As filed with the Securities and Exchange Commission on June 7, 1994
Securities Act File No. 33-
Investment Company Act File No. 811-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ ]
(Check Appropriate Box or Boxes)
--------------------------------
MERRILL LYNCH GLOBAL GROWTH PORTFOLIO, INC.
(Exact Name of Registrant as Specified in Charter)
800 Scudders Mill Road 08536
Plainsboro, New Jersey (Zip Code)
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code (609) 282-2800
Arthur Zeikel
Merrill Lynch Global Growth Portfolio, Inc.
800 Scudders Mill Road, Plainsboro, New Jersey
Mailing Address: Box 9011, Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)
_____________________________________
Copies to:
Counsel for the Company: Philip L. Kirstein, Esq.
Leonard B. Mackey, Jr., Esq. MERRILL LYNCH ASSET
ROGERS & WELLS MANAGEMENT
200 Park Avenue Box 9011
New York, New York 10166 Princeton, N.J. 08543-9011
________________________
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b), or
[ ] on (date) pursuant to paragraph (b), or
[ ] 60 days after filing pursuant to paragraph (a), or
[ ] on (date) pursuant to paragraph (a) of Rule 485.
-------------------------
[CAPTION]
<TABLE>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Amount of Maximum Maximum
Shares being Offering Price Aggregate Amount of
Title of Securities being Registered Registered Per Share Offering Price Registration Fee
- - ------------------------------------ ------------ -------------- -------------- ----------------
<S> <C> <C> <C> <C>
(1)Class A Shares of Common Indefinite* $10.65 Indefinite*
Stock, par value $0.10 per share $500
(2)Class B Shares of Common
Stock, par value $0.10 per Indefinite* $10.00 Indefinite*
share
*The Registrant hereby registers an indefinite number of Class A and Class B shares of Common Stock under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940.
</TABLE>
<PAGE>
MERRILL LYNCH GLOBAL GROWTH PORTFOLIO, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
N-1A Item No. Location
PART A
Item 1. Cover Page. . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis. . . . . . . . . . . . . . . . . . . . Fee Table
Item 3. Condensed Financial Information. . . . . . . . Not Applicable
Item 4. General Description of Registrant . . . . . . . Investment Objective
and Policies;
Additional Information
Item 5. Management of the Fund. . . . . . . . . . . . . Fee Table; Management
of the Fund; Inside
Back Cover Page
Item 5A.Management's Discussion of Fund Performance . . Not Applicable
Item 6. Capital Stock and Other Securities . . . . . . Cover Page; Additional
Information
Item 7. Purchase of Securities Being Offered. . . . . Cover Page; Shareholder
Services; Purchase of
Shares
Item 8. Redemption or Repurchase. . . . . . . . . . . . Fee Table; Alternative
Sales Arrangements;
Shareholder Services;
Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal Proceedings . . . . . . . . . . . Not Applicable
PART B
Item 10.Cover Page . . . . . . . . . . . . . . . . . . Cover Page
Item 11.Table of Contents. . . . . . . . . . . . . . . Back Cover Page
Item 12.General Information and History. . . . . . . . Not Applicable
Item 13.Investment Objectives and Policies . . . . . . Investment Objective
and Policies
Item 14.Management of the Fund . . . . . . . . . . . . Management of the Fund
Item 15.Control Persons and Principal Holders of
Securities . . . . . . . . . . . . . . . . . . Management of the Fund
Item 16.Investment Advisory and Other Services . . . . Management of the
Fund; Purchase of
Shares; General
Information
Item 17.Brokerage Allocation and Other Practices. . . . Portfolio Transactions
and Brokerage
Item 18.Capital Stock and Other Securities . . . . . . General Information
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 . . . . . . . . . . . . . . . . . . Dividends and
Distributions;
Taxes
Item 21.Underwriters . . . . . . . . . . . . . . . . . .Purchase of Shares
Item 22.Calculation of Performance Data . . . . . . . . Performance Data
Item 23.Financial Statements . . . . . . . . . . . . . .Statement of Assets
and Liabilities
PART C Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration
Statement.
ii
<PAGE>
PROSPECTUS (Subject to Completion)
Issued , 1994
MERRILL LYNCH GLOBAL GROWTH PORTFOLIO, INC.
Box 9011, Princeton, New Jersey 08543-9011 - Phone No. (609) 282-2800
Merrill Lynch Global Growth Portfolio, Inc. (the "Fund") is a non-
diversified mutual fund seeking high total investment return, consistent
with prudent risk, through a fully managed investment policy utilizing
United States and foreign equity, debt and money market securities, the
combination of which will be varied from time to time both with respect to
types of securities and markets in response to changing market and economic
trends. Total investment return is the aggregate of capital value changes
and income. Under normal conditions, at least 65%, and as much as all, of
the Fund's total assets will be invested in U.S. and foreign equity
securities. 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
"Special Considerations."
The Fund offers two classes of shares which may be purchased during
the subscription offering at $10.00 per share and during the continuous
offering at a price equal to the next determined net asset value per share,
plus in both cases a sales charge which, at the election of the purchaser,
may be imposed (i) at the time of purchase (the "Class A shares") or (ii)
on a deferred basis (the "Class B shares"). The deferred charges to which
the Class B shares are subject shall consist of a contingent deferred sales
charge which may be imposed on redemptions made within four years of
purchase and an ongoing account maintenance fee and distribution fee.
These alternatives permit an investor to choose the method of purchasing
shares that is most beneficial given the amount of the purchase, the length
of time the investor expects to hold the shares and other circumstances.
Class B shares pay an ongoing account maintenance fee and an ongoing
distribution fee at the annual rates of 0.25% and 0.75%, respectively, of
the Fund's average daily net assets attributable to the Class B shares.
Investors should understand that the purpose and function of the deferred
sales charges with respect to the Class B shares are the same as those of
the initial sales charge with respect to the Class A shares. Investors
also should understand that over time the deferred charges related to Class
B shares may exceed the initial sales charge and account maintenance fee
with respect to Class A shares. See "Alternative Sales Arrangements."
Each Class A share and Class B share represents identical interests in
the investment portfolio of the Fund and has the same rights, except that
Class B shares bear the expenses of the account maintenance fee and
distribution fee and certain other costs resulting from the deferred sales
charge arrangement, which will cause Class B shares to have a higher
expense ratio and to pay lower dividends than Class A shares. The two
classes also have different exchange privileges.
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), Box 9011,
Princeton, New Jersey 08543-9011 ((609) 282-2800), and other securities
dealers which have entered into selected dealer agreements with the
Distributor, including Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), will solicit subscriptions for shares of the Fund during
a period expected to end on ____________, 1994, unless extended. On the
fifth business day after the conclusion of the subscription period, the
subscriptions will be payable, the shares will be issued and the Fund will
commence operations. The public offering price of the shares during the
subscription offering will be $10.00 per share in the case of Class B
shares and $10.00 per share plus a sales charge of 6.50%, subject to
reductions on purchases in single transactions of $10,000 or more, in the
case of Class A shares. After the completion of the initial subscription
offering, the Fund will engage in a continuous offering of its shares at a
price equal to the next determined net asset value per share in the case of
Class B shares and the next determined net asset value per share, plus a
sales charge subject to reductions as noted above, in the case of Class A
shares. Shareholders may redeem their shares at any time at the next
determined asset value. The Class B shares may be subject to a contingent
deferred sales charge if redeemed within four years of purchase and are
subject to ongoing account maintenance and distribution fees. The minimum
initial purchase during the subscription and continuous offerings is $1,000
and the minimum subsequent purchase in the continuous offering is $50.
Merrill Lynch may charge its customers a processing fee (presently $4.85)
for confirming purchases and repurchases. Purchases and redemptions
directly through the Fund's transfer agent are not subject to the
processing fee. See "Purchase of Shares" and "Redemption of Shares."
_________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________
This Prospectus is a concise statement of information about the Fund that
is relevant to making an investment in the Fund. This Prospectus should be
retained for future reference. A statement containing additional
information about the Fund, dated July , 1994 (the "Statement of
Additional Information"), has been filed with the Securities and Exchange
Commission and is available, without charge, by calling or by writing the
Fund at the above telephone number or address. The Statement of Additional
Information is hereby incorporated by reference into this Prospectus.
__________________
Merrill Lynch Asset Management-Manager
Merrill Lynch Funds Distributor,Inc.-Distributor
<PAGE>
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not
be sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities
laws of any such State.
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other
nonrecurring and recurring expenses applicable to Class A shares
and Class B shares follows.
Class A
Shares Class B Shares
Initial Sales Deferred Sales
Charge Charge
Alternative Alternative
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price). . . . . . . 6.50%(a) None
Sales Charge Imposed on Dividend
Reinvestments . . . . . . . . None None
4.0% during the
first year, decreasing
Deferred Sales Charge (as a 1.0% annually to
percentage of original purchase 0.0% after the
price or redemption proceeds, fourth year(b)
whichever is lower). . . . . . . None(f)
Exchange Fee. . . . . . . . . . . None None
Annual Fund Operating Expenses
(as a percentage of average
net assets):
Management Fees (c) . . . . . . 0.75% 0.75%
Rule 12b-1 Fees None 1.00%(d)
Custodial Fees 0.-% 0.-%
Shareholder Servicing Costs(e) 0.-% 0.-%
Other 0.-% 0.-%
---- ----
Total Other Expenses 0.-% 0.-%
---- ----
Total Fund Operating Expenses 0.-% 0.-%
==== ====
- - ----------------
(a) Reduced for purchases of $10,000 and over, decreasing to 0.75% for
purchases of $1,000,000 and over. Certain investors making purchases
of $1,000,000 and over may, however, pay a contingent deferred sales
charge ranging from a high of 1.00% to a low of 0.25% of amounts
redeemed within the first year after purchase in lieu of the 0.75%
initial sales charge. See "Purchase of Shares - Initial Sales
Charge Alternative - Class A Shares" - page ____.
(b) See "Purchase of Shares - Deferred Sales Charge Alternative - Class
B Shares" - page _____.
(c) See "Management of the Fund - Management and Advisory Arrangements" -
page _____.
(d) See "Purchase of Shares - Deferred Sales Charge Alternative - Class
B Shares - Distribution Plan" - page ____. This amount represents the
0.25% account maintenance fee and the 0.75% distribution fee applicable
to Class B shares of the Fund.
(e) See "Management of the Fund - Transfer Agency Services" - page ____.
(f) Certain investors making purchases of $1,000,000 and over may,
however, pay a contingent deferred sales charge ranging from a high
of 1.00% to a low of 0.25% of amounts redeemed within the first year
after purchase in lieu of the 0.75% initial sales charge. See "Purchase
of Shares - Initial Sales Charge Alternative - Class A Shares" -
page ____.
"Management Fees," "12b-1 Fees" and "Other Expenses," as shown above,
are based upon estimated amounts of expenses of the Fund expected to
be incurred during its current fiscal period ending January 31, 1994.
Cumulative Expenses Paid
for the Period of:
----------------------------------------
1 Year 3 Years 5 Years 10 Years
Example: ------ ------- ------- --------
An investor would pay the following
expenses on a $1,000 investment
including, for Class A shares, the
maximum $65 front-end sales charge
and assuming (1) an operating
expense ratio of 0.-% for Class
A shares and -% for Class B shares,
(2) a 5% annual return throughout
the periods and (3) redemption at
the end of the period:
Class A . . . . . . . . . . . . . $ $ $ $
Class B . . . . . . . . . . . . . $ $ $ $
An investor would pay the following
expenses on the same $1,000
investment assuming no redemption
at the end of the period:
Class A . . . . . . . . . . . . $ $ $ $
Class B . . . . . . . . . . . . $ $ $ $
2
<PAGE>
The foregoing Fee Table is intended to assist investors in
understanding the costs and expenses that a shareholder in the Fund will
bear directly or indirectly. The Example set forth above assumes
reinvestment of all dividends and distributions and utilizes a 5% annual
rate of return as mandated by Securities and Exchange Commission
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 shareholders who hold their shares for an extended period
of time may pay more in Rule 12b-1 distribution fees than the economic
equivalent of the maximum front-end sales charges permitted under the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
Merrill Lynch may charge its customers a processing fee (presently $4.85)
for confirming purchases and repurchases. Purchases and redemptions
directly through the Fund's transfer agent are not subject to the
processing fee. See "Purchase of Shares" and "Redemption of Shares."
ALTERNATIVE SALES ARRANGEMENTS
Shares of the Fund may be purchased at a price equal to the next
determined net asset value per share, plus a sales charge which, at the
election of the purchaser, may be imposed either (i) at the time of the
purchase (the "initial sales charge alternative") or (ii) on a deferred
basis (the "deferred sales charge alternative").
Class A Shares. An investor who elects the initial sales charge
alternative acquires Class A shares. Although Class A shares incur a sales
charge when they are purchased, they enjoy the benefit of not being subject
to the ongoing account maintenance fee or distribution fee to which Class
B shares are subject or any sales charge when they are redeemed. Certain
purchasers of Class A shares qualify for reduced initial sales charges.
See "Purchase of Shares."
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B shares. Class B shares do not incur a sales
charge when they are purchased, but they are subject to ongoing account
maintenance and distribution fees of 0.25% and 0.75%, respectively, of the
Fund's average net assets attributable to the Class B shares and a sales
charge if they are redeemed within four years of purchase. Class B shares
enjoy the benefit of permitting all of the investor's dollars to work from
the time the investment is made. The ongoing account maintenance and
distribution fees paid by Class B shares will cause such shares to have a
higher expense ratio and to pay lower dividends than Class A shares.
Payment of the distribution fee is subject to certain limits as set forth
under "Purchase of Shares - Deferred Sales Charge Alternative - Class B
Shares."
As an illustration, investors who qualify for significantly reduced
sales charges might elect the initial sales charge alternative because
similar sales charge reductions are not available for purchases under the
deferred sales charge alternative. Moreover, shares acquired under the
initial sales charge alternative would not be subject to ongoing account
maintenance and distribution fees. However, because initial sales charges
are deducted at the time of purchase, such investors would not have all
their funds invested initially. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for an
extended period of time might also elect the initial sales charge
alternative because over time the accumulated continuing account
maintenance and distribution fees may exceed the initial sales charge. Again,
however, such investors must weigh this consideration a
fact that not all their funds will be invested initially. Furthermore, the
ongoing account maintenance and distribution fees will be offset to the
extent any return is realized on the additional funds initially invested
under the deferred sales charge alternative. However, there can be no
assurance as to the return, if any, which will be realized on such
additional funds. Certain other investors might determine it to be more
advantageous to have all their funds invested initially, although remaining
aining
subject to continued account maintenance and distribution fees and, for a
four-year period of time, a contingent deferred sales charge.
The distribution expenses incurred by the Distributor and dealers
(primarily Merrill Lynch) in connection with the sale of the shares will be
paid, in the case of the Class A shares, from the proceeds of the initial
sales charge, and in the case of the Class B shares, such distribution
expenses will be paid from the proceeds of the ongoing distribution fees
3
<PAGE>
and the contingent deferred sales charge incurred upon redemption within
four years of purchase. Sales personnel may receive different compensation
for selling Class A or Class B shares. Investors should understand that
the purpose and function of the deferred sales charges and account
maintenance fee with respect to the Class B shares are the same as those of
the initial sales charge with respect to the Class A shares.
Dividends paid by the Fund with respect to Class A and Class B shares,
to the extent any dividends are paid, will be calculated in the same manner
at the same time on the same day and will be in the same amount, except
that account maintenance and distribution fees and any incremental transfer
agency costs relating to Class B shares will be borne exclusively by that
class. See "Additional Information - Determination of Net Asset Value."
Class A and Class B shareholders of the Fund each have an exchange
privilege for Class A and Class B shares, respectively, of certain other
mutual funds sponsored by Merrill Lynch. Class A and Class B shareholders
of the Fund also may exchange their shares for shares of certain money
market funds sponsored by Merrill Lynch. See "Shareholder Services -
Exchange Privilege."
The Directors of the Fund have determined that currently no conflict
of interest exists between the Class A and Class B shares. On an ongoing
basis, the Directors of the Fund, pursuant to their fiduciary duties under
the Investment Company Act of 1940, as amended (the "Investment Company
Act"), and state laws, will seek to assure that no such conflict arises.
The alternative sales arrangements permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares and
other circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur an initial sales
charge and not be subject to ongoing account maintenance and distribution
fees or to have the entire initial purchase price invested in the fund with
the investment thereafter being subject to ongoing account maintenance and
distribution fees. To assist investors in making this determination, the
Fee Table on page 2 sets forth the charges applicable to each class of
shares, and a discussion of factors relevant to making such determination
is set forth under "Purchase of Shares - Alternative Sales Arrangements" on
page ____.
4
<PAGE>
SPECIAL CONSIDERATIONS
As a global fund, the Fund may invest in U.S. and foreign securities.
Investments in securities of foreign entities and securities denominated in
foreign currencies involve risks not typically involved in domestic
investment, including fluctuations in foreign exchange rates, future
foreign political and economic developments, and the possible imposition of
exchange controls or other foreign or U.S. governmental laws or
restrictions applicable to such investments. Since the Fund may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates may affect the value of
investments in the portfolio and the unrealized appreciation or
depreciation of investments insofar as U.S. investors are concerned.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's assets denominated in those
currencies and the Fund's yield on such assets. Foreign currency exchange
rates are determined by forces of supply and demand on the foreign exchange
markets. These forces are, in turn, affected by the international balance
of payments and other economic and financial conditions, government
intervention, speculation, and other factors. Moreover, individual
foreign economies may differ favorably or unfavorably from the U.S. economy
in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments
position.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments which could affect investment in
those countries. There may be less publicly available information about a
foreign financial instrument than about a U.S. instrument, and foreign
entities may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those to which U.S. entities are
subject. In addition, certain foreign investments may be subject to
foreign withholding taxes. Investors will be able to deduct such taxes in
computing their taxable income or to use such amounts as credits against
their U.S. income taxes if more than 50% of the Fund's total assets at the
close of any taxable year consists of stock or securities in foreign
corporations. However, certain retirement accounts cannot claim foreign
tax credits on investments in foreign securities held in the Fund. See
"Additional Information - Taxes." Foreign financial markets, while
generally growing in volume, typically have substantially less volume than
U.S. markets, and securities of many foreign companies are less liquid and
their prices more volatile than securities of comparable domestic
companies. Foreign markets also have different clearance and settlement
procedures and in certain markets there have been times when settlements
have been unable to keep pace with the volume of securities transactions,
making it difficult to conduct such transactions. Delays in settlement
could result in temporary periods when assets of the Fund are uninvested
and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems could result either in
losses to the Fund due to subsequent declines in value of the portfolio
security or, if the Fund has entered into a contract to sell the security,
could result in possible liability to the purchaser. Costs associated with
transactions in foreign securities are generally higher than with
transactions in U.S. securities. There is generally less government
supervision and regulation of exchanges, financial institutions and issuers
in foreign countries than there is in the U.S.
The operating expense ratio of the Fund can be expected to be higher
than that of an investment company investing exclusively in U.S. securities
because the expenses of the Fund, such as custodial costs, are higher.
The Fund may engage in various portfolio strategies to seek to
increase its return through the use of options on portfolio securities and
to hedge its portfolio against movements in the securities 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. There can be no assurance that a liquid
secondary market for options and futures contracts will exist at any
specific time. See "Investment Objective and Policies - Portfolio
Strategies Involving Options and Futures."
The Fund has established no rating criteria for the fixed income
securities in which it may invest. Securities rated in the medium to lower
rating categories of nationally recognized statistical rating organizations
5
<PAGE>
are predominately speculative with respect to the capacity to pay interest
and repay principal in accordance with the terms of the security and
generally involve a greater volatility of price than securities in higher
rating categories. The Fund does not intend to purchase securities that
are in default.
The net asset value of the Fund's shares, to the extent the Fund
invests in fixed income securities, will be affected by changes in the
general level of interest rates. When interest rates decline, the value of
a portfolio of fixed income securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio of fixed
income securities can be expected to decline.
As a non-diversified investment company, the Fund may invest a larger
percentage of its assets in individual issuers than a diversified
investment company. In this regard, the Fund is not subject to the general
limitation that it not invest more than 5% of its total assets in the
securities of any one issuer. To the extent the Fund makes investments in
excess of 5% of its assets in a particular issuer, its exposure to credit
and market risks associated with that issuer is increased.
6
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a non-diversified, open-end management investment company.
The Fund's investment objective is to seek a high total investment return,
consistent with prudent risk, through a fully managed investment policy
utilizing United States and foreign equity, debt and money market
securities the combination of which will be varied from time to time both
with respect to types of securities and markets in response to changing
market and economic trends. Total investment return is the aggregate of
capital value changes and income. 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. There can be no assurance that the Fund's
investment objective will be achieved. Under normal conditions, at least
65%, and as much as all, of the Fund's total assets will be invested in
equity securities.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.
The Fund will invest in a portfolio of U.S. and foreign equity, debt
and money market securities. The composition of the portfolio among these
securities and markets will be varied from time to time by the Fund's
manager, Merrill Lynch Asset Management, L.P., doing business as Merrill
Lynch Asset Management (the "Manager"), in response to changing market and
economic trends. This fully managed investment approach provides the Fund
with the opportunity to benefit from anticipated shifts in the relative
performance of different types of securities and different capital markets.
For example, at times the Fund may emphasize investments in equity
securities in anticipation of significant advances in stock markets and at
times may emphasize debt securities in anticipation of significant declines
in interest rates. Similarly, the Fund may emphasize foreign markets in
its security selection when such markets are expected to outperform, in
U.S. dollar terms, the U.S. markets. The Fund will seek to identify
longer-term structural or cyclical changes in the various economies and
markets of the world which are expected to benefit certain capital markets
and certain securities in those markets to a greater extent than other
investment opportunities.
In determining the allocation of assets among capital markets, the
Manager will consider, among other factors, the relative valuation,
condition and growth potential of the various economies, including current
and anticipated changes in the rates of economic growth, rates of
inflation, corporate profits, capital reinvestment, resources, self-
sufficiency, balance of payments, governmental deficits or surpluses and
other pertinent financial, social and political factors which may affect
such markets. In allocating among equity, debt and money market securities
within each market, the Manager also will consider the relative opportunity
for capital appreciation of equity and debt securities, dividend yields,
and the level of interest rates paid on debt securities of various
maturities.
In selecting securities denominated in foreign currencies, the Manager
will consider, among other factors, the effect of movement in currency
exchange rates on the U.S. dollar value of such securities. An increase in
the value of a currency will increase the total return to the Fund of
securities denominated in such currency. Conversely, a decline in the
value of the currency will reduce the total return. The Manager may seek
to hedge all or a portion of the Fund's foreign securities through the use
of forward foreign currency contracts, currency options, futures contracts
and options thereon. See "Portfolio Strategies Involving Options and
Futures" below.
While there are no prescribed limits on the geographical allocation of
the Fund's assets, the Manager anticipates that it will invest primarily in
the securities of corporate and governmental issuers domiciled or located
in the U.S., Canada, Western Europe and the Far East. In addition, the
Manager anticipates that a portion of the Fund's assets normally will be
invested in the U.S. securities markets and three other major capital
markets. Under normal conditions, the Fund's investments will be
denominated in at least three currencies or multinational currency units.
However, the Fund reserves the right to invest substantially all of its
assets in U.S. markets or U.S. dollar-denominated obligations when market
conditions warrant.
Although up to 100% of the Fund's total assets may be invested in
equity securities, the Manager anticipates that the Fund's portfolio
generally will include both equity and debt securities.
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Equity Securities
Within the portion of the Fund's portfolio allocated to equity
securities, the Manager will seek to identify the securities of companies
and industry sectors which are expected to provide high total return
relative to alternative equity investments. The Fund generally will seek
to invest in securities the Manager believes to be undervalued.
Undervalued issues include securities selling at a discount from the price-
to-book value ratios and price/earnings ratios computed with respect to the
relevant stock market averages. The Fund may also consider as undervalued,
securities selling at a discount from their historic price-to-book value or
price/earnings ratios, even though these ratios may be above the ratios for
the stock market averages. Securities offering dividend yields higher than
the yields for the relevant stock market averages or higher than such
securities' historic yield may also be considered to be undervalued. The
Fund may also invest in the securities of small and emerging growth
companies when such companies are expected to provide a higher total return
than other equity investments. Such companies are characterized by rapid
historical growth rates, above-average returns on equity or special
investment value in terms of their products or services, research
capabilities or other unique attributes. The Manager will seek to identify
small and emerging growth companies that possess superior management,
marketing ability, research and product development skills and sound
balance sheets. Investment in the securities of small and emerging growth
companies involves greater risk than investment in larger, more established
companies. Such risks include the fact that securities of small or
emerging growth companies may be subject to more abrupt or erratic market
movements than larger, more established companies or the market average in
general. Also, these companies may have limited product lines, markets or
financial resources, or they may be dependent on a limited management
group.
There may be periods when market and economic conditions exist that
favor certain types of tangible assets as compared to other types of
investments. For example, the value of precious metals can be expected to
benefit from such factors as rising inflationary pressures or other
economic, political or financial uncertainty or instability. Real estate
values, which are influenced by a variety of economic, financial and local
factors, tend to be cyclical in nature. During periods when the Manager
believes that conditions favor a particular real asset as compared to other
investment opportunities, the Fund may emphasize investments related to
that asset such as investments in precious or industrial metal-related
securities or real estate-related securities as described below. The Fund
may invest up to 25% of its total assets in any particular industry sector.
Precious and Industrial Metal-Related Securities. Precious and
industrial metal-related securities are equity securities of companies that
explore for, extract, process or deal in precious or industrial metals,
i.e., gold, silver, platinum, iron, copper and aluminum, and asset-based
securities indexed to the value of such metals. Based on historical
experience, during periods of economic or financial instability the
securities of such companies may be subject to extreme price fluctuations,
reflecting the high volatility of precious and industrial metal prices
during such periods. In addition, the instability of precious and
industrial metal prices may result in volatile earnings of precious and
industrial metal-related companies which, in turn, may affect adversely the
financial condition of such companies. Asset-based securities are debt
securities, preferred stock or convertible securities, the principal
amount, redemption terms or conversion terms of which are related to the
market price of some precious or industrial metal such as gold bullion.
The Fund will purchase only asset-based securities which are rated, or are
issued by issuers that have outstanding debt obligations rated, BBB or
better by Standard & Poor's Corporation ("S&P") or Baa or better by Moody's
Investors Service, Inc. ("Moody's") or commercial paper rated A-1 by S&P or
Prime-1 by Moody's or of issuers that the Manager has determined to be of
similar creditworthiness. Securities rated BBB by S&P or Baa by Moody's,
while considered "investment grade," have certain speculative
characteristics. If the asset-based security is backed by a bank letter of
credit or other similar facility, the Manager may take such backing into
account in determining the creditworthiness of the issuer.
Real Estate-Related Securities. The real estate-related securities
which will be emphasized are equity securities of real estate investment
trusts, which own income-producing properties, and mortgage real estate
investment trusts which make various types of mortgage loans often combined
with equity features. The securities of such trusts generally pay above
average dividends and may offer the potential for capital appreciation.
Such securities will be subject to the risks customarily associated with
the real estate industry, including declines in the value of the real
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estate investments of the trusts. Real estate values are affected by
numerous factors including (i) governmental regulation (such as zoning and
environmental laws) and changes in tax laws; (ii) operating costs; (iii)
the location and the attractiveness of the properties; (iv) changes in
economic conditions (such as fluctuations in interest and inflation rates
and business conditions); and (v) supply and demand for improved real
estate. Such trusts also are dependent on management skill and may not be
diversified in their investments.
Debt Securities
The debt securities in which the Fund may invest include securities
issued or guaranteed by the U.S. Government and its agencies or
instrumentalities, by foreign governments (including foreign states,
provinces and municipalities) and agencies or instrumentalities thereof and
debt obligations issued by U.S. and foreign corporations. Such securities
may include mortgage-backed securities issued or guaranteed by governmental
entities or by private issuers. In addition, the Fund may invest in debt
securities issued or guaranteed by international organizations designed or
supported by multiple governmental entities (which are not obligations of
the U.S. Government or foreign governments) to promote economic
reconstruction or development ("supranational entities") such as the
International Bank for Reconstruction and Development (the "World Bank").
U.S. Government securities include: (i) U.S. Treasury obligations
(bills, notes and bonds), which differ in their interest rates, maturities
and times of issuance, all of which are backed by the full faith and credit
of the U.S.; and (ii) obligations issued or guaranteed by U.S. Government
agencies or instrumentalities, including government guaranteed mortgage-
related securities, some of which are backed by the full faith and credit
of the U.S. Treasury (e.g., direct pass-through certificates of the
Government National Mortgage Association), some of which are supported by
the right of the issuer to borrow from the U.S. Government (e.g.,
obligations of Federal Home Loan Banks) and some of which are backed only
by the credit of the issuer itself (e.g., obligations of the Student Loan
Marketing Association).
In the case of mortgage-related securities, prepayments occur when the
holder of an individual mortgage prepays the remaining principal before the
mortgage's scheduled maturity date. As a result of the pass-through of
prepayments of principal on the underlying securities, a mortgage-related
security is often subject to more rapid prepayment of principal than its
stated maturity would indicate. Because the prepayment characteristics of
the underlying mortgages vary, it is not possible to predict accurately the
realized yield or average life of a particular issue of pass-through
certificates. Prepayment rates are important because of their effect on
the yield and price of the securities. Accelerated prepayments adversely
impact yields for pass-through securities purchased at a premium (i.e., a
price in excess of principal amount) and may involve additional risk of
loss of principal because the premium may not have been fully amortized at
the time the obligation is repaid. The opposite is true for pass-through
securities purchased at a discount. The Fund may purchase mortgage-related
securities at a premium or at a discount.
The obligations of foreign governmental entities have various kinds of
government support and include obligations issued or guaranteed by foreign
governmental entities with taxing power. These obligations may or may not
be supported by the full faith and credit of a foreign government. The
Fund will invest in foreign government securities of issuers considered
stable by the Manager. The Manager does not believe that the credit risk
inherent in the obligations of stable foreign governments is significantly
greater than that of U.S. Government securities.
It is expected that the Fund generally will invest the portion, if
any, of its assets allocated to debt obligations in the securities of
governmental issuers and in corporate debt securities, including
convertible debt securities, rated BBB or better by S&P or Baa or better by
Moody's or which, in the Manager's judgment, possess similar credit
characteristics ("investment grade bonds"). Debt securities ranked in
these rating categories, while considered "investment grade," have more
speculative characteristics and are more likely to be downgraded than
securities rated in the three highest rating categories. See the Statement
of Additional Information for more information regarding ratings of debt
securities. The Manager considers the ratings assigned by S&P and Moody's
as one of several factors in its independent credit analysis of issuers.
If a debt security in the Fund's portfolio is downgraded below investment
grade, the Manager will consider factors such as price, credit risk, market
conditions and interest rates and will sell such security only if, in the
Manager's judgment, it is advantageous to do so.
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The Fund is authorized to invest a portion of its assets in fixed
income securities rated below investment grade by a nationally recognized
rating agency or in unrated securities which, in the Manager's judgment,
possess similar credit characteristics ("high yield bonds"). The Fund's
Board of Directors has adopted a policy that the Fund will not invest more
than 35% of its assets in obligations rated below Baa or BBB by Moody's or
S&P, respectively. Investment in high yield bonds (which are sometimes
referred to as "junk" bonds) involves substantial risk. Investments in
high yield 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 bonds can be expected
to provide higher yields, such securities may be subject to greater market
price fluctuations and risk of loss of principal than lower yielding,
higher rated fixed income securities. The Fund will not invest in debt
securities in the lowest rating categories (CC or lower for S&P or Ca or
lower for Moody's) unless the Manager believes that the financial condition
of the issuer or the protection afforded the particular securities is
stronger than would otherwise be indicated by such low ratings. See the
Statement of Additional Information for additional information regarding
high yield bonds.
High yield bonds may be issued by less creditworthy companies or by
larger, highly leveraged companies and are frequently issued in corporate
restructurings such as mergers and leveraged buyouts. Such securities are
particularly vulnerable to adverse changes in the issuer's industry and in
general economic conditions. High yield bonds frequently are junior
obligations of their issuers, so that in the event of the issuer's
bankruptcy, claims of the holders of high yield bonds will be satisfied
only after satisfaction of the claims of senior securityholders. While the
high yield 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.
High yield bonds tend to be more volatile than higher rated fixed
income securities so that adverse economic events may have a greater impact
on the prices of high yield bonds than on higher rated fixed income
securities. Like higher rated fixed income securities, high yield bonds
are generally purchased and sold through dealers who make a market in such
securities for their own accounts. However, there are fewer dealers in the
high yield bond market which may be less liquid than the market for higher
rated fixed income securities even under normal economic conditions. Also,
there may be significant disparities in the prices quoted for high yield
bonds by various dealers. Adverse economic conditions or investor
perceptions (whether or not based on economic fundamentals) may impair the
liquidity of this market and may cause the prices the Fund receives for its
high yield bonds to be reduced, or the Fund may experience difficulty in
liquidating a portion of its portfolio. Under such conditions, judgment
may play a greater role in valuing certain of the Fund's portfolio
securities than in the case of securities trading in a more liquid market.
The average maturity of the Fund's portfolio of debt securities will
vary based on the Manager's assessment of pertinent economic market
conditions. As with all debt securities, changes in market yields will
affect the value of such securities. Prices generally increase when
interest rates decline and decrease when interest rates rise. Prices of
longer term securities generally fluctuate more in response to interest
rate changes than do shorter term securities.
Money Market Securities
Money market securities in which the Fund may invest consist of short-
term securities issued or guaranteed by the U.S. Government and its
agencies and instrumentalities; commercial paper, including variable amount
master demand notes, rated at least "A" by S&P or "Prime" by Moody's; and
repurchase agreements, purchase and sale contracts, and money market
instruments issued by commercial banks, domestic savings banks, and savings
and loan associations with total assets of at least one billion dollars.
The obligations of commercial banks may be issued by U.S. banks, foreign
branches of U.S. banks ("Eurodollar" obligations) or U.S. branches of
foreign banks ("Yankeedollar" obligations).
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Portfolio Strategies Involving Options and Futures
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 adverse movements in the equity, debt and
currency markets. The Fund has authority to write (i.e., sell) covered put
and call options on its portfolio securities, purchase put and call options
on securities and engage in transactions in stock index options, stock
index futures and financial futures, and related options on such futures.
The Fund may also deal in forward foreign exchange transactions and foreign
currency options and futures, and related options on such futures. Each of
these portfolio strategies is described below. Although certain risks are
involved in options and futures transactions (as discussed below and in
"Risk Factors in Options and Futures Transactions" further below), 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 its shares, the net asset value of the
Fund's shares will fluctuate. There can be no assurance that the Fund's
hedging transactions will be effective. Furthermore, the Fund 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 and
currency markets occur. Reference is made to the Statement of Additional
Information for further information concerning these strategies.
Writing Covered Options. The Fund is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter
into closing purchase transactions with respect to certain of such options.
A covered call option is an option where the Fund in return for a premium
gives another party a right to buy specified securities owned by the Fund
at a specified future date and price set at the time of the contract. The
principal reason for writing call options is to attempt to realize, through
the receipt of premiums, a greater return than would be realized on the
securities alone. By writing covered call options, the Fund gives up the
opportunity, while the option is in effect, to profit from any price
increase in the underlying security above the option exercise price. In
addition, the Fund's ability to sell the underlying security will be
limited while the option is in effect unless the Fund effects a closing
purchase transaction. A closing purchase transaction cancels out the
Fund's position as the writer of an option by means of an offsetting
purchase of an identical option prior to the expiration of the option it
has written. Covered call options serve as a partial hedge against the
price of the underlying security declining.
The Fund also may write put options which give the holder of the
option the right to sell the underlying security to the Fund at the stated
exercise price. The Fund will receive a premium for writing a put option
which increases the Fund's return. The Fund writes only covered put
options which means that so long as the Fund is obligated as the writer of
the option it will, through its custodian, have deposited and maintained
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 with a securities depository with a value equal to or greater
than the exercise price of the underlying securities. By writing a put,
the Fund will be obligated to purchase the underlying security at a price
that may be higher than the market value of that security at the time of
exercise for as long as the option is outstanding. The Fund may engage in
closing transactions in order to terminate put options that it has written.
Purchasing Options. The Fund is authorized to purchase put options
to hedge against a decline in the market value of its securities. By
buying a put option the Fund has a right to sell the underlying security at
the stated exercise price, thus limiting the Fund's risk of loss through a
decline in the market value of the security until the put option expires.
The amount of any appreciation in the value of the underlying security will
be partially offset by the amount of the premium paid for the put option
and any related transaction costs. Prior to its expiration, a put option
may be sold in a closing sale transaction and profit or loss from the sale
will depend on whether the amount received is more or less than the premium
paid for the put option plus the related transaction costs. A closing sale
transaction cancels out the Fund's position as the purchaser of an option
by means of an offsetting sale of an identical option prior to the
expiration of the option it has purchased. In certain circumstances, the
Fund may purchase call options on securities held in its portfolio on which
it has written call options or on securities which it intends to purchase.
The Fund will not purchase options on securities (including stock index
options discussed below) if as a result of such purchase, the aggregate
cost of all outstanding options on securities held by the Fund would exceed
5% of the market value of the Fund's total assets.
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Stock Index Options and Futures and Financial Futures. The Fund is
authorized to engage in transactions in stock index options and futures and
financial futures, and related options on such futures. The Fund may
purchase or write put and call options on stock indices to hedge against
the risks of market-wide stock price movements in the securities in which
the Fund invests. Options on indices are similar to options on securities
except that on exercise or assignment, the parties to the contract pay or
receive an amount of cash equal to the difference between the closing value
of the index and the exercise price of the option times a specified
multiple. The Fund may invest in stock index options based on a broad
market index, e.g., the S&P 500 Index, or on a narrow index representing an
industry or market segment, e.g., the AMEX Oil & Gas Index.
The Fund may also purchase and sell stock index futures contracts and
financial futures contracts ("futures contracts") as a hedge against
adverse changes in the market value of its portfolio securities as
described below. A futures contract is an agreement between two parties
which obligates the purchaser of the futures contract to buy and the seller
of a futures contract to sell a security for a set price on a future date.
Unlike most other futures contracts, a stock index futures contract does
not require actual delivery of securities but results in cash settlement
based upon the difference in value of the index between the time the
contract was entered into and the time of its settlement. The Fund may
effect transactions in stock index futures contracts in connection with the
equity securities in which it invests and in financial futures contracts in
connection with the debt securities in which it invests. Transactions by
the Fund in stock index futures and financial futures are subject to
limitations as described below under "Restrictions on the Use of Futures
Transactions."
The Fund may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the
Fund's securities portfolio that might otherwise result. When the Fund is
not fully invested in the securities markets and anticipates a significant
advance, it may purchase futures in order to gain rapid market exposure
that may in part or entirely offset increases in the cost of securities
that the Fund intends to purchase. As such purchases are made, an
equivalent amount of futures contracts will be terminated by offsetting
sales. The Fund does not consider purchases of futures contracts to be a
speculative practice under these circumstances. It is anticipated that, in
a substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, whether the long
position is the purchase of a futures contract or the purchase of a call
option or the writing of a put option on a future, but under unusual
circumstances (e.g., the Fund experiences a significant amount of
redemptions), a long futures position may be terminated without the
corresponding purchase of securities.
The Fund also has authority to purchase and write call and put options
on futures contracts and stock indices in connection with its hedging
activities. Generally, these strategies are utilized under the same market
and market sector conditions (i.e., conditions relating to specific types
of investments) in which the Fund enters into futures transactions. The
Fund may purchase put options or write call options on futures contracts
and stock indices rather than selling the underlying futures contract in
anticipation of a decrease in the market value of its securities.
Similarly, the Fund may purchase call options, or write put options on
futures contracts and stock indices, as a substitute for the purchase of
such futures to hedge against the increased cost resulting from an increase
in the market value of securities which the Fund intends to purchase.
The Fund may engage in options and futures transactions on U.S. and
foreign exchanges and in options in the over-the-counter markets ("OTC
options"). In general, exchange-traded contracts are third-party contracts
(i.e., performance of the parties' obligations is guaranteed by an exchange
or clearing corporation) with standardized strike prices and expiration
dates. OTC options transactions are two-party contracts with prices and
terms negotiated by the buyer and seller. See "Restrictions on OTC
Options" below for information as to restrictions on the use of OTC
options.
Foreign Currency Hedging. The Fund has authority to deal in forward
foreign exchange among currencies of the different countries in which it
will invest and multinational currency units as a hedge against possible
variations in the foreign exchange rates among these currencies. This is
accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the
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contract. The Fund's dealings in forward foreign exchange will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward foreign currency
with respect to specific receivables or payables of the Fund accruing in
connection with the purchase and sale of its portfolio securities, the sale
and redemption of shares of the Fund or the payment of dividends and
distributions by the Fund. Position hedging is the sale of forward foreign
currency with respect to portfolio security positions denominated or quoted
in such foreign currency. The Fund will not speculate in forward foreign
exchange. Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such securities decline. Such transactions also
preclude the opportunity for gain if the value of the hedged currency
should rise. Moreover, it may not be possible for the Fund to hedge
against a devaluation that is so generally anticipated that the Fund is not
able to contract to sell the currency at a price above the devaluation
level it anticipates.
The Fund is also authorized to 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-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. As an illustration, the Fund may
use such techniques to hedge the stated value in U.S. dollars of an
investment in a yen denominated security. In such circumstances, for
example, the Fund may purchase a foreign currency put option enabling it to
sell a specified amount of yen for dollars at a specified price by a future
date. To the extent the hedge is successful, a loss in the value of the
yen relative to the dollar will tend to be offset by an increase in the
value of the put option. To offset, in whole or in part, the cost of
acquiring such a put option, the Fund may also sell a call option which, if
exercised, requires it to sell a specified amount of yen for dollars at a
specified price by a future date (a technique called a "straddle"). By
selling such a call option in this illustration, the Fund gives up the
opportunity to profit without limit from increases in the relative value of
the yen to the dollar. The Manager believes that "straddles" of the type
which may be utilized by the Fund constitute hedging transactions and are
consistent with the policies described above.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the right
to buy or sell a currency at a fixed price on a future date. A futures
contract on a foreign currency is an agreement between two parties to buy
and sell a specified amount of a currency for a set price on a future date.
Futures contracts and options on futures contracts are traded on boards of
trade or futures exchanges. The Fund will not speculate in foreign
currency options, futures or related options. Accordingly, the Fund will
not hedge a currency substantially in excess of the market value of
securities which it has committed or anticipates to purchase which are
denominated in such currency and, in the case of securities which have been
sold by the Fund but not yet delivered, the proceeds thereof in its
denominated currency. The Fund may not incur potential net liabilities of
more than 20% of its total assets from foreign currency options, futures or
related options.
Restrictions on the Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission ("CFTC") applicable to the Fund
provide that the futures trading activities described herein will not
result in the Fund being deemed a "commodity pool," as defined under such
regulations if the Fund adheres to certain restrictions. In particular,
the Fund may purchase and sell futures contracts and options thereon (i)
for bona fide hedging purposes, and (ii) for non-hedging purposes, if the
aggregate initial margin and premiums required to establish positions in
such contracts and options does not exceed 5% of the liquidation value of
the Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any such contracts and options. These restrictions
are in addition to other restrictions on the Fund's hedging activities
mentioned herein.
When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash and cash equivalents
will be deposited in a segregated account with the Fund's custodian so that
the amount so segregated, plus the amount of initial and variation margin
held in the account of its broker, equals the market value of the futures
contract, thereby ensuring that the use of such futures contract is
unleveraged.
Restrictions on OTC Options. The Fund will engage in OTC options,
including over-the-counter stock index options, over-the-counter foreign
currency options and options on foreign currency futures, only with member
banks of the Federal Reserve System and primary dealers in U.S. Government
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securities or with affiliates of such banks or dealers which have capital
of at least $50 million or whose obligations are guaranteed by an entity
having capital of at least $50 million.
The staff of the Securities and Exchange Commission has taken the
position that purchased OTC options and the assets used as cover for
written OTC options are illiquid securities. Therefore, the Fund has
adopted an investment policy pursuant to which it will not purchase or sell
OTC options (including OTC options on futures contracts) if, as a result of
such transaction, the sum of the market value of OTC options currently
outstanding which are held by the Fund, the market value of the underlying
securities covered by OTC call options currently outstanding which were
sold by the Fund and margin deposits on the Fund's existing OTC options on
futures contracts exceeds 10% of the total assets of the Fund, taken at
market value, together with all other assets of the Fund which are illiquid
or are not otherwise readily marketable. However, if the OTC option is
sold by the Fund to a primary U.S. Government securities dealer recognized
by the Federal Reserve Bank of New York and if the Fund has the
unconditional contractual right to repurchase such OTC option from the
dealer at a predetermined price, then the Fund will treat as illiquid such
amount of the underlying securities as is equal to the repurchase price
less the amount by which the option is "in-the-money" (i.e., current market
value of the underlying 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 Securities and Exchange
Commission staff of its position.
Risk Factors in Options and Futures Transactions. Utilization of
options and futures transactions to hedge the portfolio 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. If the price of the options or futures moves more or
less than the price of the hedged securities or currencies, the Fund will
experience a gain or loss which will not be completely offset by movements
in the price of the subject of the hedge. The successful use of options
and futures also depends on the Manager's ability to correctly predict
price movements in the market involved in a particular options or futures
transaction. To compensate for imperfect correlations, the Fund may
purchase or sell stock index options or futures contracts in a greater
dollar amount than the hedged securities if the volatility of the hedged
securities is historically greater than the volatility of the stock index
options or futures contracts. Conversely, the Fund may purchase or sell
fewer stock index options or futures contracts if the volatility of the
price of the hedged securities is historically less than that of the stock
index options or futures contracts. The risk of imperfect correlation
generally tends to diminish as the maturity date of the stock index option
or futures contract approaches.
The Fund intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a
liquid secondary market for such options or futures or, in the case of
over-the-counter transactions, the Manager believes the Fund can receive on
each business day at least two independent bids or offers. However, there
can be no assurance that a liquid secondary market will exist at any
specific time. Thus, it may not be possible to close an options or futures
position. The inability to close options and futures positions also could
have an adverse impact on the Fund's ability to hedge effectively its
portfolio. There is also the risk of loss by the Fund of margin deposits
or collateral in the event of bankruptcy of a broker with whom the Fund has
an open position in an option, a futures contract or related option.
The exchanges on which the Fund intends to conduct options
transactions have generally established limitations governing the maximum
number of call or put options on the same underlying security or currency
(whether or not covered) which may be written by a single investor, whether
acting alone or in concert with others (regardless of whether such options
are written on the same or different exchanges or are held or written on
one or more accounts or through one or more brokers). "Trading limits" are
imposed on the maximum number of contracts which any person may trade on a
particular trading day. The Manager does not believe that these trading
and position limits will have any adverse impact on the portfolio
strategies for hedging the Fund's portfolio.
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Other Investment Policies and Practices
Non-Diversified Status. The Fund is classified as non-diversified
within the meaning of the Investment Company Act, which means that the Fund
is not limited by such Act in the proportion of its assets that it may
invest in securities of a single issuer. However, the Fund's investments
will be limited so as to qualify as a "regulated investment company" for
purposes of the Internal Revenue Code of 1986, as amended. See "Additional
Information - Taxes." To qualify, among other requirements, the Fund will
limit its investments so that, at the close of each quarter of the taxable
year, (i) not more than 25% of the market value of the Fund's total assets
will be invested in the securities of a single issuer and (ii) with respect
to 50% of the market value of its total assets, not more than 5% of the
market value of its total assets will be invested in the securities of a
single issuer, and the Fund will not own more than 10% of the outstanding
voting securities of a single issuer. A fund which elects to be classified
as "diversified" under the Investment Company Act must satisfy the
foregoing 5% and 10% requirements with respect to 75% of its total assets.
To the extent that the Fund assumes large positions in the securities of a
small number of issuers, the Fund's yield may fluctuate to a greater extent
than that of a diversified company as a result of changes in the financial
condition or in the market's assessment of the issuers.
Portfolio Transactions. Since portfolio transactions may be effected
on foreign securities exchanges, the Fund may incur settlement delays on
certain of such exchanges. See "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 Securities and Exchange Commission.
Affiliated persons of the Fund, and affiliated persons of such affiliated
persons, may serve as its broker in transactions conducted on an exchange
and in over-the-counter transactions conducted on an agency basis. In
addition, consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., the Fund may consider sales of
shares of the Fund as a factor in the selection of brokers or
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 U.S. 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 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.
Indexed and Inverse Floating Obligations. The Fund may invest in debt
securities, the return on which is based on a particular index of value or
interest rates. For example, the Fund may invest in debt securities that
pay interest based on an index of interest rates or based on the value of
gold or some other product. The principal amount payable upon maturity of
certain debt securities also may be based on the value of an index. To the
extent the Fund invests in debt securities of these sorts, the Fund's
return on such debt securities will be subject to risk with respect to the
value of the particular index. Also, the Fund may invest in so-called
"inverse floating obligations" or "residual interest bonds" on which the
15
<PAGE>
interest rates typically vary inversely with a short-term floating rate
(which may be reset periodically by a Dutch auction, a remarketing agent,
or by reference to a short-term tax-exempt interest rate index). The Fund
may purchase original issue inverse floating rate bonds in both the primary
and secondary markets and may also purchase in the secondary market
synthetically-created inverse floating rate bonds evidenced by custodial or
trust receipts. Generally, interest rates on inverse floating rate bonds
will decrease when short-term rates increase, and will increase when short-
term rates decrease. Such securities have the effect of providing a degree
of investment leverage, since they may increase or decrease in value in
response to changes, as an illustration, in market interest rates at a rate
which is a multiple (typically two) of the rate at which fixed-rate long-
term tax-exempt securities increase or decrease in response to such
changes. As a result, the market values of such securities will generally
be more volatile than the market values of fixed-rate debt securities. To
seek to limit the volatility of these securities, the Fund may purchase
inverse floating obligations with shorter term maturities or which contain
limitations on the extent to which the interest rate may vary. The Manager
believes that indexed and inverse floating obligations represent a flexible
portfolio management instrument for the Fund which allows the Manager to
vary the degree of investment leverage relatively efficiently under
different market conditions.
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, which is typically approximately 0.5% of the aggregate purchase
price of the security which the Fund has committed to purchase. The Fund
will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price which is considered
advantageous to the Fund. The Fund will not enter into a standby
commitment with a remaining term in excess of 90 days and will limit its
investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of
portfolio securities subject to legal restrictions on resale, will not
exceed 10% of its 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.
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 and Purchase and Sale Contracts. The Fund may
invest in securities pursuant to repurchase agreements or purchase and sale
contracts. Repurchase agreements may be entered into only with a member
bank of the Federal Reserve System or primary dealer in U.S. Government
securities. Purchase and sale contracts may be entered into only with
financial institutions which have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50
million. Under such agreements, the other party agrees, upon entering into
the contract with the Fund, to repurchase the security at a mutually agreed
upon time and price in a specified currency, thereby determining the yield
during the term of the agreement. This results in a fixed rate of return
insulated from market fluctuations during such period although it may be
affected by currency fluctuations. In the case of repurchase agreements,
the prices at which the trades are conducted do not reflect accrued
16
<PAGE>
interest on the underlying obligation; whereas, in the case of purchase and
sale contracts, the prices take into account accrued interest. Such
agreements usually cover short periods, such as under one week. Repurchase
agreements may be construed to be collateralized loans by the purchaser to
the seller secured by the securities transferred to the purchaser. In the
case of a repurchase agreement, as a purchaser, the Fund will require the
seller to provide additional collateral if the market value of the
securities falls below the repurchase not have the right to seek additional
collateral in the case of purchase and agreement construed to be a
collateralized loan, the underlying securities are obligation to pay the
repurchase price. Therefore, the Fund may suffer time collateral. A
purchase and sale contract differs from a repurchase agreement in Fund. In
the event of a default under such a repurchase agreement or under a return
to the Fund would be dependent upon intervening fluctuations of the such
event, the Fund would have rights against the seller for breach of the
failure of the seller to perform. The Fund may not invest more than 10% of
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% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S.
Government. 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. This limitation is a fundamental policy, and it may not be
changed without the approval of the in the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company
Act. 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.
Investment Restrictions. The Fund's investment activities are
subject to further restrictions that are described in the Statement of
Additional Information. Investment restrictions and policies which are
fundamental policies may not be changed without the approval of the holders
of a majority of the Fund's outstanding voting securities (which for this
purpose and under the Investment Company Act means the lesser of (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 its fundamental policies, the Fund may not invest more than
25% of its total assets, taken at market value at the time of each
investment, in the securities of issuers of any particular industry
(excluding the U.S. Government and its agencies or instrumentalities).
Other fundamental policies include policies which (i) limit investments in
securities which cannot be readily resold because of legal or contractual
restrictions or which are not otherwise readily marketable, including
repurchase agreements and purchase and sale contracts maturing in more than
seven days, if, regarding all such securities, more than 15% of its net
assets, taken at market value, would be invested in such securities,
(ii) limit investments in securities of other investment companies, except
in connection with certain specified transactions and with respect to
investments of up to 10% of the Fund's assets in securities of closed-end
investment companies and (iii) restrict the issuance of senior securities
and limit bank borrowings except that the Fund may borrow amounts of up to
10% of its assets for extraordinary purposes or to meet redemptions. 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. Although not a fundamental policy, the
Fund will include OTC options and the securities underlying such options in
calculating the amount of its total assets subject to the limitation set
forth in clause (i) above. However, as discussed above, the Fund may
treat the securities it uses as cover for written OTC options as liquid,
and, therefore, will be excluded from this restriction, provided it follows
a specified procedure. The Fund will not change or modify this policy
prior to the change or modification by the staff of the Securities and
Exchange Commission of its position regarding OTC options, as discussed
above.
Portfolio Turnover. The Manager will effect portfolio transactions
without regard to holding period, if in its judgment, such transactions are
advisable in light of a change in circumstances in general market, economic
or financial conditions. As a result of its investment policies, the Fund
may engage in a substantial number of portfolio transactions.
Accordingly, while the Fund anticipates that its annual portfolio turnover
rate should not exceed [200%] under normal conditions, it is impossible to
predict portfolio turnover rates. The portfolio turnover rate is
calculated by dividing the lesser of the Fund's annual sales or purchases
of portfolio securities (exclusive of purchases or sales of securities
17
<PAGE>
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.
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 and their principal employment are as
follows:
ARTHUR ZEIKEL* - President and Chief Investment Officer of the
Manager and Fund Asset Management, Inc.; Executive Vice President
of Merrill Lynch & Co., Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"); and Director of Merrill Lynch
Funds Distributor, Inc.
WALTER MINTZ - Special Limited Partner of Cumberland Partners
(investment partnership).
MELVIN R. SEIDEN - President of Silbanc Properties, Ltd. (real
estate, consulting and investments).
STEPHEN B. SWENSRUD - Principal of Fernwood Associates
(financial consultants).
JOE GRILLS - Member of the Committee on Investment of Employee
Benefits Assets of the Financial Executives Institute.
HARRY WOOLF - Professor and former Director of the Institute
for Advanced Study (private institution devoted to the
encouragement, support and patronage of learning).
- - ----------------
* Interested person, as defined in the Investment Company Act, of the
Fund.
Management and Advisory Arrangements
The Manager, Merrill Lynch Asset Management, L.P., which does business
as Merrill Lynch Asset Management, is owned and controlled by Merrill Lynch
& Co., Inc., a financial services holding company and the parent of Merrill
Lynch. The Manager provides the Fund with management and investment
advisory services. The Manager or an affiliate, Fund Asset Management,
L.P. ("FAM"), acts as the manager for more than 90 other registered
investment companies. The Manager also offers portfolio management and
portfolio analysis services to individuals and institutions. As of April
30, 1994, the Manager and FAM had a total of approximately $_____ 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.
The Manager provides the portfolio manager[s] for the Fund who
consider[s] analyses from various sources (including brokerage firms with
which the Fund does business), make[s] the necessary decisions, and
place[s] transactions accordingly. The Manager is also obligated to
perform certain administrative and management services for the Fund and is
obligated to provide all of the office space, facilities, equipment and
personnel necessary to perform its duties under the Management Agreement.
18
<PAGE>
The Management Agreement provides that the Fund will pay the Manager
a monthly fee at the annual rate of 0.75% of the average daily net assets
of the Fund. This fee is higher than that of most mutual funds, but
management of the Fund believes this fee, which is typical for a global
fund, is justified by the global nature of the Fund.
The names of the persons associated with the Manager who are primarily
responsible for the day-to-day management of the Fund's portfolio, the
length of time that such persons have been so responsible, and their
business experience during the past five years are as follows:
Joel Heymsfeld - Vice President of the Manager since 1978.
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. 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.
Transfer Agency Services
Financial Data Services, Inc. (the "Transfer Agent"), which is a
wholly owned subsidiary of Merrill Lynch & Co., Inc., 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 [$7.00] per
Class A shareholder account and [$9.00] per Class B shareholder account,
nominal miscellaneous fees (e.g., account closing fees) and is entitled to
reimbursement for out-of-pocket expenses incurred by it under the Transfer
Agency Agreement.
PURCHASE OF SHARES
Subscription Offering
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), a
subsidiary of the Manager and an affiliate of Merrill Lynch, acts as the
distributor of Class A and Class B shares of the Fund.
The Distributor, Merrill Lynch and other securities dealers which have
entered into selected dealer agreements with the Distributor will solicit
subscriptions for shares of the Fund during a period expected to end on
____________, 1994. The subscription period may be extended for up to an
additional 30 days upon agreement between the Fund and the Distributor. On
the fifth business day after the conclusion of the subscription period, the
subscriptions will be payable, the Class A and Class B shares will be
issued and the Fund will commence operations. The subscription offering
may be terminated by the Fund or the Distributor at any time, in which
event no Class A and Class B shares will be issued (and, therefore, the
Fund will not commence operations and no amounts will be payable by
subscribers, and no sales charges will be assessed) or a limited number of
shares will be issued.
19
<PAGE>
The public offering price of the Class A shares during the
subscription offering is set forth in the table below:
[CAPTION]
<TABLE>
Subscription Period
Sales Securities Dealers'
Charge Concession
------ ----------
Percentage /*/ Percentage /*/
Public of Public of Public
Offering Dollar Offering Dollar Offering
Price Amount Price Amount Price
-------- ------ ------------- ------ --------------
<S> <C> <C> <C> <C> <C>
Less than $10,000 $10.695 $.695 6.50% $.695 6.50%
$10,000 but less
than 25,000 10.638 .638 6.00 .638 6.00
$25,000 but less than
$50,000 10.526 .526 5.00 .526 5.00
$50,000 but less than
$100,000 10.417 .417 .400 .417 4.00
$100,000 but less than
$250,000 10.309 .309 3.00 .309 3.00
$250,000 but less than
$1,000,000 10.204 .204 2.00 .204 2.00
$1,000,000 and over 10.076 .076 0.75 .076 0.75
- - ----------------
/*/ Rounded to the nearest one-hundredth percent.
</TABLE>
Initial sales charges will be waived for shareholders
purchasing $1 million or more in a single transaction (other than
a tax qualified retirement plan under Section 401 of the Code or a
deferred compensation plan under Section 403(b) and Section 457 of
the Code), or a purchase by TMA (Service Mark) Managed Trust, of
Class A shares of the Fund. Such purchases will be subject to a
contingent deferred sales charge if the shares are redeemed within
one year after purchase at the following rates:
Contingent Deferred Sales Charge
as a Percentage of
Dollar Amount of Purchase
Amount of Purchase ---------------------------------
- - -------------------
$1 million up to $2.5 million . . 1.00%
Over $2.5 million up to $3.5
million . . . . . . . . . . . . 0.60
Over $3.5 million up to $5
million 0.40
Over $5 million 0.25
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 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 per share to the Fund from the sale of all Class
A shares sold during the subscription period will be $10.00.
20
<PAGE>
The public offering price of the Class B shares during the
subscription offering will be $10.00 per share. However, the Class
B shares may be subject to a contingent deferred sales charge
described below under "Deferred Sales Charge Alternative - Class B
Shares - Contingent Deferred Sales Charge" if redeemed within four
years of purchase and are subject to ongoing account maintenance
and distribution fees as described below.
The minimum initial purchase for both Class A and Class B
shares during the subscription period is $1,000.
Continuous Offering
Commencing immediately after completion of the subscription
offering, Class A and Class B shares of the Fund will be offered
continuously for sale by the Distributor and other eligible
securities dealers (including Merrill Lynch). During the
continuous offering, 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 during the continuous
offering is $1,000. The minimum subsequent purchase is $50.
The Fund will offer its shares during the continuous offering
at a public offering price equal to the next determined net asset
value per share plus sales charges which, at the option of the
purchaser, may be imposed either at the time of purchase (the
"initial sales charge alternative") or on a deferred basis (the
"deferred sales charge alternative"), 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 4:15 p.m., New York time, which
includes orders received after the determination of the net asset
value on the previous day, the applicable offering price will be
based on the net asset value determined as of 4:15 p.m., New York
time, on the day the orders are placed with the Distributor,
provided the orders are received by the Distributor prior to
4:30 p.m., New York time, on that day. If the purchase orders are
not received by the Distributor prior to 4:30 p.m., New York time,
such orders shall be deemed received on the next business day. Any
order may be rejected by the Distributor or the Fund. The Fund or
the Distributor may suspend the continuous offering of the Fund's
shares at any time in response to conditions in the securities
markets or otherwise and may thereafter resume such offering from
time to time. Any order may be rejected by the Distributor or the
Fund. Neither the Distributor nor the dealers are permitted to
withhold placing orders to benefit themselves by a price change.
Merrill Lynch may charge its customers a processing fee (presently
$4.85) to confirm a sale of shares to such customers. Purchases
directly through the Transfer Agent are not subject to the
processing fee.
________________________
The Fund issues two classes of shares: Class A shares are
sold to investors choosing the initial sales charge alternative,
and Class B shares are sold to investors choosing the deferred
sales charge alternative. The two classes of shares each represent
interests in the same portfolio of investments of the Fund, have
the same rights and are identical in all respects, except that
Class B shares bear the expenses of the deferred sales
arrangements, any expenses (including incremental transfer agency
costs) resulting from such sales arrangements and the expenses paid
by the account maintenance fee and have exclusive voting rights
with respect to the Rule 12b-1 distribution plan pursuant to which
the account maintenance and distribution fees are paid. The two
classes also have different exchange privileges. See "Shareholder
Services - Exchange Privilege." The net income attributable to
Class B shares and the dividends payable on Class B shares will be
reduced by the amount of the account maintenance and distribution
fees and incremental transfer agency costs relating to Class B
shares; likewise the net asset value of the Class B shares will be
reduced by such amount to the extent the Fund has undistributed net
income. Sales personnel may receive different compensation for
selling Class A or Class B shares. Investors are advised that only
Class A shares may be available for purchase through securities
dealers, other than Merrill Lynch, which are eligible to sell
shares.
Alternative Sales Arrangements
The alternative sales arrangements of the Fund permit
investors to choose the method of purchasing shares that is most
beneficial given the amount of their purchase, the length of time
the investor expects to hold the shares and other relevant
21
<PAGE>
circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur an
initial sales charge and not be subject to ongoing charges, as
discussed below, or to have the entire initial purchase price
invested in the Fund with the investment thereafter being subject
to ongoing account maintenance and distribution fees.
As an illustration, investors who qualify for significantly
reduced sales charges, as described below, might elect the initial
sales charge alternative because similar sales charge reductions
are not available for purchases under the deferred sales charge
alternative. Moreover, shares acquired under the initial sales
charge alternative would not be subject to an ongoing account
maintenance fee and a distribution fee, as described below.
However, because initial sales charges are deducted at the time of
purchase, such investors would not have all their funds invested
initially.
Investors not qualifying for reduced initial sales charges who
expect to maintain their investment for an extended period of time
might also elect the initial sales charge alternative because over
time the accumulated continuing account maintenance and
distribution fees related to Class B shares may exceed the initial
sales charge related to Class A shares. Again, however, such
investors must weigh this consideration against the fact that not
all their funds will be invested initially. Furthermore, the
ongoing account maintenance and distribution fees will be offset to
the extent any return is realized on the additional funds initially
invested under the deferred alternative. Another factor that may
be applicable under certain circumstances is that the payment of
the Class B distribution fee and contingent deferred sales charge
is subject to certain limits as set forth below under "Deferred
Sales Charge Alternative - Class B Shares."
Certain other investors might determine it to be more
advantageous to have all their funds invested initially, although
subject to continuing account maintenance and distribution fees
and, for a four-year period of time, a contingent deferred sales
charge as described below. For example, an investor subject to the
6.50% initial sales charge will have to hold his investment for at
least 6-1/2 years for the ongoing 0.25% account maintenance fee and
0.75% distribution fee of Class B shares to exceed the initial
sales charge. This example does not take into account the time
value of money which further reduces the impact of the ongoing
0.25% account maintenance fee and 0.75% distribution fee of Class
B shares on the investment, fluctuations in net asset value, the
effect of the return on the investment over this period of time or
the effect of any limits that may be imposed upon the payment of
the distribution fee and the contingent deferred sales charge.
Initial Sales Charge Alternative - Class A Shares
The public offering price of Class A 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.
[CAPTION]
<TABLE>
Sales Charge Sales Charge Sales Charge
as Percentage as Percentage* Selected Dealers
of the of the Net as Percentage of
Amount of Purchase Offering Price Amount Invested the Offering Price
- - ------------------ -------------- --------------- ------------------
<S> <C> <C> <C>
Less than $10,000. . . . . . . . 6.50% 6.95% 6.25%
$10,000 but less than $25,000. . 6.00 6.38 5.75
$25,000 but less than $50,000. . 5.00 5.26 4.75
$50,000 but less than $100,000 . 4.00 4.17 3.75
$100,000 but less than $250,000. 3.00 3.09 2.75
$250,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 and over . . . . . . .75 .76 .65
<FN>
__________________
/*/ Rounded to the nearest one-hundredth percent.
</TABLE>
22
<PAGE>
Initial sales charges may be waived for shareholders
purchasing $1 million or more in a single transaction (other than
a tax qualified retirement plan under Section 401 of the Code or a
deferred compensation plan under Section 403(b) and Section 457 of
the Code), or a purchase by TMA(Service Mark) Managed Trust, of
Class A shares of the Fund. In addition, purchases of Class A
shares of the Fund made in connection with a single investment of
$1 million or more under the Merrill Lynch Mutual Fund Adviser
Program will not be subject to an initial sales charge. Purchases
described in this paragraph will be subject to a contingent
deferred sales charge if the shares are redeemed within one year
after purchase at the following rates.
Contingent Deferred Sales
as a Percentage of
Dollar Amount Subject to Charge
Amount of Purchase ---------------------------------
- - -------------------
$1 million up to $2.5 million . . 1.00%
Over $2.5 million up to $3.5
million . . . . . . . . . . . . 0.60
Over $3.5 million up to $5
million . . . . . . . . . . . . 0.40
Over $5 million . . . . . . . . . 0.25
The Distributor may reallow discounts to select 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 shares of the Fund will receive
a concession equal to most of the sales charge, they may be deemed
to be underwriters under the Securities Act.
Reduced Initial Sales Charges
Sales charges are reduced under a Right of Accumulation and a
Letter of Intention. Class A shares of the Fund are offered at net
asset value to Directors of the Fund, to directors of Merrill Lynch
& Co., Inc., to participants in certain benefit plans, to directors
and trustees of certain other Merrill Lynch sponsored investment
companies, 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 if
certain conditions set forth in the Statement of Additional
Information are met and to employees of Merrill Lynch & Co., Inc.
and its subsidiaries. Class A shares are offered at net asset
value to certain retirement plans, including eligible 401(k) plans,
provided such plans meet the required minimum number of eligible
employees or required amount of assets advised by the Manager or
its affiliate, FAM. Also, Class A shares may be offered at net
asset value in connection with the acquisition of assets of other
investment companies. No initial sales charges are imposed upon
Class A shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A shares of the
Fund are also offered at net asset value, without sales charge, to
an investor who has a business relationship with a Merrill Lynch
financial consultant and who has invested in a mutual Fund
sponsored by a non-Merrill Lynch company for which Merrill Lynch
has served as a selected dealer and where Merrill Lynch has either
received or given notice that such arrangement will be terminated,
if the following conditions are satisfied: first, the investor must
purchase Class A shares of the Fund with proceeds from a redemption
of shares of such other mutual Fund and such Fund imposed a sales
charge either at the time of purchase or on a deferred basis;
second, such purchase of Class A shares must be made within 90 days
after such notice of termination. Class A shares of the Fund are
also offered at net asset value to shareholders of certain closed-
end funds advised by the Manager or FAM who wish to reinvest the
net proceeds from a sale of their closed-end fund shares of common
stock in shares of the Fund, provided certain conditions are met.
For example, Class A shares of the Fund and certain other mutual
funds advised by the Manager or FAM are offered at net asset value
to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
(formerly known as Merrill Lynch Prime Fund, Inc.) ("Senior
Floating Rate Fund") who wish to reinvest the net proceeds from a
sale of certain of their shares of common stock of Senior Floating
Rate Fund in shares of such funds.
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<PAGE>
Additional information concerning these reduced initial sales
charges is set forth in the Statement of Additional Information.
Deferred Sales Charge Alternative - Class B Shares
Investors choosing the deferred sales charge alternative
purchase Class B shares at net asset value per share without the
imposition of a sales charge at the time of purchase. The Class B
shares are being 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 shares at the time of purchase from its own funds.
The proceeds of the contingent deferred sales charge and the
ongoing distribution fee discussed below are used to defray Merrill
Lynch's expenses, including compensating its financial consultants.
The proceeds from the ongoing account maintenance fee are used to
compensate Merrill Lynch for providing continuing account
maintenance activities.
Proceeds from the contingent deferred sales charge 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 shares such as the payment
of compensation to financial consultants for selling Class B
shares. Payments by the Fund to the Distributor of the
distribution fee under the Distribution Plan relating to Class B
shares also may be used in whole or in part by the Distributor for
this purpose. The combination of the contingent deferred sales
charge and the ongoing distribution fee facilitates the ability of
the Fund to sell the Class B shares without a sales charge being
deducted at the time of purchase. Class B shareholders of the Fund
exercising the exchange privilege described under "Shareholders
Services - Exchange Privilege" will continue to be subject to the
Fund's contingent deferred sales charge schedule if such schedule
is higher than the deferred sales charge schedule relating to the
Class B shares acquired as a result of the exchange.
Contingent Deferred Sales Charge
Class B shares which are redeemed within four years of
purchase may be subject to a contingent deferred sales charge 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 current market value or the cost of the
shares being redeemed. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial purchase
price. In addition, no charge will be assessed on shares derived
from reinvestment of dividends or capital gains distributions.
The following table sets forth the rates of the contingent
deferred sales charge:
Contingent Deferred Sales
Year Since Purchase Charge as a Percentage of
Payment Made Dollar Amount Subject to Charge
------------------- ---------------------------------
0-1 . . . . . . . . . . . 4.0%
1-2 . . . . . . . . . . . 3.0%
2-3 . . . . . . . . . . . 2.0%
3-4 . . . . . . . . . . . 1.0%
4 and thereafter. . . . . None
In determining whether a contingent deferred sales charge 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
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<PAGE>
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 of shares from a
shareholder's account to another account will be assumed to be made
in the same order as a redemption.
To provide an example, assume an investor purchased 100 shares
at $10 per share (at a cost of $1,000) and in the third year after
purchase, the net asset value per share is $12, and during such
time, the investor has acquired 10 additional shares through
dividend reinvestment. If at such time the investor makes his
first redemption of 50 shares (proceeds of $600), 10 shares will
not be subject to the charge because of dividend reinvestment.
With respect to the remaining 40 shares, the charge is applied only
to the original cost of $10 per share and not to the increase in
net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase).
The contingent deferred sales charge is waived on redemptions
of shares in connection with certain post-retirement withdrawals
from Individual Retirement Accounts ("IRAs") or other retirement
plans or following the death or disability (as defined in the Code)
of a shareholder.
The contingent deferred sales charge also is waived on
redemptions of shares by certain eligible 401(a) and eligible
401(k) plans. The contingent deferred sales charge is also waived
for any Class B shares which are purchased by an eligible 401(k) or
eligible 401(a) plan and which are rolled over into a Merrill Lynch
or Merrill Lynch Trust Company custodied IRA and held in such
account at the time of redemption. Additional information
concerning the waiver of the contingent deferred sales charge is
set forth in the Statement of Additional Information.
Distribution Plan
Pursuant to a distribution plan adopted by the Fund pursuant
to Rule 12b-1 under the Investment Company Act (the "Distribution
Plan"), the Fund pays the Distributor an account maintenance fee
and a distribution fee relating to Class B shares, accrued daily
and paid monthly, at the annual rates of 0.25% and 0.75%,
respectively, of the average daily net assets of the Fund
attributable to Class B shares in order to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) for
providing account maintenance and distribution services to the
Fund, with the ongoing account maintenance fee compensating the
Distributor and Merrill Lynch for providing account maintenance
services to Class B shareholders and with the ongoing distribution
fee compensating the Distributor and Merrill Lynch for providing
shareholder and distribution services, and bearing certain
distribution-related expenses to the Fund, including payments to
financial consultants for selling Class B shares of the Fund. See
"Additional Information - Organization of the Fund." The
Distribution Plan is designed to permit an investor to purchase
Class B shares through dealers without the assessment of a front-
end sales charge and at the same time permit the dealer to
compensate its financial consultants in connection with the sale of
the Class B shares. In this regard, the purpose and function of
the ongoing account maintenance and distribution fees and the
contingent deferred sales charge are the same as those of the
initial sales charge with respect to the Class A shares of the Fund
in that the deferred sales charges provide for the financing of the
distribution of the Fund's Class B shares.
The payments under the Distribution Plan are based on a
percentage of average daily net assets attributable to Class B
shares regardless of the amount of expenses incurred, and
accordingly, distribution-related revenues 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 Distribution Plan. This
information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct
expenses and revenue/cash" basis. On the fully allocated accrual
basis, revenues consist of the account maintenance fees,
distribution fees, the contingent deferred sales charges and
certain other related revenues, and expenses consist of financial
consultant compensation, branch office and regional operation
center selling and transaction processing expenses, advertising,
sales promotion and marketing expenses, corporate overhead and
interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees
and contingent deferred sales charges, and the expenses consist of
financial consultant compensation.
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<PAGE>
The Fund has no obligation with respect to distribution and
account maintenance-related expenses incurred by the Distributor
and Merrill Lynch in connection with the Class B shares, and there
is no assurance that the Directors of the Fund will approve the
continuance of the Distribution Plan from year to year. However,
the Distributor intends to seek annual continuation of the
Distribution Plan. In their review of the Distribution Plan, the
Directors will not be asked to take into consideration expenses
incurred in connection with the distribution of Class A shares or
of shares of other funds for which the Distributor acts as
distributor. The account maintenance fee, the distribution fee and
the contingent deferred sales charges in the case of Class B shares
will not be used to subsidize the sale of Class A shares.
Similarly, the initial sales charges in the case of Class A shares
will not be used to subsidize the sale of Class B shares. Payment
of the distribution fee on Class B shares is subject to certain
limits as set forth under "Deferred Sales Charge Alternative -
Class B Shares."
Limitations on the Payment of Deferred Sales Charges
The maximum sales charge rule in the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. ("NASD")
imposes a limitation on certain asset-based sales charges such as
the Fund's distribution fee and the contingent deferred sales
charge but not the account maintenance fee. As applicable to the
Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and contingent deferred sales charges
payable by the Fund to (1) 6.25% of eligible gross sales of Class
B shares (defined to exclude shares issued pursuant to dividend
reinvestments and exchanges) plus (2) interest on the unpaid
balance 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 contingent deferred sales charge).
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") 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, and any contingent deferred sales charges
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.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all full and
fractional 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 contingent deferred sales charge which
may be applicable to Class B shares, there will be no charge for
redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will
receive upon redemption all dividends reinvested through the date
of redemption. The value of shares at the time of redemption may
be more or less than the shareholder's cost, depending on the
market value of the securities held by the Fund at such time.
Redemption
A shareholder wishing to redeem shares may do so without
charge by tendering the shares directly to the Transfer Agent,
Financial Data Services, Inc., Transfer Agency Mutual Fund
Operations, P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be
delivered to Financial Data Services, Inc., Transfer Agency Mutual
Fund Operations, 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484. 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
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<PAGE>
Transfer Agent's register or on the certificate, as the case may
be. The signature(s) on the notice must be guaranteed by an
"eligible guarantor institution" (including, for example, Merrill
Lynch branch offices and certain other financial institutions) as
such term is defined in Rule 17Ad-15 under the Securities Exchange
Act of 1934, as amended, the 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 good payment (e.g., cash or certified check drawn on a U.S.
bank) has been collected for the purchase of such shares.
Normally, this delay will not exceed 10 days.
Repurchase
The Fund also will repurchase shares through a shareholder's
listed securities dealer. The Fund normally will accept orders to
repurchase shares by wire or telephone from dealers for their
customers at the net asset value next computed after receipt of the
order by the dealer, provided that the request for repurchase is
received by the dealer prior to the close of business on the New
York Stock Exchange on the day received and that such request is
received by the Fund from such dealer not later than 4:30 p.m., New
York time, on the same day. Dealers have the responsibility of
submitting such repurchase requests to the Fund not later than
4:30 p.m., New York time, 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 contingent deferred sales charge in the case of
Class B shares). Securities firms which 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 $4.85) to confirm a repurchase of
shares to such customers. Redemptions directly through the
Transfer Agent are not subject to the processing fee. The Fund
reserves the right to reject any order for repurchase, which right
of rejection might adversely affect shareholders seeking redemption
through the repurchase procedure. A shareholder whose order for
repurchase is rejected by the Fund, however, may redeem shares as
set forth above.
Reinstatement Privilege - Class A Shares
Shareholders who have redeemed their Class A shares have a
one-time privilege to reinstate their accounts by purchasing Class
A shares of the Fund at net asset value without a sales charge up
to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for
the amount to be reinstated to the Transfer Agent within 30 days
after the date the request for redemption was accepted by the
Transfer Agent or the Distributor. The reinstatement will be made
at the net asset value per share next determined after the notice
of reinstatement is received and cannot exceed the amount of the
redemption proceeds. The reinstatement privilege is a one-time
privilege and may be exercised by the Class A shareholder only the
first time such shareholder makes a redemption.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and
investment plans described below which are designed to facilitate
investment in its shares. Certain of such services are not
available to investors who place purchase orders for the Fund's
shares through the Merrill Lynch Blueprint(SM) Program. Full details
as to each of such services, 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.
Certain of these services are available only to U.S. investors.
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<PAGE>
Investment Account. Each shareholder whose account is
maintained at the Transfer Agent has an Investment Account and will
receive semi-annual statements from the Transfer Agent showing any
reinvestments or dividends and capital gains distributions and any
other activity in the account since the preceding statement.
Shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends
and capital gains distributions. A shareholder may make additions
to his Investment Account at any time by mailing a check directly
to the Transfer Agent. Shareholders may also 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 shares from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if
the firm to which the Class A shares are to be transferred will not
take delivery of shares of the Fund, a shareholder either must
redeem the Class A 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 shares. Shareholders interested in transferring
their Class B 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. Shareholders considering
transferring a tax-deferred retirement account such as an
individual retirement account from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if
the firm to which the retirement account is to be transferred will
not take delivery of shares of the Fund, a shareholder must either
redeem the shares (paying any applicable contingent deferred sales
charge) so that the cash proceeds can be transferred to the account
at the new firm, or such shareholder must continue to maintain a
retirement account at Merrill Lynch for those shares.
Exchange Privilege. U.S. Class A and Class B shareholders of
the Fund each have an exchange privilege with certain other mutual
funds sponsored by Merrill Lynch. There is currently no limitation
on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated in
accordance with the rules of the Securities and Exchange
Commission. Class A shareholders of the Fund may exchange their
shares ("outstanding Class A shares") for Class A shares of another
fund ("new Class A shares") on the basis of relative net asset
value per Class A share, plus an amount equal to the difference, if
any, between the sales charge previously paid on the outstanding
Class A shares and the sales charge payable at the time of the
exchange on the new Class A shares. The Fund's exchange privilege
is modified with respect to purchases of Class A shares under the
Merrill Lynch Mutual Fund Adviser program. First, the initial
allocation of assets is made under the program. Then, any
subsequent exchange under the program of Class A shares of a fund
for Class A shares of the Fund will be made solely on the basis of
the relative net asset values of the shares being exchanged.
Therefore, there will not be a charge for any difference between
the sales charge previously paid on the shares of the other fund
and the sales charge payable on the shares of the Fund being
acquired in the exchange under this program.
Class B shareholders of the Fund may exchange their shares
("outstanding Class B shares") for Class B shares of another fund
("new Class B shares") on the basis of relative net asset value per
share without the payment of any contingent deferred sales charge
that might otherwise be due on redemption of the outstanding Class
B shares. Class B shareholders of the Fund exercising the exchange
privilege will continue to be subject to the Fund's contingent
deferred sales charge schedule if such schedule is higher than the
deferred sales charge 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 contingent
deferred sales charge schedule if such schedule is higher than the
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<PAGE>
deferred sales charge schedule relating to the Class B shares of
the fund from which the exchange has been made. For purposes of
computing the contingent deferred sales charge that may be payable
upon a disposition of the new Class B shares, the holding period
for the outstanding Class B shares is "tacked" to the holding
period of the new Class B shares. Class A and Class B shareholders
of the Fund may also exchange their shares for shares of certain
money market funds, but in the case of an exchange from Class B
shares, the period of time that shares are held in a money market
fund will not count toward satisfaction of the holding period
requirement for purposes of reducing the contingent deferred sales
charge. Exercise of the exchange privilege is treated as a sale
for Federal income tax purposes. For further information, see
"Shareholder Services - Exchange Privilege" in the Statement of
Additional Information.
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
at the net asset value per share next determined on the ex-dividend
date of such dividend or distribution. A shareholder may at any
time, by written notification to Merrill Lynch if the shareholder's
account is maintained with Merrill Lynch or by written notification
or telephone call (1-800-MER-FUND) to the Transfer Agent if the
shareholder's account is maintained with the Transfer Agent, elect
to have subsequent dividends or capital gains distributions, or
both, paid in cash, rather than reinvested, in which event payment
will be mailed on or about the payment date. No contingent
deferred sales charge will be imposed upon redemption of shares
issued as a result of the automatic reinvestment of dividends or
capital gains distributions.
Systematic Withdrawal and Automatic Investment Plans. A Class
A shareholder may elect to receive systematic withdrawal payments
from his Investment Account in the form of payments by check or
through automatic payment by direct deposit to his bank account on
either a monthly or quarterly basis. A Class A shareholder whose
shares are held within a CMA(R), CBA(R) or Retirement Account may elect
to have shares redeemed on a monthly, bimonthly, quarterly,
semiannual or annual basis through the Systematic Redemption
Program, subject to certain conditions. Regular additions of Class
A shares may be made to an investor's Investment Account by
prearranged charges of $50 or more to his regular bank account.
Investors who maintain CMA accounts may arrange to have periodic
investments made in the Fund in their CMA accounts or in certain
related accounts in amounts of $250 or more through the CMA
Automatic Investment Program. The Automatic Investment Program is
not available to shareholders whose shares are held in a brokerage
account with Merrill Lynch other than a CMA(R) account.
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 and
Class B shares in accordance with a formula specified by the
Securities and Exchange 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 the maximum sales charge in the
case of Class A shares and the contingent deferred sales charge
that would be applicable to a complete redemption of the investment
at the end of the specified period in the case of Class B shares.
Dividends paid by the Fund with respect to Class A and Class B
shares, to the extent any dividends are paid, will be calculated in
the same manner at the same time on the same day and will be in the
same amount, except that account maintenance and distribution fees
and any incremental transfer agency costs relating to Class B
shares will be borne exclusively by that class. The Fund will
include performance data for both Class A and Class B 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 annualized rates of return calculations.
Aside from the impact on the performance data calculations of
including or excluding the maximum applicable sales charges, actual
annual or annualized total return data generally will be lower than
average annual total return data since the average annual rates of
return reflect compounding; aggregate total return data generally
will be higher than average annual total return data since the
aggregate rates of return reflect compounding over longer periods
of time. In advertisements directed to investors whose purchases
29
<PAGE>
are subject to reduced sales charges in the case of Class A shares
or waiver of the contingent deferred sales charge in the case of
Class B shares (such as investors in certain retirement plans),
performance data may take into account the reduced, and not the
maximum, sales charge or may not take into account the contingent
deferred sales charge and therefore may reflect greater total
return since, due to the reduced sales charges or waiver of the
contingent deferred sales charge, 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
Standard & Poor's 500 Composite Stock Price Index, the Dow Jones
Industrial Average, or performance data published by Lipper
Analytical Services, Inc., Morningstar Publications, Inc., Money
Magazine, U.S. News & World Report, Business Week, CDA Investment
Technology, Inc., Forbes Magazine, Fortune Magazine or other
industry publications. In addition, from time to time the Fund may
include the Fund's risk-adjusted performance ratings assigned by
Morningstar Publications, Inc. in advertising or supplemental sales
literature. As with other performance data, performance
comparisons should not be considered representative 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 at least annually. All net realized long- or
short-term capital gains, if any, are distributed to the Fund's
shareholders at least annually. The per share dividends and
distributions on Class B shares will be lower than the per share
dividends and distributions on Class A shares as a result of the
account maintenance, distribution and higher transfer agency fees
applicable to the Class B shares. See "Additional Information -
Determination of Net Asset Value." Dividends and distributions may
be reinvested automatically in shares of the Fund, at net asset
value without a sales charge. Shareholders may
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 returns of
capital to shareholders, rather than as ordinary dividends,
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 annually.
All net realized long- or short-term 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.
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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 per share is determined once daily as of
4:15 p.m., New York time, on each day during which the New York
Stock Exchange is open for trading. Any assets or liabilities
initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as
quoted by one or more banks or dealers on the day of valuation.
The net asset value is computed by dividing the market value of the
securities held by the Fund plus any cash or other assets
(including interest and dividends accrued but not yet received)
minus all liabilities (including accrued expenses) by the total
number of shares outstanding at such time. Expenses, including the
fees payable to the Manager and the account maintenance and
distribution fees payable to the Distributor, are accrued daily.
The per share net asset value of the Class B shares generally will
be lower than the per share net asset value of the Class A shares
reflecting the daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with
respect to the Class B shares. It is expected, however, that the
per share net asset value of the two classes will tend to converge
immediately after the payment of dividends or distributions which
will differ by approximately the amount of the expense accrual
differential between the classes.
Portfolio securities which are traded on stock exchanges
are valued at the last sale price 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 or yield equivalents
obtained from one or more dealers in the over-the-counter market prior
to the time of valuation. Portfolio securities which are traded both
in the over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market. 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 under the direction of the Board of Directors
of the Fund.
Taxes
The Fund intends to continue to qualify for the special tax
treatment afforded regulated investment companies ("RICs") under
the Internal Revenue Code of 1986, as amended (the "Code"). If it
so qualifies, the Fund (but not its shareholders) will not be
subject to Federal income tax on the part of its net ordinary
income and net realized capital gains which it distributes to Class
A and Class B shareholders (together, the "shareholders"). The
Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and
distributions of the Fund's net realized short-term capital gains
(together referred to hereafter as "ordinary income dividends") are
taxable to shareholders as ordinary income. Distributions made
from the Fund's net realized long-term capital gains (including
long-term gains from certain transactions in futures and options)
("capital gain dividends") are taxable to shareholders as long-term
capital gains, regardless of the length of time the shareholder has
owned Fund shares. Distributions in excess of the Fund's earnings
and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming the shares are
held as a capital asset).
Dividends are taxable to shareholders even though they are
reinvested in additional shares of the Fund. Not later than 60
days after the close of its taxable year, the Fund will provide its
31
<PAGE>
shareholders with a written notice designating the amounts of any
ordinary income dividends or capital gain dividends. A portion of
the Fund's ordinary income dividends may be eligible for the
dividends received deduction allowed to corporations under the
Code, if certain requirements are met. If the Fund pays a dividend
in January that was declared in the previous October, November or
December to shareholders of record on a specified date in one of
such months, then such dividend will be treated for tax purposes as
being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who
are nonresident aliens or foreign entities will be subject to a 30%
U.S. withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced
rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the
U.S. withholding tax.
Dividends and interest received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the U.S. may reduce or
eliminate such taxes. Shareholders may be able to claim U.S.
foreign tax credits with respect to such taxes, subject to certain
conditions and limitations contained in the Code. For example,
certain retirement accounts cannot claim foreign tax credits on
investments in foreign securities held in the Fund. If more than
50% in value of the Fund's total assets at the close of its taxable
year consists of securities of foreign corporations, the Fund will
be eligible, and intends, to file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be
required to include their proportionate shares of such withholding
taxes in their U.S. income tax returns as gross income, treat such
proportionate shares as taxes paid by them, and deduct such
proportionate shares in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their U.S.
income taxes. No deductions for foreign taxes, however, may be
claimed by noncorporate shareholders who do not itemize deductions.
A shareholder that is a nonresident alien individual or a foreign
corporation may be subject to U.S. withholding tax on the income
resulting from the Fund's election described in this paragraph but
may not be able to claim a credit or deduction against such U.S.
tax for the foreign taxes treated as having been paid by such
shareholder. The Fund will report annually to its shareholders the
amount per share of such withholding taxes.
Under certain provisions of the Code, some shareholders may be
subject to a 31% withholding tax on certain ordinary income
dividends and capital gain dividends and on redemption payments
("backup withholding"). Generally, shareholders subject to backup
withholding will be those for whom no certified taxpayer
identification number is on file with the Fund or who, to the
Fund's knowledge, have furnished an incorrect number. When
establishing an account, an investor must certify under penalty of
perjury that such number is correct and that such investor is not
otherwise subject to backup withholding.
Under Code Section 988, foreign currency gains or losses from
certain debt instruments, from certain forward contracts, from
futures contracts that are not "regulated futures contracts" and
from unlisted options will generally be treated as ordinary income
or loss. Such Code Section 988 gains or losses will generally
increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as
ordinary income. Additionally, if Code Section 988 losses exceed
other investment company taxable income during a taxable year, the
Fund would not be able to make any ordinary dividend distributions,
and any distributions made before the losses were realized but in
the same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares.
If a Class A shareholder exercises the exchange privilege
within 90 days of acquiring the shares, then the loss the
shareholder can recognize on the exchange will be reduced (or the
gain increased) to the extent the sales charge paid to the Fund
reduces any sales charge the shareholder would have owed upon
purchase of the new Class A shares in the absence of the exchange
privilege. Instead, such sales charge will be treated as an amount
paid for the new Class A 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.
32
<PAGE>
Ordinary income dividends and capital gain dividends may also
be subject to state and local taxes.
Certain states exempt from state income taxation dividends
paid by RICs which are derived from interest on U.S. Government
obligations. State law varies as to whether dividend income
attributable to U.S. Government obligations is exempt from state
income tax.
Shareholders are urged to consult their tax advisers regarding
specific questions as to Federal, foreign, state or local taxes.
Foreign investors should consider applicable foreign taxes in their
evaluation of an investment in the Fund.
Organization of the Fund
The Fund was incorporated under Maryland law on June 6, 1994.
It has an authorized capital of 200,000,000 shares of Common Stock,
par value $0.10 per share, divided into two classes, designated
Class A Common Stock and Class B Common Stock, each of which
consists of 100,000,000 shares. Both Class A Common Stock and
Class B Common Stock represent an interest in the same assets of
the Fund and are identical in all respects except that the Class B
shares bear certain expenses related to the account maintenance and
distribution of such shares and have exclusive voting rights with
respect to matters relating to such account maintenance and
distribution expenditures. See "Purchase of Shares." The Fund has
received an order from the Securities and Exchange Commission
permitting the issuance and sale of two 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. The creation of additional classes would require an
additional order from the Securities and Exchange Commission.
There is no assurance that such an additional order would be
issued.
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 matters submitted to a
shareholder vote. The Fund does not intend to hold meetings of
shareholders in any year in which the Investment Company Act does
not require shareholders to act on any of the following matters:
(i) election of Directors; (ii) approval of an investment advisory
agreement; (iii) approval of a distribution agreement; and (iv)
ratification of selection of independent auditors. 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 or conversion rights. Each
share of Class A Common Stock and Class B Common Stock is entitled
to participate equally in dividends and distributions declared by
the Fund and in the net assets of the Fund on liquidation or
dissolution after satisfaction of outstanding liabilities, except
as noted above, the Class B shares bear certain expenses related to
the distribution of such shares.
Shareholder Reports
Only one copy of each shareholder report and certain
shareholder communications will be mailed to each identified
shareholder regardless of the number of accounts such shareholder
has. If a shareholder wishes to receive separate copies of each
report and communication for each of the shareholder's related
accounts, the shareholder should notify in writing:
Financial Data Services, Inc.
Attn: Document Evaluation Unit
P.O. Box 45290
Jacksonville, FL 32232-5290
The written notification should include the shareholder's name,
address, tax identification number and Merrill Lynch, Pierce,
Fenner & Smith Incorporated and/or mutual fund account numbers. If
you have any questions regarding this, please call your Merrill
Lynch financial consultant or Financial Data Services, Inc. at
1-800-637-3863.
33
<PAGE>
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.
34
<PAGE>
MERRILL LYNCH GLOBAL GROWTH PORTFOLIO, INC. - AUTHORIZATION FORM
Note: This form may not be used for purchases through the Merrill Lynch
Blueprint(SM) Program. You may request an application for purchases through
Merrill Lynch Blueprint(SM) Program by calling toll free (800) 637-2434.
1. Share Purchase Application
I, being of legal age, wish to purchase ......... Class A shares
or .................. Class B shares (choose one) of Merrill Lynch Global
Growth Portfolio, Inc. and establish an Investment Account
as described in the Prospectus.
Basis for establishing an Investment Account:
A. I enclose a check for $...... payable to Financial Data Services,
Inc., as an initial investment (minimum $1,000) (subsequent
investments $50 or more). 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:
<TABLE>
<S> <C>
1. . . . . . . . . . . . . . . . . . . . . . . . . 4. . . . . . . . . . . . . . . . .
2. . . . . . . . . . . . . . . . . . . . . . . . . 5. . . . . . . . . . . . . . . . .
3. . . . . . . . . . . . . . . . . . . . . . . . . 6. . . . . . . . . . . . . . . . .
(Please list all Funds. Use a separate sheet of paper if necessary.)
Until you are notified by me in writing, the following options with
respect to dividends and distributions are elected:
Distribution Elect [ ] reinvest dividends Elect [ ] reinvest dividends
Options One [ ] pay dividends in cash One [ ] pay dividends in cash
If no election is made, dividends and capital gains will be invested automatically at net asset value without
a sales charge.
--------------------------------------------
(PLEASE PRINT)
Name . . . . . . . . . . . . . . . . . . . . . . . . . . [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
First Name Initial Last Name Social Security No.
Name of Co-Owner (if any). . . . . . . . . . . . . . . . or Taxpayer Identification No.
First Name Initial Last Name
Address . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , 19 . . .
(Zip Code) Date
Occupation. . . . . . . . . . . . . . . . . . . . . . . Name and Address of Employer . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Under penalty of perjury, I certify (1) that the number set forth above is my correct Social Security No.
or Taxpayer Identification No. 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 under reporting and if you have not received a notice from the IRS that backup
withholding has been terminated. The undersigned authorizes the furnishing of this certification to other
Merrill Lynch sponsored mutual funds.
Signature of Owner . . . . . . . . . . . . . . Signature of Co-Owner (if any) . . . . . . . . . . . . . . . .
In the case of co-owners, a joint tenancy with right of survivorship will be presumed unless otherwise
specified.
- - -----------------------------------------------------------------------------------------------------
2. Letter of Intention - Class A Shares Only (See terms and conditions in the Statement of Additional
Information)
. . . . . . . . . . ., 19 . . . . .
Date of Initial Purchase
Gentlemen:
Although I am not obligated to do so, I intend to purchase shares of Merrill Lynch Global Growth
Portfolio, Inc. or any other investment company with an initial sales charge or deferred sales charge
for which Merrill Lynch Funds Distributor, Inc. acts as distributor over the next 13 month period which will
equal or exceed:
[ ] $10,000 [ ] $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 Growth Portfolio, Inc. prospectus.
I agree to the terms and conditions of the 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 Growth Portfolio, Inc. held as security.
By . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signature of Owner Signature of Co-Owner (If registered in joint names,
both must sign)
In making purchases under this letter, the following are the related accounts on which reduced offering
prices are to apply:
(1) Name. . . . . . . . . . . . . . . . . . . . . (2) Name. . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
35
<PAGE>
[CAPTION]
<TABLE>
<CAPTION>
MERRILL LYNCH GLOBAL GROWTH PORTFOLIO, INC.- AUTHORIZATION FORM
- - ------------------------------------------------------------------------------------------------
3. Systematic Withdrawal Plan - Class A Shares Only (See terms and conditions in the Statement of Additional Information)
Minimum Requirements: $10,000 for monthly disbursements, $5,000 for quarterly, of shares in Merrill Lynch Global Growth
Portfolio, Inc., at cost or current offering price. Begin systematic withdrawal on ....., 19... Withdrawals to
be made either (check one) [ ] Monthly [ ] Quarterly* [Date]
*Quarterly withdrawals are made on the 24th day of March, June, September and December.
Specify withdrawal amount (check one): [ ] $.............. or [ ] .....% of the current value of Class A shares in the
account.
Specify withdrawal method: [ ] check or [ ] direct deposit to bank account (check one) and complete part (a) or (b)
below:
<S> <C>
(a) I hereby authorize Payment by Check (b) I hereby authorize Payment by Direct Deposit to Bank Account and
(if necessary) debit entries and adjustments for any credit entries made
in error to my account.
Draw checks payable Specify type of account (check one): [ ] checking [ ] savings
(check one) I agree that this authorization will remain in effect until I provide
written notification to Financial Data Services, Inc. amending or
[ ] as indicated in Item 1. terminating this service.
[ ] to the order of . . . . . . . Name on your Account. . . . . . . . . . . . . . . . . . . . . . . . .
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mail to (check one) Bank No. . . . . . . . . . . . . . . .Account No. . . . . . . . . . .
[ ] the address indicated in Item 1. Bank Address . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[ ] Name (Please Print) . . . . . . Signature of Depositor . . . . . . . . . . . . . . Date. . . . . . .
Signature of Depositor (if joint account) . . . . . . . . . . . . . .
Note: If Automatic Direct Deposit is elected, your blank, unsigned check
Address . . . . . . . . . . . . . . . . . . . marked "VOID" or a deposit slip from your savings account should
accompany this Application.
Signature of Owner. . . . . . . . . . . . . .
Signature of Co-Owner (if any). . . . . . . .
- - -------------------------------------------------------------------------------------------------------------------------
4. Application for Automatic Investment Plan
I hereby request that Financial Data Services, Inc. draw a check or an automated clearing house ("ACH") debit on
my checking account as described below each month to purchase ......... Class A shares or .........
Class B shares (choose one) of Merrill Lynch Global Growth Portfolio, Inc., subject to the terms set forth below.
- - -------------------------------------------------------------------------------------------------------------------------
FINANCIAL DATA SERVICES, INC. AUTHORIZATION TO HONOR CHECKS OR ACH
You are hereby authorized to draw a check or DEBITS DRAWN BY FINANCIAL DATA SERVICES, INC.
an ACH debit each month on my bank account To . . . . . . . . . . . . . . . . . . . . . Bank
for investment in Merrill Lynch (Investor's Bank)
Global Growth Portfolio, Inc., as Bank Address . . . . . . . . . . . . . . . . . . . . . . .
indicated below: City . . . . . . . . . . . State . . . . Zip Code . . . .
Amount of each check or ACH debit $ . . . As a convenience to me, I hereby request and authorize you to pay and
Account No. . . . . . . . . . . . . . . . charge to my account checks or ACH debits drawn on my account by and
Please date and invest checks or draw ACH payable to Financial Data Services, Inc., Transfer Agency Mutual Fund
debits on the 20th of each month beginning Operations, Jacksonville, Florida 32232-5289. I agree that your rights in
. . . . . . . . . . . . . . . . . . . . . respect to each such check or debit shall be the same as if it were a check
(Month) drawn on you and signed personally by me. This authority is to remain in
or as soon thereafter as possible. effect until revoked personally by me in writing. Until you receive such
I agree that you are preparing these checks notice, you shall be fully protected in honoring any such check or debit.
or drawing these debits voluntarily at my I further agree that if any such check or debit be dishonored, whether with
request and that you shall not be liable for or without cause and whether intentionally or inadvertently, you
any loss arising from any delay in preparing shall be under no liability.
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 Date Signature of Depositor
promptly in writing. I further agree that
if a check or debit is not honored upon
presentation, Financial Data Services, Inc.
is authorized to discontinue immediately
the Automatic Investment Plan and to
liquidate sufficient shares held in my account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
to offset the purchase made with the returned Bank Account Number Signature of Depositor
check or dishonored debit. (If joint account, both must sign)
. . . . . . . . . . . . . . . . . . . . . .
Date Signature of Depositor
. . . . . . . . . . . . . Note: If Automatic Investment Plan is elected, your blank, unsigned check
Signature of Depositor marked "VOID" should accompany this Application.
(If joint account, both must sign)
- - ---------------------------------------------------------------------------------------------------------------------------
5. For Dealer Only We hereby authorize Merrill Lynch Funds Distributor, Inc. to
Branch Office, Address, Stamp act as our agent in connection with transactions under this
[ ] authorization form and agree to notify the Distributor of
any purchases made under a Letter of Intention or Systematic
Withdrawal Plan. We guarantee the Shareholder's Signature.
[ ] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dealer Name and Address
This form when completed should be mailed to:
Merrill Lynch Global Growth
Portfolio, Inc.
c/o Financial Data Services, Inc. By . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Agency Mutual Fund Operations Authorized Signature of Dealer
P.O. Box 45289
Jacksonville, Florida 32232-5289 [ ] [ ] [ ] [ ] [ ] [ ] [ ] . . . . . . .
Branch Code F/C No. F/C Last Name
[ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
Dealer's Customer A/C No.
</TABLE>
36
<PAGE>
Manager
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
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:
Box 9011
Princeton, New Jersey 08543-9011
Transfer Agent
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Independent Auditors
Deloitte & Touche
117 Campus Drive
Princeton, New Jersey 08540
Counsel
Rogers & Wells
200 Park Avenue
New York, New York 10166
<PAGE>
No person has been PROSPECTUS
authorized to give any
information or to make any
representations, other than
those contained in this
Prospectus, in connection with
the offer contained in this
Prospectus, and, if given or [LOGO]
made, such other information or
representations 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
- - ----------------------------------
Page
MERRILL LYNCH
Fee Table. . . . . . . . . 3 GLOBAL GROWTH
Alternative Sales PORTFOLIO, INC.
Arrangements. . . . . . 4
Special Considerations . . 6
Investment Objective and
Policies . . . . . . . . . 8
Equity Securities . . . 9
Debt Securities . . . 10
Money Market Securities 11
Portfolio Strategies
Involving Options and
Futures. . . . . . . 11
Other Investment Policies
and Practices. . . . 15
Management of the Fund . . 18
Board of Directors. . . 18
Management and Advisory
Arrangements . . . . 18
Transfer Agency Services 19
Purchase of Shares . . . . 19
Subscription Offering . 20
Continuous Offering . . 21
Alternative Sales
Arrangements . . . . . 22
Initial Sales Charge
Alternative - Class A
Shares . . . . . . 22
Reduced Initial Sales
Charge . . . . . . . . 23
Deferred Sales Charge
Alternative -
Class B Shares . . . 24
Contingent Deferred Sales
Charge . . . . . . . .
Distribution Plan . . . 25
Limitations on the
Payment of Deferred
Sales Charge . . . . 26
Redemption of Shares . . . 27
Redemption. . . . . . . 27
Repurchase. . . . . . . 27
Reinstatement Privilege-
Class A Shares . . . 28
Shareholder Services . . . 28
Performance Data . . . . . 29
Additional Information . . 30
Dividends and July ___, 1994
Distributions. . . . . . 30
Determination of Net Distributor:
Asset Value . . . . . 31 Merrill Lynch
Taxes . . . . . . . . . 32 Funds Distributor, Inc.
Organization of the Fund 33
Shareholder Reports . . 34 This prospectus should be
Shareholder Inquiries . 34 retained for future reference.
Authorization Form . . . . 35
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Merrill Lynch Global Growth Portfolio, Inc.
Box 9011, Princeton, New Jersey 08543-9011 - Phone No. (609)
282-2800
Merrill Lynch Global Growth Portfolio, Inc. (the "Fund") is a
non-diversified mutual fund seeking high total investment return,
consistent with prudent risk, through a fully managed investment
policy utilizing United States and foreign equity, debt and money
market securities, the combination of which will be varied from
time to time both with respect to types of securities and markets
in response to changing market and economic trends. Total
investment return is the aggregate of capital value changes and
income. Under normal conditions, at least 65%, and as much as all,
of the Fund's total assets will be invested in U.S. and foreign
equity securities. 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.
The Fund offers two classes of shares which may be purchased
during the subscription offering at $10.00 per share and during the
continuous offering at a price equal to the next determined net
asset value per share, plus, in both cases, a sales charge which,
at the election of the purchaser, may be imposed (i) at the time of
purchase (the "Class A shares") or (ii) on a deferred basis (the
"Class B shares"). These alternatives permit an investor to choose
the method of purchasing shares that is most beneficial given the
amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances. Investors should
understand that the purpose and function of the deferred sales
charges and ongoing account maintenance fee with respect to the
Class B shares are the same as those of the initial sales charge
with respect to the Class A shares. Each Class A and Class B share
represents identical interests in the investment portfolio of the
Fund and has the same rights, except that Class B shares bear the
expenses of the account maintenance and distribution fees and
certain other costs resulting from the deferred sales charge
arrangement and have exclusive voting rights with respect to the
account maintenance and distribution fees. The two classes also
have different exchange privileges.
------------------------
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 July __, 1994 (the "Prospectus"), which has been
filed with the Securities and Exchange Commission and can be
obtained, without charge, by calling or by writing the Fund at the
above telephone number or address. This Statement of Additional
Information has been incorporated by reference into the Prospectus.
------------------------
Merrill Lynch Asset Management-Manager
Merrill Lynch Funds Distributor, Inc.-Distributor
------------------------
The date of this Statement of Additional Information is July __,
1994.
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities
laws of any such State.
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek a high total
investment return, consistent with prudent risk, through a fully
managed investment policy utilizing United States and foreign
equity, debt and money market securities the combination of which
will be varied from time to time both with respect to types of
securities and markets in response to changing market and economic
trends. Total investment return is the aggregate of capital value
changes and income. 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. Under normal conditions, at least
65%, and as much as all, of the Fund's total assets will be
invested in equity securities. Reference is made to "Investment
Objective and Policies" in the Prospectus for a discussion of the
investment objective and policies of the Fund.
Although up to 100% of the Fund's total assets may be invested
in equity securities, the Manager anticipates that the Fund's
portfolio generally will include both equity and debt securities.
While it is the policy of the Fund generally not to engage in
trading for short-term gains, Merrill Lynch Asset Management, L.P.,
doing business as Merrill Lynch Asset Management (the "Manager"),
will effect portfolio transactions without regard to holding period
if, in its judgment, such transactions are advisable in light of a
change in circumstances of a particular company or within a
particular industry or due to general market, economic or financial
conditions. Accordingly, while the Fund anticipates that its
annual turnover rate should not exceed 200% under normal
conditions, it is impossible to predict portfolio turnover rates.
The portfolio turnover rate is calculated by dividing the lesser of
the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year.
The Fund is subject to the Federal income tax requirement that less
than 30% of the Fund's gross income must be derived from gains from
the sale or other disposition of securities held for less than
three months.
The U.S. Government has from time to time in the past imposed
restrictions, through taxation and otherwise, on foreign
investments by U.S. investors such as the Fund. If such
restrictions should be reinstituted, it might become necessary for
the Fund to invest all or substantially all of its assets in U.S.
securities. In such event, the Fund would review its investment
objective and investment policies to determine whether changes are
appropriate. Any changes in the investment objective or
fundamental policies set forth under "Investment Restrictions"
below would require the approval of the holders of a majority of
the Fund's outstanding voting securities.
The Fund's ability and decisions to purchase or sell portfolio
securities may be affected by laws or regulations relating to the
convertibility and repatriation of assets. Because the shares of
the Fund are redeemable on a daily basis on each day the Fund
determines its net asset value in U.S. dollars, the Fund intends to
manage its portfolio so as to give reasonable assurance that it
will be able to obtain U.S. dollars to the extent necessary to meet
anticipated redemptions. See "Redemption of Shares." Under
present conditions, the Fund does not believe that these
considerations will have any significant effect on its portfolio
strategy, although there can be no assurance in this regard.
Precious and Industrial Metal-Related Securities
The Fund may invest in the equity securities of companies that
explore for, extract, process or deal in precious or industrial
metals, i.e., gold, silver, platinum, iron, copper and aluminum,
and in asset-based securities indexed to the value of such metals.
Such securities may be purchased when they are believed to be
attractively priced in relation to the value of a company's
precious or industrial metal-related assets or when the value of
precious or industrial metals are expected to benefit from
inflationary pressure or other economic, political or financial
uncertainty or instability. The prices of precious and industrial
metals and of the securities of precious and industrial metal-
related companies historically have been subject to high
volatility. In addition, the earnings of precious and industrial
metal-related companies may be adversely affected by volatile
metals prices which may adversely affect the financial condition of
such companies.
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The major producers of gold include the Republic of South
Africa, the former republics of the Soviet Union, Canada, the
United States, Brazil and Australia. Sales of gold by the former
republics of the Soviet Union are largely unpredictable and often
relate to political and economic considerations rather than to
market forces. Economic, social and political developments within
South Africa may significantly affect South African gold
production.
The Fund may invest in debt securities, preferred stock or
convertible securities, the principal amount, redemption terms or
conversion terms of which are related to the market price of some
metals such as gold bullion. These securities are referred to as
"asset-based securities." The Fund will purchase only asset-based
securities which are rated, or are issued by issuers that have
outstanding debt obligations rated, BBB or better by Standard &
Poor's Corporation ("S&P") or Baa or better by Moody's Investors
Service, Inc. ("Moody's") or commercial paper rated A-1 by S&P or
Prime-1 by Moody's or of issuers that the Manager has determined to
be of similar creditworthiness. If the asset-based security is
backed by a bank letter of credit or other similar facility, the
Manager may take such backing into account in determining the
creditworthiness of the issuer. While the market prices for an
asset-based security and the related natural resource asset
generally are expected to move in the same direction, there may not
be perfect correlation in the two price movements. Asset-based
securities may not be secured by a security interest in or claim on
the underlying natural resource asset. The asset-based securities
in which the Fund may invest may bear interest or pay preferred
dividends at below market (or even at relatively nominal) rates.
As an example, assume gold is selling at a market price of $300 per
ounce and an issuer sells a $1,000 face amount gold related note
with a seven year maturity, payable at maturity at the greater of
either $1,000 in cash or in the then market price of three ounces
of gold. If at maturity, the market price of gold is $400 per
ounce, the amount payable on the note would be $1,200. Certain
asset-based securities may be payable at maturity in cash at the
stated principal amount or, at the option of the holder, directly
in a stated amount of the asset to which it is related. In such
instance, because the Fund presently does not intend to invest
directly in natural resource assets, the Fund would sell the asset-
based security in the secondary market, to the extent one exists,
prior to maturity if the value of the stated amount of the asset
exceeds the stated principal amount and thereby realize the
appreciation in the underlying asset.
Real Estate-Related Securities
The real estate-related securities which will be emphasized by
the Fund are equity securities of real estate investment trusts,
which own income-producing properties, and mortgage real estate
investment trusts which make various types of mortgage loans often
combined with equity features. The securities of such trusts
generally pay above average dividends and may offer the potential
for capital appreciation. Such securities will be subject to the
risks customarily associated with the real estate industry,
including declines in the value of the real estate investments of
the trusts. Real estate values are affected by numerous factors
including (i) governmental regulations (such as zoning and
environmental laws) and changes in tax laws, (ii) operating costs,
(iii) the location and the attractiveness of the properties, (iv)
changes in economic conditions (such as fluctuations in interest
and inflation rates and business conditions) and (v) supply and
demand for improved real estate. Such trusts also are dependent on
management skill and may not be diversified in their investments.
Portfolio Strategies Involving Options and Futures
Reference is made to the discussion under the caption
"Investment Objective and Policies - Portfolio Strategies Involving
Options and Futures" in the Prospectus for information with respect
to various portfolio strategies involving options and futures. The
Fund may seek to increase its return through the use of options on
portfolio securities and to hedge its portfolio against movements
in the equity, debt and currency markets. The Fund has authority
to write (i.e., sell) covered put and call options on its portfolio
securities, purchase put and call options on securities and engage
in transactions in stock index options, stock index futures and
stock futures and financial futures, and related options on such
futures. The Fund may also deal in forward foreign transactions
and foreign currency options and futures, and related options on
such futures. Each of such portfolio strategies is described in
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the Prospectus. Although certain risks are involved in options and
futures transactions (as discussed in the Prospectus and below),
the Manager believes that, because the Fund will (i) write only
covered call 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 its shares, the net asset
value of the Fund's shares will fluctuate. There can be no
assurance that the Fund's hedging transactions will be effective.
The following is further information relating to portfolio
strategies involving options and futures that the Fund may utilize.
Writing Covered Options. The Fund is authorized to write
(i.e., sell) covered call options on the securities in which it may
invest and to enter into closing purchase transactions with respect
to certain of such options. A covered call option is an option
where the Fund, in return for a premium, gives another party a
right to buy specified securities owned by the Fund at a specified
future date and price set at the time of the contract. The
principal reason for writing call options is to attempt to realize,
through the receipt of premiums, a greater return than would be
realized on the securities alone. By writing covered call options,
the Fund gives up the opportunity, while the option is in effect,
to profit from any price increase in the underlying security above
the option exercise price. In addition, the Fund's ability to sell
the underlying security will be limited while the option is in
effect unless the Fund effects a closing purchase transaction. A
closing purchase transaction cancels out the Fund's position as the
writer of an option by means of an offsetting purchase of an
identical option prior to the expiration of the option it has
written. Covered call options serve as a particular hedge against
the price of the underlying security declining.
The writer of a covered call option has no control over when
he may be required to sell his securities since he may be assigned
an exercise notice at any time prior to the termination of his
obligation as a writer. If an option expires unexercised, the
writer would realize a gain in the amount of the premium. Such a
gain, of course, may be offset by a decline in the market value of
the underlying security during the option period. If a call option
is exercised, the writer would realize a gain or loss from the sale
of the underlying security.
The Fund also may write put options which give the holder of
the option the right to sell the underlying security to the Fund at
the stated exercise price. The Fund will receive a premium for
writing a put option which increases the Fund's return. The Fund
writes only covered put options which means that so long as the
Fund is obligated as the writer of the option, it will, through its
custodian, have deposited and maintained 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 with a securities depository with a value equal to or
greater than the exercise price of the underlying securities. By
writing a put, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market
value of that security at the time of exercise for as long as the
option is outstanding. The Fund may engage in closing transactions
in order to terminate put options that it has written.
Options referred to herein and in the Fund's Prospectus may be
options issued by The Options Clearing Corporation (the "Clearing
Corporation") which are currently traded on the Chicago Board
Options Exchange, American Stock Exchange, New York Stock Exchange,
Philadelphia Stock Exchange and Pacific Stock Exchange. Options
referred to herein and in the Fund's Prospectus may also be options
traded on foreign securities exchanges such as the London Stock
Exchange and the Amsterdam Stock Exchange. An option position may
be closed out only on an exchange which provides a secondary market
for an option of the same series. If a secondary market does not
exist, it might not be possible to effect a closing transaction in
a particular option, with the result, in the case of a covered call
option, that the Fund will not be able to sell the underlying
security until the option expires or until it delivers the
underlying security upon exercise. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i)
there may be insufficient trading interest in certain options; (ii)
restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or the Clearing
Corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series
of options), in which event the secondary market on that exchange
(or in that class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued
by the Clearing Corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms.
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The Fund may also enter into over-the-counter option
transactions ("OTC options"), which are two party contracts with
price and terms negotiated between the buyer and seller. The staff
of the Securities and Exchange Commission has taken the position
that OTC options and the assets used as cover for written OTC
options are illiquid securities.
Purchasing Options. The Fund may purchase put options to
hedge against a decline in the market value of its equity holdings.
By buying a put, the Fund has a right to sell the underlying
security at the exercise price, thus limiting the Fund's risk of
loss through a decline in the market value of the security until
the put option expires. The amount of any appreciation in the
value of the underlying security will be offset partially by the
amount of the premium paid for the put option and any related
transaction costs. Prior to its expiration, a put option may be
sold in a closing sale transaction; profit or loss from the sale
will depend on whether the amount received is more or less than the
premium paid for the put option plus the related transaction cost.
A closing sale transaction cancels out the Fund's position as the
purchaser of an option by means of an offsetting sale of an
identical option prior to the expiration of the option it has
purchased. In certain circumstances, the Fund may purchase call
options on securities held in its portfolio on which it has written
call options or on securities which it intends to purchase. The
Fund may purchase either exchange traded options or OTC options.
The Fund will not purchase options on securities (including stock
index options discussed below) if as a result of such purchase the
aggregate cost of all outstanding options on securities held by the
Fund would exceed 5% of the market value of the Fund's total
assets.
Stock Index Options and Futures and Financial Futures. As
described in the Prospectus, the Fund is authorized to engage in
transactions in stock index options and futures and financial
futures, and related options on such futures. Set forth below is
further information concerning futures transactions.
A futures contract is an agreement between two parties to buy
and sell a security or, in the case of an index-based futures
contract, to make and accept a cash settlement for a set price on
a future date. A majority of transactions in futures contracts,
however, do not result in the actual delivery of the underlying
instrument or cash settlement, but are settled through liquidation,
i.e., by entering into an offsetting transaction.
The purchase or sale of a futures contract differs from the
purchase or sale of a security in that no price or premium is paid
or received. Instead, an amount of cash or securities acceptable
to the broker and the relevant contract market, which varies, but
is generally about 5% of the contract amount, must be deposited
with the broker. This amount is known as "initial margin" and
represents a "good faith" deposit assuring the performance of both
the purchaser and seller under the futures contract. Subsequent
payments to and from the broker, called "variation margin," are
required to be made on a daily basis as the price of the futures
contract fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as "mark to
the market." At any time prior to the settlement date of the
futures contract, the position may be closed out by taking an
opposite position which will operate to terminate the position in
the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid to or released by
the broker and the purchaser realizes a loss or gain. In addition,
a nominal commission is paid on each completed sale transaction.
An order has been obtained from the Securities and Exchange
Commission exempting the Fund from the provisions of Section 17(f)
and Section 18(f) of the Investment Company Act of 1940, as amended
(the "Investment Company Act"), in connection with its strategy of
investing in futures contracts. Section 17(f) relates to the
custody of securities and other assets of an investment company and
may be deemed to prohibit certain arrangements between the Fund and
commodities brokers with respect to initial and variation margin.
Section 18(f) of the Investment Company Act prohibits an open-end
investment company such as the Fund from issuing a "senior
security" other than a borrowing from a bank. The staff of the
Securities and Exchange Commission has in the past indicated that
a futures contract may be a "senior security" under the Investment
Company Act.
Foreign Currency Hedging. Generally, the foreign exchange
transactions of the Fund will be conducted on a spot, i.e., cash
basis at the spot rate of purchasing or selling currency prevailing
in the foreign exchange market. This rate under normal market
conditions differs from the prevailing exchange rate in an amount
generally less than one tenth of one percent due to the costs of
converting from one currency to another. However, the Fund has
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authority to deal in forward foreign exchange among currencies of
the different countries in which it will invest as a hedge against
possible variations in the foreign exchange rates among these
currencies. This is accomplished through contractual agreements to
purchase or sell a specified currency at a specified future date
and price set at the time of the contract. The Fund's dealings in
forward foreign exchange will be limited to hedging involving
either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward foreign currency with
respect to specific receivables or payables of the Fund accruing in
connection with the purchase and sale of its portfolio securities,
the sale and redemption of shares of the Fund or the payment of
dividends and distributions by the Fund. Position hedging is the
sale of forward foreign currency with respect to portfolio security
positions denominated or quoted in such foreign currency. The Fund
will not speculate in forward foreign exchange. The Fund may not
position hedge with respect to the currency of a particular country
to an extent greater than the aggregate market value (at the time
of making such sale) of the securities held in its portfolio
denominated or quoted in that particular foreign currency. If the
Fund enters into a position hedging transaction, its custodian will
place cash or liquid equity or debt securities in a separate
account of the Fund in an amount equal to the value of the Fund's
total assets committed to the consummation of such forward
contract. If the value of the securities placed in the separate
account declines, additional cash or securities will be placed in
the account so that the value of the account will equal the amount
of the Fund's commitment with respect to such contracts. The Fund
will enter into such transactions only to the extent, if any,
deemed appropriate by the Manager. The Fund will not enter into a
forward contract with a term of more than one year.
The Fund is also authorized to 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-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. As an illustration, the Fund may use such techniques
to hedge the stated value in U.S. dollars of an investment in a yen
denominated security. In such circumstances, for example, the Fund
may purchase a foreign currency put option enabling it to sell a
specified amount of Japanese yen for dollars at a specified price
by a future date. To the extent the hedge is successful, a loss in
the value of the yen relative to the dollar will tend to be offset
by an increase in the value of the put option. To offset, in whole
or part, the cost of acquiring such a put option, the Fund may also
sell a call option which, if exercised, requires it to sell a
specified amount of yen for dollars at a specified price by a
future date (a technique called a "straddle"). By selling such
call option in this illustration, the Fund gives up the opportunity
to profit without limit from increases in the relative value of the
yen to the dollar. The Manager believes that "straddles" of the
type which may be utilized by the Fund constitute hedging
transactions and are consistent with the policies described above.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value of
the hedged currency should rise. Moreover, it may not be possible
for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the
currency at a price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions
varies with such factors as the currencies involved, the length of
the contract period and the market conditions then prevailing.
Since transactions in foreign currency exchange usually are
conducted on a principal basis, no fees or commissions are
involved.
Risk Factors in Options and Futures Transactions.
Utilization of options and futures transactions involves the risk
of imperfect correlation in movements in the prices of options and
futures contracts and movements in the prices of the securities and
currencies which are the subject of the hedge. If the price of the
options and futures contract moves more or less than the prices of
the hedged securities or currencies, the Fund will experience a
gain or loss which will not be completely offset by movements in
the prices of the securities and currencies which are the subject
of the hedge. The successful use of options and futures also
depends on the Manager's ability to correctly predict price
movements in the market involved in a particular options or futures
transaction.
Prior to exercise or expiration, an exchange-traded option or
futures position can only be terminated by entering into a closing
purchase or sale transaction. This requires a secondary market on
an exchange for call or put options of the same series. The Fund
will enter into an option or futures transaction on an exchange
only if there appears to be a liquid secondary market for such
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options or futures. However, there can be no assurance that a
liquid secondary market will exist for any particular call or put
option or futures contract at any specific time. Thus, it may not
be possible to close an option or futures position. The Fund will
acquire only over-the-counter options for which management believes
the Fund can receive on each business day at least two independent
bids or offers (one of which will be from an entity other than a
party to the option), unless there is only one dealer, in which
case that dealer's price is used. In the case of a futures
position or an option on a futures position written by the Fund in
the event of adverse price movements, the Fund would continue to be
required to make daily cash payments of variation margin. In such
situations, if the Fund has insufficient cash, it may have to sell
portfolio securities to meet daily variation margin requirements at
a time when it may be disadvantageous to do so. In addition, the
Fund may be required to take or make delivery of the security or
currency underlying futures contracts it holds. The inability to
close options and futures positions also could have an adverse
impact on the Fund's ability to hedge effectively its portfolio.
There is also the risk of loss by the Fund of margin deposits in
the event of bankruptcy of a broker with whom the Fund has an open
position in a futures contract or related option. The risk of loss
from investing in futures transactions is theoretically unlimited.
The exchanges on which the Fund intends to conduct options
transactions have generally established limitations governing the
maximum number of call or put options on the same underlying
security or currency (whether or not covered) which may be written
by a single investor, whether acting alone or in concert with
others (regardless of whether such options are written on the same
or different exchanges or are held or written on one or more
accounts or through one or more brokers). "Trading limits" are
imposed on the maximum number of contracts which any person may
trade on a particular trading day. An exchange may order the
liquidation of positions found to be in violation of these limits,
and it may impose other sanctions or restrictions. The Manager
does not believe that these trading and position limits will have
any adverse impact on the portfolio strategies for hedging the
Fund's portfolio.
Other Investment Policies and Practices
Non-Diversified Status. The Fund is classified as non-
diversified within the meaning of the Investment Company Act, which
means that the Fund is not limited by such Act in the proportion of
its assets that it may invest in securities of a single issuer.
However, the Fund's investments will be limited so as to qualify as
a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended. See "Dividends, Distributions
and Taxes - Taxes." To qualify, among other requirements, the Fund
will limit its investments so that, at the close of each quarter of
the taxable year, (i) not more than 25% of the market value of the
Fund's total assets will be invested in the securities of a single
issuer, and (ii) with respect to 50% of the market value of its
total assets, not more than 5% of the market value of its total
assets will be invested in the securities of a single issuer, and
the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. A fund which elects to be
classified as "diversified" under the Investment Company Act must
satisfy the foregoing 5% and 10% requirements with respect to 75%
of its total assets. To the extent that the Fund assumes large
positions in the securities of a small number of issuers, the
Fund's net asset value may fluctuate to a greater extent than that
of a diversified company as a result of changes in the financial
condition or in the market's assessment of the issuers.
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
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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, which is
typically approximately 0.5% of the aggregate purchase price of the
security which the Fund has committed to purchase. The Fund will
enter into such agreement only for the purpose of investing in the
security underlying the commitment at a yield and price which is
considered advantageous to the Fund. The Fund will not enter into
a standby commitment with a remaining term in excess of 90 days and
will limit its investment in such commitments so that the aggregate
purchase price of the securities subject to such commitments,
together with the value of portfolio securities subject to legal
restrictions on resale, will not exceed 10% of its 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.
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; Purchase and Sale Contracts. The Fund
may invest in securities pursuant to repurchase agreements or
purchase and sale contracts. Repurchase agreements may be entered
into only with a member bank of the Federal Reserve System or
primary dealer in U.S. Government securities. Purchase and sale
contracts may be entered into only with financial institutions
which have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million.
Under such agreements, the other party agrees, upon entering into
the contract with the Fund, to repurchase the security at a
mutually agreed upon time and price in a specified currency,
thereby determining the yield during the term of the agreement.
This results in a fixed rate of return insulated from market
fluctuations during such period although it may be affected by
currency fluctuations. In the case of repurchase agreements, the
prices at which the trades are conducted do not reflect the accrued
interest on the underlying obligations; whereas, in the case of
purchase and sale contracts, the prices take into account accrued
interest. Such agreements usually cover short periods, often under
one week. Repurchase agreements may be construed to be
collateralized loans by the purchaser to the seller secured by the
securities transferred to the purchaser. In the case of a
repurchase agreement, as a purchaser, the Fund will require the
seller to provide additional collateral if the market value of the
securities falls below the repurchase price at any time during the
term of the repurchase agreement; the Fund does not have the right
to seek additional collateral in the case of purchase and sale
contracts. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the
underlying securities are not owned by the Fund but constitute only
collateral for the seller's obligation to pay the repurchase price.
Therefore, the Fund may suffer time delays and incur costs of
possible losses in connection with the disposition of the
collateral. A purchase and sale contract differs from a repurchase
agreement in that the contract arrangements stipulate that the
securities are owned by the Fund. In the event of a default under
such a repurchase agreement or under a purchase and sale contract,
instead of the contractual fixed rate of return, the rate of return
to the Fund would depend on intervening fluctuations of the market
values of such securities and the accrued interest on the
securities. In such event, the Fund would have rights against the
seller for breach of contract with respect to any losses arising
from market fluctuations following the failure of the seller to
perform. The Fund may not invest more than 10% of its net assets
in repurchase agreements or purchase and sale contracts maturing in
more than seven days. While the substance of purchase and sale
contracts is similar to repurchase agreements, because of the
different treatment with respect to accrued interest and additional
collateral, management believes that purchase and sale contracts
are not repurchase agreements as such term is understood in the
banking and brokerage community.
Lending of Portfolio Securities. Subject to investment
restriction (8) below, the Fund may lend securities from its
portfolio to approved borrowers and receive therefor collateral in
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cash or securities issued or guaranteed by the U.S. Government
which are maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The
purpose of such loans is to permit the borrower to use such
securities for delivery to purchasers when such borrower has sold
short. If cash collateral is received by the Fund, it is invested
in short-term money market securities, and a portion of the yield
received in respect of such investment is retained by the Fund.
Alternatively, if securities are delivered to the Fund as
collateral, the Fund and the borrower negotiate a rate for the loan
premium to be received by the Fund for lending its portfolio
securities. In either event, the total yield on the Fund's
portfolio is increased by loans of its portfolio securities. The
Fund will have the right to regain record ownership of loaned
securities to exercise beneficial rights such as voting rights,
subscription rights and rights to dividends, interest or other
distributions. Such loans are terminable at any time. The Fund
may pay reasonable finder's, administrative and custodial fees in
connection with such loans. With respect to the lending of
portfolio securities, there is the risk of failure by the borrower
to return the securities involved in such transactions.
High Yield Bonds. The Fund is authorized to invest a portion
of its assets in fixed income securities rated below investment
grade by a nationally recognized statistical rating agency or in
unrated bonds which, in the Manager's judgment, possess similar
credit characteristics ("high yield bonds"). Issuers of high yield
bonds may be highly leveraged and may not have available to them
more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally
is greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of
rising interest rates, issuers of high yield bonds may be more
likely to experience financial stress, especially if such issuers
are highly leveraged. During such periods, such issuers may not
have sufficient revenues to meet their interest payment
obligations. The issuer's ability to service its debt obligations
also may be adversely affected by specific issuer developments or
the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. The risk
of loss due to default by the issuer is significantly greater for
the holder of high yield bonds because such securities may be
unsecured and may be subordinated to other creditors of the issuer.
The Fund's Board of Directors has adopted a policy that the Fund
will not invest more than 35% of its assets in obligations rated
below Baa or BBB by Moody's or S&P, respectively.
High yield bonds frequently have call or redemption features
which would permit issuers to repurchase such securities from the
Fund. If a call were exercised by an issuer during a period of
declining interest rates, the Fund likely would have to replace
such called security with a lower yielding security, thus
decreasing the net investment income to the Fund and dividends to
shareholders.
The Fund may have difficulty disposing of certain high yield
bonds because there may be a thin trading market for such
securities. The secondary trading market for high yield bonds is
generally not as liquid as the secondary market for higher rated
securities. Reduced secondary market liquidity may have an adverse
impact on market price and the Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs
or in response to a specific economic event such as a deterioration
in the creditworthiness of the issuer.
Adverse publicity and investor perceptions, which may not be
based on fundamental analysis, also may decrease the value and
liquidity of high yield bonds, particularly in a thinly traded
market. Factors adversely affecting the market value of high yield
bonds are likely to affect adversely the Fund's net asset value.
In addition, the Fund may incur additional expenses to the extent
it is required to seek recovery upon a default on a portfolio
holding or to participate in the restructuring of the obligation.
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). The
Fund may not:
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1. Invest more than 25% of its assets, taken at market
value at the time of each investment, in the securities of
issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
2. Purchase or sell real estate or real estate
mortgage loans, except that 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.
3. Make loans to other persons, except that the
acquisition of bonds, debentures or other corporate debt
securities and investment in government obligations, short-
term commercial paper, certificates of deposit, bankers'
acceptances and repurchase agreements and similar instruments
will not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities
provided that such loans may be made only in accordance with
applicable law and the guidelines set forth in the Prospectus
and this Statement of Additional Information, as they may be
amended from time to time.
4. Issue senior securities to the extent such
issuance would violate applicable law.
5. Borrow money or pledge its assets, except that the
Fund (a) may borrow from a bank as a temporary measure for
extraordinary or emergency purposes or to meet redemptions in
amounts not exceeding 10% (taken at market value) of its total
assets and pledge its assets to secure such borrowings, (b)
may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and
(c) may purchase securities on margin to the extent permitted
by applicable law. (However, at the present time, applicable
law prohibits the Fund from purchasing securities on margin.)
(The deposit or payment by the Fund of initial or variation
margin in connection with futures contracts or options
transactions is not considered the purchase of a security on
margin.)
6. Underwrite securities of other issuers, except
insofar as the Fund technically may be deemed an underwriter
under the Securities Act in purchasing and selling portfolio
securities and except insofar as such underwriting would
comply with the limits set forth in the Investment Company
Act.
7. Purchase or sell commodities or contracts on
commodities, except to the extent the Fund may do so in
accordance with applicable law and as set forth in the
Prospectus and this Statement of Additional Information, and
without registering as a commodity pool operator under the
Commodities Exchange Act.
Additional investment restrictions adopted by the Fund, which
may be changed by the Directors, provide that the Fund may not:
(i) Purchase securities of other investment companies
except to the extent that such purchases are permitted by
applicable law. Applicable law currently prohibits the Fund
from purchasing the securities of other investment companies,
except in connection with a plan of merger, consolidation,
reorganization, or acquisition, or by purchase in the open
market of securities of closed-end investment companies where
no underwriter or dealer's commission or profit, other than
the customary broker's commission, is involved and only if
immediately thereafter not more than (i) 3% of the total
outstanding voting stock of such company is owned by the Fund,
(ii) 5% of the Fund's total assets, taken at market value,
would be invested in any one such company, (iii) 10% of the
Fund's total assets, taken at market value, would be invested
in such securities, and (iv) the Fund, together with other
investment companies having the same investment adviser and
companies controlled by such companies, owns not more than 10%
of the total outstanding stock of any one closed-end
investment company. Investments by the Fund in wholly-owned
investment entities created under the laws of certain
countries will not be deemed an investment in other investment
companies.
(ii) Make short sales of securities or maintain a
short position except to the extent permitted by applicable
law. The Fund does not, however, currently intend to engage
in short sales.
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<PAGE>
(iii) Invest in securities which cannot be readily
resold because of legal or contractual restrictions, or which
cannot otherwise be marketed, redeemed, put to the issuer or
to a third party, or which do not mature within seven days, or
which the Board of Directors of the Fund have not determined
to be liquid pursuant to applicable law, if at the time of
acquisition more than 15% of its net assets would be invested
in such securities.
(iv) Make investments for the purpose of exercising
control or management.
(v) Invest in warrants if at the time of acquisition
its investment in warrants, valued at the lower of cost or
market value, would exceed 5% of the Fund's net assets;
included within such limitation, but not to exceed 2% of the
Fund's net assets, are warrants which are not listed on the
New York Stock Exchange or American Stock Exchange or a major
foreign exchange. For purposes of this restriction, warrants
acquired by the Fund in units or attached to securities may be
deemed to be without value.
(vi) Invest in securities of companies having a
record, together with predecessors, of less than three years
of continuous operation, if more than 5% of its total assets
would be invested in such securities. This restriction will
not apply to mortgage-backed securities, asset-backed
securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
(vii) Purchase or retain the securities of any
issuer, if those individual officers and Directors of the
Fund, the Manager or any subsidiary thereof each owning
beneficially more than one-half of one percent of the
securities of such issuer own in the aggregate more than 5% of
the securities of such issuer.
(viii) Invest in real estate limited partnership
interests or interests in oil, gas or other mineral
leases, or exploration or development programs, except
that the Fund may invest in securities issued by
companies that engage in oil, gas or other mineral
exploration or development activities.
(ix) Write, purchase or sell puts, calls,
straddles, spreads or combinations thereof, except to the
extent permitted in the Prospectus and this Statement of
Additional Information, as it may be amended from time to
time.
(x) Purchase securities while borrowings exceed
5% (taken at market value) of its total assets.
The staff of the Securities and Exchange Commission (the
"Commission") has taken the position that purchased OTC options and
the assets used as cover for written OTC options are illiquid
securities. Therefore, the Fund has adopted an investment policy
pursuant to which it will not purchase or sell OTC options if, as
a result of such transaction, the sum of the market value of OTC
options currently outstanding which are held by the Fund, the
market value of the underlying securities covered by OTC call
options currently outstanding which were sold by the Fund and
margin deposits on the Fund's existing OTC options on futures
contracts exceeds 10% of the total assets of the Fund, taken at
market value, together with all other assets of the Fund which are
illiquid or are not otherwise readily marketable. However, if the
OTC option is sold by the Fund to a primary U.S. Government
securities dealer recognized by the Federal Reserve Bank of New
York and if the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined
price, then the Fund will treat as illiquid such amount of the
underlying securities as is equal to the repurchase price less the
amount by which the option is "in-the-money" (i.e., current market
value of the underlying securities minus the option's strike
price). The repurchase price with the primary dealers is typically
a formula price which is generally based on a multiple of the
premium received for the option, plus the amount by which the
option is "in-the-money." This policy as to OTC options is not a
fundamental policy of the Fund and may be amended by the Directors
of the Fund without the approval of the Fund's shareholders.
However, the Fund will not change or modify this policy prior to
the change or modification by the Commission staff of its position.
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<PAGE>
Portfolio securities of the Fund generally may not be
purchased from, sold or loaned to the Manager or its affiliates or
any of their directors, general partners, officers or employees,
acting as principal, unless pursuant to a rule or exemptive order
under the Investment Company Act.
Because of the affiliation of 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 would be prohibited from engaging in
portfolio transactions with Merrill Lynch or its affiliates acting
as principal and from purchasing securities in public offerings
which are not registered under the Securities Act of 1933, as
amended, in which such firm or any of its affiliates participate as
an underwriter or dealer.
MANAGEMENT OF THE FUND
Directors and Officers
The Directors and executive officers of the Fund and their
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 Box 9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel-President and Director(1)(2)-President of the
Manager since 1977 and Chief Investment Officer and Director of the
Manager since 1976; President, Director and Chief Investment
Officer of Fund Asset Management, L.P. ("FAM") since 1977; Director
of Merrill Lynch Funds Distributor, Inc.; Executive Vice President
of Merrill Lynch & Co., Inc. and of Merrill Lynch, Pierce, Fenner
& Smith Incorporated since 1990.
Walter Mintz-Director(2)-1114 Avenue of the Americas, New
York, New York 10036. Special Limited Partner of Cumberland
Partners (investment partnership) since 1982.
Melvin R. Seiden-Director(2)-780 Third Avenue, New York, New
York 10017. President of Silbanc Properties, Ltd. (real estate,
consulting and investments) since 1987; Chairman and President of
Seiden & de Cuevas, Inc. (private investment firm) from 1964 to
1987.
Stephen B. Swensrud-Director(2)-24 Federal Street, Boston,
Massachusetts 02110. Principal of Fernwood Associates (financial
consultants); Director, Hitchiner Manufacturing Company.
Joe Grills-Director(2)-183 Soundview Lane, New Canaan,
Connecticut 06840. Member of the Committee on Investment of
Employee Benefit Assets of the Financial Executives Institute
("CIEBA") since 1986, member of CIEBA's Executive Committee since
1988 and its Chairman from 1991 to 1992; Assistant Treasurer of
International Business Machines Corporation ("IBM") and Chief
Investment Officer of the IBM Retirement Funds from 1986 until
1992.
Harry Woolf-Director(2)-The Institute for Advanced Study,
Olden Lane, Princeton, New Jersey 08540. Professor and former
Director of the Institute for Advanced Study (private institution
devoted to the encouragement, support and patronage of learning)
since 1976; Director, Alex. Brown Cash Reserve Fund, Flag Investors
Fund and Westmark International (medical equipment manufacturing
and marketing).
Terry K. Glenn-Executive Vice President(1)(2)-Executive Vice
President of the Manager and FAM since 1983 and Director since
1991; President and Director of Merrill Lynch Funds Distributor,
Inc. (the "Distributor") since 1986; President of Princeton
Administrators, Inc. since 1988; and Director of Financial Data
Services, Inc. since 1985.
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<PAGE>
Bernard D. Durnin-Senior Vice President(1)(2)-Senior Vice
President of the Manager since 1981 and Vice-President from 1977 to
1981.
Donald C. Burke-Vice President(1)(2)-Vice President of the
Manager since 1990; accountant, Deloitte & Touche from 1982 to
1990.
Joel Heymsfeld-Vice President(1)(2)-Vice President of the
Manager since 1978.
Gerald M. Richard-Treasurer(1)(2)-Senior Vice President and
Treasurer of the Manager and FAM since 1984; Treasurer of the
Distributor since 1984 and Vice President since 1981; and Senior
Vice President and Treasurer of Princeton Administrators, Inc.
since 1988.
Mark B. Goldfus-Secretary(1)(2)-Vice President of the Manager
since 1985.
_______________________
(1) Interested person, as defined in the Investment Company Act of
1940, of the Company.
(2) Mr. Zeikel is a director or trustee and officer, Messrs.
Mintz, Seiden, Swensrud and Woolf are directors, trustees or
members of the advisory board, and Messrs. Glenn, Durnin,
Heymsfeld, Richard and Goldfus are officers, of certain other
investment companies for which the Manager or FAM acts as
investment adviser.
At _______________, 1994, the officers and Directors of the
Fund as a group (six persons) owned an aggregate of less than 1% of
the outstanding shares of the Fund. At such date, Mr. Zeikel, a
Director of the Fund, and the other officers of the Fund, owned
less than 1% of the outstanding shares of common stock of Merrill
Lynch & Co., Inc.
The Fund pays each Director not affiliated with the Manager a
fee of $__________ per year plus $__________ per Board meeting
attended, together with such Director's actual out-of-pocket
expenses relating to attendance at meetings. The Fund also
compensates members of its Audit Committee, which consists of all
of the non-affiliated Directors, at a rate of $__________ per
meeting attended. The Chairman of the Audit Committee receives an
additional fee of $_______________ per meeting attended.
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 other 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 Management Agreement provides that the Fund will
pay the Manager a monthly fee at the annual rate of 0.75% of the
average daily net assets of the Fund. This fee is higher than that
of most mutual funds, but management of the Fund believes this fee,
which is typical for a global fund, is justified by the global
nature of the Fund.
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<PAGE>
California imposes limitations on the expenses of the Fund.
These expense limitations require that the Manager reimburse the
Fund in an amount necessary to prevent the ordinary operating
expenses of the Fund (excluding interest, taxes, distribution fees,
brokerage fees and commissions and extraordinary charges such as
litigation costs) from exceeding 2.5% of the Fund's first $30
million of average daily net assets, 2.0% of the next $70 million
of average daily net assets and 1.5% of the remaining average daily
net assets. The Manager's obligation to reimburse the Fund is
limited to the amount of the management fee. No fee payment will
be made to the Manager during any fiscal year which will cause such
expenses to exceed the most restrictive expense limitation
applicable at the time of such payment.
The Fund has received an order from the State of California
partially waiving the expense limitations described above.
Pursuant to the terms of such order, the expense limitations that
would otherwise apply are waived to the extent the Fund's expense
for custodial services, management and auditing fees exceeds the
average of such fees of a group of funds managed by the Manager or
its subsidiary which primarily invest domestically. Since the
commencement of operations of the Fund, no reimbursement of
expenses has been required pursuant to the applicable expense
limitation provisions discussed above.
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 its operation, including, among other things, taxes; expenses
for legal and auditing services; costs of printing proxies, stock
certificates, shareholder reports and prospectuses and statements
of additional information (except to the extent paid by the
Distributor); charges of the custodian, any sub-custodian and
transfer agent; expenses of redemption of shares; Commission fees;
expenses of registering 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.
The Distributor will pay certain promotional expenses of the Fund
incurred in connection with the offering of its shares. Certain
expenses in connection with the distribution of Class B shares will
be financed by the Fund pursuant to a distribution plan in
compliance with Rule 12b-1 under the Investment Company Act. See
"Purchase of Shares - Alternative Sales Arrangements - Distribution
Plans."
The Manager is a limited partnership, the partners of which
are Merrill Lynch & Co., Inc., Merrill Lynch Investment Management,
Inc. and Princeton Services, Inc.
Duration and Termination. Unless earlier terminated as
described below, the Management Agreement 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
contracts or interested persons (as defined in the Investment
Company Act) of any such party. Such contracts are not assignable
and may be terminated without penalty on 60 days' written notice at
the option of either party thereto or by 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.
Alternative Sales Arrangements
The Fund issues two classes of shares: Class A shares are
sold to investors choosing the initial sales charge alternative,
and Class B shares are sold to investors choosing the deferred
sales charge alternative. The two classes of shares each represent
interests in the same portfolio of investments of the Fund, have
the same rights and are identical in all respects, except that
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<PAGE>
Class B shares bear the expenses of the deferred sales
arrangements, any expenses (including incremental transfer agency
costs) resulting from such sales arrangements and the expenses of
the account maintenance fee and have exclusive voting rights with
respect to the Rule 12b-1 distribution plan pursuant to which the
account maintenance and distribution fees are paid. The two
classes also have different exchange privileges. See "Shareholder
Services - Exchange Privilege."
The Fund has entered into separate distribution agreements
with Merrill Lynch Funds Distribution, Inc. (the "Distributor") in
connection with the continuous offering of Class A and Class B
shares of the Fund (the "Distribution Agreements"). The
Distribution Agreements obligate the Distributor to pay certain
expenses in connection with the offering of the Class A and Class
B 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 provision as the Management Agreement
described under "Management of the Fund - Management and Advisory
Arrangements."
Initial Sales Charge Alternative - Class A Shares
The term "purchase," as used in the Prospectus and this
Statement of Additional Information in connection with an
investment in Class A 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 (including a
pension, profit-sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Code)
although more than one beneficiary is involved. The term
"purchase" also includes purchases by any "company," as that term
is defined in the Investment Company Act, but does not include
purchases by any such company which has not been in existence for
at least six months or which has no purpose other than the purchase
of shares of the Fund or shares of other registered investment
companies at a discount; provided, however, that it does not
include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit
cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer or clients of an
investment adviser. The term "purchase" also includes purchases by
employee benefit plans not qualified under Section 401 of the Code,
including purchases by employees or by employers on behalf of
employees, by means of a payroll deduction plan or otherwise, of
shares of the Fund. Purchases by such a company or non-qualified
employee benefit plan will qualify for the quantity discounts
discussed above only if the Fund and the Distributor are able to
realize economies of scale in sales effort and sales related
expense by means of the company, employer or plan making the Fund's
Prospectus available to individual investors or employees and
forwarding investments by such persons to the Fund and by any such
employer or plan bearing the expense of any payroll deduction plan.
Reduced Initial Sales Charges - Class A Shares
Right of Accumulation. Reduced sales charges are applicable
through a right of accumulation under which eligible investors are
permitted to purchase Class A shares of the Fund at the offering
price applicable to the total of (a) the dollar amount 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 the Class A shares and Class B shares of the Fund and
of any other investment company with a sales charge for which the
Distributor acts as the distributor. 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.
Letter of Intention. Reduced sales charges are applicable to
purchases aggregating $10,000 or more of Class A shares of the Fund
or any other investment company with an initial sales charge or a
deferred sales charge for which the Distributor acts as the
14
<PAGE>
distributor made within a thirteen-month period starting with the
first purchase pursuant to a Letter of Intention in the form
provided in the Prospectus. The Letter of Intention is available
only to investors whose accounts are maintained at the Fund's
transfer agent. The Letter of Intention is not available to
employee benefit plans for which Merrill Lynch provides plan-
participant recordkeeping services. The Letter of Intention is not
a binding obligation to purchase any amount of Class A 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
shares of the Fund and of other investment companies with a sales
charge for which the Distributor acts as the distributor 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 completion of such Letter, but the
reduced sales charge applicable to the amount covered by such
Letter will be applied only to new purchases. If the total amount
of shares purchased does not equal the amount stated in the Letter
of Intention (minimum of $10,000), 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 shares purchased
at the reduced rate and the sales charge applicable to the shares
actually purchased through the Letter. Class A shares equal to
five percent of the intended amount will be held in escrow during
the thirteen-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 Merrill Lynch U.S. Treasury Money Fund,
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Reserves
Money Fund or Merrill Lynch U.S.A. Government Reserves 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 A shares of the Fund
are offered to participants in the Merrill Lynch Blueprint(SM) Program
("Blueprint"). Blueprint is directed to small investors, group
IRAs and participants in certain affinity groups such as credit
unions, trade associations and benefit plans. Investors placing
orders to purchase Class A shares of the Fund through Blueprint
will acquire the Class A shares at net asset value plus a sales
charge calculated in accordance with the Blueprint sales charge
schedule (i.e., up to $300 at 5.50%, $300.01 to $5,000 at 4.50%
plus $3.00 and $5,000.01 or more at the standard sales charge rates
disclosed in the Prospectus). Class A shares of the Fund are
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 shares through Blueprint. Services, including the exchange
privilege, available to Class A investors through Blueprint,
however, may differ from those available to other investors in
Class A shares.
Class A shares are offered at net asset value, with a waiver
of the front-end sales charge, to Blueprint participants through
the Merrill Lynch Directed IRA Rollover Program ("IRA Rollover
Program") available from Merrill Lynch Business Financial Services,
a business unit of Merrill Lynch. The IRA Rollover Program is
available to custodian rollover assets from Eligible Retirement
Plans (as defined below) whose Trustee and/or Plan Sponsor offers
the Merrill Lynch Directed IRA Rollover Program. Eligible
Retirement Plans include (a) plans qualified under Section 401(k)
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<PAGE>
of the Internal Revenue Code of 1986, as amended (the "Code"), with
a salary reduction feature offering a menu of investments to plan
participants, provided such plan initially has 1,000 or more
employees eligible to participate in the plan (employees eligible
to participate in retirement plans of the same sponsoring employer
or its affiliates may be aggregated); or (b) tax qualified
retirement plans within the meaning of Section 401(a) of the Code
or deferred compensation plans within the meaning of Section 403(b)
of the Code, provided the plan (i) initially invested $5 million or
more in existing plan assets in portfolios, mutual funds or trusts
advised by the Manager or its subsidiaries or (ii) has accumulated
$5 million or more in existing plan assets invested in mutual funds
advised by the Manager or its subsidiaries, which charge a front-
end sales charge or contingent deferred sales charge (assets of
retirement plans with the same sponsor or an affiliated sponsor may
be aggregated).
Orders for purchases and redemptions of Class A shares of the
Fund may be grouped for execution purposes which, in some
circumstances, may involve the execution of such orders two
business days following the day such orders are placed. The
minimum initial purchase price is $100, with a $50 minimum for
subsequent purchases through Blueprint. There are no minimum
initial or subsequent purchase requirements for participants who
are part of an automatic investment plan. Additional information
concerning purchases through Blueprint, including any annual fees
and transaction charges, is available from Merrill Lynch, Pierce,
Fenner & Smith Incorporated, The Blueprint(SM) Program, P.O. Box
30441, New Brunswick, New Jersey 08989-0441.
Employer Sponsored Retirement and Savings Plans. Class A
shares are offered at net asset value to employer sponsored
retirement or savings plans, such as tax qualified retirement plans
within the meaning of Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), deferred compensation plans
within the meaning of Sections 403(b) and 457 of the Code, other
deferred compensation arrangements, VEBA plans, and non-qualified
After Tax Savings and Investment programs, maintained on the
Merrill Lynch Group Employee Services system, herein referred to as
"Employer Sponsored Retirement or Savings Plans," provided the plan
has $5 million or more in existing plan assets initially invested
in portfolios, mutual funds or trusts advised by the Manager either
directly or through an affiliate. Class A shares may also be
offered at net asset value to Employer Sponsored Retirement or
Savings Plans, provided the plan has accumulated $5 million or more
in existing plan assets invested in mutual funds advised by the
Manager charging a front-end sales charge or contingent deferred
sales charge. Assets of Employer Sponsored Retirement or Savings
Plans sponsored by the same sponsor or an affiliated sponsor may be
aggregated. The Class A share reduced load breakpoints also apply
to these aggregated assets. Class A shares may be offered at net
asset value to multiple plans sponsored by the same sponsor or an
affiliated sponsor provided that the addition of one or more of the
multiple plans results in aggregate assets of $5 million or more
invested in portfolios, mutual funds or trusts advised by the
Manager either directly or through an affiliate. Employer
Sponsored Retirement or Savings Plans are also offered Class A
shares at net asset value, provided such plan initially has 1,000
or more employees eligible to participate in the plan. Employees
eligible to participate in Employer Sponsored Retirement or Savings
Plan of the same sponsoring employer or its affiliates may be
aggregated. Tax qualified retirement plans within the meaning of
Section 401(a) of the Code meeting any of the foregoing
requirements and which are provided specialized services (e.g.,
plans whose participants may direct on a daily basis their plan
allocations among a wide range of investments including individual
corporate equities and other securities in addition to mutual fund
shares) by the Merrill Lynch Blueprint(SM) Program, are offered
Class A shares at a price equal to net asset value per share plus
a reduced sales charge of 0.50%. Any Employer Sponsored Retirement
or Savings Plan which does not meet the above described
qualifications to purchase Class A shares at net asset value has
the option of purchasing Class A shares at the sales charge
schedule disclosed in the Prospectus, or if the Employer Sponsored
Retirement or Savings Plan is a qualified retirement plan and meets
the specified requirements, then it may purchase Class B shares
with a waiver of the contingent deferred sales charge upon
redemption. The minimum initial and subsequent purchase
requirements are waived in connection with all the above referenced
Employer Sponsored Retirement or Savings Plans.
Purchase Privilege of Certain Persons. Directors of the Fund,
directors and trustees of certain other Merrill Lynch sponsored
investment companies, directors of Merrill Lynch & Co., Inc.,
employees of Merrill Lynch & Co., Inc. and its subsidiaries and any
trust, pension, profit-sharing or other benefit plan for such
persons may purchase Class A shares of the Fund at net asset value.
Class A shares of the Fund will be offered at net asset value,
without a sales charge, to an investor who has a business
relationship with a financial consultant who joined Merrill Lynch
from another investment firm within six months prior to the date of
purchase by such investor if the following conditions are
satisfied. First, the investor must purchase Class A shares of the
Fund with proceeds from a redemption of shares of a mutual fund
that was sponsored by the financial consultant's previous firm and
imposed a sales charge either at the time of purchase or on a
deferred basis. Second, such redemption must have been made within
60 days prior to the investment in the Fund, and the proceeds from
the redemption must have been maintained in the interim in cash or
a money market fund.
Class A shares of the Fund are offered at net asset value to
shareholders of Senior Floating Rate Fund (formerly known as
Merrill Lynch Prime Fund, Inc.) who wish to reinvest the net
proceeds from a sale of certain of their shares of common stock of
Senior Floating Rate Fund in shares of the Fund. In order to
exercise this investment option, Senior Floating Rate Fund
shareholders must sell their Senior Floating Rate Fund shares to
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<PAGE>
the Senior Floating Rate Fund in connection with a tender offer
conducted by the Senior Floating Rate Fund and reinvest the
proceeds immediately in the Fund. This investment option is
available only with respect to the proceeds of Senior Floating Rate
Fund shares as to which no Early Withdrawal Charge (as defined in
the Senior Floating Rate Fund prospectus) is applicable. Purchase
orders from Senior Floating Rate Fund shareholders wishing to
exercise this investment option will be accepted only on the day
that the related Senior Floating Rate Fund tender offer terminates
and will be effected at the net asset value of the Fund at such
day.
Class A shares of the Fund are offered at net asset value to
shareholders of certain closed-end funds advised by the Manager or
FAM who wish to reinvest the net proceeds from a sale of their
closed-end fund shares of common stock in shares of the Fund. In
order to exercise this investment option, closed-end fund
shareholders must (i) sell their closed-end fund shares through
Merrill Lynch and reinvest the proceeds immediately in the Fund,
(ii) have acquired the shares in the closed-end fund's initial
public offering or through reinvestment of dividends earned on
shares purchased in such offering, (iii) have maintained their
closed-end fund shares continuously in a Merrill Lynch account, and
(iv) purchase a minimum of $250 worth of Fund shares.
Class A shares of the Fund are also offered at net asset
value, without sales charge, to an investor who has a business
relationship with a Merrill Lynch financial consultant and who has
invested in a mutual fund sponsored by a non-Merrill Lynch company
for which Merrill Lynch has served as a selected dealer and where
Merrill Lynch has either received or given notice that such
arrangement will be terminated, if the following conditions are
satisfied: first, the investor must purchase Class A shares of the
Fund with proceeds from a redemption of shares of such other mutual
fund and such fund imposed a sales charge either at the time of
purchase or on a deferred basis; second, such purchase of Class A
shares must be made within 90 days after such notice of
termination.
Acquisition of Certain Investment Companies. The public
offering price of Class A shares may be reduced to the net asset
value per Class A share in connection with the acquisition of the
assets of or merger or consolidation with a public or private
investment company. The value of the assets or company acquired in
a tax-free transaction may be adjusted in appropriate cases to
reduce possible adverse tax consequences to the Fund which might
result from an acquisition of assets having net unrealized
appreciation which is disproportionately higher at the time of
acquisition than the realized or unrealized appreciation of the
Fund.
Reductions in or exemptions from the imposition of a sales
load are due to the nature of the investors and/or the reduced
sales efforts that will be needed in obtaining such investments.
Deferred Sales Charge Alternative-Class B Shares
Distribution Plans. Reference is made to "Purchase of Shares
- - - Alternative Sales Arrangements - Distribution Plans" in the
Prospectus for certain information with respect to the distribution
plans of the Fund (each a "Distribution Plan").
The payment of the account maintenance fee and distribution
fee with respect to Class B shares is subject to the provisions of
Rule 12b-1 under the Investment Company Act. See "General
Information - Description of Shares." Among other things, the
Distribution Plan provides that the Distributor will provide and
the Directors will review quarterly reports of the disbursement of
the account maintenance and distribution fees paid to the
Distributor. In their consideration of the 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 to its Class B shareholders. The Distribution Plan further
17
<PAGE>
provides that, so long as such 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"), will be committed to the discretion of
the Independent Directors then in office. In approving the
Distribution Plan in accordance with Rule 12b-1, the Independent
Directors concluded that there is a reasonable likelihood that such
Distribution Plan will benefit the Fund and its Class B
shareholders. The 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 Class B voting securities of the Fund. The
Distribution Plan can be amended to increase materially the amount
to be spent by the Fund without Class B shareholder approval, and
all material amendments are required to be approved by the vote of
Directors, including a majority of the Independent Directors who
have no direct or indirect financial interest in such Distribution
Plan, cast in person at a meeting called for that purpose. Rule
12b-1 further requires that the Fund preserve copies of the
Distribution Plan and any reports made pursuant to such plan for a
period of not less than six years from the date of the Distribution
Plan or such reports, the first two years in an easily accessible
place.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus
for certain information as to the redemption and repurchase of Fund
shares. The right to redeem shares or to receive payment with
respect to any such redemption may be suspended only for any period
during which trading on the New York Stock Exchange is restricted
as determined by the Commission or such Exchange is closed (other
than customary weekend and holiday closings), for any period during
which an emergency exists as defined by the Commission as a result
of which disposal of portfolio securities or determination of the
net asset value of the Fund is not reasonably practicable, and for
such other periods as the Commission may by order permit for the
protection of shareholders of the Fund.
Contingent Deferred Sales Charge - Class B Shares
As discussed in the Prospectus under "Purchase of Shares -
Deferred Sales Charge Alternative - Class B Shares," while Class B
shares redeemed within four years of purchase are subject to a
contingent deferred sales charge under most circumstances, the
charge is waived on redemptions of Class B shares in connection
with certain post-retirement withdrawals from an Individual
Retirement Account ("IRA") or other retirement plan or following
the death or disability of a Class B shareholder. Redemptions for
which the waiver applies are: (a) any partial or complete
redemption in connection with a tax-free distribution following
retirement under a tax-deferred retirement plan or attaining age
59-1/2 in the case of an IRA or other retirement plan, or 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.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered
to certain participants in the Merrill Lynch Blueprint(SM) Program
("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 contingent deferred sales charge is waived in
connection with purchase orders placed through Blueprint.
Services, including the exchange privilege, available to Class B
investors through Blueprint, however, may differ from those
available to other investors in Class B shares. Orders for
purchases and redemptions of Class B shares of the Fund will be
grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following
the day such orders are placed. The minimum initial purchase price
is $100, with a $50 minimum for subsequent purchases through
Blueprint. There is no minimum initial or subsequent purchase
requirement for investors who are part of the Blueprint automatic
investment plan. Additional information concerning these Blueprint
programs, including any annual fees or 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.
Retirement Plans. Any Retirement Plan which does not meet the
qualifications to purchase Class A shares at net asset value has
the option of purchasing Class A shares at the sales charge
schedule disclosed in the Prospectus, or if the Retirement Plan
meets the following requirements, then it may purchase Class B
shares with a waiver of the contingent deferred sales charge upon
redemption. The contingent deferred sales charge is waived for any
Eligible 401(k) Plan redeeming Class B shares. The contingent
18
<PAGE>
deferred sales charge is also waived for redemptions from a 401(a)
plan qualified under the Code, provided, however, that each such
plan has the same or an affiliated sponsoring employer as an
Eligible 401(k) Plan purchasing Class B shares of a mutual fund
advised by the Manager or FAM ("Eligible 401(a) Plan"). The
contingent deferred sales charge is waived for any Class B shares
which are purchased by an Eligible 401(k) Plan or Eligible 401(a)
Plan and are rolled over into a Merrill Lynch or Merrill Lynch
Trust Company custodied IRA and held in such account at the time of
redemption. The minimum initial and subsequent purchase
requirements are waived in connection with all the above referenced
Retirement Plans.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to "Investment Objective and Policies -
Other Investment Policies and Practices Portfolio Transactions" in
the Prospectus.
Subject to policies established by the 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. In addition,
consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. 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. It is possible that
certain of the supplementary investment research so received will
primarily benefit one or more other investment companies or other
accounts for which investment discretion is exercised. Conversely,
the Fund may be the primary beneficiary of the research or services
received as a result of portfolio transactions effected for such
other accounts or investment companies.
The Fund anticipates that its brokerage transactions involving
securities of companies domiciled in countries other than the
United States will be conducted primarily on the principal stock
exchanges of such countries. Brokerage commissions and other
transaction costs on foreign stock exchange transactions are
generally higher than in the United States, although the Fund will
endeavor to achieve the best net results in effecting its portfolio
transactions. There is generally less governmental supervision and
regulation of foreign stock exchanges and brokers than in the
United States.
The Fund 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 and persons who are affiliated with such affiliated
persons are prohibited from dealing with the Fund as principal in
the purchase and sale of securities unless a permissive order
allowing such transactions is obtained from the Commission. Since
transactions in the over-the-counter market usually involve
transactions with dealers acting as principal for their own
accounts, affiliated persons of the Fund, including Merrill Lynch
and any of its affiliates, will not serve as the Fund's dealer in
such transactions. However, affiliated persons of the Fund may
serve as its broker in listed or 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 U.S. dollars, the Fund
intends to manage its portfolio so as to give reasonable assurance
that it will be able to obtain U.S. dollars to the extent necessary
to meet anticipated redemptions. Under present conditions, it is
not believed that these considerations will have any significant
effect on its portfolio strategy.
Section 11(a) of the Securities Exchange Act of 1934, as
amended, generally prohibits members of the U.S. national
securities exchanges from executing exchange transactions for their
affiliates and institutional accounts which they manage unless the
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<PAGE>
member (i) has obtained prior express authorization from the
account to effect such transactions, (ii) at least annually
furnishes the account with the aggregate compensation received by
the member in effecting such transactions, and (iii) complies with
any rules the Commission has prescribed with respect to the
requirements of clauses (i) and (ii). To the extent Section 11(a)
would apply to Merrill Lynch acting as a broker for the Fund in any
of its portfolio transactions executed on any such securities
exchange of which it is a member, appropriate consents have been
obtained from the Fund and annual statements as to aggregate
compensation will be provided to the Fund.
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 Monday through Friday as of 4:15 p.m., New
York time, on each day the New York Stock Exchange is open for
trading. The New York Stock Exchange is not open on New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Any assets or
liabilities initially expressed in terms of non-U.S. dollar
currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the day
of valuation. Net asset value 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, are accrued daily.
The per share net asset value of the Class B shares generally will
be lower than the per share net asset value of the Class A shares
reflecting the daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with
respect to the Class B shares. It is expected, however, that the
per share net asset value of the two classes will tend to converge
immediately after the payment of dividends or distributions, which
will differ by approximately the amount of the expense accrual
differential between the classes.
Securities traded in the over-the-counter market are valued at
the last available bid price or yield equivalents obtained from one
or more dealers in the over-the-counter market prior to the time of
valuation. When the Fund writes a call option, the amount of the
premium received is recorded on the books of the Fund as an asset
and an equivalent liability. The amount of the liability is
subsequently valued to reflect the current market value of the
option written, based upon the last asked price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the average of the last asked price as
obtained from one or more dealers. Options purchased by the Fund
are valued at their last bid price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter
market, the average of the last bid price as obtained from two or
more dealers unless there is only one dealer, in which case that
dealer's price is used. Portfolio securities which are traded on
stock exchanges are valued at the last sale price on the
principal market on which such securities are traded, as of the
close of business on the day the securities are being valued, or
lacking any sales, at the last available bid price. Portfolio
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. 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
under the direction of the Board of Directors of the Fund. Such
valuations and procedures will be reviewed periodically by the
Board of Directors.
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<PAGE>
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described
below which are designed to facilitate investment in its shares.
Full details as to each 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 U.S. investors.
Investment Account
Each shareholder whose account is maintained at the transfer
agent has an Investment Account and will receive semi-annual
statements from the transfer agent showing any reinvestments of
dividends and capital gains distributions and any other activity in
the account since the preceding statement. Shareholders also will
receive separate confirmations for each purchase or sale
transaction other than reinvestment of dividends and capital gains
distributions. A shareholder may make additions to his Investment
Account at any time by mailing a check directly to the transfer
agent.
Share certificates are issued only for full shares and only
upon the specific request of the shareholder. Issuance of
certificates representing all or only part of the full shares in an
Investment Account may be requested by a shareholder directly from
the transfer agent.
Automatic Investment Plan
A shareholder may make additions to an Investment Account at
any time by purchasing Class A or Class B 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 can also be
made through a service known as the Automatic Investment Plan
whereby the Fund is authorized through pre-authorized checks of $50
or more to charge the regular bank account of the shareholder on a
regular basis to provide systematic additions to the Investment
Account of such shareholder. An investor whose shares of the Fund
are held within a CMA(R) account may arrange to have periodic
investments made in the Fund in amounts of $250 or more through the
CMA Automatic Investment Program. The Automatic Investment Program
is not available to shareholders whose shares are held in a
brokerage account with Merrill Lynch other than a CMA(R) account.
Automatic Reinvestment of Dividends and Capital Gains Distributions
Unless specific instructions to the contrary are given as to
the method of payment of dividends and capital gains distributions,
dividends and distributions will be reinvested automatically in
additional shares of the Fund. Such reinvestment will be at the
net asset value of 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 to receive either
their dividends or capital gains distributions, or both, in cash,
in which event payment will be mailed on or about the payment date.
Shareholders may, at any time, notify the transfer agent in
writing or by telephone (1-800-MER-FUND) that they no longer wish
to have their dividends and/or distributions reinvested in shares
of the Fund or vice versa, and commencing ten days after receipt by
the transfer agent of such notice, those instructions will be
effected.
Systematic Withdrawal Plans - Class A Shares
A Class A shareholder may elect to make withdrawals from an
Investment Account on either a monthly or quarterly basis as
provided below. Quarterly withdrawals are available for
shareholders who have acquired Class A shares of the Fund having a
value, based on cost or the current offering price, of $5,000 or
more and monthly withdrawals for shareholders with Class A shares
with such a value of $10,000 or more.
At the time of each withdrawal payment, sufficient Class A
shares are redeemed from those on deposit in the shareholder's
account to provide the withdrawal payment specified by the
21
<PAGE>
shareholder. The shareholder may specify either a dollar amount or
a percentage of the value of his Class A shares. Redemptions will
be made at net asset value as determined at the close of business
of the New York Stock Exchange on the 24th day of each month or the
24th day of the last month of each quarter, whichever is
applicable. If the Exchange is not open for business on such date,
the Class A 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 of the withdrawal payment will be
made, on the next business day following redemption. When a
shareholder is making systematic withdrawals, dividends and
distributions on all Class A shares in the Investment Account are
reinvested automatically in Fund Class A shares. A shareholder's
Systematic Withdrawal Plan may be terminated at any time, without
charge or penalty, by the shareholder, the Fund, the transfer agent
or the Distributor.
Withdrawal payments should not be considered as dividends,
yield or income. Each withdrawal is a taxable event. If periodic
withdrawals continuously exceed reinvested dividends, the
shareholder's original investment may be reduced correspondingly.
Purchases of additional Class A shares concurrent with withdrawals
are ordinarily disadvantageous to the shareholder because of sales
charges and tax liabilities. The Fund will not knowingly accept
purchase orders for Class A 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.
A Class A shareholder whose shares are held within a CMA(R),
CBA(R) or Retirement Account may elect to have shares redeemed on a
monthly, bimonthly, quarterly, semiannual or annual basis through
the Systematic Redemption Program. The minimum fixed dollar amount
redeemable is $25. The proceeds of systematic redemptions will be
posted to the shareholder's account five business days after the
date the shares are redeemed. Monthly systematic redemptions will
be made at net asset value on the first Monday of each month,
bimonthly systematic redemptions will be made at net asset value on
the first Monday of every other month, and quarterly, semiannual or
annual redemptions are made at net asset value on the first Monday
of months selected at the shareholder's option. If the first
Monday of the month is a holiday, the redemption will be processed
at net asset value on the next business day. The Systematic
Redemption Program is not available if Fund shares are being
purchased within the account pursuant to the Automatic Investment
Program. For more information on the Systematic Redemption
Program, eligible shareholders should contact their Financial
Consultant.
Exchange Privilege
U.S. Class A or Class B shareholders of the Fund may exchange
their Class A or Class B shares of the Fund for shares of the same
class of Merrill Lynch Adjustable Rate Securities Fund, Inc.,
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Arizona
Limited Maturity Municipal Bond Fund, Merrill Lynch Arizona
Municipal Bond Fund, Merrill Lynch Asset Allocation Income
Portfolio, Inc., Merrill Lynch Balanced Fund for Investment and
Retirement, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch
California Insured Municipal Bond Fund, Merrill Lynch California
Limited Maturity Municipal Bond Fund, Merrill Lynch California
Municipal Bond Fund, Merrill Lynch Capital Fund, Inc., Merrill
Lynch Colorado Municipal Bond Fund, Merrill Lynch Corporate Bond
Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc.
(shares of which are deemed Class A shares for purposes of the
exchange privilege), Merrill Lynch Dragon Fund, Inc., Merrill Lynch
EuroFund, Merrill Lynch Federal Securities Trust, Merrill Lynch
Florida Limited Maturity Municipal Bond Fund, Merrill Lynch Florida
Municipal Bond Fund, Merrill Lynch Fund For Tomorrow, Inc., Merrill
Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Convertible Fund,
Inc., Merrill Lynch Global Holdings (residents of Arizona must meet
22
<PAGE>
investor suitability standards), Merrill Lynch Global Resources
Trust, Merrill Lynch Global Utility Fund, Inc., Merrill Lynch
Growth Fund for Investment and Retirement, Merrill Lynch Healthcare
Fund, Inc. (residents of Wisconsin must meet investor suitability
standards), Merrill Lynch International Equity Fund, Merrill Lynch
Latin America Fund, Inc., Merrill Lynch Maryland Municipal Bond
Fund, Merrill Lynch Massachusetts Limited Maturity Municipal Bond
Fund, Merrill Lynch Massachusetts Municipal Bond Fund, Merrill
Lynch Michigan Limited Maturity Municipal Bond Fund, Merrill Lynch
Michigan Municipal Bond Fund, Merrill Lynch Minnesota Municipal
Bond Fund, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch
Municipal Intermediate Term Fund, Merrill Lynch New Jersey Limited
Maturity Municipal Bond Fund Merrill Lynch New Jersey Municipal
Bond Fund, Merrill Lynch New York Limited Maturity Municipal Bond
Fund, Merrill Lynch New York Municipal Bond Fund, Merrill Lynch
North Carolina Municipal Bond Fund, Merrill Lynch Ohio Municipal
Bond Fund, Merrill Lynch Oregon Municipal Bond Fund, Merrill Lynch
Pacific Fund, Inc., Merrill Lynch Pennsylvania Limited Maturity
Municipal Bond Fund, Merrill Lynch Pennsylvania Municipal Bond
Fund, Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Short-Term
Global Income Fund, Inc., Merrill Lynch SmallCap Global Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch Strategic
Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch
Texas Municipal Bond Fund, Merrill Lynch Utility Income Fund, Inc.
and Merrill Lynch World Income Fund, Inc. on the basis described
below. In addition, Class A shareholders of the Fund may exchange
their Class A shares for shares of Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch Ready Assets Trust and Merrill Lynch U.S.
Treasury Money Fund (or Merrill Lynch Retirement Reserves Money
Fund if the exchange occurs within certain retirement plans)
(together, the "Class A money market funds"), and Class B
shareholders of the Fund may exchange their Class B shares for
shares of Merrill Lynch Government Fund, Merrill Lynch
Institutional Fund, Merrill Lynch Institutional Tax-Exempt Fund and
Merrill Lynch Treasury Fund (together, the "Class B money market
funds") on the basis described below. Shares with a net asset
value of at least $250 are required to qualify for the exchange
privilege, and any shares utilized in an exchange must have been
held by the shareholder for at least 15 days. Certain funds into
which exchanges may be made may impose a redemption fee (not in
excess of 2.00% of the amount redeemed) on shares purchased through
the exchange privilege when such shares are subsequently redeemed,
including redemption through subsequent exchanges. Such redemption
fee would be in addition to any contingent deferred sales charge
otherwise applicable to a redemption of Class B shares. It is
contemplated that the exchange privilege may be applicable to other
new mutual funds whose shares may be distributed by the
Distributor. The exchange privilege available to participants in
the Merrill Lynch Blueprint(SM) Program may be different than that
available to other investors.
Under the exchange privilege, each of the funds with Class A
shares outstanding offers to exchange its Class A shares ("new
Class A shares") for Class A shares ("outstanding Class A shares")
of any of the other funds, on the basis of relative net asset value
per Class A share, plus an amount equal to the difference, if any,
between the sales charge previously paid on the outstanding Class
A shares and the sales charge payable at the time of the exchange
on the new Class A shares. With respect to outstanding Class A
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 shares in the initial
purchase and any subsequent exchange. Class A shares issued
pursuant to dividend reinvestment are sold on a no-load basis in
each of the funds offering Class A shares. For purposes of the
exchange privilege, Class A shares acquired through dividend
reinvestment shall be deemed to have been sold with a sales charge
equal to the sales charge previously paid on the Class A shares on
which the dividend was paid. Based on this formula, Class A shares
of the Fund generally may be exchanged into the Class A shares of
the other funds or into shares of the Class A money market funds
with a reduced or without a sales charge.
In addition, each of the funds with Class B shares outstanding
offers to exchange its Class B shares ("new Class B shares") for
Class B shares ("outstanding Class B shares") of any of the other
funds on the basis of relative net asset value per Class B share,
without the payment of any contingent deferred sales charge 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 contingent deferred sales
charge schedule if such schedule is higher than the deferred sales
charge 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 contingent deferred sales charge schedule if such
schedule is higher than the deferred sales charge schedule relating
to the Class B shares of the fund from which the exchange has been
made. For purposes of computing the sales charge that may be
payable on a disposition of the new Class B shares, the holding
period for the outstanding Class B shares is "tacked" to the
holding period of the new Class B shares. For example, an investor
may exchange Class B shares of the Fund for those of Merrill Lynch
Global Resources Trust (formerly Merrill Lynch Natural Resources
Trust) after having held the Fund's Class B shares for two and a
half years. The 2% sales charge 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 Merrill Lynch
Global Resources Trust and receive cash. There will be no
contingent deferred sales charge 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 Merrill
Lynch Global Resources Trust Class B shares, the investor will be
deemed to have held the new Class B shares for more than five
years.
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Shareholders also may exchange Class A shares and Class B
shares from any of the funds into shares of the Class A money
market funds and Class B money market funds, respectively, but the
period of time that Class B shares are held in a Class B money
market fund will not count towards satisfaction of the holding
period requirement for purposes of reducing the contingent deferred
sales charge. However, shares of a Class B money market fund which
were acquired as a result of an exchange for Class B shares of a
fund may, in turn, be exchanged back into Class B shares of any
fund offering such shares, in which event the holding period for
Class B shares of the fund will be aggregated with previous holding
periods for purposes of reducing the contingent deferred sales
charge. Thus, for example, an investor may exchange Class B shares
of the Fund for shares of Merrill Lynch 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 Merrill Lynch
Institutional Fund for cash. At the time of this redemption, the
2% contingent deferred sales charge that would have been due had
the Class B shares of the Fund been redeemed for cash rather than
exchanged for shares of Merrill Lynch 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
continues to hold for an additional two and a half years, any
subsequent redemption will not incur a contingent deferred sales
charge.
Below is a description of the investment objectives of the
other funds into which exchanges can be made:
Merrill Lynch Adjustable Rate
Securities Fund, Inc.
High current income consistent with a policy of limiting
the degree of fluctuation in net asset value by
investing primarily in a portfolio of adjustable rate
securities, consisting principally of mortgage-backed
and asset-backed securities.
Merrill Lynch Americas Income
Fund, Inc.
A high level of current income, consistent with prudent
Investment risk, by investing primarily in debt
securities denominated in a currency of a country
located in the Western Hemisphere (i.e., North and South
America and the surrounding waters).
Merrill Lynch Arizona Limited
Maturity Municipal Bond Fund
A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income exempt
from Federal and Arizona income taxes as is consistent
with prudent investment management through investment in
a portfolio primarily of intermediate-term investment
grade Arizona Municipal Bonds.
Merrill Lynch Arizona Municipal
Bond Fund
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is to
provide investors with as high a level of income exempt
from Federal and Arizona income taxes as is consistent
with prudent investment management.
Merrill Lynch Asset Allocation
Income Portfolio, Inc.
Current income through investment primarily in United
States fixed income securities.
Merrill Lynch Balanced Fund for
Investment and Retirement
As high a level of total investment return as is
consistent with reasonable risk by investing in common
stocks and other types of securities, including fixed
income securities and convertible securities.
Merrill Lynch Basic Value Fund,
Inc.
Capital appreciation and, secondarily, income through
investment in securities, primarily equities, that are
undervalued and therefore represent basic investment
value.
Merrill Lynch California Insured
Municipal Bond Fund
A portfolio of Merrill Lynch California Municipal Series
Trust, a series fund, whose objective is to provide
shareholders with as high a level of income exempt from
Federal and California income taxes as is consistent
with prudent investment management through investment in
a portfolio consisting primarily of insured California
Municipal Bonds.
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<PAGE>
Merrill Lynch California Limited
Maturity Municipal Bond Fund
A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide shareholders with as high a
level of income exempt from Federal and California
income taxes as is consistent with prudent investment
management through investment in a portfolio primarily
of intermediate-term investment grade California
Municipal Bonds.
Merrill Lynch California
Municipal Bond Fund
A portfolio of Merrill Lynch California Municipal Series
Trust, a series fund, who objective is to provide
investors with as high a level of income exempt from
Federal and California income taxes as is consistent
with prudent investment management.
Merrill Lynch Capital Fund, Inc.
The highest total investment return consistent with
prudent risk through a fully managed investment policy
utilizing equity, debt and convertible securities.
Merrill Lynch Colorado
Municipal Bond Fund
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is as high
a level of income exempt from Federal and Colorado
income taxes as is consistent with prudent investment
management.
Merrill Lynch Connecticut
Municipal Bond Fund, Inc.
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is as high
a level of income exempt from Federal and Connecticut
income taxes as is consistent with prudent investment
management.
Merrill Lynch Corporate Bond
Fund, Inc.
Current income from three separate diversified
portfolios of fixed income securities.
Merrill Lynch Developing Capital
Markets Fund, Inc.
Long-term appreciation through investment in securities,
principally equities, of issuers in countries having
smaller capital markets.
Merrill Lynch Dragon Fund, Inc.
Capital appreciation primarily through investment in
equity and debt securities of issuers domiciled in
developing countries located in Asia and the Pacific
Basin, other than Japan, Australia and New Zealand.
Merrill Lynch Eurofund
Capital appreciation primarily through investment in
equity securities of corporations domiciled in Europe.
25
<PAGE>
Merrill Lynch Federal Securities
Trust
High current return through investments in U.S.
Government and Government agency securities, including
GNMA mortgage-backed certificates and other mortgage-
backed Government securities.
Merrill Lynch Florida Limited
Maturity Municipal
Bond Fund
A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is as high a level of income exempt from
Federal income taxes as is consistent with prudent
investment management while serving to offer
shareholders the opportunity to own securities exempt
from Florida intangible personal property taxes
through investment in a portfolio primarily of
intermediate-term investment grade Florida Municipal
Bonds.
Merrill Lynch Florida Municipal
Bond Fund
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is as
high a level of income exempt from Federal income
taxes as is consistent with prudent investment
management, while seeking to offer shareholders the
opportunity to own securities exempt from Florida
intangible personal property taxes.
Merrill Lynch Fund For
Tomorrow, Inc.
Long-term growth through investment in a portfolio of
good quality securities, primarily common stock,
potentially positioned to benefit from demographic and
cultural changes as they affect consumer markets.
Merrill Lynch Fundamental
Growth Fund, Inc.
Long-term growth through investment in a diversified
portfolio of equity securities placing particular
emphasis on companies that have exhibited above-
average growth rate in earnings.
Merrill Lynch Global Allocation
Fund, Inc.
High total investment return, consistent with
prudent risk, through a fully managed investment
policy utilizing United States and foreign equity,
debt, and money market securities, the combination
of which will be varied from time to time both with
respect to types of securities and markets in
response to changing market and economic trends.
Merrill Lynch Global Bond Fund
for Investment and Retirement
High total investment return from investment in a
global portfolio of debt instruments denominated in
various currencies and multinational currency units.
Merrill Lynch Global Convertible
Fund, Inc.
High total return from investment primarily in an
internationally diversified portfolio of convertible
debt securities, convertible preferred stock and
"synthetic" convertible securities consisting of a
combination of debt securities or preferred stock and
warrants or options.
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<PAGE>
Merrill Lynch Global Holdings
(residents of Arizona must
meet investor suitability
standards)
The highest total investment return consistent with
prudent risk through worldwide investment in an
internationally diversified portfolio of securities.
Merrill Lynch Global
Resources Trust Long-term growth and protection of capital from
investment in securities of domestic and foreign
companies that possess substantial natural resource
assets.
Merrill Lynch Global Utility
Fund, Inc.
Capital appreciation and current income through
investment of at least 65% of its total assets
in equity and debt securities issued by domestic
and foreign companies which are primarily engaged
in the ownership or operation of facilities used
to generate, transmit or distribute electricity,
telecommunications, gas or water.
Merrill Lynch Government Fund
A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income consistent with liquidity and
security of principal from investment in securities
issued or guaranteed by the U.S. Government, its
agencies and instrumentalities and in repurchase
agreements secured by such obligations.
Merrill Lynch Growth Fund for
Investment and Retirement
Growth of capital and, secondarily, income from
investment in a diversified portfolio of equity
securities placing principal emphasis on those
securities which management of the fund believes
to be undervalued.
Merrill Lynch Healthcare
Fund, Inc. (residents of
Wisconsin must meet investor
suitability standards)
Capital appreciation through worldwide investment
in equity securities of companies that derive or
are expected to derive a substantial portion of
their sales from products and services in
healthcare.
Merrill Lynch Institutional Fund
A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to
provide maximum current income consistent with
liquidity and the maintenance of a high quality
portfolio of money market securities.
Merrill Lynch Institutional
Tax-Exempt Fund
A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to
provide current income exempt from Federal income
taxes, preservation of capital and liquidity
available from investing in a diversified portfolio
of short-term, high quality municipal bonds.
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<PAGE>
Merrill Lynch International
Equity Fund
Capital appreciation and, secondarily, income by
investing in a diversified portfolio of equity
securities of issuers located in countries other
than the United States.
Merrill Lynch Latin America
Fund, Inc.
Capital appreciation by investing primarily in
Latin American equity and debt securities.
Merrill Lynch Maryland
Municipal Bond Fund
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is as
high a level of income exempt from Federal and
Maryland income taxes as is consistent with prudent
investment management.
Merrill Lynch Massachusetts
Limited Maturity Municipal
Bond Fund
A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund,
whose objective is as high a level of income
exempt from Federal and Massachusetts income taxes
as is consistent with prudent investment management
through investment in a portfolio primarily of
intermediate-term investment grade Massachusetts
Municipal Bonds.
Merrill Lynch Massachusetts
Municipal Bond Fund
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is as
high a level of income exempt from Federal and
Massachusetts income taxes as is consistent with
prudent investment management.
Merrill Lynch Michigan Limited
Maturity Municipal Bond Fund
A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund,
whose objective is as high a level of income
exempt from Federal and Michigan income taxes
as is consistent with prudent investment management
through investment in a portfolio primarily of
intermediate-term investment grade Michigan
Municipal Bonds.
Merrill Lynch Michigan Municipal
Bond Fund
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is as high
a level of income exempt from Federal and Michigan
income taxes as is consistent with prudent
investment management.
Merrill Lynch Minnesota
Municipal Bond Fund
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income exempt
from Federal and Minnesota income taxes as is
consistent with prudent investment management.
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<PAGE>
Merrill Lynch Municipal Bond
Fund, Inc.
Tax-exempt income from three separate diversified
portfolios of municipal bonds.
Merrill Lynch Municipal
Intermediate Term Fund
Currently the only portfolio of Merrill Lynch
Municipal Series Trust, a series fund, whose
objective is to provide as high a level as
possible of income exempt
from Federal income taxes by investing in investment
grade obligations with a dollar weighted average
maturity of five to twelve years.
<TABLE>
<S> <C>
Merrill Lynch New Jersey Limited
Maturity Municipal Bond Fund
A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is as high a level of income exempt from
Federal and New Jersey income taxes as is consistent
with prudent investment management through a portfolio
primarily of intermediate-term investment grade New
Jersey Municipal Bonds.
Merrill Lynch New Jersey
Municipal Bond Fund
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is as high
a level of income exempt from Federal and New Jersey
income taxes as is consistent with prudent investment
management.
Merrill Lynch New Mexico
Municipal Bond Fund, Inc.
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is as high
a level of income exempt from Federal and New Mexico
income taxes as is consistent with prudent investment
management.
Merrill Lynch New York Limited
Maturity Municipal Bond Fund
A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is as high a level of income exempt from
Federal, New York State and New York City income taxes
as is consistent with prudent investment management
through investment in a portfolio primarily of
intermediate-term investment grade New York Municipal
Bonds.
Merrill Lynch New York
Municipal Bond Fund
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is as high
a level of income exempt from Federal, New York State
and New York City income taxes as is consistent with
prudent investment management.
Merrill Lynch North Carolina
Municipal Bond Fund
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is as high
a level of income exempt from Federal and North Carolina
income taxes as is consistent with prudent investment
management.
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<PAGE>
Merrill Lynch Ohio Municipal
Bond Fund
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is as high
a level of income exempt from Federal and Ohio income
taxes as is consistent with prudent investment
management.
Merrill Lynch Oregon Municipal
Bond Fund
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is as high
a level of income exempt from Federal and Oregon income
taxes as is consistent with prudent investment
management.
Merrill Lynch Pacific Fund, Inc.
Capital appreciation by investing in equity securities
of corporations domiciled in Far Eastern and Western
Pacific countries, including Japan, Australia, Hong
Kong, Singapore and the Philippines.
Merrill Lynch Pennsylvania
Maturity Municipal
Fund A portfolio of Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, a series fund, whose
objective is to provide as high a level of income exempt
from Federal and Pennsylvania income taxes as is
consistent with prudent investment management through
investment in a portfolio of intermediate-term
investment grade Pennsylvania Municipal Bonds.
Merrill Lynch Pennsylvania
Municipal Bond Fund
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is as high
a level of income exempt from Federal and Pennsylvania
income taxes as is consistent with prudent investment
management.
Merrill Lynch Phoenix Fund, Inc.
Long-term growth of capital by investing in equity and
fixed income securities, including tax-exempt
securities, of issuers in weak financial condition or
experiencing poor operating results believed to be
undervalued relative to the current or prospective
condition of such issuer.
Merrill Lynch Ready Assets Trust
Preservation of capital, liquidity and the highest
possible current income consistent with the foregoing
objectives from the short-term money market securities
in which the Trust invests.
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<PAGE>
Merrill Lynch Retirement
Reserves Money Fund
(available only if the
exchange occurs within
certain retirement plans)
Currently the only portfolio of Merrill Lynch Retirement
Series Trust, a series fund, whose objectives are
current income, preservation of capital and liquidity
available from investing in a diversified portfolio of
short-term money market securities.
Merrill Lynch Short-Term Global
Income Fund, Inc.
As high a level of current income as is consistent with
prudent investment management from a global portfolio of
high quality debt securities denominated in various
currencies and multinational currency units and having
remaining maturities not exceeding three years.
Merrill Lynch Smallcap Global
Fund, Inc.
Long-term growth of capital from investments in
securities, primarily common stocks, of companies with
relatively small market capitalizations located in
various foreign countries and in the United States.
Merrill Lynch Special Value Fund,
Inc. Long-term growth of capital from investments in
securities, primarily common stocks, of relatively small
companies believed to have special investment value and
emerging growth companies regardless of size.
Merrill Lynch Strategic Dividend
Fund Long-term total return from investment in dividend
paying common stocks which yield more than Standard &
Poor's 500 Composite Stock Price Index.
Merrill Lynch Technology Fund, Inc.
Capital appreciation through worldwide investment in
equity securities of companies that derive or are
expected to derive a substantial portion of their sales
from products and services in technology.
Merrill Lynch Texas Municipal
Bond Fund
A portfolio of Merrill Lynch Multi-State Municipal
Series Trust, a series fund, whose objective is as high
a level of income exempt from Federal income taxes as is
consistent with prudent investment management by
investing primarily in a portfolio of long-term,
investment grade obligations issued by the State of
Texas, its political subdivisions, agencies and
instrumentalities.
Merrill Lynch Treasury Fund
A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income consistent with liquidity and security of
principal from investment in direct obligations of the
U.S. Treasury and up to 10% of its total assets in
repurchase agreements secured by such obligations.
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<PAGE>
Merrill Lynch U.S.A. Government
Reserves
Preservation of capital, current income and liquidity
available from investing in direct obligations of the
U.S. Government and repurchase agreements relating to
such securities.
Merrill Lynch U.S. Treasury
Money Fund
Preservation of capital, liquidity and current income
through investment exclusively in a diversified
portfolio of short-term marketable securities which are
direct obligations of the U.S. Treasury.
Merrill Lynch Utility Income
Fund, Inc.
High current income through investment in equity and
debt securities issued by companies which are primarily
engaged in the ownership or operation of facilities used
to generate, transmit or distribute electricity,
telecommunications, gas or water.
Merrill Lynch World Income Fund,
Inc. High current income by investing in a global portfolio
of fixed income securities denominated in various
currencies, including multinational currencies.
</TABLE>
Before effecting an exchange, shareholders of the Fund should
obtain a currently effective prospectus of the fund into which the
exchange is to be made. Exercise of the exchange privilege is
treated as a sale for Federal income tax purposes and, depending on
the circumstances, a short- or long-term capital gain or loss may
be realized. In addition, a shareholder exchanging shares of any
of the funds may be subject to a backup withholding tax unless such
shareholder certifies under penalty of perjury that the taxpayer
identification number on file with any such fund is correct and
that such shareholder is not otherwise subject to backup
withholding. See "Dividends, Distributions and Taxes - Taxes"
below.
To exercise the exchange privilege, shareholders should
contact their Merrill Lynch financial consultant, who will advise
the Fund of the exchange, or if the exchange does not involve a
money market fund, shareholders may write to the transfer agent
requesting that the exchange be effected. Such letter must be
signed exactly as the account is registered with signatures
guaranteed by an "eligible guarantor institution" (including, for
example, Merrill Lynch branch offices and certain other financial
32
<PAGE>
institutions) as such is defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, the existence and
validity of which may be verified by the transfer agent through the
use of industry publications. Shareholders of the Fund, and
shareholders of the other funds described above with shares for
which certificates have not been issued, may exercise the exchange
privilege by wire through their securities dealers. The Fund
reserves the right to require a properly completed Exchange
Application. This exchange privilege may be modified or terminated
in accordance with the rules of the Commission. The Fund reserves
the right to limit the number of times an investor may exercise the
exchange privilege. Certain funds may suspend the continuous
offering of their shares 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 at least annually. 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 shares
will be lower than the per share dividends and distributions on
Class A shares as a result of the distribution and higher transfer
agency fees applicable with respect to the Class B shares. See
"Determination of Net Asset Value."
Taxes
The Fund intends to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal
Revenue Code of 1986, as amended (the "Code"). If it so qualifies,
the Fund (but not its shareholders) will not be subject to Federal
income tax on the part of its net ordinary income and net realized
capital gains which it distributes to Class A and Class B
shareholders (together, the "shareholders"). The Fund intends to
distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and
distributions of the Fund's net realized short-term capital gains
(together referred to hereafter as "ordinary income dividends") are
taxable to shareholders as ordinary income. Distributions made
from the Fund's net realized long-term capital gains (including
long-term gains from certain transactions in futures and options)
("capital gain dividends") are taxable to shareholders as long-term
capital gains, regardless of the length of time the shareholder has
owned Fund shares. Distributions in excess of the Fund's earnings
and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming the shares are
held as a capital asset). Any loss upon the sale or exchange of
Fund shares held for six months or less, however, will be treated
as long-term capital loss to the extent of any capital gain
dividends received by the shareholder.
Dividends are taxable to shareholders even though they are
reinvested in additional shares of the Fund. Not later than 60
days after the close of its taxable year, the Fund will provide its
shareholders with a written notice designating the amounts of any
ordinary income dividends or capital gain dividends. A portion of
33
<PAGE>
the Fund's ordinary income dividends may be eligible for the
dividends received deduction allowed to corporations under the
Code, if certain requirements are met. For this purpose, the Fund
will allocate dividends eligible for the dividends received
deduction between the Class A and Class B shareholders according to
a method (which it believes is consistent with the Securities and
Exchange Commission exemptive order permitting the issuance and
sale of two classes of stock) that is based on the gross income
allocable to Class A and Class B shareholders during the taxable
year, or such other method as the Internal Revenue Service may
prescribe. If the Fund pays a dividend in January that was
declared in the previous October, November or December to
shareholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid
by the Fund and received by its shareholders on December 31 of the
year in which such dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who
are nonresident aliens or foreign entities will be subject to a 30%
U.S. withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced
rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the
U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be
subject to a 31% withholding tax on certain ordinary income
dividends and capital gain dividends and on redemption payments
("backup withholding"). Generally, shareholders subject to backup
withholding will be those for whom no certified taxpayer
identification number is on file with the Fund or who, to the
Fund's knowledge, have furnished an incorrect number. When
establishing an account, an investor must certify under penalty of
perjury that such number is correct and that such investor is not
otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the U.S. may reduce or
eliminate such taxes. Shareholders may be able to claim U.S.
foreign tax credits with respect to such taxes, subject to certain
conditions and limitations contained in the Code. For example,
certain retirement accounts cannot claim foreign tax credits on
investments in foreign securities held in the Fund. If more than
50% in value of the Fund's total assets at the close of its taxable
year consists of securities of foreign corporations, the Fund will
be eligible, and intends, to file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be
required to include their proportionate shares of such withholding
taxes in their U.S. income tax returns as gross income, treat such
proportionate shares as taxes paid by them, and deduct such
proportionate shares in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their U.S.
income taxes. No deductions for foreign taxes, however, may be
claimed by noncorporate shareholders who do not itemize deductions.
A shareholder that is a nonresident alien individual or a foreign
corporation may be subject to U.S. withholding tax on the income
resulting from the Fund's election described in this paragraph but
may not be able to claim a credit or deduction against such U.S.
tax for the foreign taxes treated as having been paid by such
shareholder. The Fund will report annually to its shareholders the
amount per share of such withholding taxes. For this purpose, the
Fund will allocate foreign taxes and foreign source income between
the Class A and Class B shareholders according to a method similar
to that described above for the allocation of dividends eligible
for the dividends received deduction.
If a Class A shareholder exercises the exchange privilege
within 90 days of acquiring the shares, then the loss the
shareholder can recognize on the exchange will be reduced (or the
gain increased) to the extent the sales charge paid to the Fund
reduces any sales charge the shareholder would have owed upon
purchase of the new Class A shares in the absence of the exchange
privilege. Instead, such sales charge will be treated as an amount
paid for the new Class A shares.
The Code requires a RIC to pay a nondeductible 4% excise tax
to the extent the RIC does not distribute, during each calendar
year, 98% of its ordinary income, determined on a calendar year
basis, and 98% of its capital gains, determined, in general, on an
October 31 year end, plus certain undistributed amounts from
previous years. While the Fund intends to distribute its income
and capital gains in the manner necessary to avoid imposition of
the 4% excise tax, there can be no assurance that sufficient
amounts of the Fund's taxable income and capital gains will be
distributed to avoid entirely the imposition of the tax. In such
event, the Fund will be liable for the tax only on the amount by
which it does not meet the foregoing distribution requirements.
Tax Treatment of Options, Futures and Forward Foreign Exchange
Transactions. The Fund may write, purchase or sell options,
futures or forward foreign exchange contracts. Options and futures
contracts that are "Section 1256 contracts" will be "marked to
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market" for Federal income tax purposes at the end of each taxable
year, i.e., each such option or futures contract will be treated as
sold for its fair market value on the last day of the taxable year.
Unless such contract is a non-equity option or a regulated futures
contract for a non-U.S. currency and the Fund elects to have gain
or loss in connection with the contract treated as ordinary gain or
loss under Code Section 988 (as described below), gain or loss from
Section 1256 contracts will be 60% long-term and 40% short-term
capital gain or loss. The mark-to-market rules outlined above,
however, will not apply to certain transactions entered into by the
Fund solely to reduce the risk of changes in price or interest or
currency exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256
contract will be marked to market, as described above. However,
the character of gain or loss from such a contract will generally
be ordinary under Code Section 988. The Fund may, nonetheless,
elect to treat the gain or loss from certain forward foreign
exchange contracts as capital. In this case, gain or loss realized
in connection with a forward foreign exchange contract that is a
Section 1256 contract will be characterized as 60% long-term and
40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may
affect the taxation of the Fund's transactions in options 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 contracts.
One of the requirements for qualification as a RIC is that
less than 30% of the Fund's gross income may be derived from gains
from the sale or other disposition of securities held for less than
three months. Accordingly, the Fund may be restricted in effecting
closing transactions within three months after entering into an
options or futures contract.
Special Rules for Certain Foreign Currency Transactions. In
general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange
contracts relating to investments in stock, securities or foreign
currencies will be qualifying income for purposes of determining
whether the Fund qualifies as a RIC. It is currently unclear,
however, who will be treated as the issuer of a foreign currency
instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for
purposes of the RIC diversification requirements applicable to the
Fund. The Fund may request a private letter ruling from the
Internal Revenue Service on some or all of these issues.
Under Code Section 988, special rules are provided for certain
transactions in a currency other than the taxpayer's functional
currency (i.e., unless certain special rules apply, currencies
other than the U.S. dollar). In general, foreign currency gains or
losses from certain debt instruments, from forward contracts, from
futures contracts that are not "regulated futures contracts" and
from unlisted options will be treated as ordinary income or loss
under Code Section 988. In certain circumstances, the Fund may
elect capital gain or loss treatment for such transactions.
Regulated futures contracts, as described above, will be taxed
under Code Section 1256 unless application of Section 988 is
elected by the Fund. In general, however, Code Section 988 gains
or losses will increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to
shareholders as ordinary income. Additionally, if Code Section 988
losses exceed other investment company taxable income during a
taxable year, the Fund would not be able to make any ordinary
dividend distributions, and any distributions made before the
losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby
reducing the basis of each shareholder's Fund shares. These rules
and the mark-to-market rules described above, however, will not
apply to certain transactions entered into by the Fund solely to
reduce the risk of currency fluctuations with respect to its
investments.
---------------------
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and Treasury regulations
presently in effect. For the complete provisions, reference should
be made to the pertinent Code sections and the Treasury regulations
promulgated thereunder. The Code and the Treasury regulations are
subject to change by legislative or administrative action either
prospectively or retroactively.
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<PAGE>
Ordinary income dividends and capital gain dividends may also
be subject to state and local taxes.
Certain states exempt from state income taxation dividends
paid by RICs which are derived from interest on U.S. Government
obligations. State law varies as to whether dividend income
attributable to U.S. Government obligations is exempt from state
income tax.
Shareholders are urged to consult their own tax advisers
regarding specific questions as to Federal, foreign, state or local
taxes. Foreign investors should consider applicable foreign taxes
in their evaluation of an investment in the Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual
total return and other total return data 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 and Class
B 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 shares and the contingent deferred
sales charge that would be applicable to a complete redemption of
the investment at the end of the specified period in the case of
Class B shares.
The Fund also may quote annual, average annual and annualized
total return and aggregate total return performance data, both as
a percentage and as a dollar amount based on a hypothetical $1,000
investment, for various periods other than those noted below. Such
data will be computed as described above, except that (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 longer periods of time.
In order to reflect the reduced sales charges, in the case of
Class A shares, or the waiver of the contingent deferred sales
charge, in the case of Class B shares, applicable to certain
investors, as described under "Purchase of Shares" and "Redemption
of Shares," respectively, the total return data quoted by the Fund
in advertisements directed to such investors may take into account
the reduced, and not the maximum, sales charge or may not take into
account the contingent deferred sales charge 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.
GENERAL INFORMATION
Description of Shares
The Fund was incorporated under Maryland law on June 6, 1994.
It has an authorized capital of 200,000,000 shares of Common Stock,
par value $0.10 per share, divided into two classes, designated
Class A Common Stock and Class B Common Stock, each of which
consists of 100,000,000 shares. Both Class A Common Stock and Class
B Common Stock represent an interest in the same assets of the Fund
and are identical in all respects except that the Class B shares
bear certain expenses related to the account maintenance and
36
<PAGE>
distribution of such shares and have exclusive voting rights with
respect to matters relating to such account maintenance and
distribution expenditures. The Fund has received an order from the
Commission permitting the issuance and sale of two 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. The creation of additional classes would
require an additional order from the Commission. There is no
assurance that such an additional order would be issued.
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 or conversion rights.
Redemption 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.
The Manager provided the initial capital for the Fund by
purchasing 5,000 shares of each class of stock for an aggregate of
$100,000. Such shares were acquired for investment and can only be
disposed of by redemption. The organizational expenses of the Fund
will be paid by the Fund and amortized over a period not exceeding
five years. The proceeds realized by the Manager upon redemption
of any of such shares will be reduced by the proportionate amount
of the unamortized organizational expenses which the number of
shares redeemed bears to the number of shares initially purchased.
Computation of Offering Price Per Share
An illustration of the computation of the offering price for
Class A and Class B shares of the Fund based on the projected value
of the Fund's estimated net assets on ___________, 1994, and its
shares outstanding on that date is as follows:
Class A Class B
------- -------
Net Assets. . . . . . . . . . . . . . . . . $ $
======= =======
Number of Shares Outstanding. . . . . . . . ======= =======
Net Asset Value Per Share (net assets
divided by number of shares outstanding). $ $
Sales Charge (for Class A shares:
6.50% of offering price (6.95%
of net amount invested))* . . . . . . . . $ $ **
-------- -------
Offering Price . . . . . . . . . . . . . . $ $
======== =======
___________________
*Rounded to the nearest one-hundredth percent; assumes maximum
sales charge is applicable.
**Class B shares are not subject to an initial sales charge
but may be subject to a contingent deferred sales charge on
redemption of shares within four years of purchase. See "Purchase
of Shares - Deferred Sales Charge Alternative - Class B Shares" in
the Prospectus and "Redemption of Shares - Contingent Deferred
Sales Charge - Class B Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche, 117 Campus Drive, Princeton, New Jersey
08540, has been selected as the independent auditors of the Fund.
The selection of independent auditors is subject to ratification by
the shareholders of the Fund. The independent auditors are
responsible for auditing the annual financial statements of the
Fund.
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<PAGE>
CUSTODIAN
Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts 02109 (the "Custodian"), 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 U.S. 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
Financial Data Services, Inc., Transfer Agency Mutual Fund
Operations, 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484 (the "Transfer Agent"), 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
Rogers & Wells, 200 Park Avenue, New York, New York 10166, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on October 31 of each year.
The Fund sends to its shareholders at least semi-annually reports
showing the Fund's portfolio and other information. An annual
report, containing financial statements audited by independent
auditors, is sent to shareholders each year. After the end of each
year, shareholders will receive Federal income tax information
regarding dividends and capital gains distributions.
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 of 1933 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.
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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 thereby not well
safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in
this class.
B Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements
of danger with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each
generic rating classification from Aa through 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.
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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:
Prime-1. Issuers rated Prime-1 (or supporting institutions)
have a superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced by
many of the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well-established access to a range of financial markets
and assured sources of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions)
have a strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions)
have an acceptable ability for repayment of senior short term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime. Issuers rated Not Prime do not fall within any of
the Prime rating categories.
If an issuer represents to Moody's that its 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 the 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 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.
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
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<PAGE>
used in the quality ranking of preferred stock. The symbols,
presented below, are designed to avoid comparison with bond quality
in absolute terms. It should always be borne in mind that
preferred stock occupies a junior position to bonds within a
particular capital structure and that these securities are rated
within the universe of preferred stocks.
Preferred stock rating symbols and their definitions are as
follows:
"aaa" An issue which is rated "aaa" is considered to be a top-
quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment within
the universe of preferred stocks.
"aa" An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a
reasonable assurance the earnings and asset protection will
remain relatively well maintained in the foreseeable future.
"a" An issue which is rated "a" is considered to be an upper-
medium grade preferred stock. While risks are judged to be
somewhat greater than in the "aaa" and "aa" classifications,
earnings and asset protections are, nevertheless, expected
to be maintained at adequate levels.
"baa" An issue which is rated "baa" is considered to be a medium-
grade preferred stock, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at
present but may be questionable over any great length of
time.
"ba" An issue which is rated "ba" is considered to have
speculative elements and its future cannot be considered
well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks
in this class.
"b" An issue which is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
"caa" An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport
to indicate the future status of payments.
"ca" An issue which is rated "ca" is speculative in a high degree
and is likely to be in arrears on dividends with little
likelihood of eventual payments.
"c" This is the lowest rated class of preferred or preference
stock. Issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment
standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each
rating classification: the modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
Description of Standard & Poor's Corporation's
("Standard & Poor's") Corporate Debt Ratings
A Standard & Poor's corporate or municipal debt 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
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<PAGE>
considers reliable. Standard & Poor's does not perform any audit
in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
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 in higher rated categories.
Speculative
Grade Debt rated BB, B, CCC, CC and C is 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. While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
or major exposures to adverse conditions.
BB Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or
economic conditions will likely impair capacity or willing-
ness to pay interest and repay principal. The B rating
category is also used for debt subordinated to senior debt
that is assigned an actual or implied BB or BB- rating.
CCC Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business,
financial, and economic conditions to meet timely payment
of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it
is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used
for debt subordinated to senior debt that is assigned an
actual or implied B or B- rating.
CC The rating CC is typically applied to debt subordinated to
senior debt that 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.
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CI The rating CI is reserved for income bonds on which no
interest is being paid.
D Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are
not made on the date due even if the applicable grace
period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period.
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 categories.
N.R. 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 Legal Investment
Laws of various states may impose certain rating or other standards
for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Description of Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an
original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A-1" 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 an 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 Debt rated "D" is in payment default. The "D" rating
category is used when interest payments or principal
payments are not made on the date due even if the
applicable grace period has not expired, unless Standard
& Poor's believes that such payments will be made during
such grace period.
43
<PAGE>
A commercial paper rating is not a recommendation to purchase
or sell a security. The ratings are based on current information
furnished to Standard & Poor's by the issuer or obtained from other
sources it considers reliable. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability
of such information.
Description of Standard & Poor's Preferred Stock Ratings
A Standard & Poor's preferred stock rating is an assessment of
the capacity and willingness of an issuer to pay preferred stock
dividends and any applicable sinking fund obligations. A preferred
stock rating differs from a bond rating inasmuch as it is assigned
to an equity issue, which issue is intrinsically different from,
and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be
higher than the bond rating symbol assigned to, or that would be
assigned to, the senior debt of the same issuer.
The preferred stock ratings are based on the following
considerations:
I. Likelihood of payment-capacity and willingness
of the issuer to meet the timely payment of preferred
stock dividends and any applicable sinking fund
requirements in accordance with the terms of the
obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of
bankruptcy, reorganization, or other arrangement under the
laws of bankruptcy and other laws affecting creditors'
rights.
AAA This is the highest rating that may be assigned by
Standard & Poor's to a preferred stock issue and
indicates an extremely strong capacity to pay the
preferred stock obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-
quality fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the "A"
category.
BB
B
CCC Preferred stock rated "BB," "B," and "CCC" are regarded, on
balance, as predominately 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 protective characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments but that is
currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the
issuer in default on debt instruments.
44
<PAGE>
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.
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.
46
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Merrill Lynch Global Growth Portfolio, Inc.:
We have audited the accompanying statement of assets and
liabilities, of Merrill Lynch Global Growth Portfolio, Inc. as of
July __, 1994. This financial statement is the responsibility of
the Fund's management. Our responsibility is to express an opinion
on this financial statement 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 statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statement. 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 statement presents fairly, in all
material respects, the financial position of Merrill Lynch Global
Growth Portfolio, Inc. as of July __, 1994, in conformity with
generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
July , 1994.
47
<PAGE>
[CAPTION]
<TABLE>
MERRILL LYNCH GLOBAL GROWTH PORTFOLIO, INC.
STATEMENT OF ASSETS AND LIABILITIES
_________, 1994
<S> <C>
Assets:
Cash in Bank. . . . . . . . . . . . . . . . . . . . $100,000
Prepaid registration fees (Note) 3) . . . . . . . .
Deferred organization expenses (Note 4) . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ________
Liabilities - accrued expenses . . . . . . . . . . . . . . . . . . . . . . ________
Net Assets (equivalent to $10.00 per share on 5,000 Class A shares of
common stock (par value $0.10) and 5,000 Class B shares of common stock (par
value $0.10) outstanding with 200,000,000 shares authorized) (Note 1). . . $100,000
========
________________
(1) Merrill Lynch Global Growth Portfolio, Inc. (the
"Fund") was incorporated in the State of Maryland on
________, 1994. The Fund is registered under the
Investment Company Act of 1940 as an open-end investment
company.
(2) The Fund intends to enter into an Investment Management
Agreement (the "Management Agreement") with Merrill Lynch
Asset Management, L.P. (the "Manager"), and a distribution
agreement (the "Distribution Agreement") with Merrill
Lynch Funds Distributor, Inc. (the "Distributor"). (See
"Management and Advisory Arrangements" in the Statement of
Additional Information.) Certain officers and/or
directors of the Fund are officers and/or directors of the
Manager and the Distributor.
(3) Prepaid registration fees are charged to income as the
related shares are issued.
(4) Deferred organization expenses will be amortized over a
period from the date the Fund commences operations not
exceeding five years. In the event that the Manager (or
any subsequent holder) redeems any of its original shares
prior to the end of the five-year period, the proceeds of
the redemption payable in respect of such shares will be
reduced by the pro rata share (based on the proportionate
share of the original shares redeemed to the total number
of original shares outstanding at the time of redemption)
of the unamortized deferred organization expenses as of
the date of such redemption. In the event that the Fund
is liquidated prior to the end of the five-year period,
the Manager (or any subsequent holder) will bear the
unamortized deferred organization expenses.
</TABLE>
48
<PAGE>
TABLE OF CONTENTS STATEMENT OF
ADDITIONAL
TABLE OF CONTENTS INFORMATION
Page
Investment Objective and Policies . . . . . 1
Precious Metal-Related Securities. . . . 1
Real Estate-Related Securities . . . . . 2
Portfolio Strategies Involving Options
and Futures . . . . . . . . . . . . . 2
Other Investment Policies and Practices. 6
Investment Restrictions . . . . . . . . 8
Management of the Fund . . . . . . . . . . 11
Directors and Officers . . . . . . . . . 11
Management and Advisory Arrangements . . 12
Purchase of Shares . . . . . . . . . . . . 13
Alternative Sales Arrangements . . . . . 13
Initial Sales Charge Alternative-Class
A Shares . . . . . . . . . . . . . . . 14
Reduced Initial Sales Charges-Class A [LOGO]
Shares . . . . . . . . . . . . . . . . 14
Deferred Sales Charge Alternative-Class
B Shares . . . . . . . . . . . . . . . 17
Redemption of Shares. . . . . . . . . . . . 18
Contingent Deferred Sales Charge-Class B
Shares . . . . . . . . . . . . . . . 18
Portfolio Transactions and Brokerage. . . . 19
Determination of Net Asset Value. . . . . . 20 -----------------------
Shareholder Services . . . . . . . . . . . 21 MERRILL LYNCH
Investment Account . . . . . . . . . . . 21 GLOBAL GROWTH
Automatic Investment Plan. . . . . . . . 21 PORTFOLIO, INC.
Automatic Reinvestment of Dividends
and Capital Gains Distributions. . . . . 21
Systematic Withdrawal Plans-Class
A Shares . . . . . . . . . . . . . . . 21
Exchange Privilege . . . . . . . . . . . 22
Dividends, Distributions and Taxes. . . . . 33
Dividends and Distributions. . . . . . . 33
Taxes . . . . . . . . . . . . . . . . . 33
Performance Data. . . . . . . . . . . . . . 36
General Information . . . . . . . . . . . . 36
Description of Shares. . . . . . . . . . 36
Computation of Offering Price Per Share. 37
Independent Auditors . . . . . . . . . . . 37
Custodian . . . . . . . . . . . . . . . . . 38
Transfer Agent. . . . . . . . . . . . . . . 38
Legal Counsel . . . . . . . . . . . . . . . 38
Reports to Shareholders . . . . . . . . . . 38
Additional Information . . . . . . . . . . 38
Appendix . . . . . . . . . . . . . . . . . 39
Independent Auditors' Report. . . . . . . . 46 July __, 1994
Statement of Assets and Liabilities . . . . 47
Distributor: Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements
Contained in Part A: None.
Contained in Part B:
Statement of Assets and Liabilities, July __, 1994.
(b) Exhibits:
Exhibit
Number
1 - Articles of Incorporation of the Registrant.
2 - By-Laws of the Registrant.
3 - None.
4 - Copies of instruments defining the rights of
shareholders, including the relevant portions of
the Articles of Incorporation, as amended, and By-
Laws of Registrant.
5 - Form of Management Agreement between Registrant and
Merrill Lynch Asset Management, L.P.*
6(a) - Form of Class B Shares Distribution Agreement
between Registrant and Merrill Lynch Funds
Distributor, Inc.*
(b) - Letter Agreement between the Registrant and Merrill
Lynch Funds Distributor, Inc. with respect to the
Merrill Lynch Mutual Fund Advisor Program.*
7 - None.
8 - Form of Custodian Agreement between Registrant and
Brown Brothers Harriman & Co.*
9(a) - Form of Transfer Agency, Dividend Disbursing Agency
and Shareholder Servicing Agency Agreement between
Registrant and Financial Data Services, Inc.*
(b) - Form of Agreement between Merrill Lynch & Co., Inc.
and the Registrant relating to use by Registrant of
Merrill Lynch name.*
10 - None.
11 - Consent of Deloitte & Touche, independent auditors
for the Registrant.*
12 - None.
13 - Certificate of Merrill Lynch Asset Management,
L.P.*
14 - None.
15 - Class B Distribution Plan of the Registrant and
Distribution Plan Sub-Agreement.*
16(a) - Schedule of computation of each performance
quotation relating to Class A shares provided in
the Registration Statement in response to Item 22.*
(b) - Schedule of computation of each performance
quotation relating to Class B shares provided in
the Registration Statement in response to Item 22.*
______________
* To be filed by amendment
Item 25. Persons Controlled by or Under Common Control with
Registrant.
The Registrant is not controlled by or under common
control with any other person.
Item 26. Number of Holders of Securities.
C-1
<PAGE>
Number of Record
Holders at Effective
Date of the
Title of Class Registration Statement
-------------- ----------------------
Shares of Class A Common Stock, par value $0.10 per share One
Shares of Class B Common Stock, par value $0.10 per share One
Item 27. Indemnification.
Reference is made to Article VI of Registrant's Articles
of Incorporation, Article VI of Registrant's By-Laws, Section
2-418 of the Maryland General Corporation Law and Section [9]
of the Class A and Class B Distribution Agreements.
Article VI of the By-Laws provides that each officer and
director of the Registrant shall be indemnified by the
Registrant to the full extent permitted under the General Laws
of the State of Maryland, except that such indemnity shall not
protect any such person against any liability to the Registrant
or any stockholder thereof to which such person would otherwise
be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office. Absent a court determination that an
officer or director seeking indemnification was not liable on
the merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office, the decision by the Registrant to
indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent
directors, after review of the facts, that such officer or
director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office.
The Registrant may purchase insurance on behalf of an
officer or director protecting such person to the full extent
permitted under the General Laws of the State of Maryland from
liability arising from his activities as officer or director of
the Registrant. The Registrant, however, may not purchase
insurance on behalf of any officer or director of the
Registrant that protects or purports to protect such person
from liability to the Registrant or to its stockholders to
which such officer or director would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his
office.
Insofar as the conditional advancing of indemnification
moneys for actions based upon the Investment Company Act of
1940 may be concerned, such payments will be made only on the
following conditions: (i) the advances must be limited to
amounts used, or to be used, for the preparation or
presentation of a defense to the action, including costs
connected with the preparation of a settlement; (ii) advances
may be made only upon receipt of a written promise by, or on
behalf of, the recipient to repay that amount of the advance
which exceeds the amount to which it is ultimately determined
that he is entitled to receive from the Registrant by reason of
indemnification; and (iii) (a) such promise must be secured by
a surety bond, other suitable insurance or an equivalent form
of security which assures that any repayments may be obtained
by the Registrant without delay or litigation, which bond,
insurance or other form of security must be provided by the
recipient of the advance, or (b) a majority of a quorum of the
Registrant's disinterested, non-party Directors, or an
independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that
the recipient of the advance ultimately will be found entitled
to indemnification.
In Section 9 of the Class A and Class B Distribution
Agreements relating to the securities being offered hereby, the
Registrant agrees to indemnify the Distributor and each person,
if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "Act"), against certain types of
civil liabilities arising in connection with the Registration
Statement or Prospectus and Statement of Additional
Information.
Insofar as indemnification for liabilities arising under
the Act may be permitted to Directors, officers and controlling
persons of the Registrant and the principal underwriter
pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the
C-2
<PAGE>
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
Director, officer, or controlling person of the Registrant and
the principal underwriter in connection with the successful
defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person or the principal
underwriter in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Item 28. Business and Other Connections of Investment Adviser.
(a) Merrill Lynch Asset Management, L.P., doing
business as Merrill Lynch Asset Management (the 'Manager'),
acts as investment adviser for the following registered
investment companies: Convertible Holdings, Inc., Merrill Lynch
Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Allocation Income
Portfolio, Inc., Merrill Lynch Balanced Fund for Investment and
Retirement, Merrill Lynch Capital Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental
Growth Fund, Inc., Merrill Lynch Fund For Tomorrow, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement,
Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch
Global Growth Portfolio, Inc., Merrill Lynch Global Convertible
Fund, Inc., Merrill Lynch Global Holdings, Merrill Lynch Global
Resources Trust, Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Growth Fund for Investment and Retirement,
Merrill Lynch Healthcare Fund, Inc., Merrill Lynch High Income
Municipal Bond Fund, Inc., Merrill Lynch Institutional
Intermediate Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch
Ready Assets Trust, Merrill Lynch Retirement Series Trust,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term
Global Income Fund, Inc., Merrill Lynch SmallCap Global Fund,
Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch
Technology Fund, Inc., Merrill Lynch U.S. Treasury Money Fund,
Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable
Series Funds, Inc. and Senior Floating Rate Fund. Fund Asset
Management, L.P. ("FAM"), an affiliate of the Manager, acts as
the investment adviser for the following investment companies:
Apex Municipal Fund, Inc., CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Corporate High Yield
Fund, Inc., Corporate High Yield Fund II, Inc., Financial
Institutions Series Trust, Income Opportunities Fund 1999,
Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Basic
Value Fund, Inc., Merrill Lynch California Municipal Series
Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch
Federal Securities Trust, Merrill Lynch Funds for Institutions
Series, Merrill Lynch Multi-State Municipal Series Trust,
Merrill Lynch Multi-State Limited Maturity Municipal Series
Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch
Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch World Income Fund, Inc., MuniAssets Fund, Inc.,
MuniBond Income Fund, Inc., The Municipal Fund Accumulation
Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc.,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest
California Insured Fund, Inc., MuniVest Florida Fund, MuniVest
Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc.,
MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania
Insured Fund, MuniYield Arizona Fund, Inc., MuniYield Arizona
Fund II, Inc., MuniYield California Fund, Inc., MuniYield
California Insured Fund, Inc., MuniYield California Insured
Fund II, Inc., MuniYield Florida Fund, MuniYield Florida
Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund,
Inc., MuniYield Insured Fund II, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New
Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc.,
MuniYield New York Insured Fund, Inc., MuniYield New York
Insured Fund II, Inc., MuniYield New York Insured Fund III,
Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund,
Inc., MuniYield Quality Fund II, Inc., Senior High Income
Portfolio, Inc., Senior High Income Portfolio II, Inc., Taurus
MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings,
Inc. and Worldwide DollarVest Fund, Inc. The address of each of
these investment companies is Box 9011, Princeton, New Jersey
08543-9011, except that the address of Merrill Lynch Funds for
Institutions Series and Merrill Lynch Institutional
Intermediate Fund is One Financial Center, 15th Floor, Boston,
Massachusetts 02111-2646. The address of the Manager and FAM
is also Box 9011, Princeton, New Jersey 08543-9011. The
address of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML&Co.") is
World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281.
C-3
<PAGE>
Set forth below is a list of each executive officer and
partner of the Manager indicating each business, profession,
vocation or employment of a substantial nature in which each
such person or entity has been engaged since November 1, 1991,
for his or its own account or in the capacity of director,
officer, partner or trustee. [In addition, Mr. Zeikel is
President, Mr. Richard is Treasurer and Mr. Glenn is Executive
Vice President of substantially all of the investment companies
described in the preceding paragraph, and Messrs. Durnin,
Giordano, Harvey, Kirstein and Monagle are directors, trustees
or officers of one or more of such companies.]
<TABLE>
<CAPTION>
Position with Other Substantial Business, Profession,
Name The Manager Vocation or Employment
<S> <C> <C>
ML & Co. Limited Partner Financial Services Holding Company
Merrill Lynch
Management, Inc Limited Partner Investment Advisory Services;
Limited Partner of FAM
Princeton Services, Inc.
("Princeton Services") General Partner General Partner of FAM
Arthur Zeikel President President of FAM; President and Director
of Princeton Services; Director of
Merrill Lynch Funds Distributor, Inc.
("MLFD"); Executive Vice President of
ML & Co.; Executive Vice President of
Merrill Lynch
Terry K. Glenn Executive Vice President Executive Vice President of the Manager
and FAM; Executive Vice President and
Director of Princeton Services; President
and Director of MLFD; Director of Financial
Data Services, Inc. ("FDS"); President of
Princeton Administrators
Bernard J. Durnin 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 Griffin Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Norman R. Harvey Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
N. John Hewitt Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Philip L. Kirstein Senior Vice President,
General Counsel and
Secretary Senior Vice President, General Counsel
and Secretary of FAM; Senior Vice President,
General Counsel, Director and Secretary of
Princeton Services, Director of MLF
Ronald M. Kloss Senior Vice President
and Controller Senior Vice President and Controller of
FAM; Senior Vice President and Controller
of Princeton Services
Stephen M.M. Miller Senior Vice President Executive Vice President of Princeton
Administrators; Senior Vice President
of Princeton Services
Joseph T. Monagle, Jr. Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
C-4
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Gerard M. Richard Senior Vice President
and Treasurer Senior Vice President and Treasurer of the
Manager and FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Richard L. Rufener Senior Vice President Vice President of FAM; Senior Vice President
of Princeton Services
Ronald L. Welburn Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Anthony Wiseman Senior Vice President Senior Vice President of Princeton Services
(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as sub-adviser for the following
registered investment companies: Merrill Lynch EuroFund, Merrill Lynch Global Growth Portfolio, Inc., Merrill
Lynch International Equity Fund and Merrill Lynch Short-Term Global Income Fund, Inc. The address of each of
these investment companies is Box 9011, Princeton, New Jersey 08543-9011. The address of MLAM U.K. is Ropemaker
Place, 25 Ropemaker Street, 1st Floor, London EC24 9LY, England.
Set forth below is a list of each executive officer and director of MLAM U.K. indicating each
business, profession, vocation or employment of a substantial nature in which each such person has been
engaged since November 1, 1991, for his own account or in the capacity of director, officer, partner or
trustee. [In addition, Messrs. Zeikel, Albert, Glenn, Harvey, Richard and Yardley are officers of one
or more of the registered investment companies listed in the preceding paragraph:]
Position with Other Substantial Business, Profession,
Name MLAM U.K. Vocation or Employment
Arthur Zeikel Chairman President of the Manager and FAM; President
and Director of Princeton Services; Director
of MLFD; Executive Vice President of ML&Co.;
Executive Vice President of Merrill Lynch
Alan J. Albert Managing Director Vice President of the Manager
Terry K. Glenn Managing Director Executive Vice President of the Manager and
FAM; Executive Vice President and Director of
Princeton Services; President and Director of
MLFD; Director of FDS; President of Princeton
Administrators
Paul J. Sarosy Managing Director None
Norman R. Harvey Senior Vice President Services Senior Vice President of the Manager and FAM;
Senior Vice President of Princeton Services
Gerard 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
Jeffrey Lawrence Vice President None
Adrian Holmes Vice President None
Steven J. Yardley Vice President None
Carol Ann Langham Company Secretary None
Debra Anne Searle Assistant Company Secretary None
C-5
</TABLE>
<PAGE>
Item 29. Principal Underwriters.
(a) MLFD acts as the principal underwriter for the Registrant and
for each of the investment companies referred to in the first paragraph of
Item 28 except Apex Municipal Fund, Inc., CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust,
CMA Tax-Exempt Fund, CMA Treasury Fund, Convertible Holdings, Inc., The
Corporate Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc.,
Corporate High Yield Fund II, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., MuniAssets Fund, Inc., MuniBond
Income Fund, Inc., The Municipal Fund Accumulation Program, Inc.,
MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc.,
MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey
Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania
Fund, MuniYield Arizona Fund, MuniYield Arizona Fund II, Inc., MuniYield
California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield
Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc.,
MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New
Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New
York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc.,
MuniYield New York Insured Fund III, Inc., MuniYield Pennsylvania Fund,
MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High
Income Portfolio, Inc., Senior High Income Portfolio II, Inc., Taurus
MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc. and
Worldwide DollarVest Fund, Inc.
(b) Set forth below is information concerning each director and
officer of MLFD. The principal business address of each such person is Box
9011, Princeton, New Jersey 08543-9011, except that the address of Messrs.
Crook, Aldrich, Breen, Graczyk, Fatseas, and Wasel is One Financial Center,
Boston, Massachusetts 02111-2646.
(1) (2) (3)
Position(s) and Office(s) Position(s) and Office(s)
Name with MLFD with Registrant
Terry K. Glenn President and Director Executive Vice President
Arthur Zeikel Director President and Director
Philip L. Kirstein Director None
William E. Aldrich Senior Vice President None
Robert W. Crook Senior Vice President None
Michael J. Brady Vice President None
William M. Breen Vice President None
Sharon Creveling Vice President and
Assistant Treasurer None
Mark A. DeSario Vice President None
James T. Fatseas Vice President None
Stanley Graczyk Vice President None
Michelle T. Lau Vice President None
Debra W. Landsman-Yaros Vice President None
Gerald M. Richard Vice President
and Treasurer Treasurer
Richard L. Rufener Vice President None
Salvatore Venezia Vice President None
William Wasel Assistant Vice President None
Robert Harris Secretary None
(c) Not applicable.
Item 30.Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the
rules thereunder are maintained at the offices of the Registrant,
800 Scudders Mill Road, Plainsboro, New Jersey 08536, and Financial Data
Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
C-6
<PAGE>
Item 31. Management Services.
Other than as set forth under the caption "Management of the Fund -
Management and Advisory Arrangements" in the Prospectus constituting Part
A of the Registration Statement and under "Management of the Fund -
Management and Advisory Arrangements" in the Statement of Additional
Information constituting Part B of the Registration Statement, Registrant
is not a party to any management related service contract.
Item 32. Undertakings.
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Registrant's annual report to shareholders, upon
request and without charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Plainsboro,
State of New Jersey on the day of June, 1994.
MERRILL LYNCH GLOBAL GROWTH
PORTFOLIO, INC.
By/s/ Philip L. Kirstein
----------------------------------------
(Philip L. Kirstein, President)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Philip L. Kirstein, Mark B. Goldfus
and Robert Harris, and each of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and
all Amendments (including pre-effective and post-effective amendments) to
this Registration Statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents,
or either of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Philip L. Kirstein
- - --------------------------------
Philip L. Kirstein Director and President
(Principal Executive
Officer) June , 1994
/s/ Mark B. Goldfus
- - -------------------------------
Mark B. Goldfus Director and Treasurer
(Principal Financial
and Accounting Officer)
June , 1994
/s/ Robert Harris
- - -------------------------------
Robert Harris Director June , 1994
C-8
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Numbered
Page
1(a) Articles of Incorporation of the Registrant.
2 By-Laws of the Registrant.
3 None.
4 Copies of instruments defining the rights of shareholders,
including the relevant portions of the Articles of Incorporation,
as amended, and By-Laws of Registrant.*
5 Form of Management Agreement between Registrant and Merrill Lynch
Asset Management, L.P.*
6(a)
Form of Class B Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.*
(b) Letter Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund
Advisor Program.*
7 None.
8 Form of Custodian Agreement between Registrant and Brown Brothers
Harriman & Co.*
9(a)
Form of Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial Data
Services, Inc.*
(b) Form of Agreement between Merrill Lynch & Co., Inc. and the
Registrant relating to use by Registrant of Merrill Lynch name.*
10 None.
11 Consent of Deloitte & Touche, independent auditors for the
Registrant.*
12 None.
13 Certificate of Merrill Lynch Asset Management, L.P.*
14 None.
15 Class B Distribution Plan of the Registrant and Distribution Plan Sub-
Agreement.*
16(a)
Schedule of computation of each performance quotation relating to
Class A shares provided in the Registration Statement in response to
Item 22.*
(b) Schedule of computation of each performance quotation relating to
Class B shares provided in the Registration Statement in response to
Item 22.*
______________________________
*To be filed by amendment.
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Global Growth Portfolio, Inc.:
We consent to the use in Registration Statement No. 33-_________of our
report dated July __, 1994 appearing in the Statement of Additional
Information, which is a part of such Registration Statement.
DELOITTE & TOUCHE
Princeton, New Jersey
July __, 1994
C-10
<PAGE>
ARTICLES OF INCORPORATION
MERRILL LYNCH GLOBAL GROWTH PORTFOLIO, INC.
THE UNDERSIGNED, JOHN D. LAMB, whose post office address is
200 Park Avenue, New York, New York 10166-0153, being at least
eighteen years of age, does hereby act as an incorporator, under
and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations and with the intention
of forming a corporation.
ARTICLE I
NAME
----
The name of the corporation is MERRILL LYNCH GLOBAL GROWTH
PORTFOLIO, INC. (the "Corporation").
ARTICLE II
PURPOSES AND POWERS
-------------------
The purpose or purposes for which the Corporation is formed,
the powers, rights and privileges that the Corporation shall be
authorized to exercise and enjoy, and the business or objects to
be transacted, carried on and promoted by it are as follows:
(1) To conduct and carry on the business of an investment
company of the management type.
(2) To hold, invest and reinvest its assets in securities,
and in connection therewith to hold part or all of its assets in
cash.
<PAGE>
(3) To issue and sell shares of its own capital stock in
such amounts and on such terms and conditions for such purposes
and for such amount or kind of consideration now or hereafter
permitted by the General Laws of the State of Maryland and by
these Articles of Incorporation, as its Board of Directors may
determine; provided, however, that the value of the consideration
per share to be received by the Corporation upon the sale or
other disposition of any shares of its capital stock shall not be
less than the net asset value per share of such capital stock
outstanding at the time of such event.
(4) To exchange, classify, reclassify, change the
designation of, convert, rename, redeem, purchase or otherwise
acquire, hold, dispose of, resell, transfer, reissue or cancel
(all without the vote or consent of the stockholders of the
Corporation) shares of its issued or unissued capital stock of
any class or series, as its Board of Directors may determine, in
any manner and to the extent now or hereafter permitted by the
General Laws of the State of Maryland and by these Articles of
Incorporation.
(5) To do any and all such further acts or things and to
exercise any and all such further powers or rights as may be
necessary, incidental, relative, conducive, appropriate or
desirable for the accomplishment, carrying out or attainment of
all or any of the foregoing purposes or objects.
The Corporation shall be authorized to exercise and enjoy
all of the powers, rights and privileges granted to, or conferred
upon, corporations by the General Laws of the State of Maryland
2
<PAGE>
now or hereafter in force, and the enumeration of the foregoing
purposes, powers, rights and privileges shall not be deemed to
exclude any powers, rights or privileges so granted or conferred.
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
-----------------------------------
The post office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202. The
name of the resident agent of the Corporation in this State is
the Corporation Trust Incorporated, a corporation of this State,
and the post office address of the resident agent is 32 South
Street, Baltimore, Maryland 21202.
ARTICLE IV
CAPITAL STOCK
-------------
(1) The total number of shares of capital stock which the
Corporation shall have authority to issue is Two Hundred Million
(200,000,000) shares, of the par value of Ten Cents ($.10) per
share, and of the aggregate par value of Twenty Million Dollars
($20,000,000). The capital stock initially is classified into
two classes, consisting of One Hundred Million (100,000,000)
shares of Class A Common Stock and One Hundred Million
(100,000,000) shares of Class B Common Stock.
(2) The Board of Directors may classify and reclassify any
unissued shares of capital stock of any class or series into one
3
<PAGE>
or more additional or other classes or series as may be
established from time to time by setting or changing in any one
or more respects the designations, preferences, conversion or
other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of
such shares of stock and pursuant to such classification or
reclassification to increase or decrease the number of authorized
shares of any existing class or series.
(3) The Board of Directors may classify and reclassify any
issued shares of capital stock into one or more additional or
other classes or series as may be established from time to time
by setting or changing in any one or more respects the
designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of stock and
pursuant to such classification or reclassification to increase
or decrease the number of authorized shares of any existing class
or series, provided, however, that any such classification or
reclassification shall not substantially adversely affect the
rights of holders of such issued shares.
(4) Unless otherwise expressly provided in the charter of
the Corporation, including any Articles Supplementary creating
any class or series of capital stock, the holders of each class
or series of capital stock shall be entitled to dividends and
distributions in such amounts and at such times as may be
determined by the Board of Directors, and the dividends and
distributions paid with respect to the various classes or series
4
<PAGE>
of capital stock may vary among such classes and series.
Dividends on a class or series may be declared or paid only out
of the net assets of that class or series. Expenses related to
the distribution of, and other identified expenses that should
properly be allocated to, the shares of a particular class or
series of capital stock may be charged to and borne solely by
such class or series and the bearing of expenses solely by a
class or series of capital stock may be appropriately reflected
(in a manner determined by the Board of Directors) and cause
differences in the net asset value attributable to, and the
dividend, redemption and liquidation rights of, the shares of
each class or series of capital stock.
(5) Unless otherwise expressly provided in the charter of
the Corporation, including those matters set forth in Article II,
Section (4) hereof and including any Articles Supplementary
creating any class or series of capital stock, on each matter
submitted to a vote of stockholders, each holder of a share of
capital stock of the Corporation shall be entitled to one vote
for each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all
shares of all classes and series shall vote together as a single
class; provided, however, that (a) as to any matter with respect
to which a separate vote of any class or series is required by
the Investment Company Act of 1940, as amended, and in effect
from time to time, or any rules, regulations or orders issued
thereunder, or by the Maryland General Corporation Law, such
requirement as to a separate vote by that class or series shall
5
<PAGE>
apply in lieu of a general vote of all classes and series as
described above, (b) in the event that the separate vote
requirements referred to in (a) above apply with respect to one
or more classes or series, then, subject to paragraph (c) below,
the shares of all other classes and series not entitled to a
separate class vote shall vote as a single class, and (c) as to
any matter which does not affect the interest of a particular
class or series, such class or series shall not be entitled to
any vote and only the holders of shares of the affected classes
and series, if any, shall be entitled to vote.
(6) Notwithstanding any provision of the Maryland General
Corporation Law requiring a greater proportion than a majority of
the votes of all classes or series of capital stock of the
Corporation (or of any class or series entitled to vote thereon
as a separate class or series) to take or authorize any action,
the Corporation is hereby authorized (subject to the requirements
of the Investment Company Act of 1940, as amended, and in effect
from time to time, and any rules, regulations and orders issued
thereunder) to take such action upon the concurrence of a
majority of the votes entitled to be cast by holders of capital
stock of the Corporation (or a majority of the votes entitled to
be cast by holders of a class or series entitled to vote thereon
as a separate class or series).
(7) Unless otherwise expressly provided in the charter of
the Corporation, including any Articles Supplementary creating
any class or series of capital stock, in the event of any
liquidation, dissolution or winding up of the Corporation,
6
<PAGE>
whether voluntary or involuntary, the holders of each class or
series of capital stock of the Corporation shall be entitled,
after payment or provision for payment of the debts and other
liabilities of the Corporation, to share ratably in the remaining
net assets of the Corporation applicable to that class or series.
(8) Any fractional shares shall carry proportionately all
the rights of a whole share, excepting any right to receive a
certificate evidencing such fractional share, but including,
without limitation, the right to vote and the right to receive
dividends.
(9) The presence in person or by proxy of the holders of
shares entitled to cast one-third of the votes entitled to be
cast shall constitute a quorum at any meeting of stockholders,
except with respect to any matter which requires approval by a
separate vote of one or more classes of stock, in which case the
presence in person or by proxy of the holders of shares entitled
to cast one-third of the votes entitled to be cast by each class
entitled to vote as a separate class shall constitute a quorum.
(10) All persons who shall acquire stock in the Corporation
shall acquire the same subject to the provisions of the charter
and By-Laws of the Corporation. As used in the charter of the
Corporation, the terms "charter" and "Articles of Incorporation"
shall mean and include the Articles of Incorporation of the
Corporation as amended, supplemented and restated from time to
time by Articles of Amendment, Articles Supplementary, Articles
of Restatement or otherwise.
7
<PAGE>
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS
-------------------------------------
(1) The number of directors of the Corporation shall be
three, which number may be increased pursuant to the By-Laws of
the Corporation but shall never be less than three. The names of
the directors who shall act until their successors are duly
elected and qualify are:
Philip L. Kirstein
Mark B. Goldfus
Robert Harris
(2) The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of shares
of capital stock of any class or series, whether now or hereafter
authorized, for such consideration as the Board of Directors may
deem advisable, subject to such limitations as may be set forth
in these Articles of Incorporation or in the By-Laws of the
Corporation or in the General Laws of the State of Maryland.
(3) No holder of stock of the Corporation shall, as such
holder, have any rights to purchase or subscribe for any shares
of the capital stock of the Corporation or any other security of
the Corporation which it may issue or sell (whether out of the
number of shares authorized by these Articles of Incorporation,
or out of any shares of the capital stock of the Corporation, of
any class or series, acquired by it after the issue thereof, or
8
<PAGE>
otherwise) other than such right, if any, as the Board of
Directors, in its discretion, may determine.
(4) Each director and each officer of the Corporation shall
be indemnified by the Corporation to the full extent permitted by
the General Laws of the State of Maryland, subject to the
requirements of the Investment Company Act of 1940, as amended.
No amendment of these Articles of Incorporation or repeal of any
provision hereof shall limit or eliminate the benefits provided
to directors and officers under this provision in connection with
any act or omission that occurred prior to such amendment or
repeal.
(5) To the fullest extent permitted by the General Laws of
the State of Maryland, subject to the requirements of the
Investment Company Act of 1940, as amended, no director or
officer of the Corporation shall be personally liable to the
Corporation or its security holders for money damages. No
amendment of these Articles of Incorporation or repeal of any
provision hereof shall limit or eliminate the benefits provided
to directors and officers under this provision in connection with
any act or omission that occurred prior to such amendment or
repeal.
(6) The Board of Directors of the Corporation is vested
with the sole power, to the exclusion of the stockholders, to
make, alter or repeal from time to time any of the By-Laws of the
Corporation except any particular By-Law which is specified as
not subject to alteration or repeal by the Board of Directors,
9
<PAGE>
subject to the requirements of the Investment Company Act of
1940, as amended.
(7) The Board of Directors of the Corporation from time to
time may change the Corporation's name, without the vote or
consent of the stockholders of the Corporation, in any manner and
to the extent now or hereafter permitted by the General Laws of
the State of Maryland and by these Articles of Incorporation.
ARTICLE VI
REDEMPTION
----------
Each holder of shares of capital stock of the Corporation
shall be entitled to require the Corporation to redeem all or any
part of the shares of capital stock of the Corporation standing
in the name of such holder on the books of the Corporation, and
all shares of capital stock issued by the Corporation shall be
subject to redemption by the Corporation, at the redemption price
of such shares as in effect from time to time as may be
determined by the Board of Directors of the Corporation in
accordance with the provisions hereof, subject to the right of
the Board of Directors of the Corporation to suspend the right of
redemption of shares of capital stock of the Corporation or
postpone the date of payment of such redemption price in
accordance with provisions of applicable law. The redemption
price of shares of capital stock of the Corporation shall be the
net asset value thereof as determined by the Board of Directors
of the Corporation from time to time in accordance with the
provisions of applicable law, less such redemption fee or other
10
<PAGE>
charge, if any, as may be fixed by resolution of the Board of
Directors of the Corporation. Payment of the redemption price
shall be made in cash by the Corporation at such time and in such
manner as may be determined from time to time by the Board of
Directors of the Corporation.
ARTICLE VII
DETERMINATION BINDING
---------------------
Any determination made in good faith, so far as accounting
matters are involved, in accordance with accepted accounting
practice by or pursuant to the direction of the Board of
Directors, as to the amount of assets, obligations or liabilities
of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts
at any time legally available for the payment of dividends, as to
the amount of any reserves or charges set up and the propriety
thereof, as to the time of or purpose for creating reserves or as
to the use, alteration or cancellation of any reserves or charges
(whether or not any obligation or liability for which such
reserves or charges shall have been created, shall have been paid
or discharged or shall be then or thereafter required to be paid
or discharged), as to the price of any security owned by the
Corporation or as to any other matters relating to the issuance,
sale, redemption or other acquisition or disposition of
securities or shares of capital stock of the Corporation, and any
reasonable determination made in good faith by the Board of
Directors as to whether any transaction constitutes a purchase of
11
<PAGE>
securities on "margin," a sale of securities "short," or an
underwriting or the sale of, or a participation in any
underwriting or selling group in connection with the public
distribution of, any securities, shall be final and conclusive,
and shall be binding upon the Corporation and all holders of its
capital stock, past, present and future, and shares of the
capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares
of capital stock or acceptance of share certificates, that any
and all such determinations shall be binding as aforesaid. No
provision of these Articles of Incorporation shall be effective
to (a) require a waiver of compliance with any provision of the
Securities Act of 1933, as amended, or the Investment Company Act
of 1940, as amended, or of any valid rule, regulation or order of
the Securities and Exchange Commission thereunder or (b) protect
or purport to protect any director or officer of the Corporation
against any liability to the Corporation or its security holders
to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
ARTICLE VIII
PERPETUAL EXISTENCE
-------------------
The duration of the Corporation shall be perpetual.
ARTICLE IX
AMENDMENT
---------
12
<PAGE>
The Corporation reserves the right to amend, alter, change
or repeal any provision contained in these Articles of
Incorporation, in any manner now or hereafter prescribed by
statute, including any amendment which alters the contract
rights, as expressly set forth in the charter, of any outstanding
stock and substantially adversely affects the stockholder's
rights, and all rights conferred upon stockholders herein are
granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned incorporator of MERRILL
LYNCH GLOBAL GROWTH PORTFOLIO, INC. hereby executes the foregoing
Articles of Incorporation and acknowledges the same to be his
act.
Dated this day of June, 1994.
----
------------------------------
John D. Lamb
13
<PAGE>
BY-LAWS
OF
MERRILL LYNCH GLOBAL GROWTH PORTFOLIO, INC.
ARTICLE I
Offices
-------
Section 1. Principal Office. The principal office of
----------------
Merrill Lynch Global Growth Portfolio, Inc. (the "Corporation")
shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal
--------------------------
executive office of the Corporation shall be at 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.
Section 3. Other Offices. The Corporation may have
-------------
such other offices in such places as the Board of Directors may
from time to time determine.
ARTICLE II
Meetings of Stockholders
------------------------
Section 1. Annual Meeting. The Corporation shall not
--------------
be required to hold an annual meeting of its stockholders in any
year in which the election of directors is not required to be
acted upon under the Investment Company Act of 1940. In the
event that the Corporation shall be required to hold an annual
meeting of stockholders to elect directors by the Investment
Company Act of 1940, as amended, such meeting shall be held no
later than 120 days after the occurrence of the event requiring
<PAGE>
the meeting. Any stockholders' meeting held in accordance with
this Section shall for all purposes constitute the annual meeting
of stockholders for the year in which the meeting is held.
Section 2. Special Meetings. Special meetings of the
----------------
stockholders, unless otherwise provided by law, may be called for
any purpose or purposes by a majority of the Board of Directors,
the President, or on the written request of the holders of at
least 10% of the outstanding shares of capital stock of the
Corporation entitled to vote at such meeting if they comply with
Section 2-502(b) or (c) of the Maryland General Corporation Law.
Section 3. Place of Meetings. Meetings of the
-----------------
stockholders shall be held at such place within the United States
as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice.
------------------------------------
Notice of the place, date and time of the holding of each
stockholders' meeting and, if the meeting is a special meeting,
the purpose or purposes of the special meeting, shall be given
personally or by mail, not less than ten nor more than ninety
days before the date of such meeting, to each stockholder
entitled to vote at such meeting and to each other stockholder
entitled to notice of the meeting. Notice by mail shall be
deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the
records of the Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed
waived by any stockholder who shall attend such meeting in person
or by proxy, or who shall, either before or after the meeting,
2
<PAGE>
submit a signed waiver of notice which is filed with the records
of the meeting. When a meeting is adjourned to another time and
place, unless the Board of Directors, after the adjournment,
shall fix a new record date for an adjourned meeting, or the
adjournment is for more than one hundred and twenty days after
the original record date, notice of such adjourned meeting need
not be given if the time and place to which the meeting shall be
adjourned were announced at the meeting at which the adjournment
is taken.
Section 5. Quorum. At all meetings of the
------
stockholders, the holders of shares of stock of the Corporation
entitled to cast one-third of the votes entitled to be cast,
present in person or by proxy, shall constitute a quorum for the
transaction of any business, except with respect to any matter
which requires approval by a separate vote of one or more classes
of stock, in which case the presence in person or by proxy of the
holders of shares entitled to cast one-third of the votes
entitled to be cast by each class entitled to vote as a separate
class shall constitute a quorum. In the absence of a quorum no
business may be transacted, except that the holders of a majority
of the shares of stock present in person or by proxy and entitled
to vote may adjourn the meeting from time to time, without notice
other than announcement thereat except as otherwise required by
these By-Laws, until the holders of the requisite amount of
shares of stock shall be so present. At any such adjourned
meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as
3
<PAGE>
originally called. The absence from any meeting, in person or by
proxy, of holders of the number of shares of stock of the
Corporation in excess of a majority thereof which may be required
by the laws of the State of Maryland, the Investment Company Act
of 1940, as amended, or other applicable statute, the Articles of
Incorporation, or these By-Laws, for action upon any given matter
shall not prevent action at such meeting upon any other matter or
matters which may properly come before the meeting, if there
shall be present thereat, in person or by proxy, holders of the
number of shares of stock of the Corporation required for action
in respect of such other matter or matters.
Section 6. Organization. At each meeting of the
------------
stockholders, the Chairman of the Board (if one has been
designated by the Board), or in his absence or inability to act,
the President, or in the absence or inability to act of the
Chairman of the Board and the President, a Vice President, shall
act as chairman of the meeting. The Secretary, or in his absence
or inability to act, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep the
minutes thereof.
Section 7. Order of Business. The order of business
-----------------
at all meetings of the stockholders shall be as determined by the
chairman of the meeting.
Section 8. Voting. Except as otherwise provided by
------
statute or the Articles of Incorporation, each holder of record
of shares of stock of the Corporation having voting power shall
be entitled at each meeting of the stockholders to one vote for
4
<PAGE>
every share of such stock standing in his name on the record of
stockholders of the Corporation as of the record date determined
pursuant to Section 9 of this Article or if such record date
shall not have been so fixed, then at the later of (i) the close
of business on the day on which notice of the meeting is mailed
or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of
stockholders may authorize another person or persons to act for
him by a proxy signed by such stockholder or his attorney-in-
fact. No proxy shall be valid after the expiration of eleven
months from the date thereof, unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases where such proxy
states that it is irrevocable and where an irrevocable proxy is
permitted by law. Except as otherwise provided by statute, the
Articles of Incorporation or these By-Laws, any corporate action
to be taken by vote of the stockholders (other than the election
of directors, which shall be by plurality vote) may be authorized
by a majority of the total votes cast at a meeting of
stockholders by the holders of shares present in person or
represented by proxy and entitled to vote on such action.
If a vote shall be taken on any question other than the
election of directors, which shall be by written ballot, then
unless required by statute or these By-Laws, or determined by the
chairman of the meeting to be advisable, any such vote need not
be by ballot. On a vote by ballot, each ballot shall be signed
5
<PAGE>
by the stockholder voting, or by his proxy, if there be such
proxy, and shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of
---------------------
Directors may set a record date for the purpose of determining
stockholders entitled to vote at any meeting of the stockholders.
The record date, which may not be prior to the close of business
on the day the record date is fixed, shall be not more than
ninety nor less than ten days before the date of the meeting of
the stockholders. All persons who were holders of record of
shares at such time, and not others, shall be entitled to vote at
such meeting and any adjournment thereof.
Section 10. Inspectors. The Board may, in advance of
----------
any meeting of stockholders, appoint one or more inspectors to
act at such meeting or any adjournment thereof. If the
inspectors shall not be so appointed or if any of them shall fail
to appear or act, the chairman of the meeting may appoint
inspectors. Each inspector, before entering upon the discharge
of his duties, may be required to take and sign an oath to
execute faithfully the duties of inspector at such meeting with
strict impartiality and according to the best of his ability.
The inspectors may be empowered to determine the number of shares
outstanding and the voting powers of each, the number of shares
represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do such
6
<PAGE>
acts as are proper to conduct the election or vote with fairness
to all stockholders. On request of the chairman of the meeting
or any stockholder entitled to vote thereat, the inspectors shall
make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact
found by them. No director or candidate for the office of
director shall act as inspector of an election of directors.
Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of
----------------------------------
Meeting. Except as otherwise provided by statute or the Articles
- - -------
of Incorporation, any action required to be taken at any meeting
of stockholders, or any action which may be taken at any meeting
of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if the following are filed with
the records of stockholders meetings: (i) a unanimous written
consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and (ii) a written
waiver of any right to dissent signed by each stockholder
entitled to notice of the meeting but not entitled to vote
thereat.
ARTICLE III
Board of Directors
------------------
Section 1. General Powers. Except as otherwise
--------------
provided in the Articles of Incorporation, the business and
affairs of the Corporation shall be managed under the direction
of the Board of Directors. All powers of the Corporation may be
exercised by or under authority of the Board of Directors except
7
<PAGE>
as conferred on or reserved to the stockholders by law or by the
Articles of Incorporation or these By-Laws.
Section 2. Number of Directors. The number of
-------------------
directors shall be fixed from time to time by resolution of the
Board of Directors adopted by a majority of the entire Board of
Directors; provided, however, that the number of directors shall
in no event be less than three nor more than fifteen. Any
vacancy created by an increase in Directors may be filled in
accordance with Section 6 of this Article III. No reduction in
the number of directors shall have the effect of removing any
director from office prior to the expiration of his term unless
such director is specifically removed pursuant to Section 5 of
this Article III at the time of such decrease. Directors need
not be stockholders.
Section 3. Election and Term of Directors. Directors
------------------------------
shall be elected annually at a meeting of stockholders held for
that purpose; provided, however, that if no meeting of the
stockholders of the Corporation is required to be held in a
particular year pursuant to Section 1 of Article II of these By-
Laws, directors shall be elected at the next meeting held. The
term of office of each director shall be from the time of his
election and qualification until the election of directors next
succeeding his election and until his successor shall have been
elected and shall have qualified, or until his death, or until he
shall have resigned or until December 31 of the year in which he
shall have reached seventy-two years of age, or until he shall
8
<PAGE>
have been removed as hereinafter provided in these By-Laws, or as
otherwise provided by statute or the Articles of Incorporation.
Section 4. Resignation. A director of the Corporation
-----------
may resign at any time by giving written notice of his
resignation to the Board or the Chairman of the Board or the
President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it
shall become effective shall not be specified therein,
immediately upon its receipt; and, unless otherwise specified
therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 5. Removal of Directors. Any director of the
--------------------
Corporation may be removed by the stockholders by a vote of a
majority of the votes entitled to be cast for the election of
directors.
Section 6. Vacancies. Any vacancies in the Board,
---------
whether arising from death, resignation, removal, an increase in
the number of directors or any other cause, may be filled by a
vote of the majority of the Board of Directors then in office
even though such majority is less than a quorum, provided that no
vacancies shall be filled by action of the remaining directors,
if after the filling of said vacancy or vacancies, less than two-
thirds of the directors then holding office shall have been
elected by the stockholders of the Corporation. In the event
that at any time there is a vacancy in any office of a director
which vacancy may not be filled by the remaining directors, a
special meeting of the stockholders shall be held as promptly as
9
<PAGE>
possible and in any event within sixty days, for the purpose of
filling said vacancy or vacancies.
Section 7. Place of Meetings. Meetings of the Board
-----------------
may be held at such place as the Board may from time to time
determine or as shall be specified in the notice of such meeting.
Section 8. Regular Meetings. Regular meetings of the
----------------
Board may be held without notice at such time and place as may be
determined by the Board of Directors.
Section 9. Special Meetings. Special meetings of the
----------------
Board may be called by two or more directors of the Corporation
or by the Chairman of the Board or the President.
Section 10. Telephone Meetings. Members of the Board
------------------
of Directors or of any committee thereof may participate in a
meeting by means of a conference telephone or similar
communications equipment if all persons participating in the
meeting can hear each other at the same time. Subject to the
provisions of the Investment Company Act of 1940, as amended,
participation in a meeting by these means constitutes presence in
person at the meeting.
Section 11. Notice of Special Meetings. Notice of
--------------------------
each special meeting of the Board shall be given by the Secretary
as hereinafter provided, in which notice shall be stated the time
and place of the meeting. Notice of each such meeting shall be
delivered to each director, either personally or by telephone or
any standard form of telecommunication, at least twenty-four
hours before the time at which such meeting is to be held, or by
first-class mail, postage prepaid, addressed to him at his
10
<PAGE>
residence or usual place of business, at least three days before
the day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of
----------------------------
any special meeting need not be given to any director who shall,
either before or after the meeting, sign a written waiver of
notice which is filed with the records of the meeting or who
shall attend such meeting. Except as otherwise specifically
required by these By-Laws, a notice or waiver or notice of any
meeting need not state the purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not
-----------------
less than two, of the members of the entire Board shall be
present in person at any meeting of the Board in order to
constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by statute,
the Articles of Incorporation, these By-Laws, the Investment
Company Act of 1940, as amended, or other applicable statute, the
act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of
the directors present thereat may adjourn such meeting to another
time and place until a quorum shall be present thereat. Notice
of the time and place of any such adjourned meeting shall be
given to the directors who were not present at the time of the
adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other
directors. At any adjourned meeting at which a quorum is
11
<PAGE>
present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 14. Organization. The Board may, by
------------
resolution adopted by a majority of the entire Board, designate a
Chairman of the Board, who shall preside at each meeting of the
Board. In the absence or inability of the Chairman of the Board
to preside at a meeting, the President or, in his absence or
inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and
preside thereat. The Secretary (or, in his absence or inability
to act, any person appointed by the Chairman) shall act as
secretary of the meeting and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a
-----------------------------------------
Meeting. Subject to the provisions of the Investment Company Act
- - -------
of 1940, as amended, any action required or permitted to be taken
at any meting of the Board of Directors or of any committee
thereof may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in
writing, and the writings or writing are filed with the minutes
of the proceedings of the Board or committee.
Section 16. Compensation. Directors may receive
------------
compensation for services to the Corporation in their capacities
as directors or otherwise in such manner and in such amounts as
may be fixed from time to time by the Board.
Section 17. Investment Policies. It shall be the duty
-------------------
of the Board of Directors to direct that the purchase, sale,
retention and disposal of portfolio securities and the other
12
<PAGE>
investment practices of the Corporation are at all times
consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the
Corporation, as recited in the Prospectus of the Corporation
included in the Registration Statement of the Corporation, as
recited in the current Prospectus and Statement of Additional
Information of the Corporation, as filed from time to time with
the Securities and Exchange Commission and as required by the
Investment Company Act of 1940, as amended. The Board however,
may delegate the duty of management of the assets and the
administration of its day to day operations to an individual or
corporate management company and/or investment adviser pursuant
to a written contract or contracts which have obtained the
requisite approvals, including the requisite approvals of
renewals thereof, of the Board of Directors and/or the
stockholders of the Corporation in accordance with the provisions
of the Investment Company Act of 1940, as amended.
ARTICLE IV
Committees
----------
Section 1. Executive Committee. The Board may, by
-------------------
resolution adopted by a majority of the entire Board, designate
an Executive Committee consisting of two or more of the directors
of the Corporation, which committee shall have and may exercise
all the powers and authority of the Board with respect to all
matters other than:
13
<PAGE>
(a) the submission to stockholders of any action
requiring authorization of stockholders pursuant to statute or
the Articles of Incorporation;
(b) the filling of vacancies on the Board of
Directors;
(c) the fixing of compensation of the directors
for serving on the Board or on any committee of the Board,
including the Executive Committee;
(d) the approval or termination of any contract
with an investment adviser or principal underwriter, as such
terms are defined in the Investment Company Act of 1940, as
amended, or the taking of any other action required to be taken
by the Board of Directors by the Investment Company Act of 1940,
as amended;
(e) the amendment or repeal of these By-Laws or
the adoption of new By-Laws;
(f) the amendment or repeal of any resolution of
the Board which by its terms may be amended or repealed only by
the Board;
(g) the declaration of dividends and the issuance
of capital stock of the Corporation; and
(h) the approval of any merger or share exchange
which does not require stockholder approval.
The Executive Committee shall keep written minutes of
its proceedings and shall report such minutes to the Board. All
such proceedings shall be subject to revision or alteration by
14
<PAGE>
the Board; provided, however, that third parties shall not be
prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board
-----------------------------
of Directors may from time to time, by resolution adopted by a
majority of the whole Board, designate one or more other
committees of the Board, each such committee to consist of two or
more directors and to have such powers and duties as the Board of
Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two,
-------
of the members of any committee shall be present in person at any
meeting of such committee in order to constitute a quorum for the
transaction of business at such meeting, and the act of a
majority present shall be the act of such committee. The Board
may designate a chairman of any committee and such chairman or
any two members of any committee may fix the time and place of
its meetings unless the Board shall otherwise provide. In the
absence or disqualification of any member of any committee, the
member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent
or disqualified member. The Board shall have the power at any
time to change the membership of any committee, to fill all
vacancies, to designate alternate members to replace any absent
or disqualified member, or to dissolve any such committee.
Nothing herein shall be deemed to prevent the Board from
appointing one or more committees consisting in whole or in part
15
<PAGE>
of persons who are not directors of the Corporation; provided,
however, that no such committee shall have or may exercise any
authority or power of the Board in the management of the business
or affairs of the Corporation.
ARTICLE V
Officers, Agents and Employees
------------------------------
Section 1. Number of Qualifications. The officers of
------------------------
the Corporation shall be a President, a Secretary and a
Treasurer, each of whom shall be elected by the Board of
Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and may also appoint such other officers,
agents and employees as it may deem necessary or proper. Any two
or more offices may be held by the same person, except the
offices of President and Vice President, but no officer shall
execute, acknowledge or verify any instrument in more than one
capacity. Such officers shall be elected by the Board of
Directors each year at a meeting of the Board of Directors, each
to hold office for the ensuing year and until his successor shall
have been duly elected and shall have qualified, or until his
death, or until he shall have resigned, or have been removed, as
hereinafter provided in these By-Laws. The Board may from time
to time elect, or delegate to the President the power to appoint,
such officers (including one or more Assistant Vice Presidents,
one or more Assistant Treasurers and one or more Assistant
Secretaries) and such agents, as may be necessary or desirable
for the business of the Corporation. Such officers and agents
shall have such duties and shall hold their offices for such
16
<PAGE>
terms as may be prescribed by the Board or by the appointing
authority.
Section 2. Resignations. Any officer of the
------------
Corporation may resign at any time by giving written notice of
resignation to the Board, the Chairman of the Board, President or
the Secretary. Any such resignation shall take effect at the
time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any
-------------------------------------
officer, agent or employee of the Corporation may be removed by
the Board of Directors with or without cause at any time, and the
Board may delegate such power of removal as to agents and
employees not elected or appointed by the Board of Directors.
Such removal shall be without prejudice to such person's contract
rights, if any, but the appointment of any person as an officer,
agent or employee of the Corporation shall not of itself create
contract rights.
Section 4. Vacancies. A vacancy in any office,
---------
whether arising from death, resignation, removal or any other
cause, may be filled for the unexpired portion of the term of the
office which shall be vacant, in the manner prescribed in these
By-Laws for the regular election or appointment to such office.
Section 5. Compensation. The compensation of the
------------
officers of the Corporation shall be fixed by the Board of
17
<PAGE>
Directors, but this power may be delegated to any officer in
respect of other officers under his control.
Section 6. Bonds or Other Security. If required by
-----------------------
the Board, any officer, agent or employee of the Corporation
shall give a bond or other security for the faithful performance
of his duties, in such amount and with such surety or sureties as
the Board may require.
Section 7. President. The President shall be the
---------
chief executive officer of the Corporation. In the absence of
the Chairman of the Board (or if there be none), he shall preside
at all meetings of the stockholders and of the Board of
Directors. He shall have, subject to the control of the Board of
Directors, general charge of the business and affairs of the
Corporation. He may employ and discharge employees and agents of
the Corporation, except such as shall be appointed by the Board,
and he may delegate these powers.
Section 8. Vice President. Each Vice President shall
--------------
have such powers and perform such duties as the Board of
Directors or the President may from time to time prescribe.
Section 9. Treasurer. The Treasurer shall
---------
(a) have charge and custody of, and be
responsible for, all the funds and securities of the Corporation,
except those which the Corporation has placed in the custody of a
bank or trust company or member of a national securities exchange
(as that term is defined in the Securities Exchange Act of 1934,
as amended) pursuant to a written agreement designating such bank
18
<PAGE>
or trust company or member of a national securities exchange as
custodian of the property of the Corporation;
(b) keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables to be
deposited to the credit of the Corporation;
(d) receive, and give receipts for, moneys due
and payable, to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and
supervise the investment of its funds as ordered or authorized by
the Board, taking proper vouchers therefor; and
(f) in general, perform all the duties incident
to the office of Treasurer and such other duties as from time to
time may be assigned to him by the Board or the President.
Section 10. Secretary. The Secretary shall
---------
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the
Board, the committees of the Board and the stockholders;
(b) see that all notices are duly given in
accordance with the provisions of these By-Laws and as required
by Law;
(c) be custodian of the records and the seal of
the Corporation and affix and attest the seal to all stock
certificates of the Corporation (unless the seal of the
Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other
19
<PAGE>
documents to be executed on behalf of the Corporation under its
seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law to
be kept and filed are properly kept and filed; and
(e) in general, perform all the duties incident
to the office of Secretary and such other duties as from time to
time may be assigned to him by the Board or the President.
Section 11. Delegation of Duties. In case of the
--------------------
absence of any officer of the Corporation, or for any other
reason that the Board may deem sufficient, the Board may confer
for the time being the powers or duties, or any of them, of such
officer upon any other officer or upon any director.
ARTICLE VI
Indemnification
---------------
Each officer and director of the Corporation shall be
indemnified by the Corporation to the full extent permitted under
the Maryland General Corporation Law, except that such indemnity
shall not protect any such person against any liability to the
Corporation or any stockholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his office. Absent a court determination that an
officer or director seeking indemnification was not liable on the
merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office, the decision by the Corporation to
20
<PAGE>
indemnify such person must be based upon the reasonable
determination of independent legal counsel in a written opinion
or the vote of a majority of a quorum of the directors who are
neither "interested persons," as defined in Section 2(a)(19) of
the Investment Company Act of 1940, as amended, nor parties to
the proceeding ("non-party independent directors"), after review
of the facts, that such officer or director is not guilty of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Each officer and director of the Corporation claiming
indemnification within the scope of this Article VI shall be
entitled to advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with
proceedings to which he is a party in the manner and to the full
extent permitted under the Maryland General Corporation Law
without a preliminary determination as to his or her ultimate
entitlement to indemnification (except as set forth below);
provided, however, that the person seeking indemnification shall
provide to the Corporation a written affirmation of his good
faith belief that the standard of conduct necessary for
indemnification by the Corporation has been met and a written
undertaking to repay any such advance, if it should ultimately be
determined that the standard of conduct has not been met, and
provided further that at least one of the following additional
conditions is met: (a) the person seeking indemnification shall
provide a security in form and amount acceptable to the
Corporation for his undertaking; (b) the Corporation is insured
21
<PAGE>
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 the facts readily available to the Corporation at the
time the advance is proposed to be made, that there is reason to
believe that the person seeking indemnification will ultimately
be found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an
officer or director protecting such person to the full extent
permitted under the General Laws of the State of Maryland, from
liability arising from his activities as officer or director of
the Corporation. The Corporation, however, may not purchase
insurance on behalf of any officer or director of the Corporation
that protects or purports to protect such person from liability
to the Corporation or to its stockholders to which such officer
or director would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard
of the duties involved in the conduct of his office.
The Corporation may indemnify, make advances or
purchase insurance to the extent provided in this Article VI on
behalf of an employee or agent who is not an officer or director
of the Corporation.
22
<PAGE>
ARTICLE VII
Capital Stock
-------------
Section 1. Stock Certificates. Each holder of stock
------------------
of the Corporation shall be entitled upon request to have a
certificate or certificates, in such form as shall be approved by
the Board, representing the number of shares of stock of the
Corporation owned by him, provided, however, that certificates
for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by or
in the name of the Corporation by the Chairman, President or a
Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and sealed with the seal
of the Corporation. Any or all of the signatures or the seal on
the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to
be such officer, transfer agent or registrar before such
certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or
registrar were still in office at the date of issue.
Section 2. Books of Account and Record of
------------------------------
Stockholders. There shall be kept at the principal executive
- - ------------
office of the Corporation correct and complete books and records
of account of all the business and transactions of the
Corporation. There shall be made available upon request of any
stockholder, in accordance with Maryland law, a record containing
the number of shares of stock issued during a specified period
23
<PAGE>
not to exceed twelve months and the consideration received by the
Corporation for each such share.
Section 3. Transfers of Shares. Transfers of shares
-------------------
of stock of the Corporation shall be made on the stock records of
the Corporation only by the registered holder thereof, or by his
attorney thereunto authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer
clerk, and on surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a
duly executed stock transfer power and the payment of all taxes
thereon. Except as otherwise provided by law, the Corporation
shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all
purposes, including, without limitation, the rights to receive
dividends or other distributions, and to vote as such owner, and
the Corporation shall not be bound to recognize any equitable or
legal claim to or interest in any such share or shares on the
part of any other person.
Section 4. Regulations. The Board may make such
-----------
additional rules and regulations, not inconsistent with these By-
Laws, as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of stock of the
Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer agents or one or more
transfer clerks and one or more registrars and may require all
24
<PAGE>
certificates for shares of stock to bear the signature or
signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates.
-----------------------------------------
The holder of any certificates representing shares of stock of
the Corporation shall immediately notify the Corporation of any
loss, destruction or mutilation of such certificate, and the
Corporation may issue a new certificate of stock in the place of
any certificate theretofore issued by it which the owner thereof
shall allege to have been lost or destroyed or which shall have
been mutilated, and the Board may, in its discretion, require
such owner or his legal representatives to give to the
Corporation a bond in such sum, limited or unlimited, and in
such form and with such surety or sureties, as the Board in its
absolute discretion shall determine, to indemnify the Corporation
against any claim that may be made against it on account of the
alleged loss or destruction of any such certificate, or issuance
of a new certificate. Anything herein to the contrary
notwithstanding, the Board, in its absolute discretion, may
refuse to issue any such new certificate, except pursuant to
legal proceedings under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and
-----------------------------------------
Distributions. The Board may fix, in advance, a date not more
- - -------------
than ninety days preceding the date fixed for the payment of any
dividend or the making of any distribution or the allotment of
rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising
out of any change, conversion or exchange of common stock or
25
<PAGE>
other securities, as the record date for the determination of the
stockholders entitled to receive any such dividend, distribution,
allotment, rights or interests, and in such case only the
stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or
interests.
Section 7. Information to Stockholders and Others.
--------------------------------------
Any stockholder of the Corporation or his agent may inspect and
copy during usual business hours the Corporation's By-Laws,
minutes of the proceedings of its stockholders, annual statement
of its affairs, and voting trust agreements on file at its
principal office.
ARTICLE VIII
Seal
----
The seal of the Corporation shall be circular in form
and shall bear, in addition to any other emblem or device
approved by the Board of Directors, the name of the Corporation,
the year of its incorporation and the words "Corporate Seal" and
"Maryland." Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner
reproduced.
ARTICLE IX
Fiscal Year
-----------
Unless otherwise determined by the Board, the fiscal
year of the Corporation shall end on the 31st day of October.
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ARTICLE X
Depositories and Custodians
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Section 1. Depositories. The funds of the Corporation
------------
shall be deposited with such banks or other depositories as the
Board of Directors of the Corporation may from time to time
determine.
Section 2. Custodians. All securities and other
----------
investments shall be deposited in the safe keeping of such banks
or other companies as the Board of Directors of the Corporation
may from time to time determine. Every arrangement entered into
with any bank or other company for the safe keeping of the
securities and investments of the Corporation shall contain
provisions complying with the Investment Company Act of 1940, as
amended, and the general rules and regulations thereunder.
ARTICLE XI
Execution of Instruments
------------------------
Section 1. Checks, Notes, Drafts, etc. Checks, notes,
---------------------------
drafts, acceptances, bills of exchange and other orders or
obligations for the payment of money shall be signed by such
officer or officers or person or persons as the Board of
Directors by resolution shall form time to time designate.
Section 2. Sale or Transfer of Securities. Stock
------------------------------
certificates, bonds or other securities at any time owned by the
Corporation may be held on behalf of the Corporation or sold,
transferred or otherwise disposed of subject to any limits
imposed by these By-Laws and pursuant to authorization by the
Board and, when so authorized to be held on behalf of the
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Corporation or sold, transferred or otherwise disposed of, may be
transferred from the name of the Corporation by the signature of
the President or a Vice President or the Treasurer or pursuant to
any procedure approved by the Board of Directors, subject to
applicable law.
ARTICLE XII
Independent Public Accountants
------------------------------
The firm of independent public accountants which shall
sign or certify the financial statements of the Corporation which
are filed with the Securities and Exchange Commission shall be
selected annually by the Board of Directors and, if required by
the provisions of the Investment Company Act of 1940, as amended,
ratified by the stockholders.
ARTICLE XIII
Annual Statement
----------------
The books of account of the Corporation shall be
examined by an independent firm of public accountants at the
close of each annual period of the Corporation and at such other
times as may be directed by the Board. A report to the
stockholders based upon each such examination shall be mailed to
each stockholder of the Corporation of record on such date with
respect to each report as may be determined by the Board, at his
address as the same appears on the books of the Corporation.
Such annual statement shall also be available at the annual
meeting of stockholders, if any, and, within 20 days after the
meeting (or, in the absence of an annual meeting, within 120 days
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after the end of the fiscal year), shall be placed on file at the
Corporation's principal office. Each such report shall show the
assets and liabilities of the Corporation as of the close of the
annual or quarterly period covered by the report and the
securities in which the funds of the Corporation were then
invested. Such report shall also show the Corporation's income
and expenses for the period from the end of the Corporation's
preceding fiscal year to the close of the annual or quarterly
period covered by the report and any other information required
by the Investment Company Act of 1940, as amended, and shall set
forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIV
Amendments
----------
These By-Laws or any of them may be amended, altered or
repealed by the Board of Directors. The stockholders shall have
no power to make, amend, alter or repeal By-Laws.
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