account to effect such transactions, (ii) at least annually furnished the
account with 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.
PORTFOLIO TURNOVER
Generally, the Fund does not purchase securities for short-term trading
profits. However, the Fund may dispose of securities without regard to the time
they have been held when such actions, for defensive or other reasons, appear
advisable to the Investment Adviser. While it is not possible to predict
turnover rates with any certainty, at present it is anticipated that the Fund's
annual portfolio turnover rate, under normal circumstances, will be less than
200%. (The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the particular fiscal year by the
monthly average of the value of the portfolio securities owned by the Fund
during the particular fiscal year.) High portfolio turnover involves
correspondingly greater transaction costs in the form of dealer spreads and
brokerage commissions, which are borne directly by the Fund. For the fiscal year
ended December 31, 1994, the portfolio turnover rate was 115.95%.
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<PAGE>
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all its net investment income. Dividends from
such net investment income will be declared daily prior to the determination of
net asset value on that day and paid monthly. Shares will accrue dividends as
long as they are issued and outstanding. Shares are issued and outstanding from
the settlement date of a purchase order to the settlement date of a redemption
order. All net realized long-term and short-term capital gains, if any, will be
distributed to the Fund's shareholders at least annually.
Certain gains or losses attributable to foreign currency transactions may
increase or decrease the amount of the Fund's income available for distribution
to shareholders. If such losses exceed other income during a taxable year, (a)
the Fund would not be able to make any ordinary dividend distributions, and (b)
distributions made before the losses were realized would be recharacterized as a
return of capital to shareholders, rather than as an ordinary dividend, reducing
each shareholder's tax basis in the Fund shares for Federal income tax purposes.
For a detailed discussion of the Federal tax considerations relevant to foreign
currency transactions, see "Taxes". If in any fiscal year, the Fund has net
income from certain foreign currency transactions, such income will be
distributed annually.
The per share dividends and distributions on each class of shares will be
reduced as a result of any account maintenance, distribution and transfer agency
fees applicable with respect to such class of shares. See "Additional
Information-Determination of Net Asset Value". Dividends and distributions may
be reinvested automatically in shares of the Fund at net asset value.
Shareholders may elect to receive any such dividends or distributions, or both,
in cash. Dividends and distributions are taxable to shareholders as discussed
under "Taxes" whether they are reinvested in shares of the Fund or received in
cash.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily 15 minutes after the close of business on the New York Stock Exchange
(generally, 4:00 P.M., New York time), on each day during which the New York
Stock Exchange is open for trading. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or dealers
on the day of valuation. The net asset value per share is computed by dividing
the value of the securities held by the Fund plus any cash or other assets
(including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time, rounded to the nearest cent. Expenses, including the
fees payable to the Investment Adviser and any account maintenance and/or
distribution fees payable to the Distributor, are accrued daily. The Fund
employs Merrill Lynch Securities Pricing Service ("MLSPS"), an affiliate of the
Investment Adviser, to provide certain securities prices for the Fund. The Fund
paid $3,006 to MLSPS for pricing services during the Fund's most recently
completed fiscal year.
The per share net asset value per share of the Class A shares generally will
be higher than the per share net asset value of the other classes, reflecting
the daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to Class B and Class
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<PAGE>
C shares and the daily expense accruals of the account maintenance fees
applicable with respect to Class D shares; moreover, the per share net asset
value of Class D shares generally will be higher than the per share net asset
value of the Class B and Class C 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. It is expected, however, that the per share net
asset value of the classes will tend to converge (although not necessarily meet)
immediately after the payment of dividends or distributions, which will differ
by approximately the amount of the expense accrual differentials between the
classes.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on July 1, 1988 as a closed-end
investment company. On October 25, 1991, the shareholders of the Fund voted to
convert the Fund to an open-end investment company. Such conversion was effected
on November 15, 1991 and the Fund commenced operations as an open-end investment
company on November 18, 1991. See "General Information" in the Statement of
Additional Information. The Fund has an authorized capital of 4,000,000,000
shares of common stock, par value $0.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D Common Stock, each of which
consists of 1,000,000,000 shares. Shares of Class A, Class B, Class C and Class
D Common Stock represent interests in the same assets of the Fund and are
identical in all respects except that the Class B, Class C and Class D shares
bear certain expenses related to the account maintenance associated with such
shares, and Class B and Class C shares bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with respect
to matters relating to account maintenance and distribution expenditures, as
applicable. See "Purchase of Shares". The Fund has received an order from the
Commission permitting the issuance and sale of multiple classes of common stock.
The Directors of the Fund may classify and reclassify the shares of the Fund
into additional classes of common stock at a future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Fund does not intend to
hold meetings of shareholders in any year in which the Investment Company Act
does not require shareholders to act upon any of the following matters: (i)
election of directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent accountants. Also, the by-laws of the Fund require that a special
meeting of stockholders be held upon the written request of shareholders of the
Fund as required by Maryland corporate law and the Investment Company Act.
Voting rights for Directors are not cumulative. Shares issued are fully paid and
nonassessable and have no preemptive rights. Shares have the conversion rights
described in this Prospectus. Each share of Common Stock is entitled to
participate equally in dividends and distributions declared by the Fund and in
the net assets of the Fund upon liquidation or dissolution after satisfaction of
outstanding liabilities except, as noted above, the Class B, Class C and Class D
shares bear certain additional expenses.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
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<PAGE>
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts, the shareholder should notify in writing:
Financial Data Services, Inc.
Attn: TAMFO
P.O. Box 45289
Jacksonville, Florida 32232-5289
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this
please call your Merrill Lynch financial consultant or Financial Data Services,
Inc. at 800-637-3863.
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APPENDIX
RATINGS OF DEBT SECURITIES
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") CORPORATE RATINGS
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa-Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payment 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 desirable
investments. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca-Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the
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higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representations as to whether such commercial paper is by any other definition
"commercial paper" or is exempt from registration under the Securities Act of
1933, as amended.
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers.
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal
cash generation; and well established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, then the name or names of
such supporting entity or entities are listed within parentheses beneath the
name of the issuer, or there is a footnote referring the reader to another page
for the name or names of the supporting entity or entities. In assigning ratings
to such issuers, Moody's evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments or other entities, but only as one factor in the total rating
assessment. Moody's makes no representation and gives no opinion on the legal
validity or
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enforceability of any support arrangement. You are cautioned to review with your
counsel any questions regarding particular support arrangements.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
Because of the fundamental differences between preferred stocks and bonds, a
variation of the bond rating symbols is being used in the quality ranking of
preferred stocks. The symbols, presented below, are designed to avoid comparison
with bond quality in absolute terms. It should always be borne in mind that
preferred stocks occupy a junior position to bonds within a particular capital
structure and that these securities are rated within the universe of preferred
stocks.
Preferred stock rating symbols and their definitions are as follows:
aaa-An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.
aa-An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance that
earnings and asset protection will remain relatively well maintained in the
foreseeable future.
a-An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa-An issue which is rated "baa" is considered to be a medium grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba-An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and
asset protection may be very moderate and not well safeguarded during
adverse periods. Uncertainty of position characterizes preferred stocks in
this class.
b-An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
caa-An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca-An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payment.
c-This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE: Moody's 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
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a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S ("STANDARD & POOR'S") CORPORATE
DEBT RATINGS
A Standard & Poor's corporate or municipal rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
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.
<TABLE>
<S> <C>
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the higher rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal although it
is somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than for
debt in higher rated categories.
</TABLE>
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<TABLE>
<S> <C>
Debt rated BB, B, CCC, CC and C is regarded, on balance, as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the lowest
degree of speculation and C the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
BB Debt rated BB has less near-term vulnerability to default than other speculative
grade debt. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate capacity
to meet timely interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or implied BBB-
rating.
B Debt rated B has a greater vulnerability to default but presently has the capacity
to meet interest payments and principal repayments. Adverse business, financial or
economic conditions would likely impair capacity or willingness to pay interest and
repay principal.
The B rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC Debt rated CCC has a current identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet timely
payments of interest and repayment of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the capacity to pay
interest and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or B-rating.
CC The rating CC is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed but debt service payments are
continued.
CI The rating CI is reserved for income bonds on which no interest is being paid.
D Debt rated D is in default. The D rating category is also used when interest
payments or principal payments are not made on the date due even if the applicable
grace period has not expired, unless Standard & Poor's believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
</TABLE>
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing with the major
ratings categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.
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<TABLE>
<S> <C>
L The letter "L" indicates that the rating pertains to the principal amount of those
bonds to the extent that the underlying deposit collateral is insured by the
Federal Savings & Loan Insurance Corp. or the Federal Deposit Insurance Corp. and
interest is adequately collateralized.
* Continuance of the rating is contingent upon Standard & Poor's receipt of an
executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.
NR Indicates that no 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.
</TABLE>
Debt Obligations of Issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, Bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments may impose certain rating
or other standards for obligations eligible for investment by savings banks,
trust companies, insurance companies and fiduciaries generally.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
<TABLE>
<S> <C>
A-1 This highest category indicates that the degree of safety regarding timely payment
is strong. Those issues determined to possess overwhelming safety characteristics
are denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1".
A-3 Issues carrying this designation have adequate capacity for timely payment. They
are, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated "B" are regarded as having only an adequate capacity for timely
payment.
C This rating is assigned to short-term debt obligations with a doubtful capacity for
payment.
D Debt rated "D" is in payment default. The "D" rating category is used when interest
payments or principal payments are not made on the date due, even if the applicable
grace period has not expired, unless Standard & Poor's believes that such payments
will be made during such grace period.
</TABLE>
54
<PAGE>
A commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information.
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS
A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the bond rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
The preferred stock ratings are based on the following considerations:
I. Likelihood of payment--capacity and willingness of the issuer to meet
the timely payment of preferred stock dividends and any applicable sinking
fund requirements in accordance with the terms of the obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
<TABLE>
<S> <C>
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
B predominately speculative with respect to the issuer's capacity to pay preferred
CCC stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a non-paying issue.
</TABLE>
55
<PAGE>
<TABLE>
<S> <C>
D A preferred stock rated "D" is a non-paying issue with the issuer in default on
debt instruments.
NR Indicates that no rating has been requested, that there is insufficient information
on which to base a rating, or that Standard & Poor's does not rate a particular
type of obligation as a matter of policy.
</TABLE>
Plus (+) or Minus (-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
The preferred stock ratings are not a recommendation to purchase or sell a
security, inasmuch as market price is not considered in arriving at the rating.
Preferred stock ratings are wholly unrelated to Standard & Poor's earnings and
dividend rankings for common stocks.
The ratings are based on current information furnished to Standard & Poor's
by the issuer, and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of such information.
DESCRIPTION OF IBCA'S LONG TERM RATINGS
<TABLE>
<S> <C>
AAA Obligations for which there is the lowest expectation of investment risk. Capacity
for timely repayment of principal and interest is substantial such that adverse
changes in business, economic, or financial conditions are unlikely to increase
investment risk significantly.
AA Obligations for which there is a very low expectation of investment risk. Capacity
for timely repayment of principal and interest is substantial. Adverse changes in
business, economic, or financial conditions may increase investment risk albeit not
very significantly.
A Obligations for which there is a low expectation of investment risk. Capacity for
timely repayment of principal and interest is strong, although adverse changes in
business, economic, or financial conditions may lead to increased investment risk.
BBB Obligations for which there is a low expectation of investment risk. Capacity for
timely repayment of principal and interest is adequate, although adverse changes in
business, economic, or financial conditions are more likely to lead to increased
investment risk than for obligations in higher categories.
BB Obligations for which there is a possibility of investment risk developing.
Capacity for timely repayment of principal and interest exists, but is susceptible
over time to adverse changes in business, economic, or financial conditions.
B Obligations for which investment risk exists. Timely repayment of principal and
interest is not sufficiently protected against adverse changes in business,
economic, or financial conditions.
CCC Obligations for which there is a current perceived possibility of default. Timely
repayment of principal and interest is dependent on favorable business, economic,
or financial conditions.
CC Obligations which are highly speculative or which have a high risk of default.
C Obligations which are currently in default.
</TABLE>
NOTE: "+" or "-" may be appended to a rating to denote relative status
within major rating categories. Ratings of BB and below are assigned where it is
considered that speculative characteristics are present.
56
<PAGE>
MERRILL LYNCH WORLD INCOME FUND, INC.--AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch World Income Fund, Inc. and establish an Investment Account as
described in the Prospectus. In the event that I am not eligible to purchase
Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $ ......... payable to Financial Data Services,
Inc. as an initial investment (minimum $1,000). I understand that this
purchase will be executed at the applicable offering price next to be
determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the
Statement of Additional Information: (Please list all funds. Use a
separate sheet of paper if necessary.)
1............................................ 4................................
2............................................ 5................................
3............................................ 6................................
Name ...........................................................................
First Name Initial Last
Name
Name of Co-Owner (if any) ......................................................
First Name Initial Last
Name
Address.........................................................................
.....................................
(Zip Code) Date....................................
Occupation...........................
Name and Address of Employer.............
.....................................
.......................................
Signature of Owner
Signature of Co-Owner (if any)
(In the case of co-ownership, a joint-tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Ordinary Income Dividends Long-term Capital Gains
Select / / Reinvest Select / / Reinvest
One: / / Cash One: / / Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU:
/ / Check or / / Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch World Income Fund, Inc. Authorization Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE): / / checking / / savings
Name on your account............................................................
Bank Name.......................................................................
Bank Number .......................... Account Number .........................
Bank Address....................................................................
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO FINANCIAL DATA SERVICES, INC. AMENDING OR TERMINATING THIS
SERVICE.
Signature of Depositor..........................................................
Signature of Depositor .................................................
Date...................
(If joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY
THIS APPLICATION.
57
<PAGE>
MERRILL LYNCH WORLD INCOME FUND, INC.--AUTHORIZATION FORM (PART 1)--(CONTINUED)
- --------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed in the Prospectus under
"Taxes") either because I have not been notified that I am subject thereto as a
result of a failure to report all interest or dividends, or the Internal Revenue
Service ("IRS") has notified me that I am no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
................................................................................
Signature of Owner Signature of Co-Owner (if any)
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND D SHARES ONLY (SEE TERMS AND CONDITIONS IN
THE STATEMENT OF ADDITIONAL INFORMATION)
Dear Sir/Madam:
.................. , 19 .....
Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch World Income Fund, Inc. or any other investment company with an initial
sales charge or deferred sales charge for which Merrill Lynch Funds Distributor,
Inc. acts as distributor over the next 13-month period which will equal or
exceed:
/ / $25,000 / / $50,000 / / $100,000 / / $250,000 / / $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch World Income Fund,
Inc. Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch World Income Fund, Inc. held as security.
By............................................. ...............................
Signature of Owner Signature of Co-Owner (If registered in
joint parties, both must sign)
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
(1) Name................................. (2) Name.............................
Account Number........................... Account Number.......................
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp
We hereby authorize Merrill
Lynch Funds Distributor, Inc.
to act as our agent in
connection with transactions
under this authorization form
and agree to notify the
Distributor of any purchases
made under a Letter of
Intention or Systematic
Withdrawal Plan. We
guarantee the shareholder's
signature.
...........................
Dealer Name and Address
By .........................
Authorized Signature of
Dealer
<TABLE>
<S> <C>
This form, when completed, should be mailed to: / / / / / / / / ....................
Merrill Lynch World Income Fund, Inc Branch Code F/C No. F/C Last Name.
c/o Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations / / / / / / / /
P.O. Box 45289 Dealer's Customer Account No.
Jacksonville, FL 32232-5289
</TABLE>
58
<PAGE>
MERRILL LYNCH WORLD INCOME FUND, INC.--AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
Note: This form is required to apply for the Systematic Withdrawal or Automatic
Investment Plans only.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
Name of Owner...................................................................
Social Security Number
or Taxpayer Identification Number
Name of Co-Owner (if any).......................................................
Account Number.....................
Address.........................................................................
(if existing account)
......................................
(Code)
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of / / Class A or / / Class D shares in Merrill Lynch World Income
Fund, Inc. at cost or current offering price. Withdrawals to be made either
(check one) / / Monthly on the 24th day of each month, or / / Quarterly on the
24th day of March, June, September and December. If the 24th falls on a weekend
or holiday, the next succeeding business day will be utilized. Begin systematic
withdrawal on ________ (month), or as soon as possible thereafter.
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): / / $_______
or / / ____% of the current value of
/ / Class A or / / Class D shares in the account.
SPECIFY WITHDRAWAL METHOD: / / check or / / direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(A) I HEREBY AUTHORIZE PAYMENT BY CHECK
/ / as indicated in Item 1.
/ / to the order of............................................................
Mail to (check one)
/ / the address indicated in Item 1.
/ / Name (please print)........................................................
Address.........................................................................
...........................................................................
Signature of Owner.........................................Date ................
Signature of Co-Owner (if any)..................................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO FINANCIAL DATA SERVICES, INC. AMENDING OR TERMINATING
THIS SERVICE.
Specify type of account (check one): / / checking / / savings
Name on your account............................................................
Bank Name.......................................................................
Bank Number .......................... Account Number .........................
Bank Address....................................................................
...............................................................................
Signature of Depositor.....................................Date ................
Signature of Depositor..........................................................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHALL ACCOMPANY THIS APPLICATION.
59
<PAGE>
MERRILL LYNCH WORLD INCOME FUND, INC.--AUTHORIZATION FORM (PART 2)--
(CONTINUED)
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Financial Data Services, Inc. draw an automated
clearing house ("ACH") debit on my checking account as described below each
month to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch Americas Income Fund, Inc., subject to the terms set forth
below. In the event that I am not eligible to purchase Class A shares, I
understand that Class D shares will be purchased.
FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank
account for investment in Merrill Lynch World Income Fund, Inc. as
indicated below:
Amount of each ACH debit $........................
Account Number....................................
Please date and invest ACH debits on the 20th of each month
beginning .................. or as soon thereafter as possible.
(month)
I agree that you are preparing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing
or failure to prepare any such debit. If I change banks or desire to terminate
or suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroneous ACH debits of my bank
account or purchases of fund shares including liquidating shares of the Fund
and credit my bank account. I further agree that if a check or debit is not
honored upon presentation, Financial Data Services, Inc. is authorized to
discontinue immediately the Automatic Investment Plan and to liquidate
sufficient shares held in my account to offset the purchase made with the
dishonored debit.
............................... ..................................
Date Signature of Depositor
..................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS
DRAWN BY FINANCIAL DATA SERVICES, INC.
To................................. Bank
(Investor's Bank)
Bank Address ...........................
City ........ State ...... Zip..........
As a convenience to me, I hereby request and authorize you to pay and
charge to my account ACH debits drawn on my account by and payable to
Financial Data Services, Inc. I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed
personally by me. This authority is to remain in effect until revoked by
me in writing. Until you receive such notice, you shall be fully protected in
honoring any such debit. I further agree that if any such debit be dishonored,
whether with or without cause and whether intentionally or inadvertently, you
shall be under no liability.
............................... ..................................
Date Signature of Depositor
............................... ..................................
Bank Account Number Signature of Depositor
(If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
60
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
61
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
62
<PAGE>
INVESTMENT ADVISER
Fund Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE INVESTMENT ADVISER OR DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
-------------------
TABLE OF CONTENTS
PAGE
----
Fee Table............................. 2
Merrill Lynch Select PricingSM
System................................ 4
Financial Highlights.................. 8
Risk Factors and Special
Considerations........................ 10
Investment Objective and Policies..... 12
International Investing............. 12
Allocation of Investments and Risks
of High Yield High Risk
Securities............................ 14
Hedging Techniques.................. 16
Other Investment Policies and
Practices............................. 21
Investment Restrictions............. 24
Management of the Fund................ 24
Directors........................... 24
Management and Advisory
Arrangements...................... 24
Code of Ethics...................... 25
Transfer Agency Services............ 26
Purchase of Shares.................... 26
Initial Sales Charge Alternatives--
Class A and Class D Shares........ 28
Deferred Sales Charge Alternatives--
Class B and Class C Shares............ 30
Distribution Plans.................. 34
Limitations on the Payment of
Deferred Sales Charges............ 36
Redemption of Shares.................. 36
Redemption.......................... 36
Repurchase.......................... 37
Reinstatement Privilege--Class A and
Class D Shares........................ 38
Shareholder Services.................. 38
Taxes................................. 41
Performance Data...................... 43
Portfolio Transactions................ 44
Portfolio Turnover.................. 45
Additional Information................ 46
Dividends and Distributions......... 46
Determination of Net Asset Value.... 46
Organization of the Fund............ 47
Shareholder Inquiries............... 47
Shareholder Reports................. 48
Appendix--Ratings of Debt
Securities............................ 49
Authorization Form.................... 57
Code #16102-0495
(PASTE-UP ART)
Merrill Lynch
World Income
Fund, Inc.
PROSPECTUS
April 27, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH WORLD INCOME FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
-------------------
The investment objective of Merrill Lynch World Income Fund, Inc. (the
"Fund") is to seek to provide shareholders with high current income by investing
in a global portfolio of fixed income securities denominated in various
currencies, including multinational currency units. The Fund may invest in
United States and foreign government and corporate fixed income securities,
including high yield high risk, lower rated and unrated securities. In pursuing
its investment objective, the Fund will allocate its investments among different
types of fixed income securities denominated in various currencies based upon
management's analysis of the yield, maturity and currency considerations
affecting such securities. Under normal conditions, the Fund's investments will
be denominated in at least three currencies. The Fund presently contemplates
that it will invest primarily in obligations denominated in the currencies of
the United States, Canada, Western European nations, New Zealand and Australia
as well as in European Currency Units. The Fund may seek to hedge against
interest rate and currency risks through the use of options, futures and foreign
currency transactions. For more information on the Fund's investment objective
and policies, please see "Investment Objective and Policies" on page 2. There
can be no assurance that the investment objective of the Fund will be realized.
Investment on an international basis and in lower rated or unrated
securities (commonly referred to as "junk bonds") involves special
considerations and certain risks, including risks of untimely payment of
interest and principal, default, and price volatility. Investors should
carefully consider these risks before investing.
Pursuant to the Merrill Lynch Select PricingSM System, the Fund offers four
classes of shares each with a different combination of sales charges, ongoing
fees and other features. The Select Pricing System permits an investor to choose
the method of purchasing shares that the investor believes is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other relevant circumstances.
-------------------
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 April 27,
1995 (the "Prospectus"), which has been filed with the Securities and Exchange
Commission and can be obtained, without charge, by calling or by writing the
Fund at the above telephone number or address. This Statement of Additional
Information has been incorporated by reference into the Prospectus. Capitalized
terms used but not defined herein have the same meanings as in the Prospectus.
-------------------
FUND ASSET MANAGEMENT--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
-------------------
The date of this Statement of Additional Information is April 27, 1995.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek to provide shareholders with
high current income by investing in a global portfolio of fixed income
securities denominated in various currencies, including multi-national currency
units. The Fund may invest in United States and foreign government and corporate
fixed income securities, including high yield high risk, lower rated and unrated
securities. The Fund will invest at least 90% of its total assets in such fixed
income securities. In pursuing its investment objective, the Fund will, under
normal circumstances, allocate its investments among different types of fixed
income securities denominated in various currencies based upon management's
analysis of the yield, maturity and currency considerations affecting such
securities. Reference is made to "Investment Objective and Policies" in the
Prospectus for a discussion of the investment objective and policies of the
Fund.
HEDGING TECHNIQUES
Reference is made to the discussion concerning hedging techniques under the
caption "Hedging Techniques" in the Prospectus.
The Fund may engage in various portfolio strategies to hedge its portfolio
against interest rate and currency risks. These strategies include use of
options on its portfolio securities, financial and currency futures and options
on such futures and forward foreign currency transactions. While the Fund's use
of hedging strategies is intended to reduce the volatility of the net asset
value of Fund shares, the Fund's net asset value will fluctuate.
Although certain risks are involved in options and futures transactions (as
discussed below in "Risk Factors in Options and Futures Transactions"), the
Investment Adviser believes that, because the Fund will engage in these
transactions only for hedging purposes, the options and futures portfolio
strategies of the Fund will not subject the Fund to the risks frequently
associated with the speculative use of options and futures transactions.
The following information relates to the hedging instruments the Fund may
utilize with respect to interest rate and currency risks.
The Fund may purchase and write (i.e., sell) call options and put options on
securities, enter into closing purchase transactions with respect to such
options and engage in transactions in financial futures as described below. The
Fund writes only covered options, which means that so long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option and, in the case of put options, that the Fund, through
its custodian, has deposited and maintained cash, cash equivalent, U.S.
Government securities or other high grade liquid debt securities denominated in
U.S. dollars or non-U.S. currencies with a securities depository with a value
equal to or greater than the exercise price of the underlying securities.
Writing Options. The Fund will receive a premium from writing an option,
which increases the Fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. The amount of the
premium will reflect, among other factors, the current market price of the
2
<PAGE>
underlying security, the relationship of the exercise price to the market price,
interest rates and the time period until the expiration of the option.
By writing a call, the Fund limits its opportunity to profit from an
increase in the market value of the underlying security above the exercise price
of the option for as long as the Fund's obligation as a writer continues. Thus,
in some periods the Fund will receive less total return and in other periods
greater total return from its hedged positions than it would have received from
underlying securities unhedged. By writing a put option, the Fund will be
obligated to purchase the underlying security at a price that may be higher than
the market value of that security at the time of exercise for as long as the
option is outstanding. To facilitate closing transactions, as described below,
the Fund will ordinarily write only options for which a secondary market exists.
The Fund may engage in closing transactions in order to terminate
outstanding exchange-traded options that it has written. To effect a closing
transaction, the Fund purchases, prior to the exercise of an outstanding option
that it has written, an option of the same series as that on which it desires to
terminate its obligation. Profit or loss from a closing purchase transaction
will depend on whether the cost of such transaction is more or less than the
premium received on the sale of the option plus the related transaction costs.
Purchase of Options. The Fund may purchase put and call options in
connection with its hedging activities. By buying a put, the Fund has the right
to sell the underlying securities at the exercise price, thus limiting the
Fund's risk of loss through a decline in the market value of the security until
the put expires. The Fund may also purchase call options on securities which it
intends to purchase. By purchasing a call, the Fund has the right to purchase
the underlying securities at the option price.
The Fund may enter into both exchange-traded and over-the-counter ("OTC")
put and call option transactions. OTC option transactions are two party
contracts with price and terms negotiated between the buyer and seller. The Fund
will enter into OTC option transactions only with respect to portfolio
securities for which the Investment Adviser believes there is regularly
available a price quotation from a dealer in such options. The Fund will engage
in OTC options only with member banks of the Federal Reserve System and primary
dealers in U.S. Government securities or with affiliates of such banks or
dealers which have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million. The staff of the
Securities and Exchange Commission (the "Commission") has taken the position
that purchased OTC options and the assets used as cover for written OTC options
are illiquid securities. For so long as the Commission staff is of that view,
the Fund will not purchase or sell OTC options (including OTC options on futures
contracts) if, as a result of such transactions, the sum of the market value of
OTC options currently outstanding which are held by the Fund, the market value
of the underlying securities covered by OTC options currently outstanding which
were sold by the Fund and margin deposits on the Fund's existing OTC options on
futures contracts exceed 15% (10% to the extent required by certain state laws)
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.
To the extent any such options or assets may be illiquid, it may prevent a
successful sale of such options or assets, result in a delay of sale, or reduce
the amount of proceeds that otherwise might be realized.
3
<PAGE>
Futures Contracts. The Fund may purchase and sell financial futures
contracts ("futures contracts") as a hedge against adverse changes in interest
rates. A futures contract is an agreement between two parties to buy and sell a
security, respectively, for a set price on a future date. The Fund may effect
transactions in futures contracts in United States and foreign agency and
government securities and corporate debt securities traded on United States and
foreign exchanges, as well as on OTC markets.
The Fund may sell futures contracts in anticipation of an increase in the
general level of interest rates. Generally, as interest rates rise, the market
value of the securities held by the Fund will fall, thus reducing the net asset
value of the Fund. This interest rate risk can be reduced without employing
futures as a hedge, by selling long-term securities and either reinvesting the
proceeds in securities with shorter maturities or by holding assets in cash.
This strategy, however, entails increased transaction costs in the form of
dealer spreads and brokerage commissions and typically would reduce the Fund's
average yield as a result of the shortening of maturities.
The sale of futures contracts provides an alternative means of hedging
against rising interest rates. As rates increase, the value of the Fund's short
position in the futures contracts will also tend to increase, thus offsetting
all or a portion of the depreciation in the market value of the Fund's
investments which are being hedged. While the Fund will incur commission
expenses in selling and closing out futures positions (which is done by taking
an opposite position which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of portfolio securities.
The Fund may purchase futures contracts in anticipation of a decline in
interest rates when it is not fully invested in order to gain rapid market
exposure that may in part or entirely offset an increase in the cost of
long-term securities it intends to purchase. As such purchases are made, an
equivalent amount of futures contracts will be closed out. In a substantial
majority of these transactions, the Fund will purchase securities upon
termination of the futures contracts. Due to changing market conditions and
interest rate forecasts, however, a futures position may be terminated without a
corresponding purchase of securities.
Options on Financial Futures. The Fund may purchase and write call and put
options on futures contracts in connection with its hedging activities.
Generally, these strategies would be employed under the same market and market
sector conditions in which the Fund entered into futures contracts. The Fund may
purchase put options or write call options on futures contracts rather than
selling the underlying futures contract in anticipation of an increase in
interest rates. Similarly, the Fund may purchase call options, or write put
options on futures contracts as a substitute for the purchase of such futures to
hedge against the increased cost resulting from a decline in interest rates of
securities which the Fund intends to purchase.
RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS
Utilization of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and movements in the
price of the securities which are the subject of the hedge. If the price of the
futures contract moves more or less than the price of the security, the Fund
will experience a gain or loss which will not be completely offset by movements
in the price of the debt
4
<PAGE>
securities which are the subject of the hedge. There is also a risk of imperfect
correlations when the securities underlying futures contracts have different
maturities than the portfolio securities being hedged. Transactions in currency
futures and options on interest rate and currency futures contracts involve
similar risks.
Prior to exercise or expiration, an exchange-traded option position can only
be terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange for call or put options of the same
series. Similarly, positions in interest rate and currency futures may be closed
out only on an exchange which provides a secondary market for such futures. The
Fund will enter into an option or futures transaction on an exchange only if
there appears to be a liquid secondary market for such options or futures.
However, there can be no assurance that a liquid secondary market will exist for
any particular call or put option or futures contract at any specific time.
Thus, it may not be possible to close an option or futures position. In the case
of a futures position or an option on a futures position written by the Fund, in
the event of adverse price movements, the Fund will continue to be required to
make daily cash payments of variation margin. In such situations, if the Fund
has insufficient cash, it may have to sell portfolio securities to meet daily
variation margin requirements at a time when it may be disadvantageous to do so.
In addition, the Fund may be required to take or make delivery of the
instruments or currency underlying futures contracts it holds. The inability to
close options and futures positions also could have an adverse impact on the
Fund's ability effectively to hedge its portfolio. There is also the risk of
loss by the Fund of margin deposits in the event of the bankruptcy of a broker
with whom the Fund has an option position in a futures contract or related
options.
The exchanges on which the Fund intends to conduct options transactions
generally have established limitations governing the maximum number of call or
put options on the same underlying security (whether or not covered) which may
be written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). "Trading Limits" are imposed on the maximum number of contracts which
any person may trade on a particular trading day. An exchange may order the
liquidation of positions found to be in violation of these limits, and it may
impose other sanctions or restrictions. The Investment Adviser does not believe
that these trading and position limits will have any adverse impact on the
portfolio strategies for hedging the Fund's portfolio.
FORWARD FOREIGN EXCHANGE TRANSACTIONS
Generally, the foreign exchange transactions of the Fund will be conducted
on a spot, i.e., cash, basis at the spot rate for purchasing or selling currency
prevailing in the foreign exchange market. This rate under normal market
conditions differs from the prevailing exchange rate in an amount generally less
than one-tenth of one percent due to the costs of converting from one currency
to another. However, the Fund has authority to deal in forward foreign exchange
between currencies of the different countries in whose securities it will invest
as a hedge against possible variations in the foreign exchange rates between
these currencies. This is accomplished through contractual agreements to
purchase or sell a specified currency at a specified future date and price set
at the time of the contract.
The Fund's dealings in forward foreign exchange will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward foreign
5
<PAGE>
currency with respect to specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio securities, the sale
and redemption of shares of the Fund or the payment of dividends and
distributions by the Fund. Position hedging is the sale of forward foreign
currency with respect to portfolio security positions denominated or quoted in
such foreign currency.
The Fund will not speculate in forward foreign exchange. The Fund may not
position hedge with respect to the currency of a particular country to an extent
greater than the aggregate market value (at the time of making such sale) of the
securities held in its portfolio denominated or quoted in that particular
foreign currency. If the Fund enters into a position hedging transaction, it
will place with its custodian bank cash or liquid securities in a separate
account of the Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of such forward contract. If the value of the
securities placed in the separate account declines, additional cash or
securities will be placed in the account so that the value of the account will
equal the amount of the Fund's commitment with respect to such contracts. The
Fund will not enter into a forward contract with a term of more than one year.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in foreign currency transactions varies with such factors as the
currency involved, the length of the contract period and the market conditions
then prevailing. Since transactions in foreign currency exchange are usually
conducted on a principal basis, no fees or commissions are involved.
OTHER INVESTMENT POLICIES AND PRACTICES
Convertible Securities. The convertible securities to be held by the Fund
include any corporate debt security or preferred stock which may be converted
into underlying shares of common stock. Convertible securities entitle the
holder to receive interest payments paid on corporate debt securities or the
dividend preference on a preferred stock until such time as the convertible
security matures or is redeemed or until the holder elects to exercise the
conversion privilege. Although the Fund generally expects that it will sell
convertible securities rather than convert such securities into common stock,
the Fund may, at various times, exercise conversion rights on convertible
securities called for redemption to establish holding periods for tax purposes
or for other reasons. The Fund may not invest more than 10% of its total assets
in such common stock.
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements and purchase and sale contracts.
Foreign currency-denominated agreements will be limited to purchase and sale
contracts entered into with financial institutions that have at least $50
million in capital or whose obligations are guaranteed by an entity having at
least $50 million in capital. U.S. dollar-denominated repurchase agreements and
purchase and sale contracts may be entered into only with a member bank of the
Federal Reserve System or a primary dealer in U.S. Government securities or an
affiliate thereof. Under such agreements, the bank or primary dealer or an
affiliate thereof agrees, upon entering into the contract, to repurchase the
security at a mutually
6
<PAGE>
agreed upon time and price, thereby determining the yield during the term of the
agreement. This results in a fixed rate of return insulated from market
fluctuations during such period. In the case of repurchase agreements, the
prices at which the trades are conducted do not reflect accrued interest on the
underlying obligations; whereas, in the case of purchase and sale contracts, the
prices take into account accrued interest. Such agreements usually cover short
periods, such as under one week. Repurchase agreements may be construed to be
collateralized loans by the purchaser to the seller secured by the securities
transferred to the purchaser. In the case of a repurchase agreement, the Fund
will require the seller to provide additional collateral if the market value of
the securities falls below the repurchase price at any time during the term of
the repurchase agreement; 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 only constitute
collateral for the seller's obligation to pay the repurchase price. Therefore,
the Fund may suffer time delays and incur costs or possible losses in connection
with the disposition of the collateral. A purchase and sale contract differs
from a repurchase agreement in that the contract arrangements stipulate that the
securities are owned by the Fund. In the event of a default under such a
repurchase agreement or 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 security and the accrued
interest on the security. In such event, the Fund would have rights against the
seller for breach of contract with respect to any losses arising from market
fluctuations following the failure of the seller to perform.
Lending of Portfolio Securities. Subject to the investment restrictions
stated below, the Fund may lend securities from its portfolio to approved
borrowers and receive collateral in cash or securities issued or guaranteed by
the United States Government. Such collateral will be maintained at all times in
an amount equal to at least 100% of the current market value of the loaned
securities. The purpose of such loans is to permit the borrower to use such
securities for delivery to purchasers when such borrower has sold short. If cash
collateral is received by the Fund, it is invested in short-term money market
securities, and a portion of the yield received in respect of such investment is
retained by the Fund. Alternatively, if securities are delivered to the Fund as
collateral, the Fund and the borrower negotiate a rate for the loan premium to
be received by the Fund for lending its portfolio securities. In either event,
the total yield on the Fund's portfolio is increased by loans of its portfolio
securities. The Fund will have the right to retain record ownership of loaned
securities to exercise beneficial rights such as voting rights, subscription
rights and rights to dividends, interest or other distributions. Such loans are
terminable at any time. The Fund may pay reasonable finder's, administrative and
custodial fees in connection with such loans.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of fundamental and non-fundamental
restrictions and policies relating to the investment of its assets and its
activities. The fundamental policies set forth below may not be changed without
the approval of the holders of a majority of the Fund's outstanding voting
securities (which for this purpose and under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), means the lesser of (i) 67% of the
Fund's shares represented at a meeting at which more than 50% of the outstanding
shares of the Fund are represented or (ii) more than 50% of the Fund's
outstanding shares). Under the fundamental investment restrictions, the Fund may
not:
7
<PAGE>
1. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control or management.
3. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its total
assets (including the amount borrowed), (ii) the Fund may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) the Fund may
obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (iv) the Fund may purchase
securities on margin to the extent permitted by applicable law. The Fund may
not pledge its assets other than to secure such borrowings or, to the extent
permitted by the Fund's investment policies as set forth in its Prospectus
and Statement of Additional Information, as they may be amended from time to
time, in connection with hedging transactions, short sales, when-issued and
forward commitment transactions and similar investment strategies.
7. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act"), in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and the
Fund's Prospectus and Statement of Additional Information, as they may be
amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
Under the non-fundamental investment restrictions, the Fund may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales "against the box".
8
<PAGE>
c. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which cannot otherwise be marketed, redeemed
or put to the issuer or a third party, if at the time of acquisition more
than 15% of its total assets would be invested in such securities. This
restriction shall not apply to securities which mature within seven days or
securities which the Board of Directors of the Fund has otherwise determined
to be liquid pursuant to applicable law. Notwithstanding the 15% limitation
herein, to the extent the laws of any state in which the Fund's shares are
registered or qualified for sale require a lower limitation, the Fund will
observe such limitation. As of the date hereof, therefore, the Fund will not
invest more than 10% of its total assets in securities which are subject to
this investment restriction (c). Securities purchased in accordance with
Rule 144A under the Securities Act (a "Rule 144A security") and determined
to be liquid by the Fund's Board of Directors are not subject to the
limitations set forth in this investment restriction (c). Notwithstanding
the fact that the Board may determine that a Rule 144A security is liquid
and not subject to limitations set forth in this investment restriction (c),
the State of Ohio does not recognize Rule 144A securities as securities that
are free of restrictions as to resale. To the extent required by Ohio law,
the Fund will not invest more than 50% of its total assets in securities of
issuers that are restricted as to disposition, including Rule 144A
securities, or in securities of issuers having a record, together with
predecessors, of less than three years of continuous operation.
d. Invest in warrants if, at the time of acquisition, its investments in
warrants, valued at the lower of cost or market value, would exceed 5% of
the Fund's net assets; included within such limitation, but not to exceed 2%
of the Fund's net assets, are warrants which are not listed on the New York
Stock Exchange or American Stock Exchange or a major foreign exchange. For
purposes of this restriction, warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more than
5% of the Fund's total assets would be invested in such securities. This
restriction shall not apply to mortgage-backed securities, asset-backed
securities or obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
f. Purchase or retain the securities of any issuer, if those individual
officers and directors of the Fund, the officers and general partner of the
Investment Adviser, the directors of such general partner or the officers
and directors of any subsidiary thereof each owning beneficially more than
one-half of one percent of the securities of such issuer own in the
aggregate more than 5% of the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs,
except that the Fund may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Fund's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
9
<PAGE>
i. Notwithstanding fundamental investment restriction (6) above, borrow
amounts in excess of 33 1/3% of its total assets, taken at market value
(including the amount borrowed), and then only from banks for the purpose of
meeting redemption requests or settlement transactions, or for temporary or
emergency purposes. In addition, the Fund will not purchase securities while
outstanding borrowings exceed 5% of the Fund's total assets.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Fund, the Fund is prohibited from
engaging in certain transactions involving such firm or its affiliates except
for brokerage transactions permitted under the Investment Company Act involving
only usual and customary commissions or transactions pursuant to an exemptive
order under the Investment Company Act. See "Portfolio Transactions". Without
such an exemptive order, the Fund would be prohibited from engaging in portfolio
transactions with Merrill Lynch or its affiliates acting as principal and from
purchasing securities in public offerings which are not registered under the
Securities Act or are not municipal securities as defined in the Securities
Exchange Act of 1934 in which such firm or any of its affiliates participate as
an underwriter or dealer.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund and their ages and
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Director is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (62)--President and Director(1)(2)--President of Fund Asset
Management, L.P. (the "Investment Adviser") (which term as used herein includes
its corporate predecessors) since 1977; President of Merrill Lynch Asset
Management, L.P. ("MLAM") (which term as used herein includes its corporate
predecessors) since 1977; President and Director of Princeton Services, Inc.
("Princeton Services") since 1993; Executive Vice President of Merrill Lynch &
Co., Inc. ("ML & Co.") since 1990; Executive Vice President of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") since 1990; Senior Vice
President of Merrill Lynch from 1985 to 1990; Director of Merrill Lynch Funds
Distributor, Inc. (the "Distributor").
HERBERT I. LONDON (56)--Director(2)--New York University--Gallatin
Division, 113-115 University Place, New York, New York 10003. Dean, Gallatin
Division of New York University from 1978 until 1993 and Director from 1975 to
1976; John M. Olin Professor of Humanities, New York University since 1993 and
Professor thereof since 1980; Distinguished Fellow, Herman Kahn Chair, Hudson
Institute from 1984 to 1985; Trustee, Hudson Naval Institute since 1980;
Overseer, Center for Naval Analyses from 1983 to 1993; Director, Damon Corp.
since 1991.
ROBERT R. MARTIN (68)--Director(2)--513 Grand Hill, St. Paul, Minnesota
55102. Director, WTC Industries, Inc. since 1995 and Chairman thereof from 1994
to 1995; Chairman and Chief Executive Officer, Kinnard Investments, Inc. from
1990 to 1993; Executive Vice President, Dain Bosworth from 1974 to 1989;
Director, Carnegie Capital Management from 1977 to 1985 and Chairman thereof in
1979; Director, Securities Industry Association from 1981 to 1982 and Public
Securities Association from 1979 to 1980; Trustee, Northland College since 1992.
10
<PAGE>
JOSEPH L. MAY (65)--Director(2)--424 Church Street, Suite 2000,
Nashville, Tennessee 37219. Attorney in private practice since 1984; President,
May and Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to
1983; Vice President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The
May Corporation (personal holding company) from 1972 to 1983; Director, Signal
Apparel Co. from 1972 to 1989.
ANDRE F. PEROLD (43)--Director(2)--Morgan Hall, Soldiers Field, Boston,
Massachusetts 02163. Professor, Harvard Business School and Associate Professor
from 1983 to 1989; Trustee, The Common Fund, since 1989; Director, Quantec
Limited since 1991 and Teknekron Software Systems since 1994.
TERRY K. GLENN (54)--Executive Vice President(1)(2)--Executive Vice
President of the Investment Adviser and MLAM since 1983; Executive Vice
President and Director of Princeton Services since 1993; President of the
Distributor since 1986 and Director thereof since 1991.
N. JOHN HEWITT (60)--Senior Vice President(1)(2)--Senior Vice President
of MLAM since 1976; Manager of the Investment Adviser's Fixed Income Mutual Fund
and Insurance Portfolio Groups since 1980; Senior Vice President of Princeton
Services since 1993.
VINCENT T. LATHBURY, III (54)--Vice President(1)(2)--Vice President and
Portfolio Manager of the Investment Adviser and MLAM since 1982; Vice President
and Manager of Bond Department of INA Capital Management, Inc. from 1979 to
1982.
DONALD C. BURKE (34)--Vice President(1)(2)--Vice President and Director
of Taxation of MLAM since 1990; employee of Deloitte & Touche LLP from 1982 to
1990.
ROBERT PARISH (40)--Vice President(1)(2)--Vice President and Portfolio
Manager of the Investment Adviser since 1991; Portfolio Manager of Templeton
International from 1986 to 1991 and Vice President thereof from 1989.
GERALD M. RICHARD (45)--Treasurer(1)(2)--Senior Vice President and
Treasurer of the Investment Adviser and MLAM since 1984; Vice President of the
Distributor since 1981 and Treasurer thereof since 1984; Senior Vice President
and Treasurer of Princeton Services since 1993.
MARK B. GOLDFUS (48)--Secretary(1)(2)--Vice President of the Investment
Adviser and MLAM since 1985.
- ------------
(1) Interested person, as defined in the Investment Company Act of 1940, of the
Fund.
(2) Such Director or officer is a director, trustee or officer of certain other
investment companies for which the Investment Adviser or MLAM acts as
investment adviser or manager.
At March 31, 1995, the officers and Directors of the Fund as a group (12
persons) owned an aggregate of less than 1% of the outstanding shares of common
stock of ML & Co. and owned an aggregate of less than 1% of the outstanding
shares of the Fund.
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<PAGE>
COMPENSATION OF DIRECTORS
The Fund pays each Director not affiliated with ML & Co. or its affiliates
an annual fee of $5,000 for serving as a Director plus $500 for each meeting of
the Board attended. The Fund also pays each member of the Audit and Nominating
Committee, which consists of the unaffiliated Directors, an annual fee of $1,000
plus $250 for each meeting attended. The Fund reimburses each unaffiliated
Director for his out-of-pocket expenses relating to attendance at Board and
Committee meetings. For the year ended December 31, 1994, fees and expenses paid
to the non-affiliated Directors aggregated $49,247.
The following table sets forth for the year ended December 31, 1994,
compensation paid by the Fund to the non-affiliated Directors and for the year
ended December 31, 1994, the aggregate compensation paid by all investment
companies advised by MLAM and its affiliate, FAM ("MLAM/FAM Advised Funds"), to
the non-affiliated Directors.
<TABLE><CAPTION>
TOTAL
COMPENSATION
PENSION OR FROM FUND AND
AGGREGATE RETIREMENT BENEFITS MLAM/FAM ADVISED
NAME OF COMPENSATION ACCRUED AS PART FUNDS PAID TO
DIRECTOR FROM FUND OF FUND EXPENSE DIRECTORS(1)
- -------------------------------------------- ------------ -------------------- ----------------
<S> <C> <C> <C>
Herbert I. London $9,750 None $168,250
Robert R. Martin 9,750 None 168,250
Joseph L. May 9,750 None 168,250
Andre F. Perold 9,750 None 168,250
</TABLE>
- ------------
(1) In addition to the Fund, the Directors serve on the boards of other MLAM/FAM
Advised Funds as follows: Mr. London (22 boards); Mr. Martin (22 boards);
Mr. May (22 boards); and Mr. Perold (22 boards).
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund--Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.
Securities may be held by, or be appropriate investments for, the Fund as
well as other funds or investment advisory clients for which the Investment
Adviser or its affiliates act as an adviser. Because of different objectives or
other factors, a particular security may be bought for one or more clients when
one or more clients are selling the same security. If purchases or sales of
securities by the Investment Adviser for the Fund or other funds for which it
acts as investment adviser or for its advisory clients arise for consideration
at or about the same time, transactions in such securities will be made, insofar
as feasible, for the respective funds and clients in a manner deemed equitable
to all. To the extent that transactions on behalf of more than one client of the
Investment Adviser or its affiliates during the same period may increase the
demand for securities being purchased or the supply of securities being sold,
there may be an adverse effect on price.
The Fund has entered into an amended investment advisory agreement with the
Investment Adviser (the "Investment Advisory Agreement"). The Investment Adviser
also served as the Fund's Investment Adviser prior to the conversion of the Fund
from a closed-end investment company to an
12
<PAGE>
open-end investment company. The Investment Adviser receives for its services to
the Fund monthly compensation at the annual rate of 0.60% of the average daily
net assets of the Fund. For the fiscal year ended August 31, 1992, the total
fees paid by the Fund to the Investment Adviser aggregated $3,503,719. During
such period, the Fund operated as a closed-end investment company from September
1, 1991 to November 17, 1991 and commenced operations as an open-end company on
November 18, 1991. For the period September 1, 1992 to December 31, 1992, the
year ended December 31, 1993, and the year ended December 31, 1994 the total
fees paid by the Fund to the Investment Adviser aggregated $4,182,579,
$13,902,958 and $13,289,517, respectively.
The State of California imposes limitations on the expenses of the Fund. At
the date of this Statement of Additional Information, these annual expense
limitations require that the Investment Adviser reimburse the Fund in any amount
necessary to prevent the aggregate ordinary operating expenses (excluding taxes,
brokerage fees and commissions, distribution fees and extraordinary charges such
as litigation costs) from exceeding in any fiscal year 2.5% of the Fund's first
$30 million of average net assets, 2.0% of the next $70 million of average net
assets and 1.5% of the remaining average net assets. The Investment Adviser's
obligation to reimburse the Fund is limited to the amount of the investment
advisory fee. No payment will be made to the Investment Adviser during any
fiscal year which will cause such expenses to exceed the most restrictive
expense limitation at the time of such payment. For the period September 1, 1992
to December 31, 1992, the year ended December 31, 1993 and the year ended
December 31, 1994, no amounts were required to be reimbursed to the Fund
pursuant to such operating expense limitations.
The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of the Fund connected with investment
and economic research, trading and investment management of the Fund, as well as
the fees of all Directors of the Fund who are affiliated persons of ML & Co. or
any of its affiliates. The Fund pays all other expenses incurred in the
operation of the Fund, including, among other things, taxes, expenses for legal
and auditing services, costs of printing proxies, stock certificates,
shareholder reports and prospectuses and statements of additional information
(except to the extent paid by the Distributor), charges of the custodian, any
subcustodian and transfer agent, expenses of redemption of shares, Securities
and Exchange Commission fees, expenses of registering the shares under Federal,
state or foreign laws, fees and expenses of nonaffiliated Directors, accounting
and pricing costs (including the daily calculation of net asset value,
insurance, interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, and other expenses properly payable by the Fund).
Accounting services are provided to the Fund by the Investment Adviser and the
Fund reimburses the Investment Adviser for its costs in connection with such
services. For the period September 1, 1992 to December 31, 1992, for the year
ended December 31, 1993 and the year ended December 31, 1994, the Fund
reimbursed the Investment Adviser $48,000, $169,845 and $315,069, respectively,
for accounting services. The Distributor will pay the promotional expenses of
the Fund in connection with the offering of its shares. Certain expenses will be
financed by the Fund pursuant to a distribution plan in compliance with Rule
12b-1 under the Investment Company Act. See "Purchase of Shares--Distribution
Plans".
The Investment Adviser is a limited partnership, the partners of which are
ML & Co. and Princeton Services.
13
<PAGE>
Duration and Termination. Unless earlier terminated as described herein, the
Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Directors or by a majority of the outstanding
shares of the Fund and (b) by a majority of the Directors who are not parties to
such contract or interested persons (as defined in the Investment Company Act)
of any such party. Such contracts are not assignable and may be terminated
without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the shareholders of the Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
PricingSM System: Class A and Class D shares are sold to investors choosing the
initial sales charge alternatives, and Class B and Class C shares are sold to
investors choosing the deferred sales charge alternatives. Each Class A, Class
B, Class C and Class D share of the Fund represents an identical interest in the
investment portfolio of the Fund and has the same rights, except that Class B,
Class C and Class D shares bear the expenses of the ongoing account maintenance
fees, and Class B and Class C shares bear the expenses of the ongoing
distribution fees and the additional incremental transfer agency costs resulting
from the deferred sales charge arrangements. Class B, Class C and Class D shares
each have exclusive voting rights with respect to the Rule 12b-1 distribution
plan adopted with respect to such class pursuant to which account maintenance
and/or distribution fees are paid. Each class has different exchange privileges.
See "Shareholder Services--Exchange Privilege".
The Merrill Lynch Select PricingSM System is used by more than 50 mutual
funds advised by MLAM or its affiliate, the Investment Adviser. Funds advised by
MLAM or the Investment Adviser are referred to herein as "MLAM-advised mutual
funds".
The Fund has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Fund (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the offering
of each class of shares of the Fund. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and investors.
The Distributor also pays for other supplementary sales literature and
advertising costs. The Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Investment Advisory Agreement
described above.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
The gross sales charges for the sale of Class A shares for the period
November 18, 1991 (commencement of operations as an open-end investment company)
through August 31, 1992, the Fund's previous fiscal year end were $4,726,625, of
which the Distributor received $80,169 and Merrill Lynch received $4,646,456.
The gross sales charges for the sale of Class A shares for the period September
1, 1992 through December 31, 1992, were $299,333, of which the Distributor
received
14
<PAGE>
$26,084 and Merrill Lynch received $273,249. The gross sales charges for the
sale of Class A shares for the year ended December 31, 1993 were $1,391,093, of
which the Distributor received $118,553 and Merrill Lynch received $1,272,540.
During the fiscal year ended December 31, 1994, the Fund sold 2,498,395 Class A
shares for aggregate net proceeds of $22,105,372. The gross sales charges for
the sale of Class A shares for the year ended December 31, 1994 were $269,609,
of which the Distributor received $24,292 and Merrill Lynch received $245,317.
During the period October 21, 1994 to December 31, 1994, the Fund sold 177,383
Class D shares for aggregate net proceeds of $1,470,555. The gross sales charges
for the sale of Class D shares for the period October 21, 1994 to December 31,
1994 were $7,622, of which the Distributor received $902 and Merrill Lynch
received $6,720.
The term "purchase", as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund, refers to a single purchase by an individual or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company", as that
term is defined in the Investment Company Act, but does not include purchases by
any such company which has not been in existence for at least six months or
which has no purpose other than the purchase of shares of the Fund or shares of
other registered investment companies at a discount; provided, however, that it
shall not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit cardholders of
a company, policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
Closed-End Fund Investment Option. Class A shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class A shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Investment
Adviser or MLAM who purchased such closed-end fund shares prior to October 21,
1994 (the date Merrill Lynch Select PricingSM System commenced operations) and
wish to reinvest the net proceeds of a sale of their closed-end fund shares of
common stock in Eligible Class A shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased such shares
on or after October 21, 1994 and wish to reinvest the net proceeds from a sale
of their closed-end fund shares are offered Class A shares (if eligible to buy
Class A shares) or Class D shares of the Fund and other MLAM-advised mutual
funds ("Eligible Class D shares"), if the following conditions are met. First,
the sale of closed-end fund shares must be made through Merrill Lynch, and the
net proceeds therefrom must be immediately reinvested in Eligible Class A or
Class D shares. Second, the closed-end fund shares must either have been
acquired in the initial public offering or be shares representing dividends from
shares of common stock acquired in such offering. Third, the closed-end fund
shares must have been continuously maintained in a Merrill Lynch securities
account. Fourth, there must be a minimum purchase of $250 to be eligible for the
investment option. Class A shares of the Fund are offered at net asset value to
shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. (formerly known as
Merrill Lynch Prime Fund, Inc.) ("Senior Floating Rate Fund") who wish to
reinvest the net proceeds from a sale of certain of their shares of common stock
of Senior Floating Rate Fund in shares of the Fund. In order to exercise this
investment option, Senior Floating Rate Fund shareholders must sell their Senior
Floating Rate Fund shares to the Senior Floating Rate Fund in connection with a
tender offer conducted by the Senior Floating Rate
15
<PAGE>
Fund and reinvest the proceeds immediately in the Fund. This investment option
is available only with respect to the proceeds of Senior Floating Rate Fund
shares as to which no Early Withdrawal Charge as defined in the Senior Floating
Rate Fund prospectus is applicable. Purchase orders from Senior Floating Rate
Fund shareholders wishing to exercise this investment option will be accepted
only on the day that the related Senior Floating Rate Fund tender offer
terminates and will be effected at the net asset value of the Fund at such day.
REDUCED INITIAL SALES CHARGES
Rights of Accumulation. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase shares
of the Fund subject to an initial sales charge at the offering price applicable
to the total of (a) the public offering price of the shares then being purchased
plus (b) an amount equal to the then current net asset value or cost, whichever
is higher, of the purchaser's combined holdings of all classes of shares of the
Fund and of other MLAM-advised mutual funds. For any such right of accumulation
to be made available, the Distributor must be provided at the time of purchase,
by the purchaser or the purchaser's securities dealer, with sufficient
information to permit confirmation of qualification. Acceptance of the purchase
order is subject to such confirmation. The right of accumulation may be amended
or terminated at any time. Shares held in the name of a nominee or custodian
under pension, profit-sharing, or other employee benefit plans may not be
combined with other shares to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of the Fund or of
any other MLAM-advised mutual funds made within a 13-month period starting with
the first purchase pursuant to the Letter of Intention in the form provided in
the Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Fund's transfer agent. The Letter of Intention is
not available to employee benefit plans for which Merrill Lynch provides plan
participant record-keeping services. The Letter of Intention is not a binding
obligation to purchase any amount of Class A or Class D shares; however, its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A and Class
D shares of the Fund and of other MLAM-advised mutual funds presently held, at
cost or maximum offering price (whichever is higher), on the date of the first
purchase under the Letter of Intention, may be included as a credit toward the
completion of such Letter, but the reduced sales charge applicable to the amount
covered by such Letter will be applied only to new purchases. If the total
amount of shares does not equal the amount stated in the Letter of Intention
(minimum of $25,000), the investor will be notified and must pay, within 20 days
of the expiration of such Letter, the difference between the sales charge on the
Class A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to at least five percent of the intended amount will be held in
escrow during the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If 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 that further reduced percentage
sales
16
<PAGE>
charge but there will be no retroactive reduction of the sales charges on any
previous purchase. The value of any shares redeemed or otherwise disposed of by
the purchaser prior to termination or completion of the Letter of Intention will
be deducted from the total purchases made under such Letter. An exchange from a
MLAM-advised money market fund into the Fund that creates a sales charge will
count toward completing a new or existing Letter of Intention from the Fund.
TMASM Managed Trusts. Class A shares are offered to TMASM Managed Trusts to
which Merrill Lynch Trust Company provides discretionary trustee services at net
asset value.
Employer Sponsored Retirement and Savings Plans. Class A and Class D shares
are offered at net asset value to employer sponsored retirement or savings
plans, such as tax qualified retirement plans within the meaning of Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), deferred
compensation plans within the meaning of Sections 403(b) and 457 of the Code,
other deferred compensation arrangements, Voluntary Employee Benefits
Association plans, and non-qualified After Tax Savings and Investment programs,
maintained on the Merrill Lynch Group Employee Services system, herein referred
to as "Employer Sponsored Retirement or Savings Plans", provided the plan has
accumulated $20 million or more in MLAM-advised mutual funds (in the case of
Class A shares) or $5 million or more in MLAM-advised mutual funds (in the case
of Class D shares). Class D shares may be offered at net asset value to new
Employer Sponsored Retirement or Savings Plans, provided the plan has $3 million
or more initially invested in MLAM-advised mutual funds. Assets of Employer
Sponsored Retirement or Savings Plans sponsored by the same sponsor or an
affiliated sponsor may be aggregated. Class A and Class D shares also are
offered at net asset value to Employer Sponsored Retirement or Savings Plans
that have at least 1,000 employees eligible to participate in the plan (in the
case of Class A shares) or between 500 and 999 employees eligible to participate
in the plan (in the case of Class D shares). Employees eligible to participate
in Employer Sponsored Retirement or Savings Plans of the same sponsoring
employer or its affiliates may be aggregated. Tax qualified retirement plans
within the meaning of Section 401(a) of the Code meeting any of the foregoing
requirements and which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a wide
range of investments including individual corporate equities and other
securities in addition to mutual fund shares) by the Merrill Lynch BlueprintSM
Program, are offered Class A shares at a price equal to net asset value per
share plus a reduced sales charge of 0.50%. Any Employer Sponsored Retirement or
Savings Plan which does not meet the above-described qualifications to purchase
Class A or Class D shares at net asset value has the option of (i) purchasing
Class D shares at the initial sales charge schedule disclosed in the Prospectus
for purchases of up to $1,000,000 and at .75% for purchased of $1,000,000 or
more, (ii) if the Employer Sponsored Retirement or Savings Plan meets the
specified requirements, purchasing Class B shares with a waiver of the CDSC upon
redemption, or (iii) if the Employer Sponsored Retirement or Savings Plan does
not qualify to purchase Class B shares with a waiver upon redemption, purchasing
Class B or Class C shares at their respective CDSC schedule disclosed in the
Prospectus. Certain Employer Sponsored Retirement or Savings Plans, which were
permitted prior to October 21, 1994 to purchase Class A shares at the initial
sales charge schedule in the then current prospectus for purchases up to
$1,000,000 and at .75% of purchases of $1,000,000 or more, may purchase Class A
shares at the initial sales charge schedule disclosed in the Prospectus for
purchases of up to $1,000,000 and at .75% for purchases of $1,000,000 or more.
The minimum initial and subsequent purchase requirements are waived in
connection with all the above-referenced Employer Sponsored Retirement or
Savings Plans.
17
<PAGE>
Purchase Privileges of Certain Persons. Directors of the Fund, members of
the Boards of other MLAM-advised investment companies, ML & Co. and its
subsidiaries (the term "subsidiaries", when used herein with respect to ML &
Co., includes MLAM, the Investment Adviser 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. Reductions
in or exemptions from the imposition of a sales load are due to the nature of
the investors and/or the reduced sales effort that will be needed in obtaining
such investments. Under such programs, the Fund realizes economies of scale and
reduction of sales related expenses by virtue of familiarity with the Fund.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor if the following
conditions are satisfied. First, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis. Second, the investor also must establish that such redemption had been
made within 60 days prior to the investment in the Fund, and the proceeds from
the redemption had been maintained in the interim in cash or a money market
fund.
Class D shares of the Fund are also offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund 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 who has a business relationship with a Merrill Lynch
financial consultant and who has invested in a mutual fund for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied: First, the investor must advise Merrill Lynch that it will purchase
Class D shares of the Fund with proceeds from the redemption of such shares of
other mutual funds and that such shares have been outstanding for a period of no
less than six months. Second, such purchase of Class D shares must be made
within 60 days after the redemption and the proceeds from the redemption must be
maintained in the interim in cash or a money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a personal holding company or a public or private investment company. The value
of the assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible adverse tax consequences to the Fund which
might result from an acquisition of assets having net unrealized appreciation
which is disproportionately higher at the time of acquisition
18
<PAGE>
than the realized or unrealized appreciation of the Fund. The issuance of Class
D shares for consideration other than cash is limited to bona fide
reorganizations, statutory mergers or other acquisitions of portfolio securities
which (i) meet the investment objective and policies of the Fund; (ii) are
acquired for investment and not for resale (subject to the understanding that
the disposition of the Fund's portfolio securities shall at all times remain
within its control); and (iii) are liquid securities, the value of which is
readily ascertainable, which are not restricted as to transfer either by law or
liquidity of market (except that the Fund may acquire through such transactions
restricted or illiquid securities to the extent the Fund does not exceed the
applicable limits on acquisition of such securities set forth under "Investment
Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Fund to the Distributor with
respect to such classes.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Directors shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each Distribution Plan, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Fund and its related class of shareholders. Each
Distribution Plan further provides that so long as the Distribution Plan remains
in effect, the selection and nomination of Directors who are not "interested
persons" of the Fund, as defined in the Investment Company Act (the "Independent
Directors"), shall be committed to the discretion of the Independent Directors
then in office. In approving each Distribution Plan in accordance with Rule
12b-1, the Independent Directors concluded that there is a reasonable likelihood
that such Distribution Plan will benefit the Fund and its related class of
shareholders. 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 such Distribution
Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further
requires that the Fund preserve copies of each Distribution Plan and any reports
made pursuant to the plan for a period of not less than six years from the date
of such Distribution Plan or such report, the first two years in an easily
accessible place.
19
<PAGE>
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on certain
asset-based sales charges such as the distribution fee and the CDSC borne by the
Class B and Class C shares but not the account maintenance fee. The maximum
sales charge rule is applied separately to each class. As applicable to the
Fund, the maximum sales charge rule limits the aggregate of distribution fee
payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of
Class B shares and Class C shares, computed separately (defined to exclude
shares issued pursuant to dividend reinvestments and exchanges), plus (2)
interest on the unpaid balance for the respective class, computed separately, at
the prime rate plus 1% (the unpaid balance being the maximum amount payable
minus amounts received from the payment of the distribution fee and the CDSC).
In connection with the Class B shares, the Distributor has voluntarily agreed to
waive interest charges on the unpaid balance in excess of 0.50% of eligible
gross sales. Consequently, the maximum amount payable to the Distributor
(referred to as the "voluntary maximum") in connection with the Class B shares
is 6.75% of eligible gross sales. The Distributor retains the right to stop
waiving the interest charges at any time. To the extent payments would exceed
the voluntary maximum, the Fund will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid to
the Fund rather than to the Distributor; however, the Fund will continue to make
payments of the account maintenance fee. In certain circumstances the amount
payable pursuant to the voluntary maximum may exceed the amount payable under
the NASD formula. In such circumstances payment in excess of the amount payable
under the NASD formula will not be made.
The following table sets forth comparative information as of December 31,
1994 with respect to the Class B shares and Class C shares of the Fund
indicating the maximum allowable payments that can be made under the NASD
maximum sales charge rule and the Distributor's voluntary maximum for the period
November 18, 1988 (commencement of the public offering of Class B shares) to
December 31, 1994 for Class B shares and for the period October 21, 1994
(commencement of the public offering of Class C shares) to December 31, 1994 for
Class C shares.
DATA CALCULATED AS OF DECEMBER 31, 1994
<TABLE><CAPTION>
ANNUAL
DISTRIBUTION
ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
CLASS B SHARES SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
- ------------------------------ ---------- --------- ---------- -------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Under NASD Rule as Adopted.... $2,070,846 $ 129,428 $ 19,168 $148,596 $ 34,796 $ 113,800 $7,453
Under Distributor's Voluntary
Waiver....................... $2,070,846 $ 129,428 $ 10,354 $139,782 $ 34,796 $ 104,986 $7,453
<CAPTION>
CLASS C SHARES (NOT IN THOUSANDS)
- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Under NASD Rule as Adopted.... $1,062,018 $ 66,376 $ 504 $ 66,880 $ 596 $ 66,284 $6,624
</TABLE>
(Footnotes on following page)
20
<PAGE>
(Footnotes for preceding page)
- ------------
(1) Purchase price of all eligible Class B shares sold since November 18, 1991
(commencement of the public offering of Class B shares) and all eligible
Class C shares sold since October 21, 1994 (commencement of the pubic
offering of Class C shares) other than shares acquired through dividend
reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0% as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments with respect to Class B shares made prior to July
6, 1993 under the distribution plan in effect at that time at the 0.75%
rate, 0.50% of average daily net assets has been treated as a distribution
fee and 0.25% of average daily net assets has been deemed to have been a
service fee and not subject to the NASD maximum sales charge rule.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the voluntary maximum or the NASD maximum.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended only for periods during which trading on the New
York Stock Exchange is restricted as determined by the Commission or such
Exchange is closed (other than customary weekend and holiday closings) for any
period during which an emergency exists, as defined by the Commission, as a
result of which disposal of portfolio securities or determination of the net
asset value of the Fund is not reasonably practicable, and for such other
periods as the Commission may by order permit for the protection of shareholders
of the Fund.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending on the market value of the securities held by the
Fund at such time.
DEFERRED SALES CHARGE--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives-- Class B and Class C Shares", while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived on redemptions of Class B shares in connection with certain
post-retirement withdrawals from an Individual Retirement Account ("IRA") or
other retirement plan or following the death or disability of a Class B
shareholder. Redemptions for which the waiver applies are: (a) any partial or
complete redemption in connection with a distribution following retirement under
a tax-deferred retirement plan or attaining age 59 1/2 in the case of an IRA or
other retirement plan, or part of a series of equal periodic payments (not less
frequently than annually) made for the life (or life expectancy), or any
redemption resulting from the tax-free return of an excess contribution to an
IRA; or (b) any partial or complete redemption following the death or disability
(as defined in the Code) of a Class B shareholder (including one who owns the
Class B shares as joint tenant with his or her spouse) provided the redemption
is requested within one year of the death or initial determination of
disability. For the period November 18, 1991 (the commencement of operations of
Class B shares) through August 31, 1992, the Fund's previous fiscal year end,
the Distributor received CDSCs of $156,203, all of which was paid to Merrill
Lynch. For the period September 1, 1992 to
21
<PAGE>
December 31, 1992, the Fund's current fiscal year end, the
Distributor received CDSCs of $1,161,871, all of which was paid to Merrill
Lynch. For the fiscal year ended December 31, 1993, the Distributor received
CDSCs of $4,162,049, all of which was paid to Merrill Lynch. For the fiscal year
ended December 31, 1994, the Distributor received CDSCs of $6,980,132 with
respect to Class B shares, all of which was paid to Merrill Lynch. For the
period October 21, 1994 (commencement of the public offering of Class C shares)
to December 31, 1994, the Distributor received CDSCs of $64 with respect to
Class C shares, all of which was paid to Merrill Lynch.
Retirement Plans. Any Retirement Plan which does not meet the qualifications
to purchase Class A or Class D shares at net asset value has the option of
purchasing Class A or Class D shares at the sales charge schedule disclosed in
the Prospectus, or if the Retirement Plan meets the following requirements, then
it may purchase Class B shares with a waiver of the CDSC upon redemption. The
CDSC is waived for any Eligible 401(k) Plan redeeming Class B shares. "Eligible
401(k) Plan" is defined as a retirement plan qualified under Section 401(k) of
the Code with a salary reduction feature offering a menu of investments to plan
participants. The CDSC also is waived for redemptions from 401(a) plans
qualified under the Code, provided, however, each such plan has the same or an
affiliated sponsoring employer as an Eligible 401(k) Plan purchasing Class B
shares of MLAM-advised mutual funds ("Eligible 401(a) Plan"). Other tax
qualified retirement plans within the meaning of Section 401(a) and 403(b) of
the Code which are provided specialized services (e.g., plans whose participants
may direct on a daily basis their plan allocations among a menu of investments)
by independent administration firms contracted through Merrill Lynch also may
purchase Class B shares with a waiver of the CDSC. The CDSC also is waived for
any Class B shares which are purchased by an Eligible 401(k) Plan or Eligible
401(a) Plan and are rolled over into a Merrill Lynch or Merrill Lynch Trust
Company custodied Individual Retirement Account and held in such account at the
time of redemption. The Class B CDSC also is waived for any Class B shares which
are purchased by a Merrill Lynch rollover IRA that was funded by a rollover from
a terminated 401(k) plan managed by the MLAM Private Portfolio Group and held in
such account at the time of redemption. The minimum initial and subsequent
purchase requirements are waived in connection with all the above-referenced
Retirement Plans.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions. In executing such transactions, the Investment Adviser
seeks to obtain the best results for the Fund, taking into account such factors
as price (including the applicable brokerage commission or dealer spread), size
of order, difficulty of execution and operational facilities of the firm
involved and the firm's risk in positioning a block of securities. While the
Investment Adviser generally seeks reasonably competitive commission rates or
spreads, the Fund does not necessarily pay the lowest commission or spread
available.
The Fund has no obligation to deal with any broker or dealer in execution of
transactions in portfolio securities. Subject to obtaining the best price and
execution, securities firms which provided supplemental investment research to
the Investment Adviser, including Merrill Lynch, may receive orders for
transactions by the Fund. Information so received will be in addition to and not
in lieu of the
22
<PAGE>
services required to be performed by the Investment Adviser under the Investment
Advisory Agreement, and the expenses of the Investment Adviser will not
necessarily be reduced as a result of the receipt of such supplemental
information.
The securities in which the Fund invests are traded primarily in the
over-the-counter market. Since portfolio transactions will generally not be
effected on foreign securities exchanges, the Fund does not expect typically to
incur potential settlement delays which may occur on certain of such exchanges.
Where possible, the Fund will deal directly with the dealers who make a market
in the securities involved except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Such portfolio securities are generally traded on a net basis and do
not normally involve either brokerage commissions or transfer taxes. Securities
firms may receive brokerage commissions on certain portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon exercise of options. Under the Investment
Company Act, persons affiliated with the Fund, including Merrill Lynch, are
prohibited from dealing with the Fund as a principal in the purchase and sale of
securities unless a permissive order allowing such transactions is obtained from
the Commission. Affiliated persons of the Fund may serve as its broker in
transactions conducted on an exchange and in over-the-counter transactions
conducted on an agency basis. Costs associated with transactions in foreign
securities are generally higher than with transactions in United States
securities, although, as noted above, the Fund will endeavor to achieve the best
net results in effecting such transactions.
For the fiscal year ended August 31, 1992, the Fund paid total brokerage
commissions of $31,302, of which $28,125 or 89.9% was paid to Merrill Lynch for
effecting 94.4% of the aggregate dollar amount of transactions in which the Fund
paid brokerage commissions. During such period the Fund operated as a closed-end
investment company from September 1, 1991 to November 15, 1991 and commenced
operations as an open-end investment company on November 18, 1991. For the
period September 1, 1992 to December 31, 1992, the Fund engaged in no
transaction with Merrill Lynch. For the fiscal year ended December 31, 1993, the
Fund paid total brokerage commissions of $96,336, of which $65,410 or 67.9% was
paid to Merrill Lynch for effecting 67.1% of the aggregate dollar amount of
transactions on which the Fund paid brokerage commissions. For the fiscal year
ended December 31, 1994, the Fund paid total brokerage commissions of $108,495,
of which $59,092 or 54.5% was paid to Merrill Lynch for effecting 62.1% of the
aggregate dollar amount of transactions on which the Fund paid brokerage
commissions.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the United States national securities exchanges from
executing exchange transactions for their affiliates and institutional accounts
which they manage unless the member (i) has obtained prior express authorization
from the account to effect such transactions, (ii) at least annually furnishes
the account with a statement of the aggregate compensation received by the
member in effecting such transactions, and (iii) complies with any rules the
Commission has prescribed with respect to the requirements of clauses (i) and
(ii). To the extent Section 11(a) would apply to Merrill Lynch acting as a
broker for the Fund in any of its portfolio transactions executed on any such
securities exchange of which it is a member, appropriate consents have been
obtained from the Fund and annual statements as to aggregate compensation will
be provided to the Fund.
23
<PAGE>
While the Fund generally does not expect to engage in trading for short-term
gains, it will effect portfolio transactions without regard to holding period
if, in the judgment of the Fund's Investment Adviser, such transactions are
advisable in light of a change in circumstances of a particular company or
within a particular industry or in general market, economic or financial
conditions. Accordingly, while the Fund anticipates that its annual turnover
rate should not exceed 200% under normal conditions, it is impossible to predict
portfolio turnover rates. The portfolio turnover rate is calculated by dividing
the lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of all securities whose maturities at the time
of acquisition were one year or less) by the monthly average value of the
securities in the portfolio during the year. For the fiscal year ended August
31, 1992, the portfolio turnover rate was 76.18%. During such period, the Fund
operated as a closed-end investment company from September 1, 1991 to November
15, 1991 and commenced operations as an open-end investment company on November
18, 1991. For the period September 1, 1992 to December 31, 1992, the portfolio
turnover rate was 68.42%. For the fiscal year ended December 31, 1993, the
portfolio turnover rate was 182.88%. For the fiscal year ended December 31,
1994, the Fund's portfolio turnover rate was 115.95%. High portfolio turnover
involves correspondingly greater transaction costs in the form of dealer spreads
and brokerage commissions, which are borne directly by the Fund. Such turnover
also has certain tax consequences for the Fund. See "Taxes".
DETERMINATION OF NET ASSET VALUE
Reference is made to "Additional Information--Determination of Net Asset
Value" in the Prospectus concerning the determination of net asset value.
The net asset value of the shares of all classes of the Fund is determined
once daily, Monday through Friday 15 minutes after the close of business on the
New York Stock Exchange (generally, 4:00 P.M. New York time), on each day during
which the New York Stock Exchange is open for trading. The New York Stock
Exchange is not open on New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Any assets
or liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation. Net asset value per share is
computed by dividing the sum of the value of the securities held by the Fund
plus any cash or other assets minus all liabilities by the total number of
shares outstanding at such time, rounded to the nearest cent. Expenses,
including the fees payable to the Investment Adviser and Distributor, are
accrued daily. The per share net asset value of the Class B, Class C and Class D
shares may be lower than the per share net asset value of the Class A shares
reflecting the higher daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with respect to the
Class B and Class C shares and the daily expense accruals of the account
maintenance fees applicable with respect to the Class D shares; moreover, the
per share net asset value of the Class B and Class C shares generally will be
lower than the per share net asset value of its Class D shares reflecting the
daily expense accruals of the distribution fees and higher transfer agency fees
applicable with respect to the Class B and Class C shares of the Fund. Even
under those circumstances, the per share net asset value of the four classes
eventually 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.
24
<PAGE>
Securities traded in the over-the-counter market are valued at the last
available bid price in the over-the-counter market prior to the time of
valuation. When the Fund writes a call option, the amount of the premium
received is recorded on the books of the Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to reflect the
current market value of the option written, based upon the last sale price in
the case of exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased by the Fund are
valued at their last sale price in the case of exchange-traded options or in the
case of options traded in the over-the-counter market, the last bid price.
Portfolio securities which are traded on stock exchanges are valued at the last
sale price (regular way) on the exchange on which such securities are traded, as
of the close of business on the day the securities are being valued or, lacking
any sales, at the last available bid price. Other investments, including futures
contracts and related options, are stated at market value or otherwise at the
fair value at which it is expected they may be resold, as determined in good
faith by or under the direction 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 Board of Directors of the Fund. Such valuations and procedures will be
reviewed periodically by the Board of Directors.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in its shares. Full details as to each such
service and copies of the various plans described below can be obtained from the
Fund, the Distributor or Merrill Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gain distributions. The statements also will show any
other activity in the account since the preceding statement. Shareholders will
receive separate transaction confirmations for each purchase or sale transaction
other than the automatic investment purchase and the reinvestment of taxable
ordinary income dividends, and long-term capital gain distributions. A
shareholder may make additions to his Investment Account at any time by mailing
a check directly to the Transfer Agent.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the Transfer Agent. Shareholders considering
transferring their Class A or Class D shares from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the Class A or Class D shares are to be transferred will not take delivery
of shares of the Fund, a shareholder either must redeem the Class A or Class D
shares (paying any applicable CDSC) so that the cash proceeds can be transferred
to the account at the
25
<PAGE>
new firm or such shareholder must continue to maintain an Investment Account at
the Transfer Agent for those Class A or Class D shares. Shareholders interested
in transferring their Class B or Class C shares from Merrill Lynch and who do
not wish to have an Investment Account maintained for such shares at the
Transfer Agent may request their new brokerage firm to maintain such shares in
an account registered in the name of the brokerage firm for the benefit of the
shareholder at the Transfer Agent.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer, or by mail directly to the Transfer Agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Fund's Automatic Investment Plan whereby the Fund is authorized
through pre-authorized checks or automated clearing house debits of $50 or more
to charge the regular bank account of the shareholder on a regular basis to
provide systematic additions to the Investment Account of such shareholder.
Alternatively, investors who maintain CMA(R) or CBA(R) accounts may arrange to
have periodic investments made in the Fund, in their CMA(R) or CBA(R) accounts
or in certain related accounts in the amount of $100 or more ($1 for retirement
accounts) through the CMA(R)/CBA(R) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically in additional shares of the Fund. Such reinvestment
will be at the net asset value of shares of the Fund as of the close of business
on the ex-dividend date of the dividend or distribution. Shareholders may elect
in writing to receive either their dividends or capital gains distributions, or
both, in cash, in which event payment will be mailed or direct deposited on or
about the payment date.
Shareholders may, at any time, notify the Transfer Agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividend
and/or capital gains distributions reinvested in shares of the Fund or vice
versa and, commencing ten days after the receipt by the Transfer Agent of such
notice, those instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
Class A or Class D shares of the Fund having a value, based on cost or the
current offering price, of $5,000 or more and monthly withdrawals are available
for shareholders with Class A or Class D shares with such a value of $10,000 or
more.
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<PAGE>
At the time of each withdrawal payment, sufficient Class A or Class D shares
are redeemed from those on deposit in the shareholder's account to provide the
withdrawal payment specified by the shareholder. The shareholder may specify
either a dollar amount or a percentage of the value of his Class A or Class D
shares. Redemptions will be made at net asset value as determined 15 minutes
after the close of business on the New York Stock Exchange (generally, 4:00
P.M., New York City time) on the 24th day of each month or the 24th day of the
last month of each quarter, whichever is applicable. If the Exchange is not open
for business on such date, the Class A or Class D shares will be redeemed at the
close of business on the following business day. The check for the withdrawal
payment will be mailed, or the direct deposit for the withdrawal payment will be
made, on the next business day following redemption. When a shareholder is
making systematic withdrawals, dividends and distributions on all Class A or
Class D shares in the Investment Account are reinvested automatically in Class A
or Class D shares. A shareholder's Systematic Withdrawal Plan may be terminated
at any time, without charge or penalty, by the shareholder, the Fund, the Fund's
transfer agent or the Distributor. Withdrawal payments should not be considered
as dividends, yield or income. Each withdrawal is a taxable event. If periodic
withdrawals continuously exceed reinvested dividends, the shareholder's original
investment may be reduced correspondingly. Purchases of additional Class A or
Class D shares concurrent with withdrawals are ordinarily disadvantageous to the
shareholder because of sales charges and tax liabilities. The Fund will not
knowingly accept purchase orders for Class A or Class D shares of the Fund from
investors who maintain a systematic withdrawal plan unless such purchase is
equal to at least one year's scheduled withdrawals or $1,200, whichever is
greater. Periodic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.
Alternatively, a Class A or Class D shareholder whose shares are held within
a CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed on a
monthly, bimonthly, quarterly, semiannual or annual basis through the
CMA(R)/CBA(R) Systematic Redemption Program. The minimum fixed dollar amount
redeemable is $25. The proceeds of systematic redemptions will be posted to the
shareholder's account five business days after the date the shares are redeemed.
Monthly systematic redemptions will be made at net asset value on the first
Monday of each month, bimonthly systematic redemptions will be made at net asset
value on the first Monday of every other month, and quarterly, semiannual or
annual redemptions are made at net asset value on the first Monday of months
selected at the shareholder's option. If the first Monday of the month is a
holiday, the redemption will be processed at net asset value on the next
business day. The CMA(R)/CBA(R) Systematic Redemption Program is not available
if Fund shares are being purchased within the account pursuant to the Automatic
Investment Program. For more information on the CMA(R)/CBA(R) Systematic
Redemption Program eligible shareholders should contact their Financial
Consultant.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Fund and in certain of the other mutual funds sponsored by Merrill Lynch as well
as in other securities. Merrill Lynch charges an initial establishment fee and
an annual custodial fee for each account. Information with respect to these
plans
27
<PAGE>
is available on request from Merrill Lynch. The minimum initial purchase to
establish any such plan is $100, and the minimum subsequent purchase is $1.
Capital gains and income received in each of the plans referred to above are
exempt from Federal taxation until distributed from the plans. Investors
considering participations in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds listed below. Under the Merrill
Lynch Select PricingSM System, Class A shareholders may exchange Class A shares
of the Fund for Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second fund in his account in which
the exchange is made at the time of the exchange or is otherwise eligible to
purchase Class A shares of the second fund. If the Class A shareholder wants to
exchange Class A shares for shares of a second MLAM-advised mutual fund, but
does not hold Class A shares of the second fund in his account at the time of
the exchange and is not otherwise eligible to acquire Class A shares of the
second fund, the shareholder will receive Class D shares of the second fund as a
result of the exchange. Class D shares also may be exchanged for Class A shares
of a second MLAM-advised mutual fund at any time as long as, at the time of the
exchange, the shareholder holds Class A shares of the second fund in the account
in which the exchange is made or is otherwise eligible to purchase Class A
shares of the second fund. Class B, Class C and Class D shares are exchangeable
with shares of the same class of other MLAM-advised mutual funds. For purposes
of computing the CDSC that may be payable upon a disposition of the shares
acquired in the exchange, the holding period for the previously owned shares of
the Fund is "tacked" to the holding period of the newly acquired shares of the
other fund as more fully described below. Class A, Class B, Class C and Class D
shares also are exchangeable for shares of certain MLAM-advised money market
funds specifically designated below as available for exchange by holders of
Class A, Class B, Class C or Class D shares. Shares with a net asset value of at
least $100 are required to qualify for the exchange privilege, and any shares
utilized in an exchange must have been held by the shareholder for 15 days. It
is contemplated that the exchange privilege may be applicable to other new
mutual funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charges paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold
28
<PAGE>
with a sales charge equal to the sales charge previously paid on the Class A or
Class D shares on which the dividend was paid. Based on this formula, Class A
and Class D shares of the Fund generally may be exchanged into the Class A or
Class D shares of the other funds or into shares of the Class A and Class D
money market funds without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, of another
MLAM-advised mutual fund ("new Class B or Class C shares") on the basis of
relative net asset value per Class B or Class C share without the payment of any
CDSC that might otherwise be due on redemption of the outstanding shares. Class
B shareholders of the Fund exercising the exchange privilege will continue to be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the new Class B shares acquired through use of the exchange
privilege. In addition, Class B shares of the Fund acquired through use of the
exchange privilege will be subject to the Fund's CDSC schedule if such schedule
is higher than the CDSC schedule relating to the Class B or Class C shares of
the Fund from which the exchange has been made. For purposes of computing the
sales load that may be payable on a disposition of the new Class B or Class C
shares, the holding period for the outstanding Class B or Class C shares is
"tacked" to the holding period of the new Class B or Class C shares. For
example, an investor may exchange Class B or Class C shares of the Fund for
those of Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after
having held the Fund's Class B shares for two and a half years. The 2% CDSC that
generally would apply to 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 the Fund's Class B shares
to the three year holding period for the Special Value Fund Class B shares, the
investor will be deemed to have held the new Class B shares for more than five
years.
Shareholders also may exchange shares of the Fund into shares of a money
market fund advised by the Investment Adviser or its affiliates, but the period
of time that Class B or Class C shares are held in a money market fund will not
count towards satisfaction of the holding period requirement for purposes of
reducing the CDSC, or with respect to Class B shares, towards satisfaction of
the conversion period. However, shares of a money market fund which were
acquired as a result of an exchange for Class B or Class C shares of a fund may,
in turn, be exchanged back into Class B or Class C shares, respectively, of any
fund offering such shares, in which event the holding period for Class B or
Class C shares of the fund will be aggregated with previous holding periods for
purposes of reducing the CDSC. Thus, for example, an investor may exchange Class
B shares of the Fund for shares of Merrill Lynch Institutional Fund
("Institutional Fund") after having held the Fund Class B shares for two and a
half years and three years later decide to redeem the shares of Institutional
Fund for cash. At the time of this redemption, the 2% CDSC that would have been
due had the Class B shares of the Fund been redeemed for cash rather than
exchanged for shares of Institutional Fund will be payable. If, instead of such
redemption the shareholder exchanged such shares for Class B shares of a fund
which the shareholder continued to hold for an additional two and a half years,
a subsequent redemption will not incur a CDSC.
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<PAGE>
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds Issuing Class A, Class B, Class C and Class D Shares:
<TABLE>
<S> <C>
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC. ............ High current income consistent with a policy of
limiting the degree of fluctuation in net asset value
of fund shares resulting from movements in interest
rates through investment primarily in a portfolio
of adjustable rate securities.
MERRILL LYNCH AMERICAS INCOME FUND,
INC............................... A high level of current income, consistent with
prudent investment risk, by investing primarily in
debt securities denominated in a currency of a
country located in the Western Hemisphere (i.e.,
North and South America and the surrounding
waters).
MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL BOND
FUND.............................. A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal and Arizona income taxes as is
consistent with prudent investment management
through investment in a portfolio primarily of
intermediate-term investment grade Arizona
Municipal Bonds.
MERRILL LYNCH ARIZONA MUNICIPAL BOND
FUND.............................. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide investors with as high a level of income
exempt from Federal and Arizona income taxes as is
consistent with prudent investment management.
MERRILL LYNCH ARKANSAS MUNICIPAL
BOND FUND......................... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and Arkansas income taxes as is consistent
with prudent investment management.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
MERRILL LYNCH ASSET GROWTH FUND,
INC. ............................. High total investment return, consistent with prudent
risk, from investment in United States and foreign
equity, debt and money market securities the
combination of which will be varied both with
respect to types of securities and markets in
response to changing market and economic trends.
MERRILL LYNCH ASSET INCOME FUND,
INC............................... A high level of current income through investment
primarily in United States fixed income securities.
MERRILL LYNCH BALANCED FUND FOR
INVESTMENT AND RETIREMENT, INC. .. As high a level of total investment return as is
consistent with a relatively low level of risk
through investment in common stock and other types
of securities, including fixed income securities
and convertible securities.
MERRILL LYNCH BASIC VALUE FUND,
INC............................... Capital appreciation and, secondarily, income through
investments in securities, primarily equities, that
are undervalued and therefore represent basic
investment value.
MERRILL LYNCH CALIFORNIA INSURED
MUNICIPAL BOND FUND............... A portfolio of Merrill Lynch California Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and California income taxes as is
consistent with prudent investment management
through investment in a portfolio primarily of
insured California Municipal Bonds.
MERRILL LYNCH CALIFORNIA LIMITED
MATURITY MUNICIPAL BOND
FUND.............................. A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal and California income taxes as
is consistent with prudent investment management
through investment in a portfolio primarily of
intermediate-term investment grade California
Municipal Bonds.
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
MERRILL LYNCH CALIFORNIA MUNICIPAL
BOND FUND........................... A portfolio of Merrill Lynch California Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and California income taxes as is
consistent with prudent investment management.
MERRILL LYNCH CAPITAL FUND,
INC. ............................. The highest total investment return consistent with
prudent risk through a fully managed investment
policy utilizing equity, debt and convertible
securities.
MERRILL LYNCH COLORADO MUNICIPAL
BOND FUND......................... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and Colorado income taxes as is consistent
with prudent investment management.
MERRILL LYNCH CONNECTICUT MUNICIPAL
BOND FUND......................... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and Connecticut income taxes as is
consistent with prudent investment management.
MERRILL LYNCH CORPORATE BOND FUND,
INC. ............................. Current income from three separate diversified
portfolios of fixed income securities.
MERRILL LYNCH DEVELOPING CAPITAL
MARKETS FUND, INC. ............... Long-term appreciation through investment in
securities, principally equities, of issuers in
countries having smaller capital markets.
MERRILL LYNCH DRAGON FUND,
INC. ............................. Capital appreciation primarily through investment in
equity and debt securities of issuers domiciled in
developing countries located in Asia and the
Pacific Basin.
MERRILL LYNCH EUROFUND.............. Capital appreciation primarily through investment in
equity securities of corporations domiciled in
Europe.
MERRILL LYNCH FEDERAL SECURITIES
TRUST............................. High current return through investments in U.S.
Government and Government agency securities,
including GNMA mortgage-backed certificates and
other mortgage-backed Government securities.
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MERRILL LYNCH FLORIDA LIMITED
MATURITY MUNICIPAL BOND
FUND.............................. A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal income taxes as is consistent
with prudent investment management while serving to
offer shareholders the opportunity to own
securities exempt from Florida intangible personal
property taxes through investment in a portfolio
primarily of intermediate-term investment grade
Florida Municipal Bonds.
MERRILL LYNCH FLORIDA MUNICIPAL BOND
FUND.............................. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal income taxes as is consistent with prudent
investment management, while seeking to offer
shareholders the opportunity to own shares exempt
from Florida intangible personal property taxes.
MERRILL LYNCH FUND FOR TOMORROW,
INC. ............................. Long-term growth through investment in a portfolio of
good quality securities, primarily common stock,
potentially positioned to benefit from demographic
and cultural changes as they affect consumer
markets.
MERRILL LYNCH FUNDAMENTAL GROWTH
FUND, INC. ....................... Long-term growth of capital through investment in a
diversified portfolio of equity securities placing
particular emphasis on companies that have
exhibited above-average growth rates in earnings.
MERRILL LYNCH FUNDAMENTAL VALUE
PORTFOLIO (available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as custodian).... A portfolio of Merrill Lynch Retirement Asset Builder
Program, Inc., a series fund, whose objective is to
provide capital appreciation and income by
investing in securities, with at least 65% of the
portfolio's assets being invested in equities.
</TABLE>
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MERRILL LYNCH GLOBAL ALLOCATION
FUND, INC. ......................... High total investment return consistent with prudent
risk through a fully managed investment policy
utilizing United States and foreign equity, debt
and money market securities, the combination of
which will be varied from time to time both with
respect to the types of securities and markets in
response to changing market and economic trends.
MERRILL LYNCH GLOBAL BOND FUND FOR
INVESTMENT AND
RETIREMENT........................ High total investment return from investment in
government and corporate bonds denominated in
various currencies and multi-national currency
units.
MERRILL LYNCH GLOBAL CONVERTIBLE
FUND, INC. ....................... High total return from investment primarily in an
internationally diversified portfolio of
convertible debt securities, convertible preferred
stock and "synthetic" convertible securities
consisting of a combination of debt securities or
preferred stock and warrants or options.
MERRILL LYNCH GLOBAL HOLDINGS, INC.
(residents of Arizona must meet
investor suitability
standards)........................ The highest total investment return consistent with
prudent risk through worldwide investment in an
internationally diversified portfolio of
securities.
MERRILL LYNCH GLOBAL OPPORTUNITY
PORTFOLIO (available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as
custodian)........................ A portfolio of Merrill Lynch Retirement Asset Builder
Program, Inc., a series fund, whose objective is to
provide a high total investment return through an
investment policy utilizing United States and
foreign equity, debt and money market securities,
the combination of which will vary depending upon
changing market and economic trends.
MERRILL LYNCH GLOBAL RESOURCES
TRUST............................. Long-term growth and protection of capital from
investment in securities of domestic and foreign
countries that possess substantial natural resource
assets.
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MERRILL LYNCH GLOBAL SMALLCAP FUND,
INC. ............................. Long-term growth of capital by investing primarily in
equity securities of issuers with relatively small
market capitalizations located in various foreign
countries and in the United States.
MERRILL LYNCH GLOBAL UTILITY FUND,
INC. ............................. Capital appreciation and current income through
investment of at least 65% of its total assets in
equity and debt securities issued by domestic and
foreign companies primarily engaged in the
ownership and operation of facilities used to
generate, transmit or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH GROWTH FUND FOR
INVESTMENT AND RETIREMENT......... Growth of capital and, secondarily, income from
investment in a diversified portfolio of equity
securities placing principal emphasis on those
securities which management of the fund believes to
be undervalued.
MERRILL LYNCH HEALTHCARE FUND, INC.
(residents of Wisconsin must meet
investor suitability
standards)........................ Capital appreciation through worldwide investment in
equity securities of companies that derive or are
expected to derive a substantial portion of their
sales from products and services in healthcare.
MERRILL LYNCH INTERNATIONAL
EQUITY FUND....................... Capital appreciation and, secondarily, income by
investing in a diversified portfolio of equity
securities of issuers located in countries other
than the United States.
MERRILL LYNCH LATIN AMERICA
FUND, INC. ....................... Capital appreciation by investing primarily in Latin
American equity and debt securities.
MERRILL LYNCH MARYLAND MUNICIPAL
BOND FUND......................... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and Maryland income taxes as is consistent
with prudent investment management.
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MERRILL LYNCH MASSACHUSETTS LIMITED
MATURITY MUNICIPAL BOND FUND...... A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal and Massachusetts income taxes
as is consistent with prudent investment management
through investment in a portfolio primarily of
intermediate-term investment grade Massachusetts
Municipal Bonds.
MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND............... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and Massachusetts income taxes as is
consistent with prudent investment management.
MERRILL LYNCH MICHIGAN LIMITED
MATURITY MUNICIPAL BOND
FUND.............................. A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal and Michigan income taxes as is
consistent with prudent investment management
through investment in a portfolio primarily of
intermediate-term investment grade Michigan
Municipal Bonds.
MERRILL LYNCH MICHIGAN MUNICIPAL
BOND FUND......................... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and Michigan income taxes as is consistent
with prudent investment management.
MERRILL LYNCH MINNESOTA MUNICIPAL
BOND FUND......................... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and Minnesota personal income taxes as is
consistent with prudent investment management.
MERRILL LYNCH MUNICIPAL BOND FUND,
INC. ............................. Tax-exempt income from three separate diversified
portfolios of municipal bonds.
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MERRILL LYNCH MUNICIPAL INTERMEDIATE
TERM FUND......................... Currently the only portfolio of Merrill Lynch
Municipal Series Trust, a series fund, whose
objective is to provide as high a level as possible
of income exempt from Federal income taxes by
investing in investment grade obligations with a
dollar weighted average maturity of five to twelve
years.
MERRILL LYNCH NEW JERSEY LIMITED
MATURITY MUNICIPAL BOND
FUND.............................. A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal and New Jersey income taxes as
is consistent with prudent investment management
through investment in a portfolio primarily of
intermediate-term investment grade New Jersey
Municipal Bonds.
MERRILL LYNCH NEW JERSEY MUNICIPAL
BOND FUND......................... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and New Jersey income taxes as is
consistent with prudent investment management.
MERRILL LYNCH NEW MEXICO MUNICIPAL
BOND FUND........................... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and New Mexico income taxes as is
consistent with prudent investment management.
MERRILL LYNCH NEW YORK LIMITED
MATURITY MUNICIPAL BOND
FUND.............................. A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal, New York State and New York
City income taxes as is consistent with prudent
investment management through investment in a
portfolio primarily of intermediate-term investment
grade New York Municipal Bonds.
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MERRILL LYNCH NEW YORK MUNICIPAL
BOND FUND......................... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal, New York State and New York City income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH NORTH CAROLINA
MUNICIPAL BOND FUND............... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and North Carolina income taxes as is
consistent with prudent investment management.
MERRILL LYNCH OHIO MUNICIPAL BOND
FUND.............................. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and Ohio income taxes as is consistent with
prudent investment management.
MERRILL LYNCH OREGON MUNICIPAL BOND
FUND.............................. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and Oregon income taxes as is consistent
with prudent investment management.
MERRILL LYNCH PACIFIC FUND,
INC. ............................. Capital appreciation by investing in equity
securities of corporations domiciled in Far Eastern
and Western Pacific countries, including Japan,
Australia, Hong Kong and Singapore.
MERRILL LYNCH PENNSYLVANIA LIMITED
MATURITY MUNICIPAL BOND FUND...... A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income
exempt from Federal and Pennsylvania income taxes
as is consistent with prudent investment management
through investment in a portfolio of
intermediate-term investment grade Pennsylvania
Municipal Bonds.
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MERRILL LYNCH PENNSYLVANIA MUNICIPAL
BOND FUND......................... A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal and Pennsylvania personal income taxes as
is consistent with prudent investment management.
MERRILL LYNCH PHOENIX FUND,
INC. ............................. Long-term growth of capital by investing in equity
and fixed income securities, including tax-exempt
securities, of issuers in weak financial condition
or experiencing poor operating results believed to
be undervalued relative to the current or
prospective condition of such issuer.
MERRILL LYNCH QUALITY BOND PORTFOLIO
(available only for exchanges by
certain individual retirement
accounts for which Merrill Lynch
acts as custodian).................. A portfolio of Merrill Lynch Retirement Asset Builder
Program, Inc., a series fund, whose objective is to
provide a high level of current income through
investment in a diversified portfolio of debt
obligations, such as corporate bonds and notes,
convertible securities, preferred stocks and
governmental obligations.
MERRILL LYNCH SHORT-TERM GLOBAL
INCOME FUND, INC. ................ As high a level of current income as is consistent
with prudent investment management from a global
portfolio of high quality debt securities
denominated in various currencies and
multi-national currency units and having remaining
maturities not exceeding three years.
MERRILL LYNCH SPECIAL VALUE FUND,
INC. ............................. Long-term growth of capital from investments in
securities, primarily common stocks, of relatively
small companies believed to have special investment
value and emerging growth companies regardless of
size.
MERRILL LYNCH STRATEGIC DIVIDEND
FUND.............................. Long-term total return from investment in dividend
paying common stocks which yield more than Standard &
Poor's 500 Composite Stock Price Index.
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MERRILL LYNCH TECHNOLOGY FUND,
INC. ............................. Capital appreciation through worldwide investment in
equity securities of companies that derive or are
expected to derive a substantial portion of their
sales from products and services in technology.
MERRILL LYNCH TEXAS MUNICIPAL BOND
FUND.............................. A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide as high a level of income exempt from
Federal income taxes as is consistent with prudent
investment management by investing primarily in a
portfolio of long-term, investment grade
obligations issued by the State of Texas, its
political subdivisions, agencies and
instrumentalities.
MERRILL LYNCH U.S. GOVERNMENT
SECURITIES PORTFOLIO (available
only for exchanges by certain
individual retirement accounts for
which Merrill Lynch acts as
custodian) ....................... A portfolio of Merrill Lynch Retirement Asset Builder
Program, Inc., a series fund, whose objective is to
provide a high current return through investments
in U.S. Government and government agency
securities, including GNMA mortgage-backed
certificates and other mortgage-backed government
securities.
MERRILL LYNCH UTILITY INCOME FUND,
INC. ............................. High current income through investment in equity and
debt securities issued by companies which are
primarily engaged in the ownership or operation of
facilities used to generate, transmit or distribute
electricity, telecommunications, gas or water.
Class A Share Money Market Funds:
MERRILL LYNCH READY ASSETS TRUST.... Preservation of capital, liquidity and the highest
possible current income consistent with the foregoing
objectives from the short-term money market
securities in which the Trust invests.
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MERRILL LYNCH RETIREMENT RESERVES
MONEY FUND (available only for
exchanges within certain
retirement plans)................. Currently the only portfolio of Merrill Lynch
Retirement Series Trust, a series fund, whose
objectives are current income, preservation of
capital and liquidity available from investing in a
diversified portfolio of short-term money market
securities.
MERRILL LYNCH U.S.A. GOVERNMENT
RESERVES.......................... Preservation of capital, current income and liquidity
available from investing in direct obligations of
the U.S. Government and repurchase agreements
relating to such securities.
MERRILL LYNCH U.S. TREASURY MONEY
FUND.............................. Preservation of capital, liquidity and current income
through investment exclusively in a diversified
portfolio of short-term marketable securities which
are direct obligations of the U.S. Treasury.
Class B, Class C and Class D Share Money Market Funds:
MERRILL LYNCH GOVERNMENT
FUND.............................. A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income consistent with liquidity and
security of principal from investment in securities
issued or guaranteed by the U.S. Government, its
agencies and instrumentalities and in repurchase
agreements secured by such obligations.
MERRILL LYNCH INSTITUTIONAL
FUND.............................. A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
maximum current income consistent with liquidity
and the maintenance of a high-quality portfolio of
money market securities.
MERRILL LYNCH INSTITUTIONAL TAX-
EXEMPT FUND....................... A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income exempt from Federal income taxes,
preservation of capital and liquidity available
from investing in a diversified portfolio of
short-term, high quality municipal bonds.
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MERRILL LYNCH TREASURY FUND......... A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income consistent with liquidity and
security of principal from investment in direct
obligations of the U.S. Treasury and up to 10% of
its total assets in repurchase agreements secured
by such obligations.
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Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their
Merrill Lynch financial consultant, who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of the other funds described above
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The Fund reserves
the right to require a properly completed Exchange Application. This exchange
privilege may be modified or terminated in accordance with the rules of the
Commission. The Fund reserves the right to limit the number of times an investor
may exercise the exchange privilege. Certain funds may suspend the continuous
offering of their shares at any time and thereafter may resume such offering
from time to time. The exchange privilege is available only to U.S. shareholders
in states where the exchange legally may be made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all its net investment income. Dividends from
such net investment income will be declared daily prior to the determination of
net asset value on that day and paid monthly. Net investment income for dividend
purposes consists of interest earned less expenses of the Fund accrued for that
dividend period. Shares will accrue dividends as long as they are issued and
outstanding. Shares are issued and outstanding as of the settlement date of a
purchase order to the settlement date of a redemption order. All net realized
long-term capital gains, if any, will be distributed to the Fund's shareholders
at least annually.
See "Shareholder Services--Automatic Reinvestment of Dividends and Capital
Gains Distributions" for information concerning the manner in which dividends
and distributions may be automatically reinvested in shares of the Fund.
Shareholders may elect in writing to receive any such dividends or
distributions, or both, in cash. Dividends and distributions are taxable to
shareholders as discussed below whether they are reinvested in shares of the
Fund or received in cash.
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TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, the Fund (but not its
shareholders) will not be subject to Federal income tax on the part of its net
ordinary income and net realized capital gains which it distributes to Class A,
Class B, Class C and Class D shareholders (together, the "shareholders"). The
Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in futures and options)
("capital gain dividends") are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund shares.
Any loss upon the sale or exchange of Fund shares held for six months or less,
however, will be treated as long-term capital loss to the extent of any capital
gain dividends received by the shareholder. Distributions in excess of the
Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming the shares are held as a
capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or capital
gains, generally will not be eligible for the dividends received deduction
allowed to corporations under the Code. If the Fund pays a dividend in January
which was declared in the previous October, November or December to shareholders
of record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% 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 the 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 United States foreign tax credits with respect to such
taxes, subject to certain conditions and limitations contained in the Code. For
example, certain
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retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. If more than 50% in value of the Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service pursuant to which shareholders of the Fund will be
required to include their proportionate shares of such withholding taxes in
their United States income tax returns as gross income, treat such proportionate
shares as taxes paid by them, and deduct such proportionate shares in computing
their taxable incomes or, alternatively, use them as foreign tax credits against
their United States income taxes. No deductions for foreign taxes, however, may
be claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign corporation may
be subject to United States 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 United States tax for the foreign taxes treated
as having been paid by such shareholder. The Fund will report annually to its
shareholders the amount per share of such withholding taxes. For this purpose,
the Fund will allocate foreign taxes and foreign source income among the Class
A, Class B, Class C and Class D shareholders according to a method (which it
believes is consistent with the Securities and Exchange Commission exemptive
order permitting the issuance and sale of multiple classes of stock) that is
based on the gross income allocable to Class A, Class B, Class C and Class D
shareholders during the taxable year, or such other method as the Internal
Revenue Service may prescribe.
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class D shares. A shareholder's basis in the Class
D shares acquired will be the same as such shareholder's basis in the Class B
shares converted, and the holding period of the acquired Class D shares will
include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
such shares, then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent any sales charge paid to the Fund
on the exchanged shares reduces any sales charge the shareholder would have owed
upon the purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income and
capital gains in the manner necessary to avoid imposition of the 4% excise tax,
there can be no assurance that sufficient amounts of the Fund's taxable income
and capital gains will be distributed to avoid entirely the imposition of the
tax. In such event, the Fund will be liable for the tax only on the amount by
which it does not meet the foregoing distribution requirements.
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The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield securities"), as described in the Prospectus. Some of
these high yield securities may be purchased at a discount and may therefore
cause the Fund to accrue income before amounts due under the obligations are
paid. In addition, a portion of the interest payments on such high yield
securities may be treated as dividends for Federal income tax purposes and may
be eligible for the dividends received deduction allowed to domestic
corporations under the Code.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Fund may write, purchase or sell options, futures or forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year. Unless
such contract is a forward foreign exchange contract or is a non-equity option
or a regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code Section
988 (as described below), Section 1256 contracts will be 60% long-term and 40%
short-term capital gain or loss. The mark-to-market rules outlined above,
however, will not apply to certain transactions entered into by the Fund solely
to reduce the risk of changes in price or interest or currency exchange rates
with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The Fund
may, nonetheless, elect to treat the gain or loss from certain forward foreign
exchange contracts as capital. In this case, gain or loss realized in connection
with a forward foreign exchange contract that is a Section 1256 contract will be
characterized as 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Fund's transactions in options, futures and forward foreign
exchange contracts. Under Section 1092, the Fund may be required to postpone
recognition for tax purposes of losses incurred in certain closing transactions
in option, futures and forward foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income be derived from gains from the sale or other disposition
of securities held for less than three months. Accordingly, the Fund may be
restricted in effecting closing transactions within three months after entering
into an options or futures contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign currency contracts will be valued for purposes of
the RIC diversification requirements applicable to the Fund.
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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 United States dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the Fund may elect
capital gain or loss treatment for such transactions. Regulated futures
contracts, as described above, will be taxed under Code Section 1256 unless
application of Section 988 is elected by the Fund. In general, however, Code
Section 988 gains or losses will increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders as
ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary income dividend distributions, and any distributions
made before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Fund shares, and resulting in a capital gain for any
shareholder who received a distribution greater than 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. Finally, Section 988 losses with
respect to foreign currency denominated tax-exempt securities may be subject to
disallowance.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
46
<PAGE>
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data, as well as yield, in advertisements or information
furnished to present or prospective shareholders. From time to time, the Fund
may include the Fund's Morningstar Publications, Inc. risk-adjusted performance
ratings in advertisements as supplemental sales literature. Total return is
based on the Fund's historical performance and is not intended to indicate
future performance. Average annual total return and yield are 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 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 period 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. 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.
47
<PAGE>
Set forth in the tables below is total return and yield information for the
Class A, Class B, Class C and Class D shares of the Fund for the periods
indicated. Since the Fund did not begin to offer Class C and Class D shares
publicly until October 21, 1994, such information is provided as to those
classes for the period from October 21, 1994 to December 31, 1994.
<TABLE><CAPTION>
CLASS A SHARES CLASS B SHARES
---------------------------------------- ----------------------------------------
EXPRESSED AS REDEEMABLE VALUE EXPRESSED AS REDEEMABLE VALUE
A PERCENTAGE OF A HYPOTHETICAL A PERCENTAGE OF A HYPOTHETICAL
BASED ON A $1,000 INVESTMENT BASED ON A $1,000 INVESTMENT
HYPOTHETICAL AT THE END OF HYPOTHETICAL AT THE END OF
$1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT THE PERIOD
------------------ ------------------ ------------------ ------------------
AVERAGE ANNUAL TOTAL RETURN
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
One Year Ended December 31,
1994..................... (7.89%) $ 921.10 (8.41%) $ 915.90
Five Years Ended December
31, 1994................. 8.61% $ 1,511.60
Inception (November 18,
1991) to December 31,
1994..................... 4.43% $ 1,144.80
Inception (September 29,
1988) to December 31,
1994..................... 9.05% $ 1,719.50
<CAPTION>
ANNUAL TOTAL RETURN
(excluding maximum applicable sales charges)
<S> <C> <C> <C> <C>
Year Ended December 31,
1994..................... (4.05%) $ 959.50 (4.90%) $ 951.00
1993..................... 14.12% $ 1,141.20 13.27% $ 1,132.70
1992..................... 6.15% $ 1,061.50 5.34% $ 1,053.40
1991..................... 23.12% $ 1,231.20
1990..................... 10.03% $ 1,100.30
1989..................... 6.82% $ 1,068.20
Inception (September 29,
1988) to December 31,
1988..................... 6.49% $ 1,064.90
Inception (November 18,
1991) to December 31,
1991..................... 1.64% $ 1,016.40
<CAPTION>
AGGREGATE TOTAL RETURN
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
Inception (November 18,
1991) to December 31,
1994..................... 14.48% $ 1,144.80
Inception (September 29,
1988) to December 31,
1994*.................... 71.95% $ 1,719.50
<CAPTION>
YIELD
<S> <C> <C> <C> <C>
30 Days Ended March 31,
1995..................... 9.40% 9.01%
</TABLE>
48
<PAGE>
<TABLE><CAPTION>
CLASS C SHARES** CLASS D SHARES**
---------------------------------------- ----------------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
EXPRESSED AS OF A HYPOTHETICAL EXPRESSED AS OF A HYPOTHETICAL
A PERCENTAGE BASED $1,000 INVESTMENT A PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END OF THE ON A HYPOTHETICAL AT THE END OF THE
PERIOD $1,000 INVESTMENT PERIOD $1,000 INVESTMENT PERIOD
- --------------------------- ------------------ ------------------ ------------------ ------------------
AVERAGE ANNUAL TOTAL RETURN
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
Inception (October 21,
1994) to December 31,
1994..................... (10.70%) $ 978.20 (23.35%) $ 949.60
<CAPTION>
ANNUAL TOTAL RETURN
(excluding maximum applicable sales charges)
<S> <C> <C> <C> <C>
Inception (October 21,
1994) to December 31,
1994..................... (1.20%) $ 988.00 (1.09%) $ 989.10
<CAPTION>
AGGREGATE TOTAL RETURN
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
Inception (October 21,
1994) to December 31,
1994..................... (2.18%) $ 978.20 (5.04%) $ 949.60
<CAPTION>
YIELD
<S> <C> <C> <C> <C>
30 days ended
March 31, 1995........... 8.91% 9.16%
</TABLE>
- ------------
* The Fund operated as a closed-end investment company from September 29, 1988
until November 15, 1991 and commenced operations as an open-end investment
company on November 18, 1991.
** Class C and Class D shares commenced operations on October 21, 1994.
In order to reflect the reduced sales charges in the case of Class A or
Class D shares or the waiver of the CDSC in the case of Class B shares
applicable to certain investors, as described under "Purchase of Shares" and
"Redemption of Shares", respectively, the total return data quoted by the Fund
in advertisements directed to such investors may take into account the reduced,
and not the maximum, sales charge or may take into account the waiver of the
CDSC and therefore may reflect greater total return since, due to the reduced
sales charges or the waiver of sales charges, a lower amount of expenses is
deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on July 1, 1988 as a closed-end
investment company. On October 25, 1991, the shareholders of the Fund voted to
convert the Fund to an open-end investment company. The Fund was converted to an
open-end investment company on November 15, 1991 and commenced operations as
such on November 18, 1991. The Fund has an authorized capital of 4,000,000,000
shares of Common Stock, par value $0.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D Common Stock, each of which
consists of 1,000,000,000 shares.
49
<PAGE>
At the time of conversion of the Fund into an open-end investment company, the
Fund had approximately 32,447,786 shares of Common Stock outstanding, all of
which were reclassified into shares of Class A Common Stock upon such
conversion. Class A, Class B, Class C and Class D Common Stock represent an
interest in the same assets of the Fund and are identical in all respects except
that the Class B, Class C and Class D shares bear certain expenses related to
the account maintenance and/or distribution of such shares and have exclusive
voting rights with respect to matters relating to such expenditures. The Fund
has received an order from the Commission permitting the issuance and sale of
multiple classes of Common Stock. The Board of Directors of the Fund may
classify and reclassify the shares of the Fund into additional classes of Common
Stock at a future date.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held and will vote on the election of
Directors and any other matter submitted to a shareholder vote. The Fund does
not intend to hold meetings of shareholders in any year in which the Investment
Company Act does not require shareholders to act upon any of the following
matters: (i) election of Directors; (ii) approval of an investment advisory
agreement; (iii) approval of a distribution agreement; and (iv) ratification of
selection of independent accountants. Generally, under Maryland law, a meeting
of shareholders may be called for any purpose on the written request of the
holders of at least 25% of the outstanding shares of the Fund. Under the By-laws
of the Fund, a special meeting of shareholders may be called for any purpose on
the written request of the holders of at least 10% of the outstanding shares of
the Fund. Voting rights for Directors are not cumulative. Shares issued are
fully paid and non-assessable and have no preemptive rights. Redemption and
conversion rights are discussed elsewhere herein and in the Prospectus. Each
share of Class B, Class C and Class D Common Stock is entitled to participate
equally in dividends and distributions declared by the Fund and in the net
assets of the Fund upon liquidation or dissolution after satisfaction of
outstanding liabilities. Stock certificates will be issued by the Transfer Agent
only on specific request. Certificates for fractional shares are not issued in
any case.
The Investment Adviser provided the initial capital for the Fund by
purchasing 31,050,000 shares for $290,317,500. Such shares were acquired for
investment and can only be disposed of by redemption. The organizational
expenses of the Fund were paid by the Fund and are being amortized over a period
not exceeding five years. The proceeds realized by the Investment Adviser (or
any subsequent holder) upon redemption of any of such shares will be reduced by
the proportionate amount of the unamortized organizational expenses which the
number of shares redeemed bears to the number of shares initially purchased.
50
<PAGE>
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for each class of
shares of the Fund based on the Fund's net assets and number of shares
outstanding as of December 31, 1994 is calculated as set forth below.
<TABLE><CAPTION>
CLASS A CLASS B CLASS C*** CLASS D***
------------ -------------- ---------- ----------
<S> <C> <C> <C> <C>
Net Assets........................... $311,181,573 $1,490,506,743 $1,204,423 $1,409,595
------------ -------------- ---------- ----------
------------ -------------- ---------- ----------
Number of Shares Outstanding......... 37,961,421 181,949,101 147,121 171,952
------------ -------------- ---------- ----------
------------ -------------- ---------- ----------
Net Asset Value Per Share (net assets
divided by number of shares
outstanding)....................... $ 8.20 $ 8.19 $ 8.19 $ 8.20
Sales Charge (for Class A and Class D
shares: 4.00% of offering price
(4.17% of net asset value per
share))*........................... .34 ** ** .34
------------ -------------- ---------- ----------
Offering Price....................... $ 8.54 $ 8.19 $ 8.19 $ 8.54
------------ -------------- ---------- ----------
------------ -------------- ---------- ----------
</TABLE>
- ------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption of shares. See "Purchase of
Shares-Deferred Sales Charge Alternatives-Class B and Class C Shares" in the
Prospectus.
*** Class C and Class D shares commenced operations on October 21, 1994.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, have
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to ratification by the shareholders of the Fund.
The independent auditors are responsible for auditing the annual financial
statements of the Fund.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 351, Boston, Massachusetts
02101, acts as the custodian of the Fund's assets. The Custodian is responsible
for safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities and collecting interest and dividends on the
Fund's investment.
TRANSFER AGENT
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, acts as the Fund's transfer agent. The Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the opening,
maintenance and servicing of shareholder accounts. See "Management of the
Fund--Transfer Agency Services" in the Prospectus.
51
<PAGE>
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on December 31 of each year. The Fund sends
to its shareholders at least semi-annually reports showing the Fund's portfolio
and other information. An annual report, containing financial statements audited
by Independent Auditors, is sent to shareholders each year. After the end of
each year, shareholders will receive Federal income tax information regarding
dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Commission, Washington,
D.C., under the Securities Act of 1933 and the Investment Company Act, to which
reference is hereby made.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on April 1, 1995.
52
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch World Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch World Income Fund, Inc. as of
December 31, 1994, the related statements of operations for the year then ended
and changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for the periods presented. These financial
statements and the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch World
Income Fund, Inc. as of December 31, 1994, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 3, 1995
53
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Value Percent of
AFRICA Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
South Foreign US$ 10,000,000 Republic of South Africa, 9.625%
Africa Government due 12/15/1999 $ 9,968,500 $ 9,700,000 0.5%
Obligations
Total Investments in Africa 9,968,500 9,700,000 0.5
LATIN AMERICA &
THE CARIBBEAN
Argentina Energy Transportadora de Gas del Sur:
2,000,000 7.75% due 12/23/1998 1,837,500 1,635,000 0.1
2,000,000 ++7.75% due 12/23/1998 2,042,500 1,652,500 0.1
------------- -------------- ------
3,880,000 3,287,500 0.2
Foreign Lit 5,000,000,000 Republic of Argentina,
Government 13.45% due 10/21/1997 3,089,063 3,042,083 0.2
Obligations
Telecommunications US$ 500,000 Telecom Argentina Stet-France Telecom
S.A., 8.375% due 10/18/2000 460,000 401,250 0.0
2,500,000 ++Telecom Argentina Stet-France
Telecom S.A., 8.375% due 10/18/2000 2,490,625 2,025,000 0.1
Telefonica de Argentina S.A.:
3,000,000 8.375% due 10/01/2000 3,033,750 2,445,000 0.1
10,000,000 11.875% due 11/01/2004 9,800,800 9,000,000 0.5
------------- -------------- ------
15,785,175 13,871,250 0.7
Total Fixed-Income Investments
in Argentina 22,754,238 20,200,833 1.1
Brazil Construction 5,000,000 ++Compania Brasileira de Projetos e
Obras, 12.50% due 12/22/1997 4,975,000 4,875,000 0.3
Total Fixed-Income Investments
in Brazil 4,975,000 4,875,000 0.3
Colombia Banking 3,000,000 Banco Ganadero S.A., 9.75%
due 8/26/1999 2,987,340 2,910,000 0.2
Total Fixed-Income Investments
in Colombia 2,987,340 2,910,000 0.2
Mexico Construction 5,000,000 Empresas ICA Sociedad Controladora,
S.A. de C.V., 9.75% due 2/11/1998 5,093,750 4,437,500 0.2
Food & Beverage 5,000,000 Fomento Economico Mexico, S.A. de C.V.
(Femsa), 9.50% due 7/22/1997 5,099,375 4,500,000 0.3
3,000,000 Gruma S.A., de C.V., 9.75%
due 3/09/1998 2,987,500 2,726,250 0.2
7,500,000 Grupo Embotellador de Mexico, S.A. de
C.V. (GEMEX), 10.75% due 11/19/1997 7,967,500 7,137,225 0.4
------------- -------------- ------
16,054,375 14,363,475 0.9
Foreign Government & 3,000,000 Banco Nacional de Commerce Exterior,
Agency Obligations 8.00% due 8/05/2003 2,636,250 2,238,750 0.1
6,500,000 Nafinsa, 10.625% due 11/22/2001 7,034,375 5,963,750 0.3
5,000,000 United Mexican States, 8.50%
due 9/15/2002 4,768,750 3,925,000 0.2
10,000,000 United Mexican States, Government
Bond, 12.25% due 12/03/1998 17,422,208 16,239,420 0.9
------------- -------------- ------
31,861,583 28,366,920 1.5
54
<PAGE>
Industrial Services 3,000,000 Cemex, S.A., 10.00% due 11/05/1999 3,037,500 2,625,000 0.1
Retail Stores 3,000,000 Controladora Comercial Mexicana,
S.A. de C.V., 8.75% due 4/21/1998 2,970,000 2,535,000 0.1
Total Fixed-Income Investments
in Mexico 59,017,208 52,327,895 2.8
Trinidad Foreign Government
& Tobago Obligations Republic of Trinidad and Tobago:
3,000,000 11.50% due 11/20/1997 3,123,750 3,000,000 0.2
4,000,000 ++9.75% due 11/03/2000 3,991,600 3,660,000 0.2
------------- -------------- ------
7,115,350 6,660,000 0.4
Total Fixed-Income Investments in
Trinidad & Tobago 7,115,350 6,660,000 0.4
Total Investments in Latin American
& Caribbean Securities 96,849,136 86,973,728 4.8
NORTH AMERICA
Canada Foreign Government Canadian Government Bonds:
Obligations C$ 25,000,000 6.50% due 9/01/1998 19,219,059 16,480,108 0.9
22,000,000 7.75% due 9/01/1999 15,155,309 14,955,796 0.8
------------- -------------- ------
34,374,368 31,435,904 1.7
Total Fixed-Income Investments
in Canada 34,374,368 31,435,904 1.7
United Air Transport Delta Air Lines, Inc.:
States US$ 16,332,054 9.375% due 9/11/2007(b) 16,611,005 15,250,055 0.8
10,000,000 10.50% due 4/30/2016 10,287,500 9,815,100 0.5
7,100,000 United Air Pass-Through, 10.125%
due 3/22/2015 7,684,046 6,669,385 0.4
15,000,000 USAir Inc., 10.375% due 3/01/2013 15,000,000 12,225,000 0.7
------------- -------------- ------
49,582,551 43,959,540 2.4
Broadcasting & 10,190,000 Century Communications Corp., 11.875%
Publishing due 10/15/2003 10,701,550 10,623,075 0.6
10,000,000 Continental Cablevision, 9.50%
due 8/01/2013 10,000,000 9,150,000 0.5
13,000,000 Heritage Media Corp., 11.00%
due 6/15/2002 13,295,625 13,195,000 0.7
5,000,000 K-III Communications Corp., 10.625%
due 5/01/2002 5,090,000 4,850,000 0.3
10,000,000 Videotron Group, Ltd. Co., 10.25%
due 10/15/2002 10,043,750 9,800,000 0.5
------------- -------------- ------
49,130,925 47,618,075 2.6
Building Materials 15,300,000 Pacific Lumber Co., 10.50%
due 3/01/2003 15,462,750 14,229,000 0.8
11,035,000 USG Corp., 8.75% due 3/01/2017 9,717,469 9,379,750 0.5
------------- -------------- ------
25,180,219 23,608,750 1.3
Business Services 18,500,000 ADT Operations, 9.25% due 8/01/2003 18,573,188 17,112,500 0.9
8,000,000 Bell & Howell Co., Series B, 10.75%
due 10/01/2002 8,000,000 7,600,000 0.4
------------- -------------- ------
26,573,188 24,712,500 1.3
Chemicals 33,860,000 GI Holdings, Inc., 11.38%* due
10/01/1998 22,375,651 20,527,625 1.1
10,000,000 Uniroyal Chemical Co., 9.00%
due 9/01/2000 10,000,000 9,400,000 0.5
------------- -------------- ------
32,375,651 29,927,625 1.6
Conglomerates 20,000,000 Coltec Industries Inc., 10.25%
due 4/01/2002 20,387,500 19,600,000 1.1
10,000,000 Sequa Corp., 9.375% due 12/15/2003 9,915,000 8,800,000 0.5
10,100,000 Sherritt Gordon, Ltd., 9.75%
due 4/01/2003 10,148,750 9,696,000 0.5
10,000,000 Southern Pacific Rail Co., 9.375%
due 8/15/2005 10,000,000 9,200,000 0.5
------------- -------------- ------
50,451,250 47,296,000 2.6
55
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH
AMERICA Value Percent of
(continued) Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Consumer Goods Liggett Group, Inc.:
States US$ 8,000,000 11.50% due 2/01/1999 $ 7,724,541 $ 5,600,000 0.3%
(concluded) 4,199,000 16.50% due 2/01/1999 4,199,000 3,611,140 0.2
------------- -------------- ------
11,923,541 9,211,140 0.5
Containers 20,000,000 Owens Illinois, 11.00% due 12/01/2003 21,906,563 20,750,000 1.2
6,100,000 Silgan Holdings Corp., 11.75%
due 6/15/2002 6,194,875 6,313,500 0.4
------------- -------------- ------
28,101,438 27,063,500 1.6
Cosmetics 20,000,000 Revlon Consumer Products Corp.,
9.375% due 4/01/2001 17,607,494 17,900,000 1.0
Energy Clark Oil Co.:
8,360,000 10.50% due 12/01/2001 8,827,300 8,569,000 0.5
500,000 9.50% due 9/15/2004 500,000 487,500 0.0
7,000,000 Clark R & M Holdings, Inc., 10.54%*
due 2/15/2000 4,120,703 3,990,000 0.2
Gulf Canada Resources, Ltd.:
10,000,000 9.00% due 8/15/1999 9,158,438 9,500,000 0.5
6,500,000 9.25% due 1/15/2004 6,458,855 5,980,000 0.3
Maxus Energy Corp.:
6,500,000 9.875% due 10/15/2002 6,485,050 5,655,000 0.3
1,000,000 11.50% due 11/15/2015 1,051,250 920,000 0.1
15,000,000 Rowan Companies, Inc., 11.875%
due 12/01/2001 15,590,000 15,450,000 0.9
15,000,000 Seagull Energy Corp., 8.625%
due 8/01/2005 15,000,000 12,787,500 0.7
10,000,000 Trans Texas Gas Corp., 10.50%
due 9/01/2000 10,000,000 9,550,000 0.5
------------- -------------- ------
77,191,596 72,889,000 4.0
Entertainment Marvel Holdings, Inc.:
26,780,000 11.47%* due 4/15/1998 18,450,899 16,469,700 0.9
1,125,000 9.125% due 2/15/1998 995,625 978,750 0.1
5,000,000 Spectravision Inc., 10.92%*
due 10/01/2001 4,211,312 2,150,000 0.1
10,000,000 Trump Plaza Funding, Inc., 10.875%
due 6/15/2001 7,536,875 7,600,000 0.4
------------- -------------- ------
31,194,711 27,198,450 1.5
Financial Services 17,375,000 Lomas Mortgage USA, 10.25%
due 10/01/2002 17,387,500 14,421,250 0.8
10,000,000 Penn Financial Corp., 9.25%
due 12/15/2003 10,000,000 8,800,000 0.5
10,000,000 Reliance Group Holdings, 9.00%
due 11/15/2000 10,000,000 9,100,000 0.5
------------- -------------- ------
37,387,500 32,321,250 1.8
Food & Beverage 10,000,000 Canandaigua Wine Inc., 8.75%
due 12/15/2003 10,000,000 9,100,000 0.5
10,000,000 Coca-Cola Bottling Co., 9.00%
due 11/15/2003 10,005,000 8,775,000 0.5
20,000,000 Del Monte Corp., 10.00%
due 5/01/2003 20,025,313 13,600,000 0.8
25,000,000 Grand Union Co., 11.25%
due 7/15/2000 25,524,063 22,250,000 1.2
18,000,000 Penn Traffic Co., 9.625%
due 4/15/2005 18,308,350 15,660,000 0.9
20,000,000 Pueblo Xtra International Inc., 9.50%
due 8/01/2003 20,111,875 16,800,000 0.9
10,000,000 Specialty Foods Corp., 10.25%
due 8/15/2001 10,000,000 8,900,000 0.5
------------- -------------- ------
113,974,601 95,085,000 5.3
Furniture/Home 1,400,000 ++Zenith Electronics Corp., 8.50%
Appliance due 11/19/2000** 2,060,380 1,921,500 0.1
56
<PAGE>
Health Services 15,000,000 Continental Medical Systems, Inc.,
10.875% due 8/15/2002 15,029,062 12,075,000 0.7
2,500,000 MEDIQ, Inc., 11.125% due 7/01/1999 2,500,000 2,325,000 0.1
------------- -------------- ------
17,529,062 14,400,000 0.8
High Technology 15,000,000 Computervision Corp., 10.875%
due 8/15/1997 15,025,000 13,800,000 0.8
Home Building Del E. Webb Corp.:
9,250,000 10.875% due 3/31/2000 9,376,875 8,787,500 0.5
3,500,000 9.75% due 3/01/2003 3,472,455 2,905,000 0.2
Kaufman & Broad Home, Inc.:
3,000,000 10.375% due 9/01/1999 3,030,000 2,985,000 0.2
5,250,000 9.375% due 5/01/2003 5,217,187 4,567,500 0.3
Ryland Group, Inc.:
3,750,000 10.50% due 7/15/2002 3,733,850 3,356,250 0.2
12,250,000 9.625% due 6/01/2004 11,991,250 10,290,000 0.6
------------- -------------- ------
36,821,617 32,891,250 2.0
Hotels & Casinos 1,906,000 Goldriver Hotel & Casino Corp.,
13.375% due 8/31/1999 2,645,548 1,658,220 0.1
10,000,000 Greate Bay Properties, Inc., 10.875%
due 1/15/2004 9,996,250 8,100,000 0.5
15,000,000 Showboat, Inc., 9.25% due 5/01/2008 14,698,750 12,525,000 0.7
------------- -------------- ------
27,340,548 22,283,220 1.3
Leisure Time 5,925,000 AMC Entertainment, Inc., 12.625%
due 8/01/2002 6,017,020 6,265,688 0.3
Paper 10,000,000 Container Corp. of America, 9.75%
due 4/01/2003 10,200,000 9,475,000 0.5
15,000,000 Fort Howard Corp., 9.00% due 2/01/2006 15,007,500 12,900,000 0.7
10,000,000 Riverwood International Corp., 11.25%
due 6/15/2002 10,385,750 10,275,000 0.6
12,500,000 Stone Container Corp., 9.875%
due 2/01/2001 11,667,085 11,750,000 0.7
7,500,000 Stone Container Gorp., 10.75%
due 10/01/2002 7,425,000 7,462,500 0.4
------------- -------------- ------
54,685,335 51,862,500 2.9
Restaurants & 10,000,000 Family Restaurant Inc., 9.75%
Food Services due 2/01/2002 10,000,000 7,850,000 0.4
Flagstar Corp.:
2,000,000 10.875% due 12/01/2002 2,000,000 1,860,000 0.1
17,000,000 11.375% due 9/15/2003 16,640,000 14,110,000 0.8
20,000,000 Foodmaker, Inc., 9.75% due 6/01/2002 19,554,250 15,000,000 0.8
------------- -------------- ------
48,194,250 38,820,000 2.1
Retail Stores 10,000,000 Specialty Retailers, Inc., 10.00%
due 8/15/2000 10,112,500 9,000,000 0.5
Textiles 15,000,000 WestPoint Stevens Inc., 8.75%
due 12/15/2001 15,093,750 13,800,000 0.8
Transport Services 10,000,000 Viking Star Shipping Co., 9.625%
due 7/15/2003 10,028,437 9,100,000 0.5
US Government & Agency 9,000,000 Federal National Mortgage Association,
Obligations 8.55% due 12/10/2004 8,992,969 8,916,750 0.5
Utilities 9,848,000 Beaver Valley II Funding, 9.00%
due 6/01/2017 7,262,900 6,992,080 0.4
Utilities--Electric 4,000,000 CTC Mansfield Funding Corp., 11.125%
due 9/30/2016 4,301,250 3,706,280 0.2
Midland Cogeneration:
9,372,115 ++10.33% due 7/23/2002 (b) 9,184,673 8,856,649 0.5
10,000,000 13.25% due 7/23/2006 11,183,750 9,629,500 0.5
9,100,000 Tucson Electric Power Co., 10.732%
due 1/01/2013 8,713,250 8,326,500 0.5
------------- -------------- ------
33,382,923 30,518,929 1.7
Total Fixed-Income Investments in
the United States 843,221,356 759,362,747 42.2
57
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH
AMERICA Value Percent of
(concluded) Industries Face Amount Convertible Bonds Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Airlines US$ 3,000,000 AMR Corp., 6.125% due 11/01/2024 $ 2,441,875 $ 2,415,000 0.1%
States
Building & 1,500,000 Toll Brothers Inc., 4.75% due 1/15/2004 1,500,000 1,020,000 0.1
Construction 1,750,000 US Home Corp., 4.875% due 11/01/2005 1,741,000 1,124,375 0.1
------------- -------------- ------
3,241,000 2,144,375 0.2
Building Materials 3,000,000 Owens-Corning Fiberglass Corp.,
8.00% due 12/30/2005** 3,232,257 3,292,500 0.2
Computers 2,500,000 Data General Corp., 7.75%
due 6/01/2001 2,479,375 2,162,500 0.1
1,000,000 Storage Technology Corp., 8.00%
due 5/31/2015** 1,132,500 975,000 0.1
------------- -------------- ------
3,611,875 3,137,500 0.2
Electrical Equipment 2,000,000 Polyphase Corp., 12.00% due 7/01/1999 2,000,000 1,620,000 0.1
Electronics 3,000,000 Wilcox & Gibbs Inc., 7.00%
due 8/01/2014 2,955,000 2,490,000 0.1
Entertainment 4,500,000 Time Warner Inc., 7.99%*
due 12/17/2012 1,410,560 1,372,500 0.1
Environmental Control 900,000 Ray F. Weston, Inc., 7.00%
due 4/15/2002 756,900 756,000 0.0
Food & Beverage 3,000,000 Boston Chicken Inc., 4.50%
due 2/01/2004 3,000,000 2,205,000 0.1
3,000,000 Farm Fresh, Inc., 7.50%
due 3/01/2010 1,562,500 1,850,286 0.1
------------- -------------- ------
4,562,500 4,055,286 0.2
Healthcare 1,000,000 IVAX Corp., 6.50% due 11/15/2001 987,500 872,500 0.0
Pharmaceutical Marketing
Services, Inc.:
700,000 ++6.25% due 2/01/2003** 536,700 462,000 0.0
1,050,000 6.25% due 2/01/2003 813,250 672,000 0.0
------------- -------------- ------
2,337,450 2,006,500 0.0
Home Building 3,300,000 ++Engle Homes, Inc., 7.00%
due 3/01/2003 2,884,280 2,524,500 0.1
Industrial Services 3,500,000 ++Cemex, S.A., 4.25% due 11/01/1997 3,500,000 2,800,000 0.2
500,000 Mascotech, Inc., 4.50% due 12/15/2003 500,000 333,750 0.0
1,015,000 Sanifill Inc., 7.50% due 6/01/2006** 1,073,068 969,325 0.1
2,080,000 Wainoco Oil Corp., 7.75%
due 6/01/2014 1,880,352 1,788,800 0.1
------------- -------------- ------
6,953,420 5,891,875 0.4
Insurance 3,320,000 Statesman Group, Inc., 6.25%
due 5/01/2003 3,368,958 3,353,200 0.2
Machinery 2,000,000 Albany International Corp., 5.25%
due 3/15/2002 1,823,117 1,705,000 0.1
Medical 1,950,000 Sun Healthcare Group, Inc., 6.00%
due 3/01/2004** 2,269,500 2,447,250 0.1
Mining Coeur D'Alene Mines Corp.:
2,000,000 7.00% due 11/30/2002** 2,112,500 2,250,000 0.1
1,500,000 6.375% due 1/31/2004 1,500,000 1,248,750 0.1
------------- -------------- ------
3,612,500 3,498,750 0.2
Oil/Gas-Exploration 3,000,000 The Western Company of North America,
7.25% due 1/15/2015** 3,347,400 3,093,750 0.2
Pharmaceuticals 2,600,000 Bindley Western Industries, Inc., 6.50%
due 10/01/2002 2,563,000 2,463,500 0.1
Retail 2,250,000 Big B Inc., 6.50% due 3/15/2003** 2,663,775 2,587,500 0.1
Technology 1,570,000 Conner Peripherals Inc., 6.50%
due 3/01/2002** 1,409,546 1,091,150 0.1
58
<PAGE>
Telecommunications 3,210,000 Intelcom Group Inc., 7.00%
due 10/30/1998 (a) 3,199,631 2,575,979 0.1
Textiles 2,125,000 Interface, Inc., 8.00% due 9/15/2013 2,052,650 1,917,813 0.1
Transportation 511,000 Builders Transport & Trucking Co., 8.00%
due 8/15/2005** 514,832 449,680 0.0
Waste Management 1,000,000 Phillips Environmental, Inc., 6.00%
due 10/15/2000 1,000,000 1,015,000 0.1
1,950,000 USA Waste Services Inc., 8.50%
due 10/15/2002 2,273,000 2,349,750 0.1
------------- -------------- ------
3,273,000 3,364,750 0.2
Total Investments in United States
Convertible Bonds 66,485,026 60,254,358 3.2
Convertible Preferred Stocks,
Shares Held Common Stocks & Warrants
United Airlines 52,500 Delta Air Lines Inc., $3.50
States (Series C), Conv. Pfd. 2,756,900 2,296,875 0.1
25,000 ++United Airlines Corp., $6.25
(Series A), Conv. Pfd. 2,482,500 2,075,000 0.1
------------- -------------- ------
5,239,400 4,371,875 0.2
Banking & Finance 48,300 Rochester Community Savings Bank
(Series B) 1,387,224 1,279,950 0.1
36,300 Southern National Corp., Pfd. $1.6875 1,158,678 1,057,238 0.1
55,200 Union Planters Corp. 1,949,405 1,531,800 0.1
------------- -------------- ------
4,495,307 3,868,988 0.3
Cement 125,000 Southdown, Inc.** (e) 1,268,750 1,187,500 0.1
Computers 42,500 Storage Technology Corp.,
$3.50, Conv. Pfd. 2,355,987 2,805,000 0.2
Electronics 60,000 Cooper Industries, $8.00 1,536,750 1,230,000 0.1
Environmental 3,520,000 ++Allied Waste Industries, Inc.,
Conv. Pfd. 3,520,401 3,424,784 0.2
Financial--Banks 105,000 Citicorp, Pfd. "P" 2,066,925 2,008,125 0.1
Food & Beverage 18,676 Hudson Foods, Inc. (Class A) 413,555 469,235 0.0
231,500 RJR Nabisco, Inc. 1,534,269 1,389,000 0.1
------------- -------------- ------
1,947,824 1,858,235 0.1
High Technology 91,053 Anacomp, Inc. (Warrants) (c) 120,000 91,053 0.0
Hotels & Casinos 75,000 Goldriver Hotel & Casino Corp.
Liquidating Trust 75,000 53,438 0.0
30,000 Goldriver Hotel & Casino Corp.
(Series B) (d) 219,738 84,375 0.0
6,000 Trump Taj Mahal Funding, Inc. (Class A) 3,000 48,000 0.0
------------- -------------- ------
297,738 185,813 0.0
Industrial 20,000 Mascotech, Inc. 312,460 275,000 0.0
58,800 Petrolane, Inc. 683,550 779,100 0.0
10,000 UGI Corp. (Warrants) (c) 43,750 8,125 0.0
------------- -------------- ------
1,039,760 1,062,225 0.0
Insurance 1,500 Westbridge Capital Corp. 1,500,000 1,522,500 0.1
Oil & Gas 113,600 Gerrity Oil & Gas Corp. 1,882,785 1,476,800 0.1
Diversified 20,000 Western Gas Resources, Inc. 1,000,000 635,000 0.0
------------- -------------- ------
2,882,785 2,111,800 0.1
Paper Products 50,000 James River Corp. of Virginia (Series P) 862,500 1,012,500 0.1
Total Investments in United States
Convertible Preferred Stocks,
Common Stocks & Warrants 29,134,127 26,740,398 1.6
Total Investments in
North American Securities 973,214,877 877,793,407 48.7
59
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC Value Percent of
BASIN Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Australia Foreign Government Australian Government Bonds:
Obligations-- A$ 38,000,000 12.00% due 11/15/2001 $ 31,852,684 $ 32,229,855 1.8%
Regional & Agency 52,600,000 9.50% due 8/15/2003 38,699,872 39,494,353 2.2
41,500,000 Queensland Treasury Corp., Global
Notes, 8.00% due 5/14/2003 31,269,513 28,003,716 1.6
16,000,000 Victoria Financial Corp., 10.25%
due 9/15/1999 12,421,713 12,331,634 0.7
------------- -------------- ------
114,243,782 112,059,558 6.3
Total Fixed-Income Investments
in Australia 114,243,782 112,059,558 6.3
New Foreign Government New Zealand Government Bonds:
Zealand Obligations NZ$ 37,000,000 8.00% due 7/15/1998 21,664,910 22,908,212 1.3
14,200,000 10.00% due 3/15/2002 8,974,507 9,739,382 0.5
------------- -------------- ------
30,639,417 32,647,594 1.8
Total Fixed-Income Investments
in New Zealand 30,639,417 32,647,594 1.8
Philip- Industrial US$ 3,000,000 ++San Miguel Corp., 9.00% due 4/27/2000 2,981,000 2,866,875 0.2
pines
Total Fixed-Income Investments
in the Philippines 2,981,000 2,866,875 0.2
Total Fixed-Income Investments in
the Pacific Basin 147,864,199 147,574,027 8.3
Convertible Bonds
Hong Kong Engineering & HK$ 1,450,000 Paul Y-ITC Construction Holdings, Inc.,
Construction 5.00% due 2/03/2001 1,165,812 1,022,250 0.1
Total Investments in
Hong Kong Convertible Bonds 1,165,812 1,022,250 0.1
Japan Foreign Government Yen 85,000,000 Makita Electric Works Co., Ltd.,
Obligations 3.60% due 3/31/1999 938,422 879,900 0.0
Total Investments in
Japanese Convertible Bonds 938,422 879,900 0.0
Total Investments in Pacific Basin
Convertible Bonds 2,104,234 1,902,150 0.1
Total Investments in
Pacific Basin Securities 149,968,433 149,476,177 8.4
WESTERN
EUROPE Fixed-Income Investments
Denmark Foreign Dkr 200,000,000 Denmark Kingdom, 9.00% due 11/15/1998 32,728,737 33,185,258 1.8
Government
Obligations
Total Fixed-Income Investments
in Denmark 32,728,737 33,185,258 1.8
Germany Consumer Products US$ 10,000,000 Tarkett International, 9.00%
due 3/01/2002 10,000,000 9,125,000 0.5
Total Fixed-Income Investments
in Germany 10,000,000 9,125,000 0.5
60
<PAGE>
Italy Foreign Government Buoni Poliennali del Tesoro
Obligations (Italian Government Bonds):
Lit80,000,000,000 8.50% due 8/01/1997 48,051,282 45,785,511 2.5
55,000,000,000 12.00% due 9/18/1998 36,600,703 34,005,924 1.9
70,400,000,000 9.00% due 10/01/1998 42,566,872 39,992,595 2.2
53,000,000,000 8.50% due 1/01/1999 31,647,308 29,341,580 1.6
------------- -------------- ------
158,866,165 149,125,610 8.2
Total Fixed-Income Investments
in Italy 158,866,165 149,125,610 8.2
Portugal Supranational Esc 750,000,000 European Investment Bank, 15.50%
Entities due 7/12/1995 6,389,454 4,764,750 0.3
Total Fixed-Income Investments
in Portugal 6,389,454 4,764,750 0.3
Spain Foreign Government Government of Spain:
Obligations Pta 2,950,000,000 11.00% due 6/15/1997 22,951,273 22,279,171 1.2
15,092,000,000 10.25% due 11/30/1998 114,736,692 109,814,233 6.1
------------- -------------- ------
137,687,965 132,093,404 7.3
Total Fixed-Income Investments
in Spain 137,687,965 132,093,404 7.3
Sweden Foreign Government Government of Sweden:
Obligations Skr 190,000,000 11.00% due 1/21/1999 25,252,784 26,084,711 1.4
60,000,000 13.00% due 6/15/2001 8,705,625 8,948,461 0.5
------------- -------------- ------
33,958,409 35,033,172 1.9
Total Fixed-Income Investments
in Sweden 33,958,409 35,033,172 1.9
United Foreign Government United Kingdom Gilt:
Kingdom Obligations Pound 7,000,000 10.50% due 2/21/1997 11,631,933 11,424,459 0.6
Sterling 47,000,000 9.00% due 3/03/2000 74,903,779 74,545,026 4.1
46,000,000 7.00% due 11/06/2001 71,171,278 65,620,294 3.6
10,250,000 9.50% due 4/18/2005 17,203,187 16,823,978 0.9
------------- -------------- ------
174,910,177 168,413,757 9.2
Total Fixed-Income Investments in
the United Kingdom 174,910,177 168,413,757 9.2
Convertible Bonds
United 1,250,000 Hanson Trust PLC, 9.50% due 1/31/2006 2,074,884 2,016,225 0.1
Kingdom
Total Investments in United Kingdom
Convertible Bonds 2,074,884 2,016,225 0.1
Total Investments in Western European
Securities 556,615,791 533,757,176 29.3
61
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
SHORT-TERM Face Value Percent of
SECURITIES Amount Issue Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Commercial US$ 40,000,000 Ciesco L.P., 5.85% due 2/03/1995 $ 39,798,500 $ 39,798,500 2.2%
States Paper*** 50,033,000 General Electric Capital Corp.,
5.80% due 1/03/1995 50,033,000 50,033,000 2.8
25,000,000 National Rural Utilities Cooperative
Finance Corp., 5.78% due 1/27/1995 24,904,667 24,904,667 1.4
10,000,000 Xerox Credit Corp., 5.85% due 2/06/1995 9,944,750 9,944,750 0.6
------------- -------------- ------
124,680,917 124,680,917 7.0
US Government US Treasury Bill:
Obligations*** 100,000 5.392% due 2/02/1995 99,560 99,560 0.0
1,100,000 5.425% due 2/02/1995 1,095,132 1,095,132 0.1
------------- -------------- ------
1,194,692 1,194,692 0.1
Total Investments in
Short-Term Securities 125,875,609 125,875,609 7.1
OPTIONS Premiums
PURCHASED Paid
Currency Put 20,587,500 Australian Dollar, expiring January
Options Purchased 1995, at A$.7625 111,996 49,410 0.0
79,000,000 British Pound, expiring January 1995,
at Pound Sterling 1.5450 450,300 418,700 0.0
50,000,000 Italian Lira, expiring January 1995,
at Lit1690 147,500 70,000 0.0
56,000,000 Spanish Peseta, expiring January 1995,
at Pta135.50 266,000 212,800 0.0
Total Options Purchased 975,796 750,910 0.0
Total Investments 1,913,468,142 1,784,327,007 98.8
OPTIONS Premiums
WRITTEN Received
Currency Call 21,195,000 Australian Dollar, expiring January 1995,
Options Written at A$.785 (111,994) (76,302) 0.0
79,000,000 British Pound, expiring January 1995,
at Pound Sterling 1.5820 (323,900) (355,500) 0.0
50,000,000 Italian Lira, expiring January 1995,
at Lit1590 (64,000) (125,000) 0.0
56,000,000 Spanish Peseta, expiring January 1995,
at Pta 129.5 (112,000) (140,000) 0.0
Total Options Written (611,894) (696,802) 0.0
Total Investments, Net of Currency Options Written $1,912,856,248 1,783,630,205 98.8
==============
Variation Margin on Stock Index Futures Contracts++ 23,437 0.0
Short Sales (Proceeds--$17,254,233)** (15,765,349) (0.8)
Unrealized Depreciation on Forward Foreign Exchange Contracts+++++ (4,835,455) (0.3)
Other Assets Less Liabilities 41,249,496 2.3
-------------- ------
Net Assets $1,804,302,334 100.0%
============== ======
<FN>
*Represents the yield to maturity on this zero coupon issue.
**Covered Short Sales entered into as of December 31, 1994 are as follows:
62
<PAGE>
<CAPTION>
Value
Shares Issue (Note 1h)
<C> <S> <C>
139,800 Big B Inc. $ (1,922,250)
6,800 Builders Transport & Trucking Co. (74,800)
109,900 Coeur D'Alene Mines Corp. (1,799,613)
31,400 Conner Peripherals Inc. (298,300)
68,900 Owens-Corning Fiberglass Corp. (2,204,800)
57,000 Pharmaceutical Marketing Services, Inc. (513,000)
17,800 Sanifill Inc. (445,000)
43,700 Southdown, Inc. (633,650)
102,900 Storage Technology Corp. (2,984,100)
71,098 Sun Healthcare Group, Inc. (1,804,112)
89,100 Western Company of North America (The) (1,503,562)
136,100 Zenith Electronics Corp. (1,582,162)
============
Total (proceeds--$17,254,233) $(15,765,349)
<FN>
***Commercial Paper and certain US Government Obligations are traded on
a discount basis; the interest rates shown are the discount rates paid at the
time of purchase by the Fund.
++Restricted securities as to resale. The value of the Fund's investment in
restricted securities was approximately $37,144,000, representing 2.06%
of net assets.
<CAPTION>
Acquisition Value
Issue Date Cost (Note 1a)
<S> <C> <C> <C>
Allied Waste Industries, Inc., Conv. Pfd. 9/23/1993 $ 3,520,401 $ 3,424,784
Cemex, S.A., 4.25% due 11/01/1997 9/28/1994 3,500,000 2,800,000
Compania Brasileira de Projetos e
Obras, 12.50% due 12/22/1997 12/14/1994 4,975,000 4,875,000
Engle Homes, Inc., 7.00% due 3/01/2003 6/29/1994-
7/8/1994 2,884,280 2,524,500
Midland Cogeneration, 10.33% due 7/23/2002 7/13/1994 9,184,673 8,856,649
Pharmaceutical Marketing Services, Inc., 6.25% due 2/01/2003 10/02/2003 536,700 462,000
Republic of Trinidad and Tobago, 9.75% due 11/03/2000 10/15/1994 3,991,600 3,660,000
San Miguel Corp., 9.00% due 4/27/2000 9/26/1994-
9/30/1994 2,981,000 2,866,875
Telecom Argentina Stet-France Telecom,
S.A., 8.375% due 10/18/2000 10/04/1994 2,490,625 2,025,000
Transportadora de Gas del Sur, 7.75% due 12/23/1998 1/28/1994 2,042,500 1,652,500
United Airlines Corp., $6.25 (Series A), Conv. Pfd. 3/03/1993 2,482,500 2,075,000
Zenith Electronics Corp., 8.50% due 11/19/2000 10/25/1994-
10/26/1994 2,060,380 1,921,500
Total $40,649,659 $37,143,808
=========== ===========
<PAGE>
+++Financial futures contracts sold as of December 31, 1994 were as follows:
Number of Expiration Value
Contracts Issue Exchange Date (Note 1c)
75 US Treasury Bond OTC March 1995 $(7,436,719)
Total Futures Contracts Sold
(Total Contract Price--$7,426,563) $(7,436,719)
===========
The market value of pledged securities is $1,194,693.
+++++Forward foreign exchange contracts as of December 31, 1994 are as follows:
<CAPTION>
Unrealized
Expiration Appreciation
Date (Depreciation)
(Note 1c)
Foreign Currency Purchased
<S> <C> <S> <C>
A$ 32,139,180 January 1995 $ 458,787
C$ 44,076,139 January 1995 (372,857)
DM 77,012,625 January 1995 620,544
Lit 17,395,318,900 January 1995 (139,655)
Pta 1,314,735,000 January 1995 (11,393)
Skr 69,818,867 January 1995 (62,987)
Total (US$ Commitment--$135,732,700) $ 492,439
------------
Foreign Currency Sold
A$ 102,695,480 January 1995 $ (990,960)
DM 369,310,250 January 1995 (3,841,101)
Dkr 75,265,297 January 1995 (176,155)
Lit 26,000,000,000 January 1995 (213,437)
NZ$ 44,390,612 February 1995 135,391
Pta 4,378,887,944 January 1995 152,591
Skr 250,140,700 January 1995 (394,223)
Total (US$ Commitment--$436,711,222) $ (5,327,894)
------------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts--Net $ (4,835,455)
============
(a)Represents a pay-in-kind security which may pay interest/dividends
in additional face/shares.
(b)Subject to principal paydowns as a result of prepayments or refinancings
of the underlying mortgage instruments. As a result, the average life may
be substantially less than the original maturity.
(c)Warrants entitle the Fund to purchase a predetermined number of shares
of Common Stock. The purchase price and number of shares are subject
to adjustment under certain conditions until the expiration date.
(d)Each share of Series B stock contains a right which entitles the holder
to purchase a predetermined number of shares of Preferred Stock.
(e)Non-income producing security.
See Notes to Financial Statements.
</TABLE>
63
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of December 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,912,492,346) (Note 1a) $1,783,576,097
Put options purchased, at value (cost--$975,796) (Notes 1a & 1c) 750,910
Cash 679
Foreign cash (Note 1d) 255,026
Receivables:
Interest $ 45,480,021
Short sales (Note 1i) 17,260,136
Securities sold 1,998,100
Capital shares sold 1,053,330
Forward foreign exchange contracts (Note 1c) 213,061
Dividends 102,123
Variation margin (Note 1g) 23,437 66,130,208
------------
Prepaid registration fees and other assets (Note 1f) 116,115
--------------
Total assets 1,850,829,035
--------------
Liabilities: Common stocks sold short, at market value (proceeds--$17,254,233) (Note 1i) 15,765,349
Call options written, at value (premiums--$611,894) (Notes 1a & 1c) 696,802
Unrealized depreciation of forward foreign exchange contracts (Note 1c) 4,835,455
Payables:
Dividends to shareholders (Note 1h) 10,110,517
Capital shares redeemed 9,601,776
Distributor (Note 2) 1,029,572
Investment adviser (Note 2) 997,268
Forward foreign exchange contracts (Note 1c) 981,223
Securities purchased 181,225 22,901,581
------------
Accrued expenses and other liabilities 2,327,514
--------------
Total liabilities 46,526,701
--------------
Net Assets: Net assets $1,804,302,334
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized $ 3,796,142
Consist of: Class B Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized 18,194,910
Class C Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized 14,712
Class D Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized 17,195
Paid-in capital in excess of par 1,978,693,897
Accumulated realized capital losses on investments and foreign currency transactions--net (63,828,356)
Unrealized depreciation on investments and foreign currency transactions--net (132,586,166)
--------------
Net assets $1,804,302,334
==============
Net Asset Class A--Based on net assets of $311,181,573 and 37,961,421 shares outstanding $ 8.20
==============
Value: Class B--Based on net assets of $1,490,506,743 and 181,949,101 shares outstanding $ 8.19
==============
Class C--Based on net assets of $1,204,423 and 147,121 shares outstanding $ 8.19
==============
64
<PAGE>
Class D--Based on net assets of $1,409,595 and 171,952 shares outstanding $ 8.20
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended December 31, 1994
<S> <S> <C> <C>
Investment Interest and discount earned (net of $1,103,072 foreign withholding tax) $ 195,018,063
Income Dividend 1,988,020
(Notes 1e & 1f): Other income 1,187,844
--------------
Total income 198,193,927
--------------
Expenses: Distribution fees--Class B (Note 2) 13,694,529
Investment advisory fees (Note 2) 13,289,517
Transfer agent fees--Class B (Note 2) 2,028,532
Custodian fees 701,719
Printing and shareholder reports 408,711
Transfer agent fees--Class A (Note 2) 378,471
Accounting services (Note 2) 315,069
Professional fees 118,268
Registration fees (Note 1g) 55,942
Directors' fees and expenses 49,247
Short sale of dividends (Note 1i) 35,171
Distribution fees--Class C (Note 2) 773
Account maintenance fees--Class D (Note 2) 320
Transfer agent fees--Class C (Note 2) 151
Transfer agent fees--Class D (Note 2) 133
Other 35,712
--------------
Total expenses 31,112,265
--------------
Investment income-net 167,081,662
--------------
Realized & Realized loss from:
Unrealized Loss Investments--net $(62,626,451)
on Investments & Foreign currency transactions-net (44,955,386) (107,581,837)
Foreign Currency ------------
Transactions--Net Change in unrealized appreciation/depreciation on:
(Notes 1c, 1d, Investments--net (169,594,564)
1f & 3): Foreign currency transactions--net (4,327,598) (173,922,162)
------------ --------------
Net realized and unrealized loss on investments and foreign
currency transactions (281,503,999)
--------------
Net Decrease in Net Assets Resulting from Operations $ (114,422,337)
==============
See Notes to Financial Statements.
65
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended December 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 167,081,662 $ 175,662,845
Realized gain (loss) on investments and foreign currency transactions--net (107,581,837) 15,185,945
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net (173,922,162) 98,246,283
-------------- --------------
Net increase (decrease) in net assets resulting from operations (114,422,337) 289,095,073
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (19,926,079) (29,629,878)
Shareholders Class B (84,931,858) (106,918,287)
(Note 1h): Class C (4,853) --
Class D (6,907) --
Realized gain on investments--net:
Class A -- (1,417,282)
Class B -- (6,362,072)
Return of capital:
Class A (11,820,707) (8,487,578)
Class B (50,383,950) (30,627,102)
Class C (2,879) --
Class D (4,097) --
-------------- --------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (167,081,330) (183,442,199)
-------------- --------------
Capital Share Net increase (decrease) in net assets derived from capital share transactions (487,938,280) 430,150,076
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (769,441,947) 535,802,950
Beginning of year 2,573,744,281 2,037,941,331
-------------- --------------
End of year* $1,804,302,334 $2,573,744,281
============== ==============
<FN>
*Undistributed investment income--net $ -- $ --
============== ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS Class A
For the Four
Months
The following per share data and ratios For the Year Ended Ended
have been derived from information December 31, Dec. 31, For the Year Ended August 31,
provided in the financial statements. 1994++++ 1993 1992 1992 1991 1990
Increase (Decrease) in Net Asset Value:
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.28 $ 8.85 $ 9.34 $ 9.07 $ 9.48 $ 9.32
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income--net .72 .75 .29 .99 1.12 1.23
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (1.09) .46 (.41) .40 (.16) .15
-------- -------- -------- -------- -------- --------
66
<PAGE>
Total from investment operations (.37) 1.21 (.12) 1.39 .96 1.38
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.45) (.58) (.35) (1.12) (1.37) (1.17)
-------- -------- -------- -------- -------- --------
Realized gain on investments--net -- (.03) (.02) -- -- (.05)
-------- -------- -------- -------- -------- --------
Return of capital--net (.26) (.17) -- -- -- --
Total dividends and distributions (.71) (.78) (.37) (1.12) (1.37) (1.22)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 8.20 $ 9.28 $ 8.85 $ 9.34 $ 9.07 $ 9.48
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share (4.05%) 14.12% (1.26%)+++ 16.09% 11.50% 16.48%
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses .77% .78% .76%* .88% .85% .86%
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net 8.17% 8.22% 8.09%* 11.16% 12.38% 16.27%
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $311,181 $467,625 $455,672 $526,631 $292,709 $299,700
======== ======== ======== ======== ======== ========
Portfolio turnover 115.95% 182.88% 68.42% 76.18% 63.83% 99.86%
======== ======== ======== ======== ======== ========
<CAPTION>
Class B
For the Four For the
Months Period
The following per share data and ratios For the Year Ended Ended Nov. 18, 1991++
have been derived from information December 31, Dec. 31, to Aug. 31
provided in the financial statements. 1994++++ 1993 1992 1992
Increase (Decrease) in Net Asset Value:
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.28 $ 8.85 $ 9.33 $ 9.26
Operating ---------- ---------- ---------- ----------
Performance: Investment income--net .65 .70 .27 .77
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (1.10) .44 (.40) --
---------- ---------- ---------- ----------
Total from investment operations (.45) 1.14 (.13) .77
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.40) (.53) (.33) (.70)
Realized gain on investments--net -- (.03) (.02) --
Return of capital--net (.24) (.15) -- --
---------- ---------- ---------- ----------
Total dividends and distributions (.64) (.71) (.35) (.70)
---------- ---------- ---------- ----------
Net asset value, end of period $ 8.19 $ 9.28 $ 8.85 $ 9.33
========== ========== ========== ==========
Total Investment Based on net asset value per share (4.90%) 13.27% (1.42%)+++ 8.61%+++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses, excluding distribution fees .79% .80% .78% .88%*
Net Assets: ========== ========== ========== ==========
Expenses 1.54% 1.55% 1.53% 1.63%*
========== ========== ========== ==========
Investment income--net 7.41% 7.42% 7.08% 8.02%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $1,490,507 $2,106,120 $1,582,270 $1,514,406
Data: ========== ========== ========== ==========
Portfolio turnover 115.95% 182.88% 68.42% 76.18%
========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
67
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++ to
December 31, 1994++++
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <S>
Per Share Net asset value, beginning of period $ 8.42 $ 8.43
Operating ------- -------
Performance: Investment income--net .10 .11
Realized and unrealized loss on investments and
foreign currency transactions--net (.20) (.20)
------- -------
Total from investment operations (.10) (.09)
------- -------
Less dividends and distributions:
Investment income--net (.08) (.09)
Return of capital--net (.05) (.05)
------- -------
Total dividends (.13) (.14)
------- -------
Net asset value, end of period $ 8.19 $ 8.20
======= =======
Total Investment Based on net asset value per share (1.20%)+++ (1.09%)+++
Return:** ======= =======
Ratios to Average Expenses, excluding account maintenance and distribution fees .84%* .79%*
Net Assets: ======= =======
Expenses 1.64%* 1.04%*
======= =======
Investment income--net 8.00%* 8.60%*
======= =======
Supplemental Net assets, end of period (in thousands) $ 1,204 $ 1,410
Data: ======= =======
Portfolio turnover 115.95% 115.95%
======= =======
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
68
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch World Income Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified,
open-end management investment company. The Fund offers four
classes of shares under the Merrill Lynch Select Pricing SM System.
Shares of Class A and Class D are sold with a front-end sales charge.
Shares of Class B and Class C may be subject to a contingent deferred
sales charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain expenses related
to the account maintenance of such shares, and Class B and Class C Shares
also bear certain expenses related to the distribution of such shares.
Each class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The
following is a summary of significant accounting policies followed
by the Fund.
(a) Valuation of securities--Securities traded in the over-the-counter
market are valued at the last available bid price or yield equivalents
obtained from one or more dealers in the over-the-counter market
prior to the time of valuation. Portfolio securities which are traded on
stock exchanges are valued at the last sale price on the principal
market on which such securities are traded, as of the close of busi-
ness on the day the securities are being valued or, lacking any sales,
at the last available bid price. Options traded on exchanges are
valued at the last asked price for options written and the last bid price
for options purchased. Options traded in the over-the-counter market
are valued at the average of the last asked price as obtained from
one or more dealers for options written and at the average of the
last bid price as obtained from two or more dealers, unless there
is only one dealer, in which case that dealer's price is used for
options purchased. Other investments, including futures contracts
and related options, are stated at market value or otherwise at the
fair value at which it is expected they may be resold, as determined
in good faith by or under the direction of the Board of Directors.
Short-term securities with remaining maturities of sixty days or less
are valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund.
(b) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements with a member bank
of the Federal Reserve System or a primary dealer in US Government
securities. Under such agreements, the bank or primary dealer
agrees to repurchase the security at a mutually agreed upon time
and price. The Fund takes possession of the underlying securities,
marks to market such securities and, if necessary, receives additional
securities daily to ensure that the contract is fully collateralized.
(c) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the contract
or if the counterparty does not perform under the contract.
*Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts are
not entered on the Fund's records. However, the effect on operations
is recorded from the date the Fund enters into such contracts.
Premium or discount is amortized over the life of the contracts.
*Foreign currency options and futures--The Fund may also purchase
or sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as a
short or long hedge against possible variations in foreign exchange
rates. Such transactions may be effected with respect to hedges on
non-US dollar denominated securities owned by the Fund, sold by
the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
*Options--The Fund is authorized to write and purchase call and
put options. When the Fund sells an option, an amount equal to
the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written.
When a security is purchased or sold through an exercise of an
option, the related premium received or paid is deducted from or
added to the basis of the security sold. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a
gain or loss on the option to the extent that the premium received
or paid on the written option and purchased option is greater than
or less than the premium paid or received on the closing transaction.
69
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Written and purchased options are non-income producing investments.
(d) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or valuing
(unrealized) assets or liabilities expressed in foreign currencies into
US dollars. Realized and unrealized gains or losses from investments
include the effects of foreign exchange rates on investments.
(e) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no Federal income tax provision is
required. Under the applicable foreign tax law, a withholding tax may
be imposed on interest, dividends, and capital gains at various rates.
(f) Security transactions and investment income--Security trans-
actions are recorded on the dates the transactions are entered into
(the trade dates). Interest income (including amortization of dis-
count) is recognized on the accrual basis. Realized gains and losses
on security transactions are determined on the identified cost basis.
(g) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(h) Dividends and distributions--Dividends from net investment
income, excluding transaction gains/losses, are declared daily and
paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates. A portion of the net investment income paid by
the Fund during the fiscal year ended December 31, 1994 is
characterized as a return of capital.
(i) Short sales--When the Fund engages in a short sale, an amount
equal to the proceeds received by the Fund is reflected as an asset
and equivalent liability. The amount of the liability is subsequently
marked to market to reflect the market value of the short sale. The
Fund maintains a segregated account of securities as collateral for
the short sales. The Fund is exposed to market risk based on the
amount, if any, that the market value of the stock exceeds the
market value of the securities in the segregated account.
(j) Reclassification--Generally accepted accounting principles
require that differences between accumulated net realized capital
losses for financial reporting and tax purposes, if permanent, be
reclassified to paid-in capital. These classifications have no effect
on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement
with Fund Asset Management, L.P. ("FAM"). The general partner
of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co. ("ML & Co."), which is the
limited partner. The Fund has entered into a Distribution Agree-
ment and Distribution Plans with Merrill Lynch Funds Distributor,
Inc. ("MLFD" or "Distributor"), a wholly-owned subsidiary of
ML Group, Inc.
FAM is responsible for the management of the Fund's portfolio
and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee of 0.60%, on an annual
basis, of the average daily value of the Fund's net assets. Certain of
the states in which the shares of the Fund are qualified for sale
impose limitations on the expenses of the Fund. The most restrictive
annual expense limitation requires that the Investment Adviser
reimburse the Fund to the extent the Fund's expenses (excluding
interest rates, distribution fees, brokerage fees and commissions,
and extraordinary items) exceed 2.5% of the Fund's first $30 million
of average daily net assets, 2.0% of the Fund's next $70 million of
average daily net assets, and 1.5% of the average daily net assets in
excess thereof. No fee payment will be made to FAM during any fiscal
year which will cause such expenses to exceed the most restrictive
expense limitation at the time of such payment.
Pursuant to the distribution plans ("the Distribution Plans") adopted
by the Fund in accordance with Rule 12b-1 under the Investment
Company Act of 1940, the Fund pays the Distributor ongoing account
maintenance and distribution fees. The fees are accrued daily and
paid monthly at annual rates based upon the average daily net assets
of the shares as follows:
Account Maintenance Fee Distribution Fee
Class B 0.25% 0.50%
Class C 0.25% 0.55%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
70
<PAGE>
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services
to Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing share-
holder and distribution-related services to Class B and Class C
shareholders.
For the year ended December 31, 1994, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $ 24,292 $ 245,317
Class D $ 902 $ 6,720
MLPF&S received contingent deferred sales charges of $6,980,132
relating to transactions in Class B Shares of beneficial interest,
$64 relating to transactions in Class C Shares of beneficial interest,
and $59,092 in commissions on the execution of portfolio security
transactions for the Fund for the year ended December 31, 1994.
During the period June 20, 1994 to December 31, 1994, the Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, provided
security price quotations to the Fund.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLPF&S, MLFD, FAM, PSI, FDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1994 were $2,313,190,156 and
$2,707,710,251, respectively.
Net realized and unrealized gains (losses) as of December 31, 1994
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Investments:
Long-term $ (59,712,620) $(128,916,249)
Short-term (3,984) --
Short sales (3,089,687) 1,488,884
Financial futures contracts 68,316 (10,156)
Options purchased (125,276) --
Options written 236,800 --
------------- -------------
Total investments (62,626,451) (127,437,521)
------------- -------------
Currency Transactions:
Options written 357,733 (84,908)
Options purchased (691,934) (224,886)
Foreign currency transactions (2,044,831) (3,396)
Financial futures contracts (23,525) --
Forward foreign exchange contracts (46,642,491) (4,835,455)
------------- -------------
Total currency transactions (44,955,386) (5,148,645)
------------- -------------
Total $(107,581,837) $(132,586,166)
============= =============
Transactions in call options written for the year ended December 31,
1994 were as follows:
Nominal Value
Covered by Premiums
Call Options Written Written Options Received
Outstanding call options written,
beginning of year $ 29,510,000 $ 234,902
Options written 355,858,807 2,495,368
Options repurchased (23,520,000) (358,400)
Options expired (128,143,807) (1,525,074)
Options exercised (29,510,000) (234,902)
------------- -------------
Outstanding call options written,
end of year $ 206,195,000 $ 611,894
============= =============
Transactions in put options written for the year ended December 31,
1994 were as follows:
Nominal Value
Covered by Premiums
Put Options Written Written Options Received
Outstanding put options written,
beginning of year -- --
Options written $ 57,266,896 $ 311,209
Options repurchased (13,000,000) (91,155)
Options exercised (44,266,896) (220,054)
------------- -------------
Outstanding put options written,
end of year $ -- $ --
============= =============
As of December 31, 1994, net unrealized depreciation for Federal
income tax purposes aggregated $129,918,478, of which $7,025,871
related to appreciated securities and $136,944,349 related to depreci-
ated securities. The aggregate cost of investments at December 31,
1994 for Federal income tax purposes was $1,913,494,575.
71
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(487,938,280) and $430,150,076 for the years
ended December 31, 1994 and December 31, 1993, respectively.
Transactions in shares of capital for each class were as follows:
Class A Shares for the Year Ended Dollar
December 31, 1994 Shares Amount
Shares sold 2,498,395 $ 22,105,372
Shares issued to shareholders in
reinvestment of dividends 1,047,864 9,035,061
------------- -------------
Total issued 3,546,259 31,140,433
Shares redeemed (15,962,356) (138,247,016)
------------- -------------
Net decrease (12,416,097) $(107,106,583)
============= =============
Class A Shares for the Year Ended Dollar
December 31, 1994 Shares Amount
Shares sold 9,678,184 $ 88,499,395
Shares issued to shareholders in
reinvestment of dividends &
distributions 1,510,091 13,811,988
------------- -------------
Total issued 11,188,275 102,311,383
Shares redeemed (12,293,992) (112,364,468)
------------- -------------
Net decrease (1,105,717) $ (10,053,085)
============= =============
Class B Shares for the Year Ended Dollar
December 31, 1994 Shares Amount
Shares sold 22,383,630 $ 198,076,750
Shares issued to shareholders in
reinvestment of dividends 7,257,720 62,563,579
------------- -------------
Total issued 29,641,350 260,640,329
Conversion of shares (10,524) (87,484)
Shares redeemed (74,723,963) (644,026,143)
------------- -------------
Net decrease (45,093,137) $(383,473,298)
============= =============
Class B Shares for the Year Ended Dollar
December 31, 1993 Shares Amount
Shares sold 72,899,782 $ 666,438,413
Shares issued to shareholders in
reinvestment of dividends &
distributions 7,596,227 69,595,664
------------- -------------
Total issued 80,496,009 736,034,077
Shares redeemed (32,339,396) (295,830,916)
------------- -------------
Net increase 48,156,613 $ 440,203,161
============= =============
Class C Shares for the Period Dollar
October 21, 1994++ to December 31, 1994 Shares Amount
Shares sold 149,131 $ 1,233,348
Shares issued to shareholders in
reinvestment of dividends 710 5,824
------------- -------------
Total issued 149,841 1,239,172
Shares redeemed (2,720) (22,392)
------------- -------------
Net increase 147,121 $ 1,216,780
============= =============
[FN]
++Commencement of Operations.
Class D Shares for the Period Dollar
October 21, 1994++ to December 31, 1994 Shares Amount
Shares sold 177,383 $ 1,470,555
Shares issued to shareholders in
reinvestment of dividends 827 6,792
Conversion of shares 10,511 87,484
------------- -------------
Total issued 188,721 1,564,831
Shares redeemed (16,769) (140,010)
------------- -------------
Net increase 171,952 $ 1,424,821
============= =============
[FN]
++Commencement of Operations.
5. Capital Loss Carryforward:
At December 31, 1994, the Fund had a net capital loss carryforward
of approximately $53,153,000, all of which expires in 2002.
This amount will be available to offset like amounts of any
future taxable gains.
72
<PAGE>
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73
<PAGE>
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74
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
75
<PAGE>
TABLE OF CONTENTS
PAGE
----
Investment Objective and Policies..... 2
Hedging Techniques.................. 2
Risk Factors in Options and Futures
Transactions.......................... 4
Forward Foreign Exchange
Transactions.......................... 5
Other Investment Policies and
Practices............................. 6
Investment Restrictions............. 7
Management of the Fund................ 10
Directors and Officers.............. 10
Compensation of Directors........... 12
Management and Advisory
Arrangements...................... 12
Purchase of Shares.................... 14
Initial Sales Charge Alternatives--
Class A and Class D Shares........ 14
Reduced Initial Sales Charges....... 16
Distribution Plans.................. 19
Limitations on the Payment of
Deferred Sales Charges............ 20
Redemption of Shares.................. 21
Deferred Sales Charge--Class B and
Class C Shares........................ 21
Portfolio Transactions................ 22
Determination of Net Asset Value...... 24
Shareholder Services.................. 25
Investment Account.................. 25
Automatic Investment Plans.......... 26
Automatic Reinvestment of Dividends
and Capital Gains Distributions....... 26
Systematic Withdrawal Plans--Class A
and Class D Shares.................... 26
Retirement Plans.................... 27
Exchange Privilege.................. 28
Dividends, Distributions and Taxes.... 42
Dividends and Distributions......... 42
Taxes............................... 43
Tax Treatment of Options, Futures
and Forward Foreign Exchange
Transactions...................... 45
Special Rules for Certain Foreign
Currency Transactions............. 45
Performance Data...................... 47
General Information................... 49
Description of Shares............... 49
Computation of Offering Price Per
Share............................... 51
Independent Auditors................ 51
Custodian........................... 51
Transfer Agent...................... 51
Legal Counsel....................... 52
Reports to Shareholders............. 52
Additional Information.............. 52
Independent Auditors' Report.......... 53
Financial Statements.................. 54
Code #16103-0495
[LOGO]
Merrill Lynch
World Income
Fund, Inc.
ART
STATEMENT OF
ADDITIONAL
INFORMATION
April 27, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
Contained in Part A:
<TABLE>
<S> <C>
Financial Highlights for each of the periods presented in the seven fiscal
periods ended December 31, 1994.
</TABLE>
Contained in Part B:
<TABLE>
<S> <C>
Schedule of Investments as of December 31, 1994.
Statement of Assets and Liabilities as of December 31, 1994.
Statement of Operations for the year ended December 31, 1994.
Statement of Changes in Net Assets for the years ended December 31, 1994 and
1993.
Financial Highlights for each of the periods presented in the six fiscal periods
ended December 31, 1994.
</TABLE>
(B) EXHIBITS:
<TABLE>
<S> <C>
1(a) --Articles of Amendment and Restatement, dated November 8, 1991. (a)
(b) --Articles of Amendment to Articles of Incorporation, as filed on October 19, 1994.
(c) --Articles Supplementary to Articles of Incorporation, as filed on October 21, 1994.
2 --Revised By-Laws of Registrant. (a)
3 --None.
4 --Copies of instruments defining the rights of shareholders, including the relevant
portions of the Articles of Incorporation, as amended, and By-Laws of Registrant.
(b)
5(a) --Investment Advisory Agreement between Registrant and Fund Asset Management, L.P.
(a)
(b) --Supplement to Investment Advisory Agreement with Fund Asset Management, L.P. (c)
6(a) --Revised Class A Shares Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc. (d)
(b) --Class B Shares Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc. (a)
(c) --Form of Class C Shares Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc. (d)
(d) --Form of Class D Shares Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc. (d)
(e) --Letter Agreement between the Fund and Merrill Lynch Funds Distributor, Inc. dated
September 15, 1993, in connection with the Merrill Lynch Mutual Fund Adviser
Program. (a)
7 --None.
8 --Custody Agreement between Registrant and State Street Bank and Trust Company. (a)
9 --Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between Registrant and Financial Data Services, Inc. (a)
10 --Opinion of Brown & Wood, counsel for Registrant.
11 --Consent of Deloitte & Touche LLP, independent auditors for Registrant.
12 --None.
13 --None.
14 --None.
15(a) --Amended and Restated Class B Distribution Plan of Registrant and Distribution Plan
Sub-Agreement. (a)
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
(b) --Form of Class C Shares Distribution Plan and Class C Shares Distribution Plan Sub-
Agreement of the Registrant. (d)
(c) --Form of Class D Shares Distribution Plan and Class D Shares Distribution Plan Sub-
Agreement of the Registrant. (d)
16(a) --Schedule of computation of performance quotations for Class A shares provided in
the Registration Statement in response to Item 22.
(b) --Schedule of computation of performance quotations for Class B shares provided in
the Registration Statement in response to Item 22.
(c) --Schedule of computation of performance quotations for Class C shares provided in
the Registration Statement in response to Item 22.
(d) --Schedule of computation of performance quotations for Class D shares provided in
the Registration Statement in response to Item 22.
17(a) --Financial Data Schedule for the Year Ended December 31, 1994 for Class A Shares.
(b) --Financial Data Schedule for the Year Ended December 31, 1994 for Class B Shares.
(c) --Financial Data Schedule for the Year Ended December 31, 1994 for Class C Shares.
(d) --Financial Data Schedule for the Year Ended December 31, 1994 for Class D Shares.
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Refiled pursuant to the Electronic Data Gathering, Analysis, and Retrieval (EDGAR)
phase-in requirements.
(b) Reference is made to Article III (Sections 3 and 4), Article V, Article VI (Section 3),
Article VII, Article VIII and Article X of the Registrant's Articles of Amendment and
Restatement, filed as Exhibit (1)(a) to the Registration Statement; the Articles
Supplementary filed as Exhibit (1)(b) to the Registration Statement; the Articles of
Amendment filed as Exhibit (1)(c) to the Registration Statement; the Articles
Supplementary filed as Exhibit (1)(d) to the Registration Statement; and Article II,
Article III (Sections 1, 3, 5, 6 and 17), Article IV (Section 1), Article V (Section 7),
Article VI, Article VII, Article XII, Article XIII, and Article XIV of the Registrant's
By-Laws filed as Exhibit (2) to the Registration Statement.
(c) Previously filed with the Registrant's Post-Effective Amendment No. 3 to the
Registration Statement on Form N-1A (File Nos. 33-42681 and 811-5603) as filed with the
Securities and Exchange Commission on April 29, 1994.
(d) Previously filed with the Registrant's Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A (File Nos. 33-42681 and 811-5603) as filed with the
Securities and Exchange Commission on October 18, 1994.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled by or under common control with any person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE><CAPTION>
NUMBER OF RECORD
HOLDERS AT
TITLE OF CLASS MARCH 31, 1995
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Class A shares of Common Stock, par value $0.10 per share................... 1,737
Class B shares of Common Stock, par value $0.10 per share................... 2,362
Class C shares of Common Stock, par value $0.10 per share................... 4
Class D shares of Common Stock, par value $0.10 per share................... 6
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Class A, Class B, Class C and Class D
Distribution Agreements.
Insofar as the conditional advancing of indemnification moneys for actions
based on the Investment Company Act of 1940, as amended (the "Investment Company
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
on receipt of a written promise by, or on behalf of, the recipient to repay that
amount of the advance which exceeds the amount to which it is ultimately
determined that he is entitled to receive from the Registrant by reason of
indemnification; and (iii)(a) such promise must be secured by a surety bond,
other suitable insurance or
C-2
<PAGE>
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 Class A, Class B, Class C and Class D Distribution
Agreements relating to the securities being offered hereby, the Registrant
agrees to indemnify the Distributor and each person, if any, who controls the
Distributor within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), against certain types of civil liabilities arising in
connection with the Registration Statement or Prospectus and Statement of
Additional Information.
Insofar as indemnification for liabilities arising under the Securities 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 Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Director, officer,
or controlling person of the Registrant and the principal underwriter in
connection with the successful defense of any action, suit or proceeding) is
asserted by such Director, officer or controlling person or the principal
underwriter in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Merrill Lynch Asset Management, L.P. ("MLAM"), acts as investment adviser
for the following investment companies: Convertible Holdings, Inc., Merrill
Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund,
Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund,
Inc., Merrill Lynch Balanced Fund for Investment and Retirement, Merrill Lynch
Capital Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill
Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fund For
Tomorrow, Inc., Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch
Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources
Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility
Fund, Inc., Merrill Lynch Growth Fund for Investment and Retirement, Merrill
Lynch Healthcare Fund, Inc., Merrill Lynch High Income Municipal Bond Fund,
Inc., Merrill Lynch Institutional Intermediate Fund, Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch
Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement
Asset Builder Program, Inc., Merrill Lynch Retirement Series Trust, Merrill
Lynch Senior Floating Rate Fund, Inc., Merrill Lynch Series Fund, Inc. Merrill
Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend
Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money
Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income
Fund, Inc., and Merrill Lynch Variable Series Funds, Inc. Fund Asset Management,
L.P. ("FAM"), an affiliate of MLAM, also acts as the investment adviser for the
following investment companies: Apex Municipal Fund, Inc., CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation
Program, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II,
Inc., Emerging Tigers Fund, Inc., Financial Institutions Series Trust, Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill
Lynch Basic Value Fund, Inc., Merrill Lynch California
C-3
<PAGE>
Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch
Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch
Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc.,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch World Income Fund, Inc., MuniAssets Fund, Inc., MuniBond Income
Fund, Inc., The Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund,
Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc.,
MuniVest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan
Insured Fund, Inc., MuniVest New Jersey Insured Fund, Inc., MuniVest New York
Insured Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund,
Inc., MuniYield Arizona Fund II, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey
Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured
Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New York Insured
Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc.,
MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High
Income Portfolio II, Inc., Senior Strategic Income Fund, Inc., Taurus
MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc. and Worldwide
DollarVest, Inc. The address of each of these investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Institutional Intermediate Fund
is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The
address of MLAM, FAM, Merrill Lynch Funds Distributor, Inc. ("MLFD"), Princeton
Services, Inc. ("Princeton Services") and Princeton Administrators, L.P. is also
P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co.,
Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281. The address of Financial Data Services, Inc. is 4800
Deerlake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person has been engaged since August
31, 1990, for its own account or in the capacity of director, officer, partner
or trustee. In addition, Mr. Zeikel is President, Mr. Glenn is Executive Vice
President and Mr. Richard is Treasurer of substantially all the investment
companies described in the preceding paragraph and Messrs. Durnin, Giordano,
Harvey, Hewitt, Kirstein, and Monagle are directors or officers of one or more
of such companies.
<TABLE><CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- -------------------------------- ---------------------- ----------------------------------
<S> <C> <C>
ML & Co. ....................... Limited Partner Financial Services Holding Company
Princeton Services.............. General Partner General Partner of MLAM
Arthur Zeikel................... President President of MLAM; President and
Director of Princeton Services;
Director of MLFD; Executive Vice
President of ML&Co.; Executive
Vice President of Merrill Lynch
</TABLE>
C-4
<PAGE>
<TABLE><CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- -------------------------------- ---------------------- ----------------------------------
<S> <C> <C>
Terry K. Glenn.................. Executive Vice Executive Vice President of MLAM;
President Executive Vice President and
Director of Princeton Services;
President and Director of MLFD;
President of Princeton
Administrators, L.P.
Bernard J. Durnin............... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Vincent R. Giordano............. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Elizabeth Griffin............... Senior Vice President Senior Vice President of MLAM
Norman R. Harvey................ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
N. John Hewitt.................. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Philip L. Kirstein.............. Senior Vice President, Senior Vice President, General
General Counsel, and Counsel and Secretary of MLAM;
Secretary Senior Vice President, General
Counsel, Director and Secretary
of Princeton Services; Director
of MLFD
Ronald M. Kloss................. Senior Vice President Senior Vice President of MLAM;
and Controller Senior Vice President and
Controller of Princeton Services
Joseph T. Monagle, Jr........... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Gerald M. Richard............... Senior Vice President Senior Vice President and
and Treasurer Treasurer of MLAM; Senior Vice
President and Treasurer of
Princeton Services; Vice
President and Treasurer of MLFD
Ronald L. Welburn............... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Anthony Wiseman................. Senior Vice President Senior Vice President of Princeton
Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each
of the open-end investment companies referred to in the first paragraph of Item
28 except Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities
Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt
Fund, CMA Treasury Fund, Convertible Holdings, Inc., The Corporate Fund
Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities
Fund 2000, Inc.,
C-5
<PAGE>
MuniAssets Fund, Inc., The Municipal Fund Accumulation Program, Inc.,
MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest
Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest Florida Fund,
MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
New York Insured Fund, Inc., MuniVest Pennsylvania Fund, MuniYield Arizona Fund,
MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield Michigan
Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund,
Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund,
Inc., MuniYield New York Insured Fund II, Inc., MuniYield New York Insured Fund
III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield
Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High Income
Portfolio II, Inc., Senior Strategic Income Fund, Inc., Taurus MuniCalifornia
Holdings, Inc., Taurus MuniNew York Holdings, Inc. and Worldwide DollarVest,
Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Crook,
Aldrich, Breen, Fatseas, Graczyk, and Wasel is One Financial Center, Boston,
Massachusetts 02111-2665.
<TABLE><CAPTION>
(3)
(2) POSITION(S) AND OFFICES
(1) POSITION(S) AND OFFICES WITH WITH
NAME MLFD REGISTRANT
- -------------------------------------- ----------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn........................ President and Director Executive Vice President
Arthur Zeikel......................... Director President and Director
Philip L. Kirstein.................... Director None
William E. Aldrich.................... Senior Vice President None
Robert W. Crook....................... Senior Vice President None
Kevin P. Boman........................ Vice President None
Michael Brady......................... Vice President None
William M. Breen...................... Vice President None
Sharon Creveling...................... Vice President and Assistant None
Treasurer
Mark A. DeSario....................... Vice President None
James T. Fatseas...................... Vice President None
Stanley Graczyk....................... Vice President None
Debra W. Landsman-Yaros............... Vice President None
Michelle T. Lau....................... Vice President None
Gerald M. Richard..................... Vice President and Treasurer Treasurer
Salvatore Venezia..................... Vice President None
William Wasel......................... Vice President None
Robert Harris......................... Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act and the rules thereunder will be maintained
at the offices of the Registrant and Financial Data Services, Inc.
C-6
<PAGE>
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Fund-Management
and Advisory Arrangements" in the Prospectus constituting Part A of the
Registration Statement and under "Management of the Fund-Management and Advisory
Arrangements" in the Statement of Additional Information constituting Part B of
the Registration Statement, Registrant is not a party to any management-related
service contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Plainsboro, and the State of New Jersey, on the
24th day of April, 1995.
MERRILL LYNCH WORLD INCOME FUND, INC.
(REGISTRANT)
By: /s/ ARTHUR ZEIKEL
---------------------------
(ARTHUR ZEIKEL, PRESIDENT)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE><CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------ ----------------
<C> <S> <C>
/s/ARTHUR ZEIKEL President and Director (Principal April 24, 1995
------------------------
(ARTHUR ZEIKEL) Executive Officer)
/s/GERALD M. RICHARD Treasurer (Principal Financial April 24, 1995
------------------------
(GERALD M. RICHARD) and Accounting Officer)
HERBERT I. LONDON* Director
------------------------
(HERBERT I. LONDON)
ROBERT R. MARTIN* Director
------------------------
(ROBERT R. MARTIN)
JOSEPH L. MAY* Director
------------------------
(JOSEPH L. MAY)
ANDRE F. PEROLD* Director
------------------------
(ANDRE F. PEROLD)
*By /s/ ARTHUR ZEIKEL April 24, 1995
----------------------------------
(ARTHUR ZEIKEL, ATTORNEY-IN-FACT)
</TABLE>
C-8
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission File due to ASCII-incompatibility and cross-
references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graphic paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<PAGE>
EXHIBIT INDEX
<TABLE><CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
- ------- -------------------------------------------------------------------------- ----------
<C> <S> <C>
1(a) --Articles of Amendment and Restatement, dated November 8, 1991. (a)
(b) --Articles of Amendment to Articles of Incorporation, as filed on October
19, 1994.
(c) --Articles Supplementary to Articles of Incorporation, as filed on October
21, 1994.
2 --Revised By-Laws of Registrant. (a)
3 --None.
4 --Copies of instruments defining the rights of shareholders, including the
relevant portions of the Articles of Incorporation, as amended, and
By-Laws of Registrant. (b)
5(a) --Investment Advisory Agreement between Registrant and Fund Asset
Management, L.P. (a)
(b) --Supplement to Investment Advisory Agreement with Fund Asset Management,
L.P. (c)
6(a) --Revised Class A Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (d)
(b) --Class B Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (a)
(c) --Form of Class C Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (d)
(d) --Form of Class D Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (d)
(e) --Letter Agreement between the Fund and Merrill Lynch Funds Distributor,
Inc. dated September 15, 1993, in connection with the Merrill Lynch
Mutual Fund Adviser Program. (a)
7 --None.
8 --Custody Agreement between Registrant and State Street Bank and Trust
Company. (a)
9 --Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between Registrant and Financial Data Services, Inc.
(a)
10 --Opinion of Brown & Wood, counsel for Registrant.
11 --Consent of Deloitte & Touche LLP, independent auditors for Registrant.
12 --None.
13 --None.
14 --None.
15(a) --Amended and Restated Class B Distribution Plan of Registrant and
Distribution Plan Sub-Agreement. (a)
(b) --Form of Class C Shares Distribution Plan and Class C Shares Distribution
Plan Sub-Agreement of the Registrant. (d)
(c) --Form of Class D Shares Distribution Plan and Class D Shares Distribution
Plan Sub-Agreement of the Registrant. (d)
16(a) --Schedule of computation of performance quotations for Class A shares
provided in the Registration Statement in response to Item 22.
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
(b) --Schedule of computation of performance quotations for Class B shares
provided in the Registration Statement in response to Item 22.
(c) --Schedule of computation of performance quotations for Class C shares
provided in the Registration Statement in response to Item 22.
(d) --Schedule of computation of performance quotations for Class D shares
provided in the Registration Statement in response to Item 22.
17(a) --Financial Data Schedule for the Year Ended December 31, 1994 for Class A
Shares.
(b) --Financial Data Schedule for the Year Ended December 31, 1994 for Class B
Shares.
(c) --Financial Data Schedule for the Year Ended December 31, 1994 for Class C
Shares.
(d) --Financial Data Schedule for the Year Ended December 31, 1994 for Class D
Shares.
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Refiled pursuant to the Electronic Data Gathering, Analysis, and Retrieval (EDGAR)
phase-in requirements.
(b) Reference is made to Article III (Sections 3 and 4), Article V, Article VI (Section 3),
Article VII, Article VIII and Article X of the Registrant's Articles of Amendment and
Restatement, filed as Exhibit (1)(a) to the Registration Statement; the Articles
Supplementary filed as Exhibit (1)(b) to the Registration Statement; the Articles of
Amendment filed as Exhibit (1)(c) to the Registration Statement; the Articles
Supplementary filed as Exhibit (1)(d) to the Registration Statement; and Article II,
Article III (Sections 1, 3, 5, 6 and 17), Article IV (Section 1), Article V (Section 7),
Article VI, Article VII, Article XII, Article XIII, and Article XIV of the Registrant's
By-Laws filed as Exhibit (2) to the Registration Statement.
(c) Previously filed with the Registrant's Post-Effective Amendment No. 3 to the
Registration Statement on Form N-1A (File Nos. 33-42681 and 811-5603) as filed with the
Securities and Exchange Commission on April 29, 1994.
(d) Previously filed with the Registrant's Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A (File Nos. 33-42681 and 811-5603) as filed with the
Securities and Exchange Commission on October 18, 1994.
</TABLE>
Exhibit 1(b)
[STATE DEPARTMENT OF ASSESSMENTS
AND TAXATION
APPROVED FOR RECORD
10-19-94 at 3:18 p.m.
Effective 10-21-94 Also marked, "RECEIVED '94 OCT 19 P3:18"]
MERRILL LYNCH WORLD INCOME FUND, INC.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
MERRILL LYNCH WORLD INCOME FUND, INC., a Maryland
corporation having its principal Maryland office c/o The
Corporation Trust Incorporated, 32 South Street, Baltimore,
Maryland 21202 (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The charter of the Corporation is hereby amended
by adding the following provision at the end of Article V:
(9) The Board of Directors may classify and reclassify any
issued shares of capital stock into one or more additional or
other classes or series as may be established from time to time
by setting or changing in any one or more respects the
designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of stock and
pursuant to such classification or reclassification to increase
or decrease the number of authorized shares of any existing class
or series; provided, however, that any such classification or
reclassification shall not substantially adversely affect the
rights of holders of such issued shares. The Board's authority
pursuant to this paragraph shall include, but not be limited to,
the power to vary among all the holders of a particular class or
series (a) the length of time shares must be held prior to
reclassification to shares of another class or series (the
"Holding Period(s)"), (b) the manner in which the time for such
Holding Period(s) is determined and (c) the class or series into
which the particular class or series is being reclassified;
provided, however, that, subject to the first sentence of this
section, with respect to holders of the Corporation's shares
issued on or after the date of the Corporation's first effective
prospectus which sets forth Holding Period(s), (the "First
Holding Period Prospectus"), the Holding Period(s), the manner in
which the time for such Holding Period(s) is determined and the
class or series into which the particular class or series is
being reclassified shall be disclosed in the Corporation's
prospectus or statement of additional information in effect at
the time such shares, which are the subject of the
reclassification, were issued; and provided, further,
<PAGE>
that, subject to the first sentence of this section, with respect
to holders of the Corporation's Class B shares issued prior to
the date of the Corporation's First Holding Period Prospectus,
the Holding Period shall be ten (10) years for retirement plan
(as recognized by the Internal Revenue Code of 1986, as amended
from time to time) holders of issued Class B shares purchased
without a contingent deferred sales charge (a "CDSC-Waived
Retirement Plan") and shall be the Holding Period set forth in
the Corporation's First Holding Period Prospectus, for all other
holders of issued Class B shares; Class B shares held by a CDSC-
Waived Retirement Plan shall be reclassified to Class D shares in
the month following the month in which the first Class B share of
any mutual fund advised by Merrill Lynch Asset Management, L.P.,
Fund Asset Management, L.P., or their affiliates or successors,
held by such CDSC-Waived Retirement Plan has been held for the
ten (10) year Holding Period established by the Corporation's
Board of Directors for such CDSC-Waived Retirement Plan Class B
shareholder; and the Class B shares of every shareholder other
than CDSC-Waived Retirement Plans shall be reclassified to Class
D shares in the month following the month in which such shares
have been held for the Holding Period established by the
Corporation's Board of Directors for shareholders other than
CDSC-Waived Retirement Plans in the Corporation's First Holding
Period Prospectus.
SECOND: The foregoing Articles of Amendment have been
effected in the manner and by the vote required by the
Corporation's charter and the laws of the State of Maryland.
Pursuant to Section 2-604 of the Maryland Corporations and
Associations Code, the amendment was advised by the Board of
Directors of the Corporation and approved by the stockholders.
THIRD: Except as amended hereby, the Corporation's
charter shall remain in full force and effect.
FOURTH: The authorized capital stock of the Corporation
has not been increased by these Articles of Amendment.
FIFTH: These Articles of Amendment shall be effective at
---------
the very beginning of the day on October 21, 1994.
-----------------
The President acknowledges these Articles of Amendment to be
the corporate act of the Corporation and states that to the best
of his knowledge, information and belief, the matters set forth
in these Articles of Amendment with respect to the authorization
and approval of the amendment of the Corporation's charter are
true in all material respects, and that this statement is made
under the penalties for perjury.
<PAGE>
IN WITNESS WHEREOF, MERRILL LYNCH WORLD INCOME FUND, INC.
has caused these Articles of Amendment to be signed in its name
and on its behalf by its President, a duly authorized officer of
the Corporation, and attested by its Secretary as of the 17th day
of October, 1994.
MERRILL LYNCH WORLD INCOME FUND, INC.
_____________________________________________
Arthur Zeikel
President
Attest:
_______________________
Mark B. Goldfus, Secretary
<PAGE>
[STATE OF MARYLAND, DEPARTMENT OF ASSESSMENTS AND TAXATION LETTERHEAD]
DOCUMENT CODE _____09Z.J._____ BUSINESS CODE __03__ COUNTY _74___
------ -- --
# D2591238 P.A. Religious Close X Stock Nonstock
------------ ------------ ------------ ---- --- ----
Merging Surviving
(Transferor) __________________________ (Transferee) ______________
_____________________________________ ____________________________________
_____________________________________ ____________________________________
<TABLE><CAPTION>
CODE AMOUNT FEE REMITTED
---- ------ ------------
<S> <C> <C> <C>
10 50 Expedited Fee (New Name)____________________________
--
20 ____ Organ. & Capitalization
61 ____ Rec. Fee (Arts of Inc.) _____________________________________________
62 20 Re. Fee (Amendment)
--
63 ____ Rec. Fee (Merger, Consol.) _____________________________________
64 ____ Rec. Fee (Transfer)
65 ____ Rec. Fee (Dissolution) _____ Change of Name
66 ____ Rec. Fee (Revival) _____ Change of Principal Office
52 ____ Foreign Qualification _____ Change of Resident Agent
50 ____ Cert. of Qual. or Reg. _____ Change of Resident Agent
51 ____ Foreign Name Registration Address
13 9 _1__ Certified Copy 3 _____ Resignation of Resident Agent
---- ---
56 ____ Penalty _____ Designation of Resident Agent
54 ____ For. Supplemental Cert. and Resident Agent's Address
53 ____ Foreign Resolution _____ Other Change_________________
73 ____ Certificate of Conveyance _____________________________
_________________________
_________________________
_________________________
75 ____ Special Fee
80 ____ For. Limited Partnership
83 ____ Cert. Limited Partnership CODE_____________
84 ____ Amendment to Limited Partnership
85 ____ Termination of Limited Partnership
21 ____ Recordation Tax
<PAGE>
22 ____ State Transfer Tax ATTENTION:____________________
23 ____ Local Transfer Tax
31 ____ _____ Corp. Good Standing _____________________________
67 ____ Cert. Limited Liability Partnership
87 ____ _____ Limited Part. Good Standing _____________________________
69 ____ Foreign Limited Liability Partnership
600 ____ _______________________________Returns
68 ____ LLP Amendment - Domestic
74 ____ LLP Amendment - Foreign
70 ____ Change of P.O., R.A. or R.A.A. MAIL TO ADDRESS:______________
91 ____ Amend/Cancellation, For. Limited Part.
99 ____ Art. of Organization (LLC) Galland, Kharasch,____________
98 ____ LLC Amend, Diss, Continuation
97 ____ LLC Cancellation Morse & Garfinkle, P.C._______
96 ____ Registration Foreign LLC
94 ____ Foreign LLC Supplemental 1054 Thirty First St, NW_______
92 ____ ___________ LLC Good Standing (short)
___ ____ Other____________________________ Washington, D.C. 20007________
TOTAL c/o Rebecca Tzou
FEES __79___
-- __X____ Check ______ Cash NOTE :
________ Documents on __________ checks
APPROVED BY: __JMT______
---
</TABLE>
Exhibit 1(c)
[STATE DEPARTMENT OF ASSESSMENTS
AND TAXATION
APPROVED FOR RECORD
10-21-94 AT 8:30]
MERRILL LYNCH WORLD INCOME FUND, INC.
ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION
INCREASING THE AUTHORIZED CAPITAL STOCK OF THE
CORPORATION AND CREATING TWO ADDITIONAL CLASSES
OF COMMON STOCK
MERRILL LYNCH WORLD INCOME FUND, INC., a Maryland corporation
having its principal Maryland office c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202
(hereinafter called the "Corporation"), hereby certifies to the
State Department of Assessments and Taxation, that:
FIRST: The Corporation is registered as an open-end company
under the Investment Company Act of 1940, as amended, with
authority to issue TWO BILLION (2,000,000,000) shares of capital
stock. The Corporation has two classes of capital stock
consisting of ONE BILLION (1,000,000,000) shares of Class A
Common Stock and ONE BILLION (1,000,000,000) shares of Class B
Common Stock. All shares of all classes and series of the
Corporation's capital stock have a par value of Ten Cents ($.10)
per share and an aggregate par value of TWO HUNDRED MILLION
Dollars ($200,000,000).
SECOND: The Board of Directors of the Corporation, acting
in accordance with Section 2-105(c) of the Maryland Corporations
and Associations Code, hereby increases the total number of
authorized shares of Class B Common Stock of the Corporation by
TWO BILLION (2,000,000,000) shares.
THIRD: After this increase in the number of authorized
shares of capital stock of the Corporation, the Corporation will
have authority to issue FOUR BILLION (4,000,000,000) shares of
capital stock and the capital stock will consist of ONE BILLION
(1,000,000,000) shares of Class A Common Stock and THREE BILLION
(3,000,000,000) shares of Class B Common Stock.
FOURTH: After this increase in the number of authorized
shares of capital stock of the Corporation, all shares of all
classes and series of the Corporation's capital stock will have a
par value of Ten Cents ($.10) per share and an aggregate par
value of FOUR HUNDRED MILLION Dollars ($400,000,000).
<PAGE>
FIFTH: Pursuant to authority expressly vested in the
Board of Directors of the Corporation by its charter, the Board
of Directors has reclassified ONE BILLION (1,000,000,000)
authorized and unissued shares of the Class B Common Stock of the
Corporation as Class C Common Stock of par value of Ten Cents
($.10) per share and of the aggregate par value of ONE HUNDRED
MILLION Dollars ($100,000,000).
SIXTH: The preferences, designation, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of Class C
Common Stock are as follows:
The Class C Common Stock of the Corporation shall represent
the same interest in the Corporation and have identical
preferences, designation, conversion or other rights, voting
powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Class
B Common Stock as of the date of these Articles Supplementary,
except as otherwise set forth in the Corporation's charter and
further except that:
(i) Expenses related to the distribution of the Class C
Common Stock shall be borne solely by such class and such class
shall have exclusive voting rights with respect to matters
relating to the expenses being borne solely by such class;
(ii) Such distribution expenses borne solely by Class C
Common Stock shall be appropriately reflected (in the manner
determined by the Board of Directors) in the net asset value,
dividends, distribution and liquidation rights of the shares of
such class; and
(iii) Class C Common Stock shall not be reclassified
into Class D shares.
SEVENTH: Pursuant to authority expressly vested in the
Board of Directors of the Corporation by its charter, the Board
of Directors had reclassified ONE BILLION (1,000,000,000)
authorized and unissued shares of the Class B Common Stock of the
Corporation as Class D Common Stock of par value of Ten Cents
($.10) per share and of the aggregate par value of ONE HUNDRED
MILLION Dollars ($100,000,000).
EIGHTH: The preferences, designations, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of Class D
Common Stock are as follows:
The Class D Common Stock of the Corporation shall represent
the same interest in the Corporation and have identical
preferences, designations, conversion or other rights, voting
powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Class
B Common Stock as of the date of these Articles Supplementary,
except as otherwise set forth in the Corporation's charter and
further except that:
(i) Expenses related to the distribution of the Class D
Common Stock shall be borne solely by such class and such class
shall have exclusive voting rights with respect to
<PAGE>
matters relating to the expenses being borne solely by such
class; and
(ii) Such distribution expenses borne solely by Class D
Common Stock shall be appropriately reflected (in the manner
determined by the Board of Directors) in the net asset value,
dividends, distribution and liquidation rights of the shares of
such class.
<PAGE>
IN WITNESS WHEREOF, MERRILL LYNCH WORLD INCOME FUND, INC.
has caused these Articles Supplementary to be signed in its name and on its
behalf by its President and attested by its Secretary on October 17th, 1994.
----
MERRILL LYNCH WORLD INCOME FUND, INC.
By__________________________________
Arthur Zeikel
President
Attest:
_______________________
Mark B. Goldfus, Secretary
THE UNDERSIGNED, President of MERRILL LYNCH WORLD INCOME FUND, INC.,
who executed on behalf of said Corporation the foregoing Articles Supplementary,
of which this certificate is made a part, hereby acknowledges, in the name and
on behalf of said Corporation, the foregoing Articles Supplementary to be
the corporate act of said Corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and facts set forth
therein with respect to the authorization and approval thereof are true in all
material respects, and that this statement is made under the penalties
for perjury.
________________________________
Arthur Zeikel
President
<PAGE>
[STATE OF MARYLAND, DEPARTMENT OF ASSESSMENTS AND TAXATION LETTERHEAD]
DOCUMENT CODE _____16.J._____ BUSINESS CODE ______ COUNTY _74___
# _D2591238____ __ P.A. _____ Religious ____ Close ___ Stock ____ Nonstock
Merging Surviving
(Transferor) __________________________ (Transferee) ______________
_____________________________________ ____________________________________
_____________________________________ ____________________________________
_____________________________________ ____________________________________
<TABLE><CAPTION>
CODE AMOUNT FEE REMITTED
- ---- ------ ------------
<S> <C> <C> <C>
10 50 Expedited Fee (New Name)__________________
--
20 4000 Organ. & Capitalization
----
61 ____ Rec. Fee (Arts of Inc.) ____________________________
62 20 Re. Fee (Amendment)
--
63 ____ Rec. Fee (Merger, Consol.) ____________________________
64 ____ Rec. Fee (Transfer)
65 ____ Rec. Fee (Dissolution) _____ Change of Name
66 ____ Rec. Fee (Revival) _____ Change of Principal Office
52 ____ Foreign Qualification _____ Change of Resident Agent
50 ____ Cert. of Qual. or Reg. _____ Change of Resident Agent
51 ____ Foreign Name Registration Address
13 10 _1__ Certified Copy _4_____ _____ Designation of Resident Agent
56 ____ Penalty _____ Designation of Resident Agent
54 ____ For. Supplemental Cert. and Resident Agent's Address
53 ____ Foreign Resolution _____ Other Change_______________
73 ____ Certificate of Conveyance ___________________________
_________________________
_________________________
_________________________
75 ____ Special Fee
80 ____ For. Limited Partnership
83 ____ Cert. Limited Partnership CODE_____________
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
84 ____ Amendment to Limited Partnership
85 ____ Termination of Limited Partnership
21 ____ Recordation Tax
22 ____ State Transfer Tax ATTENTION:____________________
23 ____ Local Transfer Tax
31 ____ _____ Corp. Good Standing _____________________________
67 ____ Cert. Limited Liability Partnership
87 ____ _____ Limited Part. Good Standing _____________________________
69 ____ Foreign Limited Liability Partnership
600 ____ _______________________________Returns
68 ____ LLP Amendment - Domestic
74 ____ LLP Amendment - Foreign
70 ____ Change of P.O., R.A. or R.A.A. MAIL TO ADDRESS:_____________
91 ____ Amend/ Cancellation, For. Limited Part.
99 ____ Art. of Organization (LLC) Galland, Kharasch,___________
98 ____ LLC Amend, Diss, Continuation
97 ____ LLC Cancellation Morse & Garfinkle, P.C.______
96 ____ Registration Foreign LLC
94 ____ Foreign LLC Supplemental 1054 Thirty First St, N.W.___
92 ____ ___________ LLC Good Standing (short)
___ ____ Other____________________________ Washington, D.C. 20007______
TOTAL C/O Rebecca Tzou
FEES _4080__
----
</TABLE>
__X____ Check ______ Cash NOTE :
________ Documents on __________ checks
APPROVED BY: __PCM______
---
Exhibit 10
BROWN & WOOD
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
April 25, 1995
Merrill Lynch World Income Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Dear Sir or Madam:
This opinion is furnished in connection with the
registration by Merrill Lynch World Income Fund, Inc., a Maryland
corporation (the"Company") of 65,530,679 shares of common stock,
par value $0.10 per share (the "Shares"), under the Securities
Act of 1933 pursuant to a registration statement on Form N-1A
(File No. 33-42681), as amended (the "Registration Statement").
As counsel for the Company, we are familiar with the
proceedings taken by it in connection with the authorization,
issuance and sale of the Shares. In addition, we have examined
and are familiar with the Articles of Incorporation of the
Company, the By-Laws of the Company and such other documents as
we have deemed relevant to the matters referred to in this
opinion.
Based upon the foregoing, we are of the opinion that the
Shares, upon issuance and sale in the manner referred to in the
Registration Statement for consideration not less than the par
value thereof, will be legally issued, fully paid and non-
assessable shares of common stock of the Fund.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the use of our name
in the prospectus and statement of additional information
constituting parts thereof.
Very truly yours,
/s/ Brown & Wood
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch World Income Fund, Inc.:
We consent to the use in Post-Effective Amendment No. 5 to Registration
Statement No. 33-42681 of our report dated February 3, 1995 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
April 24, 1995
Exhibit 16(a)
Merrill Lynch World Income Fund, Inc. - Class A
12/31/93 - 12/31/94
1 year 1 year
Average Annual Total
Total Return Return*
------------ -----------
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 9.67
------------
Divided by Net Asset Value 9.28
----------
Equals Shares Purchased 103.448 107.759
Plus Shares Acquired through
Divided Reinvestment 8.878 9.251
------------ -----------
Equals Shares Held at 12/31/94 112.326 117.009
Multiplied by Net Asset Value at 12/31/94 8.20 8.20
------------ -----------
Equals Ending Redeemable Value at
$1000 Investment (ERV) at 12//31/94 921.07 959.48
Divided by $1,000 (P) 0.9211 0.9595
Subtract 1 -0.0789 -0.0405
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) -7.89%
=============
Expressed as a percentage equals the
Aggregate Total Return for the Period -4.05%
===========
ERV divided by P 0.9211
Raise to the power of 5.1408
Equals 0.6553
Subtract 1 -0.3447
Expressed as a percentage equals the
Average Annualized Total Return -34.47%
=============
* Does not include sales charge for the period
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 12-31-94
Merrill Lynch World Income Fund, Inc. - Class A
Long term income generally based on yield to
maturity times market value of each security $2,591,758
Plus short term income accrued for the past
thirty days 145,557
----------
Equals Total Income 2,737,315
Less expenses for the past thirty days -203,866
----------
Equals net monthly income for yield calculation 2,533,449
----------
Average shares outstanding for 30 days 38,912,619
Times the Maximum Offering Price 8.54
-------------
Equals total dollars $332,313,762
=============
Net monthly income divided by total dollars equals 0.007623666
Add 1 1.007623666
Raise to the power of 6 1.046622713
Subtract 1 0.046622713
Times 2 0.093245426
Expressed as a percentage equals the
standardized yield for 30 day period 9.32%
========
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 12.94%
========
Exhibit 16(b)
Merrill Lynch World Income Fund, Inc. - Class B
12/31/93 - 12/31/94
1 year 1 year
Average Annual Total
Total Return Return*
------------ -----------
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 9.28 9.28
------------ -----------
Equals Shares Purchased 107.759 107.759
Plus Shares Acquired through
Dividend Reinvestment 8.361 8.361
------------ -----------
Equals Shares Held at 12/31/94 116.120 116.120
Multiplied by Net Asset Value at 12/31/94 8.19 8.19
------------ -----------
Equals Ending Value before deduction for
contingent deferred sales charge 951.02 951.02
Less deferred sales charge (35.10) 0.00
------------ -----------
Equals Ending Redeemable Value at
$1000 Investment (ERV) at 12/31/94 915.92 951.02
------------ -----------
Divided by $1,000 (P) 0.9159 0.9510
Subtract 1 -0.0841 -0.0490
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) -8.41%
============
Expressed as a percentage equals the
Aggregate Total Return for the Period -4.90%
===========
ERV divided by P 0.9159
Raise to the power of 5.1408
Equals 0.6367
Subtract 1 -0.3633
Expressed as a percentage equals the
Average Annualized Total Return -36.33%
============
* Does not include sales charge for the period
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 12-31-94
Merrill Lynch World Income Fund, Inc. - Class B
Long term income generally based on yield to
maturity times market value of each security $12,303,694
Plus short term income accrued for the past
thirty days 690,994
----------
Equals Total Income 12,994,688
Less expenses for the past thirty days -1,927,764
----------
Equals net monthly income for yield calculation 11,066,924
----------
Average shares outstanding for 30 days 184,808,312
Times the Net Asset Value 8.19
--------------
Equals total dollars $1,513,580,079
==============
Net monthly income divided by total dollars equals 0.007311753
Add 1 1.007311753
Raise to the power of 6 1.044680305
Subtract 1 0.044680305
Times 2 0.089360610
Expressed as a percentage equals the
standardized yield for 30 day period 8.94%
========
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 12.42%
========
EXHIBIT 16(c)
Merrill Lynch World Income Fund, Inc. - Class C
10/21/94 - 12/31/94 Since Since
Inception Inception
Average Annual Total
Total Return Return*
------------ ----------
Initial Investment $1,000.00 $1,000.00
------------
Divided by Net Asset Value 8.42 8.42
------------ ----------
Equals Shares Purchased 118.76 118.76
Plus Shares Acquired through
Dividend Reinvestment 1.87 1.87
------------ ----------
Equal Shares Held at 12/31/94 120.63 120.63
Multiplied by Net Asset Value at 12/31/94 8.19 8.19
------------ ----------
Equals Ending Value before deduction for
contingent deferred sales charge 987.96 987.96
Less deferred sales charge (9.79) 0.00
------------ ----------
Equals Ending Redeemable Value at
$1000 Investment (ERV) at 12/31/94 $ 978.17 $ 987.96
------------ ----------
Divided by $1,000 (P) 0.9782 0.9880
Subtract 1 -0.0218 -0.0120
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) -2.18%
============
Expressed as a percentage equals the
Aggregate Total Return for the Period -1.20%
==========
ERV divided by P 0.9782
Raise to the power of 5.1285
Equals 0.8930
Subtract 1 -0.1070
Expressed as a percentage equals the
Average Annualized Total Return -10.70%
============
*Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 12-31-94
MERRILL LYNCH WORLD INCOME FUND, INC. - CLASS C
Long term income generally based on yield to
maturity times market value of each security $8,462
Plus short term income accrued for the past
thirty days 475
---------------
Equals Total Income 8,937
Less expenses for the past thirty days -875
---------------
Equals net monthly income for yield calculation 8,062
---------------
Average shares outstanding for 30 days 126,901
Times the Net Asset Value 8.54
---------------
Equals total dollars $1,083,738
===============
Net monthly income divided by total dollars equals 0.007438949
Add 1 1.007438949
Raise to the power of 6 1.045472042
Subtract 1 0.045472042
Times 2 0.090944084
Expressed as a percentage equals the
standardized yield for the 30 day period 9.09%
========
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 12.63%
========
EXHIBIT 16(d)
Merrill Lynch World Income Fund, Inc. - Class D
10/21/94 - 12/31/94 Since Since
Inception Inception
Average Annual Total
Total Return Return*
------------ ----------
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maxium Offering Price 8.78
------------
Divided by Net Asset Value 8.43
----------
Equals Shares Purchased 113.88 118.62
Plus Shares Acquired through
Dividend Reinvestment 1.92 2.01
------------ ----------
Equals Shares Held at 12/31/94 115.80 120.63
Multiplied by Net Asset Value at 12/31/94 8.20 8.20
------------ ----------
Equals Ending Redeemable Value at
$1000 Investment (ERV) at 12/31/94 $ 949.58 $ 989.15
Divided by $1,000 (P) 0.9496 0.9891
Subtract 1 -0.0504 -0.0109
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) -5.04%
============
Expressed as a percentage equals the
Aggregate Total Return for the Period -1.09%
==========
ERV divided by P 0.9496
Raise to the power of 5.1390
Equals 0.7665
Subtract 1 -0.2335
Expressed as a percentage equals the
Average Annualized Total Return -23.35%
============
*Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 12-31-94
MERRILL LYNCH WORLD INCOME FUND, INC. - CLASS D
Long term income generally based on yield to
maturity times market value of each security $6,357
Plus short term income accrued for the past
thirty days 357
---------------
Equals Total Income 6,714
Less expenses for the past thirty days -1,052
---------------
Equals net monthly income for yield calculation 5,662
---------------
Average shares outstanding for 30 days 95,475
Times the Maximum Offering Price 8.19
---------------
Equals total dollars $781,943
===============
Net monthly income divided by total dollars equals 0.007241119
Add 1 1.007241119
Raise to the power of 6 1.044240854
Subtract 1 0.044240854
Times 2 0.088481709
Expressed as a percentage equals the
standardized yield for the 30 day period 8.85%
========
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 12.29%
========
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