<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1996.
SECURITIES ACT FILE NO. 33-34476
INVESTMENT COMPANY ACT FILE NO. 811-6089
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
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. 7 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 9 /X/
(CHECK APPROPRIATE BOX OR BOXES)
---------------------
MERRILL LYNCH SHORT-TERM GLOBAL
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 SHORT-TERM GLOBAL 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 REGISTRANT: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD MERRILL LYNCH ASSET MANAGEMENT
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, NEW JERSEY 08543-9011
ATTENTION: THOMAS R. SMITH, JR., ESQ.
FRANK P. BRUNO, ESQ.
</TABLE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
/X/ immediately upon filing pursuant to
paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to
paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to
paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of
rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates
a new effective date for a previously filed
post-effective amendment
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF COMMON
STOCK UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE NOTICES REQUIRED BY SUCH RULE FOR THE
REGISTRANT'S FISCAL YEAR ENDED OCTOBER 31, 1995 AND FOR THE FISCAL PERIOD ENDED
DECEMBER 31, 1995 WERE FILED ON DECEMBER 21, 1995 AND FEBRUARY 27, 1996,
RESPECTIVELY.
---------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<S> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING AMOUNT OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED BEING REGISTERED PER SHARE OFFERING PRICE FEE
- - -------------------------------------------------------------------------------------------------------
Shares of Common Stock (par
value $.10 per share)....... 50,094,088 $8.20 $289,993 $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
fiscal year ended October 31, 1995 and fiscal period ended December 31,
1995 was 52,745,750 shares of Common Stock.
(3) 2,687,027 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 fiscal period ended
December 31, 1995 and current fiscal year.
(4) 50,058,723 of the shares redeemed during Registrant's fiscal year ended
October 31, 1995 and fiscal period ended December 31, 1995 are being used
for the reduction of the registration fee in this amendment to the
Registration Statement.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH SHORT-TERM GLOBAL 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.............................. Not Applicable
Item 3. Condensed Financial Information....... Financial Highlights; Performance Data
Item 4. General Description of Registrant..... Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund................ Fee Table; Management of the Fund;
Inside Back Cover Page
Item 5A. Management's Discussion of Fund
Performance......................... Not Applicable
Item 6. Capital Stock and Other Securities.... Cover Page; Additional Information
Item 7. Purchase of Securities Being
Offered............................. Cover Page; Fee Table; Merrill Lynch
Select Pricing(SM) System; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase.............. Fee Table; Merrill Lynch Select
Pricing(SM) System; Purchase of Shares;
Redemption of Shares; Shareholder
Services
Item 9. Pending Legal Proceedings............. Additional Information
PART B
Item 10. Cover Page............................ Cover Page
Item 11. Table of Contents..................... Back Cover Page
Item 12. General Information and History....... Not Applicable
Item 13. Investment Objectives and Policies.... Investment Objective and Policies
Item 14. Management of the Fund................ Management of the Fund
Item 15. Control Persons and Principal Holders
of Securities....................... Management of the Fund
Item 16. Investment Advisory and Other
Services............................ Management of the Fund; Purchase of
Shares; General Information
Item 17. Brokerage Allocation and Other
Practices........................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities.... General Information--Description of
Shares
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............ Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services; General
Information
Item 20. Tax Status............................ 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> 3
PROSPECTUS
FEBRUARY 28, 1996
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Short-Term Global Income Fund, Inc. (the "Fund") is a
non-diversified mutual fund seeking to provide shareholders with 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. Under normal circumstances, the Fund will invest its
assets in debt securities denominated in at least three different currencies,
including the United States dollar. At times, the Fund may seek to hedge its
portfolio against currency risks and, to a lesser extent, interest rate risks
through the use of futures, options on futures and currency transactions.
Investment on a global basis involves special considerations. See "Special and
Risk Considerations". There can be no assurance that the investment objective of
the Fund will be realized. For more information on the Fund's investment
objective and policies, please see "Investment Objective and Policies" on page
10.
------------------------
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares and other relevant circumstances.
As a result of the implementation of the Select Pricing(SM) System, Class A
shares of the Fund outstanding prior to October 21, 1994, were redesignated
Class D shares. The Class A shares offered by this Prospectus differ from the
Class A shares offered prior to October 21, 1994, in many respects, including
sales charges, exchange privilege and the classes of persons to whom such
shares are offered. See "Merrill Lynch Select Pricing(SM) System" on page 3.
------------------------
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 [(609)
282-2800], and other securities dealers which have entered into selected dealers
agreements with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000, and the
minimum subsequent purchase is $50, except that for retirement plans the minimum
initial purchase is $100, and the minimum subsequent purchase is $1. Merrill
Lynch may charge its customers a processing fee (presently $4.85) for confirming
purchases and repurchases. Purchases and redemptions directly through the Fund's
transfer agent are not subject to the processing fee. See "Purchase of Shares"
and "Redemption of Shares".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
This Prospectus is a concise statement of information about the Fund that
is relevant to making an investment in the Fund. This Prospectus should be
retained for future reference. A statement containing additional information
about the Fund, dated February 28, 1996 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and is
available, without charge, by calling or by writing the Fund at the above
telephone number or address. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE> 4
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION>
CLASS A(a) CLASS B(b) CLASS C CLASS D
---------- -------------------------- -------- --------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............ 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 first 1% for None(d)
year, decreasing 1.0% one year
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):
Investment Advisory Fees(e)...................... 0.55% 0.55% 0.55% 0.55%
Rule 12b-1 Fees(f):
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................................. 0.05% 0.05% 0.05% 0.05%
Shareholder Servicing Costs(g)................. 0.24% 0.26% 0.31% 0.23%
Other.......................................... 0.12% 0.12% 0.12% 0.12%
------- ----- ----- -----
Total Other Expenses......................... 0.41% 0.43% 0.48% 0.40%
------- ----- ----- -----
Total Fund Operating Expenses...................... 0.96% 1.73% 1.83% 1.20%
======= ===== ===== =====
</TABLE>
- - ---------------
(a) Class A shares are sold to a limited group of investors including certain
retirement plans and certain investment programs. See "Purchase of
Shares -- Initial Sales Charge Alternatives -- Class A and Class D
shares" -- page 27.
(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 29.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. 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 27.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more which
may not be subject to an initial sales charge may instead be subject to a
CDSC of 1.0% of amounts redeemed within the first year of purchase.
(e) See "Management of the Fund -- Management and Advisory Arrangements" -- page
22.
(f) See "Purchase of Shares -- Distribution Plans" -- page 33.
(g) See "Management of the Fund -- Transfer Agency Services" -- page 24.
2
<PAGE> 5
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment including the maximum $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:
Class A.............................................. $ 49 $69 $ 91 $153
Class B.............................................. $ 58 $74 $ 94 $204
Class C.............................................. $ 29 $58 $ 99 $215
Class D.............................................. $ 52 $77 $ 103 $180
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of
the period:
Class A.............................................. $ 49 $69 $ 91 $153
Class B.............................................. $ 18 $54 $ 94 $204
Class C.............................................. $ 19 $58 $ 99 $215
Class D.............................................. $ 52 $77 $ 103 $180
</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 (the "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. (the "NASD"). Merrill Lynch may
charge its customers a processing fee (presently $4.85) for confirming purchases
and repurchases. Purchases and redemptions directly through the Fund's transfer
agent are not subject to the processing fee. See "Purchase of Shares" and
"Redemption of Shares".
MERRILL LYNCH SELECT PRICING(SM) SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives, and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. The Merrill Lynch Select Pricing(SM) System is used by more than
50 mutual funds advised by Merrill Lynch Asset Management, L.P. ("MLAM" or the
"Investment Adviser") or an affiliate of MLAM, Fund Asset Management, L.P.
("FAM"). Funds advised by MLAM or FAM are referred to herein as "MLAM-advised
mutual funds".
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees and Class B and Class C shares bear the
expenses
3
<PAGE> 6
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 Pricing(SM) System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing(SM) System that the investor
believes is the most beneficial under his particular circumstances. More
detailed information as to each class of shares is set forth under "Purchase of
Shares".
<TABLE>
<S> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
- - -------------------------------------------------------------------------------------------------
A Maximum 4.00% initial No No No
sales charge(2,3)
- - -------------------------------------------------------------------------------------------------
B CDSC for a period of four 0.25% 0.50% B shares convert to
years, at a rate of 4.0% D shares automatically
during after approximately
the first year, decreasing ten years(4)
1.0% annually to 0.0%
- - -------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.55% No
- - -------------------------------------------------------------------------------------------------
D Maximum 4.00% initial 0.25% No No
sales charge(3)
- - -------------------------------------------------------------------------------------------------
</TABLE>
- - ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs are imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "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, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. 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 was 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.
4
<PAGE> 7
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 of the Fund are offered to a limited group of investors and
also will be issued upon reinvestment of dividends on outstanding
Class A shares of the Fund. Eligible investors include certain
retirement plans and participants in certain investment programs. In
addition, Class A shares of the Fund will be offered to Merrill Lynch
& Co., Inc. ("ML & Co.") and its subsidiaries (the term
"subsidiaries", when used herein with respect to ML & Co., includes
MLAM, FAM and certain other entities directly or indirectly
wholly-owned and controlled by ML & Co.) and their directors and
employees and to members of the Boards of MLAM-advised mutual funds.
The maximum initial sales charge is 4.00%, which is reduced for
purchases of $25,000 and over, and waived for purchases by certain
retirement plans in connection with certain investment programs.
Purchases of $1,000,000 or more may not be subject to an initial sales
charge, but if the initial sales charge is waived such purchases will
be subject to a 1% CDSC if the shares are redeemed within one year
after purchase. Sales charges also are reduced under a right of
accumulation which takes into account the investor's holdings of all
classes of all MLAM-advised mutual funds. See "Purchase of
Shares -- Initial Sales Charge Alternatives -- Class A and Class D
Shares".
Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.50% of the Fund's average net
assets attributable to 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 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. 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 the conversion and holding
periods 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
5
<PAGE> 8
shares is the same as the schedule for Class A shares, except that
there is no waiver for purchases by retirement plans in connection
with certain investment programs. 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
Pricing(SM) System that the investor believes is most beneficial under his
particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative particularly
attractive because similar sales charge reductions are not available with
respect to the deferred sales charges imposed in connection with purchases of
Class B or Class C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or
Class C shares may exceed the initial sales charge and, in the case of Class D
shares, the account maintenance fee. Class A, 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 higher 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 Charges".
6
<PAGE> 9
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Fund by
Deloitte & Touche LLP, independent auditors. Financial statements for the fiscal
period November 1, 1995 to December 31, 1995 and for the fiscal year ended
October 31, 1995, and the independent auditors' reports thereon are included in
the Statement of Additional Information. Further information about the
performance of the Fund is contained in the Fund's most recent annual report to
shareholders which may be obtained, without charge, by calling or by writing the
Fund at the telephone number or address on the front cover of this Prospectus.
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------- ----------------------
FOR THE
FOR THE FOR THE FOR THE YEAR
PERIOD FOR THE PERIOD PERIOD ENDED
NOV. 1, YEAR OCT. 21, NOV. 1, OCTOBER
1995 TO ENDED 1994+ TO 1995 TO 31,
DEC. 31, OCT. 31, OCT. 31, DEC. 31, --------
INCREASE (DECREASE) IN NET ASSET VALUE: 1995++ 1995++ 1994++ 1995++ 1995++
--------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................... $ 7.93 $ 8.11 $ 8.11 $ 7.93 $ 8.10
--------- ----- -------- ---------- --------
Investment income--net................................... .09 .49 .01 .08 .47
Realized and unrealized loss on investments and
foreign currency transactions--net..................... (.02) (.12) -- (.03) (.15)
--------- ----- -------- ---------- --------
Total from investment operations......................... .07 .37 .01 .05 .32
--------- ----- -------- ---------- --------
Less dividends:
Return of capital--net................................. -- (.28) (.01) -- (.25)
Investment income--net................................. (.09) (.27) -- (.08) (.24)
--------- ----- -------- ---------- --------
Total dividends.......................................... (.09) (.55) (.01) (.08) (.49)
--------- ----- -------- ---------- --------
Net asset value, end of period........................... $ 7.91 $ 7.93 $ 8.11 $ 7.90 $ 7.93
======== ========= ======= ========= ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share....................... .91%# 4.63% .12%# .62%# 4.00%
======== ========= ======= ========= ========
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account maintenance and
distribution fees...................................... 1.02%* .96% .97%* 1.05%* .98%
======== ========= ======= ========= ========
Expenses................................................. 1.02%* .96% .97%* 1.80%* 1.73%
======== ========= ======= ========= ========
Investment income--net................................... 6.91%* 6.75% 6.28%* 6.13%* 5.95%
======== ========= ======= ========= ========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................. $ 75 $ 66 $ 59 $376,049 $398,136
======== ========= ======= ========= ========
Portfolio turnover....................................... 25.09% 312.13% 259.50% 25.09% 312.13%
======== ========= ======= ========= ========
<CAPTION>
CLASS B
-----------------------------------------------------------------
FOR THE FOR THE
PERIOD PERIOD
DEC. 28, AUG. 3,
1990 TO 1990+ TO
OCT. 31, DEC. 27,
INCREASE (DECREASE) IN NET ASSET VALUE: 1994++ 1993(1) 1992 1991 1990
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................... $ 8.65 $ 8.85 $ 9.84 $ 9.92 $ 10.00
-------- ---------- ---------- ---------- ----------
Investment income--net................................... .50 .57 .72 .77 .39
Realized and unrealized loss on investments
and foreign currency transactions--net................. (.58) (.20) (.99) (.08) (.08)
-------- ---------- ---------- ---------- ----------
Total from investment operations......................... (.08) .37 (.27) .69 .31
-------- ---------- ---------- ---------- ----------
Less dividends:
Return of capital--net................................. (.47) (.57) (.72) -- --
Investment income--net................................. -- -- -- (.77) (.39)
-------- ---------- ---------- ---------- ----------
Total dividends.......................................... (.47) (.57) (.72) (.77) (.39)
-------- ---------- ---------- ---------- ----------
Net asset value, end of period........................... $ 8.10 $ 8.65 $ 8.85 $ 9.84 $ 9.92
======== ========= ========= ========= =========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share....................... (1.02)% 4.63% (3.00)% 6.93%# 3.40%#
======== ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account maintenance and
distribution fees...................................... .77% .79% .75% .77%* .76%*
======== ========= ========= ========= =========
Expenses................................................. 1.52% 1.60% 1.50% 1.52%* 1.51%*
======== ========= ========= ========= =========
Investment income--net................................... 5.68% 7.26% 7.60% 9.11%* 9.75%*
======== ========= ========= ========= =========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................. $750,750 $1,664,602 $3,182,520 $5,918,769 $2,796,301
======== ========= ========= ========= =========
Portfolio turnover....................................... 259.50% 284.62% 120.77% 153.72% 19.40%
======== ========= ========= ========= =========
</TABLE>
- - ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding during the period.
# Aggregate total investment return.
(1) On February 25, 1993, Merrill Lynch Asset Management U.K. Limited became a
sub-adviser to the Fund.
7
<PAGE> 10
FINANCIAL HIGHLIGHTS -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS C CLASS D
-------------------------------------- ----------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
NOV. 1, FOR THE OCT. 21, NOV. 1,
1995 TO YEAR 1994+ TO 1995 TO
DEC. 31, ENDED OCT. OCT. 31, DEC. 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1995++ 31, 1995++ 1994++ 1995++
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 7.74 $ 8.10 $ 8.11 $ 7.93
----- ----- -------- -----
Investment income--net................................................ .08 .35 .01 .09
Realized and unrealized loss on investments
and foreign currency transactions--net.............................. (.02) (.28) (.01) (.03)
----- ----- -------- -----
Total from investment operations...................................... .06 .07 -- .06
----- ----- -------- -----
Less dividends:
Return of capital--net.............................................. -- (.22) (.01) --
Investment income--net.............................................. (.08) (.21) -- (.09)
----- ----- -------- -----
Total dividends....................................................... (.08) (.43) (.01) (.09)
----- ----- -------- -----
Net asset value, end of period........................................ $ 7.72 $ 7.74 $ 8.10 $ 7.90
========= ========= ======= =========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.................................... .73%# .93% .00%# .73%#
========= ========= ======= =========
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account maintenance
and/or distribution fees............................................ 1.03%* 1.03% 1.34%* 1.02%*
========= ========= ======= =========
Expenses.............................................................. 1.83%* 1.83% 2.14%* 1.27%*
========= ========= ======= =========
Investment income--net................................................ 6.09%* 5.99% 5.63%* 6.67%*
========= ========= ======= =========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).............................. $ 103 $ 109 $ 1 $ 24,240
========= ========= ======= =========
Portfolio turnover.................................................... 25.09% 312.13% 259.50% 25.09%
========= ========= ======= =========
<CAPTION>
CLASS D
---------------------------------------------------------------------
FOR THE FOR THE
PERIOD PERIOD
DEC. 28, AUG. 3,
FOR THE YEAR ENDED OCTOBER 31, 1990 TO 1990+ TO
------------------------------------------- OCT. 31, DEC. 27,
INCREASE (DECREASE) IN NET ASSET VALUE: 1995++ 1994++ 1993(1) 1992 1991 1990
------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $ 8.11 $ 8.66 $ 8.85 $ 9.85 $ 9.92 $ 10.00
------- ------- ------- -------- -------- --------
Investment income--net............................... .52 .54 .61 .77 .82 .42
Realized and unrealized loss on investments
and foreign currency transactions--net............. (.17) (.58) (.19) (1.00) (.07) (.08)
------- ------- ------- -------- -------- --------
Total from investment operations..................... .35 (.04) .42 (.23) .75 .34
------- ------- ------- -------- -------- --------
Less dividends:
Return of capital--net............................. (.27) (.51) (.61) (.77) -- --
Investment income--net............................. (.26) -- -- -- (.82) (.42)
------- ------- ------- -------- -------- --------
Total dividends...................................... (.53) (.51) (.61) (.77) (.82) (.42)
------- ------- ------- -------- -------- --------
Net asset value, end of period....................... $ 7.93 $ 8.11 $ 8.66 $ 8.85 $ 9.85 $ 9.92
======= ======= ======= ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share................... 4.43%# (.51)% 5.28% (2.60)% 7.53%# 3.73%#
======= ======= ======= ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account maintenance
and/or distribution fees........................... .95% .76% .73% .75% .76%* .75%*
======= ======= ======= ======== ======== ========
Expenses............................................. 1.20% 1.01% .98% 1.00% .96%* .75%*
======= ======= ======= ======== ======== ========
Investment income--net............................... 6.49% 6.19% 7.24% 8.11% 9.70%* 10.51%*
======= ======= ======= ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............. $26,619 $48,879 $99,037 $188,623 $399,416 $211,006
======= ======= ======= ======== ======== ========
Portfolio turnover................................... 312.13% 259.50% 284.62% 120.77% 153.72% 19.40%
======= ======= ======= ======== ======== ========
</TABLE>
- - ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding during the period.
# Aggregate total investment return.
(1) On February 25, 1993, Merrill Lynch Asset Management U.K. Limited became a
sub-adviser to the Fund.
8
<PAGE> 11
SPECIAL AND RISK CONSIDERATIONS
As a global fund, the Fund may invest in U.S. and foreign securities.
Investments in securities of foreign entities and securities denominated in
foreign currencies involve risks not typically involved in domestic investment,
including fluctuations in foreign exchange rates, future foreign political and
economic developments, and the possible imposition of exchange controls or other
foreign or U.S. governmental laws or restrictions applicable to such
investments. Because the Fund may invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates may affect the value of investments in the portfolio and the unrealized
appreciation or depreciation of investments insofar as U.S. investors are
concerned. Changes in foreign currency exchange rates relative to the U.S.
dollar will affect the U.S. dollar value of the Fund's assets denominated in
those currencies and the Fund's yield on such assets. Foreign currency exchange
rates are determined by forces of supply and demand on the foreign exchange
markets. These forces are, in turn, affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation, and other factors. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign financial
instrument than about a U.S. instrument, and foreign entities may not be subject
to accounting, auditing and financial reporting standards and requirements
comparable to those to which U.S. entities are subject. In addition, certain
foreign investments may be subject to foreign withholding taxes. Investors will
be able to deduct such taxes in computing their taxable income or to use such
amounts as credits against their U.S. income taxes if more than 50% of the
Fund's total assets at the close of any taxable year consist of stock or
securities in foreign corporations. See "Distributions and Taxes -- Taxes".
Foreign financial markets, while generally growing in volume, have, for the most
part, substantially less volume than U.S. markets, and securities of many
foreign companies are less liquid and their prices more volatile than securities
of comparable domestic companies. The foreign markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of the Fund are uninvested and no return is earned thereon. The inability
of the Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to dispose
of portfolio securities due to settlement problems could result either in losses
to the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser. Costs associated with transactions in
foreign securities are generally higher than costs associated with transactions
in U.S. securities. There is generally less government supervision and
regulation of exchanges, financial institutions and issuers in foreign countries
than there is in the U.S.
The operating expense ratio of the Fund can be expected to be higher than
that of an investment company investing exclusively in U.S. securities because
the expenses of the Fund, such as custodial costs, are higher.
The Fund may engage in various portfolio strategies to seek to hedge its
portfolio against movements in the securities markets and exchange rates between
currencies by the use of options and futures thereon.
9
<PAGE> 12
Utilization of options and futures transactions involves the risk of imperfect
correlation in movements in the price of options and futures and movements in
the price of the securities or currencies which are the subject of the hedge.
There can be no assurance that a liquid secondary market for options and futures
contracts will exist at any specific time. See "Investment Objective and
Policies -- Hedging Techniques".
The net asset value of the Fund's shares will be affected by changes in the
general level of interest rates. When interest rates decline, the value of a
portfolio of fixed income securities can be expected to rise. Conversely, when
interest rates rise, the value of a portfolio of fixed income securities can be
expected to decline.
As a non-diversified investment company, the Fund may invest a larger
percentage of its assets in individual issuers than a diversified investment
company. In this regard, the Fund is not subject to the general limitation that
it not invest more than 5% of its total assets in the securities of any one
issuer. To the extent the Fund makes investments in excess of 5% of its assets
in a particular issuer, its exposure to credit and market risks associated with
that issuer is increased.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek to provide shareholders
with 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. The investment objective described in this
paragraph is a fundamental policy of the Fund and may not be changed without the
approval of the holders of a majority of the Fund's outstanding voting
securities. Under normal circumstances, the Fund will invest its assets in debt
securities denominated in at least three different currencies, including the
U.S. dollar. The Fund's investments will be rated AA or better by Standard &
Poor's Ratings Group ("S&P") or Aa or better by Moody's Investors Service, Inc.
("Moody's") or A-1 or better by S&P or Prime-1 or better by Moody's in the case
of commercial paper, similarly rated by another internationally recognized
rating service, such as IBCA Ltd. ("IBCA"), or determined by the Fund's Board of
Directors and the Investment Adviser to be of similar creditworthiness, or will
be issued or guaranteed by governmental or supragovernmental entities (each as
defined below). The Fund may seek to hedge its portfolio securities against
currency risks and, to a lesser extent, interest rate risks through the use of
options, futures, options on futures and currency transactions. There can be no
assurance that the investment objective of the Fund will be realized.
The Fund is designed for the investor who seeks a higher yield than a money
market fund and less fluctuation in net asset value than a longer-term global
bond fund. Under normal conditions, debt securities with longer maturities tend
to produce higher yields, while debt securities with shorter maturities are
subject to less market risk resulting from changes in interest rates. With a
maturity limit of three years, the Fund seeks more attractive yields than those
offered by the shorter-term money market securities in which money market funds
invest (money market funds maintain average maturities of less than 90 days). At
the same time, the three-year limitation enables the Fund to avoid the greater
market risk inherent in longer term securities.
The Investment Adviser will seek to manage the Fund's portfolio in
accordance with a multi-market strategy. Consistent with such a strategy, the
Fund may invest in debt securities denominated in any currency
10
<PAGE> 13
or multi-national currency unit. In addition, the Investment Adviser intends to
allocate the Fund's investments among securities denominated in the currencies
of a number of foreign countries and, within each such country, among different
types of debt securities. The Investment Adviser will adjust the Fund's exposure
to different currencies based on its perception of the most favorable markets
and issuers. In allocating the Fund's assets among multiple markets, the
Investment Adviser will assess the relative yield and anticipated direction of
interest rates in particular markets, general market and economic conditions and
the relationship of currencies of various countries to each other. In its
evaluations, the Investment Adviser will utilize its internal financial,
economic and credit analysis resources as well as information obtained from
other sources. The Fund will not invest more than 25% of its total assets in
debt securities denominated in a single currency or currency unit, except that
it may invest more than 25% of its total assets in U.S. dollar denominated
securities. In addition, the Fund will not invest in countries that are not
considered by the Investment Adviser to have stable governments or whose
currencies are not convertible into U.S. dollars. As a result of hedging
techniques, the Fund's net exposure to any one currency may be different from
that of its total assets denominated in such currency. See "Special and Risk
Considerations".
The securities in which the Fund may invest include debt obligations issued
or guaranteed by U.S. or foreign governments, political subdivisions thereof
(including states, provinces and municipalities) or their agencies and
instrumentalities ("governmental entities"), or issued or guaranteed by
international organizations designated or supported by governmental entities to
promote economic reconstruction or development ("supranational entities"), or
issued by corporations or financial institutions. Securities issued by
supranational entities may be denominated in U.S. dollars, a foreign currency or
a multi-national currency unit. Securities of corporations and financial
institutions in which the Fund may invest include corporate and commercial
obligations, such as medium-term notes and commercial paper, which may be
indexed to foreign currency exchange rates.
The Fund may invest in securities whose potential investment return is
based on the change in particular measurements of value or rate (an "index"). As
an illustration, the Fund may invest in a security that pays interest and
returns principal based on the change in an index of interest rates or of the
value of a currency or basket of currencies. 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. The Fund will purchase such indexed
obligations to generate current income or for currency hedging purposes, and
will not speculate through such obligations.
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.
11
<PAGE> 14
The obligations of foreign governmental entities have various kinds of
government support and include obligations issued or guaranteed by foreign
governmental entities with taxing powers. 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
Investment Adviser, based on its analysis of factors such as general political
or economic conditions relating to the government and the likelihood of
expropriation, nationalization, freezes or confiscation of private property. 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. Examples of supranational entities 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 governmental 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.
As indicated above, the Fund may invest in securities denominated in a
multi-national currency unit. An illustration of a multi-national currency unit
is the European Currency Unit (the "ECU"), which is a "basket" consisting of
specified amounts of the currencies of certain member states of the European
Union, a Western European economic cooperative organization that includes
France, Germany, The Netherlands, the United Kingdom and other countries. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Union 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, 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
U.S. corporation. Such investments involve credit risks associated with the
issuer and currency risks associated with the currency in which the obligation
is denominated.
The Fund also may invest in participations in, or bonds and notes backed
by, pools of mortgage, credit card, automobile or other types of receivables
with remaining maturities of three years or less. These structured financings
will be supported by sufficient collateral and other credit enhancement,
including letters of credit, insurance, reserve funds and guarantees by third
parties, to enable such instruments to obtain a high quality rating by a
nationally recognized statistical rating agency (such as S&P or Moody's) or be
of comparable quality as determined by the Investment Adviser. Generally, the
issuers of mortgage-backed and receivable-backed bonds, notes or pass-through
certificates are special purpose entities and do not have any significant assets
other than the assets securing such obligations. Instruments backed by pools of
mortgages and receivables may be subject to unscheduled prepayments of principal
prior to maturity. When the obligations are prepaid, the Fund must reinvest the
prepaid amounts in securities the yields of which reflect interest rates
prevailing at the time. Therefore, the Fund's ability to maintain a portfolio
which includes high-yielding asset-backed securities will be adversely affected
to the extent that prepayments of principal must be reinvested in securities
which have lower yields than the prepaid obligations. Moreover, prepayments of
securities purchased at a premium could result in a realized loss. Certain
asset-backed and receivable-backed securities may be illiquid. The Fund's
investments in asset-backed and receivable-backed securities that are illiquid
will be limited, together with all other illiquid investments, to 15% (10% to
the extent required by certain state laws) of the Fund's total assets.
12
<PAGE> 15
To minimize the credit risk of its investments, the Fund will invest only
in high quality debt securities. A security may be deemed to be high quality if
it is issued or guaranteed by governmental entities or supranational entities
which the Investment Adviser, acting under the general supervision of the Board
of Directors, has determined to be of high creditworthiness. Securities issued
by corporations or financial institutions will be deemed to be high quality if
they are rated AA or better by S&P or Aa or better by Moody's, or A-1 or better
by S&P or Prime-1 or better by Moody's in the case of commercial paper, or
similarly rated by another internationally recognized rating service, such as
IBCA, or obligations of issuers that the Investment Adviser, acting under the
general supervision of the Board of Directors, has determined to be of similar
creditworthiness.
Under normal conditions, a significant percentage of the shorter-term
investments in the Fund's portfolio may be money market securities. Money market
securities include short-term obligations issued or guaranteed by the U.S.
Government or foreign governments or issued by such governments' respective
agencies and instrumentalities, bank money market instruments including
certificates of deposit, bankers' acceptances and deposit notes and certain
other short-term obligations such as short-term commercial paper. With respect
to bank money market instruments, the obligations may be issued by U.S. or
foreign depository institutions, foreign branches or subsidiaries of U.S.
depository institutions ("Eurodollar" obligations), U.S. branches or
subsidiaries of foreign depository institutions ("Yankeedollar" obligations) or
foreign branches or subsidiaries of foreign depository institutions. Eurodollar
and Yankeedollar obligations and obligations of branches or subsidiaries of
foreign depository institutions may be general obligations of the parent bank or
may be limited to the issuing branch or subsidiary by the terms of the specific
obligations or by government regulation.
It is anticipated that the Fund will invest primarily in securities
denominated in the currencies of the United States, Japan, Canada, Western
European nations, New Zealand or Australia, as well as securities denominated in
the ECU described above. Further, it is anticipated that such securities will be
issued primarily by entities located in such countries and by supranational
entities. Under certain adverse conditions and for the duration of such
conditions, the Fund may restrict the financial markets or currencies in which
its assets are invested, and it may invest its assets solely in one financial
market or in obligations denominated in one currency.
Under normal circumstances, the Fund will invest at least 25% of its total
assets in debt instruments issued by U.S. and foreign companies engaged in the
banking industry, including bank holding companies. Such investments may include
certificates of deposit, time deposits, bankers' acceptances, and obligations
issued by bank holding companies, as well as repurchase agreements entered into
with banks. For temporary defensive purposes, however, the Fund may reduce its
investments in the banking industry to less than 25% of its total assets. The
Fund's policy as to concentrating its investments in the banking industry is
fundamental and may not be changed without the approval of a majority of the
Fund's voting securities.
The Fund's policy of concentrating its investments in the banking industry
will cause the Fund to have greater exposure to certain risks associated with
the banking industry. In particular, economic or regulatory developments in or
related to the banking industry will affect the value of and investment return
on the Fund's shares. Sustained increases in interest rates may adversely affect
the availability and cost of funds for a bank's lending activities;
deterioration in general economic conditions may increase a bank's exposure to
credit losses. The banking industry also is subject to the effects of the
concentration of loan portfolios in particular businesses that may be adversely
affected by economic conditions, such as real estate, energy, agriculture or
high technology-related companies. In addition, the banking industry is subject
to national and local regulation
13
<PAGE> 16
and competition among banks as well as with other types of financial
institutions. Also, the Fund's investments in commercial banks located in
several foreign countries are subject to additional risks due to the combination
in such banks of commercial banking and diversified securities activities. As
discussed above, however, the Fund will seek to minimize its exposure to such
risks by investing only in debt securities which are determined by the
Investment Adviser, acting under the general supervision of the Board of
Directors, to be high quality.
The Fund may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under the Securities Act. However, the Fund will not invest more than
15% (10% to the extent required by certain state laws) of its total assets in
illiquid investments, which includes securities for which there is no readily
available market, securities subject to contractual restrictions on resale,
certain investments in asset-backed and receivable-backed securities and
restricted securities, unless the Fund's Board of Directors continuously
determines, based on the trading markets for the specific restricted security,
that it is liquid. The Board of Directors has determined to treat as liquid Rule
144A securities which are freely tradeable in their primary markets offshore.
The Board of Directors may adopt guidelines and delegate to the Investment
Adviser the daily function of determining and monitoring liquidity of restricted
securities. The Board of Directors, however, will retain sufficient oversight
and be ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how this market
for restricted securities sold and offered under Rule 144A will develop, the
Board of Directors will carefully monitor the Fund's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
The return that the Fund provides to investors will be influenced by
changes in both exchange rates and prevailing interest rates. The Investment
Adviser believes that the use of foreign currency hedging techniques may help
protect against declines in the U.S. dollar value of investment income available
for distribution to shareholders and declines in the net asset value of the
Fund's shares resulting from adverse changes in currency values. In addition,
changes in market yields will affect the Fund's net asset value since the prices
of portfolio securities generally increase when interest rates decline and
decrease when interest rates rise. Prices of shorter-term securities generally
fluctuate less in response to interest rate changes than do longer-term
securities. As described under "Hedging Techniques", the Fund may enter into
hedging transactions to hedge against both interest rate and currency risks.
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, 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 or to changes in an
issuer's financial condition or in the market's assessment of the issuers.
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<PAGE> 17
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 its shares, the net asset value of the Fund's shares
will fluctuate. There can be no assurance that the Fund's hedging transactions
will be effective. Furthermore, the Fund 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 "Distributions and
Taxes -- 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 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
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<PAGE> 18
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 also may purchase and sell financial 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
specified amount of a commodity, such as a currency or a security, for a set
price on a future date. The Fund may effect transactions in futures contracts in
U.S. 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 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 shares 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.
The Fund may engage in options and futures transactions on exchanges and in
options transactions 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 private
two-party contracts with prices and terms negotiated by the buyer and seller.
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) unless a
quotation from only one dealer is available, in which case only that dealer's
price will be used, or the OTC option can be sold at a formula price provided
for in the OTC
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<PAGE> 19
option agreement. The Fund will engage in OTC options only with financial
institutions which have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million.
The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Fund has adopted an investment policy pursuant to
which it will not purchase or sell OTC options (including OTC options on futures
contracts) if, as a result of such 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 call options currently outstanding
which were sold by the Fund and margin deposits on the Fund's existing OTC
options on futures contracts exceeds 15% (10% to the extent required by certain
state laws) of the total assets of the Fund, taken at market value, together
with all other assets of the Fund which are illiquid or are not otherwise
readily marketable. However, if an OTC option is sold by the Fund to a primary
U.S. Government securities dealer recognized by the Federal Reserve Bank of New
York and if the Fund has the unconditional contractual right to repurchase such
OTC option from the dealer at a predetermined price, then the Fund will treat as
illiquid such amount of the underlying securities as is equal to the repurchase
price less the amount by which the option is "in-the-money" (i.e., current
market value of the underlying security minus the option's strike price). The
repurchase price with the primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option, plus the
amount by which the option is "in-the-money". This policy as to OTC options is
not a fundamental policy of the Fund and may be amended by the Directors of the
Fund without the approval of the Fund's shareholders. However, the Fund will not
change or modify this policy prior to the change or modification by the
Commission staff of its position.
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 multi-national currency units as a hedge against possible variations
in the foreign exchange rates between these currencies. This is accomplished
through contractual agreements to purchase or sell one specified currency for
another currency at a specified future date 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
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<PAGE> 20
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 affected 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 U.S. 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 a call option in this illustration, the Fund gives
up the opportunity to profit without limit from increases in the relative value
of the yen to the dollar.
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 private two-party contracts and have
negotiated strike prices and expiration dates. A futures contract on a foreign
currency is an agreement between two parties to buy and sell a specified amount
of the 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
currency and securities positions, including net liabilities with respect to
cross-currency hedges, of more than 33% of its total assets from foreign
currency options, futures, related options and forward currency transactions.
Restrictions on Use of Futures Transactions. Regulations of the Commodity
Futures Trading Commission applicable to the Fund provide that the futures
trading activities described herein will not result in the Fund being deemed a
"commodity pool" under such regulations if the Fund adheres to certain
restrictions. In particular, the Fund may purchase and sell futures contracts
and options thereon (i) for bona fide hedging purposes, and (ii) for non-hedging
purposes, if the aggregate initial margin and premiums required to establish
positions in such contracts and options does not exceed 5% of the liquidation
value of the Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any such contracts and options. These restrictions are in
addition to other restrictions on the Fund's hedging activities mentioned
herein.
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<PAGE> 21
When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash and cash equivalents will be
deposited in a segregated account with the Fund's custodian so that the amount
so segregated, plus the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contract, thereby
ensuring that the use of such futures contract is unleveraged.
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 prices of futures contracts and movements in the prices of the securities
and currencies which are subject to the hedges. If the price of a 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 correlation 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 at least two
independent bids or offers, unless a quotation from only one dealer is
available, in which case only that dealer's price will be used, or which can be
sold at a formula price provided for in the OTC option agreement. 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 hedge effectively its portfolio. There is also
the risk of loss by the Fund of margin deposits or collateral in the event of
bankruptcy of a broker with whom the Fund has an open position in an option, a
futures contract or related option.
The exchanges on which options on portfolio securities and currencies 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
Portfolio Transactions. The securities in which the Fund invests are
traded primarily in the OTC market. Since portfolio transactions generally will
not be effected on foreign securities exchanges, the Fund generally does not
expect 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 generally are traded on a
net basis and normally do not involve either
19
<PAGE> 22
brokerage commissions or transfer taxes. Securities firms may receive brokerage
commissions on certain portfolio transactions, including options, futures and
options on futures transactions and the purchase and sale of underlying
securities upon exercise of options. The Fund has no obligation to deal with any
broker in the execution of transactions in portfolio securities. Under the
Investment Company Act, persons affiliated with the Fund, including Merrill
Lynch, are prohibited from dealing with the Fund as a principal in the purchase
and sale of securities unless a permissive order allowing such transactions is
obtained from the Commission. Affiliated persons of the Fund, and affiliated
persons of such affiliated persons, may serve as its broker in transactions
conducted on an exchange and in OTC transactions conducted on an agency basis.
In addition, consistent with the Rules of Fair Practice of the NASD, the Fund
may consider sales of shares of the Fund as a factor in the selection of brokers
or dealers to execute portfolio transactions for the Fund. It is expected that
the majority of the shares of the Fund will be sold by Merrill Lynch. Costs
associated with transactions in foreign securities are generally higher than
those associated with transactions in U.S. securities, although the Fund will
endeavor to achieve the best net results in effecting such transactions.
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Under a repurchase agreement, the seller agrees, upon entering into the contract
with the Fund, to repurchase a security (typically a security issued or
guaranteed by the U.S. government) at a mutually agreed upon time and price,
thereby determining the yield during the term of the agreement. This results in
a fixed yield for the Fund insulated from fluctuations in the market value of
the underlying security during such period, although, to the extent the
repurchase agreement is not denominated in U.S. dollars, the Fund's return may
be affected by currency fluctuations. Repurchase agreements may be entered into
only with a member bank of the Federal Reserve System, a primary dealer in U.S.
government securities or an affiliate thereof. A purchase and sale contract is
similar to a repurchase agreement, but purchase and sale contracts, unlike
repurchase agreements, allocate interest on the underlying security to the
purchaser during the term of the agreement. In all instances, the Fund takes
possession of the underlying securities when investing in repurchase agreements
or purchase and sale contracts. Nevertheless, if the seller were to default on
its obligation to repurchase a security under a repurchase agreement or purchase
and sale contract and the market value of the underlying security at such time
was less than the Fund had paid to the seller, the Fund would realize a loss.
The Fund may not invest more than 15% (10% to the extent required by certain
state laws) of its total assets in repurchase agreements or purchase and sale
contracts maturing in more than seven days, together with all other illiquid
securities.
Lending of Portfolio Securities. The Fund is authorized to lend securities
from its portfolio, with a value not exceeding 33% of its total assets, to
banks, brokers and other financial institutions if it receives collateral in
cash or securities issued or guaranteed by the U.S. Government or other high
quality securities 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 a
loan fee and may thereby increase its yield.
INVESTMENT RESTRICTIONS
The Fund's investment activities are subject to further restrictions that
are described in the Statement of Additional Information. Investment
restrictions and policies which are fundamental policies may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities (which for this purpose and under the Investment Company Act
means the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (ii) more than 50% of the
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<PAGE> 23
outstanding shares). Among its fundamental policies, the Fund may not invest
more than 25% of its total assets (taken at market value at the time of each
investment) in the securities of issuers in any particular industry, except
that, under normal circumstances, the Fund will invest more than 25% of its
total assets in issuers in the banking industry. This restriction will not apply
to securities issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities, but will apply to obligations of a foreign government unless
the Commission permits their exclusion. Investment restrictions and policies
that are non-fundamental policies may be changed by the Board of Directors
without shareholder approval. As a non-fundamental policy, the Fund may not
borrow amounts in excess of 10% 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, including to meet redemptions or to
settle securities transactions. Usually only "leveraged" investment companies
may borrow in excess of 5% of their assets; however, the Fund will not borrow to
increase income but only to meet redemption requests or to settle securities
transactions which might otherwise require untimely disposition of portfolio
securities. The Fund will not purchase securities while borrowings exceed 5% of
total assets except to honor prior commitments. (For the purpose of this
restriction, collateral arrangements with respect to the writing of options,
and, if applicable, futures contracts, options on futures contracts, and
collateral arrangements with respect to initial and variation margin are not
deemed to be a pledge of assets and neither such arrangements nor the purchase
or sale of futures or related options are deemed to be the issuance of a senior
security.)
Although the Fund has registered as a "non-diversified" investment company
under the Investment Company Act, to qualify as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code"), the Fund will
be subject to certain diversification requirements of the Code. See
"Distributions and Taxes -- Taxes".
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 portfolio turnover rate
should not exceed 400% under normal conditions, it is impossible to predict
portfolio turnover rates. The portfolio turnover rate is calculated by dividing
the lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities in the portfolio during the year. High portfolio turnover involves
correspondingly greater transaction costs in the form of dealer spreads and
brokerage commissions, which are borne directly by the Fund, and may increase
the percentage of the Fund's distributions which are taxable to shareholders as
ordinary income. See "Distributions and Taxes -- Taxes".
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of six individuals, five of
whom are not "interested persons" of the Fund as defined in the Investment
Company Act. The Board of Directors is responsible for the overall supervision
of the operations of the Fund and performs the various duties imposed on the
directors of investment companies by the Investment Company Act.
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<PAGE> 24
The Directors of the Fund are:
ARTHUR ZEIKEL* -- President of the Investment Adviser; President and
Director of Princeton Services, Inc.; Executive Vice President of ML & Co.;
Director of the Distributor.
DONALD CECIL -- Special Limited Partner of Cumberland Partners (an
investment partnership).
EDWARD H. MEYER -- Chairman of the Board, President and Chief Executive
Officer of Grey Advertising Inc.
CHARLES C. REILLY -- Self-employed financial consultant; former President
and Chief Investment Officer of Verus Capital, Inc.; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc.
RICHARD R. WEST -- Professor of Finance, and Dean from 1984 to 1993, New
York University Leonard N. Stern School of Business Administration.
EDWARD D. ZINBARG -- Former Executive Vice President of The Prudential
Insurance Company of America.
- - ---------------
* Interested person, as defined in the Investment Company Act, of the Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Investment Adviser is owned and controlled by ML & Co., a financial
services holding company and the parent of Merrill Lynch. The Investment Adviser
provides the Fund with investment advisory and management services. The
Investment Adviser or an affiliate, FAM, acts as the investment adviser for more
than 130 other registered investment companies. The Investment Adviser also
offers portfolio management and portfolio analysis services to individuals and
institutions. As of January 31, 1996, the Investment Adviser and FAM had a total
of approximately $202.8 billion in investment company and other portfolio assets
under management, including accounts of certain affiliates of the Investment
Adviser.
Subject to the direction of the Board of 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 responsibility for making decisions to buy, sell or
hold a particular security rests 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.
Pursuant to the Fund's investment advisory agreement with the Investment
Adviser (the "Investment Advisory Agreement"), the Investment Adviser is
entitled to receive compensation at the annual rate of 0.55% of the average
daily net assets of the Fund not exceeding $2 billion, 0.525% of the average
daily net assets of the Fund in excess of $2 billion but not exceeding $4
billion, 0.50% of the average daily net assets of the Fund in excess of $4
billion but not exceeding $6 billion, 0.475% of the average daily net assets of
the Fund in excess of $6 billion but not exceeding $10 billion, 0.45% of the
average daily net assets of the Fund in excess of $10 billion but not exceeding
$15 billion, and 0.425% of the average daily net assets of the Fund in excess of
$15 billion. For the fiscal year ended October 31, 1995, the fee paid by the
Fund to the Investment Adviser was $3,146,062 (based on average net assets of
approximately $572.0 million). For the fiscal period November 1, 1995 to
December 31, 1995, the fee paid by the Fund to the Investment Adviser was
$384,228
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<PAGE> 25
(based on average net assets of approximately $416.3 million). At January 31,
1996, the net assets of the Fund aggregated $381.9 million. At this asset level,
the annual management fee would aggregate approximately $2.1 million. Also, the
Investment Adviser has entered into a sub-advisory agreement (the "Sub-Advisory
Agreement") with Merrill Lynch Asset Management U.K. Limited ("MLAM U.K."), an
indirect, wholly-owned subsidiary of ML & Co. and an affiliate of the Investment
Adviser, pursuant to which the Investment Adviser pays MLAM U.K. a fee in an
amount to be determined from time to time by the Investment Adviser and MLAM
U.K. but in no event in excess of the amount that the Investment Adviser
actually receives for providing services to the Fund pursuant to the Investment
Advisory Agreement. For the fiscal year ended October 31, 1995, and for the
fiscal period November 1, 1995 to December 31, 1995, the Investment Adviser paid
MLAM U.K. a fee of $264,717 and $31,481, respectively (.05% of the Fund's
average net assets, for each of such periods) pursuant to the Sub-Advisory
Agreement. MLAM U.K. has offices at Milton Gate, 1 Moor Lane, London EC2Y 9HA,
England.
The following persons associated with the Investment Adviser and MLAM U.K.
are primarily responsible for the day-to-day management of the Fund's portfolio
(the length of time that such persons have been so responsible is indicated
following each person's name): Alex V. Bouzakis (since 1992), Edward F. Gobora
(since 1993), David B. Walter (since 1990) and Stephen Yardley (since 1992).
Each of these persons is a Vice President of the Fund. Mr. Bouzakis is a Vice
President and Senior Portfolio Manager of the Investment Adviser and has been
associated with the Investment Adviser since 1982. Mr. Gobora has been a Vice
President and Portfolio Manager of the Investment Adviser since 1993, and
associated therewith since 1988. Mr. Walter has been a Vice President and
Portfolio Manager of the Investment Adviser since 1984. Mr. Yardley is a Vice
President and Portfolio Manager of MLAM U.K. and has been associated with MLAM
U.K. since 1992; prior thereto, he was a Portfolio Manager at Julius Baer
Investment Management, Inc. and Bankers Trust Company.
The Investment Advisory Agreement obligates the Fund to pay certain
expenses incurred in its operations, including, among other things, the
investment advisory 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 October 31, 1995, the Fund reimbursed the
Investment Adviser $176,648 for accounting services. The ratio of total expenses
to average net assets for each class of shares was as follows: Class A, 0.96%;
Class B, 1.73%; Class C, 1.83%; and Class D, 1.20%. For the fiscal period
November 1, 1995 to December 31, 1995, the Fund reimbursed the Investment
Adviser $7,967 for accounting services and the annualized ratio of total
expenses to average net assets for each class of shares was as follows: Class A,
1.02%; Class B, 1.80%; Class C, 1.83%; and Class D, 1.27%.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act which incorporates the Code of Ethics of the
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 government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the
23
<PAGE> 26
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 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
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), which
is a wholly-owned subsidiary of ML & Co., acts as the Fund's transfer agent
pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement (the "Transfer Agency Agreement"). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the Fund pays the Transfer
Agent an annual fee of $11.00 per Class A or Class D shareholder account and
$14.00 per Class B or Class C shareholder account, nominal miscellaneous fees
(e.g., account closing fees) and is entitled to reimbursement for out-of-pocket
expenses incurred by it under the Transfer Agency Agreement. For the fiscal year
ended October 31, 1995, and the fiscal period November 1, 1995 to December 31,
1995, the fee paid by the Fund to the Transfer Agent was $1,461,753 and
$160,122, respectively. At January 31, 1996, the Fund had 17 Class A shareholder
accounts, 43,540 Class B shareholder accounts, 5 Class C shareholder accounts
and 2,520 Class D shareholder accounts. At this level of accounts, the annual
fee payable to the Transfer Agent would aggregate $637,537, plus miscellaneous
and out-of-pocket expenses.
PURCHASE OF SHARES
The Distributor, an affiliate of both the Investment Adviser and of Merrill
Lynch, acts as the distributor of the shares of the Fund. Shares of the Fund are
offered continuously for sale by the Distributor and other eligible securities
dealers (including Merrill Lynch). Shares of the Fund may be purchased from
securities dealers or by mailing a purchase order directly to the Transfer
Agent. The minimum 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.
The Fund is offering its shares in four classes at a public offering price
equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis depending upon the
class of shares selected by the investor under the Merrill Lynch Select
Pricing(SM) System, as described below. The applicable offering price for
purchase orders is based upon the net asset value of the Fund next determined
after receipt of the purchase orders by the Distributor. As to purchase orders
received by securities dealers prior to the close of business on the New York
Stock Exchange (generally, 4:00 p.m. New York time), which includes orders
received after the close of business on the previous day, the applicable
offering price will be based on the net asset value determined as of 15 minutes
after the close of business on the New York Stock Exchange, on that day,
provided the Distributor in turn receives the 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 prior to 30 minutes after
the close of business on the New York Stock Exchange on that day, such orders
shall be deemed received on the next business day. The Fund or the
24
<PAGE> 27
Distributor may suspend the continuous offering of the Fund's shares of any
class at any time in response to conditions in the securities markets or
otherwise and may thereafter resume such offering from time to time. Any order
may be rejected by the Distributor or the Fund. Neither the Distributor nor the
dealers are permitted to withhold placing orders to benefit themselves by a
price change. Merrill Lynch may charge its customers a processing fee (presently
$4.85) to confirm a sale of shares to such customers. Purchases directly through
the Transfer Agent are not subject to the processing fee.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(SM) 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 CDSC 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 Pricing(SM) System
is set forth under "Merrill Lynch Select Pricing(SM) System" on page 3.
Each Class A, Class B, Class C and Class D share of the Fund represents
identical interests in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges and account maintenance fees that are imposed on Class B
and Class C shares, as well as the account maintenance fees that are imposed on
Class D shares, will be imposed directly against those classes and not against
all assets of the Fund and, accordingly, such charges will not affect the net
asset value of any other class or have any impact on investors choosing another
sales charge option. Dividends paid by the Fund for each class of shares will be
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan 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.
25
<PAGE> 28
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System.
<TABLE>
- - -------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 4.00% initial No No No
sales charge(2,3)
- - -------------------------------------------------------------------------------------------------
B CDSC for a period of four 0.25% 0.50% B shares convert to
years, at a rate of 4.0% D shares automatically
during after approximately
the first year, decreasing ten years(4)
1.0%
annually to 0.0%
- - -------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.55% No
- - -------------------------------------------------------------------------------------------------
D Maximum 4.00% initial 0.25% No No
sales charge(3)
- - -------------------------------------------------------------------------------------------------
</TABLE>
- - ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs are imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives -- Class A and Class D Shares -- Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. 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.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have 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.
26
<PAGE> 29
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible
to purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
SALES LOAD AS DISCOUNT TO
SALES LOAD PERCENTAGE* OF SELECTED DEALERS
AS PERCENTAGE THE NET AS PERCENTAGE OF
AMOUNT OF PURCHASE OF 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**........................... 0.00 0.00 0.00
</TABLE>
- - ---------------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more made on or after October 21, 1994, and on Class A purchases
by certain retirement plan investors in connection with certain investment
programs. If the sales charge is waived in connection with a purchase of
$1,000,000 or more, such purchases will be subject to a CDSC of 1.0% if the
shares are redeemed within one year after purchase. Class A purchases made prior
to October 21, 1994, were subject to a CDSC of 0.25% if the shares were redeemed
within one year of purchase if such shares had been sold subject to a CDSC
instead of an initial sales charge (i.e., purchases of $5 million or more in a
single transaction, other than an employer sponsored retirement or savings plan,
a purchase by a TMA(SM) Managed Trust, or a single investment of $5 million or
more under the Merrill Lynch Mutual Fund Adviser Program). The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. A sales charge of 0.75% will be charged on
purchases of $1 million or more of Class A or Class D shares by certain employer
sponsored retirement or savings plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act.
As noted above, as a result of the implementation of the Merrill Lynch
Select Pricing(SM) System, Class A shares of the Fund outstanding prior to
October 21, 1994, were redesignated Class D shares. The Class A shares offered
by this Prospectus differ from the Class A shares offered prior to October 21,
1994, in many respects, including sales charges, exchange privilege and the
classes of persons to whom such shares are offered.
During the fiscal year ended October 31, 1995, the Fund sold 19,710 of its
Class A shares for aggregate net proceeds to the Fund of $156,702. The
Distributor and Merrill Lynch did not receive sales charges for the sale of such
Class A shares during the fiscal year ended October 31, 1995 and the Distributor
received no CDSCs with respect to redemptions within one year after purchase of
the Class A shares purchased subject to front-end sales charge waivers. During
the fiscal period November 1, 1995 to December 31, 1995, the Fund sold 1,115 of
its Class A shares for aggregate net proceeds to the Fund of $8,833. The
Distributor and Merrill
27
<PAGE> 30
Lynch did not receive sales charges for the sale of such Class A shares during
the period November 1, 1995 to December 31, 1995 and the Distributor received no
CDSCs with respect to redemptions within one year after purchase of the Class A
shares purchased subject to front-end sales charge waivers.
During the fiscal year ended October 31, 1995, the Fund sold 141,026 of its
Class D shares for aggregate net proceeds to the Fund of $1,012,351. The gross
sales charges for the sale of its Class D shares for the fiscal year ended
October 31, 1995 were $4,326, of which $330 and $3,996 were received by the
Distributor and Merrill Lynch, respectively. During such fiscal year, the
Distributor received no CDSCs with respect to redemptions within one year after
purchase of the Class D shares (including redesignated Class A shares) purchased
subject to front-end sales charge waivers. During the fiscal period November 1,
1995 to December 31, 1995 the Fund sold 11,529 of its Class D shares for
aggregate net proceeds to the Fund of $91,195. The Distributor and Merrill Lynch
did not receive sales charges for the sale of such Class D shares during the
period November 1, 1995 to December 31, 1995 and the Distributor did not receive
any CDSCs with respect to redemptions within one year after purchase of the
Class D shares purchased subject to front-end sales charge waivers.
Eligible Class A Investors. Class A shares of the Fund are offered to a
limited group of investors and also will be issued upon reinvestment of
dividends on outstanding Class A shares of the Fund. Certain employer sponsored
retirement or savings plans, including eligible 401(k) plans, may purchase Class
A shares at net asset value provided such plans meet the required minimum number
of eligible employees or required amount of assets advised by MLAM or any of its
affiliates. Class A shares are available at net asset value to corporate
warranty insurance reserve fund programs provided that the program has $3
million or more initially invested in MLAM-advised mutual funds. Also eligible
to purchase Class A shares at net asset value are participants in certain
investment programs including TMA(SM) Managed Trusts to which Merrill Lynch
Trust Company provides discretionary trustee services and certain purchases
made in connection with the Merrill Lynch Mutual Fund Adviser ("MFA") program.
In addition, Class A shares are offered at net asset value to ML & Co. and its
subsidiaries and their directors and employees and to members of the Boards of
MLAM-advised investment companies, including the Fund. Certain persons who
acquired shares of certain MLAM-advised closed-end funds in their initial
offerings who wish to reinvest the net proceeds from a sale of their closed-end
fund shares of common stock in shares of the Fund also may purchase Class A
shares of the Fund if certain conditions set forth in the Statement of
Additional Information are met. In addition, Class A shares of the Fund and
certain other MLAM-advised mutual funds are offered at net asset value to
shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. who wish to
reinvest the net proceeds from a sale of certain of their shares of common
stock pursuant to a tender offer conducted by Merrill Lynch Senior Floating
Rate Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No 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 may
also be reduced under a Right of Accumulation and a Letter of Intention.
Class A and Class D shares are offered at net asset value to certain
employer sponsored retirement or savings plans and to Employee Access
Accounts(SM) available through employers which provide such plans.
Class A shares are also offered at net asset value to certain eligible
Class A investors as set forth under "Eligible Class A Investors".
28
<PAGE> 31
Class D shares are offered at net asset value without sales charge to an
investor who has a business relationship with a Merrill Lynch financial
consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares of the Fund are offered at net asset value to shareholders
of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income
Municipal Bond Fund, Inc. who wish to reinvest the net proceeds from a sale of
certain of their shares of common stock pursuant to tender offers conducted by
those funds in shares of the Fund.
Additional information concerning these reduced initial sales charges 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% of net assets, respectively,
as discussed under "Distribution Plans". The proceeds from the account
maintenance fees are used to compensate Merrill Lynch for providing continuing
account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans".
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for selling
Class B and Class C shares, from its own funds. The combination of the CDSC and
the ongoing distribution fee facilitates the ability of the Fund to sell the
Class B and Class C shares without a sales charge being deducted at the time of
purchase. Approximately 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.
29
<PAGE> 32
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations on
the Payment of Deferred Charges" below. The proceeds from the ongoing account
maintenance fee are used to compensate Merrill Lynch for providing continuing
account maintenance activities. Class B shareholders of the Fund exercising the
exchange privilege described under "Shareholder Services -- Exchange Privilege"
will continue to be subject to the Fund's CDSC schedule if such schedule is
higher than the CDSC schedule relating to the Class B shares acquired as a
result of the exchange.
Contingent Deferred Sales Charges -- Class B Shares. Class B shares which
are redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC for Class B
shares purchased after October 21, 1994:
<TABLE>
<CAPTION>
CLASS B CDSC
YEAR SINCE AS A PERCENTAGE OF
PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
--------------------------------------------------------------------- -------------------
<S> <C>
0-1.................................................................. 4.00%
1-2.................................................................. 3.00%
2-3.................................................................. 2.00%
3-4.................................................................. 1.00%
4 and thereafter..................................................... 0.00%
</TABLE>
Class B shares purchased prior to October 21, 1994, and redeemed within
three years of purchase are subject to a CDSC at the rates set forth below:
<TABLE>
<CAPTION>
CLASS B CDSC
YEAR SINCE AS A PERCENTAGE OF
PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
--------------------------------------------------------------------- -------------------
<S> <C>
0-1.................................................................. 3.00%
1-2.................................................................. 2.00%
2-3.................................................................. 1.00%
3 and thereafter..................................................... None
</TABLE>
For the fiscal period November 1, 1995 to December 31, 1995, the
Distributor received CDSCs of $22,991 with respect to the redemption of Class B
shares, all of which was paid to Merrill Lynch.
For the fiscal year ended October 31, 1995, the Distributor received CDSCs
of $469,456 with respect to the redemption of Class B shares, all of which was
paid to Merrill Lynch.
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over four years or shares acquired pursuant to reinvestment
of dividends or distributions and then of shares held longest during the
four-year period. The charge will not be applied to
30
<PAGE> 33
dollar amounts representing an increase in the net asset value since the time of
purchase. A transfer of shares from the 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 CDSC is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase for shares purchased after
October 21, 1994).
In the event that Class B shares are exchanged by certain retirement plans
for Class A shares in connection with a transfer to the MFA program, the time
period that such Class A shares are held in the MFA program will be included in
determining the holding period of Class B shares reacquired upon termination of
participation in the MFA program (see "Shareholder Services -- Exchange
Privilege").
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of a shareholder. The
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(k) or eligible 401(a) plans which are rolled over into
a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and held in such
account at the time of redemption and for any Class D shares that were acquired
and held at the time of the redemption in an Employee Access Account(SM)
available through employers providing eligible 401(k) plans. 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 of purchase may be subject to a 1.0% CDSC charged
as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed
on increases in net asset value above the initial purchase price. In addition,
no Class C CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions. For the fiscal year ended October 31,
1995 the Distributor received CDSCs of $15 with respect to the redemption of
Class C shares, all of which was paid to Merrill Lynch. For the fiscal period
November 1, 1995 to December 31, 1995, the Distributor received CDSCs of $1,000
with respect to the redemption of 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
31
<PAGE> 34
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 that such certificates are not received
by the Transfer Agent at least one week prior to the Conversion Date, the
related Class B shares will convert to Class D shares on the next scheduled
Conversion Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a ten-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("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.
The Conversion Period also is modified for retirement plan investors which
participate in the MFA program. While participating in the MFA program, such
investors will hold Class A shares. If these Class A shares were acquired
through exchange of Class B shares (see "Shareholder Services -- Exchange
Privilege"), then the holding period for such Class A shares will be "tacked" to
the holding period of the Class B
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shares originally held for purposes of calculating the Conversion Period of
Class B shares acquired upon termination of participation in the MFA program.
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 rates of 0.50%,
with respect to Class B shares, and 0.55% with respect to Class C shares, of the
average daily net assets of the Fund attributable to the shares of the relevant
class in order to compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) for providing shareholder and distribution services, and bearing
certain distribution-related expenses of the Fund, including payments to
financial consultants for selling Class B and Class C shares of the Fund. The
Distribution Plans relating to Class B and Class C shares are designed to permit
an investor to purchase Class B and Class C shares through dealers without the
assessment of an initial sales charge and at the same time permit the dealer to
compensate its financial consultants in connection with the sale of the Class B
and Class C shares. In this regard, the purpose and function of the ongoing
distribution fees and the CDSC are the same as those of the initial sales charge
with respect to the Class A and Class D shares of the Fund in that the deferred
sales charges provide for the financing of the distribution of the Fund's Class
B and Class C shares.
For the fiscal year ended October 31, 1995, the Fund paid the Distributor
$4,024,963 pursuant to the Class B Distribution Plan (based on average net
assets subject to the Class B Distribution Plan of approximately $536.7
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class B shares. During the fiscal year ended October 31, 1995, the Fund paid the
Distributor $277 pursuant to the Class C Distribution Plan (based on average net
assets subject to the Class C Distribution Plan of $34,535), all of which was
paid to Merrill Lynch for providing account maintenance and distribution-related
activities and services in connection with Class C shares. For the fiscal year
ended October 31, 1995, the Fund paid the Distributor $88,185 pursuant to the
Class D Distribution Plan (based on average net assets subject to the Class D
Distribution Plan of approximately $35.3 million), all of which was paid to
Merrill Lynch for providing account maintenance services in connection with
Class D shares. For the fiscal period November 1, 1995 to December 31, 1995, the
Fund paid the Distributor $491,057 pursuant to the Class B Distribution Plan
(based on average net assets subject to the Class B Distribution Plan of
approximately $385.5 million), all of which was paid to Merrill Lynch for
providing account maintenance and distribution-related activities and services
in connection with Class B shares. During the fiscal period November 1, 1995 to
December 31, 1995, the Fund paid the
33
<PAGE> 36
Distributor $217 pursuant to the Class C Distribution Plan (based on average net
assets subject to the Class C Distribution Plan of $159,426), all of which was
paid to Merrill Lynch for providing account maintenance and distribution-related
activities and services in connection with Class C shares. For the fiscal period
November 1, 1995 to December 31, 1995, the Fund paid the Distributor $10,866
pursuant to the Class D Distribution Plan (based on average net assets subject
to the Class D Distribution Plan of approximately $25.6 million), all of which
was paid to Merrill Lynch for providing account maintenance services in
connection with Class D shares. At January 31, 1996, the net assets of the Fund
subject to the Class B Distribution Plan aggregated approximately $358.2
million. At this asset level, the annual fee payable pursuant to the Class B
Distribution Plan would aggregate $2.7 million. At January 31, 1996, the net
assets of the Fund subject to the Class C Distribution Plan aggregated $10,498.
At this asset level, the annual fee payable pursuant to the Class C Distribution
Plan would aggregate $84. At January 31, 1996, the net assets of the Fund
subject to the Class D Distribution Plan aggregated approximately $23.5 million.
At this asset level, the annual fee payable pursuant to the Class D Distribution
Plan would aggregate $58,867.
The payments under the Distribution Plans are based upon a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, the distribution fees, the CDSCs and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs
and the expenses consist of financial consultant compensation. As of December
31, 1994, the last date for which fully allocated accrual data is available, for
Class B shares, the fully allocated accrual expenses for the period since August
3, 1990 (commencement of operations) incurred by the Distributor and Merrill
Lynch exceeded fully allocated accrual revenues by approximately $14,910,000
(2.33% of Class B net assets at that date). As of October 31, 1995, for Class B
shares, direct cash revenues for the period since August 3, 1990 (commencement
of operations) exceeded direct cash expenses by $82,181,360 (20.64% of Class B
net assets at that date). Similar fully allocated accrual data was not
calculated with respect to Class C shares as of December 31, 1994 because the
Fund commenced offering Class C shares to the public on October 21, 1994. As of
October 31, 1995, for Class C shares, direct cash revenues for the period since
October 21, 1994 (commencement of operations) exceeded direct cash expenses by
$1,393 (1.28% 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
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<PAGE> 37
sales charges, the account maintenance fee, the distribution fee and/or the
CDSCs received with respect to one class will not be used to subsidize the sale
of shares of another class. Payments of the distribution fee on Class B shares
will terminate upon conversion of those Class B shares into Class D shares as
set forth under "Deferred Sales Charge Alternatives -- Class B and Class C
Shares -- Conversion of Class B Shares to Class D Shares".
LIMITATIONS ON THE PAYMENT OF DEFERRED 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 fees. In
certain circumstances the amount payable pursuant to the voluntary maximum may
exceed the amount payable under the NASD formula. In such circumstances payment
in excess of the amount payable under the NASD formula will not be made.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares of the Fund upon receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC which may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive upon redemption all
dividends reinvested through the date of redemption. The value of shares at the
time of redemption may be more or less than the shareholder's cost, depending on
the market value of the securities held by the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Transfer Agent, Merrill Lynch Financial Data Services, Inc.,
P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests delivered
other than by mail should be delivered to Merrill Lynch Financial Data Services,
Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Proper notice
of redemption in the case of shares deposited with the Transfer Agent may be
accomplished by a written letter requesting redemption. Proper notice of
redemption in the case of shares for which certificates have been issued may be
accomplished by a written letter as noted above accompanied by certificates for
the shares to be redeemed. Redemption
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<PAGE> 38
requests should not be sent to the Fund. The notice in either event requires the
signatures of all persons in whose names the shares are registered, signed
exactly as their names appear on the Transfer Agent's register or on the
certificate, as the case may be. The signature(s) on the notice must be
guaranteed by an "eligible guarantor institution" (including, for example,
Merrill Lynch branch offices and certain other financial institutions) as such
term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the existence and validity of which may be
verified by the Transfer Agent through the use of industry publications.
Notarized signatures are not sufficient. In certain instances, the Transfer
Agent may require additional documents, such as, but not limited to, trust
instruments, death certificates, appointments as executor or administrator, or
certificates of corporate authority. For shareholders redeeming directly with
the Transfer Agent, payment will be mailed within seven days of receipt of a
proper notice of redemption.
At various times, the Fund may be requested to redeem shares for which it
has not yet received good payment (e.g., cash, Federal funds or certified check
drawn on a U.S. bank). The Fund may delay or cause to be delayed the mailing of
a redemption check until such time as good payment has been collected for the
purchase of such shares. Normally this delay will not exceed 10 days.
REPURCHASE
The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund normally will accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request for
repurchase is received by the dealer prior to the close of business on the New
York Stock Exchange on the day received and that such request is received by the
Fund from such dealer not later than 30 minutes after the close of business on
the New York Stock Exchange (generally, 4:00 p.m., New York time) on the same
day. Dealers have the responsibility of submitting such repurchase requests to
the Fund not later than 30 minutes after the close of business on the New York
Stock Exchange in order to obtain that day's closing price.
The repurchase arrangements are for the convenience of shareholders and do
not involve a charge by the Fund (other than any applicable CDSC); securities
firms which do not have selected dealer agreements with the Distributor,
however, may impose a 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 of such customers.
Redemptions directly through the Transfer Agent are not subject to the
processing fee. The Fund reserves the right to reject any order for repurchase,
which right of rejection might adversely affect shareholders seeking redemption
through the repurchase procedure. However, a shareholder whose order for
repurchase is rejected by the Fund may redeem Fund shares as set forth above.
REINSTATEMENT PRIVILEGE -- CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares 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
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<PAGE> 39
privilege and may be exercised by the Class A or Class D shareholder only the
first time such shareholder makes a redemption.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in shares of the
Fund. Certain of such services are not available to investors who place purchase
orders for the Fund's shares through the Merrill Lynch Blueprint(SM) Program.
Full details as to each of such services 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. Certain of
these services are available only to U.S. investors.
Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive statements, at least
quarterly, from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. These
statements will also show any other activity in the account since the preceding
statement. Shareholders will receive separate transaction confirmations for each
purchase or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gain
distributions. A shareholder may make additions to his Investment Account at any
time by mailing a check directly to the Transfer Agent. Shareholders also may
maintain their accounts through Merrill Lynch. Upon the transfer of shares out
of a Merrill Lynch brokerage account, an Investment Account in the transferring
shareholder's name will be opened automatically, without charge, at the Transfer
Agent. Shareholders considering transferring their Class A or Class D shares
from Merrill Lynch to another brokerage firm or financial institution should be
aware that if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm, or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the shareholder.
Shareholders considering transferring a tax deferred retirement account such as
an individual retirement account from Merrill Lynch to another brokerage firm or
financial institution should be aware that if the firm to which the retirement
account is to be transferred will not take delivery of shares of the Fund, a
shareholder must either redeem the shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm, or such
shareholder must continue to maintain a retirement account at Merrill Lynch for
those shares.
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 Securities and Exchange Commission.
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Under the Merrill Lynch Select Pricing(SM) System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
his account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second MLAM-advised
mutual fund, and the shareholder does not hold Class A shares of the second fund
in his account at the time of the exchange and is not otherwise eligible to
acquire Class A shares of the second fund, the shareholder will receive Class D
shares of the second fund as a result of the exchange. Class D shares also may
be exchanged for Class A shares of a second MLAM-advised mutual fund at any time
as long as, at the time of the exchange, the shareholder holds Class A shares of
the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Fund which are subject to a CDSC are exchangeable on the
basis of relative net asset value per share without the payment of any CDSC that
might otherwise be due upon redemption of the shares of the Fund. For purposes
of computing the CDSC that may be payable upon a disposition of the shares
acquired in the exchange, the holding period for the previously owned shares of
the Fund is "tacked" to the holding period for 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
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 exchange privilege is modified with respect to certain retirement plans
which participate in the MFA program. Such retirement plans may exchange Class
B, Class C or Class D shares that have been held for at least one year for Class
A shares of the same fund on the basis of relative net asset values in
connection with the commencement of participation in the MFA program, i.e., no
CDSC will apply. The one year holding period does not apply to shares acquired
through reinvestment of dividends. Upon termination of participation
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<PAGE> 41
in the MFA program, Class A shares will be reexchanged for the class of shares
originally held. For purposes of computing any CDSC that may be payable upon
redemption of Class B or Class C shares so reacquired, or the Conversion Period
for Class B shares so reacquired, the holding period for the Class A shares will
be "tacked" to the holding period for the Class B or Class C shares originally
held. The Fund's exchange privilege is also modified with respect to purchases
of Class A and Class D shares by non-retirement plan investors under the MFA
program. First, the initial allocation of assets is made under the MFA program.
Then, any subsequent exchange under the MFA program of Class A or Class D shares
of a 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 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 monthly payment date for such dividends and
distributions. A shareholder may at any time, by written notification to Merrill
Lynch if the shareholder's account is maintained with Merrill Lynch or by
written notification or telephone call (1-800-MER-FUND) to the Transfer Agent if
the shareholder's account is maintained with the Transfer Agent, elect to have
subsequent dividends, or both dividends and capital gains distributions paid in
cash, rather than reinvested, in which event payment will be mailed monthly.
Cash payments can also 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 Plans. A Class A or Class D shareholder may elect to
receive systematic withdrawal payments from his Investment Account in the form
of payments by check or through automatic payment by direct deposit to his bank
account on either a monthly or quarterly basis. A Class A or Class D shareholder
whose shares are held within a CMA(R), CBA(R) or Retirement Account may elect to
have shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual
basis through the CMA(R)/CBA(R) Systematic Redemption Program, subject to
certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C
and Class D shares may be made to an investor's Investment Account by
pre-arranged charges of $50 or more to his regular bank account. Investors who
maintain CMA(R) or CBA(R) accounts may arrange to have periodic investments made
in the Fund in their CMA(R) or CBA(R) accounts or in certain related accounts in
amounts of $100 or more through the CMA(R)/CBA(R) Automated Investment Program.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The net investment income of the Fund is declared as dividends daily prior
to the determination of the net asset value which is calculated 15 minutes after
the close of business on the New York Stock Exchange (generally, 4:00 p.m., New
York time) on that day. The net investment income of the Fund for dividend
purposes consists of interest earned on portfolio securities, less expenses, in
each case computed since the most
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<PAGE> 42
recent determination of the net asset value. Expenses of the Fund, including the
investment advisory fees, distribution and/or account maintenance fees, are
accrued daily. Dividends of net investment income are declared daily and
reinvested monthly in the form of additional full and fractional shares of the
Fund at net asset value unless the shareholder elects to receive such dividends
in cash. 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 day prior to settlement date of a redemption order.
All net realized long-term or short-term capital gains, if any, are
declared and distributed to the Fund's shareholders annually. Capital gains
distributions will be reinvested automatically in shares unless the shareholder
elects to receive such distributions in cash.
The per share dividends and distributions on each class of shares will be
reduced as a result of any account maintenance, distribution and transfer agency
fees applicable to that class. See "Additional Information -- Determination of
Net Asset Value".
See "Shareholder Services" for information as to how to elect either
dividend reinvestment or cash payments. Portions of dividends and distributions
which are taxable to shareholders as described below are subject to income tax
whether they are reinvested in shares of the Fund or received in cash.
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 or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in futures and options) ("capital gain
dividends") are taxable to shareholders as long-term capital gains, regardless
of the length of time the shareholder has owned Fund shares. Any loss upon the
sale or exchange of Fund shares held for six months or less, however, will be
treated as long-term capital loss to the extent of any capital gain dividends
received by the shareholder. Distributions in excess of the Fund's earnings and
profits will first reduce the adjusted tax basis of a holder's shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming the shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or capital
gains, 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.
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Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% U.S. withholding tax under existing
provisions of the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. If more than 50% in value of the Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service pursuant to which shareholders of the Fund will be
required to include their proportionate shares of such withholding taxes in
their U.S. income tax returns as gross income, treat such proportionate shares
as taxes paid by them, and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against their
U.S. income taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such shareholder.
The Fund will report annually to its shareholders the amount per share of such
withholding taxes.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer 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 forward contracts, from futures contracts that are not
"regulated futures contracts", and from unlisted options generally will be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
income dividend distributions, and all or a portion of distributions made before
the losses were realized but in the same taxable year would be recharacterized
as a return of capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than the shareholder's tax basis in Fund
shares (assuming the shares were held as a capital asset).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
41
<PAGE> 44
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 purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
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 periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return will be computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including 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 such as in the
case of Class B and Class C 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 fees and any incremental transfer
agency costs relating to each class of shares will be borne exclusively by that
class. The Fund will include performance data for all classes of shares of the
Fund in any advertisement or information including performance data of the Fund.
42
<PAGE> 45
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return, and (2) the maximum applicable sales charges will not
be included with respect to annual or annualized rates of return calculations.
Aside from the impact on the performance data calculations of including or
excluding the maximum applicable sales charges, actual annual or annualized
total return data generally will be lower than average annual total return data
since the average annual rates of return reflect compounding; aggregate total
return data generally will be higher than average annual total return data since
the aggregate rates of return reflect compounding over longer periods 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, 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 amount of expenses may be deducted. See "Purchase of Shares". The
Fund's total return may be expressed either as a percentage or as a dollar
amount in order to illustrate the effect of such total return on a hypothetical
$1,000 investment in the Fund at the beginning of each specified period.
Yield quotations will be computed based on a 30-day period by dividing (a)
the net income based on the yield of each security earned during the period by
(b) the average daily number of shares outstanding during the period that were
entitled to receive dividends multiplied by (c) the maximum offering price per
share on the last day of the period. The yields for the 30-day period ending
October 31, 1995, were as follows: Class A shares, 5.46%; Class B shares, 4.89%;
Class C shares, 4.87%; and Class D shares, 5.21%. The yields for the 30-day
period ending December 31, 1995, were as follows: Class A shares, 4.59%; Class B
shares, 3.99%; Class C shares, 3.95%; and Class D shares, 4.35%.
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 the Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average, or to
performance data published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business Week, CDA
Investment Technology, Inc., Forbes Magazine, Fortune Magazine or other industry
publications. In addition, from time to time the Fund may include the Fund's
risk-adjusted performance ratings assigned by Morningstar Publications, Inc. in
advertising or supplemental sales literature. As with other performance data,
performance comparisons should not be considered indicative of the Fund's
relative performance for any future period.
43
<PAGE> 46
ADDITIONAL INFORMATION
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily as of 15 minutes after the close of business on the New York Stock
Exchange (generally 4:00 p.m., New York time) on each day during which the New
York Stock Exchange is open for trading. The net asset value 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 any account maintenance and/or distribution fees
payable to the Distributor, are accrued daily.
The per share net asset value of Class A shares generally will be higher
than the per share net asset value of shares of the other classes, reflecting
the daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to Class B and Class C shares and
the daily expense accruals of the account maintenance fees applicable with
respect to Class D shares; moreover, the per share net asset value of Class D
shares generally will be higher than the per share net asset value of Class B
and Class C shares, reflecting the daily expense accruals of the distribution
and higher transfer agency fees applicable with respect to Class B and Class C
shares. Since the distribution fees borne by the Class C shares are higher than
the distribution fees borne by the Class B shares, the per share net asset value
of the Class B shares generally will be higher than the per share net asset
value of the 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.
Securities traded in the OTC market are valued at the last available bid
price in the OTC 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 on the last sale price in the case of exchange-traded options or, in the
case of options traded in the OTC market, the last asked price. Options
purchased by the Fund are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. 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. 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.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on April 18, 1990. It has
authorized capital of 2,600,000,000 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 as follows: Class A Common Stock -- 1,000,000,000 shares; Class B
Common Stock -- 1,000,000,000 shares; Class C Common Stock -- 300,000,000
shares; and
44
<PAGE> 47
Class D Common Stock -- 300,000,000 shares. Shares of Class A, Class B, Class C
and Class D Common Stock represent an interest in the same assets of the Fund
and are identical in all respects except that Class B, Class C and Class D
shares bear certain expenses related to the account maintenance fee relating to
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 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 to
fractional votes for fractional shares held in the election of Directors (to the
extent hereafter provided) and on other matters submitted to the vote of
shareholders. All shares of the Fund have equal voting rights, except, as noted
above, a class of shares will have exclusive voting rights with respect to
matters relating to the account maintenance and/or distribution expenses being
borne solely by such class. There normally will be no meeting of shareholders
for the purpose of electing Directors unless and until such time as less than a
majority of the Directors holding office have been elected by the shareholders,
at which time the Directors then in office will call a shareholders' meeting for
the election of Directors. Shareholders may, in accordance with the terms of the
Articles of Incorporation, cause a meeting of shareholders to be held for the
purpose of voting on the removal of Directors. Also, the Fund will be required
to call a special meeting of shareholders in accordance with the requirements of
the Investment Company Act to seek approval of new management and advisory
arrangements, of a material increase in distribution and/or account maintenance
fees or of a change in fundamental policies, objectives or restrictions. Except
as set forth above, the Directors shall continue to hold office and appoint
successor Directors. Each issued and outstanding share is entitled to
participate equally in dividends and distributions declared and in net assets
upon liquidation or dissolution remaining after satisfaction of outstanding
liabilities except that, as noted above, the Class B, Class C and Class D shares
bear certain additional expenses. Shares issued are fully paid and nonassessable
and have no preemptive rights. Shares have the conversion rights described in
this Prospectus.
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 communications for each of the shareholder's
related accounts, the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch and/or mutual fund account numbers.
If you have any questions regarding this, please call your Merrill Lynch
financial consultant or Merrill Lynch Financial Data Services, Inc. at
1-800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
45
<PAGE> 48
PENDING LITIGATION
In June 1993, a putative class action complaint was filed in the United
States District Court for the Southern District of California by several
shareholders of the Merrill Lynch Short-Term World Income Portfolio (the "World
Fund", and together with the Fund referred to herein as the "Funds"), a fund
organized under the laws of the Cayman Islands for investment solely by
non-United States persons, that has similar investment objectives to the Fund.
The complaint named the World Fund, the Investment Adviser and certain of their
affiliates as defendants. The complaint alleged, among other things, that the
World Fund prospectus did not contain risk disclosures included in the Fund's
prospectus.
Thereafter, in September 1993, a First Amended Complaint was filed, among
other things, adding two plaintiffs who purchased shares in the Fund, and adding
the Fund and the Distributor as defendants. The Amended Complaint was filed
purportedly on behalf of Fund investors who purchased shares between September
15, 1990, and October 31, 1992, and on behalf of World Fund investors who
purchased shares between June 9, 1990, and October 31, 1992 and alleged
violations of Section 10(b) and Section 20 of the Securities Exchange Act,
Section 12(2) and Section 15 of the Securities Act, and various common law
claims, including portfolio mismanagement. In essence, plaintiffs alleged that
these Funds' sales materials did not contain adequate risk disclosures and
further alleged oral point of sale misrepresentations regarding the safety of
investing in these Funds.
After plaintiffs voluntarily dismissed the action as to two Merrill Lynch
affiliates, the remaining defendants, with the exception of the World Fund,
moved to dismiss the Amended Complaint. In addition, all defendants, with the
exception of the World Fund, moved to transfer venue to the District of New
Jersey. At the same time, the World Fund moved to dismiss the Amended Complaint
for insufficiency of process and lack of personal jurisdiction.
In April 1994, the Court granted defendants' motion to transfer the action
to the District of New Jersey. Plaintiffs then moved for reconsideration. On
reconsideration, the court ruled that the World Fund was subject to jurisdiction
in the United States, and then reaffirmed its decision transferring the action
to the District of New Jersey. In October 1994, the United States Court of
Appeals for the Ninth Circuit denied plaintiffs petition for a writ of mandamus.
On March 10, 1995, plaintiffs filed a Second Amended Complaint in the
United States District Court for the District of New Jersey which alleged, among
other things, that the Fund and the World Fund improperly "speculated" in "high
risk 'derivatives"' and that this was not disclosed to the shareholders of
either fund in its offering materials. Plaintiffs reasserted causes of action
under Section 12(2) of the Securities Act and Section 10(b) of the Exchange Act,
as well as various common law claims. The Second Amended Complaint also alleged
that defendants violated Section 12(1) of the Securities Act and Section 7(d) of
the Investment Company Act by selling shares of the World Fund within the United
States without registering with the Commission. It also asserted a new cause of
action under Section 13(a)(3) of the Investment Company Act, alleging that the
Fund and the World Fund improperly deviated from their stated investment
policies. The pleading also added David Walter, the Funds' portfolio manager, as
a defendant.
The Second Amended Complaint purports to be brought on behalf of all
persons and entities who purchased World Fund shares between June 9, 1990 and
October 31, 1992 and who purchased Fund shares between September 15, 1990 and
October 31, 1992. Plaintiffs further seek certification of a new "sub-class",
consisting of all persons who purchased shares of the World Fund during June 9,
1990 through June 10, 1994, the period of time during which plaintiffs allege
that World Fund shares were unlawfully sold as unregistered
46
<PAGE> 49
investments. Plaintiffs now claim losses of approximately $700 million and seek
punitive damages in connection with their common law fraud claim.
On September 11, 1995, defendants filed a motion to dismiss the Second
Amended Complaint. On February 23, 1996, the Court granted in part and denied in
part defendants' motion to dismiss the complaint. The Court dismissed
plaintiff's claims that the defendants failed properly to register the World
Fund and its shares with the Commission. The other counts of the complaint
remain. In its opinion, the Court states that plaintiffs have alleged that the
Funds speculated in purchasing $1 billion of derivative securities and further
alleged that despite the Funds' being marketed as prudent investments, such
speculation was always intended and was necessary to achieve the Funds'
objectives. The opinion states that the prospectuses contained warnings
concerning risks associated with investing in the Funds, including in particular
that "the Funds would invest in debt securities denominated in different
currencies and that investments on a global basis involved special risks
including fluctuations in foreign exchange rates, future foreign and 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." The Court further noted that the prospectuses warned of the
risks of net asset fluctuation, investments in indexed notes, the use of
derivative securities to execute a hedge and higher fees. The Court found,
however, that taking plaintiffs allegations as true for purposes of the motion,
as it must, the prospectuses "failed to disclose that it would be necessary for
the Funds to take speculative positions in derivative securities", as plaintiffs
allege. The Funds maintain that such disclosure was omitted because such
speculation was not the Funds' intention, nor did it in fact occur.
The defendants believe that the allegations are totally without merit, and
will continue to vigorously contest the action. The Investment Adviser has
agreed to indemnify these Funds for any liabilities or expenses they may incur
in connection with this litigation.
47
<PAGE> 50
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
48
<PAGE> 51
MERRILL LYNCH SHORT-TERM GLOBAL 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 C shares
/ / Class B shares
/ / Class D shares
of Merrill Lynch Short-Term Global 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 Merrill Lynch Financial
Data Services, Inc. as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next
to be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of paper
if necessary.)
<TABLE>
<S> <C>
1. .......................................................... 4. ..........................................................
2. .......................................................... 5. ..........................................................
3. .......................................................... 6. ..........................................................
</TABLE>
Name............................................................................
First Name Initial Last Name
Name of Co-Owner (if any).......................................................
First Name Initial Last Name
Address.........................................................................
................................................... Date.......................
(Zip Code)
<TABLE>
<S> <C>
Occupation ......................................... Name and Address of Employer..............................................
<S> <C>
..........................................................................
..........................................................................
.................................................... ..........................................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- - --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
<TABLE>
<S> <C> <C>
Ordinary Income Dividends Long-term Capital Gains
--------------------------------- ---------------------------------
SELECT / / Reinvest SELECT / / Reinvest
ONE: / / Cash ONE: / / Cash
--------------------------------- ---------------------------------
</TABLE>
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 Short-Term Global 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 Merrill Lynch Financial Data Services, Inc. amending or
terminating this service.
Signature of Depositor..........................................................
Signature of Depositor ......................... Date...........................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS
APPLICATION.
49
<PAGE> 52
MERRILL LYNCH SHORT-TERM GLOBAL 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
"Dividends, Distributions and Taxes -- Federal Income Taxes") either because I
have not been notified that I am subject thereto as a result of a failure to
report all interest or dividends, or the Internal Revenue Service ("IRS") has
notified me that I am no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDER-REPORTING AND
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
<TABLE>
<S> <C>
.............................................................. ............................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
- - --------------------------------------------------------------------------------
4. LETTER OF INTENTION -- CLASS A AND D SHARES ONLY (See terms and conditions in
the Statement of Additional Information)
<TABLE>
<S> <C>
......................, 19 . . . .
Date of initial purchase
Dear Sir/Madam:
</TABLE>
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Short-Term Global 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 Short-Term Global
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 Short-Term Global Income Fund, Inc. held as
security.
<TABLE>
<S> <C>
By:.............................................................. ...............................................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both must sign)
</TABLE>
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
<TABLE>
<S> <C>
(1) Name ................................................... (2) Name....................................................
Account Number ............................................ Account Number..............................................
</TABLE>
- - --------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp
This form when completed should be mailed to:
Merrill Lynch Short-Term Global Income Fund, Inc.
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the Distributor of any purchases made under a Letter of Intention or Systematic
Withdrawal Plan. We guarantee the Shareholder's signature.
................................................................
Dealer Name and Address
By .............................................................................
Authorized Signature of Dealer
/ / / / / / / / / / / / / / ..............................
Branch Code F/C No. F/C Last Name
/ / / / / / / / / / / / / / / /
Dealer's Customer A/C No.
50
<PAGE> 53
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC. -- AUTHORIZATION FORM (PART 2)
- - --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OF AUTOMATIC
INVESTMENT PLANS ONLY.
- - --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
<TABLE>
<S> <C>
(PLEASE PRINT) ------------------------------------
Name of Owner.......................................................................
------------------------------------
Social Security No.
First Name Initial Last Name or Taxpayer Identification No.
Name of Co-Owner (if any)...........................................................
First Name Initial Last Name
Address.............................................................................
..................................................................................... Account Number........................
(Zip Code) (if existing account)
</TABLE>
- - --------------------------------------------------------------------------------
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 Short-Term
Global 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 withdrawals 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 MERRILL LYNCH 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.
51
<PAGE> 54
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC. -- AUTHORIZATION FORM (PART
2) -- (CONTINUED)
- - --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described below
each month to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C
shares / / Class D shares
of Merrill Lynch Short-Term Global 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.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Short-Term Global Income Fund, Inc., as indicated
below:
Amount of each check or ACH debit $..........................................
Account Number...............................................................
Please date and invest ACH debits on the 20th of each month
beginning or as soon as thereafter as possible.
(month)
I agree that you are drawing 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
crediting my bank account. I further agree that if a debit is not honored upon
presentation, Merrill Lynch Financial Data Services, Inc. is authorized to
discontinue immediately the Automatic Investment Plan and to liquidate
sufficient shares held in my account to offset the purchase made with the
dishonored debit.
.................. .......................................
Date Signature of Depositor
.......................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS
DRAWN BY MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
To..........................................................................Bank
(Investor's Bank)
Bank Address....................................................................
City .......... State .......... Zip............................................
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc., I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
.................. .......................................
Date Signature of Depositor
.................. .......................................
Bank Account Signature of Depositor
Number (If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
52
<PAGE> 55
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<PAGE> 56
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 57
INVESTMENT ADVISER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
The Chase Manhattan Bank, N.A.
Global Securities Services
4 Chase MetroTech Center,
18th Floor
Brooklyn, New York 11245
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> 58
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE INVESTMENT ADVISER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table................................. 2
Merrill Lynch Select Pricing(SM) System... 3
Financial Highlights...................... 7
Special and Risk Considerations........... 9
Investment Objective and Policies......... 10
Hedging Techniques...................... 15
Other Investment Policies and
Practices............................. 19
Investment Restrictions................. 20
Management of the Fund.................... 21
Board of Directors...................... 21
Management and Advisory Arrangements.... 22
Code of Ethics.......................... 23
Transfer Agency Services................ 24
Purchase of Shares........................ 24
Initial Sales Charge Alternatives --
Class A and Class D Shares............ 27
Deferred Sales Charge Alternatives --
Class B and Class C Shares............ 29
Distribution Plans...................... 33
Limitations on the Payment of Deferred
Charges............................... 35
Redemption of Shares...................... 35
Redemption.............................. 35
Repurchase.............................. 36
Reinstatement Privilege -- Class A and
Class D Shares........................ 36
Shareholder Services...................... 37
Distributions............................. 39
Taxes..................................... 40
Performance Data.......................... 42
Additional Information.................... 44
Determination of Net Asset Value........ 44
Organization of the Fund................ 44
Shareholder Reports..................... 45
Shareholder Inquiries................... 45
Pending Litigation...................... 46
Authorization Form........................ 49
Code # 11099-0296
</TABLE>
(MERRILL LYNCH LOGO)
MERRILL LYNCH
SHORT-TERM GLOBAL
INCOME FUND, INC.
PROSPECTUS
February 28, 1996
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE> 59
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
-------------------------
Merrill Lynch Short-Term Global Income Fund, Inc. (the "Fund") is a
non-diversified mutual fund seeking to provide shareholders with 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. Under normal circumstances, the Fund will invest its
assets in debt securities denominated in at least three different currencies,
including the U.S. dollar. At times, the Fund may seek to hedge its portfolio
against interest rate and currency risks through the use of futures, options on
futures and currency transactions. There can be no assurance that the investment
objective of the Fund will be realized.
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares and other relevant circumstances.
-------------------------
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated
February 28, 1996 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission and can be obtained, without charge, by calling or by
writing the Fund at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
-------------------------
MERRILL LYNCH ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
-------------------------
The date of this Statement of Additional Information is February 28, 1996.
<PAGE> 60
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek to provide shareholders
with 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. Under normal circumstances, the Fund will
invest its assets in debt securities denominated in at least three different
currencies, including the U.S. dollar. There can be no assurance that the
investment objective of the Fund will be realized. Reference is made to
"Investment Objective and Policies" in the Prospectus for a discussion of the
investment objective and policies of the Fund.
The Fund will effect portfolio transactions without regard to holding
period if, in the judgment of the Fund's investment adviser, Merrill Lynch Asset
Management, L.P. (the "Investment Adviser"), such transactions are advisable in
light of a change in circumstances of a particular issuer or within a particular
industry or in general market, economic or financial conditions. For the fiscal
years ended October 31, 1993, 1994 and 1995, the Fund's portfolio turnover rates
were 284.62%, 259.50% and 312.13%, respectively. 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.
The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such as
the Fund. If such restrictions should be reinstituted, it might become necessary
for the Fund to invest all or substantially all of its assets in U.S.
securities. In such an event, the Fund would review its investment objective and
investment policies to determine whether changes are appropriate. Any changes in
the investment objective or fundamental policies set forth under "Investment
Restrictions" below would require the approval of the holders of a majority of
the Fund's outstanding voting securities.
The Fund's ability and decisions to purchase or sell portfolio securities
may be affected by laws or regulations relating to the convertibility and
repatriation of assets. Because the shares of the Fund are redeemable on a daily
basis on each day the Fund determines its net asset value in U.S. dollars, the
Fund intends to manage its portfolio so as to give reasonable assurance that it
will be able to obtain U.S. dollars to the extent necessary to meet anticipated
redemptions. See "Redemption of Shares". Under present conditions, the Fund does
not believe that these considerations will have any significant effect on its
portfolio strategy, although there can be no assurance in this regard.
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 its shares, the net asset value of the Fund's shares will fluctuate.
2
<PAGE> 61
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 that 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.
Writing Options. The Fund will receive a premium from writing a call
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
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 its
underlying securities unhedged. 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.
The Fund may also enter into over-the-counter ("OTC") put and call option
transactions, which are two party contracts with prices and terms negotiated
between the buyer and seller. The Fund will enter into OTC option transactions
only with respect to portfolio securities 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).
Purchase of Put Options. The Fund may purchase put 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.
Futures Contracts. The Fund may purchase and sell financial 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 U.S. and foreign agency and government securities and
corporate debt securities traded on U.S. 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
3
<PAGE> 62
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 contracts 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 securities which are the subject of the hedge. There is
also a risk of imperfect correlation 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. The Fund
will acquire only OTC options for which management believes the Fund can receive
on
4
<PAGE> 63
each business day at least two independent bids or offers (one of which will be
from an entity other than a party to the option), unless there is only one
dealer, in which case such dealer's price will be used or which can be sold at a
formula price provided for in the over-the-counter option agreement. 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 currencies 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 bankruptcy of a broker with
whom the Fund has an open position in a futures contract or related option. The
risk of loss from investing in futures transactions is theoretically unlimited.
The exchanges on which the Fund intends to conduct options transactions
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
currency with respect to specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio securities, the sale
and redemption of shares of the Fund or the payment of dividends and
distributions by the Fund. Position hedging is the sale of forward foreign
currency with respect to portfolio security positions denominated or quoted in
such foreign currency. The Fund will not speculate in forward foreign exchange.
The Fund may not position hedge with respect to the currency of a particular
country to an extent greater than the aggregate market value (at the time of
making such sale) of the securities held in its portfolio denominated or quoted
in that particular foreign currency. If the Fund enters into a position hedging
transaction, its custodian bank will place cash or liquid 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
5
<PAGE> 64
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
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements may be entered into only with a member bank of the Federal
Reserve System or a primary dealer in U.S. Government securities or an affiliate
thereof. Purchase and sale contracts may be entered into only with financial
institutions which have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million. Under such
agreements, the other party agrees, upon entering into the contract with the
Fund, to repurchase the security at a mutually agreed upon time and price in a
specified currency, thereby determining the yield during the term of the
agreement. This results in a fixed rate of return insulated from market
fluctuations during such period although it may be affected by currency
fluctuations. In the case of repurchase agreements, the prices at which the
trades are conducted do not reflect accrued interest on the underlying
obligations; whereas, in the case of purchase and sale contracts, the prices
take into account accrued interest. Such agreements usually cover short periods,
often less than one week. Repurchase agreements may be construed to be
collateralized loans by the purchaser to the seller secured by the securities
transferred to the purchaser. In the case of a repurchase agreement, as a
purchaser, the Fund will require the seller to provide additional collateral if
the market value of the securities falls below the repurchase price at any time
during the term of the repurchase agreement; the Fund does not have the right to
seek additional collateral in the case of purchase and sale contracts. In the
event of default by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by the Fund but
constitute only collateral for the seller's obligation to pay the repurchase
price. Therefore, the Fund may suffer time delays and incur costs or possible
losses in connection with the disposition of the collateral. A purchase and sale
contract differs from a repurchase agreement in that the contract arrangements
stipulate that the securities are owned by the Fund. In the event of a default
under such a repurchase agreement or under a purchase and sale contract, instead
of the contractual fixed rate of return, the rate of return to the Fund would
depend on intervening fluctuations of the market values of such securities and
the accrued interest on the securities. In such event, the Fund would have
rights against the seller for breach of contract with respect to any losses
resulting from market fluctuations following the failure of the seller to
perform. The Fund may not invest more than 15% (10% to the extent required by
certain state laws) of its total assets in repurchase agreements or purchase and
sale contracts maturing in more than seven days, together with all other
illiquid investments. While the substance of purchase and sale contracts is
similar to the substance of repurchase agreements, because of the different
treatment with respect to accrued interest and additional collateral, management
believes that purchase and sale contracts are not repurchase agreements as such
term is understood in the banking and brokerage community.
6
<PAGE> 65
Lending of Portfolio Securities. Subject to the investment restrictions
stated below, the Fund may lend securities from its portfolio to approved
borrowers and receive therefor collateral in cash or securities issued or
guaranteed by the U.S. Government which are maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
purpose of such loans is to permit the borrower to use such securities for
delivery to purchasers when such borrower has sold short. If cash collateral is
received by the Fund, it is invested in short-term money market securities, and
a portion of the yield received in respect of such investment is retained by the
Fund. Alternatively, if securities are delivered to the Fund as collateral, the
Fund and the borrower negotiate a rate for the loan premium to be received by
the Fund for lending its portfolio securities. In either event, the total yield
on the Fund's portfolio is increased by loans of its portfolio securities. The
Fund will have the right to regain record ownership of loaned securities to
exercise beneficial rights such as voting rights, subscription rights and rights
to dividends, interest or other distributions. Such loans are terminable at any
time. The Fund may pay reasonable finder's, administrative and custodial fees in
connection with such loans. With respect to the lending of portfolio securities,
there is the risk of failure by the borrower to return the securities involved
in such transactions.
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 present at a meeting at which more than 50% of the outstanding
shares of the Fund are represented or (ii) more than 50% of the Fund's
outstanding shares).
Under the fundamental investment restrictions, the Fund may not:
1. Invest more than 25% of its total assets (taken at market value at
the time of each investment) in the securities of issuers in any particular
industry; except that, under normal circumstances, the Fund will invest
more than 25% of its total assets in issuers in the banking industry. This
restriction will not apply to securities issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities, but will apply to
obligations of a foreign government unless the Securities and Exchange
Commission (the "Commission") permits their exclusion.
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.
7
<PAGE> 66
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
7. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act"), in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
In addition, the Fund has adopted non-fundamental restrictions which
may be changed by the Board of Directors. Under the non-fundamental
investment restrictions, the Fund may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales "against the box".
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund
has otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws of any
state in which the Fund's shares are registered or qualified for sale
require a lower limitation, the Fund will observe such limitation. As of
the date hereof, therefore, the Fund will not invest more than 10% of its
total assets in securities which are subject to this investment restriction
(c). Securities purchased in accordance with Rule 144A under the Securities
Act 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).
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.
8
<PAGE> 67
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.
i. Notwithstanding fundamental investment restriction (6) above,
borrow amounts in excess of 10% 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, including to meet
redemptions or to settle securities transactions. Usually only "leveraged"
investment companies may borrow in excess of 5% of their assets; however,
the Fund will not borrow to increase income but only to meet redemption
requests or to settle securities transactions which might otherwise require
untimely disposition of portfolio securities. The Fund will not purchase
securities while borrowings exceed 5% of total assets except to honor prior
commitments. (For the purpose of this restriction, collateral arrangements
with respect to the writing of options, and, if applicable, futures
contracts, options on futures contracts, and collateral arrangements with
respect to initial and variation margin are not deemed to be a pledge of
assets and neither such arrangements nor the purchase or sale of futures or
related options are deemed to be the issuance of a senior security.)
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. To comply with tax requirements for qualification as a "regulated
investment company", however, the Fund's investments will be limited in a manner
such that, at the close of each quarter of each fiscal year, (a) no more than
25% of the Fund's total assets are invested in the securities of a single
issuer, and (b) with regard to at least 50% of the Fund's total assets, no more
than 5% of its total assets are invested in the securities of a single issuer.
For purposes of this restriction, the Fund will regard each country and each
political subdivision, agency or instrumentality of such country and each
multi-national agency of which such country is a member and each public
authority which issues securities on behalf of a private entity as a separate
issuer, except that if the security is backed only by the assets and revenues of
a non-government entity, then the entity with the ultimate responsibility for
the payment of interest and principal may be regarded as the sole issuer. In
addition, the Fund will regard the issuer of participations in, or bonds and
notes backed by, pools of mortgage, credit card, automobile or other types of
receivables as being the limited purpose corporation or trust issuing the
participation certificates, bonds or notes as well as any other entity that is
or may be responsible for providing full payment on the underlying obligations
in the pool. These tax-related
9
<PAGE> 68
limitations may be changed by the Board of Directors of the Fund to the extent
necessary to comply with changes to the Federal tax requirements. 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 net asset value may fluctuate to a greater
extent than that of a diversified investment company as a result of changes in
the financial condition or in the market's assessment of the issuers.
The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Fund has adopted an investment policy pursuant to
which it will not purchase or sell OTC options if, as a result of such
transaction, the sum of the market value of OTC options currently outstanding
which are held by the Fund, the market value of the underlying securities
covered by OTC call options currently outstanding which were sold by the Fund
and margin deposits on the Fund's existing OTC options on futures contracts
exceeds 15% (10% to the extent required by certain state laws) of the total
assets of the Fund, taken at market value, together with all other assets of the
Fund which are illiquid or are not otherwise readily marketable. However, if the
OTC option is sold by the Fund to a primary U.S. Government securities dealer
recognized by the Federal Reserve Bank of New York and if the Fund has the
unconditional contractual right to repurchase such OTC option from the dealer at
a predetermined price, then the Fund will treat as illiquid such amount of the
underlying securities as is equal to the repurchase price less the amount by
which the option is "in-the-money" (i.e., current market value of the underlying
securities minus the option's strike price). The repurchase price with the
primary dealers is typically a formula price which is generally based on a
multiple of the premium received for the option, plus the amount by which the
option is "in-the-money". This policy as to OTC options is not a fundamental
policy of the Fund and may be amended by the Directors of the Fund without the
approval of the Fund's shareholders. However, the Fund will not change or modify
this policy prior to the change or modification by the Commission staff of its
position.
Portfolio securities of the Fund generally may not be purchased from, sold
or loaned to the Investment Adviser or its affiliates or any of their directors,
general partners, officers, or employees, acting as principal, unless pursuant
to a rule or exemptive order under the Investment Company Act. Because of the
affiliation of 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. Included among such restricted transactions will be
purchases from or sales to Merrill Lynch of securities in transactions in which
it acts as principal. See "Portfolio Transactions and Brokerage". Without such
an exemptive order, the Fund would be prohibited from engaging in portfolio
transactions with Merrill Lynch or its affiliates acting as principal and from
purchasing securities in public offerings which are not registered under the
Securities Act, in which such firm or any of its affiliates participates as an
underwriter or dealer.
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<PAGE> 69
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each Director and executive officer is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (63) -- President and Director(1)(2) -- President of the
Investment Adviser (which term as used herein includes its corporate
predecessors) since 1977; President of Fund Asset Management, L.P. ("FAM")
(which term as used herein includes its corporate predecessors) 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; Director of Merrill Lynch Funds Distributor, Inc. (the "Distributor").
DONALD CECIL (69) -- Director(2) -- 1114 Avenue of the Americas, New York,
New York 10036. Special Limited Partner of Cumberland Partners (an investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
EDWARD H. MEYER (69) -- Director(2) -- 777 Third Avenue, New York, New York
10017. President of Grey Advertising Inc. since 1968, Chief Executive Officer
since 1970 and Chairman of the Board of Directors since 1972; Director of The
May Department Stores Company, Bowne & Co., Inc. (financial printers), Ethan
Allen Interiors Inc. and Harman International Industries, Inc.
CHARLES C. REILLY (64) -- Director(2) -- 9 Hampton Harbor Road, Hampton
Bays, New York 11946. Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; former
Senior Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990;
Adjunct Professor, Columbia University Graduate School of Business, 1990;
Adjunct Professor, Wharton School, University of Pennsylvania, 1990; Partner,
Small Cities Cablevision, Inc.
RICHARD R. WEST (58) -- Director(2) -- Box 604, Genoa, Nevada 89411.
Professor of Finance since 1984, and Dean from 1984 to 1993, New York University
Leonard N. Stern School of Business Administration; Director of Bowne & Co.,
Inc. (financial printers), Vornado, Inc. (real estate holding company), Smith-
Corona Corporation (manufacturer of typewriters and word processors) and
Alexander's Inc. (real estate company).
EDWARD D. ZINBARG (61) -- Director(2) -- 5 Hardwell Road, Short Hills, New
Jersey 07078-2117. Former Executive Vice President of The Prudential Insurance
Company of America from 1988 to 1994; former Director of Prudential Reinsurance
Company and former Trustee of the Prudential Foundation.
TERRY K. GLENN (55) -- Executive Vice President(1)(2) -- Executive Vice
President of the Investment Adviser and FAM since 1983; Executive Vice President
and Director of Princeton Services since 1993; President and Director of the
Distributor since 1986.
JOSEPH T. MONAGLE, JR. (47) -- Senior Vice President(1)(2) -- Senior Vice
President and Department Head of the Global Short-Term Fixed Income Division of
the Investment Adviser and associated therewith since 1977; Senior Vice
President of Princeton Services since 1993.
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<PAGE> 70
ALEX V. BOUZAKIS (38) -- Vice President(1)(2) -- Vice President and Senior
Portfolio Manager of the Investment Adviser and associated therewith since 1982.
DAVID B. WALTER (50) -- Vice President(1)(2) -- Vice President and
Portfolio Manager of the Investment Adviser since 1984.
STEPHEN YARDLEY (38) -- Vice President(1)(2) -- Vice President and
Portfolio Manager of Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.")
and associated therewith since 1992; Portfolio Manager at Julius Baer Investment
Management, Inc. and Bankers Trust Company prior thereto.
DONALD C. BURKE (35) -- Vice President(1)(2) -- Vice President and Director
of Taxation of the Investment Adviser since 1990; employee of Deloitte & Touche
LLP from 1982 to 1990.
EDWARD F. GOBORA (29) -- Vice President(1) -- Vice President and Portfolio
Manager of the Investment Adviser since 1993, and associated therewith since
1988.
GERALD M. RICHARD (46) -- Treasurer(1)(2) -- Senior Vice President and
Treasurer of the Investment Adviser and FAM since 1984; Senior Vice President
and Treasurer of Princeton Services since 1993; Vice President of the
Distributor since 1981 and Treasurer since 1984.
MARK B. GOLDFUS (49) -- Secretary(1)(2) -- Vice President of the Investment
Adviser and FAM since 1985.
- - ---------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a director, trustee or officer of certain other
investment companies for which the Investment Adviser or its affiliate, FAM,
acts as investment adviser or manager.
At January 31, 1996, the Directors and officers of the Fund as a group (15
persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At such date, Mr. Zeikel, a Director and officer of the Fund, and the
other officers of the Fund owned less than 1% of the outstanding shares of
common stock of ML & Co.
COMPENSATION OF DIRECTORS
The Fund pays each Director not affiliated with the Investment Adviser a
fee of $3,500 per year plus $500 per meeting attended, together with such
Director's actual out-of-pocket expenses relating to attendance at meetings. The
Fund also compensates members of its Audit and Nominating Committee, which
consists of all the non-affiliated Directors at a rate of $500 per meeting
attended. The Chairman of the Audit and Nominating Committee receives an
additional fee of $250 per meeting attended. For the fiscal year ended October
31, 1995, fees and expenses paid to such non-affiliated Directors aggregated
$38,959. For the fiscal period November 1, 1995 to December 31, 1995, fees and
expenses paid to such non-affiliated Directors aggregated $19,900.
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<PAGE> 71
The following table sets forth for the fiscal year ended October 31, 1995,
compensation paid by the Fund to the non-affiliated Directors and for the
calendar year ended December 31, 1995, the aggregate compensation paid by all
registered investment companies advised by the Investment Adviser and its
affiliate, FAM ("MLAM/FAM Advised Funds") to the non-affiliated Directors.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
PENSION OR FROM FUND AND
RETIREMENT BENEFITS MLAM/FAM ADVISED
COMPENSATION ACCRUED AS PART FUNDS PAID TO
NAME OF DIRECTOR FROM THE FUND OF FUND EXPENSES DIRECTORS(1)
- - -------------------------------------------- ------------- ------------------- ----------------------
<S> <C> <C> <C>
Donald Cecil................................ $ 8,500 None $271,850
Edward H. Meyer............................. $ 7,500 None $239,225
Charles C. Reilly........................... $ 7,500 None $269,600
Richard R. West............................. $ 7,500 None $294,600
Edward D. Zinbarg........................... $ 7,500 None $155,063
</TABLE>
- - ---------------
(1) In addition to the Fund, the Directors serve on the boards of other MLAM/FAM
Advised Funds as follows: Mr. Cecil (35 funds and portfolios); Mr. Meyer (35
funds and portfolios); Mr. Reilly (54 funds and portfolios); Mr. West (54
funds and portfolios); and Mr. Zinbarg (17 funds and portfolios).
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 of the Investment Adviser or
its affiliates. 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 the Investment Adviser purchases or sells
securities for the Fund or other funds for which it acts as investment adviser
or for its other advisory clients, and such purchases or sales 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.
Pursuant to an investment advisory agreement between the Fund and the
Investment Adviser (the "Investment Advisory Agreement"), the Investment Adviser
receives for its services to the Fund monthly compensation at the annual rate of
0.55% of the average daily net assets of the Fund not exceeding $2 billion,
0.525% of the average daily net assets of the Fund in excess of $2 billion but
not exceeding $4 billion, 0.50% of the average daily net assets of the Fund in
excess of $4 billion but not exceeding $6 billion, 0.475% of the average daily
net assets of the Fund in excess of $6 billion but not exceeding $10 billion,
0.45% of the average daily net assets of the Fund in excess of $10 billion but
not exceeding $15 billion, and 0.425% of the average daily net assets of the
Fund in excess of $15 billion. For the fiscal years ended October 31, 1993, 1994
and 1995, the total investment advisory fees paid by the Fund to the Investment
Adviser aggregated $12,966,035, $6,995,186 and $3,146,062, respectively. For the
fiscal period November 1, 1995 to December 31, 1995, the total investment
advisory fees paid by the Fund to the Investment Adviser aggregated $384,228.
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<PAGE> 72
The Investment Adviser has also entered into a sub-advisory agreement with
MLAM U.K., a wholly-owned, indirect subsidiary of ML & Co., and an affiliate of
the Investment Adviser, pursuant to which the Investment Adviser pays MLAM U.K.
a fee in an amount to be determined from time to time by the Investment Adviser
and MLAM U.K. but in no event in excess of the amount that the Investment
Adviser actually receives for providing services to the Fund pursuant to the
Investment Advisory Agreement. For the fiscal years ended October 31, 1993, 1994
and 1995, the Investment Adviser paid MLAM U.K. fees of $712,838, $633,170 and
$264,717, respectively, pursuant to the sub-advisory agreement. For the fiscal
period November 1, 1995 to December 31, 1995, the Investment Adviser paid MLAM
U.K. fees of $31,481.
California imposes limitations on the expenses of the Fund. These annual
expense limitations require that the Investment Adviser reimburse the Fund in an
amount necessary to prevent the aggregate ordinary operating expenses (excluding
interest, 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 daily net assets, 2.0% of
the next $70 million of average daily net assets and 1.5% of the remaining
average daily net assets. To date such reimbursement has not been required. The
Investment Adviser's obligation to reimburse the Fund is limited to the amount
of the investment advisory fee. No fee payment will be made to the Investment
Adviser during any fiscal year which will cause such expenses to exceed expense
limitations at the time of such payment.
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 subsidiaries. The Fund pays all other expenses incurred in its
operation including, among other things, redemption expenses; expenses of
portfolio transactions; expenses of registering the shares under Federal and
state securities laws; pricing costs (including the daily calculation of net
asset value); expenses of printing shareholder reports, prospectuses and
statements of additional information (except to the extent paid by the
Distributor as described below); fees for legal and auditing services,
Commission fees, interest, certain taxes, fees and expenses of unaffiliated
Directors; costs of printing proxies and other expenses related to shareholder
meetings; and other expenses properly payable by the Fund. The organizational
expenses of the Fund were paid 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 fiscal years
ended October 31, 1993, 1994 and 1995, the amount of such reimbursement for
accounting services was $230,453, $65,501 and $176,648, respectively. For the
fiscal period November 1, 1995 to December 31, 1995, the Fund reimbursed the
Investment Adviser $7,967 for accounting services. As required by the Fund's
distribution agreements, the Distributor will pay certain promotional expenses
of the Fund incurred in connection with the offering of its shares. Certain
expenses in connection with the account maintenance and/or distribution of
shares will be financed by the Fund pursuant to separate distribution plans 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. ML & Co. and Princeton Services are
"controlling persons" of the Investment Adviser as defined under the Investment
Company Act because of their ownership of its voting securities or their power
to exercise a controlling influence over its management or policies.
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<PAGE> 73
Duration and Termination. Unless earlier terminated as described herein,
the Investment Advisory Agreement and the sub-advisory agreement will remain in
effect from year to year if approved annually (a) by the Directors of the Fund
or by a majority of the outstanding shares of the Fund and (b) by a majority of
the Directors who are not parties to such contracts or interested persons (as
defined in the Investment Company Act) of any such party. Such contracts are not
assignable and may be terminated without penalty on 60 days' written notice at
the option of either party thereto or by vote of the shareholders of the Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares. The Fund issues four classes of
shares under the Merrill Lynch Select PricingSM System: shares of Class A and
Class D are sold to investors choosing the initial sales charge alternatives,
and shares of Class B and Class C are sold to investors choosing the deferred
sales charge alternatives. Each Class A, Class B, Class C and Class D share of
the Fund represents identical interests in the investment portfolio of the Fund
and has the same rights, except that Class B, Class C and Class D shares bear
the expenses of the ongoing account maintenance fees, and Class B and Class C
shares bear the expenses of the ongoing distribution fees and the additional
incremental transfer agency costs resulting from the deferred sales charge
arrangements. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect to
such class pursuant to which account maintenance and/or distribution fees are
paid. Each class has different exchange privileges. See "Shareholder
Service -- Exchange Privilege".
The Merrill Lynch Select PricingSM System is used by more than 50 mutual
funds advised by the Investment Adviser or its affiliate, FAM. Funds advised by
the Investment Adviser or FAM which utilize the Merrill Lynch Select PricingSM
System 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 offerings 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 and
sub-advisory agreement described above.
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
As a result of the implementation of the Merrill Lynch Select PricingSM
System, Class A shares of the Fund outstanding prior to October 21, 1994, were
redesignated Class D shares. The Class A shares currently being offered differ
from the Class A shares offered prior to October 21, 1994, in many respects,
including sales charges, exchange privilege and the classes of persons to whom
such shares are offered. The gross sales charges for the sale of its former
Class A shares for the fiscal year ended October 31, 1993, were $83,097, of
which the Distributor received $10,009 and Merrill Lynch received $73,088. The
Distributor and Merrill Lynch received no sales charges for the sale of its new
Class A shares for the fiscal period October 21, 1994 (commencement of
operations) to October 31, 1994 and for the fiscal year ended October 31, 1995.
The gross sales charges for the sale of its Class D shares (including
redesignated Class A shares) for the fiscal year
15
<PAGE> 74
ended October 31, 1994 were $11,788, of which the Distributor received $1,110
and Merrill Lynch received $10,678. The gross sales charges for the sale of its
Class D shares for the fiscal year ended October 31, 1995 were $4,326, of which
the Distributor received $330 and Merrill Lynch received $3,996. For the fiscal
period November 1, 1995 to December 31, 1995, the Distributor and Merrill Lynch
did not receive sales charges for the sale of such Class A shares or Class D
shares. During such periods, the Distributor received no contingent deferred
sales charges with respect to redemptions within one year after purchase of
Class A or Class D shares purchased subject to front-end sales charge waivers.
For information as to brokerage commissions received by Merrill Lynch, see
"Portfolio Transactions and Brokerage".
The term "purchase" as used in the Prospectus and this Statement of
Additional Information refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code of 1986, as amended (the "Code")) although more than
one beneficiary is involved. The term "purchase" also includes purchases by any
"company", as that term is defined in the Investment Company Act, but does not
include purchases by any such company which has not been in existence for at
least six months or which has no purpose other than the purchase of shares of
the Fund or shares of other registered investment companies at a discount. The
term "purchase" 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. The term
"purchase" also includes purchases by employee benefit plans not qualified under
Section 401 of the Code, including purchases by employees or by employers on
behalf of employees, by means of a payroll deduction plan or otherwise, of
shares of the Fund. Purchases by such a company or non-qualified employee
benefit plan will qualify for the quantity discounts discussed above only if the
Fund and the Distributor are able to realize economies of scale in sales effort
and sales related expense by means of the company, employer or plan making the
Fund's Prospectus available to individual investors or employees and forwarding
investments by such persons to the Fund and by any such employer or plan bearing
the expense of any payroll deduction plan.
Closed-End Fund Investment Option. Class A shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by MLAM or the
Investment Adviser who purchased such closed-end fund shares prior to October
21, 1994 (the date the Merrill Lynch Select PricingSM System commenced
operations) and wish to reinvest the net proceeds from a sale of their
closed-end fund shares of common stock in Eligible Class A Shares, if the
conditions set forth below are satisfied. Alternatively, closed-end fund
shareholders who purchased such shares on or after October 21, 1994, and wish to
reinvest the net proceeds from a sale of their closed-end fund shares are
offered Class A shares (if eligible to buy Class A shares) or Class D shares of
the Fund and other MLAM-advised mutual funds ("Eligible Class D Shares"), if the
following conditions are met. First, the sale of the closed-end fund shares must
be made through Merrill Lynch, and the net proceeds therefrom must be
immediately reinvested in Eligible Class A or Class D Shares. Second, the
closed-end fund shares must either have been acquired in the initial public
offering or be shares representing dividends from shares of common stock
acquired in such offering. Third, the closed-end fund shares must have been
continuously maintained in a Merrill Lynch securities account. Fourth, there
must be a minimum purchase of $250 to be eligible for the investment option.
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<PAGE> 75
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Fund. In order to exercise this
investment option, a shareholder of one of the above-referenced continuously
offered closed-end funds (an "eligible fund") must sell his or her shares of
common stock of the eligible fund (the "eligible shares") back to the fund in
connection with a tender offer conducted by the eligible fund and reinvest the
proceeds immediately in the designated class of shares of the Fund. This
investment option is available only with respect to eligible shares as to which
no Early Withdrawal Charge or CDSC (each as defined in the eligible fund's
prospectus) is applicable. Purchase orders from eligible fund shareholders
wishing to exercise this investment option will be accepted only on the day that
the related tender offer terminates and will be effected at the net asset value
of the designated class of the Fund on such day.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Fund and of other MLAM-advised mutual funds. For any such right
of accumulation to be made available, the Distributor must be provided at the
time of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing, or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A or Class D shares of the Fund or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Fund's transfer agent. The Letter of Intention is
not available to employee benefit plans for which Merrill Lynch provides
plan-participant record-keeping services. The Letter of Intention is not a
binding obligation to purchase any amount of Class A or Class D shares; however,
its execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A and Class
D shares of the Fund and of other MLAM-advised mutual funds, presently held, at
cost or maximum offering price (whichever is higher), on the date of the first
purchase under the Letter of Intention, may be included as a credit toward 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 purchased does not equal the amount stated in the Letter of
Intention (minimum of $25,000), the investor will be notified and must pay,
within 20 days of the expiration of such Letter, the difference between the
sales charge
17
<PAGE> 76
on the Class A or Class D shares purchased at the reduced rate and the sales
charge applicable to the shares actually purchased through the Letter. Class A
or Class D shares equal to five percent of the intended amount will be held in
escrow during the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If a purchase
during the term of such Letter would otherwise be subject to a further reduced
sales charge based on the right of accumulation, the purchaser will be entitled
on that purchase and subsequent purchases to the reduced percentage sales charge
which would be applicable to a single purchase equal to the total dollar value
of the Class A or Class D shares then being purchased under such Letter, but
there will be no retroactive reduction of the sales charges on any previous
purchase.
The value of any shares redeemed or otherwise disposed of by the purchaser
prior to termination or completion of the Letter of Intention will be deducted
from the total purchases made under such Letter. An exchange from a MLAM-advised
money market fund into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intention from the Fund.
Merrill Lynch Blueprint(SM) Program. Class D shares of the Fund are
offered to participants in the Merrill Lynch Blueprint(SM) Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares of
the Fund may purchase additional Class A shares of the Fund through Blueprint.
Blueprint is directed to small investors, group IRAs and participants in
certain affinity groups such as credit unions, trade associations and benefit
plans. Investors placing orders to purchase Class A or Class D shares of the
Fund through Blueprint will acquire the Class A or Class D shares at net asset
value plus a sales charge calculated in accordance with the Blueprint sales
charge schedule (i.e., up to $5,000 at 3.50% and $5,000.01 or more at the
standard sales charge rates disclosed in the Prospectus). In addition, Class A
or Class D shares of the Fund are being offered at net asset value plus a sales
charge of 1/2 of 1% for corporate or group IRA programs placing orders to
purchase their Class A or Class D shares through Blueprint. Services, including
the exchange privilege, available to Class A and Class D investors through
Blueprint, however, may differ from those available to other investors in Class
A or Class D shares.
Class A and Class D shares are offered at net asset value to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from employer sponsored retirement and savings plans
whose trustee and/or plan sponsor has entered into a Merrill Lynch Directed IRA
Rollover Program Service Agreement.
Orders for purchases and redemptions of Class A or Class D shares of the
Fund may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint(SM) Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMA(SM) Managed Trusts. Class A shares are offered to TMA(SM) Managed
Trusts to which Merrill Lynch Trust Company provides discretionary trustee
services at net asset value.
Employee Access Accounts.(SM) Class A or Class D shares are offered at net
asset value to Employee Access Accounts available through employers that provide
employer sponsored retirement or savings plans
18
<PAGE> 77
that are eligible to purchase such shares at net asset value. The initial
minimum for such accounts is $500, except that the initial minimum for shares
purchased for such accounts pursuant to the Automatic Investment Program is $50.
Purchase Privilege of Certain Persons. Directors of the Fund, members of
the Boards of other MLAM-advised investment companies, ML & Co. and its
subsidiaries (the term "subsidiaries", when used herein with respect to ML &
Co., includes MLAM, FAM and certain other entities directly or indirectly
wholly-owned and controlled by ML & Co.) and their directors and employees, and
any trust, pension, profit-sharing or other benefit plan for such persons may
purchase Class A shares of the Fund at net asset value.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor if the following
conditions are satisfied; first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis; and second, the investor also must establish that such redemption had
been made within 60 days prior to the investment in the Fund, and the proceeds
from the redemption had been maintained in the interim in cash or a money market
fund.
Class D shares of the Fund are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated, 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 of termination.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a Merrill Lynch
financial consultant and who has invested in a mutual fund for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied: first, the investor must advise Merrill Lynch that it will purchase
Class D shares of the Fund with proceeds from the redemption of such shares of
other mutual funds and that such shares have been outstanding for a period of no
less than six months; and second, such purchase of Class D shares must be made
within 60 days after the redemption and the proceeds from the redemption must be
maintained in the interim in cash or a money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a public or private investment company. The value of the assets or company
acquired in a tax-free transaction may be adjusted in appropriate cases to
reduce possible adverse tax consequences to the Fund which might result from an
acquisition of assets having net unrealized appreciation which is
disproportionately higher at the time of acquisition than the realized or
unrealized appreciation of the Fund. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities which (i) meet the
investment objectives and policies of the Fund; (ii) are acquired for investment
and not for resale (subject to the understanding that the disposition of the
Fund's portfolio securities shall at all times remain within its control); and
(iii) are liquid
19
<PAGE> 78
securities, the value of which is readily ascertainable, which are not
restricted as to transfer either by law or liquidity of market (except that the
Fund may acquire through such transactions restricted or illiquid securities to
the extent the Fund does not exceed the applicable limits on acquisition of such
securities set forth under "Investment Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS.
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based on
the number of employees or number of employees eligible to participate in the
plan, the aggregate amount invested by the plan in specified investments and/or
the services provided by Merrill Lynch to the plan. Certain other plans may
purchase Class B shares with a waiver of the CDSC upon redemption, based on
similar criteria. Such Class B shares will convert into Class D shares
approximately ten years after the plan purchases the first share of any
MLAM-advised mutual fund. Minimum purchase requirements may be waived or varied
for such plans. Additional information regarding purchases by employer sponsored
retirement or savings plans and certain other arrangements is available toll-
free from Merrill Lynch Business Financial Services at (800) 237-7777.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares -- Distribution 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 shareholder, and all material amendments are required to be
approved by the vote of the Directors, including a majority of the Independent
Directors who have no direct or indirect financial interest in such Distribution
Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further
requires that the Fund preserve copies of each Distribution Plan and any report
20
<PAGE> 79
made pursuant to such plan for a period of not less than six years from the date
of such Distribution Plan or such report, the first two years in an easily
accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on certain
asset-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 indicating with
respect to Class B and Class C shares, the maximum allowable payments that can
be made under the NASD maximum sales charge rule and, with respect to Class B
shares, the Distributor's voluntary maximum for the periods indicated.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF DECEMBER 31, 1995
---------------------------------------------------------------------------------------------
(IN THOUSANDS)
ANNUAL
ALLOWABLE AMOUNTS DISTRIBUTION
ELIGIBLE AGGREGATE INTEREST ON MAXIMUM PREVIOUSLY AGGREGATE FEE AT CURRENT
GROSS SALES UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
---------- --------- ----------- -------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES, FOR THE PERIOD
AUGUST 3, 1990 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1995:
Under NASD Rule as Adopted....... $6,438,954 $ 402,435 $ 159,139 $561,574 $116,343 $ 445,231 $1,856
Under Distributor's Voluntary
Waiver......................... $6,438,954 $ 402,435 $ 32,194 $434,629 $116,343 $ 318,286 $1,856
CLASS C SHARES, FOR THE PERIOD
OCTOBER 21, 1994 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1995:
Under NASD Rule as Adopted....... $ 524,663 $ 32,791 $ 2,378 $35,169 $ 1,353 $ 33,816 $ 561
</TABLE>
- - ---------------
(1) Purchase price of all eligible Class B or Class C shares sold during periods
indicated other than shares acquired through dividend reinvestment and the
exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1%, as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made with respect to Class B shares prior to July
7, 1993, under the distribution plan in effect at that time, at the 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 NASD maximum or, with respect to Class B shares, the
voluntary maximum.
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<PAGE> 80
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended only for any period during which trading on the New
York Stock Exchange is restricted as determined by the Commission or such
Exchange is closed (other than customary weekend and holiday closings), for any
period during which an emergency exists as defined by the Commission as a result
of which disposal of portfolio securities or determination of the net asset
value of the Fund is not reasonably practicable, and for such other periods as
the Commission may by order permit for the protection of shareholders of the
Fund.
DEFERRED SALES CHARGES -- CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares", while Class B shares
redeemed within four years of purchase are subject to a CDSC under most
circumstances, the charge is waived on redemptions of Class B shares in
connection with certain postretirement withdrawals from an Individual Retirement
Account ("IRA") or other retirement plan or on redemptions of Class B shares
following the death or disability of a Class B shareholder. Redemptions for
which the waiver applies are: (a) any partial or complete redemption in
connection with a tax-free distribution following retirement under a
tax-deferred retirement plan or attaining age 59 1/2 in the case of an IRA or
other retirement plan, or part of a series of equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) or any
redemption resulting from the tax-free return of an excess contribution to an
IRA; or (b) any partial or complete redemption following the death or disability
(as defined in the Code) of a Class B shareholder (including one who owns the
Class B shares as joint tenant with his or her spouse), provided the redemption
is requested within one year of the death or initial determination of
disability. For the fiscal years ended October 31, 1993, 1994 and 1995, the
Distributor received CDSCs of $10,977,755, $2,449,809 and $469,456, respectively
with respect to redemptions of Class B shares, all of which were paid to Merrill
Lynch. For the fiscal period November 1, 1995 to December 31, 1995, the
Distributor received CDSCs of $22,991 with respect to redemptions of Class B
shares, all of which was paid to Merrill Lynch. For the fiscal period October
21, 1994 (commencement of operations) to October 31, 1994, there were no
redemptions of Class C shares resulting in payments of CDSCs. For the fiscal
year ended October 31, 1995 and the fiscal period November 1, 1995 to December
31, 1995 the Distributor received CDSCs of $15 and $1,000, respectively, with
respect to redemptions of Class C shares, all of which were paid to Merrill
Lynch.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations and
credit unions. Class B shares of the Fund are offered through Blueprint only to
members of certain affinity groups. The CDSC is waived in connection with
purchase orders placed through Blueprint. Services, including the exchange
privilege, available to Class B investors through Blueprint, however, may differ
from those available to other investors in Class B shares. Orders for purchases
and redemptions of Class B shares of the Fund will be grouped for execution
purposes which, in some circumstances, may involve the execution of such orders
two business days following the day such orders are placed. The minimum initial
purchase price is $100, with a $50 minimum for subsequent purchases through
Blueprint. There is no minimum initial or subsequent purchase requirement for
investors who are part of the Blueprint automatic investment plan. Additional
information concerning these Blueprint programs, including any annual fees or
22
<PAGE> 81
transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith
Incorporated, The Blueprint(SM) Program, P.O. Box 30441, New Brunswick, New
Jersey 08989-0441.
Employee Access Accounts(SM) The CDSC is also waived for any Class B
shares that were acquired and held at the time of redemption by Employee Access
Accounts available through employers that provide eligible 401(k) plans. The
initial minimum for such accounts is $500, except that the initial minimum for
shares purchased for such accounts pursuant to the Automatic Investment Program
is $50.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to "Investment Objective and Policies -- Other Investment
Policies and Practices -- Portfolio Transactions" in the Prospectus.
Subject to policies established by the 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 net results for the Fund, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), size of order, difficulty of execution and operational facilities of
the firm involved and the firm's risk in positioning a block of securities.
Subject to obtaining the best price and execution, brokers who provide
supplemental investment research to the Investment Adviser may receive orders
for transactions by the Fund. Information so received will be in addition to and
not in lieu of the services required to be performed by the 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. Consistent with the Rules of Fair Practice of the
NASD, the Investment Adviser may consider sales of shares of the fund as a
factor in the selection of brokers or dealers to execute portfolio transactions
for the Fund. It is possible that certain of the supplementary investment
research so received will primarily benefit one or more other investment
companies or other accounts for which investment discretion is exercised.
Conversely, the Fund may be the primary beneficiary of the research or services
received as a result of portfolio transactions effected for such other accounts
or investment companies.
The Directors have considered the possibilities of seeking to recapture for
the benefit of the Fund brokerage commissions and other expenses of possible
portfolio transactions by conducting portfolio transactions through affiliated
entities. For example, brokerage commissions received by affiliated brokers
could be offset against the investment advisory fee paid by the Fund. After
considering all factors deemed relevant, the Directors made a determination not
to seek such recapture. The Directors will reconsider this matter from time to
time.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund is determined once daily, Monday through
Friday, as of 15 minutes after the close of business on the New York Stock
Exchange (generally, 4:00 p.m., New York time), 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. Net asset value is computed by
dividing 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
23
<PAGE> 82
time, rounded to the nearest cent. Expenses, including the investment advisory
fees and any account maintenance and/or distribution fees, are accrued daily.
The per share net asset value of the Class B, Class C and Class D shares
generally will be lower than the per share net asset value of the Class A shares
reflecting the daily expense accruals of the account maintenance, distribution
and higher transfer agency fees applicable with respect to the Class B and Class
C shares and the daily expense accruals of the account maintenance fees
applicable with respect to the Class D shares; moreover the per share net asset
value of Class B and Class C shares generally will be lower than the per share
net asset value of Class D shares reflecting the daily expense accruals of the
distribution fees and higher transfer agency fees applicable with respect to
Class B and Class C shares of the Fund. It is expected, however, that the per
share net asset value of the four classes will tend to converge (although not
necessarily meet) immediately after the payment of dividends or distributions,
which will differ by approximately the amount of the expense accrual
differentials between the classes.
Securities traded in the OTC market are valued at the last available bid
price in the OTC 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 on the last sale price in the case of exchange-traded options or, in the
case of options traded in the OTC market, the last asked price. Options
purchased by the Fund are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. 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. 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.
Securities and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the direction
of the Directors of the Fund. Such valuations and procedures will be reviewed
periodically by the Directors.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services 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 how to change
options with respect thereto, can be obtained from the Fund, the Distributor or
Merrill Lynch. Certain of these services are available only to U.S. investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the transfer agent has an
Investment Account and will receive statements, at least quarterly, from the
transfer agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gain distributions. The statements will also show any
other activity in the account since the
24
<PAGE> 83
preceding statement. Shareholders will receive separate transaction
confirmations for each purchase or sale transaction other than automatic
investment purchases and the reinvestment of ordinary income dividends and
long-term capital gain distributions. A shareholder may make additions to his
Investment Account at any time by mailing a check directly to the transfer
agent.
Share certificates are issued only for full shares and only upon the
specific request of a shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an Investment
Account may be requested by a shareholder directly from the transfer agent.
Shareholders 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. If
the new brokerage firm is willing to accommodate the shareholder in this manner,
the shareholder must request that he be issued certificates for his shares and
then must turn the certificates over to the new firm for re-registration as
described in the preceding sentence.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if (s)he is an eligible Class A investor as described
in the Prospectus) or Class B, Class C or Class D shares at the applicable
public offering price either through the shareholder's securities dealer or by
mail directly to the Fund's transfer agent, acting as agent for such securities
dealers. 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. An investor
whose shares of the Fund are held within a CMA(R) or CBA(R) account may arrange
to have periodic investments made in the Fund in amounts of $100 or more ($1 for
retirement accounts) through the CMA(R)/CBA(R) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will be reinvested automatically in additional shares of the Fund.
Such reinvestment will be at the net asset value of the shares of the Fund as of
the close of business on the monthly payment date for such dividends and
distributions. Shareholders may elect in writing to receive either their
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed or direct deposited on or about the payment date.
Shareholders may, at any time, notify the transfer agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or distributions reinvested in shares of the Fund or vice
25
<PAGE> 84
versa, and commencing ten days after receipt by the transfer agent of such
notice, those instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS -- CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make withdrawals from an
Investment Account on either a monthly or quarterly basis as provided below.
Quarterly withdrawals are available for shareholders who have acquired Class A
or Class D shares of the Fund having a value, based on cost or the current
offering price, of $5,000 or more, and monthly withdrawals are available for
shareholders with Class A or Class D shares with such a value of $10,000 or
more.
At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's account to
provide the withdrawal payment specified by the shareholder. The shareholder may
specify either a dollar amount or a percentage of the value of his Class A or
Class D shares. Redemptions will be made at net asset value as determined as of
15 minutes after the close of business of the New York Stock Exchange
(generally, 4:00 p.m. New York time) on the 24th day of each month or the 24th
day of the last month of each quarter, whichever is applicable. If the exchange
is not open for business on such date, the Class A or Class D shares will be
redeemed at the net asset value next determined after the close of business on
the New York Stock Exchange on the following business day. The check for the
withdrawal payment will be mailed, or the direct deposit of the withdrawal
payment will be made, on the next business day following redemption. When a
shareholder is making systematic withdrawals, dividends and distributions on all
Class A or Class D shares in the Investment Account are reinvested automatically
in Class A or Class D shares of the Fund, respectively. A shareholder's
Systematic Withdrawal Plan may be terminated at any time, without charge or
penalty, by the shareholder, the Fund, the Fund's transfer agent or the
Distributor.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends and capital gains distributions, 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 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 Merrill Lynch Financial
Consultant.
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<PAGE> 85
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds listed below. Under the Merrill
Lynch Select Pricing(SM) System, Class A shareholders may exchange Class A
shares of the Fund for Class A shares of a second MLAM-advised mutual fund if
the shareholder holds any Class A shares of the second fund in his account in
which the exchange is made at the time of the exchange or is otherwise eligible
to purchase Class A shares of the second fund. If the Class A shareholder wants
to exchange Class A shares for shares of a second MLAM-advised mutual fund, but
does not hold Class A shares of the second fund in his account at the time of
the exchange and is not otherwise eligible to acquire Class A shares of the
second fund, the shareholder will receive Class D shares of the second fund as
a result of the exchange. Class D shares also may be exchanged for Class A
shares of a second MLAM-advised mutual fund at any time as long as, at the time
of the exchange, the shareholder holds Class A shares of the second fund in the
account in which the exchange is made or is otherwise eligible to purchase
Class A shares of the second fund. Class B, Class C and Class D shares are
exchangeable with shares of the same class of other MLAM-advised mutual funds.
For purposes of computing the CDSC that may be payable upon a disposition of
the shares acquired in the exchange, the holding period for the previously
owned shares of the Fund is "tacked" to the holding period of the newly
acquired shares of the other fund as more fully described below. Class A, Class
B, Class C and Class D shares are also exchangeable for shares of certain
MLAM-advised money market funds specifically designated below as available for
exchange by holders of Class A, Class B, Class C or Class D shares. Shares with
a net asset value of at least $100 are required to qualify for the exchange
privilege, and any shares utilized in an exchange must have been held by the
shareholder for at least 15 days. It is contemplated that the exchange
privilege may be applicable to other new mutual funds whose shares may be
distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charge paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A and Class D shares of the Fund generally may be
exchanged into the Class A or Class D shares of the other funds or into shares
of the Class A and Class D money market funds with a reduced or without a sales
charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, of another
MLAM-advised mutual fund ("new Class B or Class C shares") on the basis of
relative net asset value per Class B or Class C share, without the payment of
any CDSC that might otherwise be due on redemption of the outstanding shares.
Class B shareholders of the Fund exercising the exchange privilege will continue
to be subject to the Fund's CDSC schedule if such schedule is higher than the
CDSC schedule
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<PAGE> 86
relating to the new Class B shares acquired through use of the exchange
privilege. In addition, Class B shares of the Fund acquired through use of the
exchange privilege will be subject to the Fund's CDSC schedule if such schedule
is higher than the CDSC schedule relating to the Class B shares of the fund from
which the exchange has been made. For purposes of computing the sales charge
that may be payable on a disposition of the new Class B or Class C shares, the
holding period for the outstanding Class B or Class C shares is "tacked" to the
holding period of the new Class B or Class C shares. For example, an investor
may exchange Class B shares of the Fund for those of Merrill Lynch Special Value
Fund, Inc. ("Special Value Fund") after having held the Fund Class B shares for
two and a half years. The 2% CDSC that generally would apply to a redemption
would not apply to the exchange. Three years later the investor may decide to
redeem the Class B shares of Special Value Fund and receive cash. There will be
no CDSC due on this redemption, since by "tacking" the two and a half year
holding period of Fund Class B shares to the three year holding period for the
Special Value Fund Class B shares, the investor will be deemed to have held the
new Class B shares for more than five years.
The exchange privilege is modified with respect to certain retirement plans
which participate in the MFA program. Such retirement plans may exchange Class
B, Class C or Class D shares that have been held for at least one year for Class
A shares of the same fund on the basis of relative net asset values in
connection with the commencement of participation in the MFA program, i.e., no
CDSC will apply. The one year holding period does not apply to shares acquired
through reinvestment of dividends. Upon termination of participation in the MFA
program, Class A shares will be reexchanged for the class of shares originally
held. For purposes of computing any CDSC that may be payable upon redemption of
Class B or Class C shares so reacquired, the holding period for the Class A
shares will be "tacked" to the holding period for the Class B or Class C shares
originally held.
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 the Fund
may, in turn, be exchanged back into Class B or Class C shares, respectively, of
any fund offering such shares, in which event the holding period for Class B or
Class C shares of the Fund will be aggregated with previous holding periods for
purposes of reducing the CDSC. Thus, for example, an investor may exchange Class
B shares of the Fund for shares of Merrill Lynch Institutional Fund
("Institutional Fund") after having held the Fund Class B shares for two and a
half years and three years later decide to redeem the shares of Institutional
Fund for cash. At the time of this redemption, the 2% CDSC that would have been
due had the Class B shares of the Fund been redeemed for cash rather than
exchanged for shares of Institutional Fund will be payable. If, instead of such
redemption, the shareholder exchanged such shares for Class B shares of a fund
which the shareholder continued to hold for an additional two and a half years,
any subsequent redemption will not incur a CDSC.
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<PAGE> 87
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds Issuing Class A, Class B, Class C and Class D Shares:
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC........ High current income consistent with a policy of
limiting the degree of fluctuation in net asset
value by investing primarily in a portfolio of
adjustable rate securities, consisting
principally of mortgage-backed and asset-backed
securities.
MERRILL LYNCH AMERICAS
INCOME FUND, INC............ A high level of current income, consistent with
prudent investment risk, by investing primarily
in debt securities denominated in a currency of
a country located in the Western Hemisphere
(i.e., North and South America and the
surrounding waters).
MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund whose objective is to provide as
high a level of income exempt from Federal and
Arizona income taxes as is consistent with
prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade Arizona
Municipal Bonds.
MERRILL LYNCH ARIZONA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Arizona income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH ARKANSAS
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Arkansas income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH ASSET GROWTH
FUND, INC................... High total investment return, consistent with
prudent risk, from investment in United States
and foreign equity, debt and money market
securities the combination of which will be
varied both with respect to types of securities
and markets in response to changing market and
economic trends.
MERRILL LYNCH ASSET INCOME
FUND, INC................... A high level of current income through
investment primarily in United States fixed
income securities.
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<PAGE> 88
MERRILL LYNCH BASIC VALUE
FUND, INC................... Capital appreciation and, secondarily, income
through investment in securities, primarily
equities, that are undervalued and therefore
represent basic investment value.
MERRILL LYNCH CALIFORNIA
INSURED MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and California
income taxes as is consistent with prudent
investment management through investment in a
portfolio consisting primarily of insured
California Municipal Bonds.
MERRILL LYNCH CALIFORNIA
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 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
shareholders with as high a level of income
exempt from Federal and California income taxes
as is consistent with prudent investment
management through investment in a portfolio
primarily of intermediate-term investment grade
California Municipal Bonds.
MERRILL LYNCH 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.
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MERRILL LYNCH DEVELOPING
CAPITAL MARKETS FUND,
INC......................... Long-term capital appreciation through
investment in securities, principally equities,
of issuers in countries having smaller capital
markets.
MERRILL LYNCH DRAGON
FUND, INC................... Capital appreciation primarily through
investment in equity and debt securities of
issuers domiciled in developing countries
located in Asia and the Pacific Basin, other
than Japan, Australia and New Zealand.
MERRILL LYNCH EUROFUND........ Capital appreciation primarily through
investment in equity securities of corporations
domiciled in Europe.
MERRILL LYNCH FEDERAL
SECURITIES TRUST............ High current return through investments in U.S.
Government and Government agency securities,
including GNMA mortgage-backed certificates and
other mortgage-backed Government securities.
MERRILL LYNCH FLORIDA LIMITED
MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal
income taxes as is consistent with prudent
investment management while serving to offer
shareholders the opportunity to own securities
exempt from Florida intangible personal
property taxes through investment in a
portfolio primarily of intermediate-term
investment grade Florida Municipal Bonds.
MERRILL LYNCH FLORIDA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal income taxes as is
consistent with prudent investment management
while seeking to offer shareholders the
opportunity to own securities exempt from
Florida intangible personal property taxes.
MERRILL LYNCH FUND
FOR TOMORROW, INC........... Long-term growth through investment in a
portfolio of good quality securities, primarily
common stock, potentially positioned to benefit
from demographic and cultural changes as they
affect consumer markets.
MERRILL LYNCH FUNDAMENTAL
GROWTH FUND, INC............ Long-term growth of capital through investment
in a diversified portfolio of equity securities
placing particular emphasis on companies that
have exhibited an above-average growth rate in
earnings.
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<PAGE> 90
MERRILL LYNCH FUNDAMENTAL
VALUE PORTFOLIO
(available only for
exchanges by certain
individual retirement
accounts for which Merrill
Lynch acts as custodian and
by certain CBA(R) Accounts
and CMA(R) Sub-Accounts..... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide capital appreciation and income
by investing in securities, with at least 65%
of the portfolio's assets being invested in
equities.
MERRILL LYNCH GLOBAL
ALLOCATION FUND, INC........ High total 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
a global portfolio of debt instruments
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.
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<PAGE> 91
MERRILL LYNCH GLOBAL
OPPORTUNITY PORTFOLIO
(available only for
exchanges by certain
individual retirement
accounts for which Merrill
Lynch acts as custodian and
by certain CBA(R) Accounts
and CMA(R) Sub-Accounts..... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a high total investment return
through an investment policy utilizing United
States and foreign equity, debt and money
market securities, the combination of which
will vary depending upon changing market and
economic trends.
MERRILL LYNCH GLOBAL
RESOURCES TRUST............. Long-term growth and protection of capital from
investment in securities of domestic and
foreign companies that possess substantial
natural resource assets.
MERRILL LYNCH GLOBAL
SMALLCAP FUND, INC.......... Long-term growth of capital by investing
primarily in equity securities of companies
with relatively small market capitalizations
located in various foreign countries and in the
United States.
MERRILL LYNCH GLOBAL
UTILITY FUND, INC........... Capital appreciation and current income through
investment of at least 65% of its total assets
in equity and debt securities issued by
domestic and foreign companies primarily
engaged in the ownership or operation of
facilities used to generate, transmit or
distribute electricity, telecommunications, gas
or water.
MERRILL LYNCH GROWTH FUND
FOR INVESTMENT AND
RETIREMENT.................. Growth of capital and, secondarily, income from
investment in a diversified portfolio of equity
securities placing principal emphasis on those
securities which management of the fund
believes to be undervalued.
MERRILL LYNCH GROWTH
OPPORTUNITY PORTFOLIO
(available only for
exchanges by certain
individual retirement
accounts for which Merrill
Lynch acts as custodian and
by certain CBA(R) Accounts
and CMA(R) Sub-Accounts..... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to seek long-term growth of capital by
investing in a portfolio of equity securities
placing particular emphasis
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<PAGE> 92
on companies that have exhibited above-average
growth rates in earnings.
MERRILL LYNCH HEALTHCARE FUND,
INC.
(residents of Wisconsin must
meet investor suitability
standards).................. Capital appreciation through worldwide
investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in healthcare.
MERRILL LYNCH INTERNATIONAL
EQUITY FUND................. Capital appreciation and, secondarily, income
by investing in a diversified portfolio of
equity securities of issuers located in
countries other than the United States.
MERRILL LYNCH LATIN AMERICA
FUND, INC................... Capital appreciation by investing primarily in
Latin American equity and debt securities.
MERRILL LYNCH MARYLAND
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Maryland income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH MASSACHUSETTS
LIMITED MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
Massachusetts income taxes as is consistent
with prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade
Massachusetts Municipal Bonds.
MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Massachusetts
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH MICHIGAN
LIMITED MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
Michigan income taxes as is consistent with
prudent investment management
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<PAGE> 93
through investment in a portfolio primarily of
intermediate-term 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 income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH MUNICIPAL
BOND FUND, INC.............. Tax-exempt income from three separate
diversified portfolios of municipal bonds.
MERRILL LYNCH MUNICIPAL
INTERMEDIATE TERM FUND...... Currently the only portfolio of Merrill Lynch
Municipal Series Trust, a series fund, whose
objective is to provide as high a level as
possible of income exempt from Federal income
taxes by investing in investment grade
obligations with a dollar weighted average
maturity of five to twelve years.
MERRILL LYNCH NEW JERSEY
LIMITED MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
New Jersey income taxes as is consistent with
prudent investment management through a
portfolio primarily of intermediate-term
investment grade New Jersey Municipal Bonds.
MERRILL LYNCH NEW JERSEY
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and New Jersey
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH NEW MEXICO
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and New Mexico
income taxes as is consistent with prudent
investment management.
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<PAGE> 94
MERRILL LYNCH NEW YORK
LIMITED MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal, New
York State and New York City income taxes as is
consistent with prudent investment management
through investment in a portfolio primarily of
intermediate-term investment grade New York
Municipal Bonds.
MERRILL LYNCH NEW YORK
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal, New York State and
New York City income taxes as is consistent
with prudent investment management.
MERRILL LYNCH NORTH CAROLINA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and North Carolina
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH OHIO
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Ohio income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH OREGON
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Oregon income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH PACIFIC
FUND, INC. ................. Capital appreciation by investing in equity
securities of corporations domiciled in Far
Eastern and Western Pacific countries,
including Japan, Australia, Hong Kong and
Singapore.
MERRILL LYNCH PENNSYLVANIA
LIMITED MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
Pennsylvania income taxes as is consistent with
prudent investment management through
investment in a portfolio of intermediate-term
investment grade Pennsylvania Municipal Bonds.
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<PAGE> 95
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
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH PHOENIX
FUND, INC. ................. Long-term growth of capital by investing in
equity and fixed income securities, including
tax-exempt securities, of issuers in weak
financial condition or experiencing poor
operating results believed to be undervalued
relative to the current or prospective
condition of such issuer.
MERRILL LYNCH QUALITY
BOND PORTFOLIO
(available only for
exchanges by certain
individual retirement
accounts for which Merrill
Lynch acts as custodian and
by certain CBA(R) Accounts
and CMA(R) Sub-Accounts).... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a high level of current income
through investment in a diversified portfolio
of debt obligations, such as corporate bonds
and notes, convertible securities, preferred
stocks and governmental obligations.
MERRILL LYNCH 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.
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
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<PAGE> 96
long-term, investment grade obligations issued
by the State of Texas, its political
subdivisions, agencies and instrumentalities.
MERRILL LYNCH UTILITY INCOME
FUND, INC................... High current income through investment in
equity and debt securities issued by companies
which are primarily engaged in the ownership or
operation of facilities used to generate,
transmit or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH U.S. GOVERNMENT
SECURITIES PORTFOLIO
(available only for
exchanges by certain
individual retirement
accounts for which Merrill
Lynch acts as custodian and
by certain CBA(R) Accounts
and CMA(R) Sub-Accounts..... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a high current return through
investments in U.S. Government and government
agency securities, including GNMA
mortgage-backed certificates and other
mortgage-backed government securities.
MERRILL LYNCH WORLD INCOME
FUND, INC................... High current income by investing in a global
portfolio of fixed income securities
denominated in various currencies, including
multinational currencies.
Class A Share Money Market Funds:
MERRILL LYNCH READY ASSETS
TRUST....................... Preservation of capital, liquidity and the
highest possible current income consistent with
the foregoing objectives from the short-term
money market securities in which the Trust
invests.
MERRILL LYNCH RETIREMENT
RESERVES MONEY FUND
(available only for
exchange 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.
38
<PAGE> 97
MERRILL LYNCH U.S. TREASURY
MONEY FUND.................. Preservation of capital, liquidity and current
income through investment exclusively in a
diversified portfolio of short-term marketable
securities which are direct obligations of the
U.S. Treasury.
Class B, Class C and Class D Share
Money Market Funds:
MERRILL LYNCH GOVERNMENT
FUND........................ A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in securities issued
or guaranteed by the U.S. Government, its
agencies and instrumentalities and in
repurchase agreements secured by such
obligations.
MERRILL LYNCH INSTITUTIONAL
FUND........................ A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide maximum current income
consistent with liquidity and the maintenance
of a high quality portfolio of money market
securities.
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND............. A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income exempt
from Federal income taxes, preservation of
capital and liquidity available from investing
in a diversified portfolio of short-term, high
quality municipal bonds.
MERRILL LYNCH TREASURY FUND... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in direct obligations
of the U.S. Treasury and up to 10% of its total
assets in repurchase agreements secured by such
obligations.
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 may thereafter resume such offering
from time to time. The exchange privilege is available only to U.S. shareholders
in states where the exchange legally may be made.
39
<PAGE> 98
DISTRIBUTIONS AND 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 or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in futures and options) ("capital gain
dividends") are taxable to shareholders as long-term capital gains, regardless
of the length of time the shareholder has owned Fund shares. Any loss upon the
sale or exchange of Fund shares held for six months or less, however, will be
treated as long-term capital loss to the extent of any capital gain dividends
received by the shareholder. Distributions in excess of the Fund's earnings and
profits will first reduce the adjusted tax basis of a holder's shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming the shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or capital
gains, 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 day in one of such months, then such dividend will be treated for
tax purposes as being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% U.S. withholding tax under existing
provisions of the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. If more than 50% in value of the Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service pursuant to which shareholders of
40
<PAGE> 99
the Fund will be required to include their proportionate shares of such
withholding taxes in their U.S. income tax returns as gross income, treat such
proportionate shares as taxes paid by them, and deduct such proportionate shares
in computing their taxable incomes or, alternatively, use them as foreign tax
credits against their U.S. income taxes. No deductions for foreign taxes,
however, may be claimed by noncorporate shareholders who do not itemize
deductions. A shareholder that is a nonresident alien individual or a foreign
corporation may be subject to U.S. withholding tax on the income resulting from
the Fund's election described in this paragraph but may not be able to claim a
credit or deduction against such U.S. tax for the foreign taxes treated as
having been paid by such shareholder. The Fund will report annually to its
shareholders the amount per share of such withholding taxes. 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 Commission's rule permitting the issuance and
sale of multiple classes of stock) that is based on the gross income allocable
to Class A, Class B, Class C and Class D shareholders during the taxable year,
or such other method as the Internal Revenue Service may prescribe.
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 purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income and
capital gains in the manner necessary to minimize imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition of
the tax. In such event, the Fund will be liable for the tax only on the amount
by which it does not meet the foregoing distribution requirements.
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), gain
41
<PAGE> 100
or loss from Section 1256 contracts will be 60% long-term and 40% short-term
capital gain or loss. Application of these rules to Section 1256 contracts held
by the Fund may alter the timing and character of distributions to shareholders.
The mark-to-market rules outlined above, however, will not apply to certain
transactions entered into by the Fund solely to reduce the risk of changes in
price or interest or currency exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The Fund
may, nonetheless, elect to treat the gain or loss from certain forward foreign
exchange contracts as capital. In this case, gain or loss realized in connection
with a forward foreign exchange contract that is a Section 1256 contract will be
characterized as 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Fund's sales of securities and transactions in options, futures,
forward foreign exchange contracts and its short sales of securities. Under
Section 1092, the Fund may be required to postpone recognition for tax purposes
of losses incurred in certain sales of securities and certain closing
transactions in options, futures, forward foreign exchange contracts and short
sales of securities.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income be derived from gains from the sale or other disposition
of securities held for less than three months. Accordingly, the Fund may be
restricted in effecting closing transactions within three months after entering
into an option or futures contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, foreign currency
futures, and forward foreign exchange contracts will be valued for purposes of
the RIC diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the Fund may elect
capital gain or loss treatment for such transactions. Regulated futures
contracts, as described above, will be taxed under Code Section 1256 unless
application of Section 988 is elected by the Fund. In general, however, Code
Section 988 gains or losses will increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders as
ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary income dividend distributions, and all or a portion of
distributions made before the losses were realized but in the same taxable year
would be recharacterized as a return of capital to shareholders, thereby
reducing the basis of each shareholder's Fund shares and resulting in a capital
gain for any shareholder who received a distribution greater than the
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
42
<PAGE> 101
not apply to certain transactions entered into by the Fund solely to reduce the
risk of currency fluctuations with respect to its investments.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
PERFORMANCE DATA
From time to time, the Fund may include its average annual total return and
other total return data, as well as yield, in advertisements or information
furnished to present or prospective shareholders. Total return and yield figures
are based on the Fund's historical performance and are 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 the Class B and
Class C shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted,
and (2) the maximum applicable sales charges will not be included with respect
to annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the average
annual rates of return reflect compounding; aggregate total return data
generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over longer periods of time.
43
<PAGE> 102
Set forth in the tables below is total return information for the Class A,
Class B, Class C and Class D shares of the Fund for the periods indicated. As a
result of the implementation of the Merrill Lynch Select PricingSM System, Class
A shares of the Fund outstanding prior to October 21, 1994, were redesignated
Class D shares, and historical performance data pertaining to such shares is
provided below under the caption "Class D".
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------------------------- ----------------------------- -------------
REDEEMABLE REDEEMABLE
EXPRESSED AS VALUE OF A EXPRESSED AS VALUE OF A EXPRESSED AS
A PERCENTAGE HYPOTHETICAL A PERCENTAGE HYPOTHETICAL A PERCENTAGE
BASED ON A $1,000 BASED ON A $1,000 BASED ON A
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT HYPOTHETICAL
$1,000 THE END OF $1,000 THE END OF $1,000
PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD INVESTMENT
------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended December 31, 1995.................. 2.85% $1,028.50 2.31 % $1,023.10 2.50 %
Five Years Ended December 31, 1995................ 2.37 % $1,124.20
Inception (August 3, 1990) to December 31, 1995... 2.82 % $1,162.40
Inception (October 21, 1994) to December 31,
1995............................................ 1.24% $1,014.80 1.40 %
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended December 31, 1995.................. 7.14% $1,071.40 6.31 % $1,063.10 3.48 %
One Year Ended December 31, 1994.................. (3.30)% $ 967.00
One Year Ended December 31, 1993.................. 6.15 % $1,061.50
One Year Ended December 31, 1992.................. 3.39 % $ 966.10
One Year Ended December 31, 1991.................. 6.63 % $1,066.30
Inception (August 3, 1990) to December 31, 1990... 3.40 % $1,034.00
Inception (October 21, 1994) to December 31,
1994............................................ 5.28% $ 947.20 2.72 %
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (August 3, 1990) to December 31, 1995... 16.24 % $1,162.40
Inception (October 21, 1994) to December 31,
1995............................................ 1.48% $1,014.80 1.67 %
<CAPTION>
CLASS C CLASS D
------------ -----------------------------
REDEEMABLE REDEEMABLE
VALUE OF A EXPRESSED AS VALUE OF A
HYPOTHETICAL A PERCENTAGE HYPOTHETICAL
$1,000 BASED ON A $1,000
INVESTMENT AT HYPOTHETICAL INVESTMENT AT
THE END OF $1,000 THE END OF
PERIOD THE PERIOD INVESTMENT THE PERIOD
------ ------------- ------------- -------------
<S> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended December 31, 1995.................. $1,025.00 2.60 % $1,026.00
Five Years Ended December 31, 1995................ 2.07 % $1,107.80
Inception (August 3, 1990) to December 31, 1995... 2.60 % $1,149.10
Inception (October 21, 1994) to December 31,
1995............................................ $1,016.70
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended December 31, 1995.................. $1,034.80 6.87 % $1,068.70
One Year Ended December 31, 1994.................. (2.91)% $ 970.90
One Year Ended December 31, 1993.................. 6.69 % $1,066.90
One Year Ended December 31, 1992.................. (2.79)% $ 972.10
One Year Ended December 31, 1991.................. 7.23 % $1,072.38
Inception (August 3, 1990) to December 31, 1990... 3.73 % $1,037.30
Inception (October 21, 1994) to December 31,
1994............................................ $ 972.80
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (August 3, 1990) to December 31, 1995... 14.91 % $1,149.10
Inception (October 21, 1994) to December 31,
1995............................................ $1,016.70
</TABLE>
44
<PAGE> 103
In order to reflect the reduced sales charges in the case of Class A or
Class D shares, or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares", respectively, the total return data quoted by the
Fund in advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charges or may not take into account the
CDSC and therefore may reflect greater total return since, due to the reduced
sales charges or the waiver of sales charges, a lower amount of expenses is
deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on April 18, 1990. It has an
authorized capital of 2,600,000,000 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 as follows: Class A Common Stock -- 1,000,000,000 shares; Class B
Common Stock -- 1,000,000,000 shares; Class C Common Stock -- 300,000,000
shares; and Class D Common Stock -- 300,000,000 shares. Class A, Class B, Class
C and Class D shares represent an interest in the same assets of the Fund and
are identical in all respects except that the Class B, Class C and Class D
shares bear certain expenses related to the account maintenance and/or
distribution of such shares and have exclusive voting rights with respect to
matters relating to such account maintenance and/or distribution expenditures.
See "Purchase of Shares".
All shares of the Fund have equal voting rights, except that as noted
above, each class of shares will have exclusive voting rights with respect to
matters relating to the distribution and/or account maintenance expenses being
borne solely by such class. Each issued and outstanding share is entitled to one
vote and to participate equally in dividends and distributions declared by the
Fund and in the net assets of the Fund remaining after satisfaction of
outstanding liabilities upon liquidation or dissolution. There normally will be
no meetings of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office have
been elected by shareholders, at which time the Directors then in office will
call a shareholders' meeting for the election of Directors. Shareholders may, in
accordance with the terms of the Articles of Incorporation, cause a meeting of
shareholders to be held for the purpose of voting on the removal of Directors.
Also, the Fund will be required to call a special meeting of shareholders in
accordance with the requirements of the Investment Company Act to seek approval
of new management and advisory arrangements, of a material increase in
distribution and/or account maintenance fees or of a change in the fundamental
policies, objective or restrictions of the Fund.
Shares issued are fully paid and nonassessable and have no preemptive
rights. Redemption and conversion rights are discussed elsewhere herein and in
the Prospectus. Shares do not have cumulative voting rights, and the holders of
more than 50% of the shares of the Fund voting for the election of Directors can
elect all of the Directors if they choose to do so, and in such event the
holders of the remaining shares would not be able to elect any Directors. No
amendments may be made to the Articles of Incorporation without the affirmative
vote of a majority of the outstanding shares of the Fund.
The Investment Adviser provided the initial capital for the Fund by
purchasing 10,000 shares of the Fund for $100,000. Such shares were acquired for
investment and can only be disposed of by redemption.
45
<PAGE> 104
The organizational expenses of the Fund were paid by the Fund and will be
amortized over a period not exceeding five years. The proceeds realized by the
Investment Adviser upon the redemption of any of the shares initially purchased
by it will be reduced by the proportionate amount of unamortized organizational
expenses which the number of shares redeemed bears to the number of shares
initially purchased.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of the Fund based on the value of the Fund's net
assets on October 31, 1995 and December 31, 1995 and its shares outstanding on
those dates is set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
-------- ------------- --------- ------------
<S> <C> <C> <C> <C>
AS OF OCTOBER 31, 1995:
Net Assets..................................... $65,956 $398,136,439 $109,105 $26,618,536
======= ============ ======== ===========
Number of Shares Outstanding................... 8,314 50,232,539 14,089 3,357,467
======= ============ ======== ===========
Net Asset Value Per Share (net assets divided
by number of shares outstanding)............. $7.93 $7.93 $7.74 $7.93
Sales Charge (for Class A and Class D shares:
4.00% of offering price (4.17% of
net asset value per share))*................. .33 ** ** .33
------- ------------ -------- -----------
Offering Price................................. $8.26 $7.93 $7.74 $8.26
======= ============ ======== ===========
AS OF DECEMBER 31, 1995:
Net Assets..................................... $75,554 $376,049,275 $102,794 $24,239,638
======= ============ ======== ===========
Number of Shares Outstanding................... 9,552 47,588,247 13,308 3,066,629
======= ============ ======== ===========
Net Asset Value Per Share (net assets divided
by number of shares outstanding)............. $7.91 $7.90 $7.72 $7.90
Sales Charge (for Class A and Class D shares:
4.00% of offering price (4.17% of net asset
value per share))*........................... .33 ** ** .33
------- ------------ -------- -----------
Offering Price................................. $8.24 $7.90 $7.72 $8.23
======= ============ ======== ===========
</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 redemptions of shares. See "Purchase of
Shares -- Deferred Sales Charge Alternatives -- Class B and Class C Shares"
in the Prospectus and "Redemption of Shares -- Deferred Sales
Charges -- Class B and Class C Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to approval by the independent Directors of the
Fund. The independent auditors are responsible for auditing the annual financial
statements of the Fund.
46
<PAGE> 105
CUSTODIAN
The Chase Manhattan Bank, N.A., Global Securities Services, 4 Chase
MetroTech Center, 18th Floor, Brooklyn, New York 11245 (the "Custodian"), 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
delivery of securities and collecting interest on the Fund's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Fund's transfer agent (the
"Transfer Agent"). The Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening, maintenance and servicing of
shareholder accounts. See "Management of the Fund -- Transfer Agency Services"
in the Prospectus.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on December 31 (formerly October 31) of
each year. The Fund sends to its shareholders at least semiannually reports
showing the Fund's portfolio and other information. An annual report, containing
financial statements audited by independent auditors, is sent to shareholders
each year. After the end of each year shareholders will receive Federal income
tax information regarding dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act and the Investment
Company Act, to which reference is hereby made.
Under a separate agreement, Merrill Lynch has granted the Fund the right to
use the "Merrill Lynch" name and has reserved the right to withdraw its consent
to the use of such name by the Fund at any time or to grant the use of such name
to any other company, and the Fund has granted Merrill Lynch, under certain
conditions, the use of any other name it might assume in the future, with
respect to any corporation organized by Merrill Lynch.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on January 31, 1996.
47
<PAGE> 106
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Short-Term Global Income Fund,
Inc. as of October 31, 1995, the related statements of operations for the year
then ended and changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for 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 October
31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Short-Term Global Income Fund, Inc. as of October 31, 1995, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
December 6, 1995
48
<PAGE> 107
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Maturity Interest Value Percent of
COUNTRIES Face Amount Date Issue Rate++ (Note 1a) Net Assets
<S> <S> <C> <C> <S> <C> <C> <C>
Australia A$ 65,220,000 7/15/96 Commonwealth Bank of Australia (3) 13.00% $ 51,489,914 12.12%
27,300,000 4/01/97 New South Wales Treasury Corp. (3) 12.50 22,049,398 5.19
Total Investments in Australia
(Cost--$73,718,883) 73,539,312 17.31
Canada C$ 10,870,000 2/08/96 Canadian Treasury Bill (1) 5.90 7,973,548 1.88
65,050,000 3/07/96 Canadian Treasury Bill (1) 5.82 47,491,107 11.18
14,590,000 12/13/95 Ontario Treasury Bill (3) 5.90 10,794,316 2.54
11,560,000 12/27/95 Ontario Treasury Bill (3) 5.90 8,537,252 2.01
Total Investments in Canada
(Cost--$72,535,006) 74,796,223 17.61
Ireland Iep 12,230,000 7/30/96 Irish Gilt (1) 9.00 20,265,025 4.77
Total Investments in Ireland
(Cost--$20,007,622) 20,265,025 4.77
Italy Lit 5,735,000,000 1/01/96 Buoni Poliennali del Tesoro (Italian
Government Bonds) (1) 12.00 3,592,439 0.84
25,000,000,000 10/01/96 Buoni Poliennali del Tesoro (Italian
Government Bonds) (1) 9.00 15,517,187 3.65
Total Investments in Italy
(Cost--$18,680,213) 19,109,626 4.49
New Zealand NZ$ 101,235,000 11/15/95 New Zealand Government Bonds (1) 8.00 66,796,292 15.72
21,500,000 2/07/96 New Zealand Treasury Bill (1) 8.18 13,904,944 3.27
Total Investments in New Zealand
(Cost--$77,448,259) 80,701,236 18.99
Spain Pta 2,000,000,000 2/28/97 Bonos del Estado (Spanish Government
Bonds) (1) 9.00 16,213,202 3.82
Total Investments in Spain
(Cost--$16,014,575) 16,213,202 3.82
United Pound 11,800,000 12/30/96 General Electric Capital Corp. (2) 8.25 18,932,295 4.45
Kingdom Sterling
Total Investments in the United Kingdom
(Cost--$19,134,699) 18,932,295 4.45
United States US$ 15,000,000 11/01/95 CS First Boston Inc., Repurchase Agreement*
purchased on 10/31/95 (2) 5.77 15,000,000 3.53
24,000,000 11/01/95 Chemical Bank, Repurchase Agreement*
purchased on 10/31/95 (2) 5.85 24,000,000 5.65
21,857,000 11/01/95 Schweizerischer Bankverein SBC (Swiss Bank),
Repurchase Agreement* purchased on
10/31/95 (2) 5.85 21,857,000 5.14
34,790,000 1/15/96 US Treasury Note (1) 9.25 35,034,574 8.24
Total Investments in the United States
(Cost--$96,076,951) 95,891,574 22.56
Total Investments (Cost--$393,616,208) 399,448,493 94.00
Unrealized Depreciation on Forward Foreign Exchange Contracts++++ (2,496,027) (0.58)
Other Assets Less Liabilities 27,977,570 6.58
------------ -------
Net Assets $424,930,036 100.00%
============ =======
</TABLE>
49
<PAGE> 108
<TABLE>
<FN>
Corresponding industry groups for securities (percent of net assets):
(1)Sovereign Government Obligations--53.37%
(2)Financial Services--18.77%
(3)Sovereign//Regional Government Obligations--Agency--21.86%
*Repurchase Agreements are fully collateralized by US Government &
Agency Obligations.
++Certain Commercial Paper, US Treasury and Foreign Treasury Obligations
are traded on a discount basis; the interest rates shown represent the yield-
to-maturity at the time of purchase by the Fund. Other securities bear
interest at the rates shown, payable at fixed dates or upon maturity.
Interest rates on floating rate securities are adjusted periodically based
on appropriate indexes; the interest rates shown are those in effect at
October 31, 1995.
++++Forward Foreign Exchange Contracts as of October 31, 1995 were as follows:
<CAPTION>
Unrealized
Appreciation
Expiration (Depreciation)
Date (Note 1d)
Foreign Currency Purchased
<S> <C> <S> <C>
A$ 5,988,032 November 1995 $ 1,072
C$ 33,475,120 November 1995 83,753
DM 25,208,575 December 1995 (89,945)
Pta 729,952,329 November 1995 (28,064)
Yen 1,225,180,500 November 1995 (63,074)
Total (US$ Commitment--$65,606,843) $ (96,258)
-----------
Foreign Currency Sold
A$ 98,519,855 November 1995 $(1,135,836)
C$ 132,483,256 November 1995 (1,780,266)
DM 19,065,198 December 1995 61,294
Iep 11,521,867 December 1995 10,128
Pound Sterling 12,713,999 December 1995 (38,803)
Lit 30,351,652,811 November 1995 (49,038)
Pta 2,816,454,680 November 1995 273,522
NZ$ 115,559,244 November 1995 (20,390)
Yen 2,159,708,144 November 1995 279,620
Total (US$ Commitment--$363,082,723) $(2,399,769)
-----------
Total Unrealized Depreciation--Net on
Forward Foreign Exchange Contracts $(2,496,027)
===========
See Notes to Financial Statements.
</TABLE>
50
<PAGE> 109
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of October 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$393,616,208) (Note 1a) $ 399,448,493
Receivables:
Securities sold $ 42,978,048
Interest 8,523,454
Capital shares sold 17,336
Forward foreign exchange contracts (Note 1d) 4,550 51,523,388
-------------
Prepaid registration fees and other assets (Note 1g) 151,065
-------------
Total assets 451,122,946
-------------
Liabilities: Unrealized depreciation on forward foreign exchange contracts (Note 1d) 2,496,027
Payables:
Custodian bank (Note 1j) 20,014,929
Capital shares redeemed 1,798,359
Dividends to shareholders (Note 1h) 905,859
Distributor (Note 2) 256,673
Investment adviser (Note 2) 196,575
Options purchased 21,036 23,193,431
-------------
Accrued expenses and other liabilities 503,452
-------------
Total liabilities 26,192,910
-------------
Net Assets: Net assets $ 424,930,036
=============
Net Assets Class A Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized $ 831
Consist of: Class B Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized 5,023,254
Class C Shares of Common Stock, $0.10 par value, 300,000,000 shares authorized 1,409
Class D Shares of Common Stock, $0.10 par value, 300,000,000 shares authorized 335,747
Paid-in capital in excess of par 460,340,204
Accumulated realized capital losses on investments and foreign currency
transactions--net (Note 6) (44,089,453)
Unrealized appreciation on investments and foreign currency transactions--net 3,318,044
-------------
Net assets $ 424,930,036
=============
Net Asset Class A--Based on net assets of $65,956 and 8,314 shares outstanding $ 7.93
Value: =============
Class B--Based on net assets of $398,136,439 and 50,232,539 shares outstanding $ 7.93
=============
Class C--Based on net assets of $109,105 and 14,089 shares outstanding $ 7.74
=============
Class D--Based on net assets of $26,618,536 and 3,357,467 shares outstanding $ 7.93
=============
See Notes to Financial Statements.
</TABLE>
51
<PAGE> 110
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended October 31, 1995
<S> <S> <C> <C>
Investment Interest and discount earned (net of $324,751 foreign withholding tax) $ 43,978,138
Income
(Notes 1e &
1f):
Expenses: Account maintenance and distribution fees--Class B (Note 2) 4,024,963
Investment advisory fees (Note 2) 3,146,062
Transfer agent fees--Class B (Note 2) 1,382,709
Custodian fees 309,517
Printing and shareholder reports 253,800
Accounting services (Note 2) 176,648
Professional fees 117,949
Account maintenance fees--Class D (Note 2) 88,185
Registration fees (Note 1g) 81,084
Transfer agent fees--Class D (Note 2) 78,848
Directors' fees and expenses 38,959
Amortization of organization expenses (Note 1g) 13,334
Account maintenance and distribution fees--Class C (Note 2) 277
Transfer agent fees--Class C (Note 2) 99
Transfer agent fees--Class A (Note 2) 97
Other 21,822
-------------
Total expenses 9,734,353
-------------
Investment income--net 34,243,785
-------------
Realized & Realized loss from:
Unrealized Investments--net $ (681,146)
Gain (Loss) Foreign currency transactions--net (16,607,434) (17,288,580)
on Invest- -------------
ments & Change in unrealized appreciation/depreciation on:
Foreign Investments--net (2,049,573)
Currency Foreign currency transactions--net 2,472,923 423,350
Transactions ------------- -------------
- - --Net Net realized and unrealized loss on investments and foreign currency transactions (16,865,230)
(Notes 1c, -------------
1d, 1f & Net Decrease in Net Assets Resulting from Operations $ 17,378,555
3): =============
See Notes to Financial Statements.
</TABLE>
52
<PAGE> 111
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 34,243,785 $ 72,659,344
Realized loss on investments and foreign currency transactions--net (17,288,580) (92,924,618)
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net 423,350 10,030,665
------------- --------------
Net increase (decrease) in net assets resulting from operations 17,378,555 (10,234,609)
------------- --------------
Dividends & Investment income--net:
Distribu- Class A (1,391) --
tions to Class B (15,511,689) --
Shareholders Class C (1,005) --
(Note 1h): Class D (1,111,053) --
Return of capital--net:
Class A (1,474) (58)
Class B (16,438,660) (68,086,994)
Class C (1,065) (1)
Class D (1,177,448) (4,572,291)
------------- --------------
Net decrease in net assets resulting from dividends to shareholders (34,243,785) (72,659,344)
------------- --------------
Capital Share Net decrease in net assets derived from capital share transactions (357,893,795) (881,055,998)
Transactions ------------- --------------
(Note 4):
Net Assets: Total decrease in net assets (374,759,025) (963,949,951)
Beginning of year 799,689,061 1,763,639,012
------------- --------------
End of year $ 424,930,036 $ 799,689,061
============= ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
For the
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Year Ended Oct. 21, 1994++
October 31, to Oct. 31,
Increase (Decrease) in Net Asset Value: 1995++++ 1994++++
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 8.11 $ 8.11
Operating ---------- ----------
Performance: Investment income--net .49 .01
Realized and unrealized loss on investments and foreign currency transactions--net (.12) --
---------- ----------
Total from investment operations .37 .01
---------- ----------
</TABLE>
53
<PAGE> 112
<TABLE>
<S> <S> <C> <C>
Less dividends and distributions:
Investment income--net (.27) --
Return of capital--net (.28) (.01)
---------- ----------
Total dividends and distributions (.55) (.01)
---------- ----------
Net asset value, end of period $ 7.93 $ 8.11
========== ==========
Total Based on net asset value per share 4.63% .12%+++
Investment ========== ==========
Return:**
Ratios to Expenses .96% .97%*
Average ========== ==========
Net Assets: Investment income--net 6.75% 6.28%*
========== ==========
Supplemental Net assets, end of period (in thousands) $ 66 $ 59
Data: ========== ==========
Portfolio turnover 312.13% 259.50%
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Class B
For the For the
The following per share data and ratios have been derived Period Period
from information provided in the financial statements. Dec. 28, 1990 Aug. 3, 1990++
For the Year Ended October 31, to Oct. 31, to Dec. 27,
Increase (Decrease) in Net Asset Value: 1995++++ 1994++++ 1993 1992 1991 1990
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.10 $ 8.65 $ 8.85 $ 9.84 $ 9.92 $ 10.00
Operating --------- --------- ---------- ---------- ---------- ----------
Performance: Investment income--net .47 .50 .57 .72 .77 .39
Realized and unrealized loss on
investments and foreign currency
transactions--net (.15) (.58) (.20) (.99) (.08) (.08)
--------- --------- ---------- ---------- ---------- ----------
Total from investment operations .32 (.08) .37 (.27) .69 .31
--------- --------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.24) -- -- -- (.77) (.39)
Return of capital--net (.25) (.47) (.57) (.72) -- --
--------- --------- ---------- ---------- ---------- ----------
Total dividends and distributions (.49) (.47) (.57) (.72) (.77) (.39)
--------- --------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 7.93 $ 8.10 $ 8.65 $ 8.85 $ 9.84 $ 9.92
========= ========= ========== ========== ========== ==========
Total Based on net asset value per share 4.00% (1.02%) 4.63% (3.00%) 6.93%+++ 3.40%+++
Investment ========= ========= ========== ========== ========== ==========
Return:**
Ratios to Expenses, excluding account
Average maintenance and distribution fees .98% .77% .79% .75% .77%* .76%*
Net Assets: ========= ========= ========== ========== ========== ==========
Expenses 1.73% 1.52% 1.60% 1.50% 1.52%* 1.51%*
========= ========= ========== ========== ========== ==========
Investment income--net 5.95% 5.68% 7.26% 7.60% 9.11%* 9.75%*
========= ========= ========== ========== ========== ==========
Supplemental Net assets, end of period
Data: (in thousands) $ 398,136 $ 750,750 $1,664,602 $3,182,520 $5,918,769 $2,796,301
========= ========= ========== ========== ========== ==========
Portfolio turnover 312.13% 259.50% 284.62% 120.77% 153.72% 19.40%
========= ========= ========== ========== ========== ==========
<FN>
++Commencement of Operations.
++++Based on average shares outstanding during the period.
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
54
<PAGE> 113
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class C
The following per share data and ratios have been derived For the For the Period
from information provided in the financial statements. Year Ended Oct. 21, 1994++
October 31, to Oct. 31,
Increase (Decrease) in Net Asset Value: 1995++++ 1994++++
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 8.10 $ 8.11
Operating ---------- ----------
Performance: Investment income--net .35 .01
Realized and unrealized loss on investments and foreign currency
transactions--net (.28) (.01)
---------- ----------
Total from investment operations .07 --
---------- ----------
Less dividends and distributions:
Investment income--net (.21) --
Return of capital--net (.22) (.01)
---------- ----------
Total dividends and distributions (.43) (.01)
---------- ----------
Net asset value, end of period $ 7.74 $ 8.10
========== ==========
Total Based on net asset value per share .93% .00%+++
Investment ========== ==========
Return:**
Ratios to Average Expenses, excluding account maintenance and distribution fees 1.03% 1.34%*
Net Assets: ========== ==========
Expenses 1.83% 2.14%*
========== ==========
Investment income--net 5.99% 5.63%*
========== ==========
Supplemental Net assets, end of period (in thousands) $ 109 $ 1
Data: ========== ==========
Portfolio turnover 312.13% 259.50%
========== ==========
<CAPTION>
Class D
For the For the
The following per share data and ratios have been derived Period Period
from information provided in the financial statements. Dec. 28, 1990 Aug. 3, 1990++
For the Year Ended October 31, to Oct. 31, to Dec. 27,
Increase (Decrease) in Net Asset Value: 1995++++ 1994++++ 1993 1992 1991 1990
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.11 $ 8.66 $ 8.85 $ 9.85 $ 9.92 $ 10.00
Operating --------- --------- ---------- ---------- ---------- ----------
Performance: Investment income--net .52 .54 .61 .77 .82 .42
Realized and unrealized loss on
investments and foreign currency
transactions--net (.17) (.58) (.19) (1.00) (.07) (.08)
--------- --------- ---------- ---------- ---------- ----------
Total from investment operations .35 (.04) .42 (.23) .75 .34
--------- --------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.26) -- -- -- (.82) (.42)
Return of capital--net (.27) (.51) (.61) (.77) -- --
--------- --------- ---------- ---------- ---------- ----------
Total dividends and distributions (.53) (.51) (.61) (.77) (.82) (.42)
--------- --------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 7.93 $ 8.11 $ 8.66 $ 8.85 $ 9.85 $ 9.92
========= ========= ========== ========== ========== ==========
Total Based on net asset value per share 4.43% (.51%) 5.28% (2.60%) 7.53%+++ 3.73%+++
Investment ========= ========= ========== ========== ========== ==========
Return:**
Ratios to Expenses, excluding account
Average maintenance and distribution fees .95% .76% .73% .75% .76%* .75%*
Net Assets: ========= ========= ========== ========== ========== ==========
</TABLE>
55
<PAGE> 114
<TABLE>
<S> <S> <C> <C> <C> <C> <C> <C>
Expenses 1.20% 1.01% .98% 1.00% .96%* .75%*
========= ========= ========== ========== ========== ==========
Investment income--net 6.49% 6.19% 7.24% 8.11% 9.70%* 10.51%*
========= ========= ========== ========== ========== ==========
Supplemental Net assets, end of period
Data: (in thousands) $ 26,619 $ 48,879 $ 99,037 $ 188,623 $ 399,416 $ 211,006
========= ========= ========== ========== ========== ==========
Portfolio turnover 312.13% 259.50% 284.62% 120.77% 153.72% 19.40%
========= ========= ========== ========== ========== ==========
<FN>
++Commencement of Operations.
++++Based on average shares outstanding during the period.
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Short-Term Global 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 sig-
nificant 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 of 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
business on the day the securities are being valued or, lacking any
sales, at the last available bid price. Options written are valued at
the last sale price in the case of exchange-traded options or, in the
case of options traded in the over-the-counter market, the last asked
price. Options purchased are valued at the last sale price in the
case of exchange-traded options or, in the case of options traded in
the over-the-counter market, the last bid price. 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 Fund's
Board of Directors.
(b) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements with a member bank
of the Federal Reserve System or a primary dealer in US Government
securities. Under such agreements, the bank or primary dealer
agrees to repurchase the security at a mutually agreed upon time
and price. The Fund takes possession of the underlying securities,
marks to market such securities and, if necessary, receives additions
to such securities daily to ensure that the contract is fully
collateralized.
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing
when recognized. Assets and liabilities denominated in foreign
currencies are valued at the exchange rate at the end of the period.
Foreign currency transactions are the result of settling (realized)
or valuing (unrealized) asssets 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.
(d) Derivative financial instruments--The Fund may engage in vari-
ous portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses
may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
56
<PAGE> 115
NOTES TO FINANCIAL STATEMENTS (continued)
* 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 pur-
chase or sell listed or over-the-counter foreign currency options,
foreign currency futures and related options on foreign currency
futures as a short or long hedge against possible variations in
foreign exchange rates. Such transactions may be effected with
respect to hedges on non-US dollar denominated securities owned
by the Fund, sold by the Fund but not yet delivered, or committed
or anticipated to be purchased by the Fund.
* Options--The Fund is authorized to purchase and write call
and put options. When the Fund writes an option, an amount equal
to the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current value of the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
paid or received (or gain or loss to the extent the cost of the closing
transaction is less than or greater than the premium paid or
received).
Written and purchased options are non-income producing
investments.
* Financial futures contracts--The Fund may purchase or
sell financial futures contracts and options on such futures con-
tracts as a hedge against adverse changes in the interest rate. A
futures contract is an agreement between two parties to buy and
sell a security, respectively, for a set price on a future date. Upon
entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund agrees
to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payment
are known as variation margin and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at
the time it was closed.
(e) Income taxes--It is the Fund's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated invest-
ment 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 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) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense over a five-
year period. 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. All or a portion of the ordinary income distributions
paid by the Fund during the fiscal year ended October 31, 1995 and
October 31, 1994 are characterized as a return of capital.
(i) Reclassification--Generally accepted accounting principles require
that certain components of net assets be reclassified to reflect permanent
differences between financial reporting and tax purposes. Accordingly,
current year's permanent book/tax differences of $19,287,000 have been
reclassified from accumulated net realized capital losses and paid-in
capital in excess of par. These reclassifications have no effect on net
assets or net asset values per share.
(j) Custodian bank--The Fund recorded an amount payable to the Custodian
Bank reflecting an overnight overdraft which resulted from a failed trade
which settled the next day.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement
with Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner of MLAM
is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund
has also entered into a
57
<PAGE> 116
Distribution Agreement and Distribution Plans with Merrill Lynch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio
and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund. For
such services, the Fund pays a monthly fee based upon the average
daily value of the Fund's net assets, at the following annual
rates: 0.55% of the Fund's average daily net assets not exceeding
$2 billion; 0.525% of average daily net assets in excess of $2 billion
but not exceeding $4 billion; 0.50% of average daily net assets in
excess of $4 billion but not exceeding $6 billion; 0.475% of average
daily net assets in excess of $6 billion but not exceeding $10 billion;
0.45% of average daily net assets in excess of $10 billion but not
exceeding $15 billion; and 0.425% of average daily net assets in
excess of $15 billion. The most restrictive annual expense limitation
requires that MLAM reimburse the Fund to the extent the Fund's
expenses (excluding interest, taxes, distribution fees, brokerage
fees and commissions, and extraordinary items) exceed 2.5% of the
Fund's first $30 million of average daily net assets, 2.0% of the next
$70 million of average daily net assets, and 1.5% of the average daily
net assets in excess thereof. MLAM's obligation to reimburse the
Fund is limited to the amount of the investment advisory fee. No fee
payment will be made to the Investment Adviser during any fiscal
year which will cause such expenses to exceed expense limitations
at the time of such payment.
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.50%
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.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services
to Class B, Class C and Class D shareholders. The ongoing distribu-
tion fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and
Class C shareholders.
For the year ended October 31, 1995, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A -- --
Class D $330 $3,996
For the year ended October 31, 1995, MLPF&S received contin-
gent deferred sales charges of $469,456 and $15 relating to trans-
actions in Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1995 were $1,176,817,027 and
$1,481,540,024, respectively.
Net realized and unrealized gains (losses) as of October 31, 1995 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Investments:
Long-term $ 9,216,672 $ 3,707,550
Short-term (9,959,677) 2,124,735
Options written 61,859 --
--------------- --------------
Total investments (681,146) 5,832,285
--------------- --------------
Currency transactions:
Options purchased (2,613,615) --
Options written 5,019,788 --
Forward foreign exchange contracts (13,284,248) (2,496,027)
Foreign currency transactions (5,729,359) (18,214)
--------------- --------------
Total currency transactions (16,607,434) (2,514,241)
--------------- --------------
Total $ (17,288,580) $ 3,318,044
=============== ==============
58
<PAGE> 117
NOTES TO FINANCIAL STATEMENTS (concluded)
Transactions in call options written for the year ended October 31,
1995 were as follows:
Premiums
Par Value Received
Outstanding call options written at
beginning of year -- --
Options written $ 3,524,640,621 $ 4,093,196
Options exercised (584,265,000) (631,433)
Options expired (2,940,375,621) (3,461,763)
--------------- --------------
Outstanding call options written
at end of year $ -- $ --
=============== ==============
Transactions in put options written for the year ended October 31,
1995 were as follows:
Premiums
Par Value Received
Outstanding put options written at
beginning of year $ 45,500,000 $ 37,510
Options written 5,199,717,695 7,887,892
Options exercised (790,735,000) (1,275,742)
Options expired (4,454,482,695) (6,649,660)
--------------- --------------
Outstanding put options written
at end of year $ -- $ --
=============== ==============
As of October 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $5,832,285, of which $6,399,638
related to appreciated securities and $567,353 related to depreci-
ated securities. At October 31, 1995, the aggregate cost of invest-
ments for Federal income tax purposes was $393,616,208.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $357,893,795 and $881,055,998 for the years ended October 31,
1995 and October 31, 1994, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 19,710 $ 156,702
Shares issued to shareholders in
reinvestment of dividends 306 2,424
-------------- -------------
Total issued 20,016 159,126
Shares redeemed (18,948) (150,761)
-------------- -------------
Net increase 1,068 $ 8,365
============== =============
Class A Shares for the Period Dollar
October 21, 1994++ to October 31, 1994 Shares Amount
Shares sold 14,261 $ 115,671
Shares redeemed (7,015) (56,902)
-------------- -------------
Net increase 7,246 $ 58,769
============== =============
[FN]
++Commencement of Operations.
Class B Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 1,165,649 $ 8,282,644
Shares issued to shareholders in
reinvestment of dividends 2,111,691 16,712,284
-------------- -------------
Total issued 3,277,340 24,994,928
Automatic conversion of shares (44,087) (350,642)
Shares redeemed (45,649,821) (361,409,238)
-------------- -------------
Net decrease (42,416,568) $(336,764,952)
============== =============
Class B Shares for the Year Dollar
Ended October 31, 1994 Shares Amount
Shares sold 3,848,634 $ 32,411,047
Shares issued to shareholders in
reinvestment of dividends 4,300,343 36,195,588
-------------- -------------
Total issued 8,148,977 68,606,635
Shares redeemed (107,865,898) (904,426,466)
-------------- -------------
Net decrease (99,716,921) $(835,819,831)
============== =============
Class C Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 77,597 $ 607,611
Shares issued to shareholders in
reinvestment of dividends 10 76
-------------- -------------
Total issued 77,607 607,687
Shares redeemed (63,628) (499,869)
-------------- -------------
Net increase 13,979 $ 107,818
============== =============
Class C Shares for the Period
October 21, 1994++ to Dollar
October 31, 1994 Shares Amount
Shares sold 111 $ 900
Shares redeemed (1) (8)
-------------- -------------
Net increase 110 $ 892
============== =============
[FN]
++Commencement of Operations.
59
<PAGE> 118
Class D Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 141,026 $ 1,012,351
Shares issued to shareholders in
reinvestment of dividends 142,590 1,231,159
Automatic conversion of shares 44,065 350,642
-------------- -------------
Total issued 327,681 2,594,152
Shares redeemed (3,000,651) (23,839,178)
-------------- -------------
Net decrease (2,672,970) $ (21,245,026)
============== =============
Class D Shares for the Year Dollar
Ended October 31, 1994 Shares Amount
Shares sold 377,878 $ 3,322,360
Shares issued to shareholders in
reinvestment of dividends 303,155 2,425,102
-------------- -------------
Total issued 681,033 5,747,462
Shares redeemed (6,093,190) (51,043,291)
-------------- -------------
Net decrease (5,412,157) $ (45,295,829)
============== =============
As a result of the implementation of the Merrill Lynch Select Pricing
System SM, Class A Shares of the Fund outstanding prior to October 21,
1994, have been redesignated Class D Shares. There were 6,102,407
shares redesignated amounting to $59,847,781.
5. Commitments:
At October 31, 1995, the Fund had entered into foreign exchange
contracts under which it had agreed to sell various foreign currency
with an approximate value of $22,745,000.
6. Capital Loss Carryforward:
At October 31, 1995, the Fund had a capital loss carryforward of
approximately $44,089,000, of which $32,232,000 expires in 2000,
$10,815,000 expires in 2002, and $1,042,000 expires in 2003. This
amount will be available to offset like amounts of any future
taxable gains.
60
<PAGE> 119
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Short-Term Global Income Fund,
Inc. as of December 31, 1995, the related statements of operations for the
two-month period then ended and changes in net assets for the two-month period
then ended and for the year ended October 31, 1995, 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, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Short-Term Global Income Fund, Inc. as of December 31, 1995, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
February 2, 1996
61
<PAGE> 120
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Maturity Interest Value Percent of
COUNTRIES Face Amount Date Issue Rate++ (Note 1a) Net Assets
<S> <C> <C> <S> <C> <C> <C>
Australia A$ 65,220,000 3/15/97 Commonwealth Bank of Australia (3) 12.50% $ 51,378,349 12.83%
27,300,000 4/01/97 New South Wales Treasury Corp. (3) 12.50 21,534,943 5.38
Total Investments in Australia
(Cost--$73,316,197) 72,913,292 18.21
Canada C$ 10,870,000 2/08/96 Canadian Treasury Bill (1) 5.46 7,918,775 1.98
65,050,000 3/07/96 Canadian Treasury Bill (1) 5.50 47,203,328 11.79
13,650,000 3/21/96 Ontario Treasury Bill (3) 5.55 9,879,566 2.46
Total Investments in Canada
(Cost--$64,306,190) 65,001,669 16.23
Ireland Iep 12,230,000 7/30/96 Irish Gilt (1) 9.00 20,030,112 5.00
Total Investments in Ireland
(Cost--$20,007,622) 20,030,112 5.00
Italy Lit 5,735,000,000 1/01/96 Buoni Poliennali del Tesoro
(Italian Government Bonds) (1) 12.00 3,600,205 0.90
25,000,000,000 10/01/96 Buoni Poliennali del Tesoro
(Italian Government Bonds) (1) 9.00 15,657,729 3.91
Total Investments in Italy
(Cost--$18,680,213) 19,257,934 4.81
New Zealand NZ$ 21,500,000 2/07/96 New Zealand Treasury Bill (1) 8.67 13,935,434 3.48
14,130,000 3/06/96 New Zealand Treasury Bill (1) 8.56 9,098,393 2.27
20,930,000 3/20/96 New Zealand Treasury Bill (1) 8.53 13,433,740 3.36
Total Investments in New Zealand
(Cost--$36,418,129) 36,467,567 9.11
Spain Pta 2,000,000,000 2/28/97 Bonos del Estado (Spanish Government Bonds) (1) 9.00 16,494,845 4.12
Total Investments in Spain
(Cost--$16,014,575) 16,494,845 4.12
Sweden Skr 91,000,000 2/21/96 Swedish Treasury Bill (1) 8.80 13,570,838 3.39
Total Investments in Sweden
(Cost--$13,343,484) 13,570,838 3.39
United Pound 11,800,000 12/30/96 General Electric Capital Corp. (2) 8.25 18,636,489 4.65
Kingdom Sterling
Total Investments in the United Kingdom
(Cost--$19,134,699) 18,636,489 4.65
United US$ 15,000,000 1/02/96 CS First Boston Inc., Repurchase Agreement*
States purchased on 12/26/95 (2) 5.80 15,000,000 3.74
14,000,000 1/02/96 Chemical Bank, Repurchase Agreement*
purchased on 12/29/95 (2) 5.80 14,000,000 3.50
19,000,000 1/04/96 du Pont (E.I.) de Nemours & Co.,
Commercial Paper (2) 5.80 18,993,878 4.74
8,000,000 1/02/96 Goldman Sachs, Ltd., Repurchase Agreement*
purchased on 12/29/95 (2) 5.75 8,000,000 2.00
15,000,000 1/02/96 Morgan (J.P.) & Co., Inc., Repurchase Agreement*
purchased on 12/26/95 (2) 5.76 15,000,000 3.74
10,000,000 1/02/96 PaineWebber Inc., Repurchase Agreement*
purchased on 12/29/95 (2) 5.75 10,000,000 2.50
14,731,794 1/02/96 Schweizerischer Bankverein SBC (Swiss Bank),
Repurchase Agreement* purchased on 12/29/95 (2) 5.85 14,731,794 3.68
</TABLE>
62
<PAGE> 121
<TABLE>
<S> <C> <C> <S> <C> <C> <C>
34,790,000 1/15/96 US Treasury Note (1) 9.25 34,839,054 8.70
Total Investments in the United States
(Cost--$130,945,623) 130,564,726 32.60
Total Investments (Cost--$392,166,732) 392,937,472 98.12
Unrealized Depreciation on Forward Foreign Exchange Contracts++++ (944,597) (0.24)
Other Assets Less Liabilities 8,474,386 2.12
------------ -------
Net Assets $400,467,261 100.00%
============ =======
<FN>
Corresponding industry groups for securities (percent of net assets):
(1)Sovereign Government Obligations--48.90%
(2)Financial Services--28.55%
(3)Sovereign//Regional Government Obligations--Agency--20.67%
*Repurchase Agreements are fully collaterized by
US Government & Agency Obligations.
++Certain Commercial Paper, US Treasury and Foreign Treasury
Obligations are traded on a discount basis; the interest
rates shown represent the yield-to-maturity at the time
of purchase by the Fund. Other securities bear interest at
the rates shown, payable at fixed dates or upon maturity.
Interest rates on floating rate securities are adjusted
periodically based on appropriate indexes; the interest rates
shown are those in effect at December 31, 1995.
++++Forward Foreign Exchange Contracts as of December 31, 1995
were as follows:
Unrealized
Appreciation
Expiration (Depreciation)
Date (Note 1d)
Foreign Currency Purchased
C$ 15,385,831 January 1996 $ 8,373
Lit 5,735,000,000 January 1996 2,388
NZ$ 27,911,894 January 1996 12,770
Total (US$ Commitment--$33,096,213) $ 23,531
---------
Foreign Currency Sold
A$ 99,097,350 January 1996 $(362,949)
C$ 103,883,919 January 1996 669,498
DM 6,592,370 January 1996 (57,752)
Iep 11,521,867 January 1996 (251,465)
Pound
Sterling 12,713,999 January 1996 (250,084)
Lit 30,351,652,811 January 1996 (188,110)
NZ$ 55,617,991 January 1996 (355,493)
Pta 2,086,502,351 January 1996 (29,034)
Skr 88,920,978 January 1996 (142,739)
Total (US$ Commitment--$277,691,370) $(968,128)
---------
Total Unrealized Depreciation--Net on
Forward Foreign Exchange Contracts $(944,597)
=========
See Notes to Financial Statements.
</TABLE>
63
<PAGE> 122
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of December 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$392,166,732) (Note 1a) $392,937,472
Receivables:
Interest $ 8,056,353
Capital shares sold 4,301,541
Securities sold 248,790
Forward foreign exchange contracts (Note 1d) 52,351 12,659,035
------------
Prepaid registration fees and other assets (Note 1g) 147,009
------------
Total assets 405,743,516
------------
Liabilities: Unrealized depreciation on forward foreign exchange contracts (Note 1d) 944,597
Payables:
Capital shares redeemed 1,844,711
Dividends to shareholders (Note 1h) 1,519,257
Distributor (Note 2) 254,365
Investment adviser (Note 2) 194,585 3,812,918
------------
Accrued expenses and other liabilities 518,740
------------
Total liabilities 5,276,255
------------
Net Assets: Net assets $400,467,261
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized $ 955
Consist of: Class B Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized 4,758,825
Class C Shares of Common Stock, $0.10 par value, 300,000,000 shares authorized 1,331
Class D Shares of Common Stock, $0.10 par value, 300,000,000 shares authorized 306,663
Paid-in capital in excess of par 439,081,534
Accumulated realized capital losses on investments and foreign currency
transactions--net (Note 6) (43,498,147)
Unrealized depreciation on investments and foreign currency transactions--net (183,900)
------------
Net assets $400,467,261
============
Net Asset Class A--Based on net assets of $75,554 and 9,552 shares outstanding $ 7.91
Value: ============
Class B--Based on net assets of $376,049,275 and 47,588,247 shares outstanding $ 7.90
============
Class C--Based on net assets of $102,794 and 13,308 shares outstanding $ 7.72
============
Class D--Based on net assets of $24,239,638 and 3,066,629 shares outstanding $ 7.90
============
See Notes to Financial Statements.
</TABLE>
64
<PAGE> 123
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period November 1, 1995 to December 31, 1995
<S> <S> <C> <C>
Investment Interest and discount earned (net of $40,386 foreign withholding tax) $ 5,546,212
Income (Notes
1e & 1f):
Expenses: Account maintenance and distribution fees--Class B (Note 2) 491,057
Investment advisory fees (Note 2) 384,228
Transfer agent fees--Class B (Note 2) 151,565
Professional fees 68,788
Printing and shareholder reports 49,500
Registration fees (Note 1g) 22,713
Directors' fees and expenses 19,900
Custodian fees 17,003
Account maintenance fees--Class D (Note 2) 10,866
Transfer agent fees--Class D (Note 2) 8,478
Accounting services (Note 2) 7,967
Account maintenance and distribution fees--Class C (Note 2) 217
Transfer agent fees--Class C (Note 2) 56
Transfer agent fees--Class A (Note 2) 23
Other 5,175
------------
Total expenses 1,237,536
------------
Investment income--net 4,308,676
------------
Realized & Realized gain (loss) from:
Unrealized Investments--net $ (490,361)
Gain (Loss) Foreign currency transactions--net 2,750,019 2,259,658
on Invest- ------------
ments & Change in unrealized appreciation/depreciation on:
Foreign Investments--net (5,061,545)
Currency Foreign currency transactions--net 1,559,602 (3,501,943)
Transactions ------------ ------------
- - --Net Net realized and unrealized loss on investments and foreign currency transactions (1,242,285)
(Notes 1c, ------------
1d, 1f & 3): Net Increase in Net Assets Resulting from Operations $ 3,066,391
============
See Notes to Financial Statements.
</TABLE>
65
<PAGE> 124
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Period For the
Nov. 1, 1995 to Year Ended
Increase (Decrease) in Net Assets: Dec. 31, 1995 Oct. 31, 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 4,308,676 $ 34,243,785
Realized gain (loss) on investments and foreign currency transactions--net 2,259,658 (17,288,580)
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net (3,501,943) 423,350
------------ ------------
Net increase in net assets resulting from operations 3,066,391 17,378,555
------------ ------------
Dividends to Investment income--net:
Shareholders Class A (829) (1,391)
(Note 1h): Class B (4,016,322) (15,511,689)
Class C (1,650) (1,005)
Class D (289,875) (1,111,053)
Return of capital--net:
Class A -- (1,474)
Class B -- (16,438,660)
Class C -- (1,065)
Class D -- (1,177,448)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (4,308,676) (34,243,785)
------------ ------------
Capital Share Net decrease in net assets derived from capital share transactions (23,220,490) (357,893,795)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (24,462,775) (374,759,025)
Beginning of period 424,930,036 799,689,061
------------ ------------
End of period $400,467,261 $424,930,036
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
For the For the
The following per share data and ratios have been derived Period For the Period
from information provided in the financial statements. Nov. 1, 1995 Year Ended Oct. 21, 1994++
to Dec. 31, October 31, to Oct. 31,
Increase (Decrease) in Net Asset Value: 1995++++ 1995++++ 1994++++
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.93 $ 8.11 $ 8.11
Operating -------- -------- --------
Performance: Investment income--net .09 .49 .01
Realized and unrealized loss on investments and
foreign currency transactions--net (.02) (.12) --
-------- -------- --------
Total from investment operations .07 .37 .01
-------- -------- --------
Less dividends:
Investment income--net (.09) (.27) --
Return of capital--net -- (.28) (.01)
-------- -------- --------
</TABLE>
66
<PAGE> 125
<TABLE>
<S> <S> <C> <C> <C>
Total dividends (.09) (.55) (.01)
-------- -------- --------
Net asset value, end of period $ 7.91 $ 7.93 $ 8.11
======== ======== ========
Total Based on net asset value per share .91%+++ 4.63% .12%+++
Investment ======== ======== ========
Return:**
Ratios to Expenses 1.02%* .96% .97%*
Average ======== ======== ========
Net Assets: Investment income--net 6.91%* 6.75% 6.28%*
======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 75 $ 66 $ 59
Data: ======== ======== ========
Portfolio turnover 25.09% 312.13% 259.50%
======== ======== ========
<CAPTION>
Class B
The following per share data and ratios have For the For the
been derived from information provided in the Period Period
financial statements. Nov. 1, 1995 Dec. 28, 1990
to Dec. 31, For the Year Ended October 31, to Oct. 31,
Increase (Decrease) in Net Asset Value: 1995++++ 1995++++ 1994++++ 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.93 $ 8.10 $ 8.65 $ 8.85 $ 9.84 $ 9.92
Operating ---------- ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .08 .47 .50 .57 .72 .77
Realized and unrealized loss on investments
and foreign currency transactions--net (.03) (.15) (.58) (.20) (.99) (.08)
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations .05 .32 (.08) .37 (.27) .69
---------- ---------- ---------- ---------- ---------- ----------
Less dividends:
Investment income--net (.08) (.24) -- -- -- (.77)
Return of capital--net -- (.25) (.47) (.57) (.72) --
---------- ---------- ---------- ---------- ---------- ----------
Total dividends (.08) (.49) (.47) (.57) (.72) (.77)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 7.90 $ 7.93 $ 8.10 $ 8.65 $ 8.85 $ 9.84
========== ========== ========== ========== ========== ==========
Total Based on net asset value per share .62%+++ 4.00% (1.02%) 4.63% (3.00%) 6.93%+++
Investment ========== ========== ========== ========== ========== ==========
Return:**
Ratios to Expenses, excluding account maintenance and
Average distribution fees 1.05%* .98% .77% .79% .75% .77%*
========== ========== ========== ========== ========== ==========
Net Assets: Expenses 1.80%* 1.73% 1.52% 1.60% 1.50% 1.52%*
========== ========== ========== ========== ========== ==========
Investment income--net 6.13%* 5.95% 5.68% 7.26% 7.60% 9.11%*
========== ========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 376,049 $ 398,136 $ 750,750 $1,664,602 $3,182,520 $5,918,769
========== ========== ========== ========== ========== ==========
Data: Portfolio turnover 25.09% 312.13% 259.50% 284.62% 120.77% 153.72%
========== ========== ========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
67
<PAGE> 126
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class C
For the For the
The following per share data and ratios have been derived Period For the Period
from information provided in the financial statements. Nov. 1, 1995 Year Ended Oct. 21, 1994++
to Dec. 31, October 31, to Oct. 31,
Increase (Decrease) in Net Asset Value: 1995++++ 1995++++ 1994++++
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.74 $ 8.10 $ 8.11
Operating ---------- ---------- ----------
Performance: Investment income--net .08 .35 .01
Realized and unrealized loss on investments
and foreign currency transactions--net (.02) (.28) (.01)
---------- ---------- ----------
Total from investment operations .06 .07 --
---------- ---------- ----------
Less dividends:
Investment income--net (.08) (.21) --
Return of capital--net -- (.22) (.01)
---------- ---------- ----------
Total dividends (.08) (.43) (.01)
---------- ---------- ----------
Net asset value, end of period $ 7.72 $ 7.74 $ 8.10
========== ========== ==========
Total Based on net asset value per share .73%+++ .93% .00%+++
Investment ========== ========== ==========
Return:**
Ratios to Expenses, excluding account maintenance and distribution fees 1.03%* 1.03% 1.34%*
Average ========== ========== ==========
Net Assets: Expenses 1.83%* 1.83% 2.14%*
========== ========== ==========
Investment income--net 6.09%* 5.99% 5.63%*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 103 $ 109 $ 1
Data: ========== ========== ==========
Portfolio turnover 25.09% 312.13% 259.50%
========== ========== ==========
<CAPTION>
Class D
The following per share data and ratios have For the For the
been derived from information provided in the Period Period
financial statements. Nov. 1, 1995 Dec. 28, 1990
to Dec. 31, For the Year Ended October 31, to Oct. 31,
Increase (Decrease) in Net Asset Value: 1995++++ 1995++++ 1994++++ 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.93 $ 8.11 $ 8.66 $ 8.85 $ 9.85 $ 9.92
Operating ---------- ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .09 .52 .54 .61 .77 .82
Realized and unrealized loss on investments
and foreign currency transactions--net (.03) (.17) (.58) (.19) (1.00) (.07)
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations .06 .35 (.04) .42 (.23) .75
---------- ---------- ---------- ---------- ---------- ----------
Less dividends:
Investment income--net (.09) (.26) -- -- -- (.82)
Return of capital--net -- (.27) (.51) (.61) (.77) --
---------- ---------- ---------- ---------- ---------- ----------
Total dividends (.09) (.53) (.51) (.61) (.77) (.82)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 7.90 $ 7.93 $ 8.11 $ 8.66 $ 8.85 $ 9.85
========== ========== ========== ========== ========== ==========
Total Based on net asset value per share .73%+++ 4.43% (.51%) 5.28% (2.60%) 7.53%+++
Investment ========== ========== ========== ========== ========== ==========
Return:**
</TABLE>
68
<PAGE> 127
<TABLE>
<S> <S> <C> <C> <C> <C> <C> <C>
Ratios to Expenses, excluding account maintenance and
Average distribution fees 1.02%* .95% .76% .73% .75% .76%*
Net Assets: ========== ========== ========== ========== ========== ==========
Expenses 1.27%* 1.20% 1.01% .98% 1.00% .96%*
========== ========== ========== ========== ========== ==========
Investment income--net 6.67%* 6.49% 6.19% 7.24% 8.11% 9.70%*
========== ========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 24,240 $ 26,619 $ 48,879 $ 99,037 $ 188,623 $ 399,416
Data: ========== ========== ========== ========== ========== ==========
Portfolio turnover 25.09% 312.13% 259.50% 284.62% 120.77% 153.72%
========== ========== ========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Short-Term Global 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 sig-
nificant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business
on the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-counter
market are valued at the last available bid price prior to the time of
valuation. Options written are valued at the last sale price in the
case of exchange-traded options or, in the case of options traded in
the over-the-counter market, the last asked price. Options purchased
are valued at the last bid price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter
market, the last bid price. Short-term securities are valued at amor-
tized cost, which approximates market value. Other investments,
including futures contracts and related options, are stated at market
value. Securities and assets for which market value quotations are
not available are valued at their fair value as determined in good
faith by or under the direction of the Fund's Board of Directors.
(b) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements with a member bank
of the Federal Reserve System or a primary dealer in US Government
securities. Under such agreements, the bank or primary dealer
agrees to repurchase the security at a mutually agreed upon time
and price. The Fund takes possession of the underlying securities,
marks to market such securities and, if necessary, receives additions
to such securities daily to ensure that the contract is fully
collateralized.
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing
when recognized. Assets and liabilities denominated in foreign
currencies are valued at the exchange rate at the end of the period.
Foreign currency transactions are the result of settling (realized)
or valuing (unrealized) 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.
69
<PAGE> 128
NOTES TO FINANCIAL STATEMENTS (continued)
(d) Derivative financial instruments--The Fund may engage in vari-
ous portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt and currency
markets. Losses may arise due to changes in the value of the con-
tract 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 pur-
chase or sell listed or over-the-counter foreign currency options,
foreign currency futures and related options on foreign currency
futures as a short or long hedge against possible variations in
foreign exchange rates. Such transactions may be effected with
respect to hedges on non-US dollar denominated securities owned
by the Fund, sold by the Fund but not yet delivered, or committed
or anticipated to be purchased by the Fund.
* Options--The Fund is authorized to purchase and write call
and put options. When the Fund writes an option, an amount equal
to the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current value of the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or de-
ducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
paid or received (or gain or loss to the extent the cost of the closing
transaction exceeds the premium paid or received).
Written and purchased options are non-income producing
investments.
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts as
a hedge against adverse changes in the interest rate. A futures
contract is an agreement between two parties to buy and sell a
security, respectively, for a set price on a future date. Upon entering
into a contract, the Fund deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction
is effected. Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payment are
known as variation margin and are recorded by the Fund as un-
realized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at
the time it was closed.
(e) Income taxes--It is the Fund's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated invest-
ment 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 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 ordinary income distributions
paid by the Fund during the fiscal year ended October 31, 1995 was
characterized as a return of capital.
(i) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences beteween financial reporting and tax
purposes. Accordingly, current period's permanent book/tax differ-
ences of $1,668,353 have been reclassified from accumulated net
realized capital losses to paid-in capital in excess of par. These
reclassifications have no effect on net assets or net assets values
per share.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner of
MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned subsidi-
ary of Merrill Lynch Group, Inc.
70
<PAGE> 129
MLAM is responsible for the management of the Fund's portfolio
and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund. For
such services, the Fund pays a monthly fee based upon the average
daily value of the Fund's net assets, at the following annual
rates: 0.55% of the Fund's average daily net assets not exceeding
$2 billion; 0.525% of average daily net assets in excess of $2 billion
but not exceeding $4 billion; 0.50% of average daily net assets in
excess of $4 billion but not exceeding $6 billion; 0.475% of average
daily net assets in excess of $6 billion but not exceeding $10 billion;
0.45% of average daily net assets in excess of $10 billion but not
exceeding $15 billion; and 0.425% of average daily net assets in
excess of $15 billion. MLAM has entered into a Sub-Advisory Agree-
ment (the "Agreement") with Merrill Lynch Asset Management U.K.,
Ltd. ("MLAM U.K."), an affiliate of MLAM, pursuant to which MLAM
pays MLAM U.K. a fee for providing investment advisory services to
MLAM with respect to the Fund in an amount to be determined from
time to time by MLAM and MLAM U.K. but in no event in excess of
the amount that MLAM actually receives for providing services to
the Fund. For the period November 1, 1995 to December 31, 1995,
MLAM paid MLAM U.K. a fee of $31,481 pursuant to such Agreement.
The most restrictive annual expense limitation requires that MLAM
reimburse the Fund to the extent the Fund's expenses (excluding
interest, taxes, distribution fees, brokerage fees and commissions,
and extraordinary items) exceed 2.5% of the Fund's first $30 million
of average daily net assets, 2.0% of the next $70 million of average
daily net assets, and 1.5% of the average daily net assets in excess
thereof. MLAM's obligation to reimburse the Fund is limited to the
amount of the investment advisory fee. No fee payment will be made
to MLAM during any fiscal year which will cause such expenses to
exceed expense limitations 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.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services
to Class B, Class C and Class D shareholders. The ongoing distribu-
tion fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and
Class C shareholders.
For the period November 1, 1995 to December 31, 1995, MLFD did
not earn underwriting discounts and MLPF&S did not earn dealer
concessions on sales of the Fund's Class A and Class D Shares.
For the period November 1, 1995 to December 31, 1995, MLPF&S
received contingent deferred sales charges of $22,991 and $1,000
relating to transactions in Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLPF&S, MLFDS, MLFD, MLAM U.K. and/or
ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period November 1, 1995 to December 31, 1995 were $51,101,164
and $115,211,607, respectively.
Net realized and unrealized gains (losses) as of December 31, 1995
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Investments:
Long-term $ (592,622) $ 296,679
Short-term 102,261 474,061
Options written -- --
---------- ----------
Total investments (490,361) 770,740
---------- ----------
Currency transactions:
Options purchased (142,508) --
Options written 118,698 --
Forward foreign exchange contracts 2,384,086 (944,597)
Foreign currency transactions 389,743 (10,043)
---------- ----------
Total currency transactions 2,750,019 (954,640)
---------- ----------
Total $2,259,658 $ (183,900)
========== ==========
71
<PAGE> 130
NOTES TO FINANCIAL STATEMENTS (concluded)
Transactions in call options written for the period November 1, 1995
to December 31, 1995 were as follows:
Premiums
Par Value Received
Outstanding call options written at
beginning of period -- --
Options written $ 195,486,000 $ 217,825
Options exercised (22,760,000) (45,974)
Options expired (172,726,000) (171,851)
--------------- ---------------
Outstanding call options written
at end of period $ -- $ --
=============== ===============
Transactions in put options written for the period November 1, 1995
to December 31, 1995 were as follows:
Premiums
Par Value Received
Outstanding put options written at
beginning of period -- --
Options written $ 109,259,000 $ 137,040
Options exercised (9,104,000) (22,760)
Options expired (100,155,000) (114,280)
--------------- ---------------
Outstanding put options written
at end of period $ -- $ --
=============== ===============
As of December 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $770,740, of which $2,451,898
related to appreciated securities and $1,681,158 related to depreciated
securities. At December 31, 1995, the aggregate cost of investments
for Federal income tax purposes was $392,166,732.
4. Capital Share Transactions:
Net (decrease) in net assets derived from capital share transac-
tions was $(23,220,490) and $(357,893,795) for the period November 1,
1995 to December 31, 1995 and the year ended October 31, 1995,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Period Dollar
November 1, 1995 to December 31, 1995 Shares Amount
Shares sold 1,115 $ 8,833
Shares issued to shareholders in
reinvestment of dividends 123 975
------------ ---------------
Net increase 1,238 $ 9,808
============ ===============
Class A Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 19,710 $ 156,702
Shares issued to shareholders in
reinvestment of dividends 306 2,424
------------ ---------------
Total issued 20,016 159,126
Shares redeemed (18,948) (150,761)
------------ ---------------
Net increase 1,068 $ 8,365
============ ===============
Class B Shares for the Period Dollar
November 1, 1995 to December 31, 1995 Shares Amount
Shares sold 620,889 $ 4,905,975
Shares issued to shareholders in
reinvestment of dividends 398,231 3,149,817
------------ ---------------
Total issued 1,019,120 8,055,792
Automatic conversion of shares (18,623) (147,125)
Shares redeemed (3,644,789) (28,831,450)
------------ ---------------
Net decrease (2,644,292) $ (20,922,783)
============ ===============
Class B Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 1,165,649 $ 8,282,644
Shares issued to shareholders in
reinvestment of dividends 2,111,691 16,712,284
------------ ---------------
Total issued 3,277,340 24,994,928
Automatic conversion of shares (44,087) (350,642)
Shares redeemed (45,649,821) (361,409,238)
------------ ---------------
Net decrease (42,416,568) $ (336,764,952)
============ ===============
Class C Shares for the Period Dollar
November 1, 1995 to December 31, 1995 Shares Amount
Shares sold 12,066 $ 93,387
Shares issued to shareholders in
reinvestment of dividends 122 945
------------ ---------------
Total issued 12,188 94,332
Shares redeemed (12,969) (100,120)
------------ ---------------
Net decrease (781) $ (5,788)
============ ===============
Class C Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 77,597 $ 607,611
Shares issued to shareholders in
reinvestment of dividends 10 76
------------ ---------------
Total issued 77,607 607,687
Shares redeemed (63,628) (499,869)
------------ ---------------
Net increase 13,979 $ 107,818
============ ===============
72
<PAGE> 131
Class D Shares for the Period Dollar
November 1, 1995 to December 31, 1995 Shares Amount
Shares sold 11,529 $ 91,195
Shares issued to shareholders in
reinvestment of dividends 33,954 268,726
Automatic conversion of shares 18,623 147,125
------------ ---------------
Total issued 64,106 507,046
Shares redeemed (354,944) (2,808,773)
------------ ---------------
Net decrease (290,838) $ (2,301,727)
============ ===============
Class D Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 141,026 $ 1,012,351
Shares issued to shareholders in
reinvestment of dividends 142,590 1,231,159
Automatic conversion of shares 44,065 350,642
------------ ---------------
Total issued 327,681 2,594,152
Shares redeemed (3,000,651) (23,839,178)
------------ ---------------
Net decrease (2,672,970) $ (21,245,026)
============ ===============
5. Commitments:
At December 31, 1995, the Fund had entered into foreign exchange
contracts, in addition to the contracts listed on the Schedule of
Investments, under which it had agreed to sell various foreign
currency with an approximate value of $3,618,000.
6. Capital Loss Carryforward:
At December 31, 1995, the Fund had a capital loss carryforward of
approximately $44,580,000, of which $32,232,000 expires in
1999, $10,816,000 expires in 2001, $1,042,000 expires in 2002,
and $490,000 expires in 2003. This amount will be available to
offset like amounts of any future taxable gains.
73
<PAGE> 132
APPENDIX I
BOND AND COMMERCIAL PAPER RATINGS
STANDARD & POOR'S BOND RATINGS
A Standard & Poor's corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt rated
"AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong. Debt rated "AA" has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in a small degree.
The "AA" rating may be modified by the addition of a plus or minus sign to
show relative standing within that major rating category.
MOODY'S BOND RATINGS
Excerpts from Moody's description of its corporate bond ratings:
Aaa -- judged to be of the best quality, carry the smallest degree of investment
risk; and Aa -- judged to be of high quality by all standards.
IBCA'S CORPORATE BOND RATINGS
Bonds rated AAA are 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. Bonds rated
AA are obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk albeit not very significantly.
"+" or "-" may be appended to a long-term rating to denote relative status
within major rating categories.
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. The highest category is as follows:
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 commercial paper rating is not a recommendation to purchase, sell or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished to
Standard & Poor's by the issuer or obtained by Standard & Poor's from other
sources it considers reliable. Standard & Poor's does not perform an audit in
connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information.
I-1
<PAGE> 133
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following designations, judged to be investment grade, to
indicate the relative repayment capacity of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics: leading market
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
IBCA'S COMMERCIAL PAPER RATINGS
Commercial paper rated A1+ are obligations supported by the highest
capacity for timely repayment. Commercial paper rated A1 are obligations
supported by a very strong capacity for timely repayment. Commercial paper rated
A2 are obligations supported by a satisfactory capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic, or financial conditions.
I-2
<PAGE> 134
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
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 Restriction............................ 7
Management of the Fund............................. 11
Directors and Officers............................ 11
Compensation of Directors......................... 12
Management and Advisory Arrangements.............. 13
Purchase of Shares................................. 15
Initial Sales Charge Alternatives -- Class A and
Class D Shares.................................. 15
Reduced Initial Sales Charges..................... 17
Employer-Sponsored Retirement or Savings Plans and
Certain Other Arrangements...................... 20
Distribution Plans................................ 20
Limitations on the Payment of Deferred Sales
Charges......................................... 21
Redemption of Shares............................... 22
Deferred Sales Charges -- Class B and Class C
Shares.......................................... 22
Portfolio Transactions and Brokerage............... 23
Determination of Net Asset Value................... 23
Shareholder Services............................... 24
Investment Account................................ 24
Automatic Investment Plan......................... 25
Automatic Reinvestment of Dividends and Capital
Gains Distributions............................. 25
Systematic Withdrawal Plans -- Class A and Class D
Shares.......................................... 26
Exchange Privilege................................ 27
Distributions and Taxes............................ 40
Tax Treatment of Options, Futures and Forward
Foreign Exchange Transactions................... 41
Special Rules for Foreign Currency Exchange
Transactions.................................... 42
Performance Data................................... 43
General Information................................ 45
Description of Shares............................. 45
Computation of Offering Price Per Share........... 46
Independent Auditors.............................. 46
Custodian......................................... 47
Transfer Agent.................................... 47
Legal Counsel..................................... 47
Reports to Shareholders........................... 47
Additional Information............................ 47
Independent Auditors' Report....................... 48
Financial Statements............................... 49
Independent Auditors' Report....................... 61
Financial Statements............................... 62
Appendix I -- Bond and Commercial Paper Ratings.... I-1
Code # 11100-0296
</TABLE>
(LOGO)
MERRILL LYNCH
SHORT-TERM GLOBAL
INCOME FUND, INC.
STATEMENT OF
ADDITIONAL
INFORMATION
February 28, 1996
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE> 135
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 plates, circular graph Back cover of Prospectus and
paper and Merrill Lynch Logo back cover of Statement of
including stylized market bull. Additional Information.
<PAGE> 136
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for the fiscal period November 1, 1995 to
December 31, 1995, the fiscal years ended October 31, 1995, 1994, 1993 and
1992 and for the fiscal period December 28, 1990 to October 31, 1991, and
August 3, 1990 (commencement of operations) to December 27, 1990.
Contained in Part B:
Financial Statements:
Schedule of Investments as of December 31, 1995.
Statement of Assets and Liabilities as of December 31, 1995.
Statement of Operations for the fiscal period November 1, 1995 to
December 31, 1995.
Statement of Changes in Net Assets for the fiscal period November 1,
1995 to December 31, 1995 and the fiscal year ended October 31, 1995.
Financial Highlights for the fiscal period November 1, 1995 to
December 31, 1995, the fiscal years ended October 31, 1995, 1994, 1993 and
1992 and for the fiscal period December 28, 1990 to October 31, 1991.
Schedule of Investments as of October 31, 1995.
Statement of Assets and Liabilities as of October 31, 1995.
Statement of Operations for the fiscal year ended October 31, 1995.
Statement of Changes in Net Assets for each of the fiscal years ended
October 31, 1995 and 1994.
Financial Highlights for the fiscal years ended October 31, 1995,
1994, 1993 and 1992 and for the fiscal periods December 28, 1990 to October
31, 1991, and August 3, 1990 (commencement of operations) to December 27,
1990.
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------------ -----------
<S> <C> <C>
1 (a) -- Articles of Incorporation of Registrant.(e)
(b) -- Articles of Amendment to the Articles of Incorporation dated October 19, 1994.(e)
(c) -- Articles Supplementary to the Articles of Incorporation dated October 21, 1994.(e)
2 -- Amended and Restated By-Laws of Registrant.
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.(b)
5 (a) -- Investment Advisory Agreement between Registrant and Merrill Lynch Asset Management,
Inc.(a)
(b) -- Sub-Advisory Agreement between Merrill Lynch Investment Management, Inc. and Merrill
Lynch Asset Management U.K. Limited.(a)
(c) -- Supplement to Investment Advisory Agreement between Registrant and Merrill Lynch
Asset Management, L.P., dated January 3, 1994.(d)
6 (a) -- Class A Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(d)
(b) -- Class B Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(a)
</TABLE>
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<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------------ ------------------------------------------------------------------------------------
<S> <C> <C>
(c) -- Letter Agreement between the Registrant and Merrill Lynch Funds Distributor, Inc.
with respect to the Merrill Lynch Mutual Fund Adviser Program.(c)
(d) -- Class C Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(d)
(e) -- Class D Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(d)
7 -- None.
8 -- Custodian Agreement between Registrant and The Chase Manhattan Bank, N.A.(a)
9 (a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between Registrant and Merrill Lynch Financial Data Services, Inc.(a)
(b) -- Form of Agreement between Merrill Lynch & Co., Inc. and Registrant relating to use
by Registrant of Merrill Lynch name.(a)
10 -- Opinion of Brown & Wood, counsel for the Registrant.
11 -- Consent of Deloitte & Touche LLP, independent auditors for Registrant.
12 -- None.
13 -- Certificate of Merrill Lynch Asset Management, Inc.(a)
14 -- None.
15 (a) -- Class B Distribution Plan of Registrant and Class B Distribution Plan
Sub-Agreement.(c)
(b) -- Class C Distribution Plan of Registrant and Class C Distribution Plan
Sub-Agreement.(d)
(c) -- Class D Distribution Plan of Registrant and Class D Distribution Plan
Sub-Agreement.(d)
16 (a) -- Schedule for computation of each performance quotation provided in the Registration
Statement in response to Item 22 relating to Class A shares.(a)
(b) -- Schedule for computation of each performance quotation provided in the Registration
Statement in response to Item 22 relating to Class B shares.(a)
(c) -- Schedule for computation of each performance quotation provided in the Registration
Statement in response to Item 22 relating to Class C shares.(e)
(d) -- Schedule for computation of each performance quotation provided in the Registration
Statement in response to Item 22 relating to Class D shares.(e)
17 (a) -- Financial Data Schedule for the Year Ended October 31, 1995 relating to Class A
Shares.
(b) -- Financial Data Schedule for the Year Ended October 31, 1995 relating to Class B
Shares.
(c) -- Financial Data Schedule for the Year Ended October 31, 1995 relating to Class C
Shares.
(d) -- Financial Data Schedule for the Year Ended October 31, 1995 relating to Class D
Shares.
(e) -- Financial Data Schedule for the Period November 1, 1995 through December 31, 1995
relating to Class A Shares.
(f) -- Financial Data Schedule for the Period November 1, 1995 through December 31, 1995
relating to Class B Shares.
(g) -- Financial Data Schedule for the Period November 1, 1995 through December 31, 1995
relating to Class C Shares.
(h) -- Financial Data Schedule for the Period November 1, 1995 through December 31, 1995
relating to Class D Shares.
18 -- Merrill Lynch Select Pricing(SM) System Plan Pursuant to Rule 18f-3.(f)
</TABLE>
- - ---------------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") phase-in requirements.
(b) Reference is made to Article III (Sections 3 and 4), Article V, Article VI
(Sections 2, 3, 4, 5 and 6), Article VII, Article VIII and Article X of
the Registrant's Articles of Incorporation filed as Exhibit (1)(a) to
Post-Effective Amendment No. 6 to the Registrant's Registration Statement
on Form N-1A under the Securities Act of 1933 (the "Registration
Statement"); the Articles of Amendment to the Articles of Incorporation
dated October 19, 1994, filed as Exhibit 1(b) to Post-Effective Amendment
No. 6 to the Registration Statement; the Articles Supplementary to the
Articles of Incorporation dated October 21, 1994, filed as Exhibit 1(c) to
Post-Effective Amendment No. 6 to
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<PAGE> 138
the Registration Statement; and Article II, Article III (Sections 1, 3, 5,
6 and 17), Article VI, Article VII, Article XIII, and Article XIV of the
Registrant's By-Laws filed as Exhibit (2) to Post-Effective Amendment No.
7 to the Registration Statement.
(c) Filed as an Exhibit to Post-Effective Amendment No. 4 to the Registration
Statement.
(d) Filed as an Exhibit to Post-Effective Amendment No. 5 to the Registration
Statement.
(e) Filed as an Exhibit to Post-Effective Amendment No. 6 to the Registration
Statement.
(f) Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of Merrill Lynch New York Municipal Bond
Fund of Merrill Lynch Multi-State Municipal Series Trust filed on January
25, 1996.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The Registrant is not controlled by or under common control with any other
person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS JANUARY 31, 1996*
- - ----------------------------------------------------------------------------- -----------------
<S> <C>
Shares of Class A Common Stock, par value $0.10 per share.................... 17
Shares of Class B Common Stock, par value $0.10 per share.................... 43,540
Shares of Class C Common Stock, par value $0.10 per share.................... 5
Shares of Class D Common Stock, par value $0.10 per share.................... 2,520
</TABLE>
- - ---------------
* The number of holders includes holders of record plus beneficial owners whose
shares are held of record by Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
ITEM 27. INDEMNIFICATION
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Distribution Agreement.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent directors, after
review of the facts, that such officer or director is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Each officer and director of the Registrant claiming indemnification within
the scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland; provided, however,
that the person seeking indemnification shall provide to the Registrant a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Registrant has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Registrant for his undertaking; (b) the Registrant is insured against losses
arising by reason of the advance; (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
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<PAGE> 139
to the Registrant at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
In Section 9 of the Distribution Agreements relating to the securities
being offered hereby, the Registrant agrees to indemnify the Distributor and
each person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "Act"), against certain types of civil liabilities
arising in connection with the Registration Statement or Prospectus and
Statement of Additional Information.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or controlling
person or the principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Merrill Lynch Asset Management, L.P. ("MLAM" or the "Investment
Adviser"), acts as investment adviser for the following open-end investment
companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill
Lynch Balanced Fund for Investment and Retirement 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 Bond
Fund for Investment and Retirement, Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global Holdings,
Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global Utility Fund,
Inc., Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Growth Fund for
Investment and Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Institutional Intermediate Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust, Merrill
Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch Variable
Series Funds, Inc. and for the following closed-end companies: Convertible
Holdings Inc., Merrill Lynch High Income Municipal Bond Fund, Inc. and Merrill
Lynch Senior Floating Rate Fund, Inc.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Investment
Adviser, acts as the investment adviser for the following open-end investment
companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust,
Merrill
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<PAGE> 140
Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust,
Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust,
Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc.,
and The Municipal Fund Accumulation Program, Inc.; and for the following
closed-end investment companies: Apex Municipal Fund, Inc., Corporate High Yield
Fund, Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc.,
Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc.,
Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc., The
Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured
Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California
Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc.,
MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California
Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California
Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II,
Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc.,
MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc.,
MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc.,
MuniYield New York Insured Fund III, Inc., MuniYield Pennsylvania Fund,
MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High
Income Portfolio, Inc., Senior High Income Portfolio II, Inc., Senior Strategic
Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York
Holdings, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds
for Institutions Series and Merrill Lynch Institutional Intermediate Fund is One
Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of
the Investment Adviser, FAM and Princeton Services, Inc. ("Princeton Services")
is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of Merrill
Lynch Funds Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton, New Jersey
08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281. The address of
Merrill Lynch Financial Para Services, Inc. ("MLFDS") is 4800 Deer Lake Drive
East, Jacksonville, Florida 32240-6484.
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 or entity has been engaged
since November 1, 1993, for his or its own account or in the capacity of
director, officer, partner or trustee. In addition, Mr. Zeikel is President, Mr.
Richard is Treasurer and Mr. Glenn is Executive Vice President of substantially
all of the investment companies described in the first two paragraphs of this
Item 28, and Messrs. Giordano, Harvey, Hewitt, Kirstein and Monagle are
directors, trustees or officers of one or more of such companies.
<TABLE>
<CAPTION>
POSITION(S) WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- - ------------------------------- ------------------------- -----------------------------------
<S> <C> <C>
ML & Co........................ Limited Partner Financial Services Holding Company;
Limited Partner of FAM
Princeton Services............. General Partner General Partner of FAM
Arthur Zeikel.................. President President of FAM; President and
Director of Princeton Services;
Director of MLFD; Executive Vice
President of ML & Co.
</TABLE>
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<PAGE> 141
<TABLE>
<CAPTION>
POSITION(S) WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- - ------------------------------- ------------------------- -----------------------------------
<S> <C> <C>
Terry K. Glenn................. Executive Vice President Executive Vice President of FAM;
Executive Vice President and
Director of Princeton Services;
President and Director of MLFD;
Director of MLFDS; President of
Princeton Administrators, L.P.
Vincent R. Giordano............ Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Elizabeth Griffin.............. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Norman R. Harvey............... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
N. John Hewitt................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Philip L. Kirstein............. Senior Vice President, Senior Vice President, General
General Counsel and Counsel and Secretary of FAM;
Secretary Senior Vice President, General
Counsel, Director and Secretary
of Princeton Services; Director
of MLFD
Ronald M. Kloss................ Senior Vice President and Senior Vice President and
Controller Controller of FAM; Senior Vice
President and Controller of
Princeton Services
Stephen M.M. Miller............ Senior Vice President Executive Vice President of
Princeton Administrators, L.P.
Joseph T. Monagle, Jr.......... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Richard L. Reller.............. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Gerald M. Richard.............. Senior Vice President and Senior Vice President and Treasurer
Treasurer of FAM; Senior Vice President and
Treasurer of Princeton Services;
Vice President and Treasurer of
MLFD
Ronald L. Welburn.............. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Anthony Wiseman................ Senior Vice President Senior Vice President of Princeton
Services
</TABLE>
(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: Merrill Lynch
EuroFund, Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch International Equity Fund and Merrill Lynch
Short-Term Global Income Fund, Inc. The address of each of these investment
companies is P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of
MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
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<PAGE> 142
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since November 1,
1993, for his own account or in the capacity of director, officer, partner or
trustee. In addition, Messrs. Zeikel, Albert, Harvey, Holmes, Richard and
Yardley are officers of one or more of the registered investment companies
listed in the preceding paragraph:
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
- - ------------------------------- ------------------------- -----------------------------------
<S> <C> <C>
Arthur Zeikel.................. Chairman President of the Investment Adviser
and FAM; President and Director
of Princeton Services; Director
of MLFD; Executive Vice President
of ML & Co.
Alan J. Albert................. Managing Director Vice President of the Investment
Adviser
Nicholas C. D. Hall............ Director Counsel of Merrill Lynch Europe PLC
Norman R. Harvey............... Senior Vice President Senior Vice President of the
Investment Adviser and FAM; Senior
Vice President of Princeton
Services
Gerald M. Richard.............. Senior Vice President Senior Vice President and Treasurer
of the Investment Adviser and FAM;
Senior Vice President and
Treasurer of Princeton Services;
Vice President and Treasurer of
MLFD
Adrian Holmes.................. Managing Director Vice President of the Investment
Adviser
Stephen J. Yardley............. Vice President None
Carol Ann Langham.............. Company Secretary Company Secretary of Merrill Lynch
Europe PLC
Debra Anne Searle.............. Assistant Company Assistant Company Secretary of
Secretary Merrill Lynch Europe PLC
</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 two paragraphs of
Item 28 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund,
CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund,
The Corporate Fund Accumulation Program, Inc., and The Municipal Fund
Accumulation Program, Inc., and MLFD also acts as principal underwriter for the
following closed-end investment companies: Merrill Lynch High Income Municipal
Bond Program, Inc., Merrill Lynch Municipal Strategic Fund, Inc., and Merrill
Lynch Senior Floating Rate Fund, Inc.
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<PAGE> 143
(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, and Wasel is One Financial Center, Boston,
Massachusetts 02111-2646.
<TABLE>
<CAPTION>
POSITION(S) AND
(1) POSITION(S) AND OFFICE(S) OFFICE(S)
NAME WITH MLFD WITH REGISTRANT
- - ------------------------------------------- ------------------------- -----------------------
<S> <C> <C>
Terry K. Glenn............................. President and Director Executive Vice
President
Arthur Zeikel.............................. Director President and Director
Philip L. Kirstein......................... Director None
William E. Aldrich......................... Senior Vice President None
Robert W. Crook............................ Senior Vice President None
Kevin P. Boman............................. Vice President None
Michael J. Brady........................... Vice President None
William M. Breen........................... Vice President None
Sharon Creveling........................... Vice President and None
Assistant Treasurer
Mark A. DeSario............................ Vice President None
James J. Fatseas........................... Vice President None
Michelle T. Lau............................ Vice President None
Debra W. Landsman-Yaros.................... Vice President None
Gerald M. Richard.......................... Vice President and Treasurer
Treasurer
Salvatore Venezia.......................... Vice President None
William Wasel.............................. Vice President None
Robert Harris.............................. Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder are maintained at the offices of the Registrant, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and its transfer agent, Merrill Lynch
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the caption "Management of the
Fund -- Management and Advisory Arrangements" in the Prospectus constituting
Part A of the Registration Statement and under "Management of the
Fund -- Management and Advisory Arrangements" in the Statement of Additional
Information constituting Part B of the Registration Statement, 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 a copy of the Registrant's latest annual report to shareholders, upon
request and without charge.
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<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Township of
Plainsboro, and the State of New Jersey, on the 27th day of February 1996.
MERRILL LYNCH SHORT-TERM GLOBAL
INCOME FUND, INC.
(Registrant)
By: /s/ TERRY K. GLENN
------------------------------------
(Terry K. Glenn, Executive Vice
President)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following persons in
the capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE(S)
- - ----------------------------------- ----------------------------------- -----------------
<S> <C> <C>
ARTHUR ZEIKEL* President and Director (Principal
- - ----------------------------------- Executive Officer)
(Arthur Zeikel)
GERALD M. RICHARD* Treasurer (Principal Financial and
- - ----------------------------------- Accounting Officer)
(Gerald M. Richard)
DONALD CECIL* Director
- - -----------------------------------
(Donald Cecil)
EDWARD H. MEYER* Director
- - -----------------------------------
(Edward H. Meyer)
CHARLES C. REILLY* Director
- - -----------------------------------
(Charles C. Reilly)
RICHARD R. WEST* Director
- - -----------------------------------
(Richard R. West)
EDWARD D. ZINBARG* Director
- - -----------------------------------
(Edward D. Zinbarg)
*By: /s/ TERRY K. GLENN February 27, 1996
------------------------------
(Terry K. Glenn,
Attorney-in-Fact)
</TABLE>
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<PAGE> 145
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------------ -----------------------------------------------------------------------------------
<C> <C> <S>
2 -- Amended and Restated By-Laws of Registrant.
5(a) -- Investment Advisory Agreement between Registrant and Merrill Lynch Asset
Management, Inc.
6(b) -- Class B Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.
8 -- Custodian Agreement between Registrant and The Chase Manhattan Bank, N.A.
9(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between Registrant and Merrill Lynch Financial Data Services, Inc.
(b) -- Form of Agreement between Merrill Lynch & Co., Inc. and Registrant relating to use
by Registrant of Merrill Lynch name.
10 -- Opinion of Brown & Wood, counsel for the Registrant.
11 -- Consent of Deloitte & Touche LLP, independent auditors for Registrant.
13 -- Certificate of Merrill Lynch Asset Management, Inc.
16(a) -- Schedule for computation of each performance quotation provided in the Registration
Statement in response to Item 22 relating to Class A shares.
16(b) -- Schedule for computation of each performance quotation provided in the Registration
Statement in response to Item 22 relating to Class B shares.
17(a) -- Financial Data Schedule for the Year Ended October 31, 1995 relating to Class A
Shares.
(b) -- Financial Data Schedule for the Year Ended October 31, 1995 relating to Class B
Shares.
(c) -- Financial Data Schedule for the Year Ended October 31, 1995 relating to Class C
Shares.
(d) -- Financial Data Schedule for the Year Ended October 31, 1995 relating to Class D
Shares.
(e) -- Financial Data Schedule for the Period November 1, 1995 through December 31, 1995
relating to Class A Shares.
(f) -- Financial Data Schedule for the Period November 1, 1995 through December 31, 1995
relating to Class B Shares.
(g) -- Financial Data Schedule for the Period November 1, 1995 through December 31, 1995
relating to Class C Shares.
(h) -- Financial Data Schedule for the Period November 1, 1995 through December 31, 1995
relating to Class D Shares.
</TABLE>
<PAGE> 1
EX. 99.2
AMENDED AND RESTATED
BY-LAWS
OF MERRILL LYNCH SHORT-TERM GLOBAL 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 Corporation shall not be required to
hold an annual meeting of its stockholders in any year in which none of the
following is required to be acted on by the holders of the capital stock under
the Investment Company Act of 1940, as amended: (a) election of directors, (b)
approval of the Corporation's investment advisory agreement; (c) ratification
of the selection of independent public accountants; and (d)
<PAGE> 2
approval of the Corporation's distribution agreement. In the event that the
Corporation shall be required to hold an annual meeting of stockholders by the
Investment Company Act of 1940, as amended, such meeting shall be held: (a) at
a date and time set by the Board of Directors in accordance with the Investment
Company Act of 1940, as amended, if the purpose of the meeting is to elect
directors or to approve an investment advisory agreement or distribution
agreement; and (b) or a date fixed by the board of directors during the month
of June (i) in the fiscal year immediately following the fiscal year in which
independent accountants were appointed if the purpose of the meeting is to
ratify the selection of such independent accountants, or (ii) in any fiscal
year if an annual meeting is to be held for any reason other than as specified
in the foregoing. Any stockholders' meeting held in accordance with the
preceding sentence shall for all purposes constitute the annual meeting of
stockholders for the fiscal year of the Corporation in which the meeting is
held. At any such meeting, the stockholders shall elect directors to hold the
offices of any directors who have held office for more than one year or who
have been elected by the board of directors to fill vacancies which result
from any cause.
Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law or by the Articles of Incorporation, may be
called for any purpose or purposes by a majority of the Board of Directors,
the President, or on the written request of the holders of the outstanding
capital stock,
<PAGE> 3
of the Corporation entitled to vote at such meeting to the extent permitted by
Maryland law and the Investment Company Act of 1940, as amended.
Section 3. Place of Meetinqs. Meetings 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 holdling of each stockholders' meeting and, if the meeting
is a special meeting, the purpose or purposes of the 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 meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjourmment, 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, I
<PAGE> 4
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 Corporation 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 business 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 I-.me to time, without notice other than announcement thereat except as
other-.rise 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 Corporation in excess of a majority thereof which may be
required the laws of the State of Maryland, the Investment Company Act of
1940, as amended, or other applicable statute, the Articles of Incorporation,
or these By-Laws, for action upon any given matter shall not prevent action at
such meeting upon any other matter or matters which may properly come before
the meeting, if there, 3
<PAGE> 5
share be present thereafter, 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 stockholders, 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 chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his name on
the record of stockholders of the Corporation as of the record date determined
pursuant to Section 9 of this Article or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth day before the
meeting.
<PAGE> 6
Each stockholder entitled to vote at any meeting of stockholders 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.
Section 9. Fixing of Record Date. The Board of Directors may not 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
<PAGE> 7
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 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,
<PAGE> 8
certificate of any fact found by them. The 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 Incorporation, any action
reqqired to be taken at any meeting of .stockholders, or any action which may
be taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders Meetings: (i) a unanimous written consent which sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote
thereafter.
ARTICLE III
Board of Directors
Section l. 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 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.
<PAGE> 9
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of- the Board of Directors adopted by a
majority of the Directors then in office; provided, however, that the number of
directors shall in no event be less than three nor more than fifteen except
that the Corpo- ration may have two directors if there is no stock outstanding,
or so long as there are less than three stockholders. Any vacancy created by
an increase in Directors may he filled in accordance with Section 5 of this
Article III. No reduction in the number of directors shall have the effect of
removing any director from office prior to the expiration of his term unless
such director is specifically removed pursuant to Section 5 of this Article III
at the time of such decrease. Directors need not be stockholders.
Section 3. Election and Tern of Directors. Directors shall be elected
annually, by written ballot at a meeting of stockholders held for that
purpose; provided, however, that if no meeting of the stockholders of the
Corporation is required to be held in a particular year pursuant to Section I
of Article II of these By-Laws, directors shall be elected at the next meeting
held. The term of office of each director shall be from the time of his
election and qualification until the election of directors next succeeding his
election and until his successor shall have been elected and shall have
qualified, or until his death, or,
<PAGE> 10
until he shall have resigned or until December 31 of the year in which he
shall have reached 72 years of age, or shall have been removed as hereinafter
provided in these By-Laws, or as otherwise provided by statute or the
Articles of Incorporation.
Section 4. RESIGNATION. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman
of the Board or the President or the Secretary. Any such resignation shall
take effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
Section 5. REMOVAL OF DIRECTORS. Any director of the Corporation may
be removed by the stockholders by a vote of a majority of the votes entitled to
be cast for the election of directors.
Section 6. VACANCIES. Any vacancies in the Board, whether arising from
death, resignation, removal, an increase in the number of directors or any
other cause, shall be filled by a vote of the majority of the Board of
Directors then in office even though such majority is less than a quorum,
provided that no vacancies shall be filled by action of the remaining
directors, if after the filling of said vacancy or vacancies, less than two-
thirds of the directors then holding office shall have been elected by the
stockholders of the Corporation. In the event that at any time there is a
vacancy in any office of a director which may not be filled by the remaining
directors, a
<PAGE> 11
special meeting of the stockholders shall be held as promptly as possible and in
any event within sixty days, for the purpose of filling said vacancy or
vacancies. Any directors elected or appointed to fill a vacancy shall hold
office only until the next meeting of stockholders of the Corporation and until
a successor shall have been chosen and qualifies or until his earlier
resignation or removal.
Section 7. Place of Meetings. Meetings of the Board may be held at
such place as the Board may from time to time determine or as shall be
specified in the notice of such meeting.
Section 8. Regular Meeting. Regular meetings of the Board may be held
without notice at such time and place as may be deter-mined by the Board of
Directors.
Section 9. Special Meetings. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 10. Telephone Meetings. Members of the Board of Directors or
of any committee thereof may participate in a meeting by means of a conference
telephone or similar 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.
<PAGE> 12
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 residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
Section 12. Waiver of Notice of Meetings. Notice of any special
meeting need not be given to any director who shall, either before or after the
meeting, sign a written waiver of notice which is filed with the records of
the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver 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
<PAGE> 13
of a quorum at any meeting of the Board, a majority of the directors present
thereat may adjourn such meeting to another time and place until a quorum
shall be present thereat. Notice of the time and place of any such adjourned
meeting shall be given to the directors who were not present at the time of
the adjournment and, unless such time and place were announced at the meeting
at which the adjournment was taken, to the other directors. At any adjourned
meeting at which a quorum is present, any business may be transacted which
night 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
present at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his
absence of inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside thereat.
The Secretary (or, in his absence or inability to act, 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
<PAGE> 14
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 compensation 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, retention and disposal of
portfolio seurities and the other investment practices of the Corporation are
at all times consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Corporation, as
recited in the Prospectus of the Corporation included in the Registration
Statement of the Corporation, as recited in the current Prospectus and
Statement of Additional information of the Corporation, as filed from time to
time with the Securities and Exchange Commission and as required by the
Investment Company Act of 1940, as amended. The Board however, 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
<PAGE> 15
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 resolution adopted by
a majority of the entire board, designate an Executive Committee consisting of
two or more of the directors of the corporation, which committee shall have and
may exercise all the powers and authority of the Board with respect to all
matters other than:
(a) the submission to stockholders of any action requiring authorization
of stockholders pursuant to statute or the Articles of Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the Board
or on any committee of the Board, including the Executive Committee;
(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 adoption of new
By-Laws;
<PAGE> 16
(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 capital 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 prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees 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 majority 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
<PAGE> 17
member or members thereof present at any meeting and not disqualified 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 appointing one or more committees consisting in whole or in part of
persons who are not directors of the Corporation; provided, however, that no
such committee shall have or may exercise any authority or power of the Board
in the management of the business or affairs of the Corporation.
ARTICLE V
Officers, Agents and Employees
Section 1. Number of Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors. The Board of Directors may elect 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.
-17-
<PAGE> 18
Such officers shall be elected by the Board of Directors each year at a
meeting of the Board of Directors, each to hold office for the ensuing year and
until his successor shall have been duly elected and shall have qualified, or
until his death, or until he shall have resigned, or have been removed, as
hereinafter provided in these By-Laws. The Board may from time to time
elect, or delegate to the President the power to appoint, such officers
(including one or more Assistant Vice Presidents, one or mcre Assistant
Treasurers and one or =ore Assistant Secretaries) and such agents, as may be
necessary or desirable for the business 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 specified 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 delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors.,
-18-
<PAGE> 19
Such removal shall be without prejudice to such person's contract rights, if
any, but the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
officer.
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 executive 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.
-19-
<PAGE> 20
He may employ; and discharge employees and agents of the Corporation, except
such as shall be appointed by the Board, and he may delegate these powers.
Section 8. Vice President- Each Vice President shall have such powers did
perform such duties as the Board of Directors or the President may from time to
time prescribe.
Section 9. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation, except those which the Corporation has
placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act of
l940 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 disbursements 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,
-20-
<PAGE> 21
(f) in general, pertain all the duties inicident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 10. Secretary. The Secretary shall,
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the 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 facsimiles as
hereinafter provided) and affix and attest the seal to all other documents to
be executed on behalf of this Corporation under its seal;,
(d) see that the books, reports, statements, certifcates 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 suich other duties as from time to time may be assigned to him by
the Board or the President.,,
<PAGE> 22
Section 11. Creation of Duties. In case of the absence of any
officer of the Corporation, or for any other reason that of the board may deem
sufficient the Board may confer for the time being the powers or duties, or
any of them, of such officer upon any other officer or upon any director.
Article VI
Indemnification
Each officer and director of the Corporation shall be indemnified by
the Corporation to the full extent permitted under the General Laws of the
State of Maryland, except that such indemnity shall not protect any such
person against any liability to the Corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Absent a court determination that an
officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office, the decision by
the Corporation to indemnify such person must be based upon the reasonable
deceleration 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
<PAGE> 23
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 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 belie" 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 Corpo- ration for his undertaking; (b) the
Corporation is insured against losses arising by reason of "he advance; (c) a
majority of a quorum of non-party independent directors, or independent
legal counsel in a written opinion, shall deter-mine, 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.,
<PAGE> 24
The Corporation may purchase insurance on behalf of an officer or
director protectig such person to the full agent permitted under the General
Laws of the State of Maryland, from liability arising from his activities as
officer or direcor of the Corporation. The Corporation, however, may not
purchase insurance on behalf of any officer or director of the Corporation
that protects or purports to protect such person from liability to the
Corporation or to its stockholders to which such officer or director would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of
his office.
The Corporation may make advances or purchase insurance to the extent
provided in this Article VI 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, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates
for fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the President or a Vice President and by the
<PAGE> 25
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
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate shall be issued,
it may be issued by the Corporation with the same effect as if such 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 lie
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 Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent
or transfer clerk, and on surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a
<PAGE> 26
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 owner, and the Corporation shall
not be bound to recognize any equitable or legal claim to or interest in any
such share or shares on the part of any other person.
Section 4. Actions. 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 signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the 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
-26-
<PAGE> 27
been mutilated, and the Board may, in its discretion, require, such owner or
his legal representatives 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, of issuance of a new
certificate. Anything herein to the contrary notwithstanding, the Board, in
its absolute discretion, may refuge 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 Distributions. 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 arisinq out of
any change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, 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.
<PAGE> 28
Section 7. Information to Stockholders and Others. Any stockholder of
the Corporation or his agent may inspect and copy during usual business hours
the Corporation's By-Laws, minutes of the proceedings of its stockholders,
annual statements of its affairs, and voting trust agreements on file at its
principal office.
ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and shall bear, in
addition to any other emblem or device approved by the Board of Directors, the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Maryland." Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE IX
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the 31st day of December.
<PAGE> 29
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 companies as the Board of
Directors of the Corporation may, from time to time determine. Every
arrangement entered into with any bank or other company for the safe keeping of
the securities and investments of the Corporation shall contain provisions
complying with the Investment Company Act of 1940, as amended, and the general
rules and regulations thereunder.,
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders 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,
-29-
<PAGE> 30
, imposed by these By-Laws and pursuant to authorization by the Board and, when
so authorized to be held on behalf of the Corporation or sold, transferred or
otherwise disposed of, may be transferred from the name of the Corporation by
the signature of the 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 firms of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors
and, if required by the provisions of the Investment Company Act of 1940, as
amended, ratified by the stockholders.,
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 nay 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
<PAGE> 31
same appears on the books of the Corporation. Such annual statement shall
also be available at the annual meeting of stockholders, if any; and, within 20
days after the meeting (or, in the absence of an annual meeting, within 20 days
after the end of the month of February following the end of the fiscal year),
be placed on file at the Corporation's principal office. 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.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
regular meeting of the stockholders or at any special meeting of the
stockholders at which a quorum is present or represented, provided that notice
of the proposed amendment, alteration or repeal be contained in the notice of
such special meeting. These By-Laws may also be amended, altered or repealed by
the affirmative vote of a majority of the Board of Directors,
-31-
<PAGE> 32
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.
[Revised February 26, 1996]
-32-
<PAGE> 1
EX-99.5(a),
INVESTMENT ADVISORY AGREEMENT,
AGREEMENT made this 12th day of June, 1990, by and between MERRILL LYNCH
SHORT-TERM GLOBAL INCOME FUND, INC., a Maryland corporation (hereinafter
referred to as the "Fund"), and MERRILL LYNCH ASSET MANAGEMENT, INC., a
Delaware corporation (hereinafter referred to as the "Investment Adviser").
W I T N E S S E T H:,
WHEREAS, the Fund is engaged in business as a non-diversi- fied,
open-end, management investment company registered under the Investment Company
Act of 1940, as amended (hereinafter re- ferred 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;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Investment Adviser hereby agree as
follows:
<PAGE> 2
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 con-
tractors 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) Investment Advisory Services. The Investment Adviser shall perform
(or arrange for the performance by affiliates of) the management and
administrative services necessary for the operation of the Fund including
administering shareholder accounts and handling shareholder relations. The
Investment Adviser shall provide the Fund with office space, facilities,
equipment and necessary personnel and such other services as the Investment
Adviser, subject to review by the Directors, shall from time to time determine
to be necessary or useful to perform
-2-
<PAGE> 3
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,
accountants, attorneys, underwriters, brokers and dealers, corporate
fiduciaries, insurers, banks and such other persons in any such other capacity
deemed to be necessary or desirable. The 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 Information,"
respectively). The Investment Adviser shall make reports to the Directors of
its performance of obligations hereunder and furnish advice and
recommendations with respect to such other aspects of the business and affairs
of the Fund as it shall determine to be desirable.
(b) Investment Advisory Services. The Investment Adviser shall provide (or
arrange for affiliates to 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 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,
-3-
<PAGE> 4
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
foreign currency matters and make determinations as to foreign exchange
contracts, foreign currency options, foreign currency futures and related
options on foreign currency futures. The 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 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 the Custodian of the Fund as to deliveries of
-4-
<PAGE> 5
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 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.
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
obligations under this Agreement, and shall at its own expense, provide the
office space, facilities, equipment and necessary personnel which it is
obligated to provide under Article I 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
<PAGE> 6
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 persons of the
Investment Adviser, accounting and pricing costs (including the daily
calculation of the net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, and other
expenses properly payable by the Fund. It is also understood that the Fund
will reimburse the Investment Adviser for its costs in providing accounting
services to the Fund. The Distributor will pay certain of the expenses of the
Fund incurred in connection with the continuous offering of shares of common
stock in the Fund.
ARTICLE III
Compensation of the 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 0.55 of 1.0% (0.55%) of the average daily net assets of the
Fund, commencing on the day
-6-
<PAGE> 7
following effectiveness hereof. If this Agreement becomes effec- tive
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 value is suspended by the Directors, the net asset
value of a share as of the last business day prior to such suspension shall for
this purpose be deemed to be the net asset value at the close of each
succeeding business day until it is again determined.
b) Expense Limitations. In the event the operating expenses' of the
Fund, including amounts payable to the 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 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
<PAGE> 8
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 limita-
tions shall be applicable as an offset against the monthly payment of the fee
due to the Investment Adviser. Should two or more such expenses limitations be
applicable as at the end of the last business day of the month, that expense
limitation which results in the largest reduction in the 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.
<PAGE> 9
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 this Article V
referred to as "affiliates") is free to render services to others. It is
understood that Directors, officers, employees and shareholders of the Fund are
or may become interested in the Investment Adviser and its affiliates, as
directors, officers, employees, partners 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 May 31, 1992 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) a majority of those Directors who are not parties to this
Agreement or interested persons of any such party cast in
<PAGE> 10
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 Investment Adviser, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in the
event of its assignment.,
ARTICLE VII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities of the Fund, and (ii) a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
ARTICLE VIII
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.,
-10-
<PAGE> 11
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.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH SHORT-TERM GLOBAL INCOME
FUND, INC.
By /s/ DAVID B. WALTER
------------------------------------
MERRILL LYNCH ASSET MANAGEMENT, INC.,
By I,
-11-
<PAGE> 1
EX-99.5(b),
SUB-ADVISORY AGREEMENT,
AGREEMENT made as of the 25th day of February 1993, by and between
MERRILL LYNCH INVESTMENT MANAGEMENT, INC., a Delaware corporation doing
business as MERRILL LYNCH ASSET MANAGEMENT (hereinafter referred to as "MLAM")
, and MERRILL LYNCH ASSET MANAGEMENT U.K. LIMITED, a corporation organized
under the laws of England and Wales (hereinafter referred to as "MLAM U.K.") .
W I T N E S S E T H:,
WHEREAS, MERRILL LYNCH SHORT-TERM, GLOBAL INCOME FUND, INC. (the "Fund")
is a Maryland corporation engaged in business as a non-diversified open-end
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, MLAM and MLAM U.K. are engaged principally in rendering
investment advisory services and are registered as investment advisers under
the Investment Advisers Act of 1940, as amended;
WHEREAS, MLAM U.K. is a member of the Investment Management Regulatory
Organization, a self-regulating organization recognized under the Financial
Services Act of 1986 of the United Kingdom (hereinafter referred to as "IMRO")
, and the conduct of its investment business is regulated by IMRO; and
<PAGE> 2
WHEREAS, MLAM, has entered into an investment advisory agreement with the
Fund (the "Investment Advisory Agreement") dated June 12, 1990, pursuant to
which MLAM provides management and investment and advisory services to the
Fund; and WHEREAS, MLAM U.K. is willing to provide investment advisory
services to MLAM in connection with the Fund's operations on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, MLAM U.K. and MLAM hereby agree as follows:,
ARTICLE I
Duties of MLAM U.K.
MLAM hereby employs MLAM U.K. to act as investment adviser to MLAM and to
furnish, or arrange for affiliates to furnish, the investment advisory services
described below, subject to the broad supervision of MLAM and the Fund, for the
period and on the! .terms and conditions set forth in this Agreement. MLAM
U.K. 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. MLAM and its affiliates shall for all purposes herein be deemed a
Professional Investor as defined under the rules promulgated by IMRO
(hereinafter referred to as the "IMRO Rules"). MLAM U.K. and its affiliates
shall for all purposes herein be deemed to be an independent contractor and
shall, unless otherwise expressly, provided or authorized, have no
<PAGE> 3
authority to act for or represent the Fund in any way or otherwise be deemed
an agent of the Fund.
MLAM U.K. shall have the right to make unsolicited calls on MLAM and
shall provide MLAM 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 shall make recommendations from time to time as to 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; and shall effect transactions in
the various securities in which the Fund invests, options, futures, options on
futures or cash; all of the foregoing 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 objective, investment policies and investment
restrictions as the same are 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 Information", respectively). MLAM U.K. shall make
recommendations and effect transactions with respect to foreign currency
matters, including foreign exchange contracts, foreign currency options,
foreign currency, futures and related options on foreign currency futures
<PAGE> 4
and forward foreign currency transactions MLAM U.K. shall also make
recommendations or take action 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.
MLAM U.K. will not hold money on behalf of MLAM or the Fund, nor will MLAM
U.K. be the registered holder of MLAM's or the Fund's registered investments or
the custodian of documents or other evidence of title.
ARTICLE II
Allocation of Charges and Expenses
MLAM U.K. assumes and shall pay for maintaining the staff and personnel
necessary to perform its obligations under this Agreement, and shall at its own
expense provide the office space, equipment and facilities 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 MLAM U.K.
ARTICLE III
Compensation of MLAM U.K.
For the services rendered, the facilities furnished and expenses assumed
by MLAM U.K., MLAM shall pay to MLAM U.K. a fee in an amount to be determined
from time to time by MLAM, and MLAM U.K. but in no event in excess of the
amount that MLAM actually receives for providing services to the Fund pursuant
to the Investment Advisory Agreement.
<PAGE> 5
ARTICLE IV
Limitation of Liability of MLAM U.K.
MLAM U.K. 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 of omission in the
performance of sub-advisory services rendered with respect to 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, MLAM U.K. shall include any affiliates
of MLAM U.K. performing services for MLAM contemplated hereby and directors,
officers and employees of MLAM U.K. and such affiliates.
ARTICLE V
Activities of MLAM U.K.
The services of MLAM U.K. to the Fund are not to be deemed to be
exclusive, MLAM U.K. and any person controlled by or under common control with
MLAM U.K. (for purpose of this Article V referred to as "affiliates") being
free to render services to others. It is understood that Directors, officers,
employees and shareholders of the Fund are or may become interested in MLAM
U.K. and its affiliates, as directors, officers, employees and shareholders or
otherwise and that directors, officers, employees and shareholders of MLAM U.K.
and its affiliates are or may become similarly interested in the Fund, and that
MLAM U.K. and directors, officers, employees, partners and shareholders of its
<PAGE> 6
affiliates may become interested in the Fund as shareholders or otherwise.
ARTICLE VI
MLAM U.K. Statements Pursuant to IMRO Rules
Any complaints concerning MLAM U.K. should be in writing addressed to the
attention of the Managing Director of MLAM U.K. MLAM has the right to obtain
from MLAM U.K. a copy of the IMRO complaints procedure and to approach IMRO
directly.
MLAM U.K. may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding Investments Not Readily
Reliable (as that term is used in the IMRO Rules) or investments denominated in
a currency other than British pound sterling. There can be no certainty that
market makers will be prepared to deal in unlisted or thinly traded securities
and an accurate valuation may be hard to obtain. The value of investments
recommended by MLAM U.K. may be subject to exchange rate fluctuations which
may have favorable or unfavorable effects on investments.
MLAM U.K. may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding options, futures or
contracts for differences. Markets can be highly volatile and such
investments carry a high degree of loss exceeding the original investment and
any margin on deposit.
<PAGE> 7
ARTICLE VII
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first above written
and shall remain in force until December 31, 1994, and thereafter, but only so
long as such continuance is specifically approved at least annually by (i) the
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 person 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 MLAM or by vote of a majority of the outstanding voting securities
of the Fund, or by MLAM U.K., on sixty days written notice to the other party.
This Agreement shall automatically terminate in the event of its assignment or
in the event of the termination of the Investment Advisory Agreement. Any
termination shall be without prejudice to the completion of transactions
already initiated.
ARTICLE VIII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the Directors of the Fund or by the vote of a
majority of outstanding voting securities of the Fund and (ii) a majority of
those Di-rectors who
<PAGE> 8
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 IX
Definitions of certain Terms
The terms "vote of a majority of the outstanding voting securities",
"assignments", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act 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 X
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.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.,
BY /s/ Philip L. Kirstein,
Title: Senior Vice President,
MERRILL LYCNH ASSET MANAGEMENT U.K. LIMITED,,
BY /S/,,,
Title: Vice President,,
<PAGE> 1
EX-99.6(b),
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 12th day of June, 1990, between MERRILL LYNCH
SHORT-TERM GLOBAL 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 interest of the Fund to offer its shares for
sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly 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. Appointnent of the
Distributor. The Fund here-, by appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Class B shares of common stock of
<PAGE> 2
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 principal underwriter and
distributor of the Class B shares, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time 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 consolidation of any other investment company
or personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding Class B
shares of any such company by the Fund.
<PAGE> 3
(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) Prior to the continuous offering of the Class B shares, commencing
on a date agreed upon by the Fund and the Distributor, it is contemplated that
the Distributor will solicit subscriptions for Class B shares during a
subscription period which shall last for such period as may be agreed upon by
the parties hereto. The subscriptions will be payable within five business
days after the termination of the subscription period, at which time the Fund
will commence operations.
(b) After the Fund commences operations, the Fund will commence an
offering of its 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.
<PAGE> 4
(c) The Class B shares are to be resold by the Distributor to investors
at net asset value, as set forth in Section 3(d) hereof, or to securities
dealers having agreements with the Distributor upon the terms and conditions
set forth in Section 7 hereof.
(d) 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 "prospectus" and "statement of additional
information," respectively) under the Securities Act of 1933, as amended (the
"Securities Act"), and guidelines established by the Board of Directors.
(e) 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 impracticable or inadvisable to
sell the shares.
(f) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class B shares
received by the Distributor Any, order,
4 .
<PAGE> 5
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 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 Incorporation, as amended from time to time, and in accordance
with the applicable provisions set forth in the prospectus and statement 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
<PAGE> 6
information of the Fund. All payments by the Fund hereunder shall be made in
the manner set forth below.
The Fund shall pay the total amount of the redemption price as defined in
the above paragraph pursuant to the instructions of the Distributor on or
before the seventh business day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Fund as follows: (i) any applicable contingent deferred sales
charge shall be paid to the Distributor and (ii) the balance shall be paid to
or for the account of the shareholder, in each case in accordance with the
applicable provisions of the prospectus 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 nay
reasonably request for use in connection with the
<PAGE> 7
distribution of Class B shares of the Fund, and this shall include, upon
request by the Distributor, one certified copy of all financial statements
prepared for the Fund by independent public accountants. The Fund shall make
available to the Distributor such number of copies of its prospectus and
statement of additional information as the Distributor shall reasonably
request.
(b) The Fund shall take, from time to time, but subject to the necessary
approval of the shareholders, all necessary action to fix the number of
authorized shares and such steps as may be necessary to register the same
under the Securities Act to the 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 nay be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 8(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 nay 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.
<PAGE> 8
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 exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder
is not impaired thereby.
(b) In selling the Class B shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform, with the requirements of
all Federal and state laws relating to the sale of such securities. Neither
the Distributor nor any selected 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 dealets on
such sales, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the National Association.
<PAGE> 9
of Securities Dealers, Inc. (the "NASD"), as such requiremets may from time
to time 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
Section 3(d) hereof. The form of agreement with selected dealers to be used
during the subscription period described in Section 3(a) is attached hereto as
Exhibit A and the initial form of agreement with selected dealers to be used
in the continuous offering of the shares is attached hereto as Exhibit B.
(b) Within the United States, the Distributor shall offer and sell Class
B shares only to such selected dealers as are members in good standing of the
NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees'and disbursements of its counsel and 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 mailing annual and interim reports and proxy mate-,
9 .
<PAGE> 10
rials 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 consultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the
costs and expenses of printing and distributing any copies thereof which are to
be used in connection with the offering of 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 Distributor 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 hereunder may be
paid from amounts recovered by it from the Fund under such Plan.
10.
<PAGE> 11
(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 qualifying 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 Distributor and each
person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith, 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 time 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
11.
<PAGE> 12
omission was made in reliance upon, and in conformity with, information
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
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 oil 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,
1 2 .
<PAGE> 13
the defense, or, if it so elects, to assume the defense of any suit brought
to enforce any such liability, but if the Fund elects to assume the defense,
such defense shall be conducted by counsel chosen by it and satisfactory to
the Distributor or such controlling person or 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 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 indemnity contained in subsection (a) of this Section, but
only with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Fund in writing by,
13 .
<PAGE> 14
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 nay 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 above written and
shall remain in force until 1992 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 partt 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,
14
<PAGE> 15
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 specifically approved by (i)
the Directors, or by the vote of a majority of outstanding voting securities
of the Fund, and (ii) by the vote of a majority of those Directors of the Fund
who are not parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on such approval.
Section 12. Governing Law. The provisions of this Agreenent shall be
construed and interpreted in accordance with the laws of the State of New York
as at the tine in effect and the applicable provisions of the Investment
Company Act. To the
<PAGE> 16
extent that the applicable law of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MERRILL LYNCH SHORT-TERM GLOBAL INCOME
FUND, INC.
By /s/ DAVID B. WALTER
----------------------------------
MERRILL LYNCH, FUNDS DISTRIBUTOR, INC.
By /s/ GERALD M. RICHARD
----------------------------------
16
<PAGE> 17
EXHIBIT A,
MERRILL LYNCH SHORT-TERM GLOBAL
INCOME FUND, INC.,
CLASS B SHARESS OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD,
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement
with Merrill Lynch Short-Term Global 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 "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. Such Class B shares and certain of the
terms on which they are being offered are more fully described in the enclosed
Prospectus and Statement of Additional Information. You have received a copy
of the 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. This Agreement relates solely to the
subscrip- tion period described in Section 3(a) of such Distribution Agree-
ment. Subject to the foregoing, as principal, 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. The subscription period referred to in Section 3(a) of the
Distribution Agreement will continue through 1990. The subscription period may
be extended upon agreement between the Fund and the Distributor. Subject to
the provisions of such Section and the conditions contained herein, we will
sell to you on the fifth business day following the termination of the
subscription period, or such other date as we may advise (the "Closing Date"),
such number of Class B shares as to which you have placed orders with us not
later than 5:00 P.M. on the second full business day preceding the Closing
Date.,
2. In all sales of these Class B shares to the public you shall act as
dealer for your own account, and in no transaction
<PAGE> 18
shall you have any authority to act as agent for the Fund, for us or for any
other member of the Selected Dealers Group.,
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. All orders are subject to acceptance by the Distributor or the Fund
in the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the Prospectus, as amended from time to time.
You agree that you will not offer or sell any of the 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 Additional
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 Additional 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. Payment for Class B shares purchased by you is to be made by certified or
official bank check at the office of Merrill Lynch Funds Distributor, Inc., Box
9011, Princeton, New Jersey 08543-9011, on such date as we may advise, in New
York Clearing House funds payable to the order of Merrill Lynch Funds
Distributor, Inc. against delivery by us of non-negotiable share deposit
receipts ("Receipts") issued by Merrill Lynch Financial Data Service, Inc., as
shareholder servicing agent, acknowledging the deposit with it of the Class B
shares so purchased by you. You agree that as promptly as practicable after the
delivery of such Class B shares you will issue appropriate written transfer
instructions to the Fund or to the shareholder servicing agent as to the
purchasers to whom you sold the Class B shares.,
5. 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 Information and supplemental
information above mentioned. Any printed information which we furnish you
other than the Fund's Prospectus and Statement of Additional Information,
periodic reports and,
2 .
<PAGE> 19
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.,
6. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain Proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.,
7. 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 Agreement upon notice to the other party.,
8.We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act of 1933, as amended, or of the rules and
regulations of the Securities and Exchange Commission issued thereunder.,
9. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such
Association.,
10. Upon application to us, we will inform you as to the states in which
we believe the 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.,
11. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or tele-graphed to you at
the address specified by you below.
<PAGE> 20
12. You agree that you will not sell any Class B shares of the Fund to any
account over which you exercise discretionary authority.
13. This Agreement shall terminate at the close of business on the Closing
Date, unless earlier terminated, provided, however, this Agreement
shall continue after termination for the purpose of settlement of
accounts hereunder.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ GERALD M. RICHARD
-------------------------------------
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:
<PAGE> 21
EXHIBIT B,
MERRILL LYNCH SHORT-TERM GLOBAL
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 Short-Term Global 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 "Prospectus" 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 principal, 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 initial and subsequent purchase
requirements are as set forth in the
<PAGE> 22
current Prospectus and Statement of Additional Information of the Fund.,
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
Additional 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 Additional 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 sent forth in Section 4 of the
Distribution Agreement.,
5. You shall not withhold placing orders received from your customers so
as to profit yourself as a result of such withholding: e.g., by a
change in the "net asset value" from, that, used in determining the
offering price to your customers.,
6. No person is authorized to make any representations concerning 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 Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.,
2 .
<PAGE> 23
7. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation 'materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon re-quest.,
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 Agreement upon notice to the other party.,
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act of 1933, as amended, or of the rules and
regulations of the Securities and Exchange Commission issued thereunder.,
10. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such
Association.,
11. Upon application to us, we will inform you as to the states in which
we believe the 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 telegraphed to you at
the address specified by you below.,
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.,
3 .
<PAGE> 24
MERRILL LYNCH, FUNDS DISTRIBUTOR, INC.
By /s/ GERALD M. RICHARD
-------------------------------------
(Authorized Signature),
Please return one signed copy
of this Agreement to:
DISTRIBUTOR, INC., MERRILL LYNCH FUNDS DISTRIBUTOR,
I Box 9011
Princeton, New Jersey 08543-9011
I#, Accepted:
I Firm Name:
By:
Address:
Date:, 4 .
<PAGE> 1
EX-99.8
[logo] CHASE
GLOBAL
CUSTODY
AGREEMENT
<PAGE> 2
This AGREEMENT is effective , 19 , and is between THE CHASE MANHATTAN BANK,
N.A. (the 'Bank") and Merrill Lynch Short-Term Global Income Fund, Inc. (the
"Customer").,
1 . Customer Accounts.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) a custody account in the name of the Customer ("Custody Account")
for any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase or subscribe for the same or evidencing or representing any other
rights or interests therein and other similar property whether certificated or
uncertificated as may be received by the Bank or its Subcustodian (as defined
in Section 3) for the account of the Customer ("Securities"); and,
(b) a deposit account in the name of the Customer ("Deposit Account")
for any and all cash in any currency received by the Bank or its Subcustodian
for the account of the Customer, which cash shall not be subject to withdrawal
by draft or check.,
The Customer warrants its authority to: 1) deposit the cash and Securities
('Assets') received in the Accounts and 2) give Instructions (as defined in
Section 1 1) concerning the Accounts. The Bank may deliver securities of the
same class in place of those deposited in the Custody Account.,
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional Accounts
under the terms of this Agreement.,
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable
to the Bank:
(a) Securities will be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and,
(b) cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.,
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and the Bank can comply with such
Instructions, the Bank is authorized to maintain cash balances on deposit for
the Customer with itself or one of its affiliates at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as the Customer may direct, if acceptable to the Bank.,
If the Customer wishes to have any of its Assets held in the custody
of an institution other than the established Subcustodians or their securities
depositories, such arrangement must be authorized by a written agreement,
signed by the Bank and the Customer.
<PAGE> 3
3. Subcustodians and Securities Depositories.
The Bank may act under this Agreement through the subcustodians listed
in Schedule A of this Agreement with which the Bank has entered into
subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank to
hold Assets in the Accounts in accounts which the Bank has established with one
or more of its branches or Subcustodians. The Bank and Subcustodians are
authorized to hold any of the Securities in their account with any securities
depository in which they participate.,
The Bank reserves the right to add new, replace or remove
Subcustodians. The Customer will be given reasonable notice by the Bank of any
amendment to Schedule A. Upon request by the Customer, the Bank will identify
the name, address and principal place of business of any Subcustodian of the
Customer's Assets and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such Subcustodian.,
4. Use of Subcustodian.
(a) The Bank will identify Assets on its books as belonging to the
Customer.
(b) A Subcustodian will hold Assets together with assets belonging to
other customers of the Bank in accounts identified on such Subcustodian's books
as special custody accounts for the exclusive benefit of customers of the
Bank.,
(c) Any Assets in the Accounts held by a Subcustodian will be subject
only to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only to
the instructions of such Subcustodian.,
(d) Any agreement the Bank enters into with a Subcustodian for
holding its customer's assets shall provide that such assets will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of such Subcustodian except for safe custody or administration, and that
the beneficial ownership of such assets will be freely transferable without the
payment of money or value other than for safe custody or administration. The
foregoing shall not apply to the extent of any special agreement or arrangement
made by the Customer with any particular Subcustodian.,
5. Deposit Account Transactions.
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required by
the Bank,
(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, the Bank, in its
discretion, may advance the Customer such excess amount which shall be deemed a
loan payable on demand, bearing interest at the rate customarily charged by the
Bank on similar loans.,
(c) If the Bank credits the Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to the Deposit Account,
with interest, dividends, redemptions or any other amount due, the Customer
will promptly return any such amount upon oral or written notification: (i)
that such amount has not been received in the ordinary course of business or
(ii) that such amount was incorrectly credited. If the Customer does not
promptly return any amount upon such notification, the Bank shall be entitled,
upon oral or written notification to the Customer, to reverse such credit by
<PAGE> 4
debiting the Deposit Account for the amount previously credited. The Bank or
its Subcustodian shall have no duty or obligation to institute legal
proceedings, file a claim or a proof of claim in any insolvency proceeding or
take any other action with respect to the collection of such amount, but may
act for the Customer upon Instructions after consultation with the Customer.
6. Custody Account Transactions.
(a) Securities will be transferred, exchanged or delivered by the Bank
or its Subcustodian upon receipt by the Bank of Instructions which include all
information required by the Bank. Settlement and payment for Securities received
for, and delivery of Securities out of, the Custody Account may be made in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
Instructions acceptable to the Bank.
(b) The Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions will be
credited or debited to the Accounts on the date cash or Securities are actually
received by the Bank and reconciled to the Accounts.
(i) The Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by the Bank in its discretion, after the contractual
settlement date for the related transaction.
(ii) If any Securities delivered pursuant to this Section 6 are returned by
the recipient thereof, the Bank may reverse the credits and debits of the
particular transaction at any time.
7. Actions of the Bank.
The Bank shall follow Instructions received regarding Assets held in the
Accounts. However, until it receives Instructions to the contrary, the Bank will
perform the following functions.
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that the Bank or Subcustodian
is actually aware of such opportunities.
lb) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
<PAGE> 5
The Bank will send the Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advices or
notifications shall indicate the identity of the entity having custody of the
Assets. Unless the Customer sends the Bank a written exception or objection to
any Bank statement within sixty days of receipt, the Customer shall be deemed
to have approved such statement. In such event, or where the Customer has
otherwise approved any such statement, the Bank shall, to the extent permitted
by law, be released, relieved and discharged with respect to all matters set
forth in such statement or reasonably implied therefrom as though it had been
settled by the decree of a court of competent jurisdiction in an action where
the Customer and all persons having or claiming an interest in the Customer or
the Customer's Accounts were parties.
All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk of the
Customer. The Bank shall have no liability for any loss occasioned by delay in
the actual receipt of notice by the Bank or by its Subcustodians of any payment,
redemption or other transaction regarding Securities in the Custody Account in
respect of which the Bank has agreed to take any action under this Agreement.
8. Corporate Actions; Proxies.
Whenever the Bank receives information concerning the Securities which
requires discretionary action by the beneficial owner of the Securities (other
than a proxy), such as subscription rights, bonus issues, stock repurchase
plans and rights offerings, or legal notices or other material intended to be
transmitted to securities holders ('Corporate Actions"), the Bank will give the
Customer notice of such Corporate Actions to the extent that the Bank's central
corporate actions department has actual knowledge of a Corporate Action in time
to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, the Bank will endeavor to obtain
instructions from the Customer or its Authorized Person, as defined in
Section 10, but if Instructions are not received in time for the Bank to take
timely action, or actual notice of such Corporate Action was received too late
to seek Instructions, the Bank is authorized to sell such rights entitlement or
fractional interest and to credit the Deposit Account with the proceeds or take
any other action it deems, in good faith, to be appropriate in which case it
shall be held harmless for any such action.
The Bank will deliver proxies to the Customer or its designated agent
pursuant to special arrangements which may have been agreed to in writing. Such
proxies shall be executed in the appropriate nominee name relating to Securities
in the Custody Account registered in the name of such nominee but without
indicating the manner in which such proxies are to be voted; and where bearer
Securities are involved, proxies will be delivered in accordance with
Instructions.
9. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of the Bank, Subcustodian or securities
depository, as the case may be. The Bank may, without notice to the Customer,
cause any such Securities to cease to be registered in the name of any such
nominee and to be registered in the name of the Customer. In the event that
any Securities registered in a nominee name are called for partial redemption
by the issuer, the Bank may allot the called portion to the respective
beneficial holders of such class of security in any manner the Bank deems to be
fair and equitable. The Customer agrees to hold the Bank, Subcustodians, and
their respective nominees
<PAGE> 6
harmless from any liability arising directly or indirectly from their status
as a mere record holder of Securities in the Custody Account.
10. Authorized Persons.
As used in this Agreement, the term "Authorized Person" means
employees or agents including investment managers as have been designated by
written notice from the Customer or its designated agent to act on behalf of
the Customer under this Agreement. Such persons shall continue to be
Authorized Persons until such time as the Bank receives Instructions from the
Customer or its designated agent that any such employee or agent is no longer
an Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information
system acceptable to the Bank which the Bank believes in good faith to have
been given by Authorized Persons or which are transmitted with proper testing
or authentication pursuant to terms and conditions which the Bank may specify,
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until cancelled or superseded.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the Customer will hold
the Bank harmless for the failure of an Authorized Person to send such
confirmation in writing, the failure of such confirmation to conform to the
telephone instructions received or the Bank's failure to produce such
confirmation at any subsequent time. Either Party may electronically record
any Instructions given by telephone, and any other telephone discussions with
respect to the Custody Account. The Customer shall be responsible for
safeguarding any testkeys, identification codes or other security devices
which the Bank shall make available to the Customer or its Authorized
Persons.
12. Standard of Care; Liabilities.
(a) The Bank shall be responsible for the performance of only such duties
as are set forth in this Agreement or expressly contained in Instructions which
are consistent with the provisions of this Agreement.
The Bank will use reasonable care with respect to its obligations
under this Agreement and the safekeeping of Assets. The Bank shall be
liable to the Customer for any loss which shall occur as the result of
the failure of a Subcustodian to exercise reasonable care with respect to the
safekeeping of such Assets to the same extent that the Bank would be
liable to the Customer if the Bank were holding such Assets in New
York. In the event of any loss to the Customer by reason of the
failure of the Bank or its Subcustodian to utilize reasonable care,
the Bank shall be liable to the Customer only to the extent of the
Customer's direct damages, to be determined based on the market value
of the property which is the subject of the loss at the date of discovery of
such loss and without reference to any special conditions or
circumstances.
<PAGE> 7
(ii) The Bank will not be responsible for any act, omission,
default or for the solvency of any broker or agent which it or a Subcustodian
appoints unless such appointment was made negligently or in bad faith.
(iii) The Bank shall be indemnified by, and without liability to
the Customer for any action taken or omitted by the Bank whether pursuant to
Instructions or otherwise within the scope of this Agreement if such act or
omission was in good faith, without negligence. In performing its obligations
under this Agreement, the Bank may rely on the genuineness of any document which
it believes in good faith to have been validly executed.
(iv) The Customer agrees to pay for and hold the Bank harmless
from any liability or loss resulting from the imposition or assessment of any
taxes or other governmental charges, and any related expenses with respect to
income from or Assets in the Accounts.
(v) The Bank shall be entitled to rely, and may act upon the
advice of counsel (who may be counsel for the Customer) on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.
(vi) The Bank need not maintain any insurance for the benefit of
the Customer.
(vii) Without limiting the foregoing, the Bank shall not be
liable for any loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not limited
to, losses resulting from nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market conditions which prevent
the orderly execution of securities transactions or affect the value of Assets.
(viii) Neither party shall be liable to the other for any loss
due to forces beyond their control including, but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion,
fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 1 2, it is specifically acknowledged that the Bank shall have no duty
or responsibility to:
(i) question Instructions or make any suggestions to the
Customer or an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to
investments or the retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other than as
provided in Section 5(c) of this Agreement;
<PAGE> 8
(iv) evaluate or report to the Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party to which
Securities are delivered or payments are made pursuant to this Agreement; or,
(v) review or reconcile trade confirmations received from
brokers, The Customer or its Authorized Persons issuing Instructions shall bear
any responsibility to review such confirmations against Instructions issued to
and statements issued by the Bank.
(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates may have a
material interest in a transaction, or circumstances are such that the Bank
may have a potential conflict of duty or interest including the fact that the
Bank or any of its affiliates may provide brokerage services to other
customers, act as financial advisor to the issuer of Securities, act as a
lender to the issuer of Securities, act in the same transaction as agent for
more than one customer, have a material interest in the issue of Securities,
or earn profits from any of the activities listed herein.
13. Fees and Expenses.
The Customer agrees to pay the Bank for its services under this
Agreement such amount as may be agreed upon in writing, together with the
Bank's reasonable out-of-pocket or incidental expenses, including, but not
limited to legal fees. The Bank shall have a lien on and is authorized to
charge any Accounts of the Customer for any amount owing to the Bank under any
provision of this Agreement.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration
of the Customer's trading and investment activity, the Bank is authorized to
enter into spot or forward foreign exchange contracts with the Customer or an
Authorized Person for the Customer and may also provide foreign exchange
through its subsidiaries, affiliates or Subcustodians. Instructions, including
standing instructions, may be issued with respect to such contracts but the
Bank may establish rules or limitations concerning any foreign exchange
facility made available. In all cases where the Bank, its subsidiaries,
affiliates or Subcustodians enter into a foreign exchange contract related to
Accounts, the terms and conditions of the then current foreign exchange
contract of the Bank, its subsidiary, affiliate or Subcustodian and, to the
extent not inconsistent, this Agreement, shall apply to such transaction.
(b) Certification of Residency, etc. The Customer certifies that it
is a resident of the United States and agrees to notify the Bank of any changes
in residency. The Bank may rely upon this certification or the certification of
such other facts as may be required to administer the Bank's obligations under
this Agreement. The Customer will indemnify the Bank against all losses,
liability, claims or demands arising directly or indirectly from any such
certifications.
(c) Access to Records. The Bank shall allow the Customer's
independent public accountants reasonable access to the records of the Bank
relating to the Assets as is required in connection with their examination of
books and records pertaining to the Customer's affairs. Subject to
restrictions under applicable law, the Bank shall also obtain an undertaking to
permit the Customer's independent public accountants reasonable access to the
records of any Subcustodian which has
<PAGE> 9
physical possession of any Assets as may be required in connection with the
examination of the Customer's books and records.
(d) Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Bank.
(e) Entire Agreement; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are (check one):
employee benefit plan or other assets subject to the Employee Retirement income
Security Act of 1974, as amended ("ERISA');
A mutual fund assets subject to Securities and Exchange Commission ('SEC')
rules and regulations;
neither of the above.
This Agreement consists exclusively of this document together with
Schedule A. Exhibits I- and the following rider(s)
[check applicable rider(s)]:
ERISA
-X-
MUTUAL FUND,
SPECIAL TERMS AND CONDITIONS,
of this Agreement and this Agreement supersedes
any other There are no other provisions agreements, whether written or
oral, between the parties. Any amendment to this Agreement must be in writing,
executed by both parties.
(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or unenforceable in any respect on the
basis of any particular circumstances or in any jurisdiction, the validity,
legality and enforceability of any such provision and the remaining provisions,
under other circumstances or in other jurisdictions will not in any way be
affected or impaired.
(g) Waiver. Except as otherwise provided in this Agreement, no
failure or delay on the part of either party in exercising any power or right
under this Agreement operates as a waiver, nor does any single or partial
exercise of any power or right preclude any other or further exercise thereof,
or the exercise of any other power or right. No waiver by a party of any
provision of this Agreement, or waiver of any breach or default, is effective
unless in writing and signed by the party against whom the waiver is to be
enforced.
(h) Notices. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses
or such other addresses as may subsequently be given to the other party in
writing:
<PAGE> 10
Bank: The Chase Manhattan Bank, N.A.
1211 Avenue of the Americas
New York, NY 10036
Attention: Global Custody Division,
Customer: Merrill Lynch Short-Term Global income,,
(i) Termination. This Agreement may be terminated by the Customer
or the Bank by giving sixty days written notice to the other, provided that
such notice to the Bank shall specify the names of the persons to whom the
Bank shall deliver the Assets in the Accounts. If notice of termination is
given by the Bank, the Customer shall, within sixty days following receipt of
the notice, deliver to the Bank Instructions specifying the names of the
persons to whom the Bank shall deliver the Assets. In either case the Bank
will deliver the Assets to the persons so specified, after deducting any
amounts which the Bank determines in good faith to be owed to it under Section
13. If within sixty days following receipt of a notice of termination by the
Bank, the Bank does not receive Instructions from the Customer specifying the
names of the persons to whom the Bank shall deliver the Assets, the Bank, at
its election, may deliver the Assets to a bank or trust company doing business
in the State of New York to be held and disposed of pursuant to the provisions
of this Agreement, or to Authorized Persons, or may continue to hold the
Assets until Instructions are provided to the Bank.,
CUSTOMER By:,
Title,
THE CHASE MANHATTAN BANK, N.A.
By:,
Title
<PAGE> 11
STATE OF
COUNTY OF, SS.
On this day of ____________,19___, before me personally came
, to me known, who being by me duly sworn, did depose and say that he/she
resides in ______________ at ____________; that he/she is of ('Customer"),
which executed the foregoing Agreement; that he s the seal of the Customer;
that the seal affixed to the Agreement is such seal; that it was affixed by
order of the Customer, and that he/she signed his/her name thereto by like
order.
Sworn to before me this day of,
Notary,
STATE OF
COUNTY OF, SS.,
On this day of 19 , before me
personally came , to me known, who being by me duly
sworn, did depose and say that he/she resides in - - at
; that he/she is a Vice President of THE CHASE MANHATTAN BANK, N.A. ('Bank'),
the Bank which executed the foregoing Agreement; that he/she knows the seal of
the Bank; that the seal affixed to the Agreement is such corporate seal; that
it was so affixed by order of the Board of Directors of the Bank, and that
he/she signed his/her name thereto by like order.
Sworn to before me this day of , 19
Notary
<PAGE> 12
Mutual Fund Rider to Global Custody Agreement
Between The Chase Manhattan Bank, N.A. and
Merrill Lynch Short-Term Global Income,
Fund, Inc, effective,
Customer represents that the Assets being placed in the Bank's custody
are subject to the investment Company Act of 1940 (the "Act"), as the same may
be amended from time to time.
Except to the extent that the Bank has specifically agreed to comply
with a condition of a rule, regulation or interpretation promulgated by or
under the authority of the SEC or the Exemptive Order applicable to accounts
of this nature issued to the Bank (investment Company Act of 1940, Release No.
12053, November 20, 1981), as amended, or unless the Bank has otherwise
specifically agreed, the Customer shall be solely responsible to assure that
the maintenance of Assets under this Agreement complies with such rules,
regulations, interpretations or exemptive order promulgated by or under the
authority of the Securities Exchange Commission.,
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used in this
Agreement shall mean a branch of a qualified U.S. bank, an eligible foreign
custodian or an eligible foreign securities depository, which are further
defined as follows:
(a) "Qualified U.S. Bank" shall mean a qualified U.S. bank as defined
in Rule 17f-5 under the Act;
(b) "eligible foreign custodian" shall mean (i) a banking institution
or trust company incorporated or organized under the laws of a country other
than the United States that is regulated as such by that country's government
or an agency thereof and that has shareholders' equity in excess of $200
million in U.S. currency (or a foreign currency equivalent thereof), (ii) a
majority owned direct or indirect subsidiary of a qualified U.S. bank or bank
holding company that is incorporated or organized under the laws of a country
other than the United States and that has shareholders' equity in excess of $1
00 million in U.S. currency (or a foreign currency equivalent thereof), (iii)
a banking institution or trust company incorporated or organized under the
laws of a country other than the United States or a majority owned direct or
indirect subsidiary of a qualified U.S. bank or bank holding company that is
incorporated or organized under the laws of a country other than the United
States which has such other qualifications as shall be specified in
Instructions and approved by the Bank or (iv) any other entity that shall have
been so qualified by exemptive order, rule or other appropriate action of the
SEC; and,
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws of a
country other than the United States, which operates (i) the central system for
handling securities or equivalent book-entries in that country or (ii) a
transnational system for the central handling of securities or equivalent
book-entries.
<PAGE> 13
The Customer represents that its Board of Directors has approved each
of the Subcustodians listed in Schedule A to this Agreement and the terms of
the subcustody agreements between the Bank and each Subcustodian, which are
attached as Exhibits I through of Schedule A, and further represents that its
Board has determined that the use of each Subcustodian and the terms of each
subcustody agreement are consistent with the best interests of the Customer's
fund(s) and its (their) shareholders. The Bank will supply the Customer with
any amendment to Schedule A for approval. The Customer has supplied or will
supply the Bank with certified copies of its Board of Directors resolutions
with respect to the foregoing prior to placing Assets with any Subcustodian so
approved.,
Section 1 1. Instructions.
Add the following language to the end of Section 1 1:
Account transactions made pursuant to Sections 5 and 6 of this
Agreement may be made only for the purposes listed below. Instructions must
specify the purpose for which any transaction is to be made and the Customer
shall be solely responsible to assure that Instructions are in accord with any
limitations or restrictions applicable to the Customer by law or as may be set
forth in its prospectus.,
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions.,
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.,
(d) Upon conversion of Securities pursuant to their terms into other
securities.,
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.,
(f)For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses.,
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed.,
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.,
(i) For the purpose of redeeming shares of the capital stock of the
Customer and the delivery to, or the crediting to the account of the Bank, its
Subcustodian or the Customer's transfer agent, such shares to be purchased or
redeemed.,
(i) For the purpose of redeeming in kind shares of the Customer
against delivery of the shares to be redeemed to the Bank, its Subcustodian or
the Customer's transfer agent.,
(k) For delivery in accordance with the provisions of any agreement
among the Customer, the Bank and a broker-dealer registered under the
Securities Exchange Act of 1 934 (the "Exchange
<PAGE> 14
Act") and a member of the National Association of Securities Dealers, Inc.,
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 Customer.
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Bank of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Bank will receive the Securities previously deposited from
brokers. The Bank will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no responsibility or
liability for any such Securities which are not returned promptly when due
other than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related transactions.
(n) For other proper purposes as may be specified in Instructions
issued by an officer of the Customer which shall include a statement of the
purpose for which the delivery or payment is to be made, the amount of the
payment or specific Securities to be delivered, the name of the person or
persons to whom delivery or payment is to be made, and a certification that the
purpose is a proper purpose under the instruments governing the Customer.
(o) Upon the termination of this Agreement as set forth in Section
14(i),
Section 12. Standard of Care; Liabilities.
Add the following subsection (d) to Section 12:
(d) The Bank hereby warrants to the Customer that in its opinion,
after due inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified U.S. bank, each eligible foreign
custodian and each eligible foreign securities depository holding the
Customer's Securities pursuant to this Agreement afford protection for such
Securities at least equal to that afforded by the Bank's established
procedures with respect to similar securities held by the Bank and its
securities depositories in New York.
Section 14. Access to Records.
Add the following language to the end of Section 14(c):
Upon reasonable request from the Customer, the Bank shall furnish the
Customer such reports (or portions thereof) of the Bank's system of internal
accounting controls applicable to the Bank's duties under this Agreement. The
Bank shall endeavor to obtain and furnish the Customer with such similar
reports as it may reasonably request with respect to each Subcustodian and
securities depository holding the Customer's assets.
<PAGE> 15
[LOGO] CHASE,
GLOBAL CUSTODY AGREEMENT,
with
stomer),
dated -,
Special Terms and Conditions
<PAGE> 1
EX 99.9(a)
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the 12th day of June, 1990 by and between
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC., a Maryland corporation (the
"Fund"), and FINANCIAL DATA SERVICES, INC., a New Jersey Corporation ("FDS").
WITNESSETH:
WHEREAS, the Fund wishes to appoint FDS to be the Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund 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:
1. 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 the Agreement.
2. Definitions.
(a) In this Agreement:
(I) The term "Act" means the Investment Company Act of 1940,
as amended from time to time, and any rule or regulation thereunder;
(II) The term "Account" means any account of a Shareholder,
or, if the shares are held in an account in the name of MLPF&S for
benefit of an identified customer, such ac-
<PAGE> 2
count, 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");
(III) The term "application" means an application made by a
Shareholder or prospective Shareholder respecting the opening of an
Account;
(IV) The term "MLFD" means Merrill Lynch Funds Distributor, Inc.,
a Delaware corporation;
(V) The term "MLPF&S" means Merrill Lynch, Pierce, Fenner &
Smith Incorporated, a Delaware corporation;
(VI) The term "Officer's Instruction" means an instruction in
writing given on behalf of the Fund to FDS, and signed on behalf of the
Fund by the President, any Vice President, the Secretary or the
Treasurer of the Fund;
(VII) The term "Prospectus" means the Prospectus and the State of
Additional Information of the Fund as from time to time in effect;
(VIII) The term "Shares" means shares of stock of the Fund,
irrespective of class or series;
(IX) The term "Shareholder" means the holder of record of
Shares;
(X) The term "Plan Account" means an account opened by a
Shareholder or prospective Shareholder in respect to an open account,
monthly payment or withdrawal plan (in each case by whatever name
referred to in the Prospectus), and may also include an account relating
to any other Plan if and when provision is made for such plan in the
Prospectus.
3. Duties of 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:
2.
<PAGE> 3
(I) Issuing, transferring and redeeming Shares;
(II) Opening, maintaining, servicing and closing Accounts;
(III) Acting as agent for the Fund Shareholders and/or customers of
MLPF&S in connection with Plan Accounts, upon the terms and subject to the
conditions contained in the Prospectus and application relating to the specific
Plan Account;
(IV) Acting as agent of the Fund and/or MLPF&S, maintaining such
records as may permit the imposition of such contingent deferred sales charges
as may be described in the Prospectus, including such reports as may be
reasonably requested by the Fund with respect to such Shares as may be subject
to a contingent deferred sales charge;
(V) Upon the redemption of Shares subject to such a contingent
deferred sales charge, calculating and deducting from the redemption proceeds
thereof the amount of such charge in the manner set forth in the Prospectus.
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.
(VI) Exchanging the investment of an investor into, or from the shares
of other open-end investment companies or other series portfolios of the Fund,
if any, if and to the extent permitted by the Prospectus at the direction of
such investor.
(VII) Processing redemptions;
(VIII) Examining and approving legal transfers;
(IX) Replacing lost, stolen or destroyed certificates representing
Shares, in accordance with, and subject to, procedures and conditions adopted
by the Fund;
(X) Furnishing such confirmations of transactions relating to their
Shares as required by applicable law;
(XI) Acting as agent for the Fund and/or MLPF&S, furnishing such
appropriate periodic statements relating to Accounts, together with additional
enclosures, including appropriate income tax information and income tax forms
duly completed, as required by applicable law;
3.
<PAGE> 4
(XII) 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;
(XIII) Furnishing such periodic statements of transactions
effected by FDS, reconciliations, balances and summaries as the Fund
may reasonably request;
(XIV) 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 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;
(XV) Withholding taxes on non-resident alien Accounts,
preparing and filing U.S. Treasury Department Form 1099 and other
appropriate forms as required by applicable law with respect to
dividends and distributions; and
(XVI) Reinvesting dividends for full and fractional shares and
disbursing cash dividends, as applicable.
(b) 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 certificates, 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.
4.
<PAGE> 5
(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. Compensation.
The charges for services described in this Agreement, including
"out-of-pocket" expenses, will be set forth in the Schedule of Fees attached
hereto.
5. Right of Inspection.
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.
6. Confidential Relationship.
FDS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by his Agreement, and all
information germane thereto, as confidential and not to be disclosed to any
person (other than the Shareholder concerned, or the Fund, or as may be
disclosed in the examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the Fund by way of
an Officer's Instruction.
7. Indemnification.
The Fund shall indemnify and hold 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
5.
<PAGE> 6
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.
8. 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 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 it is duly authorized and
permitted to act as Transfer Agent, Dividend Disbursing Agent, and Shareholder
Servicing Agent under all applicable laws and that it will immediately notify
the Fund of any revocation of such authority or permission or of the
commencement of any proceeding or other action which may lead to such
revocation.
9. Termination.
(a) This Agreement shall become effective as of the date first above
written and shall thereafter continue from year to year. This Agreement may be
terminated by the Fund or 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 cancelled stock certificates representing Shares remaining in its
possession, and all Shareholder records, books, stock ledgers, instruments and
other documents (including compu-
6.
<PAGE> 7
terized or other electronically stored information) made or accumulated in the
performance of its duties as Transfer Agent, Disbursing Agent and Shareholder
Servicing Agent for the Fund along with a certified locator document clearly
indicating the complete contents therein, to such successor as may be specified
in a notice of termination or Officer's Instruction; and the Fund assumes all
responsibility for failure thereafter to produce any paper, record or documents
so delivered and identified in the locator document, if and when required to
be produced.
10. Amendment.
Except to the extent that the performance by FDS or its functions under
this Agreement may from time to time be modified by an Officer's Instruction,
this Agreement may be amended or modified only by further written Agreement
between the parties.
11. Governing Law.
This Agreement shall be governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers and their respective
corporate seals hereunto duly affixed and attested, as of the day and year
above written.
MERRILL LYNCH SHORT-TERM GLOBAL INCOME
FUND, INC.
By /s/ DAVID B. WALTER
---------------------------------------
FINANCIAL DATA SERVICES, INC.
By /s/
---------------------------------------
7.
<PAGE> 1
EX. 99.9(b)
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT made as of the 18th day of April, 1990, by and between MERRILL
LYNCH & CO., INC., a Delaware corporation ("Merrill Lynch"), and MERRILL LYNCH
SHORT-TERM GLOBAL INCOME FUND, INC., a Maryland corporation (the "Fund").
W I T N E S S E T H:
WHEREAS, Merrill Lynch was incorporated under the laws of the State of
Delaware on March 27, 1973 under the corporate name Merrill Lynch & Co., Inc.
and has used such name at all times thereafter;
WHEREAS, Merrill Lynch was duly qualified as a foreign corporation under
the laws of the State of New York on April 25, 1973 and has remained so
qualified at all times thereafter;
WHEREAS, the Fund was organized under the laws of the Commonwealth of
Maryland on April 18, 1990; and
WHEREAS, the Fund has requested Merrill Lynch to give its consent to the
use of the name "Merrill Lynch" in the Fund's name.
NOW, THEREFORE, in consideration of the premises and of the covenants
hereafter contained, Merrill Lynch and the Fund hereby agree as follows:
1. Merrill Lynch hereby grants the Fund a non-exclusive license to use
the words "Merrill Lynch" in its name, and in the name of any portfolio
organized as a separate series of the Fund.
2. Merrill Lynch hereby consents to the qualification of
<PAGE> 2
the Fund to do business under the laws of any state of the United States with
the words "Merrill Lynch" in its name and agrees to execute such formal
consents as may be necessary in connection with such filing.
3. The non-exclusive license hereinabove referred to has been given
and is given by Merrill Lynch on the condition that it may at any time, in its
sole and absolute discretion, withdraw the non-exclusive license to the use of
the words "Merrill Lynch" in the name of the Fund; and, as soon as practicable
after receipt by the Fund of written notice of the withdrawal of such
non-exclusive license, and in no event later than ninety days thereafter, the
Fund will change its name so that such name will not thereafter include the
words "Merrill Lynch" or any variation thereof.
4. Merrill Lynch reserves and shall have the right to grant to any
other company, including without limitation, any other investment company, the
right to use the words "Merrill Lynch" or variations thereof in its name and no
consent or permission of the Fund shall be necessary; but, if required by an
applicable law of any state, the Fund will forthwith grant all requisite
consents.
5. The Fund will not grant to any other company the right to use a
name similar to that of the fund or Merrill Lynch without the written consent
of Merrill Lynch.
6. Regardless of whether the Fund should hereafter change its name and
eliminate the words "Merrill Lynch" or any variation thereof from such name,
the Fund hereby grants to Merrill Lynch
- 2 -
<PAGE> 3
the right to cause the organization of other voluntary associations or the
incorporation of corporations which may have names similar to that of the Fund
or to that which the Fund may change its name and to own all or any portion
of the shares of such other corporations or associations and to enter into
contractual relationships with such other corporations or associations, subject
to any requisite approval of a majority of the Fund's shareholders and the
Securities and Exchange Commission and the Fund agrees to give and execute any
such formal consents or agreements, and to make a diligent effort to obtain
such approvals, as may be necessary in connection therewith.
7. This Agreement may be amended at any time by a writing signed by
the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH & CO., INC.
By /s/ Arthur Zeikel
------------------------------
MERRILL LYNCH SHORT-TERM GLOBAL
INCOME FUND, INC.
By /s/ Mark B. Goldfus
------------------------------
<PAGE> 1
EX-99.13
CERTIFICATE OF SOLE STOCKHOLDER
Merrill Lynch Asset Management, Inc., the holder of 5,000 shares of Class
A common stock, par value $0.10 per share, and 5,000 shares of Class B common
stock, par value $0.10 per share, of Merrill Lynch Short-Term Global Income
Fund, Inc., a Maryland corporation (the "Fund"), does hereby confirm to the
Fund its representation that it purchased such shares for investment pur-poses,
with no present intention of redeeming -or reselling any portion thereof, and
does further agree that if it redeems any portion of such shares prior to the
amortization of the Fund's organizational expenses, the proceeds thereof will
be reduced by the proportionate amount of the unamortized organizational ex-
penses which the number of shares being redeemed bears to the number of shares
initially purchased, Dated: June 1, 1990.
MERRILL LYNCH ASSET MANAGMENT, INC.
by: /S/ Mark B. Goldfus
Mark B. Goldfus
Vice President,
Dated: June 15, 1990,
<PAGE> 1
EX-99.16(a)
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
30 DAYS STANDARDIZED YIELD FOR PERIOD
ENDING DECEMBER 27, 1990
Class A
<TABLE>
<S> <C>
Long term income generally based on yield to $ 730,211
maturity times market value of each security
divided by 12,
Plus short term income accrued for the past
thirty days, 1,112,854
Equals Total Income 1,843,065
Less expenses for the past thirty days, (125,152)
------------
Equals net monthly income for yield calculation 1,717,913
------------
Average shares outstanding for 30 days 19,760,699
Times the Maximum Offering Price 10.23
------------
Equals total dollars, $202,151,946
Net monthly income divided by total dollars
equals, 0.008498127
Add 1 1.008498127
Raise to the power of 6 1.052084386
Subtract 1 0.052084386
Times 2 0.104168772
Expressed as a percentage equals the
standardized yield for 30 day period, 10.42%
-----------
</TABLE>
<PAGE> 2
EXHIBIT 16(a)
(Continued)
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
PERIOD OF AUGUST 3, 1990 TO DECEMBER 27, 1990
AVERAGE ANNUAL RETURN AND TOTAL RETURN
Class A
<TABLE>
<CAPTION>
Average Annual Total Return,
Return Since Since
Inception Inception*
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by
Maximum Offering Price 10.31
---------
Divided by Net Asset Value 10.00
--------
Equals Shares Purchased 96.99 100.00
Plus Shares Acquired through
Dividend Reinvestment 3.24 3.34
Equals Shares Held
at 12/27/90 100.23 103.34
Multiplied by Net Asset
Value at 12/27/90 9.92 9.92
--------- --------
Equals Ending Redeemable
Value at $1,000
Investment (ERV) at 12/27/90 994.30 $1,025.10
Divided by $1,000 (P) 0.9943 1.0251
Subtract 1 -0.0057 0.0251
Expressed as a percentage
equals the Aggregate Total
Return for the Period -0.57%
---------
Expressed as a percentage
equals the Aggregate Total
Return for the Period 2.51%
---------
ERV divided by P 0.9943
- Raise to the power of 6 2.482993197
Equals 0.9859
Subtract 1 -0.0141
Expressed as a percentage
equals the Average
Annualized -1.41%
</TABLE>
*Does not include sales charge for the period.
<PAGE> 1
EX-99.16(b)
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
30 DAYS STANDARDIZED YIELD FOR PERIOD
ENDING DECEMBER 27, 1990
Class B
<TABLE>
<S> <C>
Long term income generally based on yield to
maturity times market value of each security
divided by 12, $9,572,803
Plus short term income accrued for the past
thirty days, 14,589,122
-------------
Equals Total Income 24,161,925
Less expenses for the past thirty days (3,263,336)
Equals net monthly income for yield calculation 20,898,589
Average shares outstanding for 30 days 259,054,848
Times the Net Asset Value 9.92
Equals total dollars $2,569,824,092
Net monthly income divided by total dollars
equals, 0.008132302
Add 1 1.008132302
Raise to the power of 6 1.049796658
Subtract 1 0.049796658
Times 2 0.099593315
Expressed as a percentage equals the
standardized yield for 30 day period, 9. 96%
--------------
</TABLE>
<PAGE> 2
EXHIBIT 16(b)
(Continued)
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
PERIOD OF AUGUST 3, 1990 TO DECEMBER 27, 1990
AVERAGE ANNUAL RETURN AND TOTAL RETURN
Class B
<TABLE>
<CAPTION>
Average Annual Total
Return Since Return Since
Inception Inception*
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 10.00 10.00
--------- ---------
Equals Shares Purchased 100.00 100.00
Plus Shares Acquired through
Dividend Reinvestment, 3.08 3.08
--------- ---------
Equals Shares Held
at 12/27/90, 103.08 103.08
Multiplied by Net Asset
Value at 12/27/90, 9.92 9.92
--------- ---------
Equals Ending Value before
deduction for contingent
deferred sales charge, 1,022.55 1,022.60
Less deferred sales charge 29.75 0.00
--------- ---------
Equals Ending Redeemable
Value at $1,000
Investment (ERV), $ 992.80 $1,022.60
--------- ---------
Divided by $1,000 (P) 0.9928 1.0226
Subtract 1 -0.0072 0.0226
Expressed as a percentage
equals the Aggregate Total
Return-for the Period, -0.72%
---------
Expressed as a percentage
equals the Aggregate Total
Return for the Period, 2.26%
----------
ERV divided by P 0.9929
Raise to the power of 6 2.4829932
Equals 0.9822
Subtract 1 -0.0178
Expressed as a percentage
equals the Average
Annualized Total Return, -1.79%
---------
</TABLE>
*does not include sales charge for the period.
<PAGE> 1
BROWN & WOOD
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
TELEPHONE: (212) 839-5300
FACSIMILE: (212) 839-5599
February 28, 1996
Merrill Lynch Short-Term Global Income Fund, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
Ladies and Gentlemen:
This opinion is furnished in connection with the registration by
Merrill Lynch Short-Term Global Income Fund, Inc. a Maryland corporation (the
"Company"), of shares of common stock, par value $0.10 per share, of the
Company (the "Shares"), under the Securities Act of 1933, as amended, pursuant
to the Company's registration statement on Form N-1A (File No. 33-34476), as
amended (the "Registration Statement"), in the amount set forth under "Amount
Being Registered" on the facing page of 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, as amended, the By-Laws of the Company and such other documents
as we have deemed relevant to the matters referred to in this opinion.
<PAGE> 2
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 Company.
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
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT EXHIBIT 11
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.:
We consent to the use in Post-Effective Amendment No. 7 to Registration
Statement No. 33-34476 of our reports dated December 6, 1995 and February 2,
1996 appearing in the Statement of Additional Information, which is a part of
such Registration Statement, and to the reference to us under the caption
"Financial Highlights" appearing in the Prospectus, which also is a part of such
Registration Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
February 26, 1996
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<CIK> 0000862681
<NAME> MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
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<NAME> CLASS C
<S> <C>
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