<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1998
REGISTRATION NOS. 33-37103
811-6180
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 10 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 12 [X]
(CHECK APPROPRIATE BOX OR BOXES)
---------------------
MERRILL LYNCH GLOBAL UTILITY 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
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
COPIES TO:
<TABLE>
<S> <C>
COUNSEL FOR THE FUND: PHILIP L. KIRSTEIN, ESQ.
JOEL H. GOLDBERG, ESQ. MERRILL LYNCH ASSET MANAGEMENT, L.P.
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP P.O. BOX 9011
919 THIRD AVENUE, NEW YORK, NEW YORK 10022 PRINCETON, NEW JERSEY 08543-9011
</TABLE>
---------------------
IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE:
[X] Immediately upon filing pursuant to paragraph (b) of Rule 485, or
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
<PAGE> 2
MERRILL LYNCH GLOBAL UTILITY FUND, INC.
POST-EFFECTIVE AMENDMENT NO. 10 ON FORM N-1A
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A) UNDER THE SECURITIES ACT OF 1933)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ----------------------------------------------------- --------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page............................ Cover Page
Item 2. Synopsis.............................. Fee Table
Item 3. Condensed Financial Information....... Financial Highlights
Item 4. General Description of Registrant..... Cover Page; Risks and Special
Considerations; Investment Objective
and Policies; Additional Information
Item 5. Management of the Fund................ Fee Table; Management of the Fund;
Inside Back Cover Page; Portfolio
Transactions and Brokerage
Item
5A. Management's Discussion of Fund
Performance......................... Not Applicable
Item 6. Capital Stock and Other Securities.... Merrill Lynch Select Pricing(SM)
System; Additional Information
Item 7. Purchase of Securities Being
Offered............................. 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; Shareholder Services;
Purchase of Shares; Repurchase and
Redemption of Shares
Item 9. Pending Legal Proceedings............. Not Applicable
PART B
Item
10. Cover Page............................ Cover Page
Item
11. Table of Contents..................... Back Cover Page
Item
12. General Information and History....... Not Applicable
Item
13. Investment Objectives and Policies.... Investment Objective and Policies
Item
14. Management of the Registrant.......... Management of the Fund
Item
15. Control Persons and Principal Holders
of Securities....................... Management of the Fund; General
Information
Item
16. Investment Advisory and Other
Services............................ Management of the Fund; Purchase of
Shares; General Information
Item
17. Brokerage Allocation and Other
Practices........................... Portfolio Transactions and Brokerage
Item
18. Capital Stock and Other Securities.... General Information
Item
19. Purchase, Redemption and Pricing of
Securities Being Offered............ Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services; General
Information
Item
20. Tax Status............................ Additional Information
Item
21. Underwriters.......................... Purchase of Shares
Item
22. Calculations of Performance Data...... Performance Data
Item
23. Financial Statements.................. Financial Statements
PART C
</TABLE>
Information required to be included is set forth under the appropriate
Item, so numbered, in Part C to this Post-Effective Amendment to the
Registration Statement.
<PAGE> 3
PROSPECTUS
MARCH 3, 1998
MERRILL LYNCH GLOBAL UTILITY FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Global Utility Fund, Inc. (the "Fund") is a diversified
mutual fund seeking both 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 that are, in the opinion of Merrill
Lynch Asset Management, L.P. (the "Manager" or "MLAM"), primarily engaged in the
ownership or operation of facilities used to generate, transmit or distribute
electricity, telecommunications, gas or water. There can be no assurance that
the Fund's investment objective will be achieved. The Fund may employ a variety
of instruments and techniques to enhance income and to hedge against market and
currency risk. Investments on an international basis involve special
considerations. See "Risks and Special Considerations" on page 10. For more
information on the Fund's investment objective and policies, please see
"Investment Objective and Policies" on page 11.
Pursuant to the Merrill Lynch Select PricingSM System, the Fund offers four
classes of shares, each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select PricingSM System permits an
investor to choose the method of purchasing shares that the investor believes is
most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares, and other relevant circumstances. See
"Merrill Lynch Select PricingSM System" on page 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 that 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 and for
participants in certain fee-based programs the minimum initial purchase is $500
and the minimum subsequent purchase is $50. Merrill Lynch may charge its
customers a processing fee (presently $5.35) for confirming purchases and
repurchases. Purchases and redemptions made directly through Merrill Lynch
Financial Data Services, Inc. (the "Transfer Agent") are not subject to the
processing fee. See "Purchase of Shares" and "Repurchase and Redemption of
Shares."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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 March 3, 1998 (the "Statement of Additional Information"),
has been filed with the Securities and Exchange Commission (the "Commission")
and can be obtained, without charge, by calling or by writing the Fund at the
above telephone number or address. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund. The
Statement of Additional Information is hereby incorporated by reference into
this Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE> 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 year, 1.0% for one None(d)
decreasing 1.0% annually year(f)
thereafter to 0.0% after the
fourth year(e)
Exchange Fee....................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS):
Investment Advisory Fees(g)........ 0.60% 0.60% 0.60% 0.60%
12b-1 Fees(h):
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
Shareholder Servicing Fees(i)...... 0.10% 0.12% 0.12% 0.09%
Other.............................. 0.12% 0.12% 0.11% 0.12%
------ --- --- ----
Total Other Expenses......... 0.22% 0.24% 0.23% 0.21%
------ --- --- ----
TOTAL FUND OPERATING EXPENSES........ 0.82% 1.59% 1.63% 1.06%
====== === === ====
</TABLE>
- ---------------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and certain participants in
fee-based programs. See "Purchase of Shares -- Initial Sales Charge
Alternatives -- Class A and Class D Shares" -- page 26 and "Shareholder
Services -- Fee-Based Programs" -- page 39.
(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 and participants in connection with
certain fee-based 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 26.
(d) Class A and Class D shares may not be subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more that
are not subject to an initial sales charge may instead be subject to a CDSC
of 1.0% of amounts redeemed within the first year after purchase. Such CDSC
may be waived in connection with certain fee-based programs. See
"Shareholder Services -- Fee-Based Programs" -- page 39.
(e) The CDSC may be modified in connection with certain fee-based programs. See
"Shareholder Services -- Fee-Based Programs" -- page 39.
(f) The CDSC may be waived in connection with certain fee-based programs. See
"Shareholder Services -- Fee-Based Programs" -- page 39.
(g) See "Management of the Fund -- Management and Advisory Arrangements" -- page
22.
(h) See "Purchase of Shares -- Distribution Plans" -- page 32.
(i) See "Management of the Fund -- Transfer Agency Services" -- page 23.
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 $40.00 initial sales
charge (Class A and Class D shares only) and assuming
(1) the Total Fund Operating Expenses for each class
set forth on page 2, (2) a 5% annual return throughout
the periods and (3) redemption at the end of the
period:
Class A............................................. $ 48 $65 $84 $137
Class B............................................. $ 56 $70 $87 $189
Class C............................................. $ 27 $51 $89 $193
Class D............................................. $ 50 $72 $96 $164
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of
the period:
Class A............................................. $ 48 $65 $84 $137
Class B............................................. $ 16 $50 $87 $189
Class C............................................. $ 17 $51 $89 $193
Class D............................................. $ 50 $72 $96 $164
</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 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 own 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 charge permitted under the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD"). Merrill Lynch may
charge its customers a processing fee (presently $5.35) for confirming purchases
and repurchases. Purchases and redemptions made directly through the Fund's
transfer agent are not subject to the processing fee. See "Purchase of Shares"
and "Repurchase 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 registered investment companies advised by Merrill Lynch Asset Management,
L.P. ("MLAM" or the "Manager") or an affiliate of MLAM, Fund Asset Management,
L.P. ("FAM"). Funds advised by MLAM or FAM that use the Merrill Lynch Select
Pricing(SM) System are referred to herein as "MLAM-advised mutual funds."
3
<PAGE> 6
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
CDSCs, distribution 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, 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. Each class has different exchange privileges. See "Shareholder
Services -- Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the CDSCs and distribution fees with respect to the Class B and Class C
shares in that the sales charges and distribution fees applicable to each class
provide for the financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The 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 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(2) Maximum 4.00% initial sales No No No
charge(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 the first year, after approximately
decreasing 1.0% annually to ten years(5)
0.0%(4)
- -------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(6) 0.25% 0.55% No
- -------------------------------------------------------------------------------------------------
D Maximum 4.00% initial sales 0.25% No No
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 and participants in connection with
certain fee-based 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
may be subject to a 1.0% CDSC if redeemed within one year. Such CDSC may be
waived in connection with certain fee-based programs. A 0.75% sales charge
for 401(k) purchases over $1,000,000 will apply. See "Class A" and "Class D"
below.
(4) The CDSC may be modified in connection with certain fee-based programs.
(footnotes continued on next page)
4
<PAGE> 7
(5) The conversion period for dividend reinvestment shares and the conversion
and holding period for certain retirement plans is modified as described
under "Purchase of Shares -- Deferred Sales Charge
Alternatives -- Conversion of Class B Shares to Class D Shares." 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.
(6) The CDSC may be waived in connection with certain fee-based programs.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares.
Investors who currently own Class A shares of the Fund in a
shareholder account are entitled to purchase additional Class A shares
of the Fund in that account. Other eligible investors include certain
retirement plans and participants in certain fee-based programs. In
addition, Class A shares will be offered at net asset value to
directors and employees of 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 to
members of the Boards of MLAM-advised mutual funds. The maximum
initial sales charge of 4.00% is reduced for purchases of $25,000 and
over and waived for purchases by certain retirement plans and
participants in connection with certain fee-based 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 may be
subject to a CDSC of 1.0% if the shares are redeemed within one year
after purchase. Such CDSC may be waived in connection with certain
fee-based programs. Sales charges also are reduced under a right of
accumulation that 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. Such CDSC may be modified in connection
with certain fee-based programs. Approximately ten years after
issuance, Class B shares will convert automatically to Class D shares
of the Fund, which are subject to an account maintenance fee of 0.25%
but no distribution fee; Class B shares of certain other MLAM-advised
mutual funds into which exchanges may be made convert to Class D
shares automatically after approximately eight years. If Class B
shares of the Fund are exchanged for Class B shares of another
MLAM-advised mutual fund, the conversion period applicable to the
Class B shares acquired in the exchange will apply, as will the Class
D account maintenance fee of the acquired fund upon the conversion and
the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired. Automatic conversion of Class
B shares to 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, are
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 the Class C shares. Class C shares are also
subject to a 1.0% CDSC if they are redeemed within one year of
purchase. Such CDSC may be waived in connection
5
<PAGE> 8
with certain fee-based programs. Although Class C shares are subject
to a CDSC for only one year (as compared to four years for Class B),
Class C shares have no conversion feature and, accordingly, an
investor who purchases Class C shares will be subject to higher
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 the Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. The maximum initial sales charge of 4.00% is
reduced for purchases of $25,000 and over. Purchases of $1,000,000 or
more may not be subject to an initial sales charge but if the initial
sales charge is waived such purchases may be subject to a CDSC of 1.0%
if the shares are redeemed within one year after purchase. Such CDSC
may be waived in connection with certain fee-based programs. The
schedule of initial sales charges and reductions for Class D shares is
the same as the schedule for Class A shares, except that there is no
waiver for purchases in connection with certain fee-based programs.
Class D shares will also be issued upon conversion of Class B shares
as described above under "Class B." See "Purchase of Shares -- Initial
Sales Charge Alternatives -- Class A and Class D Shares."
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
PricingSM System that the investor believes is most beneficial under his or her
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 of the account maintenance fee imposed
on Class D shares. Investors qualifying for significantly reduced initial sales
charges may find the initial sales charge alternative particularly attractive
because similar sales charge reductions are not available with respect to the
deferred sales charges imposed in connection with purchases of Class B or Class
C shares. Investors not qualifying for reduced initial sales charges who expect
to maintain their investment for an extended period of time also may elect to
purchase Class A or Class D shares, because over time the accumulated ongoing
account maintenance and distribution fees on Class B or Class C shares may
exceed the initial sales charge and, in the case of Class D shares, the account
maintenance fee. Although some investors who previously purchased Class A shares
may no longer be eligible to purchase Class A shares of other MLAM-advised
mutual funds, those previously purchased Class A shares, together with Class B,
Class C and Class D share holdings, will count toward a right of accumulation
which may qualify the investor for reduced initial sales charges on new initial
sales charge purchases. In addition, the ongoing Class B and Class C account
maintenance and distribution fees will cause Class B and Class C shares to have
higher expense ratios, pay lower dividends and have lower total returns than the
initial sales charge shares. The ongoing Class D account maintenance fees will
cause Class D shares to have a higher expense ratio, pay lower dividends and
have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. The deferred sales charge alternatives may be particularly appealing to
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account maintenance fees and
distribution fees; however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return is realized on the
additional funds
6
<PAGE> 9
initially invested in Class B or Class C shares. In addition, Class B shares
will be converted into Class D shares of the Fund after a conversion period of
approximately ten years, and thereafter investors will be subject to lower
ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. Investors in Class B shares
should take into account whether they intend to redeem their shares within the
CDSC period and, if not, whether they intend to remain invested until the end of
the conversion period and thereby take advantage of the reduction in ongoing
fees resulting from the conversion into Class D shares. Other investors,
however, may elect to purchase Class C shares if they determine that it is
advantageous to have all their assets invested initially and they are uncertain
as to the length of time they intend to hold their assets in MLAM-advised mutual
funds. Although Class C shareholders are subject to a shorter CDSC period at a
lower rate, they forego the Class B conversion feature, making their investment
subject to account maintenance and distribution fees for an indefinite period of
time. In addition, while both Class B and Class C distribution fees are subject
to the limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See "Purchase of Shares -- Limitations on the Payment of Deferred
Sales Charges."
7
<PAGE> 10
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Fund by Deloitte &
Touche LLP, independent auditors. Financial statements for the fiscal year ended
November 30, 1997 and the independent auditors' report 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.
The following per share data and ratios have been derived from information
provided in the Fund's audited financial statements.
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------------------------------------- --------
FOR THE
PERIOD FOR THE
DEC. 28, YEAR
FOR THE YEAR 1990+ ENDED
ENDED NOV. 30, TO NOV. 30,
-------------------------------------------------------------- NOV. 30, --------
1997++ 1996++ 1995 1994 1993 1992 1991 1997++
------- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 15.09 $ 13.52 $ 12.08 $ 13.22 $ 11.23 $ 10.67 $ 10.00 $ 15.05
------- ------- ------- ------- ------- ------- ------- --------
Investment income -- net.................. .47 .50 .51 .94 .40 .47 .49 .35
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net..................... 2.35 1.84 1.42 (1.57) 2.01 .57 .56 2.35
------- ------- ------- ------- ------- ------- ------- --------
Total from investment operations........... 2.82 2.34 1.93 (.63) 2.41 1.04 1.05 2.70
------- ------- ------- ------- ------- ------- ------- --------
Less dividends and distributions:
Investment income -- net.................. (.49) (.53) (.49) (.47) (.41) (.48) (.38) (.37)
Realized gain on investments -- net....... (.45) (.24) -- (.04) (.01) -- -- (.45)
------- ------- ------- ------- ------- ------- ------- --------
Total dividends and distributions.......... (.94) (.77) (.49) (.51) (.42) (.48) (.38) (.82)
------- ------- ------- ------- ------- ------- ------- --------
Net asset value, end of period............. $ 16.97 $ 15.09 $ 13.52 $ 12.08 $ 13.22 $ 11.23 $ 10.67 $ 16.93
======= ======= ======= ======= ======= ======= ======= ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........ 19.65% 17.94% 16.34% (4.89)% 21.80% 10.05% 10.83% # 18.77%
======= ======= ======= ======= ======= ======= ======= ========
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. .82% .84% .91% .86% .82% 1.01% 1.28% * 1.59%
======= ======= ======= ======= ======= ======= ======= ========
Investment income -- net.................. 2.98% 3.51% 3.73% 3.58% 3.57% 4.47% 5.57% * 2.22%
======= ======= ======= ======= ======= ======= ======= ========
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).............................. $38,825 $40,055 $44,775 $56,659 $81,718 $29,772 $20,579 $301,459
======= ======= ======= ======= ======= ======= ======= ========
Portfolio turnover........................ 6.23% 5.03% 2.92% 17.02% 8.92% 30.91% 20.51% 6.23%
======= ======= ======= ======= ======= ======= ======= ========
Average Commission rate paid##............ $ .0234 $ .0328 -- -- -- -- -- $ .0234
======= ======= ======= ======= ======= ======= ======= ========
<CAPTION>
FOR THE
PERIOD
DEC. 28,
1990+
TO
NOV. 30,
1996++ 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C><C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 13.47 $ 12.04 $ 13.17 $ 11.20 $ 10.65 $ 10.00
-------- -------- -------- -------- -------- -------
Investment income -- net.................. .39 .38 .74 .33 .39 .40
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net..................... 1.84 1.44 (1.46) 1.98 .57 .58
-------- -------- -------- -------- -------- -------
Total from investment operations........... 2.23 1.82 (.72) 2.31 .96 .98
-------- -------- -------- -------- -------- -------
Less dividends and distributions:
Investment income -- net.................. (.41) (.39) (.37) (.33) (.41) (.33)
Realized gain on investments -- net....... (.24) -- (.04) (.01) -- --
-------- -------- -------- -------- -------- -------
Total dividends and distributions.......... (.65) (.39) (.41) (.34) (.41) (.33)
-------- -------- -------- -------- -------- -------
Net asset value, end of period............. $ 15.05 $ 13.47 $ 12.04 $ 13.17 $ 11.20 $ 10.65
======== ======== ======== ======== ======== =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........ 17.07% 15.38% (5.60)% 20.86% 9.20% 10.05% #
======== ======== ======== ======== ======== =======
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. 1.61% 1.68% 1.63% 1.59% 1.77% 2.04% *
======== ======== ======== ======== ======== =======
Investment income -- net.................. 2.74% 2.95% 2.82% 2.81% 3.65% 4.78% *
======== ======== ======== ======== ======== =======
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).............................. $335,487 $381,098 $459,185 $596,455 $200,396 $90,966
======== ======== ======== ======== ======== =======
Portfolio turnover........................ 5.03% 2.92% 17.02% 8.92% 30.91% 20.51%
======== ======== ======== ======== ======== =======
Average Commission rate paid##............ $ .0328 -- -- -- -- --
======== ======== ======== ======== ======== =======
</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.
## For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
and sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted into U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
8
<PAGE> 11
FINANCIAL HIGHLIGHTS (CONCLUDED)
<TABLE>
<CAPTION>
CLASS D
CLASS C ---------------
-------------------------------------------
FOR THE YEAR
FOR THE YEAR ENDED FOR THE PERIOD ENDED
NOVEMBER 30, OCTOBER 21, 1994+ NOVEMBER 30,
------------------------ TO NOVEMBER 30, ---------------
1997++ 1996++ 1995 1994 1997++ 1996++
------ ------ ------ ----------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............................. $15.03 $13.46 $12.05 $ 12.34 $15.10 $13.55
------ ------ ------ ------ ------ ------
Investment income -- net......................................... .33 .38 .39 .01 .43 .50
Realized and unrealized gain (loss) on investments and foreign
currency transactions -- net................................... 2.35 1.84 1.43 (.30) 2.35 1.79
------ ------ ------ ------ ------ ------
Total from investment operations.................................. 2.68 2.22 1.82 (.29) 2.78 2.29
------ ------ ------ ------ ------ ------
Less dividends and distributions:
Investment income -- net......................................... (.37) (.41) (.41) -- (.45) (.50)
Realized gain on investments -- net.............................. (.45) (.24) -- -- (.45) (.24)
------ ------ ------ ------ ------ ------
Total dividends and distributions................................. (.82) (.65) (.41) -- (.90) (.74)
------ ------ ------ ------ ------ ------
Net asset value, end of period.................................... $16.89 $15.03 $13.46 $ 12.05 $16.98 $15.10
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............................... 18.66% 17.03% 15.38% (2.35)%# 19.35% 17.45%
====== ====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................................... 1.63% 1.66% 1.73% 1.60%* 1.06% 1.07%
====== ====== ====== ====== ====== ======
Investment income -- net......................................... 2.07% 2.65% 2.85% 3.01%* 2.70% 3.30%
====== ====== ====== ====== ====== ======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......................... $5,486 $3,325 $2,072 $ 445 $6,935 $4,365
====== ====== ====== ====== ====== ======
Portfolio turnover............................................... 6.23% 5.03% 2.92% 17.02% 6.23% 5.03%
====== ====== ====== ====== ====== ======
Average Commission rate paid##................................... $.0234 $.0328 -- -- $.0234 $.0328
====== ====== ====== ====== ====== ======
<CAPTION>
FOR THE PERIOD
OCTOBER 21, 1994+
TO NOVEMBER 30,
1995 1994
------ -----------------
<S> <<C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............................. $12.09 $ 12.37
Investment income -- net......................................... .52 .02
Realized and unrealized gain (loss) on investments and foreign
currency transactions -- net................................... 1.40 (.30)
Total from investment operations.................................. 1.92 (.28)
Less dividends and distributions:
Investment income -- net......................................... (.46) --
Realized gain on investments -- net.............................. -- --
Total dividends and distributions................................. (.46) --
Net asset value, end of period.................................... $13.55 $ 12.09
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............................... 16.21% (2.26)%#
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................................... 1.15% 1.08%*
Investment income -- net......................................... 3.36% 3.25%*
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......................... $1,516 $ 239
Portfolio turnover............................................... 2.92% 17.02%
Average Commission rate paid##................................... -- --
</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.
## For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
and sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted into U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
9
<PAGE> 12
RISKS AND SPECIAL CONSIDERATIONS
International Investing. As a global fund, the Fund may invest in United
States and foreign securities. Investments in securities of foreign entities and
securities denominated in foreign currencies involve risks not typically
involved in domestic investments, including fluctuations in foreign exchange
rates, future foreign political and economic developments, different legal
systems and the existence or possible imposition of exchange controls or other
foreign or United States governmental laws or restrictions applicable to such
investments. Securities prices in different countries are subject to different
economic, financial, political and social factors. Since the Fund may invest
heavily in securities denominated or quoted in currencies other than the United
States dollar, changes in foreign currency exchange rates may affect the value
of investments in the portfolio and the unrealized appreciation or depreciation
of investments insofar as United States investors are concerned. Changes in
foreign currency exchange rates relative to the U.S. dollar will affect the U.S.
dollar value of the Fund's assets denominated in that currency and the Fund's
yield on such assets. The rate of exchange between the dollar and other
currencies is determined by forces of supply and demand in the foreign exchange
markets. These forces are, in turn, affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation, and other factors. Moreover, individual foreign economies may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross national product, rate of inflation, capital reinvestment,
resources, self-sufficiency and balance of payments position. Also, many of the
securities held by the Fund will not be registered with the Commission nor will
the issuers thereof be subject to the reporting requirements of such agency.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments that could affect investment in those countries.
There may be less publicly available information about a foreign financial
instrument than about a United States instrument, and foreign entities may not
be subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which United States entities are subject. As
a result, traditional investment measurements such as price earnings ratios, as
used in the United States, may not be applicable in certain capital markets.
Certain foreign investments may be subject to foreign withholding taxes.
Investors generally will be able to deduct such taxes in computing their taxable
income or to use such amounts as credits against their United States income
taxes if more than 50% of the Fund's total assets at the close of any taxable
year consists of stock or securities in foreign corporations. See "Additional
Information -- Taxes."
Foreign capital markets, while growing in volume, typically have
substantially less volume than United States markets, and securities of many
foreign companies are less liquid and their prices more volatile than securities
of comparable domestic companies. Brokerage commissions, custodial services, and
other costs relating to investment in foreign capital markets are generally more
expensive than in the United States. 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. Further,
satisfactory custodial services for investment securities may not be available
in some countries, which may result in the Fund incurring additional costs and
delays in transporting and custodying such securities outside such countries.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result
10
<PAGE> 13
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. There is
generally less government supervision and regulation of exchanges, financial
institutions, brokers and issuers in foreign countries than there is in the
United States.
The Fund has made, and may continue to make, substantial investments in the
utility securities of issuers in Latin America, the Far East, and other lesser
developed capital markets. The risks of investment in foreign securities
described above tend to be particularly significant when investing in lesser
developed capital markets.
The operating expense ratio of the Fund can be expected to be higher than
that of an investment company investing exclusively in United States securities
because the expenses of the Fund, such as custodial and brokerage costs, are
higher.
Some countries prohibit or impose substantial restrictions on investment in
their capital markets, particularly their equity markets, by foreign entities
such as the Fund. As illustrations, certain countries require governmental
approval prior to investment by foreign persons, limit the amount of investment
by foreign persons in a particular company or limit the investment by foreign
persons to only a specific class of securities of a company which may have less
advantageous terms than securities of the company available for purchase by
nationals.
Hedging Strategies. The Fund may engage in various portfolio strategies to
seek to increase its return through the use of options on portfolio securities
and to hedge its portfolio against movements in the equity and debt markets and
exchange rates between currencies by the use of options, futures and options
thereon. Utilization of options and futures transactions involves the risk of
imperfect correlation in movements in the price of options and futures and
movements in the price of the securities or currencies which are the subject of
the hedge. Options and futures transactions in foreign markets are also subject
to the risk factors associated with foreign investments generally, as discussed
above. There can be no assurance that a liquid secondary market for options and
futures contracts will exist at any specific time. See the Appendix attached to
this Prospectus.
Other. 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 debt and equity securities of utility companies can be
expected to rise. Conversely, when interest rates rise, the value of a portfolio
of debt and equity securities of utility companies can be expected to decline.
Because of its emphasis on securities of companies in the utilities
industries, the Fund should be considered a vehicle for diversification and not
as a balanced investment program.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a diversified, open-end management investment company. The
Fund's investment objective is to seek both 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 that are, in the opinion of
the Manager, primarily engaged in the ownership or operation of facilities used
to generate, transmit or distribute electricity, telecommunications, gas or
water. This objective is a fundamental policy which the Fund may not change
without a vote of a majority of the Fund's outstanding voting securities, as
defined in the Investment Company
11
<PAGE> 14
Act of 1940, as amended (the "Investment Company Act"). There can be no
assurance that the Fund's investment objective will be achieved. The Fund may
employ a variety of instruments and techniques to enhance income and to hedge
against market and currency risk, as described in the Appendix to this
Prospectus.
The Fund at all times, except during temporary defensive periods, will
maintain at least 65% of its total assets invested in equity and debt securities
issued by domestic and foreign companies in the utilities industries. The Fund
reserves the right to hold, as a temporary defensive measure or as a reserve for
redemptions, short-term U.S. Government securities, money market securities,
including repurchase agreements, or cash in such proportions as, in the opinion
of the Manager, prevailing market or economic conditions warrant. Except during
temporary defensive periods, such securities or cash will not exceed 20% of its
total assets. Under normal circumstances, the Fund will invest at least 65% of
its total assets in issuers domiciled in at least three countries, one of which
may be the United States, although the Manager expects the Fund's portfolio to
be more geographically diversified. Under normal conditions, it is anticipated
that the percentage of assets invested in U.S. securities will be higher than
that invested in securities of any other single country. It is possible that at
times the Fund may have 65% or more of its total assets invested in foreign
securities. Certain foreign investments may be subject to foreign withholding
taxes. Investors generally will be able to deduct such taxes in computing their
taxable income or to use such amounts as credits against their United States
income taxes if more than 50% of the Fund's total assets at the close of any
taxable year consists of stock or securities in foreign corporations. See
"Additional Information -- Taxes."
The Fund will invest in common stocks (including preferred or debt
securities convertible into common stocks), preferred stocks and debt
securities. The relative weightings among common stocks, debt securities and
preferred stocks will vary from time to time based upon the Manager's judgment
of the extent to which investments in each category will contribute to meeting
the Fund's investment objective. Fixed income securities in which the Fund will
invest generally will be limited to those rated investment grade, that is, rated
in one of the four highest rating categories by Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's"), or deemed to be of
equivalent quality (i.e., securities rated at least BBB by S&P or Baa by
Moody's) in the judgment of the Manager. Securities rated Baa by Moody's are
described by it as having speculative characteristics and, according to S&P,
fixed income securities rated BBB normally exhibit adequate protection
parameters, although adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal.
The Fund's commercial paper investments at the time of purchase will be rated
"A-1" or "A-2" by S&P or "Prime-1" or "Prime-2" by Moody's or, if not rated,
will be of comparable quality as determined by the Directors of the Fund. The
Fund may also invest up to 5% of its total assets at the time of purchase in
fixed income securities rated below investment grade by S&P or Moody's, or in
unrated fixed income securities which, in the judgment of the manager, possess
similar credit characteristics as fixed income securities rated investment grade
or fixed income securities rated below investment grade (commonly known as "junk
bonds"). The fund will not invest in any fixed income securities with a rating
lower than Caa by Moody's or CCC by S&P. The Fund may, but need not, dispose of
any security if it is subsequently downgraded. For a description of ratings of
debt securities, see the Appendix to the Statement of Additional Information.
The operating expense ratio of the Fund can be expected to be higher than
that of an investment company investing exclusively in United States securities
because the expenses of the Fund, such as custodial and brokerage costs, are
higher.
12
<PAGE> 15
The Fund may invest in the securities of foreign issuers in the form of
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") or
other securities convertible into securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by an American bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs are receipts issued in Europe
which evidence a similar ownership arrangement. Generally, ADRs, which are
issued in registered form, are designed for use in the United States securities
markets, and EDRs, which are issued in bearer form, are designed for use in
European securities markets. The Fund may invest in ADRs and EDRs through both
sponsored and unsponsored arrangements. In a sponsored ADR or EDR arrangement,
the foreign issuer assumes the obligation to pay some or all of the depository's
transaction fees, whereas in an unsponsored arrangement the foreign issuer
assumes no obligations and the depository's transaction fees are paid by the ADR
or EDR holders. Foreign issuers in respect of whose securities unsponsored ADRs
or EDRs have been issued are not necessarily obligated to disclose material
information in the markets in which the unsponsored ADRs or EDRs are traded and,
therefore, there may not be a correlation between such information and the
market value of such securities.
A change in prevailing interest rates is likely to affect the Fund's net
asset value because prices of debt and equity securities of utility companies
tend to increase when interest rates decline and decrease when interest rates
rise.
UTILITY INDUSTRIES -- DESCRIPTION AND RISKS
Under normal circumstances, the Fund will invest at least 65% of its total
assets in common stocks (including preferred or debt securities convertible into
common stocks), debt securities and preferred stocks of domestic and/or foreign
companies in the utility industries. To meet its objective of current income,
the Fund may invest in domestic utility companies that pay higher than average
dividends, but have a lesser potential for capital appreciation. The average
dividend yields of common stocks issued by domestic utility companies
historically have significantly exceeded those of industrial companies' common
stocks. For certain periods, the total return of utility companies' securities
has underperformed that of industrial companies' securities. There can be no
assurance that positive relative returns on utility securities will occur in the
future. The Manager believes that the average dividend yields of common stocks
issued by foreign utility companies have also historically exceeded those of
foreign industrial companies' common stocks. To meet its objective of capital
appreciation, the Fund may invest in foreign utility companies which pay lower
than average dividends, but have a greater potential for capital appreciation.
The utility companies in which the Fund will invest include companies which
are, in the opinion of the Manager, primarily engaged in the ownership or
operation of facilities used to generate, transmit or distribute electricity,
telecommunications, gas or water.
Risks that are intrinsic to the utility industries include difficulty in
obtaining an adequate return on invested capital, difficulty in financing large
construction programs during an inflationary period, restrictions on operations
and increased cost and delays attributable to environmental considerations and
regulation, difficulty in raising capital in adequate amounts on reasonable
terms in periods of high inflation and unsettled capital markets, technological
innovations which may render existing plants, equipment or products obsolete,
the potential impact of natural or man-made disasters, increased costs and
reduced availability of certain types of fuel, occasionally reduced availability
and high costs of natural gas for resale, the effects of energy
13
<PAGE> 16
conservation, the effects of a national energy policy and lengthy delays and
greatly increased costs and other problems associated with the design,
construction, licensing, regulation and operation of nuclear facilities for
electric generation, including, among other considerations, the problems
associated with the use of radioactive materials and the disposal of radioactive
wastes. There are substantial differences between the regulatory practices and
policies of various jurisdictions, and any given regulatory agency may make
major shifts in policy from time to time. There is no assurance that regulatory
authorities will, in the future, grant rate increases or that such increases
will be adequate to permit the payment of dividends on common stocks.
Additionally, existing and possible future regulatory legislation may make it
even more difficult for these utilities to obtain adequate relief. Certain of
the issuers of securities held in the Fund's portfolio may own or operate
nuclear generating facilities. Governmental authorities may from time to time
review existing policies, and impose additional requirements governing the
licensing, construction and operation of nuclear power plants. Prolonged changes
in climatic conditions can also have a significant impact on both the revenues
of an electric and gas utility as well as the expenses of a utility,
particularly a hydro-based electric utility.
Utility companies in the United States and in foreign countries are
generally subject to regulation. In the United States, most utility companies
are regulated by state and/or federal authorities. Such regulation is intended
to ensure appropriate standards of service and adequate capacity to meet public
demand. Generally, prices are also regulated in the United States and in foreign
countries with the intention of protecting the public while ensuring that the
rate of return earned by utility companies is sufficient to allow them to
attract capital in order to grow and continue to provide appropriate services.
There can be no assurance that such pricing policies or rates of return will
continue in the future.
The nature of regulation of the utility industries is evolving both in the
United States and in foreign countries. In recent years, changes in regulation
in the United States increasingly have allowed utility companies to provide
services and products outside their traditional geographic areas and lines of
business, creating new areas of competition within the industries. In some
instances, utility companies are operating on an unregulated basis. Because of
trends toward deregulation and the evolution of independent power producers as
well as new entrants to the field of telecommunications, non-regulated providers
of utility services have become a significant part of their respective
industries. The Manager believes that the emergence of competition and
deregulation will result in certain utility companies being able to earn more
than their traditional regulated rates of return, while others may be forced to
defend their core business from increased competition and may be less
profitable. The Manager seeks to take advantage of favorable investment
opportunities that may arise from these structural changes. Of course, there can
be no assurance that favorable developments will occur in the future.
Foreign utility companies are also subject to regulation, although such
regulations may or may not be comparable to that in the United States. Foreign
utility companies may be more heavily regulated by their respective governments
than utilities in the United States and, as in the U.S., generally are required
to seek government approval for rate increases. In addition, many foreign
utilities use fuels that may cause more pollution than those used in the United
States, which may require such utilities to invest in pollution control
equipment to meet any proposed pollution restrictions. Foreign regulatory
systems vary from country to country and may evolve in ways different from
regulation in the United States.
The Fund's investment policies are designed to enable it to capitalize on
evolving investment opportunities throughout the world. For example, the rapid
growth of certain foreign economies will necessitate expansion of capacity in
the utility industries in those countries. Although many foreign utility
companies
14
<PAGE> 17
currently are government-owned, thereby limiting current investment
opportunities for the Fund, the Manager believes that, in order to attract
significant capital for growth, foreign governments are likely to seek global
investors through the privatization of their utility industries. Privatization,
which refers to the trend toward investor ownership of assets rather than
government ownership, is expected to occur in newer, faster-growing economies
and in mature economies. Of course, there is no assurance that such favorable
developments will occur or that investment opportunities in foreign markets for
the Fund will increase.
The revenues of domestic and foreign utility companies generally reflect
the economic growth and developments in the geographic areas in which they do
business. The Manager will take into account anticipated economic growth rates
and other economic developments when selecting securities of utility companies.
The principal sectors of the global utility industries are discussed below.
Electric. The electric utility industry consists of companies that are
engaged principally in the generation, transmission and sale of electric energy,
although many also provide other energy-related services. In the past, electric
utility companies, in general, have been favorably affected by lower fuel and
financing costs and the full or near completion of major construction programs.
In addition, many of these companies have generated cash flows in excess of
current operating expenses and construction expenditures, permitting some degree
of diversification into unregulated businesses. Some electric utilities have
also taken advantage of the right to sell power outside of their traditional
geographic areas. Electric utility companies have historically been subject to
the risks associated with increases in fuel and other operating costs, high
interest costs on borrowings needed for capital construction programs, costs
associated with compliance with environmental and safety regulations and changes
in the regulatory climate. As interest rates declined, many utilities refinanced
high cost debt and in doing so improved their fixed charges coverage.
Regulators, however, lowered allowed rates of return as interest rates declined
and thereby caused the benefits of the rate declines to be shared wholly or in
part with customers.
The construction and operation of nuclear power facilities is subject to
increased scrutiny by, and evolving regulations of, the Nuclear Regulatory
Commission and state agencies having comparable jurisdiction. Increased scrutiny
might result in higher operating costs and higher capital expenditures, with the
risk that the regulators may disallow inclusion of these costs in rate
authorizations or the risk that a company may not be permitted to operate or
complete construction of a facility. In addition, operators of nuclear power
plants may be subject to significant costs for disposal of nuclear fuel and for
de-commissioning of such plants.
In October 1993, S&P stiffened its debt-ratings formula for the electric
utility industry, stating that the industry is in long-term decline. In
addition, at that time, Moody's stated that it expected a drop in the next three
years in its average credit ratings for the industry. Reasons set forth for
these outlooks included slowing demand and increasing cost pressures as a result
of competition from rival providers. Subsequent to that time, these rating
agencies have noted that, as a whole, electric utility companies have been
taking positive steps to reduce costs through operational efficiencies, limits
on capital expenditures and the use of excess cash flow to reduce debt.
Nevertheless, both agencies indicate that the changes occurring in the industry
present pressures on credit quality from the uncertainties that exist or are
increasing. Moreover, the rating agencies are taking a closer look at the
business profile of utilities. Ratings for companies are expected to be impacted
to a greater extent in the future by the division of their asset base. Electric
utility companies that focus more on the generation of electricity may see
tougher ratings as this business is expected to be competitive and the least
regulated. On the other hand, companies that focus on transmission and
distribution which is expected to be
15
<PAGE> 18
the least competitive and the more regulated part of the business may see higher
ratings given to the greater predictability of cash flow.
Currently, certain states have enacted or are considering deregulation
proposals. The introduction of competition into the industry as a result of
deregulation may result in lower revenue, lower credit ratings, increased
default risk, and lower electric utility security prices. Such increased
competition may also cause long-term contracts, which electric utilities
previously entered into to buy power, to become "stranded assets" which have no
economic value. Any loss associated with such contracts must be absorbed by
ratepayers and investors. In addition, in anticipation of increasing
competition, some electric utilities have acquired electric utilities overseas
to diversify, enhance earnings and gain experience in operating in a deregulated
environment. In some instances, such acquisitions have involved significant
borrowings which have burdened the acquirer's balance sheet. There is no
assurance that current deregulation proposals will be adopted. However,
deregulation in any form could significantly impact the electric utilities
industry.
Telecommunications. The telecommunications industry today includes both
traditional telephone companies, with a history of broad market coverage and
highly regulated businesses, and cable companies, which began as small, lightly
regulated businesses focused on limited markets. Today these two historically
different businesses are converging in an industry trending toward larger,
competitive, national and international markets with an emphasis on
deregulation. Companies that distribute telephone services and provide access to
the telephone networks still comprise the greatest portion of this segment, but
non-regulated activities such as cellular telephone services, paging, data
processing, equipment retailing, computer software and hardware services are
becoming increasingly significant components as well. The presence of
unregulated companies in this industry and the entry of traditional telephone
companies into unregulated or less regulated businesses provide significant
investment opportunities with companies which may increase their earnings at
faster rates than had been allowed in traditional regulated businesses. Still,
increasing competition, technological innovations and other structural changes
could adversely affect the profitability of such utilities and the growth rate
of their dividends. Given mergers, certain marketing tests currently underway
and legislation and enforcement changes, it is likely that both traditional
telephone companies and cable companies will soon provide a greatly expanded
range of utility services, including two-way video and informational services to
both residential, corporate and governmental customers.
In February 1996, the Telecommunications Act of 1996 became law. The Act
will eventually remove regulatory restrictions on entry that have prevented
local and long-distance telephone companies and cable television companies from
competing against one another. The Act will also remove most cable rate controls
and allow broadcasters to own more radio and television stations. Litigation
concerning the constitutionality of certain major provisions of the Act has
slowed the implementation of such provisions.
Gas. Gas transmission companies and gas distribution companies are also
undergoing significant changes. In the United States, interstate transmission
companies are regulated by the Federal Energy Regulatory Commission, which is
reducing its regulation of the industry. Many companies have diversified into
oil and gas exploration and development, making returns more sensitive to energy
prices. In the recent decade, gas utility companies have been adversely affected
by disruptions in the oil industry and have also been affected by increased
concentration and competition. In the opinion of the Manager, however,
environmental considerations could improve the gas industry outlook in the
future. For example, natural gas is the cleanest of the hydrocarbon fuels, and
this may result in incremental shifts in fuel consumption toward natural gas and
away from oil and coal, even for electricity generation.
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<PAGE> 19
Water. Water supply utilities are companies that collect, purify,
distribute and sell water. In the United States and around the world, the
industry is highly fragmented because most of the supplies are owned by local
authorities. Companies in this industry are generally mature and are
experiencing little or no per capita volume growth. In the opinion of the
Manager, there may be opportunities for certain companies to acquire other water
utility companies and for foreign acquisition of domestic companies. The Manager
believes that favorable investment opportunities may result from consolidation
of this segment.
There can be no assurance that the positive developments noted above,
including those relating to privatization and changing regulation, will occur or
that risk factors other than those noted above will not develop in the future.
INVESTMENT OUTSIDE THE UTILITY INDUSTRIES
The Fund is permitted to invest up to 35% of its assets in securities of
issuers that are outside the utility industries. Such investments may include
common stocks, debt securities or preferred stocks and will be selected to meet
the Fund's investment objective of both capital appreciation and current income.
These securities may be issued by either U.S. or non-U.S. companies. Some of
these issuers may be in industries related to utility industries and, therefore,
may be subject to similar risks. Securities that are issued by foreign companies
or are denominated in foreign currencies are subject to the risks outlined
above. See "Risks and Special Considerations."
The Fund is also permitted to invest in securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities ("U.S. Government
Securities"). Such investments may be backed by the "full faith and credit" of
the United States, including U.S. Treasury bills, notes and bonds as well as
certain agency securities and mortgage-backed securities issued by the
Government National Mortgage Association ("GNMA"). The guarantees on these
securities do not extend to the securities' yield or value or to the yield or
value of the Fund's shares. Other investments in agency securities are not
necessarily backed by the "full faith and credit" of the United States, such as
certain securities issued by the Federal National Mortgage Association ("FNMA"),
the Federal Home Loan Mortgage Corporation, the Student Loan Marketing
Association and the Farm Credit Bank.
The Fund may invest in securities issued or guaranteed by foreign
governments. Such securities are typically denominated in foreign currencies and
are subject to the currency fluctuation and other risks of foreign securities
investments outlined above. See "Risks and Special Considerations." The foreign
government securities in which the Fund intends to invest generally will consist
of obligations supported by national, state or local governments or similar
political subdivisions. Foreign government securities also include debt
obligations of supranational entities, including international organizations
designated or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and related
government agencies. Examples include the International Bank for Reconstruction
and Development (the "World Bank"), the European Investment Bank, the Asian
Development Bank and the Inter-American Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units. An example of a multinational currency unit is the European
Currency Unit. A European Currency Unit represents specified amounts of the
currencies of certain of the member states of the European Economic Community.
Debt securities of quasi-governmental agencies
17
<PAGE> 20
are issued by entities owned by either a national or local government or are
obligations of a political unit that is not backed by the national government's
full faith and credit and general taxing powers. Foreign government securities
also include mortgage-related securities issued or guaranteed by national or
local governmental instrumentalities including quasi-governmental agencies.
Foreign government securities will not be considered government securities for
purposes of determining the Fund's compliance with diversification and
concentration policies.
OTHER INVESTMENT POLICIES AND PRACTICES
Portfolio Strategies Involving Options, Futures and Foreign Exchange
Transactions. The Fund may use certain derivative instruments, including
options and futures and may purchase and sell foreign exchange. Transactions
involving such instruments expose the Fund to certain risks. The Fund's use of
these instruments and the associated risks are described in detail in the
Appendix attached to this Prospectus.
Portfolio Transactions. Because portfolio transactions may be effected on
foreign securities exchanges, the Fund may incur settlement delays on certain of
such exchanges. See "Risks and Special Considerations" above. Where possible,
the Fund will deal directly with the dealers who make a market in the securities
involved except in those circumstances where better prices and execution are
available elsewhere. Such dealers usually are acting as principal for their own
account. On occasion, securities may be purchased directly from the issuer. Such
portfolio securities are generally traded on a net basis and do not normally
involve either brokerage commissions or transfer taxes. Securities firms may
receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options. The Fund has no obligation to
deal with any broker in the execution of transactions in portfolio securities.
Under the Investment Company Act, persons affiliated with the Fund, including
Merrill Lynch, are prohibited from dealing with the Fund as a principal in the
purchase and sale of securities unless a permissive order allowing such
transactions is obtained from the Commission. Affiliated persons of the Fund may
serve as its broker in transactions conducted on an exchange and in over-
the-counter transactions conducted on an agency basis. In addition, consistent
with the NASD Conduct Rules, the Fund may consider sales of shares of the Fund
as a factor in the selection of brokers or dealers to execute portfolio
transactions for the Fund. It is expected that the majority of the shares of the
Fund will be sold by Merrill Lynch. Costs associated with transactions in
foreign securities are generally higher than with transactions in United States
securities, although the Fund will endeavor to achieve the best net results in
effecting such transactions.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase securities on a when-issued basis, and it may purchase or sell
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future to secure what is considered an advantageous yield and price to the Fund
at the time of entering into the transaction. Although the Fund has not
established any limit on the percentage of its assets that may be committed in
connection with such transactions, the Fund will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government Securities or
other liquid debt or equity securities denominated in U.S. dollars or non-U.S.
currencies in an aggregate amount equal to the amount of its commitment in
connection with such purchase transactions.
Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a
18
<PAGE> 21
fixed income security which may be issued and sold to the Fund at the option of
the issuer. The price and coupon of the security is fixed at the time of the
commitment. At the time of entering into the agreement the Fund is paid a
commitment fee, regardless of whether or not the security is ultimately issued.
The Fund will enter into such agreements only for the purpose of investing in
the security underlying the commitment at a yield and price considered
advantageous to the Fund. The Fund will not enter into a standby commitment with
a remaining term in excess of 45 days and will limit its investment in such
commitments so that the aggregate purchase price of the securities subject to
such commitments, together with the value of portfolio securities subject to
legal restrictions on resale, will not exceed 15% of its total assets taken at
the time of acquisition of such commitment or security. The Fund will at all
times maintain a segregated account with its custodian of cash, cash
equivalents, U.S. Government Securities or other liquid debt or equity
securities denominated in U.S. dollars or non-U.S. currencies in an aggregate
amount equal to the purchase price of the securities underlying the commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, the Fund
may bear the risk of a decline in the value of such security and may not benefit
from an appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
can reasonably be expected to be issued and the value of the security will
thereafter be reflected in the calculation of the Fund's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment fee.
In the event the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment.
Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or primary dealer in U.S. Government
securities or an affiliate thereof. Under such agreements, the bank or primary
dealer or an affiliate thereof agrees, upon entering into the contract, to
repurchase the security at a mutually agreed upon time and price in a specified
currency, thereby determining the yield during the term of the agreement. This
results in a fixed rate of return insulated from market fluctuations during such
period although it may be affected by currency fluctuations. In the case of
repurchase agreements, the prices at which the trades are conducted do not
reflect accrued interest on the underlying obligation. Such agreements usually
cover short periods, such as under one week. Repurchase agreements may be
construed to be collateralized loans by the purchaser to the seller secured by
the securities transferred to the purchaser. In the case of a repurchase
agreement, as a purchaser, the Fund will require the seller to provide
additional collateral if the market value of the securities falls below the
repurchase price at any time during the term of the repurchase agreement. In the
event of default by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by the Fund but
only constitute collateral for the seller's obligation to pay the repurchase
price. Therefore, the Fund may suffer time delays and incur costs or possible
losses in connection with disposition of the collateral. In the event of a
default under such a repurchase agreement, instead of the contractual fixed
rate, the rate of return to the Fund shall be dependent upon intervening
fluctuations of the market value of such security and the accrued interest on
the security. In such event, the Fund would have rights against the seller for
breach of contract with respect to any losses arising
19
<PAGE> 22
from market fluctuations following the failure of the seller to perform. The
Fund may not invest more than 15% of its total assets in repurchase agreements
maturing in more than seven days.
Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the United States
Government. Such collateral will be maintained at all times in an amount equal
to at least 100% of the current market value of the loaned securities. During
the period of such a loan, the Fund receives the income on the loaned securities
and either receives the income on the collateral or other compensation, i.e.,
negotiated loan premium or fee, for entering into the loan and thereby increases
its yield. In the event that the borrower defaults on its obligation to return
borrowed securities, because of insolvency or otherwise, the Fund could
experience delays and costs in gaining access to the collateral and could suffer
a loss to the extent that the value of the collateral falls below the market
value of the borrowed securities.
Illiquid Securities. The Fund may invest up to 15% of its total assets in
illiquid securities. Pursuant to that restriction the Fund may not invest in
securities that cannot be readily resold because of legal or contractual
restrictions or that cannot otherwise be marketed, redeemed, put to the issuer
or a third party, or that do not mature within seven days, or that the Board of
Directors has not determined to be liquid, if, regarding all such securities,
more than 15% of its total assets, taken at market value, would be invested in
such securities. Although not a fundamental policy, the Fund will include
over-the-counter ("OTC") options and the securities underlying such options (to
the extent provided in the Appendix attached to this Prospectus) in calculating
the amount of its total assets subject to the limitation on illiquid securities.
The Fund will not change or modify this policy prior to the change or
modification by the Commission staff of its position regarding OTC options.
The Fund may purchase, without regard to the above limitation, securities
that are not registered under the Securities Act of 1933, as amended (the
"Securities Act") but that can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act, provided that the Fund's Board
of Directors, or the Manager pursuant to guidelines adopted by the Board,
continuously determines, based on the trading markets for the specific Rule 144A
security, that it is liquid. The Board of Directors retains oversight and is
ultimately responsible for the determinations. The Board of Directors monitors
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 securities.
Investment Restrictions. The Fund's investment activities are subject to
further restrictions that are described in the Statement of Additional
Information. Investment restrictions and policies that are fundamental policies
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities (which for this purpose and under the
Investment Company Act means the lesser of (a) 67% of the shares represented at
a meeting at which more than 50% of the outstanding shares are represented or
(b) more than 50% of the outstanding shares). Among the Fund's more significant
investment policies, the Fund may not make any investment inconsistent with the
Fund's classification as a diversified company under the Investment Company Act.
The Fund will concentrate in equity and debt securities issued by domestic and
foreign companies in the utilities industries. Other fundamental policies
include policies which restrict the issuance of senior securities and limit bank
borrowings. The Fund does not presently intend to make any
20
<PAGE> 23
investment that would result in the Fund becoming subject to the provisions of
the Public Utility Holding Company Act of 1935.
Non-fundamental policies of the Fund (which may be changed by vote of the
Board of Directors) include policies that (i) prohibit investment in the
securities of other investment companies except to the extent permitted by
applicable law, (ii) limit investment in securities that 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
the acquisition more than 15% of its total assets would be invested in such
securities and (iii) prohibit the Fund from borrowing money, except from banks
for extraordinary purposes or to meet redemptions in amounts of up to 10% of its
total assets. Securities purchased in accordance with Rule 144A under the
Securities Act and determined to be liquid by the Board of Directors are not
subject to the 15% limitation set forth in clause (ii). Although not a
fundamental policy, the Fund will not purchase securities while borrowings
exceed 5% of its total assets. The Fund has no present intention to borrow money
in amounts exceeding 5% of its total assets. In addition, although not a
fundamental policy, the Fund will include OTC options and the securities
underlying such options (to the extent provided under "Additional Risk Factors
of OTC Transactions, Limitations on the Use of OTC Strategic Instruments" in the
Appendix to this Prospectus) in calculating the amount of its total assets
subject to the limitation set forth in clause (ii) above. However, as discussed
in the Appendix, the Fund may treat the securities it uses as cover for written
OTC options as liquid, and therefore, such securities will be excluded from this
restriction, provided the Fund follows a specified procedure. The Fund will not
change or modify this policy prior to the change or modification by the
Commission staff of its position regarding OTC options, as discussed above.
Portfolio Turnover. The Manager will effect portfolio transactions without
regard to a holding period, if, in its judgment, such transactions are advisable
in light of a change in circumstance in general market, economic or financial
conditions. As a result of its investment policies, the Fund may engage in a
substantial number of portfolio transactions. Accordingly, while the Fund
anticipates that its annual turnover rate should not exceed 100% 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. For the fiscal years ended November 30, 1997 and 1996, the portfolio
turnover rates for the Fund were 6.23% and 5.03%, respectively.
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<PAGE> 24
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of six individuals, five of
whom are not "interested persons" of the Fund as defined in the Investment
Company Act. The Board of Directors of the Fund is responsible for the overall
supervision of the operations of the Fund and performs the various duties
imposed on the directors of investment companies by the Investment Company Act.
The Directors of the Fund are:
ARTHUR ZEIKEL* -- Chairman of the Manager and its affiliate, FAM; Chairman
and Director of Princeton Services, Inc. ("Princeton Services"); Executive Vice
President of ML & Co.
RONALD W. FORBES -- Professor of Finance, School of Business, State
University of New York at Albany.
CYNTHIA A. MONTGOMERY -- Professor of Competition and Strategy, Harvard
Business School.
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.
KEVIN A. RYAN -- Professor of Education, Boston University; Founder and
current Director of the Boston University Center for the Advancement of Ethics
and Character.
RICHARD R. WEST -- Dean Emeritus, New York University Leonard N. Stern
School of Business Administration.
- ---------------
* Interested person, as defined in the Investment Company Act, of the Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager, with offices at 800 Scudders Mill Road, Plainsboro, New Jersey
(mailing address: P.O. Box 9011, Princeton, New Jersey 08543-9011) acts as the
manager for the Fund and provides the Fund with management and investment
advisory services. The Manager is owned and controlled by ML & Co., a financial
services holding company and the parent of Merrill Lynch. The Manager or an
affiliate of the Manager, FAM, acts as the investment adviser for over 100
registered investment companies. The Manager also offers portfolio management
services to individual and institutional accounts. As of January 31, 1998, the
Manager and FAM had a total of $287.0 billion in investment company and other
portfolio assets under management, including accounts of certain affiliates of
the Manager.
The management agreement with the Manager (the "Management Agreement")
provides that, subject to the direction of the Board of Directors of the Fund,
the Manager is responsible for the actual management of the Fund's portfolio.
The responsibility for making decisions to buy, sell or hold a particular
security rests with the Manager, subject to review by the Board of Directors.
Walter D. Rogers is the portfolio manager for the Fund. Mr. Rogers has been
a First Vice President of the Manager since 1997 and has been employed by the
Manager since 1987. For the past five years, Mr. Rogers has acted as portfolio
manager of one or more other registered investment companies sponsored by the
Manager, and continues to act in such capacity.
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<PAGE> 25
The Manager is obligated to perform certain administrative and management
services for the Fund and to provide all of the office space, facilities,
equipment and personnel necessary to perform its duties under the Management
Agreement.
The Fund pays the Manager a monthly fee at the annual rate of 0.60% of the
average daily net assets of the Fund. In addition, the Management Agreement
obligates the Fund to pay certain expenses incurred in its operations including,
among other things, the investment advisory fee, legal and audit fees,
registration fees, unaffiliated Directors' fees and expenses, custodian and
transfer agency fees, accounting costs, the costs of issuing and redeeming
shares and certain of the costs of printing proxies, shareholder reports,
prospectuses and statements of additional information. For the fiscal year ended
November 30, 1997, the fee paid by the Fund to the Manager was $2,188,667 (based
upon average daily net assets of approximately $365.8 million). Accounting
services are provided to the Fund by the Manager, and the Fund reimburses the
Manager for its costs in connection with such services. For the fiscal year
ended November 30, 1997, the Fund reimbursed the Manager $33,629 for accounting
services. For the fiscal year ended November 30, 1997, the ratio of total
expenses to average daily net assets was 0.82% for Class A shares, 1.59% for
Class B shares, 1.63% for Class C shares and 1.06% for Class D shares.
The Manager has entered into a sub-advisory agreement (the "Sub-Advisory
Agreement") with MLAM U.K., an indirect, wholly-owned subsidiary of ML & Co. and
an affiliate of the Manager pursuant to which the Manager pays MLAM U.K. a fee
for providing investment advisory services to the Manager with respect to the
Fund in an amount to be determined from time to time by the Manager and MLAM
U.K., but in no event in excess of the amount that the Manager actually receives
for providing services to the Fund pursuant to the Management Agreement. The
address of MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
TRANSFER AGENCY SERVICES
The Transfer Agent, which is a subsidiary of ML & Co., acts as the Fund's
Transfer Agent pursuant to a Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement (the "Transfer Agency Agreement").
Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening and maintenance
of shareholder accounts. Pursuant to the Transfer Agency Agreement, the Transfer
Agent receives an annual fee of up to $11.00 per Class A or Class D account and
up to $14.00 per Class B or Class C account and is entitled to reimbursement for
certain transaction charges and out-of-pocket expenses incurred by the Transfer
Agent under the Transfer Agency Agreement. Additionally, a $.20 monthly closed
account charge will be assessed on all accounts that close during the calendar
year. Application of this fee will commence the month following the month the
account is closed. At the end of the calendar year, no further fees will be due.
For purposes of the Transfer Agency Agreement, the term "account" includes a
shareholder account maintained directly by the Transfer Agent and any other
account representing the beneficial interest of a person in the relevant share
class on a recordkeeping system, provided the recordkeeping system is maintained
by a subsidiary of ML & Co. For the fiscal year ended November 30, 1997, the
total fee paid by the Fund to the Transfer Agent was $429,637 pursuant to the
Transfer Agency Agreement.
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<PAGE> 26
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act which incorporates the Code of Ethics of the
Manager (together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Manager and, as described below,
impose additional, more onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Manager preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Manager include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security which at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Manager.
Furthermore, the Codes provide for trading "blackout periods" which prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund in the same (or equivalent) security (15 or 30 days depending upon the
transaction).
PURCHASE OF SHARES
The Distributor, an affiliate of each of the Manager and Merrill Lynch,
acts as the distributor of shares of the Fund. 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 and except
for participants in certain fee-based programs the minimum initial purchase is
$500 and the minimum subsequent purchase is $50. Different minimums may apply
through the Merrill Lynch Blueprint(SM) Program.
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 ("NYSE") (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 NYSE on that day, provided the Distributor in
turn receives orders from the securities brokers prior to 30 minutes after the
close of business on the NYSE on that day. If the purchase orders are not
received prior to 30 minutes after the close of business on the NYSE on that
day, such orders shall be deemed received on the next business day. The Fund or
the Distributor may suspend the 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 $5.35) to
confirm a sale of shares
24
<PAGE> 27
to such customers. Purchases made directly through the Fund's Transfer Agent are
not subject to the processing fee.
The Fund issues four classes of shares under the Merrill Lynch Select
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 an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
CDSCs, distribution 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 (except that Class B shareholders may vote upon any material changes to
expenses charged under the Class D Distribution Plan). 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 CDSCs and distribution fees with respect to Class B and Class C shares in
that the sales charges and distribution fees applicable to each class provide
for the financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
Investors are advised that only Class A and Class D shares may be available for
purchase through securities dealers, other than Merrill Lynch, that 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>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
- -------------------------------------------------------------------------------------------------
A(2) Maximum 4.00% initial sales No No No
charge(3)
- -------------------------------------------------------------------------------------------------
B CDSC for a period of 4 0.25% 0.50% B shares convert to
years, at a rate of 4.0% D shares automatically
during the first year, after approximately
decreasing 1.0% annually to ten years(5)
0.0%(4)
- -------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(6) 0.25% 0.55% No
- -------------------------------------------------------------------------------------------------
D Maximum 4.00% initial sales 0.25% No No
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 and participants in connection with
certain fee-based 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
may be subject to a 1.0% CDSC if redeemed within one year. Such CDSC may be
waived in connection with certain fee-based programs. A 0.75% sales charge
for 401(k) purchases over $1,000,000 will apply.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and the conversion
and holding periods for certain retirement plans is modified as described
under "Deferred Sales Charge Alternatives -- Class B and Class C
Shares -- Conversion of Class B Shares to Class D Shares." 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.
(6) The CDSC may be waived in connection with certain fee-based programs.
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.
26
<PAGE> 29
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternative is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
SALES LOAD AS DISCOUNT TO
SALES LOAD AS PERCENTAGE* SELECTED DEALERS
PERCENTAGE OF OF THE NET AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED THE OFFERING PRICE
- ---------------------------------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Less than $25,000............................. 4.00% 4.17% 3.75%
$25,000 but less than $50,000................. 3.75 3.90 3.50
$50,000 but less than $100,000................ 3.25 3.36 3.00
$100,000 but less than $250,000............... 2.50 2.56 2.25
$250,000 but less than $1,000,000............. 1.50 1.52 1.25
$1,000,000 and over**......................... 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 and on Class A purchases by certain retirement plan
investors and participants in certain fee-based programs. If the sales charge
is waived in connection with a purchase of $1,000,000 or more of the Fund,
such purchases may be subject to a 1.0% CDSC if the shares are redeemed
within one year after purchase. Such CDSC may be waived in connection with
certain fee-based programs. 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 $1,000,000
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. The
proceeds from the account maintenance fees are used to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) for providing
continuing account maintenance activities.
During the fiscal year ended November 30, 1997, the Fund sold 153,463 Class
A shares for aggregate net proceeds of $2,379,323. The gross sales charges for
the sale of Class A shares of the Fund for that year were $4,317, of which $311
and $4,006 were received by the Distributor and Merrill Lynch, respectively. No
CDSCs were received with respect to redemptions within one year after purchase
of Class A shares purchased subject to a front-end sales charge waiver during
such year.
During the fiscal year ended November 30, 1997, the Fund sold 240,150 Class
D shares for aggregate net proceeds of $3,891,095. The gross sales charges for
the sale of Class D shares of the Fund for that year were $12,792, of which
$1,670 and $11,122 were received by the Distributor and Merrill Lynch,
respectively. For the same year, no CDSCs were received with respect to
redemptions within one year after purchase of Class D shares purchased subject
to a front-end sales charge waiver.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares of the
Fund in a shareholder account, including participants in the Merrill Lynch
BlueprintSM Program, are entitled to purchase additional Class A shares of the
Fund in that account. Certain Employer Sponsored Retirement or Savings Plans,
including eligible 401(k) plans, may purchase Class A shares at net asset value
provided such plans meet the required minimum number of eligible employees or
required amount of assets
27
<PAGE> 30
advised by MLAM or any of its affiliates. Class A shares are available at net
asset value to corporate warranty insurance reserve fund programs and U.S.
branches of foreign banking institutions provided that the program or branch 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, collective
investment trusts for which Merrill Lynch Trust Company serves as trustee and
certain purchases made in connection with certain fee-based programs. In
addition, Class A shares are offered at net asset value to ML & Co. and its
subsidiaries and their directors and employees and to members of the Boards of
investment companies advised by MLAM or its affiliates, including the Fund.
Certain persons who acquired shares of certain closed-end funds advised by MLAM
or its affiliates 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 (for closed-end
funds that commenced operations prior to October 21, 1994). 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.
("Senior Floating Rate Fund") and, if certain conditions set forth in the
Statement of Additional Information are met, to shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. ("Municipal Strategy Fund") and Merrill Lynch High
Income Municipal Bond Fund, Inc. ("High Income Fund") who wish to reinvest the
net proceeds from a sale of certain of their shares of common stock pursuant to
a tender offer conducted by such funds in shares of the Fund and certain other
MLAM-advised mutual funds.
Shareholders already owning Class A shares who wish to reinvest the net
proceeds from a tender of the High Income Fund or the Municipal Strategy Fund
may purchase Class A shares at net asset value rather than Class D shares
provided that (i) the shares to be purchased are held in the same account as the
Class A shares that the shareholder already owns, and (ii) all other
requirements pertaining to the reinvestment privilege are met.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges also
may be reduced under a Right of Accumulation and a Letter of Intention. Class A
shares are offered at net asset value to certain eligible Class A investors as
set forth above under "Eligible Class A Investors." See "Shareholder
Services -- Fee-Based Programs."
Provided applicable threshold requirements are met, either Class A or Class
D shares are offered at net asset value to Employee Access(SM) Accounts
available through authorized employers. Subject to certain conditions, Class A
and Class D shares are offered at net asset value to shareholders of Municipal
Strategy Fund and High Income Fund and Class A shares are offered at net asset
value to shareholders of Senior Floating Rate Fund who wish to reinvest in
shares of the Fund the net proceeds from a sale of certain of their shares of
common stock, pursuant to tender offers conducted by those funds.
Class D shares may be offered at net asset value in connection with the
acquisition of assets of other investment companies. Class D shares also 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.
28
<PAGE> 31
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value to participants in the Merrill Lynch
Blueprint(SM) Program.
Additional information concerning these reduced initial sales charges 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
which declines each year, 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 to 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 at an annual rate of
0.25% of average daily net assets as discussed below under "Distribution Plans."
The proceeds from the account maintenance fees are used to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) for providing
continuing account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its Financial Consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for selling
Class B and Class C shares from its own funds. The combination of the CDSC and
the ongoing distribution fee facilitates the ability of the Fund to sell the
Class B and Class C shares without a sales charge being deducted at the time of
purchase.
Approximately ten years after issuance, Class B shares will convert
automatically to 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 to Class D
shares automatically after approximately eight years. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange will
apply and the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations on
the Payment of Deferred Sales Charges." Class B shareholders of the Fund
exercising the exchange privilege described under "Shareholder Services --
29
<PAGE> 32
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 that
are redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
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:
<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
- --------------------------------------------------------------------------- -----------------
<S> <C>
0-1........................................................................ 4.00%
1-2........................................................................ 3.00%
2-3........................................................................ 2.00%
3-4........................................................................ 1.00%
4 and thereafter........................................................... 0.00%
</TABLE>
For the fiscal year ended November 30, 1997, the Distributor received CDSCs
of $414,164 with respect to redemptions of Class B shares, all of which were
paid to Merrill Lynch. Additional CDSCs payable to the Distributor may have been
waived or converted to a contingent obligation in connection with a
shareholder's participation in certain fee-based programs.
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over four years or shares acquired pursuant to reinvestment
of dividends or distributions and then of shares held longest during the
four-year period. The charge will not be applied to dollar amounts representing
an increase in the net asset value since the time of purchase. A transfer from a
shareholder's account to another account will be assumed to be made in the same
order as a redemption.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and, in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his 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).
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 (the "Code")) of a
shareholder. The Class B CDSC also is waived on redemptions of shares by certain
eligible 401(a) and eligible 401(k) plans and in connection with certain group
plans placing orders through the Merrill Lynch Blueprint(SM) Program. The CDSC
also is waived for any Class B shares that are purchased by eligible 401(k) or
eligible 401(a) plans that are rolled over into a Merrill Lynch or Merrill Lynch
Trust Company custodied IRA and
30
<PAGE> 33
held in such account at the time of redemption. The Class B CDSC also is waived
for any Class B shares that are purchased by a Merrill Lynch rollover IRA that
was funded by a rollover from a terminated 401(k) plan managed by the MLAM
Private Portfolio Group and held in such account at the time of redemption. The
Class B CDSC also is waived for any Class B shares that are purchased within
qualifying Employee Access(SM) Accounts. Additional information concerning the
waiver of the Class B CDSC is set forth in the Statement of Additional
Information. The terms of the CDSC may be modified in connection with certain
fee-based programs. See "Shareholder Services -- Fee-Based Programs."
Contingent Deferred Sales Charges -- Class C Shares. Class C shares that
are redeemed within one year of purchase may be subject to a 1.0% CDSC charged
as a percentage of the dollar amount subject thereto. 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. The Class C CDSC may be waived in
connection with certain fee-based programs. See "Shareholder
Services -- Fee-Based Programs." For the fiscal year ended November 30, 1997,
the Distributor received CDSCs of $1,002 with respect to redemptions of Class C
shares, all of which were paid to Merrill Lynch.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately ten
years (the "Conversion Period"), Class B shares will be converted automatically
to Class D shares of the Fund. Class D shares are subject to an ongoing account
maintenance fee at an annual rate of 0.25% of average daily net assets but are
not subject to the distribution fee that is borne by Class B shares. Automatic
conversion of Class B shares to Class D shares will occur at least once each
month (on the "Conversion Date") on the basis of the relative net asset values
of the shares of the two classes on the Conversion Date, without the imposition
of any sales load, fee or other charge. Conversion of Class B shares to Class D
shares will not be deemed a purchase or sale of the shares for Federal income
tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
31
<PAGE> 34
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 that 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 per
share.
The Conversion Period may also be modified for retirement plan investors
who participate in certain fee-based programs. See "Shareholder
Services -- Fee-Based Programs."
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each, a
"Distribution Plan") with respect to the account maintenance and/or distribution
fees paid by the Fund to the Distributor with respect to such classes. The Class
B and Class C Distribution Plans provide for the payment of account maintenance
fees and distribution fees and the Class D Distribution Plan provides for the
payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.50% and
0.55%, respectively, of the average daily net assets of the Fund attributable to
the shares of the relevant class in order to compensate the Distributor and
Merrill Lynch (pursuant to a sub-agreement) for providing shareholder and
distribution services and bearing certain distribution-related expenses of the
Fund, including payments to financial consultants for selling Class B and Class
C shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the
32
<PAGE> 35
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 November 30, 1997, the Fund paid the Distributor
$2,367,232 pursuant to the Class B Distribution Plan (based on average daily net
assets subject to such Class B Distribution Plan of approximately $316.5
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. For the fiscal year ended November 30, 1997, the Fund paid the
Distributor $35,517 pursuant to the Class C Distribution Plan (based on average
daily net assets subject to such Class C Distribution Plan of approximately $4.5
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class C shares. For the fiscal year ended November 30, 1997, the Fund paid the
Distributor $14,195 pursuant to the Class D Distribution Plan (based on average
daily net assets subject to such Class D Distribution Plan of approximately $5.7
million), all of which was paid to Merrill Lynch for providing account
maintenance activities in connection with Class D shares.
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 distribution fees and CDSCs and the expenses consist of
financial consultant compensation. With respect to Class B shares, as of
December 31, 1996, the last date for which fully allocated accrual data is
available, the fully allocated accrual expenses incurred by the Distributor and
Merrill Lynch since the Class B shares commenced operations on December 28, 1990
exceeded fully allocated accrual revenues for such period by approximately
$5,464,000 (approximately 1.65% of Class B net assets at that date). For the
Class C shares, as of December 31, 1996, the fully allocated accrual expenses
incurred by the Distributor and Merrill Lynch since the Class C shares commenced
operations on October 21, 1994, exceeded fully allocated accrual revenues for
such period by $32,000 (0.95% of Class C assets at that date). For Class B
shares as of November 30, 1997, direct cash revenues since the Class B shares
commenced operations on December 28, 1990 exceeded direct cash expenses by
$10,782,656 (3.58% of Class B net assets at that date). With respect to Class C
shares, as of November 30, 1997 direct cash revenues for the period since
October 21, 1994 (commencement of operations) exceeded direct cash expenses by
$38,744 (0.71% 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 the Class B, Class C and Class D shares, and there is no
assurance that the Board of 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.
33
<PAGE> 36
The initial sales charges, the account maintenance fee, the distribution fee
and/or the CDSCs received with respect to one class will not be used to
subsidize the sale of shares of another class. Payment 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 "Purchase of Shares -- Deferred Sales Charge
Alternatives -- Class B and Class C Shares -- Conversion of Class B Shares to
Class D Shares."
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the NASD Conduct Rules imposes a
limitation on certain asset-based sales charges such as the Fund's distribution
fee and the CDSC borne by the Class B and Class C shares, but not the account
maintenance fee. Charges are 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 reinvestment 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.
REPURCHASE AND 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.
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, less any applicable CDSC,
provided that the request for repurchase is received by the dealer prior to the
close of business on the NYSE (generally 4:00 p.m., New York time) on the day
received, and such request is received by the Fund from such dealer not later
than 30 minutes after the close of business on the NYSE on the same day. Dealers
have the
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responsibility of submitting such repurchase requests to the Fund not later than
30 minutes after the close of business on the NYSE in order to obtain that day's
closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any applicable
CDSC). Securities firms that do not have selected dealer agreements with the
Distributor, however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Merrill Lynch may charge its
customers a processing fee (presently $5.35) to confirm a repurchase of shares
to such customers. Repurchases made directly through the Fund's Transfer Agent
are not subject to the processing fee. The Fund reserves the right to reject any
order for repurchase, which right of rejection might adversely affect
shareholders seeking redemption through the repurchase procedure. A shareholder
whose order for repurchase is rejected by the Fund, however, may redeem shares
as set forth above.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge 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. Redemption requests should not be sent to the Fund. 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. 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" as such term is defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934, the existence and validity of which may be
verified by the Transfer Agent through the use of industry publications.
Notarized signatures are not sufficient. In certain instances, the Transfer
Agent may require additional documents, such as, but not limited to, trust
instruments, death certificates, appointments as executor or administrator, or
certificates of corporate authority. For shareholders redeeming directly with
the Transfer Agent, payment will be mailed within seven days of receipt of a
proper notice of redemption.
At various times the Fund may be requested to redeem shares for which it
has not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that good
payment (e.g., cash or certified check drawn on a United States bank) has been
collected for the purchase of such shares. Normally, this delay will not exceed
10 days.
REINSTATEMENT PRIVILEGE -- CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
privilege to reinstate their accounts by purchasing Class A or Class D shares of
the Fund, as the case may be, at net asset value without a sales charge up to
the dollar amount redeemed. The reinstatement privilege may be exercised by
sending a notice of exercise along with a check for the amount to be reinstated
to the Transfer Agent within 30 days after the date the request for redemption
was accepted by the Transfer Agent or the Distributor. Alternatively, the
reinstatement privilege may be exercised through the investor's Merrill Lynch
Financial Consultant within 30 days after the date the request for redemption
was accepted by the Transfer Agent or the Distributor. The
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<PAGE> 38
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.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
described below that are designed to facilitate investment in its shares. Full
details as to each of such services, copies of the various plans described below
and instructions as to how to participate in the various plans and services, or
to change options with respect thereto, can be obtained from the Fund by calling
the telephone number on the cover page hereof or from the Distributor or Merrill
Lynch. Included in such services are the following:
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 gains distributions. The statements will also show any
other activity in the account since the preceding statement. Shareholders will
receive separate transaction confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestment of ordinary
income dividends and long-term capital gains distributions. Shareholders may
make additions to their 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, the shareholder either must redeem
the Class A or Class D shares (paying any applicable CDSC) so that the cash
proceeds can be transferred to the account at the new firm or such shareholder
must continue to maintain an Investment Account at the Transfer Agent for those
Class A or Class D shares. Shareholders interested in transferring their Class B
or Class C shares from Merrill Lynch and who do not wish to have an Investment
Account maintained for such shares at the Transfer Agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder at the Transfer Agent.
Shareholders considering transferring a tax-deferred retirement account such as
an individual retirement account from Merrill Lynch to another brokerage firm or
financial institution should be aware that if the firm to which the retirement
account is to be transferred will not take delivery of shares of the Fund, the
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.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the Transfer Agent.
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<PAGE> 39
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated at any time in
accordance with the rules of the Commission.
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 or her account in which the exchange is made at the time of the exchange or
is otherwise eligible to purchase Class A shares of the second fund. If the
Class A shareholder wants to exchange Class A shares for shares of a second
MLAM-advised mutual fund and the shareholder does not hold Class A shares of the
second fund in his or her account at the time of the exchange and is not
otherwise eligible to acquire Class A shares of the second fund, the shareholder
will receive Class D shares of the second fund as a result of the exchange.
Class D shares also may be exchanged for Class A shares of a second 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 for shares of the same
class of other MLAM-advised mutual funds.
Shares of the Fund that 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 money market funds advised by MLAM or its affiliates
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.
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<PAGE> 40
Exercise of the exchange privilege is treated as a purchase of the acquired
shares and a sale of the exchanged shares for Federal income tax purposes. For
further information, see "Shareholder Services -- Exchange Privilege" in the
Statement of Additional Information.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions are reinvested automatically
in full and fractional shares of the Fund, without a sales charge, at the net
asset value per share next determined on the ex-dividend date of such dividends
and distributions. A shareholder may at any time, by written notification to
Merrill Lynch if the shareholder's account is maintained by 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 capital gains distributions paid in cash, rather than
reinvested, in which event payment will be mailed on or about the payment date.
The Fund is not responsible for any failure of delivery to the shareholder's
address of record and no interest will accrue on amounts represented by uncashed
distribution or redemption checks. Cash payments can also be directly deposited
to the shareholder's bank account. No CDSC will be imposed upon redemption of
shares issued as a result of the automatic reinvestment of dividends or capital
gains distributions.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawal payments from his
or her Investment Account in the form of payments by check or through automatic
payment by direct deposit to his or her bank account on either a monthly or
quarterly basis. A shareholder whose shares are held within a CMA(R), CBA(R) or
Retirement Account may elect to have shares redeemed on a monthly, bi-monthly,
quarterly, semiannual or annual basis through the CMA(R) or CBA(R) Systematic
Redemption Program, subject to certain conditions. With respect to redemptions
of Class B and Class C shares pursuant to a systematic withdrawal plan, the
maximum number of Class B or Class C shares that can be redeemed from an account
annually shall not exceed 10% of the value of shares of such class in that
account at the time the election to join the systematic withdrawal plan was
made. Any CDSC that otherwise might be due on such redemption of Class B or
Class C shares will be waived. Shares redeemed pursuant to a systematic
withdrawal plan will be redeemed in the same order as Class B or Class C shares
are otherwise redeemed. See "Purchase of Shares -- Deferred Sales Charge
Alternatives -- Class B and Class C Shares -- Contingent Deferred Sales
Charges -- Class B Shares" and "-- Contingent Deferred Sales Charges -- Class C
Shares." Where the systematic withdrawal plan is applied to Class B shares, upon
conversion of the last Class B shares in an account to Class D shares, the
systematic withdrawal plan will automatically be applied thereafter to Class D
shares. See "Purchase of Shares -- Deferred Sales Charge Alternatives -- Class B
and Class C Shares -- Conversion of Class B Shares to Class D Shares."
AUTOMATIC INVESTMENT PLANS
Regular additions of Class A, Class B, Class C or Class D shares may be
made in an investor's Investment Account by prearranged charges of $50 or more
to such investor's 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) or CBA(R) Automated Investment Program.
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<PAGE> 41
FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing alternatives
for securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares which will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of shares
held therein or the automatic exchange thereof to another class at net asset
value, which may be shares of a money market fund. In addition, upon termination
of participation in a Program, shares that have been held for less than
specified periods within such Program may be subject to a fee based upon the
current value of such shares. These Programs also generally prohibit such shares
from being transferred to another account at Merrill Lynch, to another
broker-dealer or to the Transfer Agent. Except in limited circumstances (which
may also involve an exchange as described above), such shares must be redeemed
and another class of shares purchased (which may involve the imposition of
initial or deferred sales charges and distribution and account maintenance fees)
in order for the investment not to be subject to Program fees. Additional
information regarding a specific Program (including charges and limitations on
transferability applicable to shares that may be held in such Program) is
available in such Program's client agreement and from the Transfer Agent at
(800) MER-FUND or (800) 637-3863.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Fund and in certain of the other mutual funds sponsored by Merrill Lynch as well
as in other securities. Merrill Lynch charges an initial establishment fee and
an annual custodial fee for each account. In addition, eligible shareholders of
the Fund may participate in a variety of qualified employee benefit plans which
are available from the Distributor. The minimum initial purchase to establish
any such plan is $100 and the minimum subsequent purchase is $1.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with a
formula specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value of such investment at the end of each period. Average annual total return
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses,
including any CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period such as in the case of Class B and
Class C shares and the maximum sales charge in the case of Class A and Class D
shares. Dividends paid by the Fund with respect to all shares, to the extent any
dividends are paid, will be calculated in the same manner at the same time on
the same day and will be in
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<PAGE> 42
the same amount, except that account maintenance fees and distribution charges
and any incremental transfer agency costs relating to each class of shares will
be borne exclusively by that class. The Fund will include performance data for
all classes of shares of the Fund in any advertisement or information including
performance data of the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return calculated
will not be average annual rates, but, rather, actual annual, annualized or
aggregate rates of return and (2) the maximum applicable sales charges will not
be included with respect to annual or annualized rates of return calculations.
Aside from the impact on the performance data calculations of including or
excluding the maximum applicable sales charges, actual annual or annualized
total return generally will be lower than average annual total return data since
the average annual rates of return reflect compounding; aggregate total return
data generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer period of time. In
advertisements directed to investors whose purchases are subject to waiver of
the CDSC in the case of Class B and Class C 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 charge or may not take into account the CDSC and therefore may reflect
greater total return since, due to the reduced sales charges or waiver of the
CDSC, a lower amount of expenses may be deducted. See "Purchase of Shares." The
Fund's total return may be expressed either as a percentage or as a dollar
amount in order to illustrate the effect of such total return on a hypothetical
$1,000 investment in the Fund at the beginning of each specified period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or losses during the period. The value of an investment in the
Fund will fluctuate and an investor's shares, when redeemed, may be worth more
or less than their original cost.
On occasion, the Fund may compare its performance to the Financial
Times-Actuaries World Index, Financial Times-Actuaries Utility Index, Standard &
Poor's 500 Composite Stock Price Index, the Value Line Composite Index or the
Dow Jones Industrial Average, or to data contained in publications such as
Lipper Analytical Services, Inc., or performance data published by Morningstar
Publications, Inc., Money Magazine, U.S. News and World Report, Business Week,
CDA Investment Technology, Inc., Forbes Magazine and Fortune Magazine. From time
to time, the Fund may include the Fund's Morningstar risk-adjusted performance
ratings in advertisements or supplemental sales literature. As with other
performance data, performance comparisons should not be considered indicative of
the Fund's relative performance for any future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all of its net investment income,
if any. Dividends from such net investment income are paid quarterly. All net
realized capital gains, if any, are distributed to the Fund's shareholders at
least annually. The per share dividends and distributions on each class of
shares will be
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<PAGE> 43
reduced as a result of any account maintenance, distribution and transfer agent
fees applicable to that class. See "Additional Information -- Determination of
Net Asset Value." Dividends and distributions may be reinvested automatically in
shares of the Fund, at net asset value without sales charge. Shareholders may
elect in writing to receive any such dividends or distributions or both, in
cash. Dividends and distributions are taxable to shareholders as described below
whether they are reinvested in shares of the Fund or received in cash. From time
to time, the Fund may declare a special distribution at or about the end of the
calendar year in order to comply with a Federal income tax requirement that
certain percentages of its ordinary income and capital gains be distributed
during the calendar year.
Certain gains or losses attributable to foreign currency-related gains or
losses from certain of the Fund's investments may increase or decrease the
amount of the Fund's income available for distribution to shareholders. If such
losses exceed other income during a taxable year, (a) the Fund would not be able
to make any ordinary dividend distributions, and (b) distributions made before
the losses were realized would be recharacterized as a return of capital to
shareholders, rather than as an ordinary dividend, reducing each shareholder's
tax basis in his Fund shares for Federal income tax purposes. For a detailed
discussion of the Federal tax considerations relevant to foreign currency
transactions, see "Additional Information -- Taxes." If in any fiscal year the
Fund has net income from certain foreign currency transactions, such income will
be distributed at least annually.
All net realized capital gains, if any, are declared and distributed to the
Fund's shareholders annually after the close of the Fund's fiscal year. Capital
gains distributions will be automatically reinvested in shares unless the
shareholder elects to receive such distributions in cash.
See "Shareholder Services -- Automatic Reinvestment of Dividends and
Capital Gains Distributions" for information as to how to elect either dividend
reinvestment or cash payments. Dividends and distributions are taxable to
shareholders as described below whether they are reinvested in shares of any
portfolio or received in cash.
DETERMINATION OF NET ASSET VALUE
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 NYSE (generally 4:00
p.m. New York time) on each day during which the NYSE is open. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies will be
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation. The net asset value per share is
computed by dividing the sum of the market value of the securities held by the
Fund plus any cash or other assets (including interest and dividends accrued but
not yet received) minus all liabilities (including accrued expenses) by the
total number of shares outstanding at such time. Expenses, including the fees
payable to the Manager and any account maintenance and/or distribution fees
payable to the Distributor, are accrued daily.
The per share net asset value of Class A shares generally will be higher
than the per share net asset value of shares of the other classes, 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 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
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<PAGE> 44
applicable with respect to Class B and Class C shares. It is expected, however,
that the per share net asset value of the classes will tend to converge
(although not necessarily meet) immediately after the payment of dividends or
distributions, which will differ by approximately the amount of the expense
accrual differentials among the classes. The Fund employs Merrill Lynch
Securities Pricing(SM) Service ("MLSPS"), an affiliate of the Manager, to
provide certain securities prices for the Fund. The Fund did not pay any fees to
MLSPS for the fiscal year ended November 30, 1997.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are valued or,
lacking any sales, at the last available bid price for long positions and the
last available ask price for short positions. In cases where securities are
traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as the primary
market. Long positions in securities traded in the OTC market are valued at the
last available bid price in the OTC market prior to the time of valuation. Short
positions in securities traded in the OTC market are valued at the last
available ask price in the OTC market prior to the time of valuation. Portfolio
securities that are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market. When the Fund
writes an option, the amount of the premium received is recorded on the books of
the Fund as an asset and an equivalent liability. The amount of the liability is
subsequently valued to reflect the current market value of the option written,
based upon the last sale price in the case of exchange-traded options or, in the
case of options traded in the OTC market, the last asked price. Options
purchased by the Fund are valued at their last sale price in the case of
exchange-traded options or in the case of options traded in the OTC market, the
last bid price. Other investments, including futures contracts and related
options, are stated at market value. Securities and assets for which market
quotations are not readily available are valued at fair value, as determined in
good faith by or under the direction of the Board of Directors of the Fund,
including valuations furnished by a pricing service retained by the Fund.
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. If it so
qualifies, in any taxable year in which it distributes at least 90% of its
taxable net income, the Fund (but not its shareholders) will not be subject to
Federal income tax to the extent that it distributes its net investment income
and realized capital gains that it distributes to Class A, Class B, Class C and
Class D shareholders (together, the "shareholders"). The Fund intends to
distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as "ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized capital gains (i.e. the excess
of net capital gains from the sale of assets held for more than 12 months over
net short-term capital losses, and including long-term gains from certain
transactions in futures and options) are taxable to shareholders as long-term
capital gains, regardless of the length of time the shareholder has owned Fund
shares. Recent legislation created additional categories of capital gains
taxable at different rates. 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).
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Under Code Section 988, foreign currency gains or losses from certain
forward contracts not traded in the interbank market, from futures contracts
that are not "regulated futures contracts" and from unlisted options will
generally be treated as ordinary income or loss. Such Code Section 988 gains or
losses will 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
dividend distributions and any distributions made before the losses were
realized but in the same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing each shareholder's basis in his Fund
shares.
Dividends and distributions 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 amount of any ordinary income dividends or
capital gains dividends, and designating the various categories of capital gain
income in such capital gain dividends. A portion of the Fund's ordinary income
dividends may be eligible for the 70% dividends received deduction allowed to
corporations under the Code, if certain requirements are met. If the Fund pays a
dividend in January that was declared in the previous October, November or
December to shareholders of record on a date in such month, then such dividend
or distribution will be treated for tax purposes as being paid by the RIC and
received by its shareholders on December 31 of the year in which the dividend
was declared.
Redemptions and exchanges of Fund shares are taxable events, and,
accordingly, shareholders may realize gains or losses on such transactions.
Under the Code, if a shareholder exercises the exchange privilege within 90 days
of acquiring Class A shares of the Fund to acquire shares in a second fund ("New
Fund"), then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent the charge paid to the Fund
reduces any charge the shareholder would have owed upon purchase of the New Fund
shares in the absence of the exchange privilege. Instead, such charges will be
treated as an amount paid for the New Fund shares and will be included in the
basis of such shares. See "Shareholder Services -- Exchange Privilege."
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.
A loss on the sale or exchange of shares of the Fund held by a shareholder
for less than 6 months will be a capital loss to the extent of any long-term
capital gains distributions paid with respect to such shares.
Ordinary income dividends paid by the Fund to shareholders who are
non-resident aliens or foreign entities generally will be subject to a 30%
United States withholding tax under existing provisions of the Code applicable
to foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Non-resident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
Pursuant to the investment objectives of the Fund, the Fund may invest in
foreign securities. Income received by the Fund with respect to these
investments may give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Shareholders may be able to claim United States
foreign tax credits with respect to such
43
<PAGE> 46
taxes, subject to certain provisions and limitations contained in the Code. If
more than 50% in value of the Fund's total assets at the close of its taxable
year consists of stock or 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 share of such withholding taxes in their United States income tax
returns as gross income, treat such proportionate share as taxes paid by them,
and deduct such proportionate share in computing their taxable income or,
alternatively, use them as foreign tax credits against their United States
income taxes. The Fund will report annually to its shareholders the amount per
share of such withholding taxes. Please note that foreign tax credits cannot be
claimed on the investments of foreign securities held in the Fund by certain
retirement accounts. Shareholders who are non-resident aliens or foreign
entities may be subject to additional U.S. withholding tax with respect to their
proportionate shares of taxes treated as income to them but not be entitled to
claim any deduction or credit in the U.S.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gains 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 he is not
otherwise subject to backup withholding.
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.
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 these Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Dividends, capital gains distributions and gains on the sale of shares of
the Fund may also be subject to state, local and foreign taxes.
Shareholders are urged to consult their advisers as to whether any portion
of the dividends they receive from the Fund is exempt from state income tax and
as to any other specific questions as to Federal, foreign, state or local taxes.
Foreign investors should consider applicable foreign taxes in their evaluation
of an investment in the Fund.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on September 26, 1990. It has
an authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock, each of which consists of 100,000,000 shares. Class A, Class B,
Class C and Class D Common Stock represent interests in the same assets of the
Fund and are identical in all respects except that Class B, Class C and Class D
shares bear certain expenses related to the account maintenance associated with
such shares and Class B and Class C shares bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with respect
to matters relating to account
44
<PAGE> 47
maintenance and distribution expenditures, as applicable. See "Purchase of
Shares." The Fund has received an order from the Commission permitting the
issuance and sale of multiple classes of Common Stock. The Board of Directors of
the Fund may classify and reclassify the shares of the Fund into additional
classes of Common Stock at a future date.
Shareholders are entitled to one vote for each full share held and 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 distribution expenses being
borne solely by such class (except that Class B shareholders may vote upon any
material changes to expenses under the Class D Distribution Plan). 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 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
non-assessable by the Fund and have no pre-emptive rights. Shares have the
conversion rights described in this Prospectus. Voting rights for Directors are
not cumulative.
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.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 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
800-637-3863.
45
<PAGE> 48
[This page is intentionally left blank.]
46
<PAGE> 49
MERRILL LYNCH GLOBAL UTILITY FUND, INC. -- AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINTSM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINTSM PROGRAM
APPLICATION BY CALLING TOLL FREE (800) 637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[ ] Class A shares [ ] Class B shares [ ] Class C shares [ ] Class D
shares
of Merrill Lynch Global Utility 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.)
1. .......................................................... 4.
..........................................................
2. .......................................................... 5.
..........................................................
3. .......................................................... 6.
..........................................................
Name............................................................................
First Name Initial Last Name
Name of Co-Owner (if any).......................................................
First Name Initial Last Name
Address.............................................
....................................................
(Zip Code)
<TABLE>
<S> <C>
Occupation .........................................
.....................................................
Signature of Owner
<CAPTION>
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> <C> <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 Global Utility 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.
47
<PAGE> 50
MERRILL LYNCH GLOBAL UTILITY 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
"Additional Information -- Taxes") either because I have not been notified that
I am subject thereto as a result of a failure to report all interest or
dividends, or the Internal Revenue Service ("IRS") has notified me that I am no
longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
<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 . . . .
Dear Sir/Madam: Date of initial purchase
</TABLE>
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Global Utility Fund, Inc. or any other investment company with an initial
sales charge or deferred sales charge for which the 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 Global Utility 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 Global Utility Fund, Inc. held as security.
<TABLE>
<S> <C>
By:.............................................................. ...............................................................
Signature of Owner Signature of Co-Owner
(If registered in joint parties, 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 Global Utility 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 or sales made under a Letter of Intention,
Automatic Investment Plan or Systematic Withdrawal Plan. We guarantee the
Shareholder's signature.
...............................................................
Dealer Name and Address
By .............................................................................
Authorized Signature of Dealer
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------- ------------
..............................
- --------- ------------
Branch-Code F/C No. F/C Last Name
- --------- ---------------
- --------- ---------------
Dealer's Customer Account No.
</TABLE>
48
<PAGE> 51
MERRILL LYNCH GLOBAL UTILITY FUND, INC. -- AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR AUTOMATIC
INVESTMENT PLANS ONLY.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------
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)
<CAPTION>
<S> <C> <C> <C>
Name of Owner.......................................................................
First Name Initial Last Name
Name of Co-Owner (if any)...........................................................
First Name Initial Last Name
Address.............................................................................
....................................................................................
(Zip Code)
</TABLE>
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN (SEE TERMS AND CONDITIONS IN THE STATEMENT OF
ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of [ ] Class A, [ ] Class B*, [ ] Class C* or [ ] Class D shares in
Merrill Lynch Global Utility Fund, Inc. at cost or current offering price.
Withdrawals to be made either (check one) [ ] Monthly on the 24th day of each
month, or [ ] Quarterly on the 24th day of March, June, September and December.
If the 24th falls on a weekend or holiday, the next succeeding business day will
be utilized. Begin systematic withdrawal on ________________or as soon as
possible thereafter.
(month)
SPECIFY THE AMOUNT OF THE WITHDRAWAL YOU WOULD LIKE PAID TO YOU (CHECK ONE): [ ]
$________ of [ ] Class A, [ ] Class B*, [ ] Class C* 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 MY 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 SHOULD ACCOMPANY THIS APPLICATION.
* Annual withdrawal cannot exceed 10% of the value of shares of such class held
in the account at the time the election to join the systematic withdrawal plan
is made.
49
<PAGE> 52
MERRILL LYNCH GLOBAL UTILITY 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 Global Utility 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 Global Utility 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 thereafter as possible.
(month)
I agree that you are preparing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such check or 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 Code.......................................
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.
50
<PAGE> 53
APPENDIX
OPTIONS, FUTURES AND FOREIGN EXCHANGE TRANSACTIONS
The Fund is authorized to use certain derivative instruments, including
options and futures, and to purchase and sell foreign exchange, as described
below. Such instruments, which may be regarded as derivatives, are referred to
collectively herein as "Strategic Instruments."
Although certain risks are involved in options and futures transactions (as
discussed below in "Risk Factors in Options, Futures, and Currency
Instruments"), the Manager believes that, because the Fund will (i) write only
covered options on portfolio securities and (ii) engage in other options and
futures transactions only for hedging purposes, the options and futures
portfolio strategies of the Fund will not subject the Fund to the risks
frequently associated with the speculative use of options and futures
transactions. While the Fund's use of hedging strategies is intended to reduce
the volatility of the net asset value of Fund shares, the Fund's net asset value
will fluctuate. There can be no assurance that the Fund's hedging transactions
will be effective. Furthermore, the Fund will only engage in hedging activities
from time to time and may not necessarily be engaging in hedging activities when
movements in the equity, debt or currency markets occur. Reference is made to
the Statement of Additional Information for further information concerning these
Strategic Instruments.
OPTIONS ON SECURITIES AND SECURITIES INDICES
Purchasing Options. The Fund is authorized to purchase put options on
securities held in its portfolio or securities indices the performance of which
is substantially replicated by securities held in its portfolio for hedging
purposes. The Fund may also purchase put options on U.S. Treasury Securities for
the purpose of hedging its portfolio of interest rate sensitive equity
securities against the adverse effects of anticipated movements in interest
rates. When the Fund purchases a put option, in consideration for an upfront
payment (the "option premium") the Fund acquires a right to sell to another
party specified securities owned by the Fund at a specified price (the "exercise
price") on or before a specified date (the "expiration date"), in the case of an
option on securities, or to receive from another party a payment based on the
amount a specified securities index declines below a specified level on or
before the expiration date, in the case of an option on a securities index. The
purchase of a put option limits the Fund's risk of loss in the event of a
decline in the market value of the portfolio holdings underlying the put option
prior to the option's expiration date. If the market value of the portfolio
holdings associated with the put option increases rather than decreases,
however, the Fund will lose the option premium and will consequently realize a
lower return on the portfolio holdings than would have been realized without the
purchase of the put. The Fund will not purchase put options on securities or
securities indices if, as a result of such purchase, the aggregate cost of all
outstanding options on securities and securities indices held by the Fund would
exceed 5% of the market value of the Fund's total assets.
The Fund is also authorized to purchase call options on securities held in
its portfolio on which it has written call options, securities it intends to
purchase or securities indices the performance of which substantially replicates
the performance of the types of securities it intends to purchase. When the Fund
purchases a call option, in consideration for the option premium the Fund
acquires a right to purchase from another party specified securities at the
exercise price on or before the expiration date, in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index
A-1
<PAGE> 54
increases beyond a specified level on or before the expiration date, in the case
of an option on a securities index. The purchase of a call option may protect
the Fund from having to pay more for a security as a consequence of increases in
the market value for the security during a period when the fund is contemplating
its purchase, in the case of an option on a security, or attempting to identify
specific securities in which to invest in a market the Fund believes to be
attractive, in the case of an option on an index (an "anticipatory hedge"). In
the event the Fund determines not to purchase a security underlying a call
option, however, the Fund may lose the entire option premium.
The Fund is also authorized to purchase put or call options in connection
with closing out put or call options it has previously sold.
Writing Covered Options. The Fund is authorized to write (i.e., sell) call
options on securities held in its portfolio or securities indices the
performance of which is substantially correlated to securities held in its
portfolio. When the Fund writes a call option, in return for an option premium
the Fund gives another party the right to buy specified securities owned by the
Fund at the exercise price on or before the expiration date, in the case of an
option on securities, or agrees to pay to another party an amount based on any
gain in a specified securities index beyond a specified level on or before the
expiration date, in the case of an option on a securities index. The Fund may
write call options on securities to earn income, through the receipt of option
premiums; the Fund may write call options on securities indices for hedging
purposes. In the event the party to which the Fund has written an option fails
to exercise its rights under the option because the value of the underlying
securities is less than the exercise price, the Fund will partially offset any
decline in the value of the underlying securities through the receipt of the
option premium. By writing a call option, however, the Fund limits its ability
to sell the underlying securities, and gives up the opportunity to profit from
any increase in the value of the underlying securities beyond the exercise
price, while the option remains outstanding.
The Fund may also write put options on securities or securities indices.
When the Fund writes a put option, in return for an option premium the Fund
gives another party the right to sell to the Fund a specified security at the
exercise price on or before the expiration date, in the case of an option on a
security, or agrees to pay to another party an amount based on any decline in a
specified securities index below a specified level on or before the expiration
date, in the case of an option on a securities index. The Fund may write put
options to earn income, through the receipt of option premiums. In the event the
party to which the Fund has written an option fails to exercise its rights under
the option because the value of the underlying securities is greater than the
exercise price, the Fund will profit by the amount of the option premium. By
writing a put option, however, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of the
security at the time of exercise as long as the put option is outstanding, in
the case of an option on a security, or make a cash payment reflecting any
decline in the index, in the case of an option on an index. Accordingly, when
the Fund writes a put option, it is exposed to a risk of loss in the event the
value of the underlying securities falls below the exercise price, which loss
potentially may substantially exceed the amount of option premium received by
the Fund for writing the put option. The Fund will write a put option on a
security or a securities index only if the Fund would be willing to purchase the
security at the exercise price for investment purposes (in the case of an option
on a security) or is writing the put in connection with trading strategies
involving combinations of options -- for example, the sale and purchase of
options with identical expiration dates on the same security or index but
different exercise prices (a technique called a "spread").
A-2
<PAGE> 55
The Fund is also authorized to sell put or call options in connection with
closing out put or call options it has previously purchased.
Other than with respect to closing transactions, the Fund will only write
call or put options that are "covered." A put option will be considered covered
if the Fund has segregated assets with respect to such option in the manner
described in "Risk Factors in Options, Futures and Currency Instruments" below.
A call option will be considered covered if the Fund owns the securities it
would be required to deliver upon exercise of the option (or, in the case of an
option on a securities index, securities which substantially replicate the
performance of such index) or owns a call option, warrant or convertible
instrument that is immediately exercisable for, or convertible into, such
security.
Types of Options. The Fund may engage in transactions in the options on
securities or securities indices described above on U.S. and foreign exchanges
and in the over-the-counter ("OTC") markets. In general, exchange-traded options
have standardized exercise prices and expiration dates and require the parties
to post margin against their obligations, and the performance of the parties'
obligations in connection with such options is guaranteed by the exchange or a
related clearing corporation. OTC options have more flexible terms negotiated
between the buyer and seller, but generally do not require the parties to post
margin and are subject to greater risk of counterparty default. See "Additional
Risk Factors of OTC Transactions" below.
FUTURES
The Fund may engage in transactions in futures and options thereon. Futures
are standardized, exchange-traded contracts which obligate a purchaser to take
delivery, and a seller to make delivery, of a specific amount of a commodity at
a specified future date at a specified price. No price is paid upon entering
into a futures contract. Rather, upon purchasing or selling a futures contract
the Fund is required to deposit collateral ("margin") equal to a percentage
(generally less than 10%) of the contract value. Each day thereafter until the
futures position is closed, the Fund will pay additional margin representing any
loss experienced as a result of the futures position the prior day or be
entitled to a payment representing any profit experienced as a result of the
futures position the prior day.
The sale of a futures contract limits the Fund's risk of loss through a
decline in the market value of portfolio holdings correlated with the futures
contract prior to the futures contract's expiration date. In the event the
market value of the portfolio holdings correlated with the futures contract
increases rather than decreases, however, the Fund will realize a loss on the
futures position and a lower return on the portfolio holdings than would have
been realized without the purchase of the futures contract.
The purchase of a futures contract may protect the Fund from having to pay
more for securities as a consequence of increases in the market value for such
securities during a period when the Fund was attempting to identify specific
securities in which to invest in a market the Fund believes to be attractive. In
the event that such securities decline in value or the Fund determines not to
complete an anticipatory hedge transaction relating to a futures contract,
however, the Fund may realize a loss relating to the futures position.
The Fund will limit transactions in futures and options on futures to
financial futures contracts (i.e., contracts for which the underlying commodity
is a currency or securities or interest rate index) purchased or sold for
hedging purposes (including anticipatory hedges). The Fund will further limit
transactions in futures and options on futures to the extent necessary to
prevent the Fund from being deemed a "commodity pool operator" under regulations
of the Commodity Futures Trading Commission.
A-3
<PAGE> 56
FOREIGN EXCHANGE TRANSACTIONS
The Fund may engage in spot and forward foreign exchange transactions,
purchase and sell options on currencies and purchase and sell currency futures
and related options thereon (collectively, "Currency Instruments") for purposes
of hedging against possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges on non-U.S. dollar
denominated securities owned by the Fund, sold by the Fund but not yet
delivered, or committed or anticipated to be purchased by the Fund.
Forward foreign exchange transactions are OTC contracts to purchase or sell
a specified amount of a specified currency or multinational currency unit at a
price and future date set at the time of the contract. Spot foreign exchange
transactions are similar but require current, rather than future, settlement.
The Fund will enter into foreign exchange transactions only for purposes of
hedging either a specific transaction or a portfolio position. The Fund may
enter into a foreign exchange transaction for purposes of hedging a specific
transaction by, for example, purchasing a currency needed to settle a security
transaction or selling a currency in which the Fund has received or anticipates
receiving a dividend or distribution. The Fund may enter into a foreign exchange
transaction for purposes of hedging a portfolio position by selling forward a
currency in which a portfolio position of the Fund is denominated or by
purchasing a currency in which the Fund anticipates acquiring a portfolio
position in the near future. The Fund will not enter into a forward contract
with a term of more than one year.
The Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through use of currency futures or options thereon.
Currency futures are similar to forward foreign exchange transactions except
that futures are standardized, exchange-traded contracts. See "Futures" above.
The Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through the use of currency options. Currency options
are similar to options on securities, but in consideration for an option premium
the writer of a currency option is obligated to sell (in the case of a call
option) or purchase (in the case of a put option) a specified amount of a
specified currency on or before the expiration date for a specified amount of
another currency. The Fund may engage in transactions in options on currencies
either on exchanges or OTC markets. See "Types of Options" above and "Additional
Risk Factors of OTC Transactions" below.
The Fund will not speculate in Currency Instruments. Accordingly, the Fund
will not hedge a currency in excess of the aggregate market value of the
securities which it owns (including receivables for unsettled securities sales),
or has committed to or anticipates purchasing, which are denominated in such
currency. The Fund may, however, hedge a currency by entering into a transaction
in a Currency Instrument denominated in a currency other than the currency being
hedged (a "cross-hedge"). The Fund will only enter into a cross-hedge if the
Manager believes that (i) there is a demonstrable high correlation between the
currency in which the cross-hedge is denominated and the currency being hedged,
and (ii) executing a cross-hedge through the currency in which the cross-hedge
is denominated will be significantly more cost-effective or provide
substantially greater liquidity than executing a similar hedging transaction by
means of the currency being hedged. The Fund may not incur potential net
liabilities with respect to currency or securities positions, including net
liabilities with respect to cross-currency hedges, of more than 33 1/3 of its
total assets from foreign currency options, futures or related options and
forward currency transactions. The Fund will not necessarily attempt to hedge
all of its foreign portfolio positions.
A-4
<PAGE> 57
Risk Factors in Hedging Foreign Currency Risks. While the Fund's use of
Currency Instruments to effect hedging strategies is intended to reduce the
volatility of the net asset value of the Fund's shares, the net asset value of
the Fund's shares will fluctuate. Moreover, although Currency Instruments will
be used with the intention of hedging against adverse currency movements,
transactions in Currency Instruments involve the risk that anticipated currency
movements will not be accurately predicted and that the Fund's hedging
strategies will be ineffective. To the extent that the Fund hedges against
anticipated currency movements which do not occur, the Fund may realize losses,
and decrease its total return, as the result of its hedging transactions.
Furthermore, the Fund will only engage in hedging activities from time to time
and may not be engaging in hedging activities when movements in currency
exchange rates occur. It may not be possible for the Fund to hedge against
currency exchange rate movements, even if correctly anticipated, in the event
that (i) the currency exchange rate movement is so generally anticipated that
the Fund is not able to enter into a hedging transaction at an effective price,
or (ii) the currency exchange rate movement relates to a market with respect to
which Currency Instruments are not available (such as certain developing
markets) and it is not possible to engage in effective foreign currency hedging.
RISK FACTORS IN OPTIONS, FUTURES AND CURRENCY INSTRUMENTS
Use of Strategic Instruments for hedging purposes involves the risk of
imperfect correlation in movements in the value of the Strategic Instruments and
the value of the instruments being hedged. If the value of the Strategic
Instruments moves more or less than the value of the hedged instruments the Fund
will experience a gain or loss that will not be completely offset by movements
in the value of the hedged instruments. This risk applies particularly to the
Fund's use of cross-hedging, which means that the security which is the subject
of the hedged transaction is different from the security being hedged.
The Fund intends to enter into transactions involving Strategic Instruments
only if there appears to be a liquid secondary market for such instruments or,
in the case of illiquid instruments traded in OTC transactions, such instruments
satisfy the criteria set forth below under "Additional Risk Factors of OTC
Transactions." However, there can be no assurance that, at any specific time,
either a liquid secondary market will exist for a Strategic Instrument or the
Fund will otherwise be able to sell such instrument at an acceptable price. It
may therefore not be possible to close a position in a Strategic Instrument
without incurring substantial losses, if at all.
Certain transactions in Strategic Instruments (e.g., forward foreign
exchange transactions, futures transactions, sales of put options) may expose
the Fund to potential losses which exceed the amount originally invested by the
Fund in such instruments. When the Fund engages in such a transaction, the Fund
will deposit in a segregated account at its custodian liquid securities with a
value at least equal to the Fund's exposure, on a mark-to-market basis, to the
transaction (as calculated pursuant to requirements of the Commission). Such
segregation will ensure that the Fund has assets available to satisfy its
obligations with respect to the transaction, but will not limit the Fund's
exposure to loss.
ADDITIONAL RISK FACTORS OF OTC TRANSACTIONS, LIMITATIONS ON THE USE OF OTC
STRATEGIC INSTRUMENTS
Certain Strategic Instruments traded in OTC markets, including indexed
securities and OTC options, may be substantially less liquid than other
instruments in which the Fund may invest. The absence of liquidity may make it
difficult or impossible for the Fund to sell such instruments promptly at an
acceptable price. The absence of liquidity may also make it more difficult for
the Fund to ascertain a market value for such
A-5
<PAGE> 58
instruments. The Fund will therefore acquire illiquid OTC instruments (i) if the
agreement pursuant to which the instrument is purchased contains a formula price
at which the instrument may be terminated or sold, or (ii) for which the Manager
anticipates the Fund can receive on each business day at least two independent
bids or offers, unless a quotation from only one dealer is available, in which
case that dealer's quotation may be used.
The staff of the Commission has taken the position that purchased OTC
options and the assets underlying written OTC options are illiquid securities.
The Fund has therefore 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
securities underlying OTC call options currently outstanding which have been
sold by the Fund and margin deposits on the Fund's outstanding OTC options
exceeds 15% of the total assets of the Fund, taken at market value, together
with all other assets of the Fund which are deemed to be illiquid or are
otherwise not readily marketable. However, if an OTC option is sold by the Fund
to a dealer in U.S. government securities recognized as a "primary dealer" by
the Federal Reserve Bank of New York and the Fund has the unconditional
contractual right to repurchase such OTC option 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 exercise price).
Because Strategic Instruments traded in OTC markets are not guaranteed by
an exchange or clearing corporation and generally do not require payment of
margin, to the extent that the Fund has unrealized gains in such instruments or
has deposited collateral with its counterparty the Fund is at risk that its
counterparty will become bankrupt or otherwise fail to honor its obligations.
The Fund will attempt to minimize the risk that a counterparty will become
bankrupt or otherwise fail to honor its obligations by engaging in transactions
in Strategic Instruments traded in OTC markets only with financial institutions
which have substantial capital or which have provided the Fund with a
third-party guaranty or other credit enhancement.
ADDITIONAL LIMITATIONS ON THE USE OF STRATEGIC INSTRUMENTS
The Fund may not use any Strategic Instrument to gain exposure to an asset
or class of assets that it would be prohibited by its investment restrictions
from purchasing directly.
A-6
<PAGE> 59
MANAGER
Merrill Lynch Asset Management, L.P.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
The Chase Manhattan Bank, N.A.
4 Metro Tech Center, 18th Floor
Brooklyn, New York 11245
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
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
<PAGE> 60
- ------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE STATEMENT
OF ADDITIONAL INFORMATION, IN CONNECTION WITH THE OFFER CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE MANAGER, OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................... 2
Merrill Lynch Select Pricing(SM) System...... 3
Financial Highlights......................... 8
Risks and Special Considerations............. 10
Investment Objective and Policies............ 11
Utility Industries -- Description and
Risks.................................... 13
Investment Outside the Utility
Industries............................... 17
Other Investment Policies and Practices.... 18
Management of the Fund....................... 22
Board of Directors......................... 22
Management and Advisory Arrangements....... 22
Transfer Agency Services................... 23
Code of Ethics............................. 24
Purchase of Shares........................... 24
Initial Sales Charge Alternatives --
Class A and Class D Shares............... 26
Deferred Sales Charge Alternatives --
Class B and Class C Shares............... 29
Distribution Plans......................... 32
Limitations on the Payment of
Deferred Sales Charges................... 34
Repurchase and Redemption of Shares.......... 34
Repurchase................................. 34
Redemption................................. 35
Reinstatement Privilege --
Class A and Class D Shares............... 35
Shareholder Services......................... 36
Investment Account......................... 36
Exchange Privilege......................... 37
Automatic Reinvestment of Dividends and
Capital Gains Distributions.............. 38
Systematic Withdrawal Plans................ 38
Automatic Investment Plans................. 38
Fee-Based Programs......................... 39
Retirement Plans........................... 39
Performance Data............................. 39
Additional Information....................... 40
Dividends and Distributions................ 40
Determination of Net Asset Value........... 41
Taxes...................................... 42
Organization of the Fund................... 44
Shareholder Inquiries...................... 45
Shareholder Reports........................ 45
Authorization Form........................... 47
Appendix Options, Futures and Foreign
Exchange Transactions...................... A-1
Code # 11281-0398
</TABLE>
[MERRILL LYNCH LOGO]
MERRILL LYNCH
GLOBAL UTILITY
FUND, INC.
PROSPECTUS [MLYNCH COMPASS]
March 3, 1998
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE> 61
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL UTILITY FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
-------------------------
Merrill Lynch Global Utility Fund, Inc. (the "Fund") is a diversified
mutual fund seeking both 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 that are, in the opinion of Merrill
Lynch Asset Management, L.P. (the "Manager" or "MLAM"), primarily engaged in the
ownership or operation of facilities used to generate, transmit or distribute
electricity, telecommunications, gas or water. There can be no assurance that
the Fund's investment objective will be achieved. The Fund may employ a variety
of instruments and techniques to enhance income and to hedge against market and
currency risk.
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances.
-------------------------
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated March
3, 1998 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission (the "Commission") and can be obtained, without charge, by
calling or by writing the Fund at the above telephone number or address. This
Statement of Additional Information has been incorporated by reference into the
Prospectus.
-------------------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
-------------------------
The date of this Statement of Additional Information is March 3, 1998.
<PAGE> 62
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a diversified, open-end management investment company. The
Fund's investment objective is to seek both 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 that are, in the opinion of
the Manager, primarily engaged in the ownership or operation of facilities used
to generate, transmit or distribute electricity, telecommunications, gas or
water. This objective is a fundamental policy which the Fund may not change
without a vote of a majority of the Fund's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act"). There can be no assurance that the Fund's investment objective
will be achieved. The Fund may employ a variety of instruments and techniques to
enhance income and to hedge against market and currency risk, as described under
"Portfolio Strategies Involving Options and Futures" below.
PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES
The Fund is authorized to engage in certain investment practices involving
the use of options, futures and foreign exchange, which may expose the Fund to
certain risks. These investment practices and the associated risks are described
in the Prospectus.
OTHER INVESTMENT POLICIES AND PRACTICES
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase securities on a when-issued basis, and it may purchase or sell
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future to secure what is considered an advantageous yield and price to the Fund
at the time of entering into the transaction. Although the Fund has not
established any limit on the percentage of its assets that may be committed in
connection with such transactions, the Fund will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government securities or
other high-grade liquid debt or equity securities denominated in U.S. dollars or
non-U.S. currencies in an aggregate amount equal to the amount of its commitment
in connection with such purchase transactions.
Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed income security which may
be issued and sold to the Fund at the option of the issuer. The price and coupon
of the security is fixed at the time of the commitment. At the time of entering
into the agreement the Fund is paid a commitment fee, regardless of whether or
not the security is ultimately issued. The Fund will enter into such agreement
only for the purpose of investing in the security underlying the commitment at a
yield and price considered advantageous to the Fund. The Fund will not enter
into a standby commitment with a remaining term in excess of 45 days and will
limit its investment in such commitments so that the aggregate purchase price of
the securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale, will not exceed 15% of its
total assets taken at the time of acquisition of such commitment or security.
The Fund will at all times maintain a segregated account with its custodian of
cash, cash equivalents, U.S. Government securities or other high-grade liquid
debt or equity securities denominated in U.S. dollars or non-U.S. currencies in
an aggregate amount equal to the purchase price of the securities underlying the
commitment.
2
<PAGE> 63
There can be no assurance that the securities subject to a standby
commitment will be issued and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, the Fund
may bear the risk of a decline in the value of such security and may not benefit
from an appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
can reasonably be expected to be issued and the value of the security will
thereafter be reflected in the calculation of the Fund's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment fee.
In the event the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment.
Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or primary dealer in U.S. Government
securities or an affiliate thereof. Under such agreements, the bank or primary
dealer or an affiliate thereof agrees, upon entering into the contract, to
repurchase the security at a mutually agreed upon time and price in a specified
currency, thereby determining the yield during the term of the agreement. This
results in a fixed rate of return insulated from market fluctuations during such
period although it may be affected by currency fluctuations. In the case of
repurchase agreements, the prices at which the trades are conducted do not
reflect the accrued interest on the underlying obligations. Such agreements
usually cover short periods, often under one week. Repurchase agreements may be
construed to be collateralized loans by the purchaser to the seller secured by
the securities transferred to the purchaser. In the case of a repurchase
agreement, as a purchaser, the Fund will require the seller to provide
additional collateral if the market value of the securities falls below the
repurchase price at any time during the term of the repurchase agreement. In the
event of default by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by the Fund but
constitute only collateral for the seller's obligation to pay the repurchase
price. Therefore, the Fund may suffer time delays and incur costs or possible
losses in connection with the disposition of the collateral. In the event of a
default under such a repurchase agreement, instead of the contractual fixed rate
of return, the rate of return to the Fund will depend on intervening
fluctuations of the market value of such security and the accrued interest on
the security. In such event, the Fund would have rights against the seller for
breach of contract with respect to any losses arising from market fluctuations
following the failure of the seller to perform. The Fund may not invest more
than 15% of its total assets in repurchase agreements maturing in more than
seven days.
Lending of Portfolio Securities. The Fund may lend securities from its
portfolio to approved borrowers and receive therefor collateral in cash or
securities issued or guaranteed by the United States 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
3
<PAGE> 64
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.
Illiquid Securities. 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% 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 may adopt guidelines and delegate to the Manager 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.
The Board of Directors monitors the Fund's investments in these securities
purchased pursuant to Rule 144A, focusing on such factors, among others, as
valuation, liquidity and availability of information. These investments in
securities purchased pursuant to Rule 144A 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.
Restrictions on Use of Futures Transactions. Regulations of the CFTC
applicable to the Fund permit the Fund's futures and options on futures
transactions to include (i) bona fide hedging transactions without regard to the
percentage of the Fund's assets committed to margin and option premiums, and
(ii) non-hedging transactions, provided that the Fund may not enter into such
non-hedging transactions if, immediately thereafter, the sum of the amount of
initial margin deposits on the Fund's existing futures positions and option
premiums would exceed 5% of the market value of the Fund's liquidating value
after taking into account unrealized profits and unrealized losses on any such
transactions. However, the Fund intends to engage in futures transactions and
options thereon only for hedging purposes.
High Yield-High Risk Bonds. Fixed income securities in which the Fund will
invest generally will be limited to those rated investment grade; that is, rated
in one of the four highest rating categories by Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's") (i.e., securities rated
at least BBB by S&P or Baa by Moody's), or deemed to be of equivalent quality in
the judgment of the Manager. The Fund is authorized to invest up to 5% of its
total assets at the time of purchase in fixed income securities rated below
investment grade by S&P or Moody's, or in unrated fixed income securities which,
in the judgement of the manager, possess similar credit characteristics as fixed
income securities rated investment grade or fixed income securities rated below
investment grade. The Fund will not invest in any fixed income securities with a
rating lower than Caa by Moody's or CCC by S&P ("high yield-high risk bonds").
Investment in high yield-high risk bonds involves substantial risk. Investments
in high yield-high risk bonds will be made only when, in the judgment of the
Manager, such securities provide attractive total return potential, relative to
the risk of such securities, as compared to higher quality debt securities.
Securities rated BB or lower by S&P or Ba or lower by Moody's are considered by
those rating agencies to have varying degrees of speculative characteristics.
Consequently, although high yield-high risk bonds can be expected to provide
higher yields, such securities may be subject to greater market price
fluctuations and risk of loss and
4
<PAGE> 65
principal than lower yielding, higher rated fixed income securities. The Fund
will not invest in debt securities rated lower than CCC for S&P or Caa for
Moody's.
High yield-high risk bonds may be issued by less creditworthy companies or
by larger, highly leveraged companies, and are frequently issued in corporate
restructurings such as mergers and leveraged buy-outs. Such securities are
particularly vulnerable to adverse changes in the issuer's industry and in
general economic conditions. High yield-high risk bonds frequently are junior
obligations of their issuers, so that in the event of the issuer's bankruptcy,
claims of the holders of high yield-high risk bonds will be satisfied only after
satisfaction of the claims of senior securityholders. While the high yield-high
risk bonds in which the Fund may invest normally do not include securities
which, at the time of investment, are in default or the issuers of which are in
bankruptcy, there can be no assurance that such events will not occur after the
Fund purchases a particular security, in which case the Fund may experience
losses and incur costs. The terms "high yield-high risk" and "below investment
grade bonds" are commonly known as "junk bonds."
Investment Restrictions. The Fund has adopted the following restrictions
and policies relating to the investment of its assets and its activities, which
are fundamental policies and may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which for
this purpose and under the Investment Company Act means the lesser of (i) 67% of
the shares represented at a meeting at which more than 50% of the outstanding
shares are represented or (ii) more than 50% of the outstanding shares.
Under the fundamental investment restrictions, the Fund may not:
1. Make any investment inconsistent with the Fund's classification as
a diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities) except that, under
normal circumstances, the Fund will invest more than 25% of its total
assets in the securities of issuers in the utility industry.
3. Make investments for the purpose of exercising control or
management.
4. 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.
5. 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.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. 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
5
<PAGE> 66
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.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act in
selling portfolio securities.
9. 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.
The following non-fundamental investment restrictions have been adopted by
the Fund and may be changed by the Board of Directors without approval by the
shareholders. Under these restrictions, the Fund may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. As a matter of
policy, however, the Fund will not purchase shares of any registered
open-end investment company or registered unit investment trust, in
reliance on Section 12(d)(1)(F) or (G) (the "fund of funds" provisions) of
the Investment Company Act at any time the Fund's shares are owned by
another investment company that is part of the same group of investment
companies as the Fund.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales "against the box."
c. Invest in securities that 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. Securities purchased in
accordance with Rule 144A under the Securities Act (a "Rule 144A security")
and determined to be liquid by the Fund's Board of Directors are not
subject to the limitations set forth in this investment restriction.
d. Notwithstanding fundamental restriction (7) 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 such as the redemption of Fund shares.
In addition, the Fund will not purchase securities while borrowings exceed
5% (taken at market value) of its total assets.
The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Fund has adopted an investment policy pursuant to
which it will not purchase or sell OTC options if, as a result of such
transaction, the sum of the market value of OTC options currently outstanding
that are held by the Fund, the market value of the
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<PAGE> 67
underlying securities covered by OTC call options currently outstanding that
were sold by the Fund and margin deposits on the Fund's existing OTC options on
futures contracts exceed 15% of the total assets of the Fund taken at market
value, together with all other assets of the Fund that are illiquid or are not
otherwise readily marketable. However, if the OTC option is sold by the Fund to
a primary U.S. Government securities dealer recognized by the Federal Reserve
Bank of New York and the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities as is equal
to the repurchase price less the amount by which the option is "in-the-money"
(i.e., current market value of the underlying security minus the option's strike
price). The repurchase price with the primary dealers is typically a formula
price which is generally based on a multiple of the premium received for the
option, plus the amount by which the option is "in-the-money." This policy as to
OTC options is not a fundamental policy of the Fund and may be amended by the
Directors of the Fund without the approval of the Fund's shareholders. However,
the Fund will not change or modify this policy prior to the change or
modification by the Commission staff of its position.
Because of the affiliation of the Manager with the Fund, the Fund is
prohibited from engaging in certain transactions involving the Manager's
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
or its affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Portfolio Transactions and Brokerage." Without such an exemptive order, the
Fund is 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 firms
or any of their affiliates participate as an underwriter or dealer.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
Information about the Directors and executive officers of the Fund, their
ages and their principal occupations for at least the last five years are set
forth below. Unless otherwise noted, the address of each executive officer and
Director is P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (65) -- President and Director (1)(2) -- Chairman of the
Manager and Fund Asset Management, L.P. ("FAM") (which terms, as used herein,
include their corporate predecessors) since 1997; President of the Manager and
FAM from 1977 to 1997; Chairman of Princeton Services, Inc. ("Princeton
Services") since 1997, Director since 1993 and President from 1993 to 1997;
Executive Vice President of ML & Co. since 1990.
RONALD W. FORBES (57) -- Director (2) -- 1400 Washington Avenue, Albany,
New York 12222. Professor of Finance, School of Business, State University of
New York at Albany, since 1989.
CYNTHIA A. MONTGOMERY (45) -- Director (2) -- Harvard Business School,
Soldiers Field Road, Boston, Massachusetts 02163. Professor, Harvard Business
School since 1989; Associate Professor, J.L. Kellogg Graduate School of
Management, Northwestern University from 1985 to 1989; Assistant Professor,
Graduate School of Business Administration, The University of Michigan from 1979
to 1985; Director, UNUM Corporation since 1990 and Director of Newell Co. since
1995.
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<PAGE> 68
CHARLES C. REILLY (66) -- 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; Senior
Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, The University of Pennsylvania from 1989 to
1990; Partner, Small Cities Cable Television since 1986.
KEVIN A. RYAN (65) -- Director (2) -- 127 Commonwealth Avenue, Chestnut
Hill, Massachusetts 02167. Founder and current Director of The Boston University
Center for the Advancement of Ethics and Character; Professor of Education at
Boston University since 1982; formerly taught on the faculties of The University
of Chicago, Stanford University and Ohio State University.
RICHARD R. WEST (60) -- Director (2) -- Box 604, Genoa, Nevada 89411.
Professor of Finance since 1984, and Dean from 1984 to 1993, and currently Dean
Emeritus of New York University, Leonard N. Stern School of Business
Administration; Director of Bowne & Co., Inc. (financial printers), Vornado,
Inc. (real estate holding company) and Alexander's Inc. (real estate company).
TERRY K. GLENN (57) -- Executive Vice President (1)(2) -- Executive Vice
President of the Manager and FAM since 1983; President of Merrill Lynch Funds
Distributor, Inc. (the "Distributor") since 1986 and Director thereof since
1991; Executive Vice President and Director of Princeton Services since 1993;
President of Princeton Administrators, L.P. since 1988.
NORMAN R. HARVEY (64) -- Senior Vice President (1)(2) -- Senior Vice
President of the Manager and FAM since 1982; Senior Vice President of Princeton
Services since 1993.
WALTER D. ROGERS (55) -- Senior Vice President (1)(2) -- First Vice
President of the Manager since 1997; Vice President of the Manager from 1987 to
1997.
DONALD C. BURKE (37) -- Vice President (1)(2) -- First Vice President of
the Manager since 1997; Vice President of the Manager from 1990 to 1997;
Director of Taxation of the Manager since 1990.
GERALD M. RICHARD (48) -- Treasurer (1)(2) -- Senior Vice President and
Treasurer of the Manager and FAM since 1984; Senior Vice President and Treasurer
of Princeton Services since 1993; Vice President of the Distributor since 1981
and Treasurer since 1984.
THOMAS D. JONES, III (32) -- Secretary(1) -- Vice President of the Manager
since 1998; Attorney with the Manager since 1992.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director is a director, trustee or officer of other investment
companies for which the Manager or FAM acts as Manager.
As of February 2, 1998, the officers and Directors of the Fund as a group
(12 persons) owned an aggregate of less than 1% of the outstanding shares of
Common Stock of ML & Co. and owned an aggregate of less than 1% of the
outstanding shares of the Fund.
The Fund pays each Director not affiliated with the Manager (each a
"non-affiliated Director") a fee of $2,000 per year plus $400 per meeting
attended, together with such Director's out-of-pocket expenses relating to
attendance at meetings. The Fund also compensates members of its Audit and
Nominating Committee (the "Committee"), which consists of all of the
non-affiliated Directors, with a fee of $900 per year; the
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<PAGE> 69
Chairman of the Committee receives an additional fee of $1,000 per year. For the
fiscal year ended November 30, 1997, fees and expenses paid to the
non-affiliated Directors aggregated $19,467.
The following table sets forth the rate of the compensation by the Fund to
the non-affiliated Directors effective as of the fiscal year end November 30,
1997 and the aggregate compensation paid by all investment companies advised by
MLAM and its affiliate, FAM ("MLAM/FAM Advised Funds") to the non-affiliated
Directors for the calendar year ended December 31, 1997.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM FUND AND
AGGREGATE PENSION OR RETIREMENT MLAM/FAM ADVISED
COMPENSATION BENEFITS ACCRUED AS FUNDS PAID TO
NAME OF DIRECTOR FROM FUND PART OF FUND EXPENSES DIRECTOR(1)
---------------- ------------ --------------------- ------------------
<S> <C> <C> <C>
Ronald W. Forbes............................ $4,500 None $153,500
Cynthia A. Montgomery....................... $4,500 None $153,500
Charles C. Reilly........................... $5,500 None $313,000
Kevin A. Ryan............................... $4,500 None $153,500
Richard R. West............................. $4,500 None $290,000
</TABLE>
- ---------------
(1) The Directors serve on the Boards of MLAM/FAM Advised Funds as follows: Mr.
Forbes (26 registered investment companies consisting of 39 portfolios); Ms.
Montgomery (26 registered investment companies consisting of 39 portfolios);
Mr. Reilly (44 registered investment companies consisting of 57 portfolios);
Mr. Ryan (26 registered investment companies consisting of 39 portfolios);
and Mr. West (45 registered investment companies consisting of 67
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 held by the Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which the
Manager or its affiliates act as an adviser. Because of different objectives or
other factors, a particular security may be bought for one or more clients when
one or more clients are selling the same security. If purchases or sales of
securities by the Manager for the Fund or other funds for which it acts as
investment adviser or for its advisory clients arise for consideration at or
about the same time, transactions in such securities will be made, insofar as
feasible, for the respective funds and clients in a manner deemed equitable to
all. To the extent that transactions on behalf of more than one client of the
Manager or its affiliates during the same period may increase the demand for
securities being purchased or the supply of securities being sold there may be
an adverse effect on price.
The Fund has entered into a management agreement with the Manager (the
"Management Agreement"). As discussed in the Prospectus, the Manager receives
for its services to the Fund monthly compensation at the annual rate of 0.60% of
the average daily net assets of the Fund. For the fiscal years ended November
30, 1997, 1996 and 1995, the total management fees paid by the Fund to the
Manager were $2,188,667, $2,463,017 and $2,811,414, respectively.
The Management Agreement obligates the Manager to provide investment
advisory services and to pay all compensation of and furnish office space for
officers and employees of the Fund connected with investment and economic
research, trading and investment management of the Fund, as well as the fees of
all Directors of the Fund who are affiliated persons of the Manager or any of
their affiliates. The Fund pays all other expenses incurred in the operation of
the Fund, including, among other things, taxes; expenses for legal and auditing
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<PAGE> 70
services; costs of printing proxies, stock certificates, shareholder reports and
prospectuses and statements of additional information (except to the extent paid
by the Distributor); charges of the Custodian, any sub-custodian and Transfer
Agent; expenses of redemption of shares; Commission fees; expenses of
registering or qualifying the shares under Federal, state or foreign laws; fees
and expenses of unaffiliated Directors; accounting and pricing costs (including
the daily calculation of net asset value; insurance; interest; brokerage costs;
litigation and other extraordinary or non-recurring expenses; and other expenses
properly payable by the Fund). Accounting services are provided to the Fund by
the Manager and the Fund reimburses the Manager for its costs in connection with
such services on a semi-annual basis. As required by the Fund's distribution
agreement, the Distributor will pay the promotional expenses of the Fund
incurred in connection with the offering of its shares. Certain expenses in
connection with the offering of the Fund's Class B, Class C and Class D shares
will be financed by the Fund pursuant to each class's respective Distribution
Plan in compliance with Rule 12b-1 under the Investment Company Act. See
"Purchase of Shares -- Distribution Plans."
The Manager is a limited partnership, the partners of which are ML & Co.
and Princeton Services. ML & Co. and Princeton Services are "controlling
persons" of the Manager as defined under the Investment Company Act because of
their ownership of its voting securities or their power to exercise a
controlling influence over its management or policies. Similarly, the following
entities may be considered "controlling persons" of MLAM U.K.: Merrill Lynch
Europe Limited (MLAM U.K.'s parent), a subsidiary of ML International Holdings,
a subsidiary of Merrill Lynch International, Inc., a subsidiary of ML & Co.
The Manager has entered into a sub-advisory agreement (the "Sub-Advisory
Agreement") with MLAM U.K., an indirect, wholly-owned subsidiary of ML & Co.,
and an affiliate of the Manager, pursuant to which the Manager pays MLAM U.K. a
fee for providing investment advisory services to the Manager with respect to
the Fund in an amount to be determined from time to time by the Manager and MLAM
U.K. but in no event in excess of the amount that the Manager actually receives
for providing services to the Fund pursuant to the Management Agreement.
Duration and Termination. Unless earlier terminated as described herein,
the Management Agreement will remain in effect for two years from the date of
its adoption. Thereafter, it will remain in effect from year to year if approved
annually (a) by the Board of Directors or by a majority of the outstanding
shares of the Fund and (b) by a majority of the Directors who are not parties to
such contract or interested persons (as defined in the Investment Company Act)
of any such party. Such contracts are not assignable and may be terminated
without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the shareholders of the Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives and shares of Class B and Class C are sold
to investors choosing the deferred sales charge alternatives. Each Class A,
Class B, Class C and Class D share of the Fund represents an identical interest
in the investment portfolio of the Fund and has the same rights, except that
Class B, Class C and Class D shares bear the expenses of the ongoing
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<PAGE> 71
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 the
account maintenance and/or distribution fees are paid (except that Class B
shareholders may vote upon any material changes to expenses charged under the
Class D Distribution Plan). Each class has different exchange privileges. See
"Shareholder Services -- Exchange Privilege."
The Merrill Lynch Select Pricing(SM) System is used by more than 50
registered investment companies advised by the Manager or its affiliate, FAM.
Funds advised by FAM or the Manager that use the Merrill Lynch Select
Pricing(SM) 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 offering of each class of shares
of the Fund (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the offering
of each class of shares of the Fund. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and investors.
The Distributor also pays for other supplementary sales literature and
advertising costs. The Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Management Agreement described
above.
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
The gross sales charges for the sale of Class A shares for the fiscal year
ended November 30, 1997 were $4,317, of which the Distributor received $311, and
Merrill Lynch received $4,006. The gross sales charges for the sale of Class A
shares for the fiscal year ended November 30, 1996 were $6,768, of which the
Distributor received $610 and Merrill Lynch received $6,158. The gross sales
charges for the sale of Class A shares for the fiscal year ended November 30,
1995 were $8,983, of which the Distributor received $689 and Merrill Lynch
received $8,294. For the fiscal years ended November 30, 1995, 1996 and 1997,
the Distributor received no CDSCs with respect to redemptions within one year
after purchase of Class A shares purchased subject to a front-end sales charge
waiver.
The gross sales charges for the sale of Class D shares for the fiscal year
ended November 30, 1997 were $12,792, of which the Distributor received $1,670,
and Merrill Lynch received $11,122. The gross sales charges for the sales of
Class D shares for the fiscal year ended November 30, 1996 were $17,277 of which
the Distributor received $1,510 and Merrill Lynch received $15,767. The gross
sales charges for the sale of Class D shares for the fiscal year ended November
30, 1995 were $18,233 of which the Distributor received $1,975 and Merrill Lynch
received $16,258. For the fiscal years ended November 30, 1995, 1996 and 1997,
the Distributor reeived no CDSCs with respect to redemptions within one year
after purchase of Class D shares purchased subject to a front-end sales charge
waiver.
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<PAGE> 72
The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund, refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases of
any such company that has not been in existence for at least six months or which
has no purpose other than the purchase of shares of the Fund or shares of other
registered investment companies at a discount; provided, however, that it shall
not include purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
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 and 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, Merrill Lynch Financial
Data Services, Inc. (the "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 and Class D shares; however, its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A and Class
D shares of the Fund and of other MLAM-advised mutual funds presently held, at
cost or maximum offering price (whichever is higher), on the date of the first
purchase under the Letter of Intention, may be included as a credit toward the
completion of such Letter, but the reduced sales charge applicable to the amount
covered by such Letter will be applied only to new purchases. If the total
amount of shares does not equal the amount stated in the Letter of Intention
(minimum of $25,000), the investor will be notified and must pay, within 20 days
of the expiration of such Letter, the difference between the sales charge on the
Class A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to at least five percent of the intended amount will be held in
escrow during
12
<PAGE> 73
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 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 money market fund
advised by MLAM or its affiliates 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 Individual Retirement Accounts
("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 3.5%, 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. 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.
Class A and Class D shares are offered at net asset value, with a waiver of
the front-end sales charge, to participants in Blueprint 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 (see definition below) whose Trustee
and/or Plan Sponsor has entered into a Merrill Lynch Directed IRA Rollover
Program Service Agreement. 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.
Employee Access(SM) Accounts. Provided applicable threshold requirements
are met, either Class A or Class D shares are offered at net asset value to
Employee Access(SM) Accounts available through authorized employers. The initial
minimum for such accounts is $500, except that the initial minimum for shares
purchased for such accounts pursuant to the Automatic Investment Program is $50.
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<PAGE> 74
Purchase Privileges of Certain Persons. Directors of the Fund, members of
the Boards of other investment companies advised by MLAM or its affiliates,
directors and employees of 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 any trust, pension, profit-sharing or other benefit plan for such
persons, may purchase Class A shares of the Fund at net asset value. Under such
programs, the Fund realizes economies of scale and reduction of sales-related
expenses by virtue of familiarity with the Fund.
Employees and directors or trustees wishing to purchase shares of the Fund
must satisfy the Fund's suitability standards.
Class D shares of the Fund are offered at net asset value, without 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 he
or she will purchase Class D shares of the Fund with proceeds from a redemption
of a mutual fund that was sponsored by the financial consultant's previous firm
and was subject to a sales charge either at the time of purchase or on a
deferred basis. Second, the investor must also 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 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 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 he or she will
purchase Class D shares of the Fund with proceeds from a redemption of such
shares of other mutual funds and that such shares have been outstanding for a
period of no less than 6 months. Second, such purchase of Class D shares must be
made within 60 days after the redemption and the proceeds from the redemption
must have been maintained in the interim in cash or a money market fund.
Class D shares of the Fund also will be 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 ("notice"), if the following conditions are
satisfied. First, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and such fund was
subject to a sales charge either at the time of purchase or on a deferred basis.
Second, such purchase of Class D shares must be made within 90 days after such
notice.
Closed-End Fund Investment Option. Class A shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class A shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Manager or FAM
who purchased such closed-end fund shares prior to October 21, 1994 and wish to
reinvest the net proceeds of a sale of their closed-end fund shares of common
stock in Eligible Class A shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased such shares
on or after October 21, 1994 and wish to reinvest the net proceeds from a sale
of their closed-end fund shares are offered Class A shares (if eligible to buy
Class A shares) or Class D shares of the Fund and other MLAM-advised mutual
funds ("Eligible Class D shares"), if the following conditions are met. First,
the sale of closed-end fund shares must be made through Merrill Lynch, and the
net proceeds
14
<PAGE> 75
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.
Shareholders of certain continuously offered closed-end funds advised by
MLAM or its affiliates may reinvest at net asset value the net proceeds from a
sale of certain shares of common stock of such funds in shares of the Fund. Upon
exercise of this investment option, shareholders of Merrill Lynch Senior
Floating Rate Fund, Inc. will receive Class A shares of the Fund and
shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch
High Income Municipal Bond Fund, Inc. will receive Class D shares of the Fund,
except that shareholders already owning Class A shares of the Fund will be
eligible to purchase additional Class A shares pursuant to this option, if such
additional Class A shares will be held in the same account as the existing Class
A shares and the other requirements pertaining to the reinvestment privilege are
met. In order to exercise this investment option, a shareholder of one of the
above-referenced continuously offered closed-end funds (an "eligible fund") must
sell his or her shares of common stock of the eligible fund (the "eligible
shares") back to the 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.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a personal holding company or a public or private investment company. The value
of the assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible adverse tax consequences to the Fund which
might result from an acquisition of assets having net unrealized appreciation
which is disproportionately higher at the time of acquisition than the realized
or unrealized appreciation of the Fund. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities which (i) meet the
investment objectives and policies of the Fund; (ii) are acquired for investment
and not for resale (subject to the understanding that the disposition of the
Fund's portfolio securities shall at all times remain within its control); and
(iii) are liquid securities, the value of which is readily ascertainable, which
are not restricted as to transfer either by law or liquidity of market (except
that the Fund may acquire through such transactions restricted or illiquid
securities to the extent the Fund does not exceed the applicable limits on
acquisition of such securities set forth under "Investment Objective and
Policies" herein).
TMA(SM) Managed Trusts. Class A shares are offered to TMA(SM) Managed
Trusts to which Merrill Lynch Trust Company provides discretionary trustee
services at net asset value.
EMPLOYER-SPONSORED RETIREMENT 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
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<PAGE> 76
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
reasonable likelihood that such Distribution Plan will benefit the Fund and its
related class of shareholders. Each Distribution Plan can be terminated at any
time, without penalty, by the vote of a majority of the Independent Directors or
by the vote of the holders of a majority of the outstanding related class of
voting securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholders, and all material amendments are required to be
approved by the vote of the Directors, including a majority of the Independent
Directors who have no direct or indirect financial interest in such Distribution
Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further
requires that the Fund preserve copies of each Distribution Plan and any report
made pursuant to such plan for a period of not less than six years from the date
of such Distribution Plan or such report, the first two years in an easily
accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the National Association of Securities
Dealers, Inc. ("NASD") Conduct Rules 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 CDSC). In connection with the Class B
shares, the Distributor has voluntarily agreed to waive interest charges on the
unpaid balance in excess
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<PAGE> 77
of 0.50% of eligible gross sales. Consequently, the maximum amount payable to
the Distributor (referred to as the "voluntary maximum") in connection with the
Class B shares is 6.75% of eligible gross sales. The Distributor retains the
right to stop waiving the interest charges at any time. To the extent payments
would exceed the voluntary maximum, the Fund will not make further payments of
the distribution fee with respect to Class B shares, and any CDSCs will be paid
to the Fund rather than to the Distributor; however, the Fund will continue to
make payments of the account maintenance fee. In certain circumstances the
amount payable pursuant to the voluntary maximum may exceed the amount payable
under the NASD formula. In such circumstances, payment in excess of the amount
payable under the NASD formula will not be made.
The following table sets forth comparative information as of November 30,
1997 with respect to the Class B and Class C shares of the Fund indicating the
maximum allowable payments that can be made under the NASD maximum sales charge
rule and, with respect to Class B shares only, the Distributor's voluntary
maximum. The information is shown for the period December 28, 1990 (commencement
of operations) to November 30, 1997, with respect to Class B shares, and for the
period October 21, 1994 (commencement of operations) to November 30, 1997, with
respect to Class C shares.
DATA CALCULATED AS OF NOVEMBER 30, 1997
<TABLE>
<CAPTION>
ANNUAL
DISTRIBUTION
ALLOWABLE ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES ON 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
Under NASD Rule as Adopted (in
thousands)....................... $642,720 $40,170 $15,251 $55,421 $ 15,995 $39,426 $1,507
Under Distributor's Voluntary
Waiver (in thousands)............ $642,720 $40,170 $3,214 $43,384 $ 15,995 $27,389 $1,507
CLASS C SHARES
(in thousands)
Under NASD Rule as Adopted
(in thousands)................... $ 6,335 $ 396 $ 57 $ 453 $ 54 $ 399 $ 30
</TABLE>
- ---------------
(1) Purchase price of all eligible Class B shares sold since December 28, 1990
(commencement of operations) and all eligible Class C shares sold since
October 21, 1994 (commencement of operations) 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
maximum sales charge rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made prior to July 6, 1993 under a prior plan
applicable to Class B shares at the 0.75% rate, 0.50% has been treated as a
distribution fee and 0.25% has been treated as a service fee and not subject
to the NASD maximum sales charge rule. See "Purchase of
Shares -- Distribution Plans" in the Prospectus. This figure may include
CDSCs that were deferred when a shareholder redeemed shares prior to the
expiration of the applicable CDSC period and invested the proceeds, without
the imposition of a sales charge, in Class A shares in conjunction with the
shareholder's participation in the Merrill Lynch Mutual Funds Advisor
("MFA") program. The CDSC is booked as a contingent obligation that may be
payable if the shareholder terminates participation in the MFA program.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the voluntary maximum or the NASD maximum.
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<PAGE> 78
REDEMPTION OF SHARES
Reference is made to "Repurchase and 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 for more than seven days only for any period during
which trading on the New York Stock Exchange the ("NYSE") is restricted as
determined by the Commission or during which the NYSE is closed (other than
customary weekend and holiday closings), for any period during which an
emergency exists as defined by the Commission as a result of which disposal of
portfolio securities or determination of the net asset value of the Fund is not
reasonably practicable, and for such other periods as the Commission may by
order permit for the protection of shareholders of the Fund.
Shares are redeemable at the option of the Fund if, in the opinion of the
Fund, ownership of the shares has or may become concentrated to the extent which
would cause the Fund to be deemed a personal holding company within the meaning
of the Code.
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 any such time.
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 certain
instances, including in connection with certain post-retirement withdrawals from
an 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 in the case of such withdrawals are: (a) any partial or complete
redemption in connection with a distribution following retirement under a
tax-deferred retirement plan or attaining age 59 1/2 in the case of an IRA or
other retirement plan, or part of a series of equal periodic payments (not less
frequently than annually) made for 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 November 30, 1997, 1996, and 1995, the
Distributor received CDSCs of $414,164, $754,651 and $1,378,994, respectively,
with respect to redemptions of Class B shares, all of which were paid to Merrill
Lynch. Additional CDSCs payable to the Distributor may have been waived or
converted to a contingent obligation in connection with a shareholder's
participation in certain fee-based programs. Similarly, for the fiscal years
ended November 30, 1997, 1996 and 1995 the Distributor received CDSCs of $1,002,
$1,659 and $1,926, 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
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 shareholders through Blueprint, however, may
differ from those
18
<PAGE> 79
available to other Class B investors. 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
a Blueprint automatic investment plan. Additional information concerning these
Blueprint programs, including any annual fees or transaction charges, is
available from Merrill Lynch, Pierce, Fenner & Smith Incorporated, The
Blueprint(SM) Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to "Investment Objective and Policies -- Other Investment
Policies and Practices" in the Prospectus.
Subject to policies established by the Board of Directors of the Fund, the
Manager is primarily responsible for the execution of the Fund's portfolio
transactions. In executing such transactions, the Manager seeks to obtain the
best net results for the Fund, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution and operational facilities of the firm involved and the
firm's risk in positioning a block of securities. Subject to obtaining the best
price and execution, brokers who provide supplemental investment research to the
Manager may receive orders for transactions by the Fund. Information so received
will be in addition to and not in lieu of the services required to be performed
by the Manager under the Management Agreement and the expenses of the Manager
will not necessarily be reduced as a result of the receipt of such supplemental
information. If in the judgment of the Manager the Fund will be benefitted by
supplemental research services, the Manager is authorized to pay brokerage
commissions to a broker furnishing such services which are in excess of
commissions which another broker may have charged for effecting the same
transaction. In addition, consistent with the NASD Conduct Rules and policies
established by the Directors of the Fund, the Manager may consider sales of
shares of the Fund as a factor in the selection of brokers or dealers to execute
portfolio transactions for the Fund.
For the fiscal year ended November 30, 1997, the Fund paid total brokerage
commissions of $218,531, of which $29,245 or 13.38% was paid to Merrill Lynch
for effecting 11.04% of the aggregate amount of transactions in which the Fund
paid brokerage commissions. For the fiscal year ended November 30, 1996, the
Fund paid total brokerage commissions of $251,065, of which $5,724 or 2.28% was
paid to Merrill Lynch for effecting 2.56% of the aggregate amount of
transactions in which the Fund paid brokerage commissions. For the fiscal year
ended November 30, 1995, the Fund paid total brokerage commissions of $354,790,
of which $8,312 or 2.3% was paid to Merrill Lynch for effecting 2.3% of the
aggregate amount of transactions in which the Fund paid brokerage commissions.
The portfolio turnover rates for the fiscal years ended November 30, 1997 and
1996 were 6.23% and 5.03%, respectively.
The Fund anticipates that its brokerage transactions involving securities
of companies domiciled in countries other than the United States will be
conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions are generally higher than in the United States, although the Fund
will endeavor to achieve the best net results in effecting its portfolio
transactions. There is generally less governmental supervision and regulation of
foreign stock exchanges and brokers than in the United States.
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<PAGE> 80
The Fund invests in certain securities traded in the over-the-counter
market and, where possible, deals directly with the dealers who make a market in
the securities involved, except in those circumstances in which better prices
and execution are available elsewhere. Under the Investment Company Act, persons
affiliated with the Fund are prohibited from dealing with the Fund as principal
in the purchase and sale of securities. Since transactions in the
over-the-counter market usually involve transactions with dealers acting as
principal for their own accounts, affiliated persons of the Fund, including
Merrill Lynch, will not serve as the Fund's dealer in such transactions.
However, affiliated persons of the Fund may serve as its broker in
over-the-counter transactions conducted on an agency basis provided that, among
other things, the fee or commission received by such affiliated broker is
reasonable and fair compared to the fee or commission received by non-affiliated
brokers in connection with comparable transactions.
The Fund's ability and decisions to purchase or sell portfolio securities
may be affected by laws or regulations relating to the convertibility and
repatriation of assets. Because the shares of the Fund are redeemable on a daily
basis in United States dollars, the Fund intends to manage its portfolio so as
to give reasonable assurance that it will be able to obtain United States
dollars to the extent necessary to meet anticipated redemptions. Under present
conditions, it is not believed that these considerations will have any
significant effect on its portfolio strategy.
Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as
amended, Merrill Lynch may execute transactions for the Fund on the floor of any
national securities exchange provided that prior authorization of such
transactions is obtained and Merrill Lynch furnishes a statement to the Fund at
least annually setting forth the compensation it has received in connection with
such transactions.
The Directors have considered the possibilities of seeking to recapture for
the benefit of the Fund brokerage commissions and other expenses of possible
portfolio transactions by conducting portfolio transactions through affiliated
entities. For example, brokerage commissions received by affiliated brokers
could be offset against the advisory fee paid by the Fund. After considering all
factors deemed relevant, the Directors made a determination not to seek such
recapture. The Directors will reconsider this matter from time to time.
DETERMINATION OF NET ASSET VALUE
Reference is made to "Additional Information -- Determination of Net Asset
Value" in the Prospectus concerning the determination of net asset value.
The net asset value of the shares of the Fund is determined once daily as
of 15 minutes after the close of business on the NYSE (generally 4:00 p.m. New
York time) on each day the NYSE is open for trading. The NYSE is not open on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Any assets
or liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation. The net asset value is computed
by dividing the value of the securities held by the Fund plus any cash or other
assets (including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time. Expenses, including the fees payable to the Manager
and the Distributor 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
20
<PAGE> 81
transfer agency fees applicable with respect to the Class B and Class C shares
and the daily expense accruals of the account maintenance fees applicable with
respect to the Class D shares; moreover, the per share net asset value of the
Class B and Class C shares generally will be lower than the per share net asset
value of the Class D shares reflecting the daily expense accruals of the
distribution fees and higher transfer agency fees applicable with respect to the
Class B and Class C shares of the Fund. 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
differential among the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price for long positions and
the last available ask price for short positions. Long positions in securities
traded in the over-the-counter ("OTC") market are valued at the last available
bid price in the OTC market prior to the time of valuation. Short positions in
securities traded in the OTC market are valued at the last available ask price
in the OTC market prior to the time of valuation. Portfolio securities that are
traded both in the OTC market and on a stock exchange are valued according to
the broadest and most representative market. In cases where securities are
traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as the primary
market. When the Fund writes an option, the amount of the premium received is
recorded on the books of the Fund as an asset and an equivalent liability. The
amount of the liability is subsequently valued to reflect the current market
value of the option written, based upon the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last asked price. Options purchased by the Fund are valued at their last sale
price in the case of exchange-traded options or in the case of options traded in
the OTC market, the last bid price. Other investments, including futures
contracts and related options, are stated at market value. Securities and assets
for which market quotations are not readily available are valued at fair value,
as determined in good faith by or under the direction of the Board of Directors
of the Fund, including valuations furnished by a pricing service retained by the
Fund. Such valuations and procedures will be reviewed periodically by the Board
of Directors.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below that are
designed to facilitate investment in its shares. Full details as to each of such
services and copies of the various plans described below can be obtained from
the Fund, the Distributor or Merrill Lynch. Certain of these services are
available only to United States 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 income dividends and
long-term capital gains distributions. The quarterly statements will also show
any other activity in the account since the preceding statement. Shareholders
will receive separate transaction confirmations for each purchase or sale
transaction other than automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gains distributions. A
shareholder may make additions to his Investment Account at any time by mailing
a check directly to the Transfer Agent.
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<PAGE> 82
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the Transfer Agent. Shareholders considering
transferring their Class A or Class D shares from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the Class A or Class D shares are to be transferred will not take delivery
of shares of the Fund, a shareholder either must redeem the Class A or Class D
shares so that the cash proceeds can be transferred to the account at the new
firm or such shareholder must continue to maintain an Investment Account at the
Transfer Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the shareholder.
If the new brokerage firm is willing to accommodate the shareholder in this
manner, the shareholder must request that he be issued certificates for his
shares, and then must turn the certificates over to the new firm for re-
registration as described in the preceding sentence.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to the Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer or by mail directly to the Transfer Agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the 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. For
investors who buy shares of the Fund through Blueprint, no minimum charge to the
investors' bank account is required. Investors who maintain CMA(R) or CBA(R)
accounts may arrange to have periodic investments made in the Fund, in the
CMA(R) or CBA(R) accounts or in certain related accounts in amounts of $100 or
more ($1 for retirement accounts) through the CMA(R) or CBA(R) Automated
Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically in additional shares of the Fund. Such reinvestment
will be at the net asset value of shares of the Fund, without sales charge, as
of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing or by telephone (1-800-MER-FUND)
to receive either their income 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 Merrill Lynch in writing if their
account is maintained with Merrill Lynch or notify the Transfer Agent in writing
or by telephone call (1-800-MER-FUND) if their account is maintained with the
Transfer Agent that they no longer wish to have their dividends and/or
distributions reinvested in shares of the Fund or vice versa and, commencing ten
days after the receipt by the Transfer Agent of such notice, those instructions
will be effected. The Fund is not responsible for any failure of delivery to the
shareholder's address of record and no interest will accrue on amounts
represented by uncashed distribution or redemption checks.
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<PAGE> 83
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to make systematic withdrawals from an Investment
Account of Class A, Class B, Class C or Class D shares in the form of payments
by check or through automatic payment by direct deposit to such shareholder's
bank account, on either a monthly or quarterly basis as provided below.
Quarterly withdrawals are available for shareholders who have acquired shares of
the Fund having a value, based on cost or the current offering price, of $5,000
or more, and monthly withdrawals are available for shareholders with shares
having a value of $10,000 or more.
At the time of each withdrawal payment, sufficient shares are redeemed from
those on deposit in the shareholder's account to provide the withdrawal payment
specified by the shareholder. The shareholder may specify the dollar amount and
class of shares to be redeemed. Redemptions will be made at net asset value
determined as described herein on the 24th day of each month or the 24th day of
the last month of each quarter, whichever is applicable. If the NYSE is not open
for business on such date, the shares will be redeemed at the close of business
on the following business day. The check for the withdrawal payment will be
mailed, or the direct deposit for withdrawal payment will be made, on the next
business day following redemption. When a shareholder is making systematic
withdrawals, dividends and distributions on all shares in the Investment Account
are reinvested automatically in shares of the Fund. A shareholder's systematic
withdrawal plan may be terminated at any time, without a charge or penalty, by
the shareholder, the Fund, the Fund's Transfer Agent or the Distributor.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholder's original investment may be reduced
correspondingly. Purchases of additional shares concurrent with withdrawals are
ordinarily disadvantageous to the shareholder because of sales charges and tax
liabilities. The Fund will not knowingly accept purchase orders for shares of
the Fund from investors 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 shareholder whose shares are held within a CMA(R), CBA(R)
or Retirement Account may elect to have shares redeemed on a monthly,
bi-monthly, quarterly, semiannual or annual basis through the CMA(R) or CBA(R)
Systematic Redemption Program. The minimum fixed dollar amount redeemable is
$50. The proceeds of systematic redemptions will be posted to the shareholder's
account three business days after the date the shares are redeemed. All
redemptions are made at net asset value. A shareholder may elect to have his or
her shares redeemed on the first, second, third or fourth Monday of each month,
in the case of monthly redemptions, or of every other month, in the case of
bi-monthly redemptions. For quarterly, semiannual or annual redemptions, the
shareholder may select the month in which the shares are to be redeemed and may
designate whether the redemption is to be made on the first, second, third or
fourth Monday of the month. If the Monday selected is not a business day, the
redemption will be processed at net asset value on the next business day. The
CMA(R) or CBA(R) Systematic Redemption Program is not available if Fund shares
are being purchased within the account pursuant to the Automatic Investment
Program. For more information on the CMA(R) or CBA(R) Systematic Redemption
Program, eligible shareholders should contact their Merrill Lynch Financial
Consultant.
23
<PAGE> 84
With respect to redemptions of Class B and Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares that
can be redeemed from an account annually shall not exceed 10% of the value of
shares of such class in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that otherwise might be due on
such redemption of Class B or Class C shares will be waived. Shares redeemed
pursuant to a systematic withdrawal plan will be redeemed in the same order as
Class B or Class C shares are otherwise redeemed. See "Purchase of
Shares -- Deferred Sales Charge Alternatives -- Class B and Class C
Shares -- Contingent Deferred Sales Charges -- Class B Shares" and
"-- Contingent Deferred Sales Charges -- Class C Shares" in the Prospectus.
Where the systematic withdrawal plan is applied to Class B shares, upon
conversion of the last Class B shares in an account to Class D shares, the
systematic withdrawal plan will automatically be applied thereafter to Class D
shares. See "Purchase of Shares -- Deferred Sales Charge Alternatives -- Class B
and Class C Shares -- Conversion of Class B Shares to Class D Shares" in the
Prospectus; if an investor wishes to change the amount being withdrawn in a
systematic withdrawal plan the investor should contact his or her Financial
Consultant.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Fund and certain of the other mutual funds sponsored by Merrill Lynch as well as
in other securities. Merrill Lynch charges an initial establishment fee and an
annual custodial fee for each account. Information with respect to these plans
is available on request from Merrill Lynch. The minimum initial purchase to
establish any such plan is $100 and the minimum subsequent purchase is $1.
However, there is no minimum for purchases through Blueprint's systematic
investment plans.
Capital gains and income received in each of the plans referred to above
are exempt from Federal taxation until distributed from the plans. Investors
considering participation in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan.
EXCHANGE PRIVILEGE
U.S. 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 or her
account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second MLAM-advised
mutual fund, but does not hold Class A shares of the second fund in his or her
account at the time of the exchange and is not otherwise eligible to acquire
Class A shares of the second fund, the shareholder will receive Class D shares
of the second fund as a result of the exchange. Class D shares also may be
exchanged for Class A shares of a second 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 will be exchangeable for 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
24
<PAGE> 85
holding period for the previously owned shares of the Fund is "tacked" to the
holding period of the newly acquired shares of the other fund as more fully
described below. Class A, Class B, Class C and Class D shares also will be
exchangeable for shares of certain money market funds advised by MLAM or its
affiliates specifically designated below as available for exchange by holders of
Class A, Class B, Class C or Class D shares. Shares with an aggregate net asset
value of at least $100 are required to qualify for the exchange privilege, and
any shares utilized in an exchange must have been held by the shareholder for 15
days.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charges paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
dividend reinvestment Class A and Class D shares shall 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 ("new Class B or
Class C shares"), of another MLAM-advised mutual fund, on the basis of relative
net asset value per Class B or Class C share, without the payment of any CDSC
that might otherwise be due on redemption of the outstanding shares. Class B
shareholders of the Fund exercising the exchange privilege will continue to be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the new Class B shares acquired through use of the exchange
privilege. In addition, Class B shares of the Fund acquired through use of the
exchange privilege will be subject to the Fund's CDSC schedule if such schedule
is higher than the CDSC schedule relating to the Class B shares of the fund from
which the exchange has been made. For purposes of computing the sales load that
may be payable on a disposition of the new Class B or Class C shares, the
holding period for the outstanding Class B or Class C shares is "tacked" to the
holding period of the new Class B or Class C shares. For example, an investor
may exchange Class B shares of the Fund for those of Merrill Lynch Special Value
Fund, Inc. ("Special Value Fund") after having held the Fund's Class B shares
for two-and-a-half years. The 2% CDSC that generally would apply to a redemption
would not apply to the exchange. Three years later the investor may decide to
redeem the Class B shares of Special Value Fund and receive cash. There will be
no CDSC due on this redemption, since by "tacking" the two-and-a-half-year
holding period of the Fund's Class B shares to the three year holding period for
the Special Value Fund Class B shares, the investor will be deemed to have held
the new Special Value Fund Class B shares for more than five years.
Shareholders also may exchange shares of the Fund into shares of a money
market fund advised by the Manager or its affiliates, but the period of time
that Class B or Class C shares are held in a money market fund will not count
toward satisfaction of the holding period requirement for purposes of reducing
the CDSC or with respect to Class B shares, toward satisfaction of the
conversion period. However, shares of a money market fund that were acquired as
a result of an exchange for Class B or Class C shares of the Fund may, in
25
<PAGE> 86
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 that 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 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 would not incur a CDSC.
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 transfer through their securities dealers. The Fund
reserves the right to require a properly completed Exchange Application. This
exchange privilege may be modified or terminated in accordance with the rules of
the Commission. The Fund reserves the right to limit the number of times an
investor may exercise the exchange privilege. Certain funds may suspend the
continuous offering of their shares to the general public at any time and may
thereafter resume such offering from time to time. The exchange privilege is
available only to U.S. shareholders in states where the exchange legally may be
made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all of its net investment income,
if any. Dividends from such net investment income are paid quarterly. All net
realized long- or short-term capital gains, if any, are distributed to the
Fund's shareholders at least annually. From time to time, the Fund may declare a
special distribution at or about the end of the calendar year in order to comply
with a Federal income tax requirement that certain percentages of its ordinary
income and capital gains be distributed during the taxable year. Premiums from
expired call options written by the Fund and net gains from closing purchase
transactions are treated as short-term capital gains for Federal income tax
purposes. See "Shareholder Services -- Automatic Reinvestment of Dividends and
Capital Gains Distributions" for information concerning the manner in which
dividends and distributions may be reinvested automatically in shares of the
Fund. Shareholders may elect in writing to receive any such dividends or
distributions, or both, in cash. Dividends and distributions are taxable to
shareholders as described below whether they are invested in shares of the Fund
or received in cash. The per share dividends and distributions on Class B and
Class C shares will be lower than the per share dividends and distributions on
Class A and Class D shares as a result of the account maintenance, distribution
and higher transfer agency fees applicable with respect to the Class B and Class
C shares; similarly, the per share dividends and distributions on Class D shares
will be lower than the per share dividends and distributions on Class A shares
as a result of the account maintenance fees applicable with respect to the Class
D shares. See "Determination of Net Asset Value."
26
<PAGE> 87
TAXES
The Fund has qualified and 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"). As long as 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"). In order to qualify, the Fund must, among other
things, (i) derive at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans, gains from the sale of
securities, certain gains from foreign currencies, or other income (including
but not limited to gains from options, futures or forward contracts) derived
with respect to its business of investing in such stock, securities or
currencies; (ii) distribute at least 90% of its dividend, interest and certain
other taxable income each year; (iii) at the end of each fiscal quarter maintain
at least 50% of the value of its total assets in cash, United States government
securities, securities of other RICs, and other securities of issuers which
represent, with respect to each issuer, no more than 5% of the value of the
Fund's total assets and 10% of the outstanding voting securities of such issuer;
and (iv) at the end of each fiscal quarter have no more than 25% of its assets
invested in the securities (other than those of the United States government or
other RICs) of any one issuer or of two or more issuers which the Fund controls
and which are engaged in the same, similar or related trades and businesses.
Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as "ordinary income dividends") are taxable to shareholders as ordinary income.
Any net capital gains (i.e., the excess of net capital gains from the sale
of assets held for more than 12 months over net short-term capital losses, and
including such gains from certain transactions in futures and options)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. The maximum capital gains rate for
individuals is 28% with respect to assets held by the Fund for more than 12
months, but not more than 18 months, and 20% with respect to assets held by the
Fund for more than 18 months. The maximum capital gains rate for corporate
shareholders currently is the same as the maximum tax rate for ordinary income.
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
dividends or capital gains distributions, and also designating the amounts of
various categories of capital gain income in capital gain dividends. The portion
of the Fund's ordinary income dividends which is attributable to dividends
received by the Fund from U.S. corporations (other than dividends received on
preferred stocks of public utilities) may be eligible for the 70% dividends
received deduction allowed to corporations under the Code, if certain
requirements are met. For this purpose, the Fund will allocate dividends
eligible for the dividends received deduction between the Class A, Class B,
Class C and Class D shareholders according to a method (which it believes is
consistent with the Commission exemptive order permitting the issuance and sale
of multiple classes of stock) that is based upon the gross income that is
allocable to the Class A, Class B, Class C and Class D shareholders during the
taxable year, or such other method as the Internal Revenue Service may
prescribe. If the Fund pays a dividend in January that was declared in the
previous October, November or December to shareholders of record on a date in
such a month, then such dividend or distribution will be treated for tax
purposes as being paid on December 31, and will be taxable to its shareholders
on December 31 of the year in which the dividend was declared.
27
<PAGE> 88
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gains dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom a certified taxpayer identification
number is not 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
shareholder is not otherwise subject to backup withholding taxes.
Ordinary income dividends paid by the Fund to shareholders who are
non-resident aliens or foreign entities generally will be subject to a 30%
United States withholding tax under existing provisions of the Code applicable
to foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Non-resident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
Income received by the Fund may give rise to withholding and other taxes
imposed by foreign countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Shareholders may be able to
claim United States foreign tax credits with respect to such taxes, subject to
certain provisions and limitations contained in the Code. If more than 50% in
value of the Fund's total assets at the close of its taxable year consists of
stock or 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 share
of such withholding taxes in their United States income tax returns as gross
income, treat such proportionate share as taxes paid by them, and deduct such
proportionate share in computing their taxable incomes or, alternatively,
subject to certain restrictions, and the shareholder and the Fund satisfying
certain holding period requirements, use them as foreign tax credits against
their United States income taxes. 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 classes
of shareholders according to a method similar to that described above for the
allocation of dividends eligible for the dividends received deduction.
No deductions for foreign taxes, however, may be claimed by noncorporate
shareholders who do not itemize deductions. Foreign tax credits cannot be
claimed by certain retirement accounts. A shareholder that is a nonresident
alien individual or a foreign corporation may be subject to United States
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
United States tax for the foreign taxes treated as having been paid by such
shareholder. The Fund will report annually to its shareholders the amount per
share of such withholding taxes.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares for Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period of the converted Class B shares.
Upon a sale or exchange of its shares, a shareholder will realize a taxable
gain or loss depending on its basis in the shares. Such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands. In the case of an individual, any such capital gain will be
treated as short-term capital gain if the shares were held for not more than 12
months, gain taxable at the maximum rate of 28% if such shares were held for
more than 12, but not more than 18 months, and gain taxable at the maximum rate
of 20% if such shares were held for more than 18 months. In the case of a
corporation, any such capital gain will be treated as long-term capital gain,
taxable at the same rates as ordinary income, if such shares were held for more
than 12 months. Any such capital loss will be long-term capital loss if the
shares were held for more than
28
<PAGE> 89
12 months. A sale or exchange of shares held for six months or less, however,
will be treated as long-term capital loss to the extent of any long-term capital
gains distributions with respect to such shares.
Generally, any 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 basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income and
capital gains in the manner necessary to avoid imposition of the 4% excise tax,
there can be no assurance that sufficient amounts of the Fund's taxable income
and capital gains will be distributed to avoid entirely the imposition of the
tax. In such event, the Fund will be liable for the tax only on the amount by
which it does not meet the foregoing distribution requirements.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase or sell options and futures. 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. In general, gain or loss from transactions in
options and futures contracts will be 60% long-term and 40% short-term capital
gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's transactions in options and futures contracts. Under
Section 1092, the Fund may be required to postpone recognition for tax purposes
of losses incurred in certain closing transactions in options and futures.
Similarly, Code Section 1091, which deals with "wash sales," may cause the Fund
to postpone recognition of certain losses for tax purposes; Code Section 1258,
which deals with "conversion transactions," may apply to recharacterize certain
capital gains as ordinary income for tax purposes, and Code Section 1259, which
deals with "constructive sales" of appreciated financial positions (e.g.,
stock), may treat the Fund as having recognized income before the time that such
income is economically recognized by the Fund.
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, futures, forward foreign currency or 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 forward contracts not traded in
the interbank market, 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. In general, however, Code Section
988 gains or losses will
29
<PAGE> 90
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to shareholders as ordinary income, rather than
increasing or decreasing the amount of the Fund's net capital gain.
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
dividend distributions, and any distributions made before the losses were
realized but in the same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing each shareholder's basis in his Fund
shares.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Dividends and capital gains distributions and gains on the sale or exchange
of shares in the Fund also may be subject to state and local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state, local or foreign taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective shareholders. Total return figures are based on the Fund's
historical performance and are not intended to indicate future performance.
Average annual total return is determined separately for Class A, Class B, Class
C and Class D shares in accordance with a formula specified by the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment. Such data will be
computed as described above, except that (i) as required by the periods of the
quotations, actual annual, annualized or aggregate data, rather than average
annual data, may be quoted and (ii) the maximum applicable sales charges will
not be included. Actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates of return
reflect compounding of return; aggregate total return data generally will be
higher than average annual total return data since the aggregate rates of return
reflect compounding over a longer period of time.
30
<PAGE> 91
Set forth below is total return information for the Class A, Class B, Class
C and Class D shares of the Fund for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES* CLASS D SHARES*
--------------------------- --------------------------- --------------------------- ---------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF $1,000 THE END OF $1,000 THE END OF $1,000 THE END OF
PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD
- -------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended
November 30,
1997........ 14.87% $1,148.70 14.77% $1,147.70
Five Years
Ended
November 30,
1997........ 12.80% $1,825.80 12.85% $1,830.50
Inception
(December
28, 1990) to
November 30,
1997........ 12.26% $2,227.00 12.06% $2,199.70
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Year Ended
November 30,
1997........ 19.65% $1,196.50 18.77% $1,187.70
Year Ended
November 30,
1996........ 17.94% $1,179.40 17.07% $1,170.70
Year Ended
November 30,
1995........ 16.34% $1,163.40 15.38% $1,153.80
Year Ended
November 30,
1994........ (4.89)% $ 951.10 (5.60)% $ 944.00
Year Ended
November 30,
1993........ 21.80% $1,218.00 20.86% $1,208.60
Year Ended
November 30,
1992........ 10.05% $1,100.50 9.20% $1,092.00
Inception
(December
28, 1990) to
November 30,
1991........ 10.83% $1,108.30 10.05% $1,100.50
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(December
28, 1990) to
November 30,
1997........ 122.70% $2,227.00 119.97% $2,199.70
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended
November 30,
1997........ 17.66% $1,176.60 14.57% $1,145.70
Inception
(October 21,
1994) to
November 30,
1997........ 15.48% $1,564.60 14.62% $1,528.30
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Year Ended
November 30,
1997........ 18.66% $1,186.60 19.35% $1,193.50
Year Ended
November 30,
1996........ 17.03% $1,170.30 17.45% $1,174.50
Year Ended
November 30,
1995........ 15.38% $1,153.80 16.21% $1,162.10
Inception
(October 21,
1994) to
November 30,
1994........ (2.35)% $ 976.50 (2.26)% $ 977.40
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(October 21,
1994) to
November 30,
1997........ 56.46% $1,564.60 52.83% $1,528.30
</TABLE>
- ---------------
* Class C Shares and Class D Shares commenced operations on October 21, 1994.
In order to reflect the reduced sales charges in the case of Class A or
Class D shares or the waiver of the CDSC in the case of Class B 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
31
<PAGE> 92
directed to such investors may take into account the reduced, and not the
maximum, sales charge or may not take into account the CDSC and therefore may
reflect greater total return since, due to the reduced sales charges or the
waiver of sales charges, a lower amount of expenses may be deducted.
From time to time, the Fund may include the Fund's Morningstar
risk-adjusted performance rating in advertisements or supplemental sales
literature.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on September 26, 1990. It has
an authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock each of which consists of 100,000,000 shares. Class A, Class B,
Class C and Class D Common Stock each represent an interest in the same assets
of the Fund and are identical in all respects except that the Class B, Class C
and Class D shares bear certain expenses related to the account maintenance
and/or distribution of such shares and have exclusive voting rights with respect
to matters relating to such account maintenance and/or distribution
expenditures. The Fund has received an order from the Commission permitting the
issuance and sale of multiple classes of Common Stock. The Board of Directors of
the Fund may classify and reclassify the shares of the Fund into additional
classes of Common Stock at a future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Fund does not intend to
hold meetings of shareholders in any year in which the Investment Company Act
does not require shareholders to act upon any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent accountants. Also, the by-laws of the Fund require that a special
meeting of stockholders be held upon the written request of at least 10% of the
outstanding shares of the Fund entitled to vote at such meeting. Voting rights
for Directors are not cumulative. Shares issued are fully paid and
non-assessable and have no preemptive rights. Redemption and conversion rights
are discussed elsewhere herein and in the Prospectus. Each share is entitled to
participate equally in dividends and distributions declared by the Fund and in
the net assets of the Fund upon liquidation or dissolution after satisfaction of
outstanding liabilities. Stock certificates are issued by the Transfer Agent
only on specific request. Certificates for fractional shares are not issued in
any case.
32
<PAGE> 93
COMPUTATION OF OFFERING PRICE PER SHARE
The offering price for Class A, Class B, Class C and Class D shares of the
Fund, based on the value of the Fund's net assets and number of shares
outstanding as of November 30, 1997, is calculated as set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net Assets........................... $38,825,316 $301,458,774 $5,486,086 $6,934,959
=========== ============ ======== ========
Number of Shares Outstanding......... 2,287,456 17,808,519 324,804 408,345
=========== ============ ======== ========
Net Asset Value Per Share (net assets
divided by number of shares
outstanding)....................... $ 16.97 $ 16.93 $ 16.89 $ 16.98
Sales Charge (for Class A and Class D
shares: 4.00% of offering price
(4.17% of net asset value per
share))*........................... .71 ** ** .71
----------- ------------ -------- --------
Offering Price....................... $ 17.68 $ 16.93 $ 16.89 $ 17.69
=========== ============ ======== ========
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B and Class C shares are not subject to an initial sales charge but may
be subject to a CDSC on redemption. 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, have
been selected as the independent auditors of the Fund. The independent auditors
are responsible for auditing the annual financial statements of the Fund.
CUSTODIAN
The Chase Manhattan Bank, N.A., acts as the Custodian of the Fund's assets.
Under its contract with the Fund, the Custodian is authorized to establish
separate accounts in foreign currencies and to cause foreign securities owned by
the Fund to be held in its offices outside the United States and with certain
foreign banks and securities depositories. The Custodian is responsible for
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities and collecting interest and dividends on the
Fund's investments.
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 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
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New
York 10022, is counsel for the Fund.
33
<PAGE> 94
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends November 30 of each year. The Fund sends
to its shareholders at least quarterly 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 any class of the Fund's shares on February 2, 1998.
34
<PAGE> 95
APPENDIX
RATINGS OF FIXED INCOME SECURITIES
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") CORPORATE RATINGS
AAA Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
BAA Bonds which are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
BA Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
CA Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
NOTE: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
35
<PAGE> 96
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representations as to whether such commercial paper is by any other definition
"commercial paper" or is exempt from registration under the Securities Act of
1933, as amended.
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
--Leading market positions in well established industries
--High rates of return on funds employed
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
level of debt protection measurements and the requirement for relatively high
financial leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its Commercial Paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within parentheses
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment. Moody's makes no representation and gives no opinion on the
legal validity or enforceability of any support arrangement. You are cautioned
to review with your counsel any questions regarding particular support
arrangements.
36
<PAGE> 97
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
Because of the fundamental differences between preferred stocks and bonds,
a variation of the bond rating symbols is being used in the quality ranking of
preferred stocks. The symbols, presented below, are designed to avoid comparison
with bond quality in absolute terms. It should always be borne in mind that
preferred stocks occupy a junior position to bonds within a particular capital
structure and that these securities are rated within the universe of preferred
stocks.
Preferred stock rating symbols and their definitions are as follows:
AAA An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
AA An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that
earnings and asset protection will remain relatively well maintained
in the foreseeable future.
A An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than
in the "aaa" and "aa" classifications, earnings and asset protection
are, nevertheless, expected to be maintained at adequate levels.
BAA An issue which is rated "baa" is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over
any great length of time.
BA An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
B An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance
of other terms of the issue over any long period of time may be
small.
CAA An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
CA An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payment.
C This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
NOTE: Moody's may apply numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
37
<PAGE> 98
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S ("STANDARD & POOR'S") CORPORATE
DEBT RATINGS
A Standard & Poor's corporate or municipal rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other reasons.
The ratings are based, in varying degrees, on the following considerations:
(1) likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher-rated categories.
Debt rated BB, B, CCC, CC and C are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. "BB" indicates the least degree of speculation and "C" the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet timely interest and
principal payment. The "BB" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
"BBB-"rating.
B Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely
impair capacity or willingness to pay interest and repay principal.
The B rating category is
38
<PAGE> 99
also used for debt subordinated to senior debt that is assigned an
actual or implied BB or BB- rating.
CCC Debt rated CCC has a current identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions
to meet timely payments of interest and repayments of principal. In the
event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied B or B- rating.
CC The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition
has been filed but debt service payments are continued.
CI The rating CI is reserved for income bonds on which no interest is
being paid.
D Debt rated D is in default. The D rating is assigned on the day an
interest or principal payment is missed. The "D" rating also will be
used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
ratings categories.
PROVISIONAL RATINGS: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.
L The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is insured by the Federal Savings & Loan Insurance Corp.
or the Federal Deposit Insurance Corp. and interest is adequately
collateralized.
* Continuance of the rating is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the
39
<PAGE> 100
laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The four categories are as
follows:
A Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative
degree of safety.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3 Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying
the higher designations.
B Issues rated "B" are regarded as having only adequate capacity for
timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D This rating indicates that the issue is either in default or is
expected to be in default upon maturity.
The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS
A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the bond rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
40
<PAGE> 101
The preferred stock ratings are based on the following considerations:
<TABLE>
<S> <C>
I. Likelihood of payment capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements affecting creditors' rights.
AAA This is the highest rating that may be assigned by Standard & Poor's to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the "A"
category.
BB, B, CCC Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest degree of speculation. While such issues
will likely have some quality and protection characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not
rate a particular type of obligation as a matter of policy.
</TABLE>
Plus (+) or minus (-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
The preferred stock ratings are not a recommendation to purchase or sell a
security, inasmuch as market price is not considered in arriving at the rating.
Preferred stock ratings are wholly unrelated to Standard & Poor's earnings and
dividend rankings for common stocks.
The ratings are based on current information furnished to Standard & Poor's
by the issuer, and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information.
41
<PAGE> 102
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Global Utility Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Global Utility Fund, Inc. as of
November 30, 1997, the related statements of operations for the year then ended
and changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at November
30, 1997 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Global
Utility Fund, Inc. as of November 30, 1997, 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
January 8, 1998
42
<PAGE> 103
<TABLE>
<CAPTION>
Merrill Lynch Global Utility Fund, Inc., November 30, 1997
SCHEDULE OF INVESTMENTS (in US dollars)
Shares Value Percent of
COUNTRY Industries Held Common Stocks & Warrants Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
Argentina Telecommunications 200,000 Telecom Argentina STET S.A.
(ADR) (b) $3,770,294 $6,137,500 1.7%
200,000 Telefonica de Argentina S.A.
(ADR) (b) 4,140,594 6,612,500 1.9
------------ ------------- ------
7,910,888 12,750,000 3.6
Utilities -- Electric 6,600 Central Costanera S.A. (ADR)
(b)(d) 158,400 171,666 0.1
------------ ------------- ------
Total Common Stocks in
Argentina 8,069,288 12,921,666 3.7
============ ============= ======
Australia Utilities -- Gas 2,000,000 Australian Gas & Light Co.,
Ltd. 5,280,752 13,482,680 3.8
------------ ------------- ------
Total Common Stocks in
Australia 5,280,752 13,482,680 3.8
============ ============= ======
Austria Utilities -- Gas 41,820 Energie-Versorgung
Niederoesterreich AG (EVN) 3,050,014 5,393,085 1.5
------------ ------------- ------
Total Common Stocks in Austria 3,050,014 5,393,085 1.5
============ ============= ======
Brazil Telecommunications 45,000 Telecomunicacoes Brasileiras
S.A. -- Telebras (ADR) (b) 2,176,897 4,696,875 1.3
Utilities -- Electric 300,000 Companhia Paranaense de
Energia (Copel) (ADR) (b) 5,400,000 4,518,750 1.3
------------ ------------- ------
Total Common Stocks in Brazil 7,576,897 9,215,625 2.6
============ ============= ======
Canada Telecommunications 140,000 BC Telecom, Inc. 2,593,297 3,629,848 1.0
Utilities -- Electric 369,100 Nova Scotia Power Co. 3,476,309 4,175,457 1.2
Utilities -- Gas 200,000 Transcanada Pipeline Co. Ltd.
(ADR) (b) 3,147,485 4,175,000 1.2
------------ ------------- ------
Total Common Stocks in Canada 9,217,091 11,980,305 3.4
============ ============= ======
Chile Telecommunications 113,750 Compania de Telefonos de
Chile S.A. (ADR) (b) 2,101,127 3,078,359 0.9
Utilities -- Electric 86,444 Chilgener S.A. (ADR) (b) 2,023,851 2,161,100 0.6
105,600 Distribuidora Chilectra
Metropolitana S.A. (ADR)
(b) (d) 1,309,780 2,635,776 0.7
------------ ------------- ------
3,333,631 4,796,876 1.3
------------ ------------- ------
Total Common Stocks in Chile 5,434,758 7,875,235 2.2
============ ============= ======
Denmark Telecommunications 160,000 Tele Danmark A/S (ADR) (b) 3,764,160 4,780,000 1.4
------------ ------------- ------
Total Common Stocks in Denmark 3,764,160 4,780,000 1.4
============ ============= ======
France Utilities -- Water 91,074 Generale des Eaux S.A. 9,841,922 12,035,192 3.4
89,715 Generale des Eaux S.A.
(Warrants) (a) 0 54,870 0.0
------------ ------------- ------
Total Common Stocks & Warrants
in France 9,841,922 12,090,062 3.4
============ ============= ======
Germany Telecommunications 24,300 Deutsche Telekom AG 462,162 492,530 0.1
Utilities -- Electric 40,000 RWE Aktiengesellschaft 1,799,334 1,960,540 0.5
4,000 VIAG Aktiengesellschaft 1,764,306 2,032,430 0.6
70,000 Veba Aktiengesellschaft 2,284,445 4,159,202 1.2
------------ ------------- ------
5,848,085 8,152,172 2.3
------------ ------------- ------
Total Common Stocks in Germany 6,310,247 8,644,702 2.4
============ ============= ======
</TABLE>
43
<PAGE> 104
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Hong Kong Utilities -- Gas 144,050 The Hong Kong and China Gas
Co. Ltd. (f) 178,364 259,036 0.1
------------ ------------- ------
Total Common Stocks in Hong
Kong 178,364 259,036 0.1
============ ============= ======
Indonesia Telecommunications 5,500 P.T. Indonesian Satellite
Corp. (Indosat) (ADR) (b) 176,275 123,063 0.0
29,600 P.T. Telekomunikasi Indonesia
(Persero) (ADR) (b) 532,800 432,900 0.1
------------ ------------- ------
Total Common Stocks in
Indonesia 709,075 555,963 0.1
============ ============= ======
Italy Telecommunications 3,000,000 Telecom Italia Mobile S.p.A. 2,137,108 12,149,019 3.4
1,505,555 Telecom Italia S.p.A. 2,746,349 9,387,383 2.7
2,891,700 Telecom Italia S.p.A.
(Registered Non-Convertible) 5,447,174 11,400,728 3.2
------------ ------------- ------
10,330,631 32,937,130 9.3
Utilities -- Gas 1,786,300 Italgas Torino S.p.A. 5,169,953 6,892,659 2.0
------------ ------------- ------
Total Common Stocks in Italy 15,500,584 39,829,789 11.3
============ ============= ======
Korea Utilities -- Electric 178,300 Korea Electric Power Corp.
(KEPCO) (ADR) (b) 3,500,925 1,615,844 0.5
------------ ------------- ------
Total Common Stocks in Korea 3,500,925 1,615,844 0.5
============ ============= ======
Mexico Telecommunications 105,000 Telefonos de Mexico, S.A. de
C.V. (ADR) (b) 5,594,445 5,197,500 1.5
------------ ------------- ------
Total Common Stocks in Mexico 5,594,445 5,197,500 1.5
============ ============= ======
New Zealand Telecommunications 56,000 Telecom Corporation of New
Zealand Ltd. (ADR) (b) 1,230,138 2,296,000 0.7
------------ ------------- ------
Total Common Stocks in New
Zealand 1,230,138 2,296,000 0.7
============ ============= ======
Peru Telecommunications 195,000 Telefonica del Peru S.A.
(ADR) (b) 3,997,500 4,095,000 1.2
------------ ------------- ------
Total Common Stocks in Peru 3,997,500 4,095,000 1.2
============ ============= ======
Philippines Telecommunications 188,000 Philippine Long Distance
Telephone Co. (ADR) (b) 4,077,062 4,653,000 1.3
Utilities -- Electric 96,330 Manila Electric Co. (MERALCO)
'B' 497,246 336,390 0.1
------------ ------------- ------
Total Common Stocks in the
Philippines 4,574,308 4,989,390 1.4
============ ============= ======
Portugal Telecommunications 205,740 Portugal Telecom, S.A. (ADR)
(b) 4,576,844 9,438,322 2.7
Utilities -- Electric 10,820 +EDP -- Electricidade de
Portugal, S.A. (ADR) (b) 279,589 391,549 0.1
------------ ------------- ------
Total Common Stocks in
Portugal 4,856,433 9,829,871 2.8
============ ============= ======
Spain Telecommunications 477,300 Telefonica de Espana, S.A. 5,492,570 13,769,809 3.9
Utilities -- Electric 519,200 Empresa Nacional de
Electricidad, S.A. (Endesa)
(ADR)(b) 4,566,202 9,735,000 2.8
46,000 HidroElectrica Del Cantabrico,
S.A. 1,553,961 2,117,142 0.6
808,500 Iberdrola I, S.A. 4,998,321 10,333,395 2.9
------------ ------------- ------
11,118,484 22,185,537 6.3
------------ ------------- ------
Total Common Stocks in Spain 16,611,054 35,955,346 10.2
============ ============= ======
</TABLE>
44
<PAGE> 105
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Thailand Utilities -- Electric 332,000 Electricity Generating Company
of Thailand (EGCOMP) 296,433 640,847 0.2
------------ ------------- ------
Total Common Stocks in
Thailand 296,433 640,847 0.2
============ ============= ======
United Kingdom Telecommunications 671,000 British Telecommunications PLC 4,688,465 5,164,549 1.4
100,000 Vodafone Group PLC (ADR) (b) 2,962,040 6,600,000 1.9
------------ ------------- ------
7,650,505 11,764,549 3.3
Utilities -- Electric 208,000 National Power PLC 1,723,671 1,981,023 0.6
370,000 PowerGen PLC 2,705,142 4,764,012 1.3
------------ ------------- ------
4,428,813 6,745,035 1.9
------------ ------------- ------
Total Common Stocks in the
United Kingdom 12,079,318 18,509,584 5.2
============ ============= ======
United States Telecommunications 46,000 AT&T Corporation 1,848,510 2,570,250 0.7
70,000 Ameritech Corp. 2,996,450 5,394,375 1.5
47,616 Bell Atlantic Corporation 2,819,654 4,249,728 1.2
91,800 BellSouth Corp. 2,702,773 5,026,050 1.4
108,000 Frontier Corp. 2,193,480 2,646,000 0.8
85,000 GTE Corp. 3,145,450 4,297,812 1.2
10,046 Lucent Technologies, Inc. 493,515 804,936 0.2
69,900 SBC Communications, Inc. 2,939,711 5,089,594 1.5
68,000 U S West Communications Group 1,895,186 3,072,750 0.9
108,000 WorldCom Corp. 3,572,937 3,456,000 1.0
------------ ------------- ------
24,607,666 36,607,495 10.4
Utilities -- Electric 156,000 Allegheny Energy, Inc. (c) 4,213,210 4,728,750 1.3
87,200 Boston Edison Co. 2,722,264 3,052,000 0.9
166,962 CINergy Corp. 4,045,124 5,948,021 1.7
84,200 Consolidated Edison Co. of
New York 2,991,744 3,178,550 0.9
118,900 DTE Energy Co. 4,092,463 3,901,406 1.1
95,250 Dominion Resources, Inc. 3,965,452 3,702,844 1.0
85,000 Duke Energy Co. 3,180,276 4,420,000 1.3
283,000 Edison International 6,379,546 7,587,937 2.2
188,300 GPU, Inc. 5,864,593 7,437,850 2.1
75,200 Houston Industries, Inc. 1,840,708 1,781,300 0.5
184,800 NIPSCO Industries, Inc. 5,394,297 8,650,950 2.5
124,000 New Century Energies Corp. 3,798,642 5,487,000 1.6
106,000 New York State Electric & Gas
Corp. 3,787,564 3,259,500 0.9
140,500 PECO Energy Co. 4,344,731 3,415,906 0.9
183,000 PacifiCorp 3,657,980 4,266,187 1.2
91,200 Southern Co. 2,022,770 2,188,800 0.6
100,000 Texas Utilities Holding Co. 3,506,000 4,000,000 1.1
------------ ------------- ------
65,807,364 77,007,001 21.8
</TABLE>
45
<PAGE> 106
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Utilities -- Gas 102,500 The Coastal Corp. 2,726,261 6,002,656 1.7
30,000 K N Energy, Inc. 1,214,183 1,402,500 0.4
130,000 Keyspan Energy Corporation (e) 3,371,550 4,330,625 1.2
136,000 Questar Corp. 3,729,821 5,329,500 1.5
74,300 Sonat, Inc. 2,229,714 3,236,694 0.9
------------ ------------- ------
13,271,529 20,301,975 5.7
------------ ------------- ------
Total Common Stocks in the
United States 103,686,559 133,916,471 37.9
============ ============= ======
Total Investments in Common
Stocks & Warrants 231,360,265 344,074,001 97.5
============ ============= ======
<CAPTION>
Face
Amount Short-Term Securities
<S> <C> <C> <C> <C> <C> <C>
Commercial Paper* $9,047,000 General Motors Acceptance
Corp., 5.75% due 12/01/1997 9,044,110 9,044,110 2.6
------------ ------------- ------
Total Investments in
Short-Term Securities 9,044,110 9,044,110 2.6
============ ============= ======
Total Investments $240,404,375 353,118,111 100.1
============
Liabilities in Excess
of Other Assets (412,976) (0.1)
------------- ------
Net Assets $352,705,135 100.0%
============= ======
</TABLE>
* Commercial Paper is traded on a discount basis; the
interest rate shown is the discount rate paid at the time
of purchase by the Fund.
(a) Warrants entitle the Fund to purchase a predetermined
number of shares of common stock. The purchase price and
number of shares are subject to adjustment under certain
conditions until the expiration date.
(b) American Depositary Receipts (ADR).
(c) Formerly known as Allegheny Power System, Inc.
(d) The security may be offered and sold to "qualified
institutional buyers" under Rule 144A of the Securities
Act of 1933.
(e) Keyspan Energy Corporation was the result of a merger
between Brooklyn Union Gas Co. and Long Island Lighting
Co.
(f) The Fund's warrants were converted into shares.
+ Non-income producing security.
See Notes to Financial Statements.
46
<PAGE> 107
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
As of November 30, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $240,404,375) (Note 1a) $353,118,111
Cash 2,050
Receivables:
Dividends $655,665
Securities sold 42,749
Capital shares sold 42,707 741,121
-------------
Prepaid registration fees and other assets (Note 1f) 23,044
-------------
Total assets 353,884,326
-------------
Liabilities: Payables:
Capital shares redeemed 632,763
Distributor (Note 2) 172,869
Investment adviser (Note 2) 157,420 963,052
-------------
Accrued expenses and other liabilities 216,139
-------------
Total liabilities 1,179,191
-------------
Net Assets: Net assets $352,705,135
=============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares
Consist of: authorized $228,746
Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 1,780,852
Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 32,480
Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 40,835
Paid-in capital in excess of par 211,803,197
Undistributed investment income -- net 707,132
Undistributed realized capital gains on investments and foreign
currency transactions -- net 25,398,877
Unrealized appreciation on investments and foreign currency
transactions -- net 112,713,016
-------------
Net assets $352,705,135
=============
Net Asset Class A -- Based on net assets of $38,825,316 and 2,287,456 shares
Value: outstanding $16.97
=============
Class B -- Based on net assets of $301,458,774 and 17,808,519 shares
outstanding $16.93
=============
Class C -- Based on net assets of $5,486,086 and 324,804 shares
outstanding $16.89
=============
Class D -- Based on net assets of $6,934,959 and 408,345 shares
outstanding $16.98
=============
See Notes to Financial Statements.
</TABLE>
47
<PAGE> 108
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Year Ended November 30, 1997
<S> <C> <C> <C>
Investment Income Dividends (net of $904,012 foreign withholding tax) $13,006,997
(Notes 1d & 1e): Interest and discount earned 880,338
-------------
Total income 13,887,335
-------------
Expenses: Account maintenance and distribution fees -- Class B (Note 2) $2,367,232
Investment advisory fees (Note 2) 2,188,667
Transfer agent fees -- Class B (Note 2) 381,042
Custodian fees 133,904
Printing and shareholder reports 109,273
Registration fees (Note 1f) 69,787
Professional fees 61,516
Transfer agent fees -- Class A (Note 2) 37,960
Account maintenance and distribution fees -- Class C (Note 2) 35,517
Accounting services (Note 2) 33,629
Directors' fees and expenses 19,467
Account maintenance fees -- Class D (Note 2) 14,195
Transfer agent fees -- Class C (Note 2) 5,362
Transfer agent fees -- Class D (Note 2) 5,273
Pricing fees 2,081
Other 9,442
-------------
Total expenses 5,474,347
-------------
Investment income -- net 8,412,988
-------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments -- net 25,398,929
(Loss) on Foreign currency transactions -- net (119,365) 25,279,564
Investments & -------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions -- Net Investments -- net 29,203,085
(Notes 1b, 1c, Foreign currency transactions -- net 1,975 29,205,060
1e & 3): ------------- -------------
Net realized and unrealized gain on investments and foreign currency
transactions 54,484,624
-------------
Net Increase in Net Assets Resulting from Operations $62,897,612
=============
See Notes to Financial Statements.
</TABLE>
48
<PAGE> 109
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended November 30,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $8,412,988 $11,621,285
Realized gain on investments and foreign currency transactions -- net 25,279,564 11,210,157
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions -- net 29,205,060 41,368,999
------------- -------------
Net increase in net assets resulting from operations 62,897,612 64,200,441
------------- -------------
Dividends & Investment income -- net:
Distributions to Class A (1,226,228) (1,619,986)
Shareholders Class B (7,470,524) (10,429,834)
(Note 1g): Class C (104,297) (83,508)
Class D (159,532) (99,132)
Realized gain on investments -- net:
Class A (1,172,347) (807,670)
Class B (9,833,032) (6,874,204)
Class C (98,232) (38,876)
Class D (130,954) (29,790)
------------- -------------
Net decrease in net assets resulting from dividends and distributions to
shareholders (20,195,146) (19,983,000)
------------- -------------
Capital Share Net decrease in net assets derived from capital share transactions (73,229,623) (90,445,913)
Transactions ------------- -------------
(Note 4):
Net Assets: Total decrease in net assets (30,527,157) (46,228,472)
Beginning of year 383,232,292 429,460,764
------------- -------------
End of year* $352,705,135 $383,232,292
============= =============
* Undistributed investment income -- net (Note 1h) $707,132 $1,373,289
============= =============
See Notes to Financial Statements.
</TABLE>
49
<PAGE> 110
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived Class A
from information provided in the financial statements.
For the Year Ended November 30,
1997++ 1996++ 1995 1994 1993
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $15.09 $13.52 $12.08 $13.22 $11.23
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income -- net .47 .50 .51 .94 .40
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net 2.35 1.84 1.42 (1.57) 2.01
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.82 2.34 1.93 (.63) 2.41
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.49) (.53) (.49) (.47) (.41)
Realized gain on investments -- net (.45) (.24) -- (.04) (.01)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.94) (.77) (.49) (.51) (.42)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $16.97 $15.09 $13.52 $12.08 $13.22
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 19.65% 17.94% 16.34% (4.89%) 21.80%
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses .82% .84% .91% .86% .82%
Net Assets: ========== ========== ========== ========== ==========
Investment income -- net 2.98% 3.51% 3.73% 3.58% 3.57%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in thousands) $38,825 $40,055 $44,775 $56,659 $81,718
Data: ========== ========== ========== ========== ==========
Portfolio turnover 6.23% 5.03% 2.92% 17.02% 8.92%
========== ========== ========== ========== ==========
Average commission rate paid+++++ $.0234 $.0328 -- -- --
========== ========== ========== ========== ==========
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements.
For the Year Ended November 30,
1997++ 1996++ 1995 1994 1993
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $15.05 $13.47 $12.04 $13.17 $11.20
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income -- net .35 .39 .38 .74 .33
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net 2.35 1.84 1.44 (1.46) 1.98
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.70 2.23 1.82 (.72) 2.31
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.37) (.41) (.39) (.37) (.33)
Realized gain on investments -- net (.45) (.24) -- (.04) (.01)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.82) (.65) (.39) (.41) (.34)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $16.93 $15.05 $13.47 $12.04 $13.17
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 18.77% 17.07% 15.38% (5.60%) 20.86%
Return:** ========== ========== ========== ========== ==========
</TABLE>
50
<PAGE> 111
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratios to Average Expenses 1.59% 1.61% 1.68% 1.63% 1.59%
Net Assets: ========== ========== ========== ========== ==========
Investment income -- net 2.22% 2.74% 2.95% 2.82% 2.81%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in thousands) $301,459 $335,487 $381,098 $459,185 $596,455
Data: ========== ========== ========== ========== ==========
Portfolio turnover 6.23% 5.03% 2.92% 17.02% 8.92%
========== ========== ========== ========== ==========
Average commission rate paid+++++ $.0234 $.0328 -- -- --
========== ========== ========== ========== ==========
<CAPTION>
Class C
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. 1994+ to
For the Year Ended Nov. 30, Nov. 30,
1997++ 1996++ 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $15.03 $13.46 $12.05 $12.34
Operating ---------- ---------- ---------- ----------
Performance: Investment income -- net .33 .38 .39 .01
Realized and unrealized gain (loss) on investments
and foreign currency transactions -- net 2.35 1.84 1.43 (.30)
---------- ---------- ---------- ----------
Total from investment operations 2.68 2.22 1.82 (.29)
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.37) (.41) (.41) --
Realized gain on investments -- net (.45) (.24) -- --
---------- ---------- ---------- ----------
Total dividends and distributions (.82) (.65) (.41) --
---------- ---------- ---------- ----------
Net asset value, end of period $16.89 $15.03 $13.46 $12.05
========== ========== ========== ==========
Total Investment Based on net asset value per share 18.66% 17.03% 15.38% (2.35%)++++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses 1.63% 1.66% 1.73% 1.60%*
Net Assets: ========== ========== ========== ==========
Investment income -- net 2.07% 2.65% 2.85% 3.01%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $5,486 $3,325 $2,072 $445
Data: ========== ========== ========== ==========
Portfolio turnover 6.23% 5.03% 2.92% 17.02%
========== ========== ========== ==========
Average commission rate paid+++++ $.0234 $.0328 -- --
========== ========== ========== ==========
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
++++ Aggregate total investment return.
+++++ For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission
rate per share for purchases and sales of equity
securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been
converted into US dollars using the prevailing exchange
rate on the date of the transaction. Such conversions may
significantly affect the rate shown.
See Notes to Financial Statements.
51
<PAGE> 112
<TABLE>
<CAPTION>
Class D
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. 1994+ to
For the Year Ended Nov. 30, Nov. 30,
1997++ 1996++ 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $15.10 $13.55 $12.09 $12.37
Operating ---------- ---------- ---------- ----------
Performance: Investment income -- net .43 .50 .52 .02
Realized and unrealized gain (loss) on investments and
foreign currency transactions -- net 2.35 1.79 1.40 (.30)
---------- ---------- ---------- ----------
Total from investment operations 2.78 2.29 1.92 (.28)
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.45) (.50) (.46) --
Realized gain on investments -- net (.45) (.24) -- --
---------- ---------- ---------- ----------
Total dividends and distributions (.90) (.74) (.46) --
---------- ---------- ---------- ----------
Net asset value, end of period $16.98 $15.10 $13.55 $12.09
========== ========== ========== ==========
Total Investment Based on net asset value per share 19.35% 17.45% 16.21% (2.26%)++++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses 1.06% 1.07% 1.15% 1.08%*
Net Assets: ========== ========== ========== ==========
Investment income -- net 2.70% 3.30% 3.36% 3.25%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $6,935 $4,365 $1,516 $239
Data: ========== ========== ========== ==========
Portfolio turnover 6.23% 5.03% 2.92% 17.02%
========== ========== ========== ==========
Average commission rate paid+++++ $.0234 $.0328 -- --
========== ========== ========== ==========
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
++++ Aggregate total investment return.
+++++ For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission
rate per share for purchases and sales of equity
securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been
converted into US dollars using the prevailing exchange
rate on the date of the transaction. Such conversions may
significantly affect the rate shown.
See Notes to Financial Statements.
52
<PAGE> 113
Merrill Lynch Global Utility Fund, Inc., November 30, 1997
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Global Utility Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund offers four classes of shares
under the Merrill Lynch Select PricingSM System. Shares of Class A and
Class D are sold with a front-end sales charge. Shares of Class B and
Class C may be subject to a contingent deferred sales charge. All
classes of shares have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except that Class B,
Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares
also bear certain expenses related to the distribution of such shares.
Each class has exclusive voting rights with respect to matters
relating to its account maintenance and distribution expenditures. The
following is a summary of significant accounting policies followed by
the Fund.
(a) Valuation of securities -- Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at the
last available bid price. Securities traded in the over-the-counter
market are valued at the last available bid price prior to the time of
valuation. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market.
Securities which are traded both in the over-the-counter market and on
a stock exchange are valued according to the broadest and most
representative market. Options written are valued at the last sale
price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter market, the last asked price.
Options purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the over-
the-counter market, the last bid price. Short-term securities are
valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market value
quotations are not 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) 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.
(c) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the contract
or if the counterparty does not perform under the contract.
[bullet] Options -- The Fund is authorized to write and purchase call
options 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 market value of the option
written. When a security is purchased or sold through an exercise of
an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from (or
added to) the proceeds of the security sold. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a
gain or loss on the option to the extent of the premiums received or
paid (or gain or loss to the extent the cost of the closing
transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
[bullet] 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.
[bullet] Foreign currency options and futures -- The Fund may also
purchase or sell listed or over-the-counter foreign currency options,
foreign currency futures and related options on foreign currency
futures as a short or long hedge against possible variations in
foreign exchange rates. Such transactions may be effected with respect
to hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated to
be purchased by the Fund.
(d) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no Federal income tax provision is
required. Under the applicable foreign tax law, a withholding tax may
be imposed on interest, dividends and capital gains at various rates.
(e) Security transactions and investment income -- Security
transactions are recorded on the dates the transactions are entered
into (the
53
<PAGE> 114
trade dates). Interest income (including amortization of discount) is
recognized on the accrual basis. Dividend income is recorded on the ex-dividend
dates. Dividends from foreign securities where the ex-dividend date may have
passed are subsequently recorded when the Fund has determined the ex-dividend
dates. Realized gains and losses on security transactions are determined on the
identified cost basis.
(f) Prepaid registration fees -- Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions -- Dividends and distributions paid
by the Fund are recorded on the ex-dividend dates.
(h) Reclassification -- Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of $118,564
have been reclassified between undistributed net realized capital
gains and undistributed net investment income. These reclassifications
have no effect on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner of
MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds Distributor,
Inc. ("MLFD" or "Distributor"), a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operation of the Fund. For such
services, the Fund pays a monthly fee of 0.60%, on an annual basis, of
the average daily value of the Fund's net assets.
Pursuant to 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 distribution fee compensates the
Distributor and MLPF&S for providing shareholder and distribution-
related services to Class B and Class C shareholders.
For the year ended November 30, 1997, MLFD earned underwriting
discounts and direct commissions 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 $311 $4,006
Class D $1,670 $11,122
For the year ended November 30, 1997, MLPF&S received contingent
deferred sales charges of $414,164 and $1,002, relating to
transactions in Class B Shares and Class C Shares, respectively.
In addition, MLPF&S received $29,245 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
November 30, 1997.
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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended November 30, 1997 were $22,273,321 and
$109,629,246, respectively.
Net realized and unrealized gains (losses) as of November 30, 1997
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $25,398,929 $112,713,736
Foreign currency transactions (119,365) (720)
------------ ------------
Total $25,279,564 $112,713,016
============ ============
54
<PAGE> 115
As of November 30, 1997, net unrealized appreciation for Federal
income tax purposes aggregated $112,713,736, of which $118,277,878
related to appreciated securities and $5,564,142 related to
depreciated securities. The aggregate cost of investments at November
30, 1997 for Federal income tax purposes was $240,404,375.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$73,229,623 and $90,445,913 for the years ended November 30, 1997 and
November 30, 1996, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended November 30, 1997 Shares Amount
Shares sold 153,463 $2,379,323
Shares issued to shareholders
in reinvestment of dividends
and distributions 129,136 1,920,920
------------ ------------
Total issued 282,599 4,300,243
Shares redeemed (649,437) (10,126,477)
------------ ------------
Net decrease (366,838) $(5,826,234)
============ ============
Class A Shares for the Year Dollar
Ended November 30, 1996 Shares Amount
Shares sold 178,410 $2,530,252
Shares issued to shareholders
in reinvestment of dividends
and distributions 135,223 1,872,625
------------ ------------
Total issued 313,633 4,402,877
Shares redeemed (971,846) (13,721,257)
------------ ------------
Net decrease (658,213) $(9,318,380)
============ ============
Class B Shares for the Year Dollar
Ended November 30, 1997 Shares Amount
Shares sold 742,021 $11,572,951
Shares issued to shareholders
in reinvestment of dividends
and distributions 907,341 13,394,936
------------ ------------
Total issued 1,649,362 24,967,887
Automatic conversion of shares (116,073) (1,799,482)
Shares redeemed (6,016,308) (94,007,577)
------------ ------------
Net decrease (4,483,019) $(70,839,172)
============ ============
Class B Shares for the Year Dollar
Ended November 30, 1996 Shares Amount
Shares sold 1,480,280 $20,727,309
Shares issued to shareholders
in reinvestment of dividends
and distributions 975,884 13,460,853
------------ ------------
Total issued 2,456,164 34,188,162
Automatic conversioin of shares (110,150) (1,536,242)
Shares redeemed (8,345,774) (117,187,340)
------------ ------------
Net decrease (5,999,760) $(84,535,420)
============ ============
Class C Shares for the Year Dollar
Ended November 30, 1997 Shares Amount
Shares sold 203,432 $3,216,009
Shares issued to shareholders
in reinvestment of dividends
and distributions 11,912 178,063
------------ ------------
Total issued 215,344 3,394,072
Shares redeemed (111,820) (1,799,829)
------------ ------------
Net increase 103,524 $1,594,243
============ ============
Class C Shares for the Year Dollar
Ended November 30, 1996 Shares Amount
Shares sold 116,923 $1,634,417
Shares issued to shareholders
in reinvestment of dividends
and distributions 7,871 109,069
------------ ------------
Total issued 124,794 1,743,486
Shares redeemed (57,428) (802,893)
------------ ------------
Net increase 67,366 $940,593
============ ============
Class D Shares for the Year Dollar
Ended November 30, 1997 Shares Amount
Shares sold 240,150 $3,891,095
Automatic conversion of shares 115,735 1,799,482
Shares issued to shareholders
in reinvestment of dividends
and distributions 16,802 252,302
------------ ------------
Total issued 372,687 5,942,879
Shares redeemed (253,415) (4,101,339)
------------ ------------
Net increase 119,272 $1,841,540
============ ============
55
<PAGE> 116
Class D Shares for the Year Dollar
Ended November 30, 1996 Shares Amount
Shares sold 1,906,770 $26,889,122
Automatic conversion of shares 109,766 1,536,242
Shares issued to shareholders
in reinvestment of dividends
and distributions 7,595 106,392
------------ ------------
Total issued 2,024,131 28,531,756
Shares redeemed (1,846,953) (26,064,462)
------------ ------------
Net increase 177,178 $2,467,294
============ ============
5. Subsequent Event:
On December 1, 1997, the Fund's Board of Directors declared an
ordinary income dividend in the amount of $.053353 per Class A Share,
$.032182 per Class B Share, $.030114 per Class C Share, $.046512 per
Class D Share and a long-term capital gains distribution in the amount
of $1.235641 per share for each of the four classes, payable on
December 29, 1997 to shareholders of record as of December 18, 1997.
56
<PAGE> 117
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<PAGE> 119
- ------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies....... 2
Portfolio Strategies Involving Options
and Futures......................... 2
Other Investment Policies and
Practices........................... 2
Management of the Fund.................. 7
Directors and Officers................ 7
Management and Advisory
Arrangements........................ 9
Purchase of Shares...................... 10
Initial Sales Charge Alternatives --
Class A and Class D Shares.......... 11
Reduced Initial Sales Charges......... 12
Employer-Sponsored Retirement or
Savings Plans and Certain Other
Arrangements........................ 15
Distribution Plans.................... 16
Limitations on the Payment of Deferred
Sales Charges....................... 16
Redemption of Shares.................... 18
Deferred Sales Charges --
Class B and Class C Shares.......... 18
Portfolio Transactions and Brokerage.... 19
Determination of Net Asset Value........ 20
Shareholder Services.................... 21
Investment Account.................... 21
Automatic Investment Plans............ 22
Automatic Reinvestment of Dividends
and Capital Gains Distributions..... 22
Systematic Withdrawal Plans........... 23
Retirement Plans...................... 24
Exchange Privilege.................... 24
Dividends, Distributions and Taxes...... 26
Dividends and Distributions........... 26
Taxes................................. 27
Tax Treatment of Options and Futures
Transactions........................ 29
Performance Data........................ 30
General Information..................... 32
Description of Shares................. 32
Computation of Offering Price Per
Share............................... 33
Independent Auditors.................. 33
Custodian............................. 33
Transfer Agent........................ 33
Legal Counsel......................... 33
Reports to Shareholders............... 34
Additional Information................ 34
Appendix................................ 35
Independent Auditors' Report............ 42
Financial Statements.................... 43
Code # 11280-0398
</TABLE>
[MERRILL LYNCH LOGO]
MERRILL LYNCH
GLOBAL UTILITY
FUND, INC.
STATEMENT OF [MLYNCH COMPASS]
ADDITIONAL
INFORMATION
March 2, 1998
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE> 120
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 IMDATE OR IMAGE IN TEST
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull.
<PAGE> 121
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
Contained in Part A, the Prospectus:
Financial Highlights for each of the years in the six-year period
ended November 30, 1997 and the period December 28, 1990
(commencement of operations) to November 30, 1991.
Contained in Part B, the Statement of Additional Information:
Schedule of Investments as of November 30, 1997.
Statement of Assets and Liabilities as of November 30, 1997.
Statement of Operations for the year ended November 30, 1997.
Statements of Changes in Net Assets for each of the years in the
two-year period ended November 30, 1997.
Financial Highlights for each of the years in the five-year period
ended November 30, 1997.
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<S> <C> <C>
1(a) -- Articles of Incorporation of Registrant.(a)
(b) -- Articles of Amendment.(g)
(c) -- Articles Supplementary.(g)
2 -- Amended and Restated By-Laws of Registrant.(f)
3 -- None.
4 -- Instruments Defining Rights of Shareholders. Incorporated by reference to
Exhibits 1 and 2 above.
5(a) -- Management Agreement between Registrant and Merrill Lynch Asset Management,
L.P.(c)
(b) -- Sub-Advisory Agreement between Merrill Lynch Asset Management, L.P. and Merrill
Lynch Asset Management U.K. Limited.
6(a) -- Class A Shares Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(f)
(b) -- Class B Shares Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(j)
(c) -- Class C Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(f)
(d) -- Class D Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(f)
7 -- None.
8 -- Custody Agreement between Registrant and The Chase Manhattan Bank, N.A.(j)
9(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between Registrant and Merrill Lynch Financial Data Services, Inc.(j)
(b) -- License Agreement Relating to Use of Name between Merrill Lynch & Co., Inc. and
Registrant.(j)
10 -- Opinion and consent of Shereff, Friedman, Hoffman & Goodman, LLP, counsel for
Registrant.(k)
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
12 -- None.
13 -- Certificate of Merrill Lynch Asset Management, L.P.(b)
14 -- Not applicable.
15(a) -- Amended and Restated Class B Distribution Plan of the Registrant and Class B
Distribution Plan Sub-Agreement.(e)
(b) -- Class C Distribution Plan and Class C Distribution Plan Sub-Agreement.(f)
(c) -- Class D Distribution Plan and Class D Distribution Plan Sub-Agreement.(f)
16(a) -- Schedule for computation of each performance quotation for Class A and Class B
Shares provided in the Registration Statement in response to Item 22.(i)
(b) -- Schedule for computation of each performance quotation for Class C and Class D
Shares provided in the Registration Statement in response to Item 22.(g)
</TABLE>
C-1
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<S> <C> <C>
17(a) -- Other Exhibits.
Powers of Attorney for Officers and Directors
Arthur Zeikel(d)
Gerald M. Richard(d)
Ronald W. Forbes(d)
Cynthia A. Montgomery(f)
Charles C. Reilly(d)
Kevin A. Ryan(d)
Richard R. West(d)
(b) -- Financial Data Schedule for Class A Shares.
(c) -- Financial Data Schedule for Class B Shares.
(d) -- Financial Data Schedule for Class C Shares.
(e) -- Financial Data Schedule for Class D Shares.
18 -- Rule 18f-3 Plan of the Registrant(h)
</TABLE>
- ---------------
(a) Incorporated by reference to identically numbered exhibit to Post-Effective
Amendment No. 7 to Registrant's Registration Statement under the Securities
Act of 1933 on Form N-1A. Initially filed as Exhibit 1 to the Fund's initial
Registration Statement (File No. 33-37103).
(b) Incorporated by reference to identically numbered exhibit to Post-Effective
Amendment No. 7 to Registrant's Registration Statement under the Securities
Act of 1933 on Form N-1A. Initially filed as Exhibit 13 in Pre-Effective
Amendment No. 2 to the Fund's Registration Statement (File No. 33-37103).
(c) Incorporated by reference to exhibit 5 to Post-Effective Amendment No. 7 to
Registrant's Registration Statement under the Securities Act of 1933 on Form
N-1A. Initially filed as Exhibit 5 to Post-Effective Amendment No. 1 to the
Fund's Registration Statement (File No. 33-37103).
(d) Incorporated by reference to identically numbered exhibit to Post-Effective
Amendment No. 7 to Registrant's Registration Statement under the Securities
Act of 1933 on Form N-1A. Initially filed as Exhibit 17 to Post-Effective
Amendment No. 3 to the Fund's Registration Statement (File No. 33-37103).
(e) Incorporated by reference to identically numbered exhibit to Post-Effective
Amendment No. 7 to Registrant's Registration Statement under the Securities
Act of 1933 on Form N-1A. Initially filed as an exhibit to Post-Effective
Amendment No. 5 to the Fund's Registration Statement (File No. 33-37103).
(f) Incorporated by reference to identically numbered exhibit to Post-Effective
Amendment No. 7 to Registrant's Registration Statement under the Securities
Act of 1933 on Form N-1A. Initially filed as an exhibit to Post-Effective
Amendment No. 6 to the Fund's Registration Statement (File No. 33-37103).
(g) Incorporated by reference to identically numbered exhibit to Post-Effective
Amendment No. 7 to Registrant's Registration Statement under the Securities
Act of 1933 on Form N-1A. (File No. 33-37103).
(h) Incorporated by reference to identically numbered exhibit to Post-Effective
Amendment No. 13 to Registrant's Registration Statement under the Securities
Act of 1933 on Form N-1A of Merrill Lynch Multi-State Municipal Series Trust
on January 25, 1996 (File Nos. 2-99473 and 811-4375).
(i) Incorporated by reference to identically numbered exhibit to Post-Effective
Amendment No. 9 to Registrant's Registration Statement under the Securities
Act of 1933 on Form N-1A. (File No. 33-37103).
(j) Incorporated by reference to identically numbered exhibit to Post-Effective
Amendment No. 7 to Registrant's Registration Statement under the Securities
Act of 1933 on Form N-1A. Initially filed as an exhibit to Post-Effective
Amendment No. 1 to the Fund's Registration Statement (File No. 33-37103).
(k) Filed electronically herewith. Incorporated by reference to identically
numbered exhibit to Pre-Effective Amendment No. 2 to the Fund's Registration
Statement (File No. 33-37103).
C-2
<PAGE> 123
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not Applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS NOVEMBER 30, 1997
- ----------------------------------------------------------------------------- -----------------
<S> <C>
Class A Common Stock, par value $.10 per share............................... 2,936
Class B Common Stock, par value $.10 per share............................... 21,048
Class C Common Stock, par value $.10 per share............................... 507
Class D Common Stock, par value $.10 per share............................... 589
</TABLE>
Note: The number of holders shown in the table includes holders of record plus
beneficial owners, whose shares are held of record by Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch").
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of the Registrant's Articles of
Incorporation, as amended to date, Article VI of the Registrant's Amended and
Restated By-Laws (the "By-Laws") and Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Distribution Agreements.
Article VI of the By-Laws provides that each officer and Director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent directors, after
review of the facts, that such officer or director is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
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 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.
C-3
<PAGE> 124
The Registrant may indemnify or purchase insurance to the extent provided
in Article VI on behalf of an employee or agent who is not an officer or
director of the Registrant.
The Registrant has purchased an insurance policy insuring its officers and
Trustees against liabilities, and certain costs of defending claims against such
officers and Trustees, to the extent such officers and Trustees are not found to
have committed conduct constituting willful misfeasance, bad faith, gross
negligence or reckless disregard in the performance of their duties.
The Management Agreement between Registrant and Merrill Lynch Asset
Management, Inc. (now called Merrill Lynch Asset Management, L.P.) ("MLAM")
limits the liability of MLAM to liabilities arising from willful misfeasance,
bad faith or gross negligence in the performance of their respective duties or
from reckless disregard of their respective duties and obligations.
In Section 9 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933, as amended (the "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 MANAGER.
MLAM also acts as the investment adviser for the following open-end
registered investment companies: Merrill Lynch Adjustable Rate Securities Fund,
Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder
Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc.,
Merrill Lynch Fund for Tomorrow, Inc., Merrill Lynch Global Allocation Fund,
Inc., Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill
Lynch Global Convertible Fund, Inc., Merrill Lynch Global Growth Fund, Inc.,
Merrill Lynch Global Holdings, Merrill Lynch Global Resources Trust, Merrill
Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill
Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill
Lynch Real Estate Fund, Inc., Merrill Lynch Retirement Series Trust, Merrill
Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch U.S.A. Government Reserves, Merrill Lynch U.S. Treasury Money
Fund, Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series
Funds, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a
division of MLAM); and for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc. and Merrill Lynch
Senior Floating Rate Fund, Inc. MLAM also acts as sub-adviser to Merrill Lynch
World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio, two
investment portfolios of EQ Advisors Trust.
Fund Asset Management, L.P. ("FAM"), an affiliate of MLAM, acts as the
investment adviser for the following open-end registered investment companies:
CBA Money Fund, CMA Government Securities Fund,
C-4
<PAGE> 125
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 Lynch Basic Value Fund, Inc., Merrill Lynch
California Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income
Fund, Inc. and The Municipal Fund Accumulation Program, Inc.; and the following
closed-end registered investment companies: Apex Municipal Fund, Inc., Corporate
High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield
Fund III, Inc., Debt Strategies Fund, Inc., Income Opportunities Fund 1999,
Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy
Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund,
Inc., MuniHoldings California Insured Fund, Inc., MuniHoldings Florida Insured
Fund, MuniHoldings New York Insured Fund, Inc., MuniInsured Fund, Inc., MuniVest
Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan
Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania
Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund,
Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc.,
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 Intermediate Government Bond Fund is
One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2646. The address
of the Manager, FAM, Princeton Services, Inc. ("Princeton Services") and
Princeton Administrators, L.P. ("Princeton Administrators") is also P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of Merrill Lynch Funds
Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton, New Jersey 08543-9081.
The address of Merrill Lynch and Merrill Lynch & Co., Inc. ("ML & Co.") is World
Financial Center, North Tower, 250 Vesey Street, New York, New York 10281-1201.
The address of Merrill Lynch Financial Data Services ("MLFDS") is 4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
December 1, 1995, for his or her or its own account or in the capacity of
director, officer, partner or trustee. In addition, Mr. Zeikel is President and
Director or Trustee, Mr. Richard is Treasurer and Mr. Glenn is Executive Vice
President of substantially all of the investment companies listed in the first
two paragraphs of this Item 28. Mr. Zeikel is a director of substantially all of
such companies, and Mr. Glenn is a director of certain of such companies.
Messrs. Giordano, Harvey, Kirstein and Monagle are directors or officers of one
or more of such companies.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE MANAGER 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................. Chairman Chairman of FAM; President of MLAM and
FAM (from 1977 to 1997); Chairman
and Director of Princeton Services;
President of Princeton Services from
(1993 to 1997); Executive Vice
President of ML & Co.
</TABLE>
C-5
<PAGE> 126
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------------ ------------------------- --------------------------------------
<S> <C> <C>
Jeffrey M. Peek............... President President of FAM since 1997; President
and Director of Princeton Services
since 1997; Executive Vice President
of ML & Co.
Terry K. Glenn................ Executive Vice President Executive Vice President of FAM;
Executive Vice President and
Director of Princeton Services;
President and Director of Merrill
Lynch Funds Distributor, Inc.
("MLFD"); Director of MLFDS;
President of Princeton
Administrators L.P.
Linda L. Federici............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services.
Vincent R. Giordano........... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services.
Elizabeth A. 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.
Michael J. Hennewinkel........ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services.
Philip L. Kirstein............ Senior Vice President, Senior Vice President, General Counsel
General Counsel and and Secretary of FAM; Senior Vice
Secretary President, General Counsel, Director
and Secretary of Princeton Services.
Ronald M. Kloss............... Senior Vice President and Senior Vice President of FAM; Senior
Controller Vice President of Princeton Services.
Debra W. Landsman-Yaros....... Senior Vice President Senior Vice President of FAM; Vice
President of MLFD; Senior Vice
President of Princeton Services.
Stephen M. M. Miller.......... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.; Senior Vice
President of Princeton Services.
Joseph T. Monagle, Jr. ....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services.
Michael L. Quinn.............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Managing Director and First Vice
President of Merrill Lynch, Pierce,
Fenner & Smith Incorporated from
1989 to 1995.
Richard L. Reller............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Director of MLFD.
Gerald M. Richard............. Senior Vice President and Senior Vice President and Treasurer of
Treasurer 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.
Gregory D. Upah............... Senior Vice President Senior Vice President of FAM; 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: Corporate High
Yield Fund, Inc., Corporate High Yield Fund II, Inc., Income Opportunities Fund
1999, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Americas
C-6
<PAGE> 127
Income Fund Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset
Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Basic
Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Consults
International Portfolio, Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Developing Capital Markets, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc.,
Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund Inc., Merrill
Lynch Fund for Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Convertible Fund, Inc., Merrill Lynch Global Growth Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill
Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch International Equity Fund, Merrill Lynch
Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill
Lynch Pacific Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Real
Estate Fund, Inc., Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term
Global Income Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch
Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch
Utility Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc., Merrill
Lynch World Income Fund, Inc., and Worldwide DollarVest Fund, Inc. The address
of each of these registered investment companies is P.O. Box 9011, Princeton,
New Jersey 08543-9011. The address of MLAM U.K. is Milton Gate, 1 Moor Lane,
London EC2Y 9HA, England.
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since December 1,
1995, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel, Albert and Richard are officers
of one or more of the registered investment companies listed in the first two
paragraphs of this Item 28:
<TABLE>
<CAPTION>
POSITION OTHER SUBSTANTIAL BUSINESS,
NAME WITH MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------------ ---------------------- --------------------------------------
<S> <C> <C>
Arthur Zeikel................. Director and Chairman Chairman of the Manager and FAM;
President of the Manager and FAM
(from 1977 to 1997); Chairman and
Director of Princeton Services;
President of Princeton Services from
(1993 to 1997); Executive Vice
President of ML & Co.
Alan J. Albert................ Senior Managing Vice President of the Manager
Director
Nicholas C. D. Hall........... Director Director of Merrill Lynch Europe PLC;
General Counsel of Merrill Lynch
International Private Banking Group.
Gerald M. Richard............. Senior Vice President Senior Vice President and Treasurer of
the Manager and FAM; Senior Vice
President and Treasurer of Princeton
Services; Vice President and
Treasurer of MLFD
Carol Ann Langham............. Company Secretary None
Debra Anne Searle............. Assistant Company None
Secretary
</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 MLFD also acts as principal
underwriter for the following closed-end funds: Merrill Lynch High Income
Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund, Inc.
C-7
<PAGE> 128
(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. Aldrich,
Breen, Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH MLFD WITH REGISTRANT
- ------------------------------ ----------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn................ President Executive Vice President
Richard L. Reller............. Director None
Thomas J. Verage.............. 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
Michael G. Clark.............. Vice President None
Mark A. DeSario............... Vice President None
James T. Fatseas.............. Vice President None
Debra W. Landsman-Yaros....... Vice President None
Michelle T. Lau............... Vice President None
Gerald M. Richard............. Vice President and Treasurer Treasurer
Salvatore Venezia............. Vice President None
William Wasel................. Vice President None
Robert Harris................. Secretary None
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder are maintained at the offices of the Registrant and its Transfer
Agent, MLFDS, 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
party to any management-related service contact.
ITEM 32. UNDERTAKINGS.
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant will furnish each person to whom a Prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
C-8
<PAGE> 129
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF
THE REQUIREMENTS FOR EFFECTIVENESS OF THIS POST-EFFECTIVE AMENDMENT TO THE
REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933
AND HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
TOWNSHIP OF PLAINSBORO, AND STATE OF NEW JERSEY, ON THE 3RD DAY OF MARCH, 1998.
Merrill Lynch Global Utility Fund,
Inc.
(Registrant)
By /s/ ARTHUR ZEIKEL
---------------------------------
(Arthur Zeikel, President)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATE(S) INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ARTHUR ZEIKEL President (Principal March 3, 1998
- --------------------------------------------------- Executive Officer) and
(Arthur Zeikel) Director
* Treasurer (Principal
- --------------------------------------------------- Financial and Accounting
(Gerald M. Richard) Officer)
* Director
- ---------------------------------------------------
(Ronald W. Forbes)
* Director
- ---------------------------------------------------
(Cynthia A. Montgomery)
* Director
- ---------------------------------------------------
(Charles C. Reilly)
* Director
- ---------------------------------------------------
(Kevin A. Ryan)
* Director
- ---------------------------------------------------
(Richard R. West)
*By /s/ ARTHUR ZEIKEL March 3, 1998
----------------------------------------------
(Arthur Zeikel, Attorney-in-Fact)
</TABLE>
* This Amendment has been signed by each of the persons so indicated by the
undersigned as Attorney-in-Fact.
C-9
<PAGE> 130
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------
<C> <C> <S> <C>
5(b) -- Sub-Advisory Agreement between Merrill Lynch Asset Management, L.P. and
Merrill Lynch Asset Management U.K. Limited.
10 -- Opinion and Consent of Shereff, Friedman, Hoffman & Goodman, LLP,
counsel for Registrant.
11 -- Consent of Deloitte & Touche LLP.
17(b) -- Financial Data Schedule for Class A Shares.
(c) -- Financial Data Schedule for Class B Shares.
(d) -- Financial Data Schedule for Class C Shares.
(e) -- Financial Data Schedule for Class D Shares.
</TABLE>
<PAGE> 1
EXHIBIT 5(b)
SUB-ADVISORY AGREEMENT
AGREEMENT made as of the 3rd day of March, 1998, by and between
MERRILL LYNCH ASSET MANAGEMENT, L.P., a Delaware limited partnership
(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 GLOBAL UTILITY FUND, INC. (the "Fund") is a
Maryland corporation engaged in business as a 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; and
WHEREAS, MLAM U.K. is regulated by the Investment Management Regulatory
Organization, a self-regulating organization recognized under the Financial
Services Act of 1986 of the United
<PAGE> 2
Kingdom (hereinafter referred to as "IMRO"), and the conduct of its investment
business is regulated by IMRO; and
WHEREAS, MLAM has entered into a management agreement (the "Management
Agreement") dated December 28, 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
2
<PAGE> 3
compensation provided for herein. MLAM and its affiliates shall for all purposes
herein be deemed a Non-private Customer 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
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 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; all of the foregoing subject
always to the restrictions of the Articles of Incorporation and By-Laws of the
Fund, as they may be amended and/or restated 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
3
<PAGE> 4
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 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 portfolio securities of the Fund
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 the registered investments of MLAM or the
Fund or be 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
4
<PAGE> 5
Article I hereof and shall pay all compensation of officers of the Fund and all
Trustees 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 Management Agreement.
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 or 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
5
<PAGE> 6
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 purposes 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
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
6
<PAGE> 7
complaints procedure and to approach IMRO and the Investment Ombudsman directly.
MLAM U.K. may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding Investments Not Readily
Realisable (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 risk of loss exceeding the original investment and any
margin on deposit.
7
<PAGE> 8
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 the date of termination of the
Management Agreement (but not later than two years after the date hereof) 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 persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by 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 Management Agreement. Any
termination shall be without prejudice to the completion of transactions already
initiated.
8
<PAGE> 9
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 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.(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 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 IX
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.
ARTICLE X
Governing Law
This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of
9
<PAGE> 10
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 ASSET MANAGEMENT, L.P.
By /s/ ARTHUR ZEIKEL
___________________________________________
Title:
MERRILL LYNCH ASSET MANAGEMENT U.K. LIMITED
By /s/ ARTHUR ZEIKEL
___________________________________________
Title:
10
<PAGE> 1
Exhibit 10
[SHEREFF, FRIEDMAN HOFFMAN & GOODMAN, LLP LETTERHEAD]
November 12, 1990
Merrill Lynch Global Utility Fund, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
Gentlemen and Ladies:
MERRILL LYNCH GLOBAL UTILITY FUND, INC., a Maryland
corporation (the "Corporation"), proposes to issue and sell an indefinite number
of shares of its Common Stock, par value $.10 per share (the "Shares"), in the
manner and on the terms set forth in its Registration Statement on Form N-1A
filed with the Securities and Exchange Commission on September 28, 1990 (File
Nos. 33-37103 and 811-6180) (the "Registration Statement").
We have, as counsel, participated in various proceedings
relating to the Corporation and the Shares. We have examined copies, either
certified or otherwise proved to our satisfaction to be genuine, of the Articles
of Incorporation and By-Laws of the Corporation, as currently in effect, a
certificate of good standing issued by the Secretary of State of the State of
Maryland and such other documents relating to its organization and operation as
we have determined to be relevant. We have also reviewed the Registration
Statement and the documents filed as exhibits thereto, and all amendments
thereto.
Based upon the foregoing and subject to the limitations set
forth herein, it is our opinion that:
1. The Corporation has been duly incorporated and is legally
existing under the laws of the State of Maryland.
2. The corporation is authorized to issue up to two-hundred
million (200,000,000) Shares. Under Maryland law, (a) the number of authorized
Shares may be increased or decreased by action of the Board of Directors, and
(b) Shares which are issued and subsequently redeemed by the Corporation are, by
virtue of
<PAGE> 2
Merrill Lynch Global
Utility Fund, Inc.
November 12, 1990
Page 2
such redemption, restored to the status of authorized and unissued shares.
3. Subject to the effectiveness of the Registration Statement
and compliance with applicable state securities laws, upon the issuance of the
Shares for a consideration not less than the par value thereof as fixed by the
Articles of Incorporation and not less than the net asset value thereof as
required by the Investment Company Act of 1940 and in accordance with the terms
of the Registration Statement, such Shares will be legally issued and
outstanding and fully paid and non-assessable.
We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as a part of the Registration Statement and
with any state securities commission where such filing is required. We also
consent to the reference to our firm as counsel in the Prospectus and Statement
of Additional Information filed as part thereof. In giving this consent, we do
not admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
We are members of the Bar of the State of New York and do not
hold ourselves out as being conversant with the laws of any jurisdiction other
than those of the United States of America and the State of New York. We note
that we are not licensed to practice law in the State of Maryland, and to the
extent that any opinion expressed herein involves that law of such state, such
opinion should be understood to be based solely upon our review of the good
standing certificate referred to above, the published statutes of the state and,
where applicable, published cases, rules or regulations of regulatory bodies of
that state.
Very truly yours,
/s/ Shereff, Friedman, Hoffman & Goodman
Shereff, Friedman, Hoffman & Goodman
SFH&G:JHG:GKT:DZE:nt
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Global Utility Fund, Inc.:
We consent to the use in Post-Effective Amendment No. 10 to Registration
Statement No. 33-37103 of our report dated January 8, 1998 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 27, 1998
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