<PAGE>
As filed with the Securities and Exchange Commission on February 23, 1995
Securities Act File No. 33-56951
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 / /
Pre-Effective Amendment No. 1 /x/
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 1 /x/
(Check appropriate box or boxes)
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC.
(exact name of Registrant as specified in Charter)
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (609) 282-2800
Arthur Zeikel
Merrill Lynch Global Institutional Series, Inc.
800 Scudders Mill Road, Plainsboro, New Jersey
Mailing Address: P.O. Box 9011, Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)
Copies to:
Counsel for the Fund: Philip L. Kirstein, Esq.
BROWN & WOOD MERRILL LYNCH ASSET MANAGEMENT
One World Trade Center P.O. Box 9011
New York, New York 10048-0557 Princeton, New Jersey 08543-9011
Attention: Frank P. Bruno, Esq.
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration
Statement.
An indefinite number of shares of Common Stock of the Registrant is
being registered by this Registration Statement under the Securities Act of
1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION> N-1A ITEM NO. LOCATION
<S> <C> <C>
PART A
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . Fee Table
Item 3. Condensed Financial Information . . . . . . . . . . Not Applicable
Item 4. General Description of Registrant . . . . . . . . . Investment Objectives and Policies;
Additional Information
Item 5. Management of the Fund . . . . . . . . . . . . . . Fee Table; Management of the Fund;
Portfolio Transactions and Brokerage;
Inside Back Cover Page
Item 5A. Management's Discussion of Fund Performance . . . . Not Applicable
Item 6. Capital Stock and Other Securities . . . . . . . . Cover Page; Additional Information
Item 7. Purchase of Securities Being Offered . . . . . . . Cover Page; Fee Table; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase . . . . . . . . . . . . . Fee Table; Purchase of Shares;
Shareholder Services; 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 Objectives 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
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 . . . . . . . . . . . . . . . Financial Statements
</TABLE>
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.
<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.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 23, 1995
PROSPECTUS
- ----------
, 1995
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC.
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 PHONE NO. (609) 282-2800
Merrill Lynch Global Institutional Series, Inc. (the "Fund") is a
professionally managed open-end investment company. The Fund currently
consists of two separate portfolios: the International Equity Portfolio and
the Emerging Markets Portfolio (each a "Portfolio"). Each Portfolio is a
separate series of the Fund issuing its own shares. The Board of Directors
of the Fund may classify and reclassify the shares of the Fund into
additional series at a future date without shareholder approval. Each
Portfolio has its own separate investment objective and 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 risks and
special considerations not typically associated with investments in
securities of United States issuers. See "Risk Factors and Special
Considerations." There can be no assurance that the investment objective of
either Portfolio will be achieved. Each Portfolio pursues its investment
objective through the separate investment policies described below:
International Equity Portfolio is a non-diversified open-end portfolio
seeking long-term capital appreciation and, secondarily, income by investing
in equity securities of issuers located in countries other than the United
States. The Portfolio is designed for investors seeking to complement their
U.S. holdings through foreign equity investments. Investments may be shifted
among the various equity markets of the world outside of the U.S. depending
upon management's outlook with respect to prevailing trends and developments.
It is anticipated that a substantial portion of the Portfolio's assets will
be invested in the developed countries of Europe and the Far East and that a
significant portion of its assets also may be invested in developing
countries.
Emerging Markets Portfolio is a non-diversified open-end portfolio
seeking long-term capital appreciation by investing in securities,
principally equities, of issuers in emerging market countries. For purposes
of its investment objective, the Portfolio considers an "emerging market
country" to be any country which, in the opinion of the Manager, is generally
considered to be an emerging or developing market country by the
international financial community. The objective of the Portfolio reflects
the belief that investment opportunities may result from an evolving long-
term international trend favoring more market-oriented economies, a trend
that may especially benefit certain emerging market countries.
(Continued on next page)
_____________________
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 _______, 1995 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and
is available, without charge, by calling or by writing the Fund at the above
telephone number or address. The Statement of Additional Information is
hereby incorporated by reference into this Prospectus.
_____________________
Merrill Lynch Asset Management--Manager
Merrill Lynch Funds Distributor, Inc.--Distributor
<PAGE>
(Continued from Cover Page)
_____________________
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 engage in a continuous offering of Portfolio shares
at a price equal to the next determined net asset value per share.
Shareholders may redeem their shares at any time at the net asset value per
share next determined after the initial receipt of proper notice of
redemption. See "Redemption of Shares." The minimum initial purchase is
$1,000,000 per Portfolio. There is no minimum for subsequent investments.
Shares of the Fund are not being offered to retirement plans qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
retirement or deferred compensation arrangements subject to Section 403(b) or
Section 457 of the Code, individual retirement accounts or annuities subject
to Section 408 of the Code or plans or other arrangements subject to Section
4975 of the Code. Merrill Lynch may charge its customers a processing fee
(presently $4.85) for confirming purchases and repurchases. Purchases and
repurchases directly through the Fund's transfer agent are not subject to the
processing fee. See "Purchase of Shares" and "Redemption of Shares."
To permit each Portfolio to invest the net proceeds from the sale of its
shares in an orderly manner, the Fund may, from time to time, suspend the
sale of Portfolio shares, except for dividend reinvestments.
2
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring
and recurring expenses applicable to shares of the Portfolios follows:
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY EMERGING
PORTFOLIO MARKETS PORTFOLIO
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) . . . . . . . . . . . . . None None
Sales Charge Imposed on Dividend
Reinvestments . . . . . . . . . . . . . . None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower) . . . . . . None None
ANNUAL PROGRAM OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)(A):
Management Fees(b) . . . . . . . . . . . . . . 0.70% 0.80%
12b-1 Fees . . . . . . . . . . . . . . . . . . None None
Other Expenses:
Custodial Fees . . . . . . . . . . . . . 0.15 0.25
Shareholder Servicing Costs(c) . . . . . 0.01 0.01
Other . . . . . . . . . . . . . . . . . . 0.18 0.18
---- ----
Total Other Expenses . . . . . . . . . . 0.34 0.44
---- ----
Total Fund Operating Expenses . . . . . . . . 1.04 1.24
==== ====
_________________
(a) Information under "Other Expenses" is estimated for the Portfolios'
first fiscal year on an annualized basis.
(b) See "Management of the Fund - Management and Advisory Arrangements" --
p. __.
(c) See "Management of the Fund -- Transfer Agency Services" -- p. __.
</TABLE>
3
<PAGE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE
EXPENSES PAID
FOR THE PERIOD OF:
OPERATING
EXPENSE
RATIO 1 YEAR 3 YEARS
<S> <C> <C> <C>
An investor in the Portfolios listed below would pay the
following expenses on a $1,000 investment assuming (1)
an operating expense ratio as indicated below; (2) a 5%
annual return throughout the periods and (3) redemption
at the end of the period.
International Equity Portfolio . . . . . . . . . . 1.04 $11 $33
Emerging Markets Portfolio . . . . . . . . . . . . 1.24 $13 $39
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of
the period:
International Equity Portfolio . . . . . . . . . . 1.04 $11 $33
Emerging Markets Portfolio . . . . . . . . . . . . 1.24 $13 $39
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in a Portfolio will bear. The Example
set forth above assumes reinvestment of all dividends and distributions and
utilizes a 5% annual rate of return as mandated by Securities and Exchange
Commission ("Commission") regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED
A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND
ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
ASSUMED FOR PURPOSES OF THE EXAMPLE. Merrill Lynch may charge its customers
a processing fee (presently $4.85) for confirming purchases and repurchases.
Purchases and repurchases directly through the Fund's transfer agent are not
subject to the processing fee. See "Purchase of Shares" and "Redemption of
Shares."
4
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
GENERAL
Because each Portfolio intends to invest in securities of non-U.S.
issuers, an investor in the Fund should be aware of certain risk factors and
special considerations relating generally to international investing and
investing in smaller, emerging capital markets, each of which may involve
risks which are not typically associated with investments in securities of
U.S. issuers. Consequently, each Portfolio should be considered as a means
of diversifying an investment portfolio and not in itself a balanced
investment program.
INVESTING ON AN INTERNATIONAL BASIS
Specific Risks. Investing on an international basis and in countries
with smaller or emerging capital markets involves certain risks not involved
in domestic investments, including, but not limited to, fluctuations in
foreign exchange rates, future political and economic developments, different
legal systems and the possible imposition of exchange controls or other
foreign governmental laws or restrictions. Securities prices in different
countries are subject to different economic, financial, political and social
factors. Since each Portfolio invests heavily in securities denominated or
quoted in currencies other than the U.S. dollar, changes in foreign currency
exchange rates will affect the value of securities in each Portfolio and the
unrealized appreciation or depreciation of investments. Currencies of
certain countries may be volatile and therefore may affect the value of
securities denominated in such currencies. In addition, with respect to
certain foreign countries, there is the possibility of expropriation of
assets, confiscatory taxation, difficulty in obtaining or enforcing a court
judgment, economic, political or social instability or diplomatic
developments which could affect investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rates of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. Certain foreign investments also may be subject to
foreign withholding taxes. These risks often are heightened for investments
in smaller, emerging capital markets.
As a result, the Manager may determine that, notwithstanding otherwise
favorable investment criteria, it may not be practicable or appropriate to
invest in a particular country. Each Portfolio may invest in countries in
which foreign investors, including the Manager, have had no or limited prior
experience. Due to the emphasis on securities of issuers located in smaller
or emerging capital markets and the potential for substantial volatility in
many foreign securities markets, each Portfolio should be considered as a
vehicle for diversification and not as a balanced investment program.
Public Information. Most of the securities held by a Portfolio will not
be registered with the Commission, nor will the issuers thereof be subject to
the reporting requirements of such agency. Accordingly, there may be less
publicly available information about a foreign issuer than about a U.S.
issuer and such foreign issuers may not be subject to accounting, auditing
and financial reporting standards and requirements comparable to those of
U.S. issuers. As a result, traditional investment measurements, such as
price/earnings ratios, as used in the United States, may not be applicable to
certain smaller, emerging foreign capital markets. Foreign issuers, and
issuers in smaller, emerging capital markets in particular, generally are not
subject to uniform accounting, auditing and financial reporting standards or
to practices and requirements comparable to those applicable to domestic
issuers.
Trading Volume, Clearance and Settlement. Foreign financial markets,
while often growing in trading volume, have, for the most part, substantially
less volume than U.S. markets, and securities of many foreign companies are
less liquid and their prices may be more volatile than securities of
comparable domestic companies. Foreign markets also have different clearance
and settlement procedures, and in certain markets there have been
5
<PAGE>
times when settlements have failed to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Further,
satisfactory custodial services for investment securities may not be
available in some countries having smaller, emerging capital markets, which
may result in a Portfolio incurring additional costs and delays in
transporting and custodying such securities outside such countries. Delays
in settlement or other problems could result in periods when assets of a
Portfolio are uninvested and no return is earned thereon. The inability of a
Portfolio to make intended security purchases due to settlement problems or
the risk of intermediary counter party failures could cause a Portfolio to
miss attractive investment opportunities. The inability to dispose of a
portfolio security due to settlement problems could result either in losses
to a Portfolio due to subsequent declines in the value of such portfolio
security or, if the Portfolio has entered into a contract to sell the
security, could result in
possible liability to the purchaser.
Government Supervision and Regulation. There generally is less
governmental supervision and regulation of exchanges, brokers and issuers in
foreign countries than there is in the United States. For example, there may
be no comparable provisions under certain foreign laws to insider trading and
similar investor protection securities laws that apply with respect to
securities transactions consummated in the United States. Further, brokerage
commissions and other transaction costs on foreign securities exchanges
generally are higher than in the United States.
Depositary Receipts. Each Portfolio may purchase sponsored or
unsponsored American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs") and Global Depositary Receipts ("GDRs") (collectively,
"Depositary Receipts") or other securities convertible into securities of
foreign issuers. Depositary Receipts may not necessarily be denominated in
the same currency as the underlying securities into which they may be
converted. In addition, the issuers of the securities underlying unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States, and therefore, there may be less information available
regarding such issuers and there may not be a correlation between such
information and the market value of the Depositary Receipts. Depositary
Receipts also involve the risks of other investments in foreign securities,
as discussed above.
Restrictions on Foreign Investment. Some countries prohibit or impose
substantial restrictions on investments in their capital markets,
particularly their equity markets, by foreign entities such as the
Portfolios. As illustrations, certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the
investment by foreign persons in a company to only a specific class of
securities which may have less advantageous terms than securities of the
company available for purchase by nationals. Certain countries may restrict
investment opportunities in issuers or industries deemed important to
national interests.
A number of countries, such as Chile, Brazil, South Korea, Taiwan and
Thailand, have authorized the formation of closed-end investment companies to
facilitate indirect foreign investment in their capital markets. In
accordance with the Investment Company Act of 1940 (the "Investment Company
Act"), each Portfolio may invest up to 10% of its total assets in securities
of closed-end investment companies, not more than 5% of which may be invested
in any one such company. This restriction on investments in securities of
closed-end investment companies may limit opportunities for each Portfolio to
invest indirectly in certain smaller capital markets. Shares of certain
closed-end investment companies may at times be acquired only at market
prices representing premiums to their net asset values. If a Portfolio
acquires shares in closed-end investment companies, shareholders would bear
both their proportionate share of expenses in the Fund (including investment
advisory fees) and, indirectly, the expenses of such closed-end investment
companies. Each Portfolio also may seek, at its own cost, to create its own
investment entities under the laws of certain countries.
6
<PAGE>
In some countries, banks or other financial institutions may constitute
a substantial number of the leading companies or companies with the most
actively traded securities. The Investment Company Act limits each
Portfolio's ability to invest in any equity security of an issuer which, in
its most recent fiscal year, derived more than 15% of its revenues from
"securities related activities", as defined by the rules thereunder. These
provisions may also restrict each Portfolio's investments in certain foreign
banks and other financial institutions.
Derivative Investments. In order to seek to hedge various portfolio
positions or to enhance its return, the Portfolios may invest in certain
instruments which may be characterized as derivatives. These investments
include various types of options transactions and futures and options thereon
and currency transactions. Such investments also may consist of indexed
securities, including inverse securities. The Portfolios have express
limitations on the percentage of their assets that may be committed to
certain of such investments. Other of such investments have no express
quantitative limitations, although they may be made solely for hedging
purposes, not for speculation, and may in some cases require limitations as
to the type of permissible counter-party to the transaction. Investments in
indexed securities, including inverse securities, subject the Portfolios to
the risks associated with changes in the particular indices, which may
include reduced or eliminated interest payments and losses of invested
principal. For a further discussion of the risks associated with these
investments, see "Hedging Strategies" below and "Investment Objective and
Policies-Indexed Securities", "Other Investment Policies and Practices-
Portfolio Strategies Involving Futures, Options and Forward Foreign Exchange
Transactions" and the Appendix to this Prospectus.
Hedging Strategies. Each Portfolio may engage in various strategies to
seek to hedge against movements in interest rates, exchange rates between
currencies and prices in the securities markets by the use of options,
futures, options on futures and forward currency transactions. However,
suitable hedging instruments may not be available on a timely basis and on
acceptable terms. Furthermore, even if hedging techniques are available,
each Portfolio will only engage in hedging activities from time to time and
may not necessarily be engaging in hedging activities when market or currency
movements occur. 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, interest rates or
currencies which are the subject of the hedge. Options and futures
transactions in foreign markets are also subject to the risk factors
associated with foreign investments generally, as discussed above. There can
be no assurance that a liquid secondary market for options and futures
contracts will exist at any specific time. Investors should be aware that
U.S. dollar denominated securities may not be available in some or all
countries in which the Portfolios invest; that the forward currency market
for the purchase of U.S. dollars in some countries is not highly developed;
and that, in certain countries, no forward market for foreign currencies
currently exists or such market may be closed to investment by the
Portfolios.
Borrowing. Each Portfolio may borrow up to 331/3% of its total assets,
taken at market value, but only from banks as a temporary measure for
extraordinary or emergency purposes, including to meet redemptions or to
settle securities transactions. Neither Portfolio will purchase securities
while borrowings exceed 5% of its total assets, except (a) to honor prior
commitments or (b) to exercise subscription rights when outstanding
borrowings have been obtained exclusively for settlements of other securities
transactions. The purchase of securities while borrowings are outstanding
will have the effect of leveraging a Portfolio. Such leveraging increases a
Portfolio's exposure to capital risk, and borrowed funds are subject to
interest costs which will reduce net income.
No Rating Criteria for Debt Securities. The Emerging Markets Portfolio
has established no rating criteria for the debt securities in which it may
invest, and such securities may not be rated at all for creditworthiness.
Securities rated in the medium to lower rating categories of nationally
recognized statistical rating organizations such as Standard & Poor's
Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's") and
unrated securities of comparable quality (referred to herein as "high
yield/high risk securities") are predominately speculative with respect to
the capacity to pay interest and repay principal in accordance with the terms
of the security and generally
7
<PAGE>
involve a greater volatility of price than securities in higher rating
categories. These securities are commonly referred to as "junk" bonds. The
sovereign debt instruments in which the Emerging Markets Portfolio may invest
involve great risk and are deemed to be the equivalent in terms of quality to
high yield/high risk securities. The Portfolio may have difficulty disposing
of certain sovereign debt obligations because there may be no liquid
secondary trading market for such securities. The Emerging Markets Portfolio
may invest up to 5% of its total assets in sovereign debt that is in default.
See "Investment Objective and Policies--Certain Risks of Debt Securities".
Non-Diversified Status. As non-diversified portfolios, each Portfolio
may invest a larger percentage of its assets in individual issuers than a
diversified portfolio. In this regard, the Portfolios are not subject to the
general limitation under the Investment Company Act that they may not invest
more than 5% of their total assets in the securities of any one issuer. To
the extent the Portfolios make investments in excess of 5% of their assets in
a particular issuer, its exposure to credit and market risks associated with
that issuer is increased. Also, as non-diversified portfolios, since a
relatively high percentage of each Portfolio's assets may be invested in the
securities of a limited number of issuers, each Portfolio may be more
susceptible to any single economic, political or regulatory occurrence than a
diversified investment company.
Fees and Expenses. The investment advisory fee (at the annual rate of
0.70% of the International Equity Portfolio's average daily net assets and at
the annual rate of 0.80% of the Emerging Markets Portfolio's average daily
net assets) and other operating expenses of each Portfolio may be higher than
the investment advisory fees and operating expenses of other mutual funds
managed by the Manager and other investment advisers.
Foreign Sub-custodians and Securities Depositories. Rules adopted under
the Investment Company Act permit each Portfolio to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and
securities depositories. Certain banks in foreign countries may not be
eligible sub-custodians for a Portfolio, in which event the Portfolio may be
precluded from purchasing securities in certain foreign countries in which it
otherwise would invest or which may result in the Portfolio's incurring
additional costs and delays in providing transportation and custody services
for such securities outside of such countries. A Portfolio may encounter
difficulties in effecting on a timely basis portfolio transactions with
respect to any securities of issuers held outside their countries. Other
banks that are eligible foreign sub-custodians may be recently organized or
otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of a
Portfolio to recover assets held in custody by foreign sub-custodians in the
event of the bankruptcy of the sub-custodian.
In addition to the general risk factors and special considerations noted
above which are applicable to each of the Portfolios, described below are
risk factors and special considerations particular to each Portfolio which
the investor should consider before investing in the Fund:
INTERNATIONAL EQUITY PORTFOLIO
It is anticipated that a significant portion of the International Equity
Portfolio's assets may be invested in the developing countries of the world,
including, but not limited to, countries located in Eastern Europe, Latin
America and the Far East. To the extent that the International Equity
Portfolio invests in developing countries, it also will be subject to the
risks discussed below under "Emerging Markets Portfolio."
The Portfolio may invest up to 15% of its total assets in illiquid or
otherwise not readily marketable securities.
8
<PAGE>
EMERGING MARKETS PORTFOLIO
The securities markets of emerging market countries are not as large as
the U.S. securities markets and have substantially less trading volume,
resulting in a lack of liquidity and high price volatility. Certain markets
are in only the earliest stages of development. There is also a high
concentration of market capitalization and trading volume in a small number
of issuers representing a limited number of industries, as well as a high
concentration of investors and financial intermediaries. Many of such
markets also may be affected by developments with respect to more
established markets in the region. Brokers in emerging market countries
typically are fewer in number and less capitalized than brokers in the United
States. These factors, combined with the U.S. regulatory requirements for
open-end investment companies and the restrictions on foreign investment
discussed below, result in potentially fewer investment opportunities for the
Portfolio and may have an adverse impact on the investment performance of the
Portfolio. The Portfolio's investment restrictions permit it to invest up to
15% of its total assets in securities which are determined by the Manager to
be illiquid or otherwise not readily marketable securities.
Certain of the risks associated with international investments and
investing in smaller capital markets are heightened for investments in
emerging market countries. For example, some of the currencies of emerging
market countries have experienced devaluations relative to the U.S. dollar,
and major adjustments have been made periodically in certain of such
currencies. Certain such countries face serious exchange constraints. In
addition, as mentioned above, governments of many emerging market countries
have exercised and continue to exercise substantial influence over many
aspects of the private sector. In certain cases, the government owns or
controls many companies, including the largest in the country. Accordingly,
government actions in the future could have a significant effect on economic
conditions in developing countries which could affect private sector
companies and the Emerging Markets Portfolio, as well as the value of
securities in the Portfolio.
In addition to the relative lack of publicly available information about
emerging market issuers and the possibility that such issuers may not be
subject to the same accounting, auditing and financial reporting standards as
are applicable to U.S. companies, inflation accounting rules in some
developing countries require, for companies that keep accounting records in
the local currency, for both tax and accounting purposes, that certain assets
and liabilities be restated on the company's balance sheet in order to
express items in terms of currency of constant purchasing power. Inflation
accounting may indirectly generate losses or profits for certain emerging
market companies.
Certain emerging market countries are especially large debtors to
commercial banks and foreign governments. Trading in debt obligations issued
or guaranteed by emerging market governments ("sovereign debt") or their
agencies and instrumentalities ("governmental entities") involves a high
degree of risk. The governmental entity that controls the repayment of
sovereign debt may not be willing or able to repay the principal and/or
interest when due in accordance with the terms of such obligations. A
governmental entity's willingness or ability to repay principal and interest
due in a timely manner may be affected by, among other factors, its cash flow
situation, the relative size of the debt service burden to the economy as a
whole, the governmental entity's dependence on expected disbursements from
third parties, the governmental entity's policy towards the International
Monetary Fund and the political constraints to which a governmental entity
may be subject. As a result, governmental entities may default on their
sovereign debt. Holders of sovereign debt (including the Emerging Markets
Portfolio) may be requested to participate in the rescheduling of such debt
and to extend further loans to governmental entities. There is no bankruptcy
proceeding by which sovereign debt on which governmental entities have
defaulted may be collected in whole or in part.
Substantial limitations may exist in certain emerging market countries
with respect to the Portfolio's ability to repatriate investment income,
capital or the proceeds of sales of securities by foreign investors. For
example,
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in Chile, with limited exceptions, invested capital cannot be
repatriated for three years. The Portfolio could be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the Portfolio of
any restrictions on investments. No more than 15% of the Portfolio's total
assets may be comprised, in the aggregate, of assets which are (i) subject to
material legal restrictions on repatriation or (ii) invested in illiquid
securities. Even where there is no outright restriction on repatriation of
capital, the mechanics of repatriation may affect certain aspects of the
operations of the Portfolio.
With respect to investments in certain emerging market countries,
archaic legal systems may have an adverse impact on the Portfolio. For
example, while the potential liability of a shareholder in a U.S. corporation
with respect to acts of the corporation is generally limited to the amount of
the shareholder's investment, the notion of limited liability is less clear
in certain emerging market countries. Similarly, the rights of investors in
emerging market companies may be more limited than those of shareholders of
U.S. corporations.
The manner in which foreign investors may invest in companies in certain
emerging market countries, as well as limitations on such investments, also
may have an adverse impact on the operations of the Portfolio. For example,
the Portfolio may be required in certain of such countries to invest
initially through a local broker or other entity and then have the shares
purchased re-registered in the name of the Portfolio. Re-registration may in
some instances not be able to occur on a timely basis, resulting in a delay
during which the Portfolio may be denied certain of its rights as an
investor, including rights as to dividends or to be made aware of certain
corporate actions. There also may be instances where the Portfolio places a
purchase order but is subsequently informed, at the time of re-registration,
that the permissible allocation of the investment to foreign investors has
been filled, depriving the Portfolio of the ability to make its desired
investment at that time.
Certain emerging market countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation
and rapid fluctuations in interest rates have had and may continue to have
very negative effects on the economies and securities markets of certain
foreign countries.
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INVESTMENT OBJECTIVE AND POLICIES
The Fund consists of two separate Portfolios: the International Equity
Portfolio and the Emerging Markets Portfolio, each with its own separate
investment objective. Each Portfolio pursues its investment objective
through separate investment policies. Each Portfolio's investment objective
is a fundamental policy of that Portfolio and may not be changed without the
approval of the holders of a majority of that Portfolio's outstanding voting
securities, as defined in the Investment Company Act. The Portfolios are
authorized to employ a variety of investment techniques to hedge against
market and currency risk, although suitable hedging instruments may not be
available on a timely basis and on acceptable terms. There can be no
assurance that a Portfolio's investment objective will be achieved. Set
forth below are the specific investment objective and policies of each
Portfolio, followed by a description of general investment policies
applicable to one or both of the Portfolios.
INTERNATIONAL EQUITY PORTFOLIO
The investment objective of the International Equity Portfolio is to
seek capital appreciation and, secondarily, income by investing in a
diversified portfolio of equity securities of issuers located in countries
other than the United States. Under normal conditions, at least 65% of the
Portfolio's net assets will be invested in such equity securities. The
Portfolio is designed for investors seeking to complement their U.S. holdings
through foreign equity investments. The Portfolio should be considered as a
vehicle for diversification and not as a balanced investment program.
The Portfolio, utilizing the combined purchasing power of its
shareholders' funds, provides the investor with the opportunity to
participate in a portfolio of equity securities in a number of different
foreign markets which typically would require substantially larger
commitments. Other advantages include worldwide professional management and
administrative convenience. Unlike many intermediary investment vehicles,
such as closed-end investment companies that invest in a single country, the
Portfolio intends to diversify investment risk among the capital markets of a
number of countries.
The Portfolio will invest in an international portfolio of securities of
foreign companies located throughout the world. While there are no
prescribed limits on the geographic allocation of the Portfolio's
investments, management of the Portfolio anticipates that a substantial
portion of its assets will be invested in the developed countries of Europe
and the Far East. However, for the reasons stated below, management of the
Portfolio will give special attention to investment opportunities in the
developing countries of the world, including, but not limited to, Eastern
Europe, Latin America and the Far East. It is anticipated that a significant
portion of the Portfolio's assets may be invested in such developing
countries, and the Portfolio may invest without limit in such securities.
The allocation of the Portfolio's assets among the various foreign
securities markets will be determined by the Portfolio's manager, Merrill
Lynch Asset Management, L.P. (the "Manager" or "MLAM") and the Portfolio's
sub-manager, Merrill Lynch Asset Management U.K. Limited ("MLAM U.K."), based
primarily on an assessment of the relative condition and growth potential of
the various economies and securities markets, currency and taxation
considerations and other pertinent financial, social, national and political
factors. Within such allocations, the Manager and MLAM U.K. will seek to
identify equity investments in each market which are expected to provide a
total return which equals or exceeds the return of such market as a whole.
A significant portion of the Portfolio's assets may be invested in
developing countries. This allocation of the Portfolio's assets reflects the
belief that attractive investment opportunities may result from an evolving
long-term international trend favoring more market-oriented economies, a
trend that may especially benefit certain developing countries with smaller
capital markets. This trend may be facilitated by local or international
political, economic or financial developments that could benefit the capital
markets of such countries. Certain such countries,
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<PAGE>
particularly so-called "emerging" countries (such as Malaysia, Mexico and
Thailand), which may be in the process of developing more market-oriented
economies, may experience relatively high rates of economic growth. Because
of the general illiquidity of the capital markets in certain developing
countries, the Portfolio may invest in a relatively small number of leading
or relatively actively traded companies in such countries' capital markets in
the expectation that the investment experience of the securities of such
companies will substantially represent the investment experience of the
countries' capital markets as a whole.
While the Portfolio will primarily emphasize investments in common
stock, the Portfolio may also invest in preferred stocks, convertible debt
securities and other equity or equity-linked instruments. The Portfolio
reserves the right, as a temporary defensive measure and to provide for
redemptions, to hold cash or cash equivalents in U.S. dollars or foreign
currencies and short-term securities including money market securities
denominated in U.S. dollars or foreign currencies ("Temporary Investments").
Under certain adverse investment conditions, the Portfolio may restrict the
markets in which its assets will be invested and may increase the proportion
of assets invested in Temporary Investments of U.S. issuers. Under normal
conditions, at least 65% of the Portfolio's total assets will be invested in
the securities of issuers from at least three different foreign countries.
Investments made for defensive purposes will be maintained only during
periods in which the Manager or MLAM U.K. determines that economic or
financial conditions are adverse for holding or being fully invested in
equity securities of foreign issuers. A portion of the Portfolio normally
would be held in U.S. dollars or short-term interest bearing U.S. dollar-
denominated securities to provide for possible redemptions.
For purposes of the Portfolio's investment objective, an issuer
ordinarily would be considered to be located in the country under the laws of
which it is organized or where the primary trading market of its securities
is located. The Portfolio, however, may consider an issuer to be located in
a country, without reference to its domicile or to the primary trading market
of its securities, when at least 50% of its non-current assets,
capitalization, gross revenues or profits in any one of the two most recent
fiscal years represents (directly or indirectly through subsidiaries) assets
or activities located in such country. The Portfolio also may consider a
security that is denominated in a particular country's currency to be a
security of an issuer in such country without reference to the principal
trading market of the security or to the location of its issuer.
Additionally, the Portfolio may consider a derivative product tied to
securities or issuers located in a particular country to be the security of
an issuer in that country. The Portfolio also may consider investment
companies to be located in the country or countries in which they primarily
make their portfolio investments.
EMERGING MARKETS PORTFOLIO
The investment objective of the Emerging Markets Portfolio is to seek
long-term capital appreciation by investing in securities, principally
equities, of issuers in emerging market countries. Except for Temporary
Investments, as discussed below, all of the Portfolio's assets will consist
of direct or indirect investments in issuers in emerging market countries.
Under normal conditions, at least 65% of the Portfolio's total assets will be
invested in equity securities of emerging market countries. For this
purpose, equity securities include common stocks and equivalents, such as
securities convertible into common stocks and securities having common stock
characteristics, such as rights and warrants to purchase common stocks. The
Portfolio should be considered as a vehicle for diversification and not as a
balanced investment program.
For purposes of its investment objective, the Portfolio considers an
"emerging market country" to be any country which, in the opinion of the
Manager, is generally considered to be an emerging or developing country by
the international financial community, which includes the International Bank
for Reconstruction and Development (more commonly known as the World Bank)
and the International Finance Corporation. There are currently 130 countries
which, in the opinion of the Manager, are generally considered to be emerging
or developing countries by the international financial community,
approximately 40 of which currently have stock markets. These countries
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generally include every nation in the world except the United States, Canada,
Japan, Australia, New Zealand and most nations located in Western Europe.
Currently, investing in many emerging countries is not feasible or may
involve unacceptable political risks. The Portfolio will focus its
investments on those emerging market countries in which it believes the
economies are developing strongly and in which the markets are becoming more
sophisticated. To the extent permitted by applicable law, the Portfolio
intends to invest primarily in some or all of the following countries:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Argentina Czech Republic Jordan Portugal
Bangladesh Egypt Kenya Russia
Belize Ghana Malaysia Slovak Republic
Bolivia Greece Mexico Slovenia
Botswana Hong Kong Morocco South Africa
Brazil Hungary Nigeria South Korea
Bulgaria India Pakistan Sri Lanka
Chile Indonesia Peru Taiwan
China Israel Philippines Thailand
Colombia Jamaica Poland Turkey
Venezuela
Zimbabwe
</TABLE>
Certain of these countries currently do not offer satisfactory sub-custodial
arrangements either inside or outside such countries that satisfy the
requirements of rules adopted under the Investment Company Act. See "Risk
Factors and Special Considerations - Foreign Sub-custodians and Securities
Depositories." In such cases, the Portfolio will not invest in issuers in
such emerging market countries through purchases in such countries'
securities markets until satisfactory sub-custodial arrangements are
available.
As markets in other countries develop, the Portfolio expects to expand
and further diversify the emerging market countries in which it invests. The
Portfolio does not intend to invest in any security in a country where the
currency is not freely convertible to U.S. dollars, unless the Portfolio has
obtained the necessary governmental licensing to convert such currency or
other appropriately licensed or sanctioned contractual guarantees to protect
such investment against loss of that currency's external value, or the
Portfolio has a reasonable expectation at the time the investments is made
that such governmental licensing or others appropriately licensed or
sanctioned guarantees would be obtained or that the currency in which the
security is quoted would be freely convertible at the time of any proposed
sale of the security by the Portfolio.
The Manager believes that the quickening pace of political, social and
economic change in certain emerging market countries creates the potential
for rapid economic growth which may be reflected in the prices of securities
of issuers in such countries. The Manager also believes that economic growth
may result from governmental policies directed toward market oriented
economic reform. In addition, certain emerging market countries have been
introducing deregulatory reforms to encourage development of their securities
markets and, in varying degrees, to permit foreign investment. Nevertheless,
investments in emerging market countries are subject to considerable risks.
See "Risk Factors and Special Considerations."
Many investors lack the information, capability or inclination to invest
in emerging market countries. It also may not be permissible for such
investors to invest directly in certain such markets. Unlike many
intermediary investment vehicles, such as closed-end investment companies
that invest in a single country, the Portfolio intends to diversify
investment risk among the capital markets of a number of countries. The
Portfolio will not necessarily seek to diversify investments on a
geographical basis or on the basis of the level of economic development of
any particular country.
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In its investment decision-making, the Manager will emphasize the
allocation of assets among certain countries' capital markets, rather than
the selection of particular industries or issuers. Because of the general
illiquidity of the capital markets in some countries, the Portfolio may
invest in a relatively small number of leading or actively traded companies
in a country's capital markets in the expectation that the investment
experience of the securities of such companies will substantially represent
the investment experience of the country's capital markets as a whole.
To the extent that the Portfolio's assets are not invested in emerging
market country equities, the remainder of the assets may be invested in debt
securities of issuers in emerging market countries. Capital appreciation in
debt securities may arise as a result of a favorable change in relative
foreign exchange rates, in relative interest rate levels, or in the
creditworthiness of issuers. In accordance with its investment objective,
the Portfolio will not seek to benefit from anticipated short-term
fluctuations in currency exchange rates. The Portfolio may, from time to
time, invest in debt securities with relatively high yields (as compared to
other debt securities meeting the Portfolio's investment criteria),
notwithstanding that the Portfolio may not anticipate that such securities
will experience substantial capital appreciation. Such income can be used,
however, to offset the operating expenses of the Portfolio.
The Portfolio may invest in debt securities issued or guaranteed by
foreign governments (including foreign states, provinces and municipalities)
or their agencies and instrumentalities ("governmental entities"), issued or
guaranteed by international organizations designated or supported by multiple
foreign governmental entities (which are not obligations of foreign
governments) to promote economic reconstruction or development
("supranational entities"), or issued by foreign corporations or financial
institutions.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the World Bank, the European Steel and Coal
Community, the Asian Development Bank and the Inter-American Development
Bank. The governmental members, or "stockholders", usually make initial
capital contributions to the supranational entity and in many cases are
committed to make additional capital contributions if the supranational
entity is unable to repay its borrowings.
The Portfolio reserves the right, as a temporary defensive measure or to
provide for redemptions or in anticipation of investment in emerging market
countries, to hold Temporary Investments. The Portfolio may also invest in
venture capital investments and illiquid privately placed securities,
provided that such investments, together with other illiquid securities held
by the Portfolio, do not exceed 15% of the Portfolio's total assets.
For purposes of the Portfolio's investment objective, an issuer
ordinarily will be considered to be located in the country under the laws of
which it is organized or where the primary trading market of its securities
is located. The Portfolio, however, may consider an issuer to be located in
emerging market countries, without reference to its domicile or to the
primary trading market of its securities, when at least 50% of its
non-current assets, capitalization, gross revenues or profits in any one of
the two most recent fiscal years represents (directly or indirectly through
subsidiaries) assets or activities located in such countries. The Portfolio
may acquire securities of issuers in emerging market countries denominated in
currencies other than the currency of emerging market countries. The
Portfolio also may consider a security that is denominated in a particular
country's currency to be a security of an issuer in such country without
reference to the principal trading market of the security or to the location
of its issuer. Additionally, the Portfolio may consider a derivative product
tied to securities or issuers located in a particular country to be the
security of an issuer in that country. The Portfolio also may consider
investment companies to be located in the country or countries in which they
primarily make their portfolio investments.
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<PAGE>
No Rating Criteria for Debt Securities. The Emerging Markets Portfolio
has established no rating criteria for the debt securities in which it may
invest, and such securities may not be rated at all for creditworthiness.
Securities rated in the medium to lower rating categories by S&P and Moody's
and unrated securities of comparable quality ("high yield/high risk
securities") are predominantly speculative with respect to the capacity to
pay interest and repay principal in accordance with the terms of such
securities and generally involve a greater volatility of price than
securities in higher rating categories. These securities are commonly
referred to as "junk" bonds. In purchasing such securities, the Portfolio
will rely on the Manager's judgment, analysis and experience in evaluating
the creditworthiness of an issuer of such securities. The Manager will take
into consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history and the
quality of the issuer's management and regulatory matters. The Portfolio is
not authorized to purchase debt securities that are in default, except for
sovereign debt (discussed below) in which the Portfolio may invest no more
than 5% of its total assets while such sovereign debt securities are in
default.
The market values of high yield/high risk securities tend to reflect
individual issuer developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Issuers of high yield/high risk securities may be highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of
such issuers generally is greater than is the case with higher rated
securities. For example, during an economic downturn or a sustained period
of rising interest rates, issuers of high yield/high risk securities may be
more likely to experience financial stress, especially if such issuers are
highly leveraged. During 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 holders
of high yield/high risk securities because such securities may be unsecured
and may be subordinated to other creditors of the issuer.
High yield/high risks securities may have call or redemption features
which would permit an issuer to repurchase the securities from the Emerging
Markets Portfolio. If a call were exercised by the issuer during a period of
declining interest rates, the Portfolio likely would have to replace such
called securities with lower yielding securities, thus decreasing the net
investment income to the Portfolio and dividends to shareholders.
The Portfolio may have difficulty disposing of certain high yield/high
risk securities because there may be a thin trading market for such
securities. To the extent that a secondary trading market for high
yield/high risk securities does exist, it is generally not as liquid as the
secondary market for higher rated securities. Reduced secondary market
liquidity may have an adverse impact on market price and the Portfolio's
ability to dispose of particular issues when necessary to meet the
Portfolio's liquidity needs or in response to a specific economic event such
as a deterioration in the creditworthiness of the issuer. Reduced secondary
market liquidity for certain high yield/high risk securities also may make it
more difficult for the Portfolio to obtain accurate market quotations for
purposes of valuing the portfolio. Market quotations are generally available
on many high yield/high risk securities only from a limited number of dealers
and may not necessarily represent firm bids of such dealers or prices for
actual sales.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high
yield/high risk securities, particularly in a thinly traded market. Factors
adversely affecting the market value of high yield/high risk securities are
likely to adversely affect the Portfolio's net asset value. In addition, the
Portfolio 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.
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Sovereign Debt. Certain Latin American countries such as Argentina,
Brazil and Mexico, Asian-Pacific countries such as the Philippines and India
and other emerging market countries such as Turkey are among the largest
debtors to commercial banks and foreign governments. At times, certain of
such countries, especially those in Latin America, have declared moratoria on
the payment of principal and/or interest on outstanding debt.
Investment in sovereign debt involves a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability
to repay principal and interest due in a timely manner may be affected by,
among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the economy
as a whole, the governmental entity's policy towards the International
Monetary Fund and the political constraints to which a governmental entity
may be subject. Governmental entities may also be dependent on expected
disbursements from foreign governments, multilateral agencies and others
abroad to reduce principal and interest arrearages on their debt. The
commitment on the part of these governments, agencies and others to make such
disbursements may be conditioned on a governmental entity's implementation of
economic reforms and/or economic performance and the timely service of such
debtor's obligations. Failure to implement such reforms, achieve such levels
of economic performance or repay principal or interest when due may result in
the cancellation of such third parties' commitments to lend funds to the
governmental entity, which may further impair such debtor's ability or
willingness to timely service its debts. Consequently, governmental entities
may default on their sovereign debt.
Holders of sovereign debt, including the Emerging Markets Portfolio, may
be requested to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceeding by
which sovereign debt on which a governmental entity has defaulted may be
collected in whole or in part.
The sovereign debt instruments in which the Emerging Markets Portfolio
may invest involve great risk and are deemed to be the equivalent in terms of
quality to high yield/high risk securities discussed above and are subject to
many of the same risks as such securities. Similarly, the Emerging Markets
Portfolio may have difficulty disposing of certain sovereign debt obligations
because there may be a thin trading market for such securities. The Emerging
Markets Portfolio will not invest more than 5% of its total assets in
sovereign debt which is in default.
----------------------------
Depositary Receipts. Each Portfolio may invest in the securities of
foreign issuers in the form of American Depositary Receipts (ADRs), European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) or other
securities convertible into securities of foreign issuers. These securities
may not necessarily be denominated in the same currency as the securities
into which they may be converted. ADRs are receipts typically issued by an
American bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs are receipts issued in
Europe which evidence a similar ownership arrangement. GDRs are receipts
issued throughout the world which evidence a similar ownership arrangement.
Generally, ADRs, in registered form, are designed for use in the U.S.
securities markets, and EDRs, in bearer form, are designed for use in
European securities markets. GDRs are tradeable both in the U.S. and Europe
and are designed for use throughout the world. Each Portfolio may invest in
unsponsored ADRs, EDRs and GDRs. The issuers of unsponsored ADRs, EDRs and
GDRs are not obligated to disclose material information in the United States,
and therefore, there may not be a correlation between such information and
the market value of such securities.
Indexed Securities. Each Portfolio may invest in securities whose
potential return is based on the change in particular measurements of value
or rate (an "index"). As an illustration, the Emerging Markets Portfolio may
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<PAGE>
invest in a debt security that pays interest and returns principal based on
the change in an equity index, an interest rate index or an index based on
the values of one or more precious or industrial metals. Interest and
principal payable on a security may also be based on relative changes among
particular indices. In addition, the Portfolio may invest in securities
whose potential investment return is inversely based on the change in
particular indices. For example, the Portfolio may invest in securities that
pay a higher rate of interest and principal when a particular index decreases
and pay a lower rate of interest and principal when the value of the index
increases. To the extent that the Portfolio invests in such types of
securities, it will be subject to the risks associated with changes in the
particular indices, which may include reduced or eliminated interest payments
and losses of invested principal.
Certain indexed securities, including certain inverse securities, may
have the effect of providing a degree of investment leverage, because they
may increase or decrease in value at a rate that is a multiple of the changes
in applicable indices. As a result, the market value of such securities will
generally be more volatile than the market values of fixed-rate securities.
Each Portfolio believes that indexed securities, including inverse
securities, represent flexible portfolio management instruments that may
allow a Portfolio to seek potential investment rewards, hedge other portfolio
positions, or vary the degree of portfolio leverage relatively efficiently
under different market conditions.
Rule 144A Securities. Each Portfolio may purchase securities that are
not registered ("restricted securities") under the Securities Act, as
amended, but can be offered and sold to "qualified institutional buyers"
under Rule 144A under that Act. However, a Portfolio will not invest more
than 15% of its assets in illiquid investments, which includes securities for
which there is no readily available market, securities subject to contractual
restrictions on resale, and otherwise restricted securities, unless the
Fund's Board of Directors continuously determines, based on the trading
markets for the specific restricted security, that it is liquid. (However,
under the law of certain states, each Portfolio presently is limited with
respect to such investments to 10% of its net assets.) The Board of
Directors has determined to treat as liquid Rule 144A securities which are
freely tradeable in their primary markets offshore. The Board of Directors
may adopt guidelines and delegate to the Manager and MLAM U.K. the daily
function of determining and monitoring liquidity of restricted securities.
The Board of Directors, however, will retain sufficient oversight and be
ultimately responsible for the determinations.
The Board of Directors will carefully monitor each Portfolio's
investments in securities purchased pursuant to Rule 144A, focusing on such
factors, among others, as valuation, liquidity and availability of
information. Investment in these types of securities could have the effect
of increasing the level of illiquidity in a Portfolio to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these securities.
OTHER INVESTMENT POLICIES AND PRACTICES
Portfolio Strategies Involving Futures, Options and Forward Foreign
Exchange Transactions. Each Portfolio is authorized to engage in various
portfolio strategies to hedge their portfolios against movements in interest
rates, exchanges between currencies and prices in the securities markets.
These hedging transactions are considered to be investments in derivatives.
The Portfolios have authority to write (i.e., sell) covered put and call
options on their 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
Portfolios also may engage in forward foreign exchange transactions and enter
into foreign currency futures and options, and related options on such
futures. Each of these portfolio strategies is described in more detail in
the Appendix to this Prospectus. Although certain risks are involved in
futures and options transactions (as discussed in "Risk Factors in Options
and Futures Transactions" in the Appendix to this Prospectus), the Manager
believes that, because the Portfolios will engage in such transactions only
for hedging (including anticipatory hedging) purposes, the futures, options
and currency portfolio strategies of
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<PAGE>
the Portfolios will not subject the Portfolios to the risks frequently
associated with the speculative use of futures, options and currency
transactions. While each Portfolio's use of hedging strategies is intended
to reduce the volatility of the net asset value of its shares, the net asset
value of Portfolio shares will fluctuate. Reference is made to the Appendix
to this Prospectus and to the Statement of Additional Information for further
information concerning these strategies.
There can be no assurance that the Portfolios' hedging transactions will
be effective. Suitable hedging instruments may not be available, or
available on a timely basis and on acceptable terms, with respect to
securities of issuers located in certain countries in which the Portfolios
invest. Furthermore, the Portfolios may only engage in hedging activities
from time to time and may not necessarily engage in hedging transactions when
movements in the equity, debt or currency markets occur.
Portfolio Transactions. Since portfolio transactions may be effected on
foreign securities exchanges, each Portfolio may incur settlement delays on
certain of such exchanges. See "Risk Factors and Special Considerations".
In executing a Portfolio's transactions, the Portfolio's Manager seeks to
obtain the best net results for the Portfolio, 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.
Each Portfolio may invest in certain securities traded in the
over-the-counter market and, where possible, 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. Neither Portfolio
has any obligation to deal with any broker or dealer in the execution of its
portfolio transactions. Subject to obtaining the best price and execution,
securities firms which provide supplemental research to the Manager,
including Merrill Lynch, may receive orders for transactions by a Portfolio.
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
Agreements, and the expenses of the Manager will not necessarily be reduced
as a result of the receipt of such supplemental information.
Under the Investment Company Act, persons affiliated with the Fund and
persons who are affiliated with such affiliated persons, including Merrill
Lynch, are prohibited from dealing with either Portfolio as a principal in
the purchase and sale of securities unless a permissive order allowing such
transactions is obtained from the Commission. Affiliated persons of the
Fund, and affiliated persons of such affiliated persons, may serve as its
broker in transactions conducted on an exchange and in over-the-counter
transactions conducted on an agency basis and may receive brokerage
commissions from a Portfolio. In addition, a Portfolio may not purchase
securities during the existence of any underwriting syndicate for such
securities of which Merrill Lynch is a member except pursuant to procedures
approved by the Board of Directors of the Fund which comply with rules
adopted by the Commission. To the extent Merrill Lynch is active in
distributions of securities of issuers in countries in which a Portfolio
invests, a Portfolio may be disadvantaged in that it may not purchase
securities in such distributions. In addition, consistent with the Rules of
Fair Practice of the NASD, the Fund may consider sales of shares of the Fund
as a factor in the selection of brokers or dealers to execute transactions
for a Portfolio. It is expected that the majority of the shares of the
Portfolios will be sold by Merrill Lynch. Costs associated with transactions
in foreign securities are generally higher than those associated with
transactions in U.S. securities, although the Fund will endeavor to achieve
the best net results in effecting such transactions.
Each Portfolio anticipates that its brokerage transactions involving
securities of issuers domiciled in countries other than the United States
generally will be conducted primarily on the principal stock exchanges of
such
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countries. Brokerage commissions and other transaction costs on foreign
stock exchange transactions generally are higher than in the United States,
although each Portfolio will endeavor to achieve the best net results in
effecting its portfolio transactions. There generally is less governmental
supervision and regulation of foreign stock exchanges and brokers than in the
Unites States.
The Portfolios' ability and decision to purchase and sell portfolio
securities may be affected by foreign laws and regulations relating to the
convertibility and repatriation of assets.
Portfolio Turnover. Each Portfolio Manager will effect portfolio
transactions without regard to holding period if in his or her judgment such
transactions are advisable in light of a change in circumstance in general
market, economic or financial conditions. As a result of its investment
policies, each Portfolio may engage in a substantial number of portfolio
transactions. Accordingly, while each Portfolio anticipates that its annual
portfolio turnover rate should not exceed 100% under normal conditions, it is
impossible to predict portfolio turnover rates. The portfolio turnover rate
is calculated by dividing the lesser of each Portfolio's annual sales or
purchases of portfolio securities (exclusive of purchases or sales of
securities whose maturities at the time of acquisition were one year or less)
by the monthly average value of the securities in the portfolio during the
year. A high portfolio turnover rate involves correspondingly greater
transaction costs in the form of dealer spreads and brokerage commissions,
which are borne directly by each Portfolio.
When-Issued Securities and Delayed Delivery Transactions. The
Portfolios 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 a Portfolio with payment and
delivery taking place in the future to secure what is considered an
advantageous yield and price to the Portfolio at the time of entering into
the transaction. Although the Portfolios have not established any limit on
the percentage of their respective assets that may be committed in connection
with such transactions, each Portfolio will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government securities or
other high grade liquid debt 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 Portfolios may from time to time
enter into standby commitment agreements. Such agreements commit the
Portfolios, for a stated period of time, to purchase a stated amount of a
fixed income security which may be issued and sold to the Portfolios 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, a
Portfolio 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 Portfolio has committed to purchase.
The Portfolios 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 Portfolio. The Portfolios will not
enter into a standby commitment with a remaining term in excess of 45 days
and will limit their investment in such commitments so that the aggregate
purchase price of the securities subject to such commitments, together with
the value of portfolio securities subject to legal restrictions on resale,
will not exceed 15% of their respective total assets taken at the time of
acquisition of such commitment or security. The Portfolios will at all times
maintain a segregated account with their custodian of cash, cash equivalents,
U.S. Government securities or other high grade liquid debt 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 Portfolios may bear the risk of a decline
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<PAGE>
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 Portfolio'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. Each Portfolio may
invest in securities pursuant to repurchase agreements or purchase and sale
contracts. Under a repurchase agreement, the seller agrees, upon entering
into the contract with a Portfolio, to repurchase a security (typically a
security issued or guaranteed by the U.S. government) at a mutually agreed
upon time and price, thereby determining the yield during the term of the
agreement. This results in a fixed yield for the Portfolio insulated from
fluctuations in the market value of the underlying security during such
period, although, to the extent the repurchase agreement is not denominated
in U.S. dollars, the Portfolio's return may be affected by currency
fluctuations. Repurchase agreements may be entered into only with a member
bank of the Federal Reserve System, a primary dealer in U.S. government
securities or an affiliate thereof. A purchase and sale contract is similar
to a repurchase agreement, but purchase and sale contracts, unlike repurchase
agreements, allocate interest on the underlying security to the purchaser
during the term of the agreement. In all instances, the Portfolio takes
possession of the underlying securities when investing in repurchase
agreements or purchase and sale contracts. Nevertheless, if the seller were
to default on its obligation to repurchase a security under a repurchase
agreement or purchase and sale contract and the market value of the
underlying security at such time was less than the Portfolio had paid to the
seller, the Portfolio would realize a loss. Neither Portfolio may invest
more than 15% of its respective total assets in repurchase agreements or
purchase and sale contracts maturing in more than seven days, together with
all other illiquid securities.
Lending of Portfolio Securities. Each Portfolio may from time to time
lend securities from its portfolio with a value not exceeding 331/3% 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 of each Portfolio, and neither Portfolio
may change the limitation without the approval of the holders of a majority
of that Portfolio's outstanding voting securities as defined in the
Investment Company Act. During the period of such a loan, a Portfolio
receives the income on the loaned securities and receives either 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. Such loans
are terminable at any time, and the borrower, after notice, will be required
to return borrowed securities within five business days. In the event that
the borrower defaults on its obligation to return borrowed securities,
because of insolvency or otherwise, a Portfolio 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
Each Portfolio'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 each
Portfolio's outstanding voting securities, respectively (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 their fundamental policies, neither Portfolio may 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
20
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industry (including the securities issued or guaranteed by the government of
any one foreign country, but excluding the U.S. Government and its agencies
or instrumentalities). Investment restrictions and policies that are non-
fundamental policies may be changed by the Board of Directors without
shareholder approval. As a non-fundamental policy, a Portfolio may not
borrow money or pledge its assets, except that each Portfolio (a) may borrow
from a bank as a temporary measure for extraordinary or emergency purposes or
to meet redemptions in amounts not exceeding 331/3% (taken at market value)
of its total assets and pledge its assets to secure such borrowings, (b) may
obtain 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 a Portfolio of initial or variation margin in
connection with financial futures contracts or options transactions is not
considered to be the purchase of a security on margin.) The purchase of
securities while borrowings are outstanding will have the effect of
leveraging the Fund. Such leveraging or borrowing increases a Portfolio's
exposure to capital risk, and borrowed funds are subject to interest costs
which will reduce net income.
As a non-fundamental policy, the Portfolios will not invest in
securities which cannot readily be 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 total
assets (or 10% of its total assets as presently required by certain state
law) taken at market value would be invested in such securities.
Notwithstanding the foregoing, a Portfolio may purchase without regard to
this limitation securities that are not registered under the Securities Act,
but that can be offered and sold to "qualified institutional buyers" under
Rule 144A under the Securities Act, provided that the Fund's Board of
Directors continuously determines, based on the trading markets for the
specific Rule 144A security, that a security so bought is liquid. The Board
of Directors may adopt guidelines and delegate to the Manager the daily
function of determining and monitoring liquidity of restricted securities.
The Board has determined that securities which are freely tradeable in their
primary market offshore should be deemed liquid. The Board, however, will
retain sufficient oversight and be ultimately responsible for the
determinations.
The full text of the proposed investment restrictions is set forth under
"Investment Objective and Policies--Uniform Investment Restrictions" in the
Statement of Additional Information.
The Portfolios are classified as non-diversified within the meaning of
the Investment Company Act, which means that the Portfolios are not limited
by such Act in the proportion of the assets that each may invest in
securities of a single issuer. The Portfolios' investments will be limited,
however, in order to qualify for the special tax treatment afforded
"regulated investment companies" under the Internal Revenue Code of 1986, as
amended. See "Additional Information--Taxes". To qualify, each Portfolio
must comply with certain requirements, including limiting investments so that
at the close of each quarter of the taxable year (i) not more than 25% of the
market value of the Portfolio'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
Portfolio will not own more than 10% of the outstanding voting securities of
a single issuer. A Portfolio 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 a
Portfolio invests a relatively high percentage of its assets in obligations
of a limited number of issuers, the Portfolio may be more susceptible than a
more widely diversified fund to any single economic, political or regulatory
occurrence or to changes in an issuer's financial condition or in the
market's assessment to the issuers.
For purposes of the diversification requirements set forth above with
respect to regulated investment companies, and to the extent required by the
Commission, the Fund, as a non-fundamental policy, will consider securities
issued or guaranteed by the government of any one foreign country as the
obligations of a single issuer.
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MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of six individuals, five of
whom are not "interested persons" of the Fund as defined in the Investment
Company Act. The Board of Directors of the Fund is responsible for the
overall supervision of the operations of the Fund and performs the various
duties imposed on the directors of investment companies by the Investment
Company Act.
The Directors of the Fund are:
ARTHUR ZEIKEL* -- President and Chief Investment Officer of the Manager
and Fund Asset Management, L.P. ("FAM"); President and Director of Princeton
Services, Inc. ("Princeton Services"); Executive Vice President of Merrill
Lynch & Co., Inc. ("ML & Co."); Executive Vice President of Merrill Lynch;
Director of the Distributor.
DONALD CECIL -- Special Limited Partner of Cumberland Partners (an
investment partnership).
EDWARD H. MEYER -- Chairman of the Board, President and Chief Executive
Officer of Grey Advertising, Inc.
CHARLES C. REILLY -- Self-employed financial consultant; former
President and Chief Investment Officer of Verus Capital, Inc.; former Senior
Vice President of Arnhold and S. Bleichroeder, Inc.; Adjunct Professor,
Columbia University Graduate School of Business.
RICHARD R. WEST -- Professor of Finance, and Dean from 1984 to 1993, New
York University Leonard N. Stern School of Business Administration.
EDWARD D. ZINBARG - Former Executive Vice President of The Prudential
Insurance Company of America.
____________________
* Interested person, as defined in the Investment Company Act, of the
Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager is owned and controlled by ML & Co., a financial services
holding company and the parent of Merrill Lynch. The Manager provides each
Portfolio with management and investment advisory services. The Manager or
an affiliate, FAM, acts as the investment adviser for more than 130 other
registered investment companies. The Manager or FAM also offers portfolio
management and portfolio analysis services to individuals and institutions.
As of January 31, 1995, the Manager and FAM had a total of approximately
$166.5 billion in investment company and other portfolio assets under
management, including accounts of certain affiliates of the Manager.
The management agreement with the Manager relating to each Portfolio
(each a "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 that Portfolio and constantly reviews that Portfolio's holdings
in light of its own research
22
<PAGE>
analysis and that from other relevant sources. 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 managers for each Portfolio, each of
whom considers analyses from various sources (including brokerage firms with
which the Fund does business), makes the necessary decisions, and places
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.
Each Portfolio pays the Manager a monthly fee based on the average daily
value of that Portfolio's net assets at the following annual rates:
International Emerging
Equity Markets
Portfolio Portfolio
------------- ----------
0.70% 0.80%
These fees are higher than that of some other portfolios and/or mutual funds,
including other portfolios and/or mutual funds managed by the Manager and
other investment advisers, but management of the Fund believes these fees are
justified by the additional investment research and analysis required in
connection with each Portfolio's investment strategy.
With respect to the International Equity Portfolio, the Manager has
entered into a sub-management agreement (the "Sub-Management Agreement") with
MLAM U.K., an indirect, wholly-owned subsidiary of ML & Co. and an affiliate
of the Manager, pursuant to which the Manager pays MLAM U.K. a fee for
providing investment advisory services to the Manager with respect to the
Portfolio in an amount to be determined from time to time by the Manager and
MLAM U.K. but in no event in excess of the amount that the Manager actually
receives for providing services to the Portfolio pursuant to the Management
Agreement. MLAM U.K. has offices at Ropemaker Place, 25 Ropemaker Street,
1st Floor, London EC24 9LY, England.
INTERNATIONAL EQUITY PORTFOLIO. Decisions concerning the allocation of
the Portfolio's assets among the three prime regions outside the United
States (i.e., Europe, Latin America and the Pacific Basin) will be
centralized in London, with country and individual security decisions made in
both London and Princeton, New Jersey. The names of the persons associated
with the Manager and MLAM U.K. who are primarily responsible for the day-to-
day management of the Portfolio's assets, the length of time that such
persons have been so responsible, and their business experience during the
past five years are as follows:
Andrew John Bascand, Vice President of the Fund, Director of MLAM U.K.
and Vice President of Merrill Lynch Global Asset Management Limited (MLGAM)
since 1993. Previously, Mr. Bascand was with A.M.P. Asset Management plc in
London and had served as Chief Economist with A.M.P. Investments (NZ) in New
Zealand. He has served as Economic Adviser to the Chief Economist of the
Reserve Bank of New Zealand and as Research Officer of the Bank of England's
International Department. Mr. Bascand is the Asset Allocator for the
Portfolio and, as such, is primarily responsible for determining the
allocation of the Portfolio's assets among the three prime regions outside
the United States.
Adrian Holmes, Vice President of the Fund, Managing Director of MLAM
U.K. since 1993, Vice President from 1990 to 1993 and an employee thereof
since 1987, and Director of MLGAM since 1993. Mr. Holmes is primarily
responsible for European investments.
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<PAGE>
Stephen I. Silverman, Vice President of the Fund, Vice President of the
Manager and its predecessor since 1983. Mr. Silverman is primarily
responsible for Pacific Basin investments.
Grace Pineda, Vice President of the Fund, Vice President of the Manager
and its predecessor since 1989. Prior to joining the Manager, Ms. Pineda was
a portfolio manager with Clemente Capital, Inc. Ms. Pineda is primarily
responsible for investments in emerging markets in Europe, Asia and Latin
America.
EMERGING MARKETS PORTFOLIO. Grace Pineda, whose business experience is
described above, is the Portfolio's manager.
Each Management Agreement obligates a Portfolio to pay certain expenses
incurred in its operations including, among other things, the management 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 Portfolios by the Manager, and the
Portfolios reimburse 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 ML & Co., acts as the Fund's transfer agent
pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement (the "Transfer Agency Agreement"). Pursuant to
the Transfer Agency Agreement, the Transfer Agent is responsible for the
issuance, transfer and redemption of shares and the opening and maintenance
of shareholder accounts. Pursuant to the Transfer Agency Agreement, the
Transfer Agent receives an annual fee of $11.00 per 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.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under
Rule 17j-1 of the Investment Company Act which incorporates the Code of
Ethics of the Manager (together, the "Codes"). The Codes significantly
restrict the personal investing activities of all employees of the Manager
and, as described below, impose additional, more onerous, restrictions on
fund investment personnel.
The Codes require that all employees of the Manager preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to
the proposed investment. The substantive restrictions applicable to all
employees of the Manager include a ban on acquiring any securities in a "hot"
initial public offering and a prohibition from profiting on short-term
trading in securities. In addition, no employee may purchase or sell any
security which at the time is being purchased or sold (as the case may be),
or to the knowledge of the employee is being considered for purchase or sale,
by any fund advised by the Manager. Furthermore, the Codes provide for
trading "blackout periods" which prohibit trading by investment personnel of
the Fund within periods of trading by the Fund in the same (or equivalent)
security (15 or 30 days depending upon the transaction).
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<PAGE>
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate
of both the Manager and Merrill Lynch, acts as the Distributor of the shares
of the Portfolios. Shares of the Portfolios will be offered continuously for
sale by the Distributor and other eligible securities dealers (including
Merrill Lynch). The minimum initial purchase is $1,000,000 per Portfolio.
There is no minimum for subsequent investments. Shares of the Fund are not
being offered to retirement plans qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), retirement or
deferred compensation arrangements subject to Section 403(b) or Section 457
of the Code, individual retirement accounts or annuities subject to Section
408 of the Code, or plans or other arrangements subject to Section 4975 of
the Code.
The Fund is offering its Portfolios' shares at a public offering price
equal to the next determined net asset value per share (initially, $10.00 per
share). The applicable offering price for purchase orders is based upon the
net asset value of the Portfolios' shares next determined after receipt of
the purchase orders by the Distributor. As to purchase orders received by
securities dealers prior to the close of business on the New York Stock
Exchange (generally, 4:00 p.m., New York time), which includes orders
received after the close of business on the previous day, the applicable
offering price will be based on the net asset value determined after the
close of business on the New York Stock Exchange on that day, provided the
Distributor in turn receives the order from the securities dealer prior to 30
minutes after the close of business on the New York Stock Exchange on that
day. If the purchase orders are not received prior to 30 minutes after the
close of business on the New York Stock Exchange, such orders shall be deemed
received on the next business day. 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.
To permit the Fund to invest the net proceeds from the sale of Portfolio
shares in an orderly manner or in response to conditions in the securities
markets or otherwise, the Fund or the Distributor may from time to time
suspend the sale of its shares, except for dividend reinvestments. The Fund
may, thereafter, resume such offering from time to time. The Fund also
reserves the right to limit the number of shares that may be purchased by a
person during a specified period of time or in the aggregate.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all full and fractional shares
of the Portfolios 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. 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 Portfolio(s) at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Fund's Transfer Agent, Financial Data Services, Inc.,
Transfer Agency Mutual Fund Operations, P.O. Box 45289, Jacksonville, Florida
32232-5289. 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
25
<PAGE>
certificates have been issued may be accomplished by a written letter as
noted above accompanied by certificates for the shares to be redeemed.
Redemption requests should not be sent to the Fund. A redemption request
requires the signature(s) of all persons in whose name(s) the shares are
registered, signed exactly as the name(s) appear(s) on the Transfer Agent's
register or on the certificate, as the case may be. The signature(s) on the
redemption request must be guaranteed by an "eligible guarantor institution"
(including, for example, Merrill Lynch branch offices and certain other
financial 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. Notarized signatures are not sufficient. In certain instances,
the Transfer Agent may require additional documents such as, but not limited
to, trust instruments, death certificates, appointments as executor or
administrator, or certificates of corporate authority. For shareholders
redeeming directly with the Transfer Agent, payment will be mailed within
seven days of receipt of a proper notice of redemption. At various times the
Fund may be requested to redeem shares for which it has not yet received good
payment (e.g., cash, Federal funds or a certified check drawn on a U.S.
bank). The Fund may delay or cause to be delayed the mailing of a redemption
check until such time as good payment has been collected for the purchase of
such shares. Normally this delay will not exceed 10 days.
REPURCHASE
The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund normally will accept orders to repurchase shares
by wire or telephone from dealers for their customers at the net asset value
next computed after receipt of the order by the dealer, provided that the
request for repurchase is received by the dealer prior to the close of
business on the New York Stock Exchange on the day received and is received
by the Fund from such dealer not later than 30 minutes after the close of
business on the New York Stock Exchange, on the same day. Dealers have the
responsibility of submitting such repurchase requests to the Fund not later
than 30 minutes after the close of business on the New York Stock Exchange in
order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than the
applicable redemption fee). 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 affect adversely shareholders seeking redemption through
the repurchase procedure. However, a shareholder whose order for repurchase
is rejected by the Fund may redeem shares as set forth above.
Redemption payments will be made within seven days of the proper tender
of the certificates, if any, and stock power or letter requesting redemption,
in each instance with signatures guaranteed as noted above.
SHAREHOLDER SERVICES
The Fund offers the shareholder the services and investment plan
described below which are designed to facilitate investment in shares of the
Portfolios. Instructions as to how to participate in the plan, or how to
change options with respect thereto, can be obtained from the Fund by calling
the telephone number on the cover page or from the Distributor or Merrill
Lynch. Certain of these services are available only to U.S. investors.
Investment Account. Each shareholder whose account is maintained at
the Transfer Agent has an Investment Account and will receive statements, at
least quarterly, from the Transfer Agent. These statements will serve as
transaction confirmations for automatic investment purchases and the
reinvestment of ordinary income
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<PAGE>
dividends and long-term capital gain distributions. The statements will also
show any other activity in the account since the preceding statement.
Shareholders will receive separate transaction confirmations for each
purchase or sale transaction other than automatic investment purchases and
the reinvestment of ordinary income dividends and long-term capital gain
distributions. Shareholders may make additions to their Investment Account
any time by mailing a check directly to the Transfer Agent. Shareholders also
may maintain their accounts through Merrill Lynch. Upon the transfer of
shares out of a Merrill Lynch brokerage account, an Investment Account in the
transferring shareholder's name will be opened, automatically and without
charge, at the Transfer Agent.
Automatic Reinvestment of Dividends and Capital Gains Distributions.
All dividends and capital gains distributions are reinvested automatically in
full and fractional shares of the respective Portfolio(s) 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 by telephone (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. Cash payments can also be directly deposited
to the shareholder's bank account.
PERFORMANCE DATA
From time to time the Fund may include each Portfolio's average annual
total return for various specified periods in advertisements or information
furnished to present or prospective shareholders. Average annual total
return is computed in accordance with a formula specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on
net investment income and any capital gains or losses on Portfolio
investments over such periods) that would equate the initial amount invested
to the redeemable value of such investment at the end of each period.
Average annual total return will be computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and non-recurring expenses, including any redemption fee that would be
applicable to a complete redemption of the investment at the end of the
specified period. Dividends paid by each Portfolio with respect to all
shares, to the extent any dividends are paid, will be calculated in the same
manner at the same time on the same day and will be in the same amount.
The Fund also may quote each Portfolio's total return and aggregate
total return performance data for various specified time periods. Such data
will be calculated substantially as described above, except that the rates of
return calculated will not be average annual rates, but rather, actual
annual, annualized or aggregate rates of return. 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. Each Portfolio'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 a Portfolio or both
Portfolios of the Fund at the beginning of each specified period.
Total return figures are based on each Portfolio's historical
performance and are not intended to indicate future performance. Each
Portfolio's total return will vary depending on market conditions, the
securities comprising the 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 each Portfolio will fluctuate, and an
investor's shares, when redeemed, may be worth more or less than their
original cost.
27
<PAGE>
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
each Portfolio's risk-adjusted performance ratings assigned by Morningstar
Publications, Inc. in advertising or supplemental sales literature. As with
other performance data, performance comparisons should not be considered
indicative of each Portfolio's relative performance for any future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is each Portfolio'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. See "Determination
of Net Asset Value" below. Dividends and distributions may be reinvested
automatically in shares of the Fund at net asset value. Shareholders may, at
any time, in writing or by telephone (1-800-MER-FUND) to the Transfer Agent,
elect to receive any such dividends or distributions, or both, in cash. See
"Shareholder Services - Automatic Reinvestment of Dividends and
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 a
Portfolio or received in cash. From time to time, a Portfolio 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.
The per share dividends and distributions will be reduced as a result of
any account maintenance, distribution and transfer agency fees. See
"Determination of Net Asset Value" below.
Certain gains or losses attributable to foreign currency related gains
or losses from certain of a Portfolio's investments may increase or decrease
the amount of a Portfolio's income available for distribution to
shareholders. If such losses exceed other income during a taxable year, (a)
a Portfolio would not be able to make any ordinary income dividend
distributions, and (b) distributions made before the losses were realized
would be recharacterized as returns of capital to shareholders, rather than
as ordinary income dividends, reducing each shareholder's tax basis in his or
her Portfolio shares for Federal income tax purposes. For a detailed
discussion of the Federal tax considerations relevant to foreign currency
transactions, see "Taxes" below. If in any fiscal year a Portfolio has net
income from certain foreign currency transactions, such income will be
distributed annually.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily as of 15 minutes
after the close of business on the New York Stock Exchange (generally, 4:00
p.m., New York time) on each day the New York Stock Exchange is open for
trading. Any assets or liabilities expressed in terms of foreign 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 each
Portfolio 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 management fees payable to the Manager, are accrued daily.
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<PAGE>
Portfolio securities which are traded on stock exchanges are valued at
the last sale price (regular way) on the exchange on which such securities
are traded, as of the close of business on the day the securities are being
valued or, lacking any sales, at the last available bid price. In cases
where securities are traded on more than one exchange, the securities are
valued on the exchange designated by or under the authority of the Board of
Directors as the primary market. Securities traded in the over-the-counter
market are valued at the last available bid price in the over-the-counter
market prior to time of valuation. When a Portfolio writes a call option,
the amount of the premium received is recorded on the books of the Portfolio
as an asset and an equivalent liability. The amount of the liability is
subsequently valued to reflect the current market value of the option
written, based upon the last sale price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter market, the
last asked price. Options purchased by a Portfolio are valued at their last
sale price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. Securities and
assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board
of Directors of the Fund.
Since foreign securities exchanges may be open on certain U.S. holidays
on which the Fund will not determine its Portfolios' net asset value and
accept share orders, portfolio securities will trade and the net asset value
of the Portfolios' shares may be significantly affected on days when an
investor has no access to the Fund.
TAXES
The Fund intends to elect and to qualify the Portfolios for the special
tax treatment afforded regulated investment companies ("RICs") under the
Code. If it so qualifies, each Portfolio (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 shareholders. The Fund
intends to cause each Portfolio to distribute substantially all of such
income.
Dividends paid by a Portfolio from its ordinary income and distributions
of a Portfolio'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 a Portfolio's net realized
long-term capital gains (including long-term gains from certain transactions
in futures or options) ("capital gain dividends") are taxable to shareholders
as long-term capital gains, regardless of the length of time the shareholder
has owned Portfolio shares. Distributions in excess of a Portfolio'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 a Portfolio. Not later than 60 days after the close of
its taxable year, each Portfolio will provide its shareholders with a written
notice designating the amounts of any ordinary income dividends or capital
gain dividends. Distributions by a Portfolio, whether from ordinary income
or capital gains, generally will not be eligible for the dividends received
deduction allowed to corporations under the Code. If a Portfolio pays a
dividend in January which was declared in the previous October, November or
December to shareholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by such
Portfolio and received by its shareholders on December 31 of the year in
which such dividend was declared.
Ordinary income dividends paid by each Portfolio 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.
29
<PAGE>
Dividends and interest received by a Portfolio 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 a Portfolio. If more
than 50% in value of a Portfolio's total assets at the close of its taxable
year consists of securities of foreign corporations, the Portfolio will be
eligible, and the Fund intends, to file an election with the Internal Revenue
Service with respect to such portfolio pursuant to which shareholders of the
Portfolio 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 non-corporate
shareholders who do not itemize deductions. A shareholder that is a non-
resident 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 shareholders of each Portfolio
the amount per share of the withholding taxes paid by each Portfolio.
Under certain provisions of the Code, some shareholders may be subject
to a 31% withholding tax on ordinary income dividends, capital gain dividends
and redemption payments ("backup withholding"). Generally, shareholders
subject to backup withholding will be those for whom no taxpayer
identification number is on file with the Portfolio or who, to the
Portfolio'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.
Each Portfolio may invest up to 10% of its total assets in securities of
closed-end investment companies. If a Portfolio purchases shares of an
investment company (or similar investment entity) organized under foreign
law, the Portfolio will be treated as owning shares in a passive foreign
investment company ("PFIC") for U.S. Federal income tax purposes. A
Portfolio may be subject to U.S. Federal income tax, and an additional tax in
the nature of interest, on a portion of distributions from such company and
on gain from the disposition of such shares (collectively referred to as
"excess distributions"), even if such excess distributions are paid by the
Portfolio as a dividend to its shareholders. A Portfolio may be eligible to
make an election with respect to certain PFICs in which it owns shares that
will allow it to avoid the taxes on excess distributions. However, such
election may cause the Portfolio to recognize income in a particular year in
excess of the distributions received from such PFICs. Alternatively, under
proposed regulations the Portfolio would be able to elect to "mark to market"
at the end of each taxable year all shares that it holds in PFICs. If it
made this election, the Portfolio would recognize as ordinary income any
increase in the value of such shares. Unrealized losses, however, would not
be recognized. By making the mark-to-market election, the Portfolio could
avoid imposition of the interest charge with respect to its distributions
from PFICs, but in any particular year might be required to recognize income
in excess of the distributions it received from PFICs and its proceeds from
dispositions of PFIC stock.
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 a Portfolio'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 Portfolio would
not be able to make any ordinary income dividend distributions, and any
distributions made before the losses were realized but in the same taxable
year would be recharacterized as a return of capital to shareholders, thereby
reducing the basis of each shareholder's Portfolio shares and resulting in a
capital
30
<PAGE>
gain for any shareholder who received a distribution greater than the
shareholder's tax basis in Portfolio shares (assuming the shares were held as
a capital asset).
A loss realized on a sale of shares of a Portfolio will be disallowed if
other shares in the same Portfolio are acquired (whether through the
automatic reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date that the shares
are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state
and local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law
varies as to whether dividend income attributable to U.S. Government
obligations is exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Fund.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on November 18, 1994. The
Fund is an open-end management investment company comprised of separate
series ("Series"), each of which is a separate portfolio. Each Series is to
be managed independently. At the date of this Prospectus, the Fund has
authorized capital of 100,000,000 shares of Common Stock, par value $0.10 per
share, divided into two Series as follows:
<TABLE>
<CAPTION>
Shares of
Series Common Stock
- ------ -------------
<S> <C>
International Equity Portfolio . . . . . . . . . . . . . . . . . . . . . 50,000,000
Emerging Markets Portfolio . . . . . . . . . . . . . . . . . . . . . . . 50,000,000
</TABLE>
The Board of Directors of the Fund may classify and reclassify the
shares of the Fund into additional Series at a future date without
shareholder approval.
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 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 shareholders be held upon the written
request of at least 10% of the outstanding shares of the Fund entitled to
vote at such meeting. Voting rights for Directors are not cumulative.
Shares issued are fully paid and non-assessable and have no preemptive
rights. Each share of Common Stock is entitled to participate equally in
dividends and distributions declared by the respective Series and in the net
assets of such Series upon liquidation or dissolution after satisfaction of
outstanding liabilities. The obligations and liabilities of a particular
Series are restricted to the assets of that Series and do not extend to
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<PAGE>
the assets of the Fund generally. Shares of each Series represent an
interest only in that Series and not in any other Series of the Fund.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of
the number of accounts such shareholder has. If a shareholder wishes to
receive separate copies of each report and communication for each of the
shareholder's related accounts, the shareholder should notify in writing:
Financial Data Services, Inc.
Attn: TAMFO
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch and/or mutual fund account
numbers. If you have any questions regarding this, please call your Merrill
Lynch financial consultant or Financial Data Services, Inc. at
1-800-637-3863.
32
<PAGE>
APPENDIX
FUTURES, OPTIONS AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Portfolios are authorized to engage in various portfolio hedging
strategies. Those strategies are described in more detail below:
Portfolio Strategies Involving Options, Futures and Forward Foreign
Exchange Transactions. The Portfolios are authorized to engage in various
portfolio strategies to hedge their portfolios against movements in interest
rates, exchange rates between currencies and prices in the securities
markets. Each Portfolio has the authority to write (i.e., sell) covered put
and call options on their 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. Each
Portfolio may also deal in forward foreign exchange transactions and foreign
currency options and futures, and related options on such futures. Although
certain risks are involved in options and futures transactions (as discussed
below and in "Risk Factors in Options and Futures Transactions"), the Manager
believes that, because each Portfolio will engage in options and futures
transactions only for hedging purposes, the options and futures portfolio
strategies of the Portfolios will not subject a Portfolio to the risks
frequently associated with the speculative use of options and futures
transactions. While each Portfolio's use of hedging strategies is intended
to reduce the volatility of the net asset value of its shares, the net asset
value of each Portfolio's shares will fluctuate. Reference is made to the
Statement of Additional Information for further information concerning these
strategies.
There can be no assurance that a Portfolio's hedging transaction will be
effective. Suitable hedging instruments may not be available, or may not be
available on a timely basis and on acceptable terms. Furthermore, each
Portfolio will only engage in hedging activities from time to time and will
not necessarily engage in hedging transactions when movements in any
particular securities, interest rates or currencies occur.
Set forth below are descriptions of certain hedging strategies in which
each Portfolio is authorized to engage.
Writing Covered Options. Each Portfolio 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 a Portfolio, in return for
a premium, gives another party a right to buy specified securities owned by
the Portfolio 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, each
Portfolio 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, a Portfolio's ability to sell the underlying security
will be limited while the option is in effect unless the Portfolio effects a
closing purchase transaction. A closing purchase transaction cancels out the
Portfolio'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 International Equity Portfolio may
not write covered call options on underlying securities in an amount
exceeding 15% of the market value of its assets.
Each Portfolio also may write put options which give the holder of the
option the right to sell the underlying security to the Portfolio at the
stated exercise price. A Portfolio will receive a premium for writing a put
option which increases the Portfolio's return. Each Portfolio writes only
covered put options, which means that so long as the Portfolio 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 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, a
Portfolio 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
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is outstanding. Each Portfolio may engage in closing transactions in order
to terminate put options that it has written. Neither Portfolio will write
put options if the aggregate value of the obligations underlying the put
options shall exceed 50% of that Portfolio's net assets.
Purchasing Options. Each Portfolio is authorized to purchase put
options to hedge against a decline in the market value of its securities. By
buying a put option a Portfolio has a right to sell the underlying security
at the stated exercise price, thus limiting the Portfolio'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 that the
premium paid for the put option plus the related transaction costs. A
closing sale transaction cancels out the Portfolio's position as the
purchaser of an option by means of any offsetting sale of an identical option
prior to the expiration of the option it has purchased.
In certain circumstances, each Portfolio 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. Neither Portfolio will 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 each Portfolio, respectively, would exceed 5% of the
market value of each Portfolio's total assets.
Stock Index Options and Futures and Financial Futures. Each Portfolio
is authorized to engage in transactions in stock index options and futures
and financial futures, and related options on such futures. Each Portfolio
may purchase or write put and call options on stock indices to hedge against
the risks of market-wide stock price movement in the securities in which the
Portfolio 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.
Each Portfolio may invest in stock index options based on a broad market
index or based on a narrow index representing an industry or market segment.
Each Portfolio 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 specified amount of a commodity, such as a type of
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. Each Portfolio 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 a Portfolio in stock index
futures and financial futures are subject to limitations as described below
under "Restrictions on the Use of Futures Transactions".
Each Portfolio may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the
Portfolio's respective securities portfolio that might otherwise result.
When a Portfolio is not fully invested in the securities markets and
anticipates a significant market 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 Portfolio intends to purchase. As such
purchases are made, an equivalent amount of futures contracts will be
terminated by offsetting sales. The Manager 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, each
Portfolio 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
A-2
<PAGE>
under unusual circumstances (e.g., a Portfolio experiences a significant
amount of redemptions), a long futures position may be terminated without the
corresponding purchase of securities.
Each Portfolio 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 a Portfolio enters into futures transactions. Each
Portfolio 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,
each Portfolio 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 Portfolio intends to purchase.
Each Portfolio may engage in options and futures transactions on U.S.
and foreign exchanges and in options in the over-the-counter markets ("OTC
options"). Exchange-traded contracts are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an exchange or
clearing corporation) which, in general, have 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. Each Portfolio 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
contract. A Portfolio'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 a Portfolio accruing in
connection with the purchase and sale of its portfolio securities, the sale
and redemption of shares of the Portfolio or the payment of dividends and
distributions by the Portfolio. Position hedging is the sale of forward
foreign currency with respect to portfolio security positions denominated or
quoted in such foreign currency. Neither Portfolio has a limitation on
transaction hedging. Neither Portfolio will speculate in foreign forward
exchange. If a Portfolio enters into a position hedging transaction, the
Portfolio's custodian will place cash or high quality liquid debt securities
in a separate account of the Portfolio in an amount equal to the value of
that Portfolio'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 that Portfolio's commitment
with respect to such contracts. 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 a
Portfolio to hedge against a devaluation that is so generally anticipated
that the Portfolio is not able to contract to sell the currency at a price
above the devaluation level it anticipates. Investors should be aware that
U.S. dollar denominated securities may not be available in some or all
developing countries, that the forward currency market for the purchase for
U.S. dollars in most, if not all, developing countries is not highly
developed and that in certain developing countries no forward market for
foreign currencies currently exists or such market may be closed to
investment by each Portfolio.
Each Portfolio 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 a
Portfolio, sold by a Portfolio but not yet delivered, or committed or
anticipated to be purchased by a Portfolio. As an illustration, a Portfolio
may use such techniques to hedge the stated value in U.S. dollars of an
investment in Philippine peso denominated securities. In such circumstances,
for example, the Portfolio may purchase a foreign currency put option
enabling it to sell a specified amount of Philippine pesos
A-3
<PAGE>
for dollars at a specified price by a future date. To the extent the hedge
is successful, a loss in the value of the Philippine peso 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
Portfolio may also sell a call option which, if exercised, requires it to
sell a specified amount of Philippine pesos for dollars at a specified price
by a future date (a technique called a "straddle"). By selling a call option
in this illustration, the Portfolio gives up the opportunity to profit
without limit from increases in the relative value of the Philippine peso to
the dollar. Each Portfolio Manager believes that "straddles" of the type
which may be utilized by their respective Portfolio 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. Neither Portfolio will speculate in foreign
currency options, futures or related options. Accordingly, neither Portfolio
will hedge a currency substantially in excess of the market value of the
securities denominated in such currency which it owns; the expected
acquisition price of securities which it has committed or anticipates to
purchase which are denominated in such currency, and in the case of
securities which have been sold by the Portfolio but not yet delivered, the
proceeds thereof in its denominated currency. Further, each Portfolio will
segregate at its custodian U.S. Government or other high quality liquid debt
securities having a market value substantially representing any subsequent
net decrease in the market value of such hedged positions, including net
positions with respect to cross-currency hedges. Neither Portfolio may incur
potential net liabilities of more than 331/3% 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 applicable to each Portfolio provide
that the futures trading activities described herein will not result in a
Portfolio being deemed a "commodity pool" under such regulations if the
Portfolio adheres to certain restrictions. In particular, each Portfolio 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 respective
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 each Portfolio's hedging activities mentioned herein.
When a Portfolio 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 Portfolio's respective
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. Each Portfolio 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
securities or with affiliates of such banks or dealers that have capital of
at least $50 million or whose obligations are guaranteed by an entity having
capital of at least $50 million or any other bank or dealer having capital of
at least $150 million or whose obligations are guaranteed by an entity having
capital of at least $150 million.
The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, each Portfolio 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 currency outstanding which are held by a
Portfolio, the market value of the underlying securities covered by OTC call
options currently outstanding which were sold by a Portfolio and margin
deposits on a Portfolio's existing OTC options on futures contracts exceeds
15% of the net
A-4
<PAGE>
assets of the Portfolio, taken at market value, together with all other
assets of the Portfolio which are illiquid or are not otherwise readily
marketable. However, if the OTC option is sold by a Portfolio to a primary
U.S. Government securities dealer recognized by the Federal Reserve Bank of
New York, and if a Portfolio has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Portfolio 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
either of the Portfolios and may be amended by the Directors of each
respective Portfolio without the approval of the Portfolio's shareholders.
However, a Portfolio will change or modify this policy prior to the change or
modification by the Commission staff of its position.
Risk Factors in Options and Futures Transactions. Utilization of
options and futures transactions to hedge a Portfolio involves the risk of
imperfect correlation in movements in the price of options and futures and
movements in interest rates, currencies or the price of the securities which
are the subject of the hedge. If the price of the options or futures moves
more or less than the interest rate or the price of the hedged securities or
currencies, a Portfolio 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 each Portfolio
Manager's ability to predict correctly price movements in the market involved
in a particular options or futures transaction. In addition, options and
futures transactions in foreign markets are subject to the risk factors
associated with foreign investments generally. See "Risk Factors and Special
Considerations".
Each Portfolio intends to enter into options and futures transactions,
on an exchange or in the OTC market, only if there appears to be a liquid
secondary market for such options or futures or, in the case of OTC
transactions, only if a Portfolio's Manager believes the Portfolio can
receive on each business day at least two independent bids or offers, unless
a quotation from only one dealer is available, in which case only that
dealer's price will be used, or which can be sold at a formula price provided
for in the OTC option agreement. There can be no assurance, however, that a
liquid secondary market will exist at any specific time. Thus, it may not be
possible to close an options or futures position. The inability to close
options and futures positions also could have an adverse impact on each
Portfolio's ability to hedge effectively its portfolio. There is also the
risk of loss by a Portfolio of margin deposits or collateral in the event of
the bankruptcy of a broker with whom the Portfolio has an open position in an
option, a futures contract or related option.
The exchanges on which each Portfolio intends to conduct options
transactions generally have established limitations governing the maximum
number of call or put options on the same underlying security or currency
(whether or not covered) that 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 that any person may trade on a
particular trading day. The Managers of each respective Portfolio do not
believe that these trading and position limits will have any adverse impact
on their Portfolio's strategies for hedging that Portfolio.
A-5
<PAGE>
(This page intentionally left blank)
A-6
<PAGE>
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC.--AUTHORIZATION FORM
----------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase:
________ shares of the International Equity Portfolio and/or ________ shares
of the Emerging Markets Portfolio of Merrill Lynch Global Institutional
Series, 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 $1,000,000 per
Portfolio). I understand that this purchase will be executed at the
applicable offering price next to be determined after this Application
is received by you.
Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Name Initial Last Name
Name of Co-Owner (if any) . . . . . . . . . . . . . . . . . . . . . . . . . .
First Name Initial Last Name
Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . Date . . . . . . . . . . . . . . . . . . . .
(Zip Code)
Occupation . . . . . . . . . . Name and Address of Employer . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signature of Owner Signature of Co-Owner (if any)
(In the case of co-owner, a joint tenancy with rights of survivorship will be
presumed unless otherwise specified.)
- -----------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Ordinary Income Long-Term Capital
Dividends Gains
Select / / Reinvest Select / / Reinvest
One: / / Cash One: / / Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: / /
CHECK OR / / DIRECT DEPOSIT TO BANK ACCOUNT
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by
direct deposit to my bank account and, if necessary, debit entries and
adjustments for any credit entries made to my account in accordance with the
terms I have selected on the Merrill Lynch Global Institutional Series, Inc.
Authorization Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE) / / CHECKING / / SAVINGS
Name on your account . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank Number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Account Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I agree that this authorization will remain in effect until I provide written
notification to Financial Data Services, Inc. amending or terminating this
service.
Signature of Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date . . . . . . . . . . . . . . . .
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED
CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD
ACCOMPANY THIS APPLICATION.
A-7
<PAGE>
- ------------------------------------------------------------------------------
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC.--AUTHORIZATION FORM--
(CONTINUED)
3. SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER
----------------------------------------------------
| |
| |
----------------------------------------------------
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above
is my correct Social Security Number or Taxpayer Identification Number and
(2) that I am not subject to backup withholding (as discussed 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 (the "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)
- ------------------------------------------------------------------------------
4. FOR DEALER ONLY
__Branch Office, Address, Stamp.__ We hereby authorize Merrill Lynch
| | Funds Distributor, Inc. to act as our
| | agent in connection with transactions
under this authorization form. We
guarantee the shareholder's signature.
| | . . . . . . . . . . . . . . . . . . .
|__ __| Dealer Name and Address
By . . . . . . . . . . . . . . . . .
Authorized Signature of Dealer
This form when completed should
be mailed to:
Merrill Lynch Global __ __ __ __ __ __ __ . . . . . . . .
Institutional Series, Inc. Branch-Code F/C No. F/C Last Name
c/o Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
P.O. Box 45289 __ __ __ __ __ __ __ __
Jacksonville, FL 32232-5289 Dealer's Customer A/C No.
A-8
<PAGE>
MANAGER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 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
Ernst & Young, LLP
277 Park Avenue
New York, New York 10172
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
A-9
<PAGE>
No person has been authorized MERRILL LYNCH GLOBAL
to give any information or to make INSTITUTIONAL SERIES, INC.
any representations, other than
those contained in this Prospectus,
in connection with the offer
contained in this Prospectus, and,
if given or made, such other
information or representations must
not be relied upon as having been
authorized by the Fund, the Manager
or the Distributor. This
Prospectus does not constitute an
offering in any state in which such
offering may not lawfully be made.
___________________________________
______________________
PROSPECTUS
TABLE OF CONTENTS
Page ___________________________________
----
Fee Table . . . . . . . . . . 3
Risk Factors and Special
Considerations . . . . . . . 5
General . . . . . . . . . . 5
Investing on an International
Basis . . . . . . . . . . . . 5
International Equity Portfolio
8
Emerging Markets Portfolio 9
Investment Objective and Policies
11
International Equity Portfolio
11 ______________ __, 1995
Emerging Markets Portfolio 12
Other Investment Policies and
Practices . . . . . . . . . . 18
Investment Restrictions . . 21
Management of the Fund . . . 22
Board of Directors . . . . 22
Management and Advisory
Arrangements . . . . . . . . 24
Transfer Agency Services . 24
Code of Ethics . . . . . 24
Purchase of Shares . . . . . 25
Redemption of Shares . . . . 25
Redemption . . . . . . . . 26
Repurchase . . . . . . . . 26
Shareholder Services . . . . 26
Performance Data . . . . . . 27
Additional Information . . . 28
Dividends and Distributions 28
Determination of Net Asset
Value . . . . . . . . . . . . 29
Taxes . . . . . . . . . . . 29
Organization of the Fund . 31
Shareholder Inquiries . . . 32
Shareholder Reports . . . . 32
Appendix Futures, Options and
Forward Exchange Transactions A-1
Code #
<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 Statement of Additional Information does not
constitute a prospectus.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 23, 1995
STATEMENT OF ADDITIONAL INFORMATION
- -----------------------------------
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 PHONE (609) 282-2800
---------------------------
Merrill Lynch Global Institutional Series, Inc. (the "Fund") is a
non-diversified open-end management investment company. The Fund currently
consists of two separate portfolios: the International Equity Portfolio and
the Emerging Markets Portfolio (each a "Portfolio"). Each Portfolio is a
separate series of the Fund issuing its own shares. The Board of Directors
of the Fund may classify and reclassify the shares of the Fund into
additional series at a future date without shareholder approval. Each
Portfolio has its own separate investment objective and may employ a variety
of instruments and techniques to hedge against market and currency risk.
The International Equity Portfolio is a non-diversified portfolio
seeking long-term capital appreciation and, secondarily, income by investing
in equity securities of issuers located in countries other than the United
States.
The Emerging Markets Portfolio is a non-diversified portfolio seeking
long-term capital appreciation by investing in securities, principally
equities, of issuers in emerging market countries.
---------------------------
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
________ __, 1995 (the "Prospectus"), which has been filed with the
Securities and Exchange Commission and can be obtained, without charge, by
calling or by writing the Fund at the above telephone number or address.
This Statement of Additional Information has been incorporated by reference
into the Prospectus.
---------------------------
MERRILL LYNCH ASSET MANAGEMENT - MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. - DISTRIBUTOR
---------------------------
The date of this Statement of Additional Information is ________ __, 1995.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund consists of two separate Portfolios: the International Equity
Portfolio and the Emerging Markets Portfolio. Each Portfolio pursues its
investment objective through separate investment policies. Reference is made
to "Investment Objective and Policies" in the Prospectus for a discussion of
the investment objective and polices of each Portfolio.
While it is the policy of each Portfolio generally not to engage in
trading for short-term gains, Merrill Lynch Asset Management, L.P. (the
"Manager" or "MLAM") 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 each Portfolio anticipates that its annual turnover rate
should not exceed 100% under normal conditions, it is impossible to predict
portfolio turnover rates. The portfolio turnover rate is calculated by
dividing the lesser of a Portfolio's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of U.S. Government securities and
of all other securities whose maturities at the time of acquisition were one
year or less) by the monthly average value of securities in the portfolio
during the year. Each Portfolio is subject to the Federal income tax
requirement that less than 30% of the Portfolio'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 each Portfolio to invest all or substantially all
of its assets in U.S. securities. In such event, a Portfolio 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 will require the
approval of the holders of a majority of each Portfolio's outstanding voting
securities, respectively.
A Portfolio'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 each
Portfolio are redeemable on a daily basis on each day the Portfolio
determines its net assets in U.S. dollars, each Portfolio intends to manage
its assets so as to give reasonable assurance that it will be able to obtain
U.S. dollars to the extent necessary to meet anticipated redemptions. See
"Redemption of Shares". Under present conditions, the Manager does not
believe that these considerations will have any significant effect on its
investment strategy, although there can be no assurance in this regard.
The securities markets of many countries have at times in the past moved
relatively independently of one another due to different economic, financial,
political and social factors. When such lack of correlation, or negative
correlation, in movements of these securities markets occurs, it may reduce
risk for each Portfolio's portfolio as a whole. This negative correlation
also may offset unrealized gains a Portfolio has derived from movements in a
particular market. To the extent the various markets move independently,
total portfolio volatility is reduced when the various markets are combined
into a single portfolio. Of course, movements in the various securities
markets may be offset by changes in foreign currency exchange rates.
Exchange rates frequently move independently of securities markets in a
particular country. As a result, gains in a particular securities market may
be affected by changes in exchange rates.
INTERNATIONAL EQUITY PORTFOLIO. The investment objective of the
International Equity Portfolio is to seek long-term capital appreciation and,
secondarily, income by investing in equity securities of issuers located in
countries other than the United States.
2
<PAGE>
EMERGING MARKETS PORTFOLIO. The investment objective of the Emerging
Markets Portfolio is to seek long-term capital appreciation by investing in
securities, principally equities, of issuers in emerging market countries.
PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES
Reference is made to the discussion in the Prospectus' Appendix under
the caption "Futures, Options and Forward Foreign Exchange Transactions" for
information with respect to various Portfolio strategies involving options
and futures. Each Portfolio may seek to hedge its portfolio against
movements in interest rates, exchange rates between currencies and the prices
in securities markets. Each Portfolio 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. A Portfolio may also deal in forward foreign
exchange transactions, foreign currency options and futures and related
options on such futures. Each of such portfolio strategies is described in
the Prospectus. Although certain risks are involved in options and futures
transactions (as discussed in the Prospectus and below), the Manager believes
that, because each Portfolio will engage in options and futures transactions
only for hedging purposes, the options and futures portfolio strategies of a
Portfolio will not subject the Portfolio to the risks frequently associated
with the speculative use of options and futures transactions. While a
Portfolio's use of hedging strategies is intended to reduce the volatility of
the net asset value of its shares, the net asset value of each Portfolio's
shares will fluctuate. There can be no assurance that a Portfolio's hedging
transactions will be effective. Suitable hedging instruments may not be
available on a timely basis and on acceptable terms with respect to
securities of issuers located in certain countries in which the Portfolios
invest. The following is further information relating to portfolio
strategies involving options and futures each Portfolio may utilize.
Writing Covered Options. Each Portfolio 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 a Portfolio, in return for
a premium, gives another party a right to buy specified securities owned by
the Portfolio 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, a
Portfolio gives up the opportunity, while the option is in effect, to profit
from any price increase in the underlying security above the option price.
In addition, a Portfolio's ability to sell the underlying security will be
limited while the option is in effect unless the Portfolio effects a closing
purchase transaction. A closing purchase transaction cancels out a
Portfolio'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 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 realizes 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 realizes a gain or loss from the sale of the
underlying security.
Each Portfolio also may write put options which give the holder of the
option the right to sell the underlying security to the Portfolio at the
stated exercise price. A Portfolio will receive a premium for writing a put
option which increases the Portfolio's return. Each Portfolio writes only
covered put options which means that so long as the Portfolio 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 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, a
Portfolio will be obligated to purchase the underlying security at
3
<PAGE>
a price that may be higher than the market value of that security at the time
of the exercise for as long as the option is outstanding. Each Portfolio may
engage in closing transactions in order to terminate put options that it has
written. Neither Portfolio will write put options if the aggregate value of
the obligations underlying the put options shall exceed 50% of that
Portfolio's net assets.
Options referred to herein and in the Fund's Prospectus may be options
traded on foreign securities exchanges. An option position may be closed
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 closing transactions in particular options, with the result, in the
case of a covered call option, that a Portfolio will not be able to sell the
underlying security until the option expires or 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 Options Clearing Corporation (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.
Each Portfolio may also enter into over-the-counter options transactions
("OTC options"), which are two party contracts with prices and terms
negotiated between the buyer and seller. The staff of the Securities and
Exchange Commission (the "Commission") has taken the position that OTC
options and the assets used as cover for written OTC options are illiquid
securities.
Purchasing Options. Each Portfolio may purchase put options to hedge
against a decline in the market value of its equity holdings. By buying a
put, a Portfolio has a right to sell the underlying security at the exercise
price, thus limiting the Portfolio'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 a
Portfolio'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, a Portfolio 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. A Portfolio may purchase either
exchange-traded options or OTC options. Neither Portfolio will 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 Portfolio would exceed 5% of the market value of the
Portfolio's total assets.
Stock Index Options and Futures and Financial Futures. As described in
the Prospectus, each Portfolio 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.
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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 Commission exempting the Portfolios
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 their 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 each Portfolio and
commodities brokers with respect to initial and variation margin. Section
18(f) of the Investment Company Act prohibits a Portfolio from issuing a
"senior security" other than a borrowing from a bank. The staff of the
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 each Portfolio will be conducted on a spot, i.e., cash, basis at the spot
rate for purchasing or selling currency prevailing in the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than one tenth of one percent due
to the costs of converting from one currency to another. Each Portfolio has
authority, however, to deal in forward foreign exchange among currencies of
the different countries in which it may 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. A Portfolio'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 a Portfolio accruing in
connection with the purchase and sale of its portfolio securities, the sale
and redemption of shares of the Portfolio or the payment of dividends and
distributions by the Portfolio. Position hedging is the sale of forward
foreign currency with respect to portfolio security positions denominated or
quoted in such foreign currency. Neither Portfolio will speculate in forward
foreign exchange. Neither Portfolio may 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. A
Portfolio will enter into such transactions only to the extent, if any,
deemed appropriate by the Manager. Neither Portfolio will enter into a
forward contract with a term of more than one year. Investors should be
aware that U.S. dollar denominated securities may not be available in some or
all countries in which the Portfolios invest, that the forward currency
market for the purchase of U.S. dollars in most, if not all, such countries
is not highly developed and that in certain countries no forward market for
foreign currencies currently exists or such market may be closed to
investment by a Portfolio.
Each Portfolio 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 a Portfolio, sold by a Portfolio but not yet delivered, or committed
or anticipated to be purchased by a Portfolio. As an illustration, a
Portfolio may use such techniques to hedge the stated value in U.S. dollars
of an investment in a Philippine peso denominated security. In such
circumstances, for example, the Portfolio may purchase a foreign currency put
option enabling it to sell a specified amount of foreign currency for
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dollars at a specified price by a future date. To the extent the hedge is
successful, a loss in the value of the Philippine pesos 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, a Portfolio
may also sell a call option which, if exercised, requires it to sell a specified
amount of Philippine pesos for dollars at a specified price by a future date (a
technique called a "straddle"). By selling such call option in this
illustration, the Portfolio gives up the opportunity to profit without limit
from increases in the relative value of the Philippine peso to the dollar. The
Manager believes that "straddles" of the type which may be utilized by each
Portfolio 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 a Portfolio to hedge against a
devaluation that is so generally anticipated that the Portfolio is not able
to contract to sell the currency at a price above the devaluation level it
anticipates. The cost to a Portfolio 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 and movements in interest
rates, currencies or the prices of the securities which are the subject of
the hedge. If the price of the options and futures moves more or less than
the hedged interest rate, currency or price of the security, a Portfolio will
experience a gain or loss which will not be completely offset by movements in
the prices of the subject of the hedge. The successful use of options and
futures also depends on the Manager's ability to predict correctly price
movements in the market involved in a particular options or futures
transaction.
Prior to exercise or expiration, an exchange-traded options 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. A Portfolio will enter into options or future
transactions on an exchange only if there appears to be a liquid secondary
market for such options or futures. However, there can be no assurance that
a liquid secondary market will exist for any particular call or put option or
futures contract at any specific time. Thus, it may not be possible to close
an option or futures position. A Portfolio will acquire only
over-the-counter options for which management believes the Portfolio can
receive on each business day at least two independent bids or offers (one of
which will be from an entity other than a party to the option), unless a
quotation from only one dealer is available, in which case only that dealer's
price will be used, or which can be sold at a formula price provided for in
the over-the-counter option agreement. In the case of a futures position or
an option on a futures position written by a Portfolio in the event of
adverse price movements, the Portfolio would continue to be required to make
daily cash payments of variation margin. In such situations, if the
Portfolio 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, a Portfolio may be required to take
or make delivery of the currency or security underlying futures contracts it
holds. The inability to close options and futures positions also could have
an adverse impact on a Portfolio's ability to hedge effectively its
portfolio. There is also the risk of loss by a Portfolio of margin deposits
in the event of bankruptcy of a broker with whom the Portfolio 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 Portfolios intend to conduct options
transactions generally have 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
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(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 positions limits will have any
adverse impact on the portfolio strategies for hedging each Portfolio's
portfolio.
OTHER INVESTMENT POLICIES AND PRACTICES
Non-Diversified Status. Each Portfolio is classified as non-diversified
within the meaning of the Investment Company Act, which means that neither
Portfolio is limited by such Act in the proportion of its assets that it may
invest in securities of a single issuer. Each Portfolio's investments will
be limited, however, in order to qualify for the special tax treatment
afforded "regulated investment companies" under the Internal Revenue Code of
1986, as amended (the "Code"). See "Dividends, Distributions and Taxes-
Taxes". To qualify, each Portfolio must comply with certain requirements,
including limiting its investments so that at the close of each quarter of
the taxable year (i) not more than 25% of the market value of each
Portfolio'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 neither Portfolio will 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 a Portfolio assumes large positions in the
securities of a small number of issuers, the Portfolio's net asset value may
fluctuate to a greater extent than that of a diversified company as a result
of changes in the financial condition or in the market's assessment of the
issuers, and the Portfolio may be more susceptible to any single economic,
political or regulatory occurrence than a diversified company.
When-Issued Securities and Delayed Delivery Transactions. Each
Portfolio 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 a Portfolio with payment and delivery
taking place in the future to secure what is considered an advantageous yield
and price to the Portfolio at the time of entering into the transaction.
Although neither Portfolio has established any limit on the percentage of its
assets that may be committed in connection with such transactions, each
Portfolio will maintain a segregated account with its custodian of cash, cash
equivalents, U.S. Government securities or other high grade liquid debt
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. Each Portfolio may from time to time
enter into standby commitment agreements. Such agreements commit a
Portfolio, for a stated period of time, to purchase a stated amount of a
fixed income security which may be issued and sold to the Portfolio 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 a
Portfolio is paid a commitment fee, regardless of whether or not the security
is ultimately issued, which is typically approximately 0.50% of the aggregate
purchase price of the security that the Portfolio has committed to purchase.
A Portfolio will enter into such agreements only for the purpose of investing
in the security underlying the commitment at a yield and price that is
considered advantageous to the Portfolio. A Portfolio will not enter into a
standby commitment with a remaining term in excess of 45 days and presently
will limit its investment in such commitments so that the aggregate purchase
price of the securities subject to such commitments, together with the value
of portfolio securities subject to legal restrictions on resale, will not
exceed 15% (which presently is further limited by state law to 10%) of its
assets taken at the time of acquisition of such commitment or security. Each
Portfolio 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 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.
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There can be no assurance that the security 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. Because the
issuance of the security underlying the commitment is at the option of the
issuer, a Portfolio 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 agreement and the
related commitment fee will be recorded on the date 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 Portfolio'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. Each Portfolio
may invest in securities pursuant to repurchase agreements or purchase and
sale contracts. Repurchase agreements may be entered into only with a member
bank of the Federal Reserve System or a primary dealer in U.S. Government
securities or an affiliate thereof. A Portfolio may enter into purchase and
sale contracts 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 a Portfolio, 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 less than one
week. Repurchase agreements may be construed to be collateralized loans by
the purchaser to the seller secured by the securities transferred to the
purchaser. In the case of a repurchase agreement, as a purchaser, a
Portfolio 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 Portfolio 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 Portfolio but constitute only collateral for the
seller's obligation to pay the repurchase price. Therefore, a Portfolio may
suffer time delays and incur costs or possible losses in connection with the
disposition of the collateral. A purchase and sale contract differs from a
repurchase agreement in that the contract arrangements stipulate that the
securities are owned by the Portfolio. 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 a Portfolio shall be
dependent upon intervening fluctuations of the market values of such
securities and the accrued interest on the securities. In such event, the
Portfolio would have rights against the seller for breach of contract with
respect to any losses resulting from market fluctuations following the
failure of the seller to perform. Neither Portfolio may invest more than 15%
(which presently is further limited to 10% by applicable state law) 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, each Portfolio may lend securities from its portfolio to approved
borrowers and receive collateral therefor in cash or securities issued or
guaranteed by the U.S. Government which are maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. The purpose of such loans is to permit the borrower to use such
securities
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for delivery to purchasers when such borrower has sold short. If cash
collateral is received by a Portfolio, 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 Portfolio. Alternatively, if securities are
delivered to a Portfolio as collateral, the Portfolio and the borrower
negotiate a rate for the loan premium to be received by the Portfolio for
lending its portfolio securities. In either event, the total Portfolio yield
is increased by loans of its portfolio securities. Each Portfolio 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, and the borrower, after notice, will be required to return borrowed
securities within five business days. Each Portfolio may pay reasonable
finder's, administrative and custodial fees in connection with such loans.
With respect to the lending of portfolio securities, there is the risk of
failure by the borrower to return the securities involved in such
transactions.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions and policies relating to
the investment of each Portfolio's assets and activities, which are
fundamental policies and may not be changed without the approval of the
holders of a majority of each Portfolio's outstanding voting securities,
respectively (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). Neither Portfolio may:
1. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control or
management. Investments by a Portfolio in wholly-owned investment entities
created under the laws of certain countries will not be deemed the making of
investments for the purpose of exercising control of management.
3. Purchase or sell real estate, except that, to the extent permitted
by applicable law, a Portfolio may invest in securities directly or
indirectly secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that a Portfolio may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that each Portfolio (i) may borrow from banks
(as defined in the Investment Company Act) in amounts up to 331/3% of its
total assets (including the amount borrowed), (ii) may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) may obtain
such short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and (iv) may purchase securities on margin to
the extent permitted by applicable law. Neither Portfolio may pledge its
assets other than to secure such borrowings or, to the extent permitted by
the Portfolio's investment policies as set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time, in connection with hedging transactions, short sales, when-issued and
forward commitment transactions and similar investment strategies.
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7. Underwrite securities of other issuers except insofar as a Portfolio
technically may be deemed an underwriter under the Securities Act of 1933, as
amended (the "Securities Act"), in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to
the extent that a Portfolio may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may be
amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
Additional non-fundamental investment restrictions adopted by the Fund,
which may be changed by the Directors without shareholder approval, provide
that neither Portfolio may:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. Applicable law
currently prohibits a Portfolio from purchasing the securities of other
investment companies only if immediately thereafter not more than (i) 3% of
the total outstanding voting stock of such company is owned by the Portfolio,
(ii) 5% of the Portfolio's total assets, taken at market value, would be
invested in any one such company, (iii) 10% of the Portfolio's total assets,
taken at market value, would be invested in such securities, and (iv) the
Portfolio, together with other Portfolios or 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 a Portfolio in wholly-owned investment entities
created under the laws of certain countries will not be deemed an investment
in other investment companies.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. Neither Portfolio currently
intends to engage in short sales, except short sales "against the box".
c. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which cannot otherwise be marketed, redeemed
or put to the issuer or a third party, if at the time of acquisition more
than 15% of the Portfolio's total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund has
otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent that the laws of any
state in which a Portfolio's shares are registered or qualified for sale
require a lower limitation, the Portfolio will observe such limitation. As
of the date hereof, therefore, a Portfolio will not invest more than 10% of
its total assets in securities which are subject to this investment
restriction (c). Securities purchased in accordance with Rule 144A under the
Securities Act (each, a "Rule 144A security") and determined to be liquid by
the Board of Directors are not subject to the limitations set forth in this
investment restriction (c). Notwithstanding the fact that the Board may
determine that a Rule 144A security is liquid and not subject to limitations
set forth in this investment restriction (c), the State of Ohio does not
recognize Rule 144A securities as securities that are free of restrictions as
to resale. To the extent required by Ohio law, a Portfolio will not invest
more than 50% of its total assets in securities of issuers that are
restricted as to disposition, including Rule 144A securities.
d. Invest in warrants if, at the time of acquisition, its investments
in warrants, valued at the lower of cost or market value, would exceed 5% of
the Portfolio's net assets; included within such limitation, but not to
exceed 2% of the Portfolio'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 a Portfolio
in units or attached to securities may be deemed to be without value.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more than
5% of the Portfolio's total assets would be invested in such securities.
This restriction shall not apply to mortgage-backed securities, asset-backed
securities or obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
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f. Purchase or retain the securities of any issuer, if those individual
officers and directors of the Fund, the officers and general partner of the
Manager, the directors of such general partner or the officers and directors
of any subsidiary thereof each owning beneficially more than one-half of one
percent of the securities of such issuer own in the aggregate more than 5% of
the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs,
except that a Portfolio may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Fund's Prospectus
and Statement of Additional Information, as they may be amended from time to
time.
i. Notwithstanding fundamental investment restriction (6) above, borrow
money or pledge its assets, except that a Portfolio (a) may borrow from a
bank as a temporary measure for extraordinary or emergency purposes or to
meet redemptions in amounts not exceeding 331/3% (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 a Portfolio from purchasing securities on
margin. The deposit or payment by a Portfolio of initial or variation margin
in connection with financial futures contracts or options transactions is not
considered to be the purchase of a security on margin. The purchase of
securities while borrowings are outstanding will have the effect of
leveraging a Portfolio. Such leveraging or borrowing increases a Portfolio's
exposure to capital risk, and borrowed funds are subject to interest costs
which will reduce net income. Neither Portfolio will purchase securities
while borrowings exceed 5% of its total assets.
Portfolio securities of a Portfolio generally may not be purchased from,
sold or loaned to the Manager or its affiliates or any of their directors,
officers or employees, acting as principal, unless pursuant to a rule or
exemptive order under the Investment Company Act.
The staff of the Commission has taken the position that purchased over-
the-counter ("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 neither Portfolio will purchase or sell
OTC options if, as a result of any such transaction, the sum of the market
value of OTC options currently outstanding which are held by the Portfolio,
the market value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Portfolio and margin deposits on
the Portfolio's existing OTC options on financial futures contracts exceeds
15% of the total assets of the Portfolio, taken at market value, together
with all other assets of the Portfolio which are illiquid or are not
otherwise readily marketable. (Under the law of certain states, each
Portfolio presently is limited with respect to such investments to 10% of its
net assets.) However, if the OTC option is sold by the Portfolio to a
primary U.S. Government securities dealer recognized by the Federal Reserve
Bank of New York and if the Portfolio has the unconditional contractual right
to repurchase such OTC option from the dealer at a predetermined price, then
the Portfolio 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 Board of 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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In addition, as a non-fundamental policy which may be changed by the
Board of Directors and to the extent required by the Commission or its staff,
the Fund will, for purposes of investment restriction (1), treat securities
issued or guaranteed by the government of any one foreign country as the
obligations of a single issuer.
As another non-fundamental policy, a Portfolio will not invest in
securities which are (a) subject to material legal restrictions on
repatriation of assets or (b) 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
total assets, taken at market value would be invested in such securities.
Because of the affiliation of the Manager with the Fund, the Fund is
prohibited from engaging in certain transactions involving such firm or its
affiliates except for brokerage transactions permitted under the Investment
Company Act involving only usual and customary commissions or transactions
pursuant to an exemptive order under the Investment Company Act. See
"Portfolio Transactions and Brokerage". Without such an exemptive order, the
Fund would be prohibited from engaging in portfolio transactions with the
Manager or its affiliates acting as principal and from purchasing securities
in public offerings which are not registered under the Securities Act in
which such firms or any of their affiliates participate as an underwriter or
dealer.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Director is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (62) - President and Director(1)(2) - President of the
Manager (which term as used herein includes its corporate predecessors) since
1977 and Chief Investment Officer since 1976; President and Chief Investment
Officer of Fund Asset Management, L.P. ("FAM", which term as used herein
includes its corporate predecessors) since 1977; President and Director of
Princeton Services, Inc. ("Princeton Services") since 1993; Executive Vice
President of Merrill Lynch since 1990 and a Senior Vice President thereof
from 1985 to 1990; Executive Vice President of Merrill Lynch & Co., Inc. ("ML
& Co.") since 1990; Director of the Distributor.
DONALD CECIL (68) - Director(2) - 1114 Avenue of the Americas, New York,
New York 10036. Special Limited Partner of Cumberland Partners (investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
EDWARD H. MEYER (68) - Director(2) - 777 Third Avenue, New York, New
York 10017. President of Grey Advertising, Inc. since 1968, Chief Executive
Officer since 1970 and Chairman of the Board of Directors since 1972;
Director of The May Department Stores Company, Bowne & Co., Inc. (financial
printers), Ethan Allen Interiors Inc. and Harman International Industries,
Inc.
CHARLES C. REILLY (63) - Director(2) - 9 Hampton Harbor Road, Hampton
Bays, N.Y. 11946. Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior
Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990;
Adjunct Professor, Columbia University Graduate School of Business since
1990; Adjunct Professor, Wharton School, University of Pennsylvania, 1990;
Director, Harvard Business School Alumni Association.
12
<PAGE>
RICHARD R. WEST (57) - Director(2) - 482 Tepi Drive, Southbury,
Connecticut 06488. Professor of Finance since 1984, and Dean from 1984 to
1993, of New York University Leonard N. Stern School of Business
Administration; Director of Re Capital Corp. (reinsurance holding company),
Bowne & Co., Inc. (financial printers), Vornado, Inc. (real estate holding
company), Smith-Corona Corporation (manufacturer of typewriters and word
processors) and Alexander's Inc. (real estate company).
EDWARD D. ZINBARG (60) - Director(2) - 5 Hardwell Road, Short Hills, New
Jersey 07078-2117. Former Executive Vice President of The Prudential
Insurance Company of America since 1988; former Director of Prudential
Reinsurance Company and Trustee of the Prudential Foundation.
TERRY K. GLENN (54) - Executive Vice President(1)(2) - Executive Vice
President of the Manager and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President and Director of the
Distributor since 1986.
NORMAN R. HARVEY (61) - Senior Vice President(1)(2) - Senior Vice
President of the Manager and FAM since 1982; Senior Vice President of
Princeton Services since 1993.
ANDREW JOHN BASCAND ( ) - Vice President - Director of MLAM U.K. and
Vice President of Merrill Lynch Global Asset Management Limited ("MLGAM")
since
1993.
ADRIAN HOLMES ( ) - Vice President - Managing Director of MLAM U.K.
since 1993, Vice President from 1990 to 1993 and an employee thereof since
1987, and Director of MLGAM since 1993.
STEPHEN I. SILVERMAN ( ) - Vice President - Vice President of the
Manager and its predecessor since 1983.
GRACE PINEDA ( ) - Vice President - Vice President of and portfolio
manager with the Manager and its predecessor since 1989. Portfolio manager
with Clemente Capital, Inc. from 1982 to 1989.
DONALD C. BURKE (34) - Vice President(1)(2) - Vice President and
Director of Taxation of the Manager since 1990; employee of Deloitte & Touche
LLP from 1982 to 1990.
GERALD M. RICHARD (45) - Treasurer(1)(2) - Senior Vice President and
Treasurer of the Manager and FAM since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993; Vice President of the Distributor
since 1981 and Treasurer since 1984.
JAMES W. HARSHAW III (36) - Secretary(1) - Attorney at MLAM since 1994;
Associate at law firm from 1990 to 1994; judicial law clerk for the United
States Court of Appeals for the Third Circuit from 1989 to 1990.
- --------------------------------
(1) Interested person, as defined in the Investment Company Act, of the
Fund.
(2) Such Director or officer is a director, trustee or officer of one or
more additional investment companies for which the Manager, or its
affiliate, FAM, acts as investment adviser or manager.
At January 31, 1995, the Directors and officers of the Fund as a group
(15 persons) owned an aggregate of less than 1% of the outstanding shares of
any Portfolio. 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 ML & Co.
13
<PAGE>
COMPENSATION OF DIRECTORS
Pursuant to the terms of the Fund's management agreement with the
Manager relating to each Portfolio (each a "Management Agreement"), the Fund
pays each Director not affiliated with the Manager a fee of $1,000 per year
plus $250 per meeting attended, together with such Director's actual
out-of-pocket expenses relating to attendance at meetings.
The following table sets forth compensation to be paid by the Fund to
the Directors projected through the end of the Fund's first fiscal year and
aggregate compensation paid by the investment companies advised by MLAM and
its affiliate, FAM ("MLAM/FAM Advised Funds"), to the Directors for the year
ended December 31, 1994.
<TABLE>
<CAPTION>
Total Compensation from
Fund and MLAM/FAM
Aggregate Pension or Retirement Advised Funds Paid to Directors
Name of Compensation Benefits Accrued as Part During the Calendar Year Ended
Director from Fund of Fund Expenses December 31, 1994 /(1)/
<S> <C> <C> <C>
Donald Cecil $2,000 None $276,350
Edward H. Meyer $2,000 None $251,600
Charles C. Reilly $2,000 None $276,900
Richard R. West $2,000 None $300,900
Edward D. Zinbarg $2,000 None $121,500
_____________________
(1) The Directors serve on the boards of other MLAM/FAM Advised Funds as
follows: Mr. Cecil (35 funds), Mr. Meyer (35 funds), Mr. Reilly (40
funds), Mr. West (40 funds) and Mr. Zinbarg (16 funds).
</TABLE>
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.
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 each Portfolio and for the review of that Portfolio's holdings
in light of its own research analysis and analyses from other relevant
sources. 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 supplies the portfolio managers for each Portfolio,
who consider analyses from various sources, make the necessary investment
decisions and place transactions accordingly. The Manager also is obligated
to perform certain administrative and management services for the Portfolios
and is required to provide all the office space, facilities, equipment and
personnel necessary to perform its duties under the Management Agreement.
The Manager has access to the total securities research, economic research
and computer applications facilities of Merrill Lynch and makes extensive use
of these facilities.
Securities held by the Portfolios may also be held by, or be appropriate
investments for, other funds or other 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 Portfolios 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,
14
<PAGE>
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.
As compensation for its services to the Portfolios, the Manager will
receive from each Portfolio a monthly fee based on the average daily value of
that Portfolio's net assets at the following annual rates:
<TABLE>
<CAPTION>
International Equity Portfolio Emerging Markets Portfolio
------------------------------ --------------------------
<S> <C>
0.70% 0.80%
</TABLE>
The State of California imposes limitations on the expenses of the
Portfolios. These expense limitations require that the Manager reimburse a
Portfolio in an amount necessary to prevent the ordinary operating expenses
of a Portfolio (excluding interest, taxes, distribution fees, brokerage fees
and commissions and extraordinary charges such as litigation costs) from
exceeding in any fiscal year 2.5% of the Portfolio'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 a Portfolio 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 applied for an order from the State of California seeking
to partially waive the expense limitations described above. Pursuant to the
terms of such proposed waiver, the expense limitations that otherwise would
apply are waived to the extent that a Portfolio's expenses for management and
auditing fees exceed the average of such fees of a group of mutual funds
managed by the Manager or its subsidiary which primarily invest domestically.
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 Portfolios, as well as the
fees and expenses of all Directors of the Fund who are affiliated persons of
ML & Co. or any of its affiliates. The Fund pays all other expenses incurred
in the operation of the Portfolios, 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. Certain expenses may be allocated by the Fund to the Portfolios
on the basis of asset size of the respective Portfolios. Such expenses
include the fees and expenses of the unaffiliated Directors, state franchise
taxes, costs of printing proxies and other expenses related to shareholder
meetings and general administrative expenses that can be allocated on the
basis of asset size of the respective Portfolios. The organizational
expenses of the Fund were paid by the Fund, and if additional Portfolios are
added to the Fund, organizational expenses may be allocated to such
Portfolios in a manner deemed equitable by the Board of Directors. Depending
upon the nature of a lawsuit, litigation costs may be assessed to the
specific Portfolio to which the lawsuit relates or allocated on the basis of
the asset size of the respective Portfolios. The Board of Directors has
determined that this is an appropriate method of allocation of expenses.
Accounting services are provided to the Portfolios by the Manager, and the
Portfolios reimburse the Manager for its costs in connection with such
services on a semi-annual basis.
15
<PAGE>
With respect to the International Equity Portfolio, the Manager has also
entered into a sub-management agreement with MLAM U.K., a wholly-owned,
indirect subsidiary of ML & Co., Inc. and an affiliate of the Manager,
pursuant to which the Manager pays MLAM U.K. a fee in an amount to be
determined from time to time by the Manager and MLAM U.K. but in no event in
excess of the amount that the Manager actually receives for providing
services to the Fund pursuant to the Management Agreement.
ML & Co. and Princeton Services are "controlling persons" of the Manager
as defined under the Investment Company Act because of their ownership of its
voting securities or their power to exercise a controlling influence over its
management or policies. Similarly, the following entities may be considered
"controlling persons" of MLAM U.K. for the same reasons: Merrill Lynch Europe
Limited (MLAM U.K.'s parent), a subsidiary of ML International Holdings, a
subsidiary of Merrill Lynch International, Inc., a subsidiary of ML & Co.
Duration and Termination. Unless earlier terminated as described
herein, the Management Agreements and International Equity Portfolio's sub-
management agreement will continue in effect for a period of two years from
execution and will remain in effect from year to year if approved annually
(a) by the Board of Directors of the Fund or by a majority of the outstanding
shares of the subject Portfolio and (b) by a majority of the Directors who
are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contracts are not assignable
and may be terminated without penalty on 60 days' written notice at the
option of either party thereto or by the vote of the shareholders of the
Portfolios.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Portfolio shares. The minimum initial
purchase is $1,000,000 per Portfolio. There is no minimum for subsequent
investments. Shares of the Fund are not being offered to retirement plans
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), retirement or deferred compensation arrangements
subject to Section 403(b) or Section 457 of the Code, individual retirement
accounts or annuities subject to Section 408 of the Code or plans or other
arrangements subject to Section 4975 of the Code.
The Distributor, a subsidiary of the Manager, acts as the distributor of
the shares of the Fund's Portfolios. The applicable offering price for
purchase orders is based on the net asset value of a Portfolio next
determined after receipt of the purchase orders by the Distributor. As to
purchase orders received by securities dealers prior to the close of business
on the New York Stock Exchange (generally, 4:00 p.m., New York time) which
includes orders received after the close of business on the previous day, the
applicable offering price will be based on the net asset value determined
after the close of business on the New York Stock Exchange on that day,
provided the Distributor in turn receives the order from the securities
dealer prior to 30 minutes after the close of business on the New York Stock
Exchange on that day. If the purchase orders are not received by the
Distributor prior to 30 minutes after the close of business on the New York
Stock Exchange, 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 either Portfolio'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. Neither
the Distributor nor the dealers are permitted to withhold placing orders to
benefit themselves by a price change.
The Fund has entered into a distribution agreement with the Distributor
in connection with the continuous offering of shares of the Portfolios (the
"Distribution Agreement"). The Distribution Agreement obligates the
Distributor to pay certain expenses in connection with the offering of shares
of the Portfolios. 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
16
<PAGE>
costs. The Distribution Agreement is subject to the same renewal
requirements and termination provisions as the Management Agreements
described above.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for
certain information as to the redemption and repurchase of Portfolio 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 a Portfolio is not reasonably
practicable, and for such other periods as the Commission may by order permit
for the protection of shareholders of each Portfolio.
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 portfolio decisions of each of
the Portfolios and the placing of the portfolio transactions for each of the
Portfolios. With respect to such transactions, the Manager (and MLAM U.K.,
International Equity Portfolio's sub-manager) seeks to obtain the best net
results for each Portfolio, 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 Portfolios may receive orders for transactions by
the Portfolio. Information so received will be in addition to and not in
lieu of the services required to be performed by the Manager and MLAM U.K.
under the Management Agreements, and the expenses of the Manager will not
necessarily be reduced as a result of the receipt of such supplemental
information. 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. In addition, consistent with the
Rules of Fair Practice of the National Association of Securities Dealers,
Inc. and policies established by the Board of Directors of the Fund, the
Manager may consider sales of shares of the Portfolios as a factor in the
selection of brokers or dealers to execute portfolio transactions for the
Fund.
The Fund anticipates that its brokerage transactions involving
securities of companies domiciled in countries other than the United States
generally will be conducted primarily on the principal stock exchanges of
such countries. Brokerage commissions and other transaction costs on foreign
stock exchange transactions are generally higher than in the United States,
although each Portfolio 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.
Foreign equity securities may be held by the Fund in the form of
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") or other securities convertible into
foreign equity securities. ADRs, EDRs and GDRs may be listed on stock
exchanges or traded in over-the-counter markets in the United States or
Europe, as the case may be. ADRs, like other securities traded in the United
States, as well as GDRs traded in the United States, will be subject to
negotiated commission rates.
17
<PAGE>
The Portfolios invest in certain securities traded in the
over-the-counter market and, where possible, deal 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 persons are prohibited from dealing with a Portfolio 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.
A Portfolio'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
Portfolios are redeemable on a daily basis in U.S. dollars, the Portfolios
intend to manage their portfolios so as to give reasonable assurance that
they 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 portfolio
strategies.
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 member (i) has obtained prior express
authorization from the account to effect such transactions, (ii) at least
annually furnishes the account with a statement disclosing 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 Portfolios 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
Commission has the authority to issue regulations to broaden the prohibition
contained in Section 11(a) to extend to transactions executed otherwise than
on a national securities exchange. While there is no indication that it will
do so, the Commission could under this authority issue regulations at any
time which would prohibit affiliates from executing portfolio transactions
for the Fund on foreign securities exchanges.
The Board of Directors of the Fund has 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 management fees
paid by the Fund. After considering all factors deemed relevant, the Board
of Directors made a determination not to seek such recapture. The Board of
Directors will reconsider this matter from time to time.
PORTFOLIO TURNOVER
Each Portfolio intends to comply with the various requirements of the
Code so as to qualify as a "regulated investment company" thereunder. See
"Dividends, Distributions and Taxes." Among such requirements is a
limitation to less than 30% on the amount of gross income which the
Portfolios may derive from gain on the sale or other disposition of
securities held for less than three months. Accordingly, the Portfolios'
ability to effect certain portfolio transactions may be limited.
18
<PAGE>
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 Portfolios is determined once daily,
Monday through Friday, 15 minutes after the close of business on the New York
Stock Exchange (generally, 4:00 p.m., New York time) on each day 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 of a
Portfolio is computed by dividing the value of the securities held by a
Portfolio 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 of a Portfolio outstanding at such
time. Expenses, including the management fees, are accrued daily.
Portfolio securities which are traded on stock exchanges are valued at
the last sale price (regular way) on the exchange on which such securities
are traded, as of the close of business on the day the securities are being
valued or, lacking any sales, at the last available bid price. In cases
where securities are traded on more than one exchange, the securities are
valued on the exchange designated by or under the authority of the Board of
Directors as the primary market. Securities traded in the over-the-counter
market are valued at the last available bid price in the over-the-counter
market prior to the time of valuation. When a Portfolio writes a call
option, the amount of the premium received is recorded on the books of the
Portfolio as an asset and an equivalent liability. The amount of the
liability is subsequently valued to reflect the current market value of the
option written, based upon the last sale price in the case of exchange-traded
options or, in the case of options traded in the oyer-the-counter market, the
last asked price. Options purchased by a Portfolio are valued at their last
sale price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under
the direction of the Board of Directors of the Fund. Such valuation and
procedures will be reviewed periodically by the Board of Directors.
Generally, trading in foreign securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day
at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the
Portfolios' shares are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of the New
York Stock Exchange. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they
are determined and the close of the New York Stock Exchange which will not be
reflected in the computation of the Portfolios' net asset values. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value as determined in
good faith by the Directors.
SHAREHOLDER SERVICES
The Fund offers the shareholder services and investment plan described
below which are designed to facilitate investment in shares of the
Portfolios. Instructions as to how to participate in the plan, or how to
change options with respect thereto, can be obtained from the Fund, the
Distributor or Merrill Lynch. Certain of these services are available only
to U.S. investors.
19
<PAGE>
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the transfer agent has
an Investment Account and will receive statements, at least quarterly, from
the transfer agent. These statements will serve as transaction confirmations
for automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gain distributions. The statements will also
show any other activity in the account since the 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 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
respective Portfolios. Such reinvestment will be at the net asset value of
shares of the Portfolios(s) as of the close of business on the ex-dividend
date of the dividend or distribution. Shareholders may elect in writing to
receive either their dividends or capital gains distributions, or both, in
cash, in which event payment will be mailed or direct deposited on or about
the payment date.
Shareholders may, at any time, notify the transfer agent in writing or
by telephone ( 1-800-MER-FUND) that they no longer wish to have their
dividends and/or distributions reinvested in shares of the Portfolio(s) or
vice versa, and commencing ten days after receipt by the transfer agent of
such notice, those instructions will be effected.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to cause each Portfolio to distribute
substantially 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 Portfolios'
shareholders at least annually. Premiums from expired options written by a
Portfolio 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 Distributions" in the
Prospectus for information concerning the manner in which dividends and
distributions may be reinvested automatically in shares of the respective
Portfolio. Dividends and distributions are taxable to shareholders as
described below whether they are invested in shares of the respective
Portfolio or received in cash.
TAXES
The Fund intends to elect and to qualify each Portfolio for the special
tax treatment afforded regulated investment companies ("RlCs") under the
Code. If it so qualifies, each Portfolio (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 shareholders. The Fund
intends to cause each Portfolio to distribute substantially all of such
income.
Each Portfolio of the Fund is treated as a separate corporation for
Federal income tax purposes. Each Portfolio therefore is considered to be a
separate entity in determining its treatment under the rules for RICs
described in the Prospectus. Losses in one Portfolio do not offset gains in
another Portfolio, and the requirements
20
<PAGE>
(other than certain organizational requirements) for qualifying for RIC
status will be determined at the Portfolio level rather than at the Fund
level.
Dividends paid by a Portfolio from its ordinary income and distributions
of a Portfolio'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 a Portfolio's net realized
long-term capital gains (including long-term gains from certain transactions
in futures or options) ("capital gain dividends") are taxable to shareholders
as long-term capital gains, regardless of the length of time the shareholder
has owned Portfolio shares. Any loss upon the sale or exchange of Portfolio
shares held for six months or less, however, will be treated as long-term
capital loss to the extent of any capital gain dividends received by the
shareholder. Distributions of excess of a Portfolio'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 a Portfolio. Not later than 60 days after the close of
its taxable year, the Fund will provide its shareholders of each Portfolio
with a written notice designating the amounts of any ordinary income
dividends or capital gain dividends. Distributions by a Portfolio, whether
from ordinary income or capital gains, generally will not be eligible for the
dividends received deduction allowed to corporations under the Code. If a
Portfolio pays a dividend in January which was declared in the previous
October, November or December to shareholders of record on a specified date
in one of such months, then such dividend will be treated for tax purposes as
being paid by such Portfolio and received by its shareholders on December 31
of the year in which such dividend was declared.
Ordinary income dividends paid by a Portfolio to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% U.S.
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Nonresident
shareholders are urged to consult their own tax advisers concerning the
applicability of the U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be subject
to a 31% withholding tax on ordinary income dividends, capital gain dividends
and redemption payments ("backup withholding"). Generally, shareholders
subject to backup withholding will be those for whom no certified taxpayer
identification number is on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account,
an investor must certify under penalty of perjury that such number is correct
and that such investor is not otherwise subject to backup withholding.
Dividends and interest received by the Portfolios 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 a Portfolio. If more
than 50% in value of a Portfolio'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 Portfolio 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 paid by each Portfolio.
21
<PAGE>
A loss realized on a sale or exchange of shares of a Portfolio will be
disallowed if other shares in the same Portfolio are acquired (whether
through the automatic reinvestment of dividends or otherwise) within a 61-day
period beginning 30 days before and ending 30 days after the date that the
shares are disposed of. In such a ease, the basis of the shares acquired
will be adjusted to reflect the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the
extent the RIC does not distribute, during each calendar year, 98% of its
ordinary income, determined on a calendar year basis, and 98% of its capital
gains, determined, in general, on an October 31 year end, plus certain
undistributed amounts from previous years. While the Fund intends to cause
each Portfolio 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 each Portfolio's taxable income and capital gains
will be distributed to avoid entirely the imposition of the tax. In such
event, a Portfolio will be liable for the tax only on the amount by which it
does not meet the foregoing distribution requirements.
Each Portfolio may invest up to 10% of its total assets in securities
of closed-end investment companies. If a Portfolio purchases shares of an
investment company (or similar investment entity) organized under foreign
law, the Portfolio will be treated as owning shares in a passive foreign
investment company ("PFIC") for U.S. Federal income tax purposes. The
Portfolio may be subject to U.S. Federal income tax, and an additional tax in
the nature of interest, on a portion of the distributions from such a company
and on gain from the disposition of the shares of such company (collectively
referred to as "excess distributions"), even if such excess distributions are
paid by the Portfolio as a dividend to its shareholders. Each Portfolio may
be eligible to make an election with respect to certain PFICs in which it
owns shares that will allow it to avoid the taxes on excess distributions.
However, such election may cause the Portfolio to recognize income in a
particular year in excess of the distributions received from such PFICs.
Alternatively, under proposed regulations, each Portfolio may elect to
"mark-to-market" at the end of each taxable year all shares that it holds in
PFICs. If it made this election, the Portfolio would recognize as ordinary
income any increase in the value of such shares. Unrealized losses, however,
would not be recognized. By making the mark-to-market election, a Portfolio
could avoid imposition of the interest charge with respect to its
distributions from PFICs, but in any particular year might be required to
recognize income in excess of the distributions it receives from PFICs and
its proceeds from dispositions of PFIC stock.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
Each Portfolio may write, purchase or sell options, futures or forward
foreign exchange contracts. Options and futures contracts that are "Section
1256 contracts" will be "marked-to-market" for Federal income tax purposes at
the end of each taxable year, i.e., each such options or futures contract
will be treated as sold for its fair market value on the last day of the
taxable year. Unless such contract is a forward foreign exchange contract,
or is a non-equity option or a regulated futures contract for a non-U.S.
currency for which a Portfolio elects to have gain or loss treated as
ordinary gain or loss under Code Section 988 (as described below), gain or
loss from 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 a Portfolio 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.
Each Portfolio 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.
22
<PAGE>
Code Section 1092, which applies to certain "straddles" may affect the
taxation of a Portfolio's transactions in options, futures and forward
foreign exchange contracts. Under Section 1092, a Portfolio may be required
to postpone recognition for tax purposes of losses incurred in certain
closing transactions in options, futures and forward foreign exchange
contracts.
One of the requirements for qualification as a RIC is that less than 30%
of a Portfolio's gross income be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, a
Portfolio may be restricted in effecting closing transactions within three
months after entering into an option or futures contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether a Portfolio qualifies
as a RIC. It is currently unclear, however, who will be treated as the
issuer of a foreign currency instrument or how foreign currency options,
foreign currency futures and forward foreign currency contracts will be
valued for purposes of the RIC diversification requirements applicable to
each Portfolio.
Under Code Section 988, special rules are provided for certain
transactions in a currency other than the taxpayer's functional currency
(i.e., unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from 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,
a Portfolio 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 a Portfolio. In
general, however, Code Section 988 gains or losses will increase or decrease
the amount of a Portfolio'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, a Portfolio would not be able to make any ordinary income
dividend distributions, and any distributions made before the losses were
realized but in the same taxable year would be re-characterized as a return
of capital to shareholders, thereby reducing the basis of each shareholder's
Portfolio shares and resulting in a capital gain for any shareholder who
received a distribution greater than the shareholder's basis in the
respective Portfolio's shares (assuming the shares were held as a capital
asset). These rules and the mark-to-market rules described above, however,
will not apply to certain transactions entered into by a Portfolio solely to
reduce the risk of currency fluctuations with respect to its investments.
The Treasury Department has authority to issue regulations concerning
the recharacterization of principal and interest payments with respect to
debt obligations issued in hyperinflationary currencies, which may include
the currencies of certain developing countries in which a Portfolio intends
to invest. No such regulations have been issued.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state
and local taxes.
23
<PAGE>
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 Portfolio.
PERFORMANCE DATA
From time to time the Fund may include each Portfolio's 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 each Portfolio's historical performance and are not intended to
indicate future performance.
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 any redemption fee, that would be
applicable to a complete redemption of the investment at the end of the
specified period.
The Fund also may quote each Portfolio's 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, as required by the periods of
the quotations, actual annual, annualized or aggregate data, rather than
average annual data, may be quoted. 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.
On occasion, a Portfolio may compare its performance to that of 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 and Fortune
Magazine. As with other performance data, performance comparisons should not
be considered indicative of the Portfolio's relative performance for any
future period.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on November 18, 1994. The
Fund is an open-end management investment company comprised of separate
series ("Series"), each of which is a separate portfolio. Each Series is to
be managed independently. At the date of this Statement of Additional
Information, the Fund has authorized capital of 100,000,000 shares of Common
Stock, par value $0.10 per share, divided into two Series as follows:
International Equity Portfolio Series Common Stock which consists of
50,000,000 shares and Emerging Markets Portfolio Common Stock which consists
of 50,000,000 shares. The Board of Directors of the Fund may classify and
reclassify the shares of the Fund into additional Series at a future date.
24
<PAGE>
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 annual meetings of shareholders in any year in which the
Investment Company Act does not require shareholders to elect Directors.
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, if they comply with applicable
Maryland law. Voting rights for Directors are not cumulative. Shares issued
are fully paid and non-assessable and have no preemptive rights. Redemption
rights are discussed elsewhere herein and in the Prospectus. Each share of
Common Stock is entitled to participate equally in dividends and
distributions declared by the respective Series and in the net assets of the
Series upon liquidation or dissolution after satisfaction of outstanding
liabilities. The obligations and liabilities of a particular Series are
restricted to the assets of that Series and do not extend to the assets of
the Fund generally. Shares of each Series represent an interest only in that
Series and not in any other Series of the Fund. 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 Common Stock of each Portfolio 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 (estimated at
approximately $180,000) will be paid by the Fund and amortized over
a period not exceeding five years. The proceeds realized by the Manager (or
any subsequent holder) upon redemption of any of such shares will be reduced
by the proportionate amount of the unamortized organizational expenses which
the number of shares redeemed bears to the number of shares initially
purchased. As of the date of this Statement of Additional Information, the
Manager owned 100% of the outstanding shares of Common Stock of the Fund.
The Manager may be deemed to control the Fund until such time as it owns less
than 25% of the outstanding shares of the Fund.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the initial offering price for
shares of each Portfolio based on the projected value of each Portfolio's net
assets and projected number of shares outstanding on the date its shares are
first offered for sale to public investors is as follows:
TABLE
<TABLE>
<CAPTION>
International Emerging
Equity Markets
Portfolio Portfolio
<S> <C> <C>
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $50,000 $50,000
Number of Shares Outstanding . . . . . . . . . . . . . . . . . 5,000 5,000
Net Asset Value Per Share (net assets divided by number of
shares outstanding) . . . . . . . . . . . . . . . . . . . . . $10.00 $10.00
Offering Price . . . . . . . . . . . . . . . . . . . . . . . . $10.00 $10.00
</TABLE>
INDEPENDENT AUDITORS
Ernst & Young, LLP, 277 Park Avenue, New York, New York 10172, has been
selected as the independent auditors of the Fund. The selection of
independent auditors is subject to ratification by each Portfolio's
25
<PAGE>
shareholders. The independent auditors are responsible for auditing the
annual financial statements of each Portfolio.
CUSTODIAN
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, acts as the custodian of the Fund's assets (the "Custodian"). Under
its contract with the Fund, the Custodian is authorized to establish separate
accounts in foreign currencies and to cause foreign securities owned by the
Fund to be held in its offices outside the United States and with certain
foreign banks and securities depositories. The Custodian is responsible for
safeguarding and controlling each Portfolio's cash and securities, handling
the receipt and delivery of securities and collecting interest and dividends
on the Portfolio's investments.
TRANSFER AGENT
Financial Data Services, Inc., Transfer Agency Mutual Fund Operations,
4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484, acts as the
Fund's transfer agent (the "Transfer Agent"). The Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the
opening, maintenance and servicing of shareholder accounts. See "Management
of the Fund-Transfer Agency Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on December 31 of each year. Each
Portfolio sends to its shareholders at least semi-annually reports showing
the Portfolio'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, as
amended, 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.
26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder,
International Equity Portfolio of
Merrill Lynch Global Institutional Series, Inc.
We have audited the accompanying statement of assets and liabilities of
the International Equity Portfolio (the "Portfolio") of Merrill Lynch Global
Institutional Series, Inc. (the "Fund") as of ______________, 1995. This
statement of assets and liabilities is the responsibility of the Fund's
management. Our responsibility is to express an opinion of this statement of
assets and liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether this statement of assets and
liabilities is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
statement of assets and liabilities. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall statement of assets and liabilities
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, such statement of assets and liabilities referred to
above presents fairly, in all material respects, the financial position of
the Portfolio as of _____________, 1995, in conformity with generally
accepted accounting principles.
_________________, 1995
27
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO OF
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC.
STATEMENT OF ASSETS AND LIABILITIES
___________, 1995
<TABLE>
<CAPTION>
<S> <C>
Assets: $100,000
Cash in bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid registration fees (Note 3) . . . . . . . . . . . . . . . . . . . . . .
Deferred organization expenses (Note 4) . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities-accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Assets (equivalent to $10.00 per share on
10,000 shares of common stock (par value $0.10
outstanding with 500,000,000 shares
authorized) (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000
- ------------------------
(1) International Equity Portfolio (the "Portfolio") is one of the two
current portfolios of Merrill Lynch Global Institutional Series, Inc.
(the "Fund") which was organized as a Maryland corporation on November
18, 1994. The Fund is registered under the Investment Company Act of
1940 as an open-end investment company.
(2) The Portfolio has entered into a management agreement with Merrill Lynch
Asset Management, L.P. (the "Manager"), and a distribution agreement
with Merrill Lynch Funds Distributor, Inc. (the "Distributor"). The
Manager has also entered into a sub-management agreement with Merrill
Lynch Asset Management U.K. Limited. (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/or 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 Portfolio 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 shall 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
Portfolio is liquidated prior to the end of the five-year period, the
Manager (or any subsequent holder) shall bear the unamortized deferred
organization expenses.
</TABLE>
28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder,
Emerging Markets Portfolio of
Merrill Lynch Global Institutional Series, Inc.
We have audited the accompanying statement of assets and liabilities of
the Emerging Markets Portfolio (the "Portfolio") of Merrill Lynch Global
Institutional Series, Inc. (the "Fund") as of ______________, 1995. This
statement of assets and liabilities is the responsibility of the Fund's
management. Our responsibility is to express an opinion of this statement of
assets and liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether this statement of assets and
liabilities is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
statement of assets and liabilities. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall statement of assets and liabilities
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, such statement of assets and liabilities referred to
above presents fairly, in all material respects, the financial position of
the Portfolio as of _____________, 1995, in conformity with generally
accepted accounting principles.
_________________, 1995
29
<PAGE>
EMERGING MARKETS PORTFOLIO OF
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC.
STATEMENT OF ASSETS AND LIABILITIES
___________, 1995
<TABLE>
<CAPTION>
<S> <C>
Assets: $100,000
Cash in bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid registration fees (Note 3) . . . . . . . . . . . . . . . . . . . . . .
Deferred organization expenses (Note 4) . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities-accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Assets (equivalent to $10.00 per share on
10,000 shares of common stock (par value $0.10
outstanding with 500,000,000 shares
authorized) (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000
- -------------------------
(1) Emerging Markets Portfolio (the "Portfolio") is one of the two current
portfolios of Merrill Lynch Global Institutional Series, Inc. (the
"Fund") which was organized as a Maryland corporation on November 18,
1994. The Fund is registered under the Investment Company Act of 1940
as an open-end investment company.
(2) The Portfolio has entered into a management agreement with Merrill Lynch
Asset Management, L.P. (the "Manager") and a 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/or 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 Portfolio 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 shall 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
Portfolio is liquidated prior to the end of the five-year period, the
Manager (or any subsequent holder) shall bear the unamortized deferred
organization expenses.
</TABLE>
30
<PAGE>
APPENDIX
RATINGS OF DEBT SECURITIES AND PREFERRED STOCK
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE DEBT
RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk appear
somewhat larger than the 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 some time 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 desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the 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.
31
<PAGE>
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
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 ability of rated issuers.
Issuers rated PRIME-1 (or supporting institutions) have a superior
ability for repayment of short-term promissory obligations. PRIME-1
repayment ability will often be evidenced by many of the following
characteristics:
-Leading market positions in well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
-Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated PRIME-2 (or supporting institutions) have a strong ability
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is
maintained.
Issuers rated PRIME-3 (or supporting institutions) have an acceptable
ability for repayment of short-term promissory 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.
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, 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.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
Because of the fundamental differences between preferred stock and
bonds, a variation of the bond rating symbols is being used in the quality of
preferred stocks. The symbols presented below are designed to avoid
comparison with bond quality in absolute terms. It should always be borne in
mind that preferred 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:
32
<PAGE>
"aaa" An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and
the least risk of dividend impairment within the universe of
preferred stocks.
"aa" An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance
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 protection are, nevertheless, expected to be maintained at
adequate levels.
"baa" An issue which is rated "baa" is considered to be a medium grade
preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be
questionable over any great length of time.
"ba" An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured.
Earnings and asset protection may be very moderate and not well
safeguarded during adverse periods. Uncertainty of position
characterizes preferred stocks in this class.
"b" An issue which is rated "b" generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and
maintenance of other terms of the issue over any long period of
time may be small.
"caa" An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to
indicate the future status of payments.
"ca" An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payments.
"c" This is the lowest rated class of preferred or preference stock.
Issues so rated can be remanded 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 considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
33
<PAGE>
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.
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 willingness to pay interest and
repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
CCC Debt rated "CCC" has a 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" typically is applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating.
The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest
is being paid.
34
<PAGE>
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 rating categories.
c The letter "c" indicates that the holder's option to tender the
security for purchase may be canceled under certain prestated
conditions enumerated in the tender option documents.
L The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is federally insured and interest is adequately
collateralized. In the case of certificates of deposit, the letter
"L" indicates that the deposit, combined with other deposits being
held in the same right and capacity, will be honored for principal
and accrued pre-default interest up to the federal insurance limits
within 30 days after closing of the insured institution or, in the
event that the deposit is assumed by a successor insured
institution, upon maturity.
P The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project
being financed by the debt being rated and indicates that payment
of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk
of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
* Continuance of the rating is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.
N.R. Not rated.
Debt obligations of issuers outside the United Slates and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not
take into account currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ("AAA", "AA", "A", "BBB", commonly known as "Investment
Grade" ratings) are generally regarded as eligible for bank investment. In
addition, the laws of various states governing legal investments 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 considered short-term in the
relevant market. Ratings are graded into several categories, ranging from
"A-l" for the highest quality obligations to "D" for the lowest. These
categories are as follows:
A-l This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
35
<PAGE>
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-l".
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, 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 speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period.
A commercial paper rating is not a recommendation to purchase, sell, or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor. The ratings are based on current
information furnished to Standard & Poor's by the issuer or obtained by
Standard & Poor's from other sources it considers reliable. Standard &
Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or based on other circumstances.
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS
A Standard & Poor's preferred stock rating is an assessment of the
capacity and willingness of an issuer to pay preferred stock dividends and
any applicable sinking fund obligations. A preferred stock rating differs
from a bond rating inasmuch as it is assigned to an equity issue, which 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 debt 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.
36
<PAGE>
BBB An issue rated "BBB" is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to make payments for a preferred stock in this
category than for issues in the "A" category.
BB Preferred stock rated "BB", "B", and "CCC" are regarded, on
balance, as predominately speculative
B with respect to the issuer's capacity to pay preferred stock
obligations. "BB" indicates the lowest
CCC 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.
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.
A preferred stock rating is not a recommendation to purchase, sell, or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit in
connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result
of changes in, or unavailability of, such information, or based on other
circumstances.
37
<PAGE>
TABLE OF CONTENTS Page
----
MERRILL LYNCH
Investment Objective and Policies
2
International Equity Portfolio
2 GLOBAL INSTITUTIONAL
Emerging Markets Portfolio . 3
Portfolio Strategies Involving SERIES
Options and Futures . . . . . 3
Other Investment Policies and
Practices . . . . . . . . . . . 7
Investment Restrictions . . . . 9
Management of the Fund . . . . 12
Directors and Officers . . . 12
Compensation of Directors . 14
Management and Advisory
Arrangements . . . . . . . . . 14
Purchase of Shares . . . . . . 16
Redemption of Shares . . . . . 17
Portfolio Transactions and
Brokerage . . . . . . . . . . . 15
Portfolio Turnover . . . . . . 18
Determination of Net Asset Value
19
Shareholder Services . . . . . 19
Investment Account . . . . . 20
Automatic Reinvestment of
Dividends
and Capital Gains Distributions
20
Dividends, Distributions and Taxes
20
Dividends and Distributions . 20
Taxes . . . . . . . . . . . . 20
Tax Treatment of Options, Futures
and Forward Exchange ---- --
Transactions . . . . . . . . . 22
Special Rules for Certain Foreign
Currency Transactions . . . 23
Performance Data . . . . . . . 24 _________ ____, 1995
General Information . . . . . . 24
Description of Shares . . . . 24 Distributor:
Computation of Offering Price Per Merrill Lynch
Share . . . . . . . . . . . . . 25 Funds Distributor, Inc.
Independent Auditors . . . . 25
Custodian . . . . . . . . . . 26
Transfer Agent . . . . . . . 26
Legal Counsel . . . . . . . . 26
Reports to Shareholders . . . 26
Additional Information . . . 26
Reports of Independent Auditors-
International Equity Portfolio
27
Statement of Assets and
Liabilities-
International Equity Portfolio
28
Report of Independent Auditors-
Emerging Markets Portfolio 29
Statement of Assets and
Liabilities-
Emerging Markets Portfolio 30
Appendix
Rating of Debt Securities
and Preferred Stock . . . . . 31
Code # xxxxx-xxxx
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Contained in Part B:
Statement of Assets and Liabilities as of ,
1995.
International Equity Portfolio
Emerging Markets Portfolio
(b) Exhibits:
Exhibit
Number
1(a) -Articles of Incorporation of Registrant.(a)
-
(b) -Articles of Amendment to the Articles of Incorporation (as filed
-January 9, 1995).
(c) -Articles of Amendment to the Articles of Incorporation of the
-Registrant (as filed January 24, 1995).
2 -By-Laws of Registrant.
-
3 -None.
-
4(a) -Portions of the Articles of Incorporation and By-Laws of
-Registrant defining the rights of holders of shares of common
stock of the Registrant.(b)
(b) -Form of specimen certificate for shares of each Series of common
-stock of the Registrant.(c)
5(a) -Form of Management Agreement between International Equity
-Portfolio and Merrill Lynch Asset Management.
(b) -Form of Sub-Management Agreement between Merrill Lynch Asset
-Management, L.P. and Merrill Lynch Asset Management U.K. Limited.
(c) -Form of Management Agreement between Emerging Markets Portfolio
-and Merrill Lynch Asset Management.
6 -Distribution Agreement between Registrant and Merrill Lynch Funds
-Distributor, Inc.
7 -None.
-
8 -Form of Custody Agreement between Registrant and Brown Brothers
-Harriman & Co.
9(a) -Transfer Agency, Dividend Disbursing Agency and Shareholder
-Servicing Agency Agreement between Registrant and Financial Data
Services, Inc.
(b) -Agreement between Merrill Lynch & Co., Inc. and Registrant
-relating to Registrant's use of Merrill Lynch name.
10 -Opinion letter of Brown & Wood, Counsel for Registrant.(c)
-
11 -Consent of Ernst & Young, LLP, independent auditors for
-Registrant.(c)
12 -None.
-
13 -Certificate of Merrill Lynch Asset Management.(c)
-
14 -None.
15 -None.
16 -None.
17 -Financial Data Schedule(c).
- -----------------------
(a) Previously filed.
(b) Reference is made to Article IV, Article V (Sections 3, 5, 6 and 7) and
Articles VI, VII and IX of the Registrant's Articles of Incorporation,
filed herewith as Exhibit 1 to the Registration Statement on Form N-1A
and to Article II, Article III (Sections 1, 3, 5 and 6) and Articles VI,
VII, XIII and XIV of the Registrant's By-Laws, filed herewith as Exhibit
2 to the Registration Statement on Form N-1A.
(c) To be filed by Amendment.
C-1
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Prior to the effective date of this Registration Statement, the Fund
will sell 5,000 shares of its International Equity Portfolio Common Stock and
5,000 shares of its Emerging Markets Portfolio Common Stock to the Manager
for an aggregate of $100,000.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
NUMBER OF
RECORD
HOLDERS AT
, 1995
Shares of Common Stock par value $0.10 per share:
International Equity Portfolio . . . . . . . . . . . . . . .
Emerging Markets Portfolio . . . . . . . . . . . . . . . . .
ITEM 27. INDEMNIFICATION.
Reference is made to Article V of Registrant's Articles of
Incorporation, Article VI of Registrant's By-Laws, Section 2-418 of the
Maryland General Corporation Law and Section 9 of the Distribution Agreement.
Insofar as the conditional advancing of indemnification moneys for
actions based on the Investment Company Act of 1940 may be concerned, Article
VI of the Registrant's By-Laws provides that such payments will be made only
on the following conditions: (i) the advances must be limited to amounts
used, or to be used, for the preparation or presentation of a defense to the
action, including costs connected with the preparation of a settlement; (ii)
advances may be made only on receipt of a written promise by, or on behalf
of, the recipient to repay that amount of the advance which exceeds the
amount to which it is ultimately determined that he is entitled to receive
from the Registrant by reason of indemnification; and (iii) (a) such promise
must be secured by a surety bond, other suitable insurance or an equivalent
form of security which assumes 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 and (b) a
majority of a quorum of the Registrant's disinterested non-party Directors,
or an independent legal counsel in a written opinion, shall determine, based
upon a review of readily available facts, that the recipient of the advance
ultimately will be found entitled to indemnification.
In Section 9 of the Distribution Agreement relating to the securities
being offered hereby, the Registrant agrees to indemnify the Distributor and
each person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (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
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.
C-2
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF MANAGER.
Merrill Lynch Asset Management, L.P. (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 Growth Fund, Inc.,
Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Balanced Fund for
Investment and Retirement, Merrill Lynch Capital Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc.,
Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill
Lynch Fund For Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Convertible Fund, Inc., Merrill Lynch Global Holdings, Inc., 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 Middle
East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch
Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch
Retirement Asset Builder Program, Inc., Merrill Lynch Retirement Series
Trust, Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch Series
Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch
Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch
U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill
Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc.
and Merrill Lynch Variable Series Funds, Inc. 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., Emerging Tigers Fund, Inc., Financial Institutions
Series Trust, Income Opportunities Fund 1999, Inc., Income Opportunities Fund
2000, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill
Lynch Federal Securities Trust, Merrill Lynch Funds for Institutions Series,
Merrill Lynch California Municipal Series Trust, 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., Senior Strategic
Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York
Holdings, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Institutional Intermediate
Fund is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2646.
The address of the Manager, FAM, Princeton Services, Inc. ("Princeton
Services"), Merrill Lynch Funds Distributor, Inc. ("MLFD") and Princeton
Administrators, L.P. is also P.O. Box 9011, Princeton, New Jersey 08543-9011.
The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial Center,
North Tower, 250 Vesey Street, New York, New York 10281. The address of
Financial Data Services, Inc. ("FDS") is 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
September 30, 1992, for his or its own account or in the capacity of
director, officer, partner or trustee. In
C-3
<PAGE>
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. Geiger, Durnin, Giordano,
Harvey, Kirstein, Monagle and Ms. Griffin are directors, trustees or officers
of one or more of such companies.
OTHER SUBSTANTIAL
POSITION(S) WITH BUSINESS, PROFESSION,
NAME THE MANAGER VOCATION OR EMPLOYMENT
- ---- ------------------- -------------------------
ML & Co. . . . . . . Limited Partner Financial Services
Holding Company
Merrill Lynch
Investment
Management, Inc. Limited Partner Investment Advisory
Services
Princeton Services . General Partner General Partner of FAM
Arthur Zeikel . . . . President President of FAM;
President and
Director of
P r i n c e t o n
S e r v i c e s ;
Director of MLFD;
Executive Vice
President of ML &
Co.; Executive
Vice President of
Merrill Lynch
Terry K. Glenn . . . Executive Vice Executive Vice
President President of FAM;
Executive Vice
President and
Director of
P r i n c e t o n
S e r v i c e s ;
President and
Director of MLFD;
Director of FDS;
President of
P r i n c e t o n
Administrators,
L.P.
Bernard J. Durnin . . Senior Vice President Senior Vice
President of FAM;
Senior Vice
President of
P r i n c e t o n
Services
Vincent R. Giordano . Senior Vice President Senior Vice President
of FAM; Senior
Vice President of
P r i n c e t o n
Services
Elizabeth Griffin . . Senior Vice President Senior Vice President
of FAM
Norman R. Harvey . . Senior Vice President Senior Vice President
of FAM; Senior
Vice President of
P r i n c e t o n
Services
N. John Hewitt . . . Senior Vice President Senior Vice President
of FAM; Senior
Vice President of
P r i n c e t o n
Services
Philip L. Kirstein . Senior Vice President, Senior Vice President,
General Counsel General Counsel
and Secretary and Secretary of
FAM; Senior Vice
President,
General Counsel,
Director and
Secretary of
P r i n c e t o n
S e r v i c e s ;
Director of MLFD
Ronald M. Kloss . . . Senior Vice President Senior Vice President
and Controller and Controller of
FAM; Senior Vice
President and
Controller of
P r i n c e t o n
Services
Stephen M.M. Miller . Senior Vice President Executive Vice
President of
P r i n c e t o n
Administrators,
L.P.
Joseph T. Monagle, Jr.
Senior Vice President Senior Vice President
of FAM; Senior
Vice President of
P r i n c e t o n
Services
Gerald M. Richard . . Senior Vice President Senior Vice President
and Treasurer and Treasurer of
FAM; Senior Vice
President and
Treasurer of
P r i n c e t o n
Services; Vice
President and
Treasurer of MLFD
Richard L. Rufener . Senior Vice President Vice President of
MLFD; Senior Vice
President of FAM;
Senior Vice
President of
P r i n c e t o n
Services
Ronald L. Welburn . . Senior Vice President Senior Vice President
of FAM; Senior
Vice President of
P r i n c e t o n
Services
Anthony Wiseman . . . Senior Vice President Senior Vice President
of FAM; Senior
Vice President of
P r i n c e t o n
Services
C-4
<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., Emerging Tigers Fund, 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 II, Inc.,
Senior Strategic Income Fund, 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.
(2) (3)
(1) 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
Kevin P. Boman Vice President None
Michael J. Brady Vice President None
William M. Breen Vice President None
Sharon Creveling Vice President and None
Assistant Treasurer
Mark A. DeSario Vice President None
James 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
Salvatore Venezia Vice President None
William Wasel 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 its transfer agent,
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484.
C-5
<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, the Registrant is not a
party to any management-related service contract.
ITEM 32. UNDERTAKINGS.
(a) Registrant undertakes to file a post effective amendment using
financial statements, which need not be certified, within four to six months
from the effective date of this registration.
(b) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLAINSBORO, AND THE STATE OF NEW
JERSEY, ON THE 23RD DAY OF FEBRUARY, 1995.
MERRILL LYNCH GLOBAL INSTITUTIONAL
SERIES, INC.
(Registrant)
By /s/ ARTHUR ZEIKEL
---------------------------
(Arthur Zeikel, President)
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY AUTHORIZES ARTHUR
ZEIKEL, TERRY K. GLENN AND GERALD M. RICHARD, OR ANY OF THEM, AS ATTORNEY-IN-
FACT, TO SIGN ON HIS BEHALF, INDIVIDUALLY AND IN EACH CAPACITY STATED BELOW,
ANY AMENDMENTS TO THIS REGISTRATION STATEMENT (INCLUDING POST-EFFECTIVE
AMENDMENTS) AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, WITH THE
SECURITIES AND EXCHANGE COMMISSION.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE(S) INDICATED.
Signatures Title Date
/s/ ARTHUR ZEIKEL President (Principal February 23, 1995
(Arthur Zeikel) Executive Officer) and
Director
/s/ GERALD M. RICHARD Treasurer (Principal February 23, 1995
(Gerald M. Richard) Financial and
Accounting Officer)
and Director
/s/ DONALD CECIL Director February 23, 1995
(Donald Cecil)
/s/ EDWARD H. MEYER Director February 23, 1995
(Edward H. Meyer)
/s/ CHARLES C. REILLY Director February 23, 1995
(Charles C. Reilly)
/s/ RICHARD R. WEST Director February 23, 1995
(Richard R. West)
/s/ EDWARD D. ZINBARG Director February 23, 1995
(Edward D. Zinbarg)
C-7
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description Number
-------- -------------- -------
1(b) -- Articles of Amendment to the Articles of
Incorporation (as filed January 9, 1995)
1(c) -- Articles of Amendment to the Articles of
Incorporation (as filed January 24, 1995)
2 -- By-Laws of Registrant
5(a) -- Form of Management Agreement between International
Equity Portfolio and Merrill Lynch Asset Management,
L.P.
5(b) -- Form of Sub-Management Agreement between Merrill
Lynch Asset Management, L.P. and Merrill Lynch Asset
Management U.K. Limited.
5(c) -- Form of Management Agreement between Emerging Markets
Portfolio and Merrill Lynch Asset Management, L.P.
6 -- Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.
8 -- Form of Custody Agreement between Registrant and
Brown Brothers Harriman & Co.
9(a) -- Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between
Registrant and Financial Data Services, Inc.
9(b) -- Agreement between Merrill Lynch & Co., Inc. and
Registrant relating to Registrant's use of Merrill
Lynch name.
<PAGE>
<PAGE>
Exhibit 1(b)
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC.
Articles of Amendment
to the Articles of Incorporation
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC., a Maryland corporation
having its principal Maryland office in the City of Baltimore (the
"Corporation"), certifies to the Maryland State Department of Assessments and
Taxation that:
FIRST: The charter of the Corporation is hereby amended by adding the
following provision at the end of Article IV:
"(11)(a) Each series of capital stock of the Corporation shall relate
to a separate portfolio of investments. All shares of stock in each series
shall be identical except that there may be variations between the different
series as to the purchase price, determination of net asset value,
designations, preferences, conversion or other rights, voting powers,
restrictions, special and relative rights and limitations as to dividends and
on liquidation, qualifications or terms or conditions of redemption of such
shares of stock.
(b) Each series of stock of the Corporation shall have the
following powers, preferences and voting or other special rights, and the
qualifications, restrictions and limitations thereof shall be as follows:
(i) All consideration received by the Corporation for the
issue or sale of stock of each series, together with
1
<PAGE>
all assets in which such consideration is invested or reinvested, all
income, earnings, profits and proceeds received thereon, including any
proceeds derived from the sale, exchange or liquidation thereof, and any
assets, funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to the series
of stock with respect to which such assets, payments or funds were
received by the Corporation for all purposes, subject only to the rights
of creditors, and shall be so handled in the books of account of the
Corporation. Such assets, payments and funds, including any proceeds
derived from the sale, exchange or liquidation thereof, and any assets,
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, are herein referred to as "assets
belonging to" such series. In the event that there are any assets,
income, earnings, profits and proceeds thereof, funds or payments that
are not readily identifiable as belonging to any particular series, the
Board of Directors of the Corporation shall allocate them among any one
or more of the series established and designated from time to time in
such manner and on such basis as the Board of Directors, in their sole
discretion, deem fair and equitable. Each allocation by the Board of
Directors shall be conclusive and binding on the shareholders of the
Corporation of all series for all purposes.
2
<PAGE>
(ii) The assets belonging to each series of stock shall be
charged with the liabilities in respect to such series, and also shall
be charged with their share of the general liabilities of the
Corporation, in proportion to the asset value of the respective series
determined in accordance with the charter of the Corporation. The
determination of the Board of Directors shall be conclusive as to the
amount of liabilities, including accrued expenses and reserves, as to
the allocation of the same to a given series, and as to whether the same
or general assets of the Corporation are allocable to one or more
series."
SECOND: The foregoing Articles of Amendment have been effected in the
manner and by the vote required by the Corporation's charter and the laws of
the State of Maryland. The amendment was duly approved by a majority of the
entire Board of Directors of the Corporation and at the time of approval by
the Directors there were no shares of stock of the Corporation entitled to
vote on the matter either outstanding or subscribed for.
THIRD: Except as amended hereby, the Corporation's charter shall
remain in full force and effect.
FOURTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.
3
<PAGE>
The President acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that to the best of his
knowledge, information and belief, the matters and facts set forth in these
Articles of Amendment with respect to the authorization and approval of the
amendment of the Corporation's charter are true in all material respects, and
that this statement is made under the penalties for perjury.
IN WITNESS WHEREOF, MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC. has
cause these Articles of Amendment to be signed in its name and on its behalf
by its President, a duly authorized officer of the Corporation, and attested
by its Secretary as of 199 .
MERRILL LYNCH GLOBAL INSTITUTIONAL
SERIES, INC.
By:
------------------------------
Philip L. Kirstein
President
Attest:
- ---------------------------
James W. Harshaw, III
Secretary
4<PAGE>
<PAGE>
Exhibit 1(c)
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC.
Articles of Amendment
to the Articles of Incorporation
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC., a Maryland corporation
having its principal Maryland office in the City of Baltimore (the
"Corporation"), certifies to the Maryland State Department of Assessments and
Taxation that:
FIRST: The charter of the Corporation is hereby amended by striking out
paragraph (1) of Article IV of the Articles of Incorporation and inserting in
lieu thereof the following:
"(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is One Hundred Million (100,000,000) shares, of
the par value of Ten Cents ($.10) per share, and of the aggregate par value
of Ten Million Dollars ($10,000,000). The capital stock initially is divided
into two series, each of which consists of one class of common stock, as
follows:
Shares of
Common Stock
International Equity Portfolio 50,000,000 shares
Emerging Markets Portfolio 50,000,000 shares"
1
<PAGE>
SECOND: The foregoing Articles of Amendment have been effected in the
manner and by the vote required by the Corporation's charter and the laws of
the State of Maryland. The amendment was duly approved by a majority of the
entire Board of Directors of the Corporation and at the time of approval by
the Directors there were no shares of stock of the Corporation entitled to
vote on the matter either outstanding or subscribed for.
THIRD: Except as amended hereby, the Corporation's charter shall
remain in full force and effect.
FOURTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.
The President acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that to the best of his
knowledge, information and belief, the matters and facts set forth in these
Articles of Amendment with respect to the authorization and approval of the
amendment of the Corporation's charter are true in all material respects, and
that this statement is made under the penalties for perjury.
2
<PAGE>
IN WITNESS WHEREOF, MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC. has
caused these Articles of Amendment to be signed in its name and on its behalf
by its President, a duly authorized officer of the Corporation, and attested
by its Secretary as of 1995.
MERRILL LYNCH GLOBAL INSTITUTIONAL
SERIES, INC.
By:
------------------------------
Philip L. Kirstein
President
Attest:
- ---------------------------
James W. Harshaw, III
Secretary
3
<PAGE>
<PAGE>
Exhibit 2
BY-LAWS
OF
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC.
ARTICLE I
Offices
-------
Section 1. Principal Office. The principal office of Merrill Lynch
----------------
Global Institutional Series, 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
1
<PAGE>
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 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
2
<PAGE>
deposited in the United States mail addressed to the stockholder at his
address as it appears on the records of the Corporation, with postage thereon
prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who
shall, either before or after the meeting, submit a signed waiver of notice
which is filed with the records of the meeting. When a meeting is adjourned
to another time and place, unless the Board of Directors, after the
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 a majority 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 series or classes
of stock, in which case the presence in person or by proxy of the holders of
shares entitled to cast a majority of the votes entitled to be cast by each
series or class entitled to vote as a separate series or class shall
constitute a quorum. In the absence of a quorum no business may be
transacted, except that
3
<PAGE>
the holders of a majority of the shares of stock present in person or by
proxy and entitled to vote may adjourn the meeting from time to time, without
notice other than announcement thereat except as otherwise required by these
By-Laws, until the holders of the requisite amount of shares of stock shall
be so present. At any such adjourned meeting at which a quorum may be
present any business may be transacted which might have been transacted at
the meeting as originally called. The absence from any meeting, in person or
by proxy, of holders of the number of shares of stock of the 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
4
<PAGE>
act, any person appointed by the chairman of the meeting, shall act as
secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings
-----------------
of the stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the
------
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his name
on the record of stockholders of the Corporation as of the record date
determined pursuant to Section 9 of this Article or if such record date shall
not have been so fixed, then at the later of (i) the close of business on the
day on which notice of the meeting is mailed or (ii) the thirtieth day before
the meeting.
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
5
<PAGE>
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 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
6
<PAGE>
not be so appointed or if any of them shall fail to appear or act, the
chairman of the meeting may, and on the request of any stockholder entitled
to vote thereto shall, 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 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
7
<PAGE>
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 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
8
<PAGE>
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 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;
9
<PAGE>
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 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.
10
<PAGE>
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 residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
11
<PAGE>
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 of 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 present,
any
12
<PAGE>
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 meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writings or writing are filed with the minutes of the
proceedings of the Board or committee.
Section 16. Compensation. Directors may receive 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.
13
<PAGE>
Section 17. Investment Policies. It shall be the duty of the Board of
-------------------
Directors to direct that the purchase, sale, retention and disposal of
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect
to securities investments and otherwise of the Corporation, as recited in the
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
14
<PAGE>
all the powers and authority of the Board with respect to all matters other
than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles of
Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act of 1940, as amended, or the taking of any other action required
to be taken by the Board of Directors by the Investment Company Act of 1940,
as amended;
(e) the amendment or repeal of these By-Laws or the adoption of new By-
Laws;
(f) the amendment or repeal of any resolution of the Board
which by its terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock of
the Corporation; and
(h) the approval of any merger or share exchange which does not require
stockholder approval.
The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the
15
<PAGE>
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.
16
<PAGE>
Nothing herein shall be deemed to prevent the Board from appointing one or
more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority or power of the Board in the management of
the business or affairs of the Corporation.
ARTICLE V
Officers, Agents and Employees
------------------------------
Section 1. Number and 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
17
<PAGE>
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 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, 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 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
18
<PAGE>
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 Directors, but this power may be
delegated to any officer in respect of other officers under his control.
Section 6. Bonds or Other Security. If required by the Board, any
-----------------------
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
---------
officer of the Corporation. In the absence of the Chairman of the Board (or
if there be none), he shall preside at all meetings of the stockholders and
of the Board Directors. He shall have, subject to the control of the Board
of Directors, general charge of the business and affairs of the Corporation.
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.
19
<PAGE>
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 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;
20
<PAGE>
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation
(unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept
and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
by the Board or the President.
Section 11. Delegation of Duties. In case of the absence of any
--------------------
officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or
any of them, of such officer upon any other officer or upon any director.
ARTICLE VI
Indemnification
---------------
Each officer and director of the Corporation shall be indemnified by the
Corporation to the full extent permitted under
21
<PAGE>
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 indemnify such person must be
based upon the reasonable determination by special 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
22
<PAGE>
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 against
losses arising by reason of the advance; (c) a majority of a quorum of
non-party independent directors, or independent legal counsel in a written
opinion, shall determine, based on a review of facts readily available to the
Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the
General Laws of the State of Maryland, from liability arising from his
activities as officer or director of the Corporation. The Corporation,
however, may not purchase insurance on behalf of any officer or director of
the Corporation
23
<PAGE>
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.
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
24
<PAGE>
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 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
25
<PAGE>
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 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
26
<PAGE>
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 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 statements of its
27
<PAGE>
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 ___ day of _____________.
ARTICLE X
Depositories and Custodians
---------------------------
Section 1. Depositories. The funds of the Corporation shall be
------------
deposited with such banks or other depositories as the Board of Directors of
the Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
----------
deposited in the safe keeping of such banks or other companies as the Board
of Directors of the Corporation
28
<PAGE>
may from time to time determine. Every arrangement entered into with any
bank or other company for the safe keeping of the securities and investments
of the Corporation shall contain provisions complying with the Investment
Company Act of 1940, as amended, and the general rules and regulations
thereunder.
ARTICLE XI
Execution of Instruments
------------------------
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
--------------------------
acceptances, bills of exchange and other orders or obligations for the
payment of money shall be signed by such officer or officers or person or
persons as the Board of Directors by resolution shall from time to time
designate.
Section 2. Sale or Transfer of Securities. Stock certificates, bonds
------------------------------
or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of
subject to any limits imposed by these By-Laws and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation
or sold, transferred or otherwise disposed of, may be transferred from the
name of the Corporation by the signature of the President or a Vice President
or the Treasurer or pursuant to any procedure approved by the Board of
Directors, subject to applicable law.
29
<PAGE>
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
after the end of the fiscal year), be placed on file at the Corporation's
principal office. Each such report shall show the assets and liabilities of
the Corporation as of the close of the annual or
30
<PAGE>
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.
31
<PAGE>
<PAGE>
Exhibit 5(a)
MANAGEMENT AGREEMENT
AGREEMENT made this day of , 1995, by and between MERRILL
LYNCH GLOBAL INSTITUTIONAL SERIES, INC., a Maryland corporation (hereinafter
referred to as the "Fund"), and MERRILL LYNCH ASSET MANAGEMENT, L.P., a
Delaware limited partnership (hereinafter referred to as the "Manager").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Fund intends to engage in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Directors of the Fund (the "Directors") are authorized to
establish separate series relating to separate portfolios of securities, each
of which will offer separate classes of shares; and
WHEREAS, the Directors have established and designated the INTERNATIONAL
EQUITY PORTFOLIO (the "Portfolio") as a series of the Fund; and
WHEREAS, the Manager is engaged principally in rendering management and
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Fund desires to retain the Manager to render management and
investment advisory services to the Fund and the
1
<PAGE>
Portfolio in the manner and on the terms hereinafter set forth; and
WHEREAS, the Manager is willing to provide management and investment
advisory services to the Fund and the Portfolio on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Manager hereby agree as follows:
ARTICLE I
---------
Duties of the Manager
---------------------
The Fund hereby employs the Manager to act as an investment manager and
investment adviser of the Portfolio and to furnish, or arrange for affiliates
to furnish, the management and investment advisory services described below,
subject to policies of, review by and overall control of the Directors, for
the period and on the terms and conditions set forth in this Agreement. The
Manager hereby accepts such employment and agrees during such period, at its
own expense, to render, or arrange for the rendering of, such services and to
assume the obligations herein set forth for the compensation provided for
herein. The Manager and its affiliates shall for all purposes herein be
deemed to be independent contractors and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Fund or
the Portfolio in any way or otherwise be deemed agents of the Fund or the
Portfolio.
2
<PAGE>
(a) Management Services. The Manager shall perform (or arrange for its
-------------------
affiliates to perform) the management and administrative services necessary
for the operation of the Fund and the Portfolio including administering
shareholder accounts and handling shareholder relations. The Manager shall
provide the Fund and Portfolio with office space, equipment and facilities
and such other services as the Manager, subject to review by the Directors,
from time to time shall determine to be necessary or useful to perform its
obligations under this Agreement. The Manager, also on behalf of the Fund
and the Portfolio, shall conduct relations with custodians, depositories,
transfer agents, dividend disbursing agents, other shareholder service
agents, accountants, attorneys, underwriters, brokers and dealers, corporate
fiduciaries, insurers, banks and such other persons in any such other
capacity deemed to be necessary or desirable. The Manager generally shall
monitor the Fund's and the Portfolio's compliance with investment policies
and restrictions as set forth in the currently effective prospectus and
statement of additional information relating to the shares of the Portfolio
under the Securities Act of 1933, as amended (the "Prospectus" and "Statement
of Additional Information", respectively). The Manager shall make reports to
the Directors of its performance of obligations hereunder and furnish advice
and recommendations with respect to such other aspects of the business and
affairs of the Fund and the Portfolio as it shall
3
<PAGE>
determine to be desirable.
(b) Investment Advisory Services. The Manager shall provide the Fund
----------------------------
with such investment research, advice and supervision as the latter may from
time to time consider necessary for the proper supervision of the assets of
the Portfolio, shall furnish continuously an investment program for the
Portfolio and shall determine from time to time which securities shall be
purchased, sold or exchanged and what portion of the assets of the Portfolio
shall be held in the various money market securities or cash, subject always
to the restrictions of the Articles of Incorporation and By-Laws of the Fund,
as amended from time to time, the provisions of the Investment Company Act
and the statements relating to the Portfolio's investment objective,
investment policies and investment restrictions as the same are set forth in
the Prospectus and Statement of Additional Information. The Manager also
shall make decisions for the Fund as to the manner in which voting rights,
rights to consent to corporate action and any other rights pertaining to the
portfolio securities held by the Portfolio shall be exercised. Should the
Directors at any time, however, make any definite determination as to
investment policy and notify the Manager thereof in writing, the Manager
shall be bound by such determination for the period, if any, specified in
such notice or until similarly notified that such determination has been
revoked. The Manager shall take, on behalf of the Portfolio, all actions
which it
4
<PAGE>
deems necessary to implement the investment policies determined as provided
above, and in particular to place all orders for the purchase or sale of
portfolio securities for the Portfolio's account with brokers or dealers
selected by it, and to this end the Manager is authorized as the agent of the
Fund to give instructions to the custodian of the Portfolio as to deliveries
of securities and payments of cash for the account of the Portfolio. In
connection with the selection of such brokers or dealers and the placing of
such orders with respect to assets of the Portfolio, the Manager is directed
at all times to seek to obtain execution and price within the policy
guidelines determined by the Directors as set forth in the Prospectus and
Statement of Additional Information. Subject to this requirement and the
provisions of the Investment Company Act, the Securities Exchange Act of
1934, as amended, and other applicable provisions of law, the Manager may
select brokers or dealers with which it or the Fund is affiliated.
(c) Notice Upon Change in Partners of Manager.
------------------------------------------
The Manager is a limited partnership and its limited partners are Merrill
Lynch & Co., Inc. and Merrill Lynch Investment Management, Inc. and its
general partner is Princeton Services, Inc. The Manager will notify the Fund
and the Portfolio of any change in the membership of the partnership within a
reasonable time after such change.
5
<PAGE>
ARTICLE II
Allocation of Charges and Expenses
----------------------------------
(a) The Manager. The Manager assumes and shall pay for maintaining the
-----------
staff and personnel necessary to perform its obligations under this
Agreement, and, at its own expense, shall provide the office space, equipment
and facilities which it is obligated to provide under Article I hereof, and
shall pay all compensation of officers of the Fund and all Directors who are
affiliated persons of the Manager.
(b) The Fund. The Fund assumes and shall pay or cause to be paid all
--------
other expenses of the Fund and the Portfolio (except for the expenses paid by
the Distributor), including, without limitation: redemption expenses,
expenses of portfolio transactions, expenses of registering shares under
federal and state securities laws, pricing costs (including the daily
calculation of net asset value), expenses of printing shareholder reports,
prospectuses and statements of additional information, Securities and
Exchange Commission fees, interest, taxes, fees and actual out-of-pocket
expenses of Directors who are not affiliated persons of the Manager, fees for
legal and auditing services, litigation expenses, costs of printing proxies
and other expenses related to shareholder meetings, and other expenses
properly payable by the Fund and the Portfolio. It also is understood that
the Fund will reimburse the Manager for its costs in providing accounting
services to the Fund and the
6
<PAGE>
Portfolio. The Distributor will pay certain of the expenses of the Portfolio
incurred in connection with the continuous offering of Portfolio shares.
ARTICLE III
-----------
Compensation of the Manager
---------------------------
(a) Investment Advisory Fee. For the services rendered, the facilities
-----------------------
furnished and expenses assumed by the Manager, the Fund shall pay to the
Manager at the end of each calendar month a fee based upon the average daily
value of the net assets of the Portfolio, as determined and computed in
accordance with the description of the determination of net asset value
contained in the Prospectus and Statement of Additional Information, at the
annual rate of 0.70 of 1.0% (0.70%) of the average daily net assets of the
Portfolio commencing on the day following effectiveness hereof. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for the part of the
month that this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fee as set forth above. Subject to
the provisions of subsection (b) hereof, payment of the Manager's
compensation for the preceding month shall be made as promptly as possible
after completion of the computations contemplated by subsection (b) hereof.
During any period when the determination of net asset value is suspended by
the Directors, the net asset value as of the last business day prior
7
<PAGE>
to such suspension shall for this purpose be deemed to be the net asset value
at the close of each succeeding business day until it is again determined.
(b) Expense Limitations. In the event that the operating expenses of
-------------------
the Portfolio, including amounts payable to the Manager pursuant to
subsection (a) hereof, for any fiscal year ending on a date on which this
Agreement is in effect exceed the expense limitations applicable to the
Portfolio imposed by applicable state securities laws or regulations
thereunder, as such limitations may be raised or lowered from time to time,
the Manager shall reduce its management fee by the extent of such excess and,
if required pursuant to any such laws or regulations, will reimburse the
Portfolio in the amount of such excess, provided, however, to the extent
permitted by law, there shall be excluded from such expenses the amount of
any interest, taxes, brokerage commissions and extraordinary expenses
(including but not limited to legal claims and liabilities and litigation
costs and any indemnification related thereto) paid or payable by the Fund
with respect to the Portfolio. Whenever the expenses of the Portfolio exceed
a pro rata portion of the applicable annual expense limitations, the
estimated amount of reimbursement under such limitations shall be applicable
as an offset against the monthly payment of the management fee due to the
Manager. Should two or more such expense limitations be applicable as of the
end of the last business day of the month, that expense limitation
8
<PAGE>
which results in the largest reduction in the Manager's fee shall be
applicable.
ARTICLE IV
----------
Limitation of Liability of the Manager
--------------------------------------
The Manager shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission
in the management of the Fund and the Portfolio, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties,
or by reason of reckless disregard of its obligations and duties hereunder.
As used in this Article IV, the term "Manager" shall include any affiliates
of the Manager performing services for the Fund or the Portfolio contemplated
hereby and directors, officers and employees of the Manager and such
affiliates.
ARTICLE V
---------
Activities of the Manager
-------------------------
The services of the Manager to the Fund and the Portfolio are not to be
deemed to be exclusive, and the Manager and any person controlled by or under
common control with the Manager (for purposes of Article V referred to as
"affiliates") are free to render services to others. It is understood that
Directors, officers, employees and shareholders of the Fund and the Portfolio
are or may become interested in the Manager and its affiliates, as directors,
officers, employees and shareholders or otherwise, and that directors,
officers, employees and
9
<PAGE>
shareholders of the Manager and its affiliates are or may become similarly
interested in the Fund and the Portfolio, and that the Manager may become
interested in the Fund and the Portfolio as a shareholder or otherwise.
ARTICLE VI
----------
Duration and Termination of this Contract
-----------------------------------------
This Agreement shall become effective as of the date first above written
and shall remain in force until _________________, 1997 and thereafter, but
only for so long as such continuance is specifically approved at least
annually by (i) the Directors, or by the vote of a majority of the
outstanding voting securities of the Portfolio, and (ii) by the vote of a
majority of those Directors who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called for
the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Portfolio, or by the Manager, on sixty days' written notice
to the other party. This Agreement shall terminate automatically in the
event of its assignment.
ARTICLE VII
-----------
Amendment of this Agreement
---------------------------
This Agreement may be amended by the parties only if such amendment is
specifically approved by the vote of (i) a majority
10
<PAGE>
of the outstanding voting securities of the Portfolio, and (ii) a majority of
those Directors who are not parties to this Agreement or interested persons
of any such party cast in person at a meeting called for the purpose of
voting on such approval.
ARTICLE VIII
------------
Definitions of Certain Terms
----------------------------
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations thereunder, subject, however, to
such exemptions as may be granted by the Securities and Exchange Commission
under the Investment Company Act.
ARTICLE IX
----------
Governing Law
-------------
This Agreement shall be construed in accordance with laws of the State
of New York and the applicable provisions of the Investment Company Act. To
the extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
MERRILL LYNCH GLOBAL INSTITUTIONAL
SERIES, INC.
By
----------------------------------
Title:
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By
----------------------------------
Title:
12
<PAGE>
<PAGE>
Exhibit 5(b)
SUB-MANAGEMENT AGREEMENT
AGREEMENT made as of the ____ day of ___________, 1995, by and between
MERRILL LYNCH ASSET MANAGEMENT, L.P., a Delaware limited partnership
(hereinafter referred to as "MLAM"), and MERRILL LYNCH ASSET MANAGEMENT
U.K. LIMITED, a corporation organized under the laws of England and Wales
(hereinafter referred to as "MLAM U.K.").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC. (the "Fund")
is a Maryland corporation engaged in business as a diversified, open-end
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, MLAM and MLAM U.K. are engaged principally in rendering
investment advisory services and are registered as investment advisers
under the Investment Advisers Act of 1940, as amended;
WHEREAS, MLAM U.K. is a member of the Investment Management Regulatory
Organization, a self-regulating organization recognized under the Financial
Services Act of 1986 of the United Kingdom (hereinafter referred to as
"IMRO"), and the conduct of its investment business is regulated by IMRO;
and
WHEREAS, MLAM has entered into a management agreement (the "Management
Agreement") with the Fund with respect to the International Equity
Portfolio, a separate series of the Fund
1
<PAGE>
(hereinafter the "Portfolio"), dated ________________, 1995, pursuant to
which MLAM provides management and investment and advisory services to the
Portfolio; and
WHEREAS, MLAM U.K. is willing to provide investment advisory services
to MLAM in connection with the Portfolio's operations on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, MLAM U.K. and MLAM hereby agree as follows:
ARTICLE I
---------
Duties of MLAM U.K.
-------------------
MLAM hereby employs MLAM U.K. to act as investment adviser to MLAM and
to furnish, or arrange for affiliates to furnish, the investment advisory
services described below, subject to the broad supervision of MLAM and the
Fund, for the period and on the terms and conditions set forth in this
Agreement. MLAM U.K. hereby accepts such employment and agrees during such
period, at its own expense, to render, or arrange for the rendering of,
such services and to assume the obligations herein set forth for the
compensation provided for herein. MLAM and its affiliates shall for all
purposes herein be deemed a Professional Investor as defined under the
rules promulgated by IMRO (hereinafter referred to as the "IMRO Rules").
MLAM U.K. and its affiliates shall for all purposes herein be deemed to be
an independent contractor and shall, unless otherwise expressly provided or
authorized, have no
2
<PAGE>
authority to act for or represent the Portfolio in any way or otherwise be
deemed an agent of the Portfolio.
MLAM U.K. shall have the right to make unsolicited calls on MLAM and
shall provide MLAM with such investment research, advice and supervision as
the latter may from time to time consider necessary for the proper
supervision of the assets of the Portfolio; shall furnish continuously an
investment program for the Portfolio and shall make recommendations from
time to time as to which securities shall be purchased, sold or exchanged
and what portion of the assets of the Portfolio shall be held in the
various securities in which the Portfolio invests, options, futures,
options on futures or cash; all of the foregoing subject always to the
restrictions of the Articles of Incorporation and By-Laws of the Fund, as
amended from time to time, the provisions of the Investment Company Act and
the statements relating to the Portfolio's investment objective, investment
policies and investment restrictions as the same are set forth in the
currently effective prospectus and statement of additional information
relating to the shares of the Fund under the Securities Act of 1933, as
amended (the "Prospectus" and "Statement of Additional Information",
respectively). MLAM U.K. shall make recommendations and effect
transactions with respect to foreign currency matters, including foreign
exchange contracts, foreign currency options, foreign currency futures and
related options on foreign currency futures and forward foreign currency
transactions. MLAM U.K. shall also make recommendations
3
<PAGE>
or take action as to the manner in which voting rights, rights to consent
to corporate action and any other rights pertaining to the portfolio
securities of the Portfolio shall be exercised.
MLAM U.K. will not hold money on behalf of MLAM or the Portfolio, nor
will MLAM U.K. be the registered holder of MLAM's or the Portfolio's
registered investments or the custodian of documents or other evidence of
title.
ARTICLE II
----------
Allocation of Charges and Expenses
----------------------------------
MLAM U.K. assumes and shall pay for maintaining the staff and
personnel necessary to perform its obligations under this Agreement and
shall at its own expense provide the office space, equipment and facilities
which it is obligated to provide under Article I hereof and shall pay all
compensation of officers of the Fund and all Directors of the Fund who are
affiliated persons of MLAM U.K.
ARTICLE III
-----------
Compensation of MLAM U.K.
-------------------------
For the services rendered, the facilities furnished and expenses
assumed by MLAM U.K., MLAM shall pay to MLAM U.K. a fee in an amount to be
determined from time to time by MLAM and MLAM U.K. but in no event in
excess of the amount that MLAM actually receives for providing services to
the Portfolio pursuant to the Management Agreement.
4
<PAGE>
ARTICLE IV
----------
Limitation of Liability of MLAM U.K.
------------------------------------
MLAM U.K. shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act of
omission in the performance of sub-advisory services rendered with respect
to the Portfolio, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder. As used in this Article
IV, MLAM U.K. shall include any affiliates of MLAM U.K. performing services
for MLAM contemplated hereby and directors, officers and employees of MLAM
U.K. and such affiliates.
ARTICLE V
---------
Activities of MLAM U.K.
-----------------------
The services of MLAM U.K. to the Portfolio are not to be deemed to be
exclusive, MLAM U.K. and any person controlled by or under common control
with MLAM U.K. (for purposes of this Article V referred to as "affiliates")
being free to render services to others. It is understood that Directors,
officers, employees and shareholders of the Fund are or may become
interested in MLAM U.K. and its affiliates, as directors, officers,
employees and shareholders or otherwise and that directors, officers,
employees and shareholders of MLAM U.K. and its affiliates are or may
become similarly interested in the Fund, and that MLAM U.K. and directors,
officers, employees, partners and shareholders of its
5
<PAGE>
affiliates may become interested in the Fund as shareholders or otherwise.
ARTICLE VI
----------
MLAM U.K. Statements Pursuant to IMRO Rules
-------------------------------------------
Any complaints concerning MLAM U.K. should be in writing addressed to
the attention of the Managing Director of MLAM U.K. MLAM has the right to
obtain from MLAM U.K. a copy of the IMRO complaints procedure and to
approach IMRO directly.
MLAM U.K. may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding Investments Not
Readily Realisable (as that term is used in the IMRO Rules) or investments
denominated in a currency other than British pound sterling. There can be
no certainty that market makers will be prepared to deal in unlisted or
thinly traded securities and an accurate valuation may be hard to obtain.
The value of investments recommended by MLAM U.K. may be subject to
exchange rate fluctuations which may have favorable or unfavorable effects
on investments.
MLAM U.K. may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding options, futures or
contracts for differences. Markets can be highly volatile and such
investments carry a high degree of risk of loss exceeding the original
investment and any margin on deposit.
6
<PAGE>
ARTICLE VII
-----------
Duration and Termination of this Agreement
------------------------------------------
This Agreement shall become effective as of the date first above
written and shall remain in force until _________, 1997, and thereafter,
but only so long as such continuance is specifically approved at least
annually by (i) the Directors of the Fund or by the vote of a majority of
the outstanding voting securities of the Portfolio and (ii) a majority of
those Directors who are not parties to this Agreement or interested persons
of any such party cast in person at a meeting called for the purpose of
voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by MLAM or by vote of a majority of the outstanding voting
securities of the Portfolio, or by MLAM U.K., on sixty days' written notice
to the other party. This Agreement shall automatically terminate in the
event of its assignment or in the event of the termination of the
Management Agreement. Any termination shall be without prejudice to the
completion of transactions already initiated.
ARTICLE VIII
------------
Amendments of this Agreement
----------------------------
This Agreement may be amended by the parties only if such amendment is
specifically approved by (1) the Directors of the Fund or by the vote of a
majority of outstanding voting securities of the Portfolio and (2) a
majority of those Directors who are not parties to this Agreement or
interested
7
<PAGE>
persons of any such party cast in person at a meeting called for the
purpose of voting on such approval.
ARTICLE IX
----------
Definitions of Certain Terms
----------------------------
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in
this Agreement, shall have the respective meanings specified in the
Investment Company Act and the rules and regulations thereunder, subject,
however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act.
ARTICLE X
---------
Governing Law
-------------
This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Investment Company
Act. To the extent that the applicable laws of the state of New York, or
any of the provisions herein, conflict with the applicable provisions of
the Investment Company Act, the latter shall control.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
MERRILL LYNCH INVESTMENT MANAGEMENT, L.P.
By
----------------------------------------
Title:
MERRILL LYNCH ASSET MANAGEMENT U.K. LIMITED
By
----------------------------------------
Title:
9
<PAGE>
<PAGE>
Exhibit 5(c)
MANAGEMENT AGREEMENT
AGREEMENT made this day of , 1995, by and between MERRILL
LYNCH GLOBAL INSTITUTIONAL SERIES, INC., a Maryland corporation (hereinafter
referred to as the "Fund"), and MERRILL LYNCH ASSET MANAGEMENT, L.P., a
Delaware limited partnership (hereinafter referred to as the "Manager").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Fund intends to engage in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Directors of the Fund (the "Directors") are authorized to
establish separate series relating to separate portfolios of securities, each
of which will offer separate classes of shares; and
WHEREAS, the Directors have established and designated the EMERGING
MARKETS PORTFOLIO (the "Portfolio") as a series of the Fund; and
WHEREAS, the Manager is engaged principally in rendering management and
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Fund desires to retain the Manager to render management and
investment advisory services to the Fund and the
1
<PAGE>
Portfolio in the manner and on the terms hereinafter set forth; and
WHEREAS, the Manager is willing to provide management and investment
advisory services to the Fund and the Portfolio on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Manager hereby agree as follows:
ARTICLE I
---------
Duties of the Manager
---------------------
The Fund hereby employs the Manager to act as an investment manager and
investment adviser of the Portfolio and to furnish, or arrange for affiliates
to furnish, the management and investment advisory services described below,
subject to policies of, review by and overall control of the Directors, for
the period and on the terms and conditions set forth in this Agreement. The
Manager hereby accepts such employment and agrees during such period, at its
own expense, to render, or arrange for the rendering of, such services and to
assume the obligations herein set forth for the compensation provided for
herein. The Manager and its affiliates shall for all purposes herein be
deemed to be independent contractors and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Fund or
the Portfolio in any way or otherwise be deemed agents of the Fund or the
Portfolio.
2
<PAGE>
(a) Management Services. The Manager shall perform (or arrange for its
-------------------
affiliates to perform) the management and administrative services necessary
for the operation of the Fund and the Portfolio including administering
shareholder accounts and handling shareholder relations. The Manager shall
provide the Fund and Portfolio with office space, equipment and facilities
and such other services as the Manager, subject to review by the Directors,
from time to time shall determine to be necessary or useful to perform its
obligations under this Agreement. The Manager, also on behalf of the Fund
and the Portfolio, shall conduct relations with custodians, depositories,
transfer agents, dividend disbursing agents, other shareholder service
agents, accountants, attorneys, underwriters, brokers and dealers, corporate
fiduciaries, insurers, banks and such other persons in any such other
capacity deemed to be necessary or desirable. The Manager generally shall
monitor the Fund's and the Portfolio's compliance with investment policies
and restrictions as set forth in the currently effective prospectus and
statement of additional information relating to the shares of the Portfolio
under the Securities Act of 1933, as amended (the "Prospectus" and "Statement
of Additional Information", respectively). The Manager shall make reports to
the Directors of its performance of obligations hereunder and furnish advice
and recommendations with respect to such other aspects of the business and
affairs of the Fund and the Portfolio as it shall
3
<PAGE>
determine to be desirable.
(b) Investment Advisory Services. The Manager shall provide the Fund
----------------------------
with such investment research, advice and supervision as the latter may from
time to time consider necessary for the proper supervision of the assets of
the Portfolio, shall furnish continuously an investment program for the
Portfolio and shall determine from time to time which securities shall be
purchased, sold or exchanged and what portion of the assets of the Portfolio
shall be held in the various money market securities or cash, subject always
to the restrictions of the Articles of Incorporation and By-Laws of the Fund,
as amended from time to time, the provisions of the Investment Company Act
and the statements relating to the Portfolio's investment objective,
investment policies and investment restrictions as the same are set forth in
the Prospectus and Statement of Additional Information. The Manager also
shall make decisions for the Fund as to the manner in which voting rights,
rights to consent to corporate action and any other rights pertaining to the
portfolio securities held by the Portfolio shall be exercised. Should the
Directors at any time, however, make any definite determination as to
investment policy and notify the Manager thereof in writing, the Manager
shall be bound by such determination for the period, if any, specified in
such notice or until similarly notified that such determination has been
revoked. The Manager shall take, on behalf of the Portfolio, all actions
which it
4
<PAGE>
deems necessary to implement the investment policies determined as provided
above, and in particular to place all orders for the purchase or sale of
portfolio securities for the Portfolio's account with brokers or dealers
selected by it, and to this end the Manager is authorized as the agent of the
Fund to give instructions to the custodian of the Portfolio as to deliveries
of securities and payments of cash for the account of the Portfolio. In
connection with the selection of such brokers or dealers and the placing of
such orders with respect to assets of the Portfolio, the Manager is directed
at all times to seek to obtain execution and price within the policy
guidelines determined by the Directors as set forth in the Prospectus and
Statement of Additional Information. Subject to this requirement and the
provisions of the Investment Company Act, the Securities Exchange Act of
1934, as amended, and other applicable provisions of law, the Manager may
select brokers or dealers with which it or the Fund is affiliated.
(c) Notice Upon Change in Partners of Manager.
------------------------------------------
The Manager is a limited partnership and its limited partners are Merrill
Lynch & Co., Inc. and Merrill Lynch Investment Management, Inc. and its
general partner is Princeton Services, Inc. The Manager will notify the Fund
and the Portfolio of any change in the membership of the partnership within a
reasonable time after such change.
5
<PAGE>
ARTICLE II
Allocation of Charges and Expenses
----------------------------------
(a) The Manager. The Manager assumes and shall pay for maintaining the
-----------
staff and personnel necessary to perform its obligations under this
Agreement, and, at its own expense, shall provide the office space, equipment
and facilities which it is obligated to provide under Article I hereof, and
shall pay all compensation of officers of the Fund and all Directors who are
affiliated persons of the Manager.
(b) The Fund. The Fund assumes and shall pay or cause to be paid all
--------
other expenses of the Fund and the Portfolio (except for the expenses paid by
the Distributor), including, without limitation: redemption expenses,
expenses of portfolio transactions, expenses of registering shares under
federal and state securities laws, pricing costs (including the daily
calculation of net asset value), expenses of printing shareholder reports,
prospectuses and statements of additional information, Securities and
Exchange Commission fees, interest, taxes, fees and actual out-of-pocket
expenses of Directors who are not affiliated persons of the Manager, fees for
legal and auditing services, litigation expenses, costs of printing proxies
and other expenses related to shareholder meetings, and other expenses
properly payable by the Fund and the Portfolio. It also is understood that
the Fund will reimburse the Manager for its costs in providing accounting
services to the Fund and the
6
<PAGE>
Portfolio. The Distributor will pay certain of the expenses of the Portfolio
incurred in connection with the continuous offering of Portfolio shares.
ARTICLE III
-----------
Compensation of the Manager
---------------------------
(a) Investment Advisory Fee. For the services rendered, the facilities
-----------------------
furnished and expenses assumed by the Manager, the Fund shall pay to the
Manager at the end of each calendar month a fee based upon the average daily
value of the net assets of the Portfolio, as determined and computed in
accordance with the description of the determination of net asset value
contained in the Prospectus and Statement of Additional Information, at the
annual rate of 0.80 of 1.0% (0.80%) of the average daily net assets of the
Portfolio commencing on the day following effectiveness hereof. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for the part of the
month that this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fee as set forth above. Subject to
the provisions of subsection (b) hereof, payment of the Manager's
compensation for the preceding month shall be made as promptly as possible
after completion of the computations contemplated by subsection (b) hereof.
During any period when the determination of net asset value is suspended by
the Directors, the net asset value as of the last business day prior
7
<PAGE>
to such suspension shall for this purpose be deemed to be the net asset value
at the close of each succeeding business day until it is again determined.
(b) Expense Limitations. In the event that the operating expenses of
-------------------
the Portfolio, including amounts payable to the Manager pursuant to
subsection (a) hereof, for any fiscal year ending on a date on which this
Agreement is in effect exceed the expense limitations applicable to the
Portfolio imposed by applicable state securities laws or regulations
thereunder, as such limitations may be raised or lowered from time to time,
the Manager shall reduce its management fee by the extent of such excess and,
if required pursuant to any such laws or regulations, will reimburse the
Portfolio in the amount of such excess, provided, however, to the extent
permitted by law, there shall be excluded from such expenses the amount of
any interest, taxes, brokerage commissions and extraordinary expenses
(including but not limited to legal claims and liabilities and litigation
costs and any indemnification related thereto) paid or payable by the Fund
with respect to the Portfolio. Whenever the expenses of the Portfolio exceed
a pro rata portion of the applicable annual expense limitations, the
estimated amount of reimbursement under such limitations shall be applicable
as an offset against the monthly payment of the management fee due to the
Manager. Should two or more such expense limitations be applicable as of the
end of the last business day of the month, that expense limitation
8
<PAGE>
which results in the largest reduction in the Manager's fee shall be
applicable.
ARTICLE IV
----------
Limitation of Liability of the Manager
--------------------------------------
The Manager shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission
in the management of the Fund and the Portfolio, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties,
or by reason of reckless disregard of its obligations and duties hereunder.
As used in this Article IV, the term "Manager" shall include any affiliates
of the Manager performing services for the Fund or the Portfolio contemplated
hereby and directors, officers and employees of the Manager and such
affiliates.
ARTICLE V
---------
Activities of the Manager
-------------------------
The services of the Manager to the Fund and the Portfolio are not to be
deemed to be exclusive, and the Manager and any person controlled by or under
common control with the Manager (for purposes of Article V referred to as
"affiliates") are free to render services to others. It is understood that
Directors, officers, employees and shareholders of the Fund and the Portfolio
are or may become interested in the Manager and its affiliates, as directors,
officers, employees and shareholders or otherwise, and that directors,
officers, employees and
9
<PAGE>
shareholders of the Manager and its affiliates are or may become similarly
interested in the Fund and the Portfolio, and that the Manager may become
interested in the Fund and the Portfolio as a shareholder or otherwise.
ARTICLE VI
----------
Duration and Termination of this Contract
-----------------------------------------
This Agreement shall become effective as of the date first above written
and shall remain in force until _________________, 1997 and thereafter, but
only for so long as such continuance is specifically approved at least
annually by (i) the Directors, or by the vote of a majority of the
outstanding voting securities of the Portfolio, and (ii) by the vote of a
majority of those Directors who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called for
the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Portfolio, or by the Manager, on sixty days' written notice
to the other party. This Agreement shall terminate automatically in the
event of its assignment.
ARTICLE VII
-----------
Amendment of this Agreement
---------------------------
This Agreement may be amended by the parties only if such amendment is
specifically approved by the vote of (i) a majority
10
<PAGE>
of the outstanding voting securities of the Portfolio, and (ii) a majority of
those Directors who are not parties to this Agreement or interested persons
of any such party cast in person at a meeting called for the purpose of
voting on such approval.
ARTICLE VIII
------------
Definitions of Certain Terms
----------------------------
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations thereunder, subject, however, to
such exemptions as may be granted by the Securities and Exchange Commission
under the Investment Company Act.
ARTICLE IX
----------
Governing Law
-------------
This Agreement shall be construed in accordance with laws of the State
of New York and the applicable provisions of the Investment Company Act. To
the extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
MERRILL LYNCH GLOBAL INSTITUTIONAL
SERIES, INC.
By
----------------------------------
Title:
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By
----------------------------------
Title:
12
<PAGE>
<PAGE>
Exhibit 6
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of __________, 1995, between MERRILL
LYNCH GLOBAL INSTITUTIONAL SERIES, INC., a Maryland corporation (the "Fund"),
and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the
"Distributor").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its
shares for sale continuously; and
WHEREAS, the Directors of the Fund (the "Directors") are authorized to
establish separate series relating to separate portfolios of securities, each
of which will offer shares of common stock, par value $0.10 per share
(collectively referred to as "shares"); and
WHEREAS, the Directors have established and designated the INTERNATIONAL
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO (each a "Portfolio") as
series of the Fund; and
1
<PAGE>
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the shares of
common stock in each Portfolio.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints
------------------------------
the Distributor as the principal underwriter and distributor of the Fund to
sell shares of common stock in each Portfolio to the public and hereby agrees
during the term of this Agreement to sell shares of each Portfolio to the
Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
--------------------------
exclusive representative of the Fund to act as principal underwriter and
distributor of the shares of each Portfolio, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of shares with
respect to areas other than the United States as to which the Distributor may
have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell shares in the areas so designated shall terminate, but this
2
<PAGE>
Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase shares
from the Fund shall not apply to shares issued in connection with the merger
or consolidation of any other investment company or personal holding company
with the Fund or the acquisition by purchase or otherwise of all (or sub-
stantially all) the assets or the outstanding shares of any such company by
the Fund.
(c) Such exclusive right also shall not apply to shares issued pursuant
to reinvestment of dividends or capital gains distributions.
(d) Such exclusive right also shall not apply to shares issued pursuant
to any conversion, exchange or reinstatement privilege afforded redeeming
shareholders or to any other shares as shall be agreed between the Fund and
the Distributor from time to time.
Section 3. Purchase of Shares from the Fund.
--------------------------------
(a) The Distributor shall have the right to buy from the Fund the
shares needed, but not more than the shares needed (except for clerical
errors in transmission) to fill unconditional orders for shares of a
Portfolio placed with the Distributor by eligible investors or securities
dealers. Investors eligible to purchase shares shall be those persons so
identified in the currently effective prospectus and statement of
3
<PAGE>
additional information relating to the Portfolios (the "prospectus" and
"statement of additional information", respectively) under the Securities
Act, relating to such shares. The price which the Distributor shall pay for
the shares so purchased from the Fund shall be the net asset value,
determined as set forth in Section 3(d) hereof, used in determining the
public offering price on which such orders were based.
(b) The shares are to be resold by the Distributor to investors at the
public offering price, as set forth in Section 3(c) hereof, or to securities
dealers having agreements with the Distributor upon the terms and conditions
set forth in Section 7 hereof.
(c) The public offering price(s) of the shares, i.e., the price per
share at which the Distributor or selected dealers may sell shares to the
public, shall be the net asset value, determined as set forth in Section 3(d)
hereof.
(d) The net asset value of each Portfolio's shares shall be determined
by the Fund or any agent of the Fund in accordance with the method set forth
in the prospectus and statement of additional information and guidelines
established by the Directors.
(e) The Fund shall have the right to suspend the sale of its shares at
times when redemption is suspended pursuant to the conditions set forth in
Section 4(b) hereof. The Fund shall also have the right to suspend the sale
of its shares if trading on
4
<PAGE>
the New York Stock Exchange shall have been suspended, if a banking
moratorium shall have been declared by Federal or New York authorities, or if
there shall have been some other event, which, in the judgment of the Fund,
makes it impracticable or inadvisable to sell the shares.
(f) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for shares received by
the Distributor. Any order may be rejected by the Fund; provided, however,
that the Fund will not arbitrarily or without reasonable cause refuse to
accept or confirm orders for the purchase of shares. The Fund (or its agent)
will confirm orders upon their receipt, will make appropriate book entries
and, upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts or certificates for such shares pursuant to the
instructions of the Distributor. Payment shall be made to the Fund in New
York Clearing House funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Shares by the Fund.
----------------------------------------------
(a) Any of the outstanding shares may be tendered for redemption at any
time, and the Fund agrees to repurchase or redeem the shares so tendered in
accordance with its obligations as set forth in Article VI of its Articles of
Incorporation, as amended from time to time, and in accordance with the
applicable provisions set forth in the prospectus and statement of
5
<PAGE>
additional information. The price to be paid to redeem or repurchase the
shares shall be equal to the net asset value calculated in accordance with
the provisions of Section 3(d) hereof, less any redemption fee or other
charge(s), if any, set forth in the prospectus and statement of additional
information relating to the Portfolio. All payments by the Fund hereunder
shall be made in the manner set forth below.
The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor in New
York Clearing House funds on or before the seventh business day subsequent to
its having received the notice of redemption in proper form. The proceeds of
any redemption of shares shall be paid by the Fund to or for the account of
the shareholder in accordance with the applicable provisions of the
prospectus and statement of additional information.
(b) Redemption of shares or payment may be suspended at times when the
New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of the net assets of each Portfolio, or during
any other period when the Securities and Exchange Commission, by order, so
permits.
6
<PAGE>
Section 5. Duties of the Fund.
------------------
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of shares of
each Portfolio, and this shall include, upon request by the Distributor, one
certified copy of all financial statements prepared for the Fund by
independent public accountants. The Fund shall make available to the
Distributor such number of copies of the prospectus and statement of addi-
tional information relating to the Portfolios as the Distributor shall
reasonably request.
(b) The Fund shall take, from time to time, but subject to any
necessary approval of the shareholders, all necessary action to fix the
number of authorized shares and such steps as may be necessary to register
the same under the Securities Act, to the end that there will be available
for sale such number of shares as the Distributor may reasonably be expected
to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its shares for sale under the
securities laws of such states as the Distributor and the Fund may approve.
Any such qualification may be withheld, terminated or withdrawn by the Fund
at any time in its discretion. As provided in Section 8(c) hereof, the
expense of qualification and maintenance of qualification shall be borne by
the Fund. The Distributor shall furnish such information and
7
<PAGE>
other material relating to its affairs and activities as may be required by
the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports of the Fund relating to
each Portfolio.
Section 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to effect
sales of shares of the Portfolios but shall not be obligated to sell any
specific number of shares. The services of the Distributor to the Fund
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other in-
vestment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the shares of the Portfolios, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
8
<PAGE>
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Fund, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may
be necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
Section 7. Selected Dealers Agreements.
---------------------------
(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice ("selected dealers") for the
sale of shares and fix therein the portion of the sales charge which may be
allocated to the selected dealers; provided that the Fund shall approve the
forms of agreements with dealers and the dealer compensation set forth
therein. Shares sold to selected dealers shall be for resale by such dealers
only at the public offering price(s) set forth in the prospectus and
statement of additional information. The form of agreement with selected
dealers to be used during the continuous offering of shares is attached
hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell
shares only to such selected dealers as are members in good standing of the
NASD.
9
<PAGE>
Section 8. Payment of Expenses.
-------------------
(a) The Fund shall bear all costs and expenses of the Portfolios,
including fees and disbursements of its counsel and auditors, in connection
with the preparation and filing of any required registration statements
and/or prospectuses and statements of additional information under the
Investment Company Act, the Securities Act, and all amendments and
supplements thereto, and preparing and mailing annual and interim reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such registration statements, prospectuses, statements of
additional information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments
of sales commissions to financial consultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the
costs and expenses of printing and distributing any copies thereof which are
to be used in connection with the offering of shares to selected dealers or
investors pursuant to this Agreement. The Distributor shall bear the costs
and expenses of preparing, printing and distributing any other literature
used by the Distributor or furnished by it for use by selected dealers in
connection with the offering of shares for sale to the public and
10
<PAGE>
any expenses of advertising incurred by the Distributor in connection with
such offering.
(c) The Fund shall bear the cost and expenses of qualification of
shares for sale pursuant to this Agreement and, if necessary or advisable in
connection therewith, of qualifying the Fund as a broker or dealer in such
states of the United States or other jurisdictions as shall be selected by
the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing qualification therein
until the Fund decides to discontinue such qualification pursuant to Section
5(c) hereof.
Section 9. Indemnification.
---------------
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and
reasonable counsel fees incurred in connection therewith), as incurred,
arising by reason of any person acquiring any shares, which may be based upon
the Securities Act, or on any other statute or at common law, on the ground
that the registration statement or related prospectus and statement of
additional information relating to the Portfolios, as from time to time
amended and supplemented, or an annual or interim report to shareholders
relating to the Portfolios, includes an untrue statement of a material fact
or
11
<PAGE>
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of the Distri-
butor; provided, however, that in no case (i) is the indemnity of the Fund in
favor of the Distributor and any such controlling persons to be deemed to
protect such Distributor or any such controlling persons thereof against any
liability to the Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful mis-
feasance, bad faith or gross negligence in the performance of their duties or
by reason of the reckless disregard of their obligations and duties under
this Agreement; or (ii) is the Fund to be liable under its indemnity
agreement contained in this paragraph with respect to any claim made against
the Distributor or any such controlling persons, unless the Distributor or
such controlling persons, as the case may be, shall have notified the Fund in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve it from any liability which it may have to the person against whom
12
<PAGE>
such action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Fund will be entitled to participate at its
own expense in the defense or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Fund elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit shall bear
the fees and expenses of any additional counsel retained by them, but in case
the Fund does not elect to assume the defense of any such suit, it will reim-
burse the Distributor or such controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its
officers or Directors in connection with the issuance or sale of any of its
shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each
of its Directors and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only
with respect to
13
<PAGE>
statements or omissions made in reliance upon, and in conformity with,
information furnished to the Fund in writing by or on behalf of the
Distributor for use in connection with the registration statement or related
prospectus and statement of additional information, as from time to time
amended, or the annual or interim reports to shareholders. In case any
action shall be brought against the Fund or any person so indemnified, in
respect of which indemnity may be sought against the Distributor, the
Distributor shall have the rights and duties given to the Fund, and the Fund
and each person so indemnified shall have the rights and duties given to the
Distributor by the provisions of subsection (a) of this Section 9.
Section 10. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall become effective as of the date first above written and shall remain in
force until ________ __, 1997 and thereafter, but only for so long as such
continuance is specifically approved at least annually by (i) the Directors
or by the vote of a majority of the outstanding voting securities of the Fund
and (ii) by the vote of a majority of those Directors who are not parties to
this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the Dis
14
<PAGE>
tributor, on sixty days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 11. Amendments of this Agreement. This Agreement may be
----------------------------
amended by the parties only if such amendment is specifically approved by (i)
the Directors or by the vote of a majority of outstanding voting securities
of the Fund and (ii) by the vote of a majority of those Directors of the Fund
who are not parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on such
approval.
Section 12. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the laws of the State of New
York as at the time in effect and the applicable provisions of the Investment
Company Act. To the extent that the applicable law of the State of New York,
or any of the provisions herein, conflict with the applicable provisions of
the Investment Company Act, the latter shall control.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH GLOBAL INSTITUTIONAL
SERIES, INC.
By:
----------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By:
----------------------------------
Title:
16
<PAGE>
EXHIBIT A
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC.
SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
--------------------------
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC., a Maryland
corporation (the "Fund"), pursuant to which it acts as the distributor for
the sale of shares of common stock, par value $0.10 per share (herein
referred to as "shares"), of the Fund relating to the INTERNATIONAL EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO (each a "Portfolio"), and as
such has the right to distribute shares of each Portfolio for resale. The
Fund is an open-end investment company registered under the Investment
Company Act of 1940, as amended, and each Portfolio's shares being offered to
the public are registered under the Securities Act of 1933, as amended. You
have received a copy of the shares Distribution Agreement (the "Distribution
Agreement") between ourself and the Fund and reference is made herein to cer-
tain provisions of such Distribution Agreement. The terms "Prospectus" and
"Statement of Additional Information" used herein refer to the prospectus and
statement of additional information, respectively, on file with the
Securities and Exchange Commission which is part of the most recent effective
registration statement pursuant to the Securities Act of 1933, as amended.
We offer to sell to you, as a member of the Selected Dealers Group, shares of
each Portfolio upon the following terms and conditions:
1. In all sales of these shares to the public, you shall act as dealer
for your own account and in no transaction shall you have any authority to
act as agent for the Fund, for us or for any other member of the Selected
Dealers Group.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information relating to each
Portfolio. The procedure relating to the handling of orders shall be subject
to Section 4 hereof and instructions which we or the Fund shall forward from
time to time to you. All orders are subject to acceptance or rejection by
the Distributor or the Fund in the sole discretion of either. The minimum
initial and subsequent purchase requirements are as
A-1
<PAGE>
set forth in the current Prospectus and Statement of Additional Information
relating to each Portfolio.
3. You shall not place orders for any of the shares unless you have
already received purchase orders for such shares at the applicable public
offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and
offers to sell shares you will furnish to each person to whom any such sale
or offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish
to any person any information relating to the shares of a Portfolio which is
inconsistent in any respect with the information contained in the Prospectus
and Statement of Additional Information (as then amended or supplemented) or
cause any advertisement to be published in any newspaper or posted in any
public place without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for shares of each Portfolio to be resold by us to you
subject to the applicable terms and conditions governing the placement of
orders by us set forth in Section 3 of the Distribution Agreement and (ii) to
tender shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
5. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding: e.g., by a change
in the "net asset value" from that used in determining the offering price to
your customers.
6. If any shares sold to you under the terms of this Agreement are
repurchased by the Fund or by us for the account of the Fund or are tendered
for redemption within seven business days after the date of the confirmation
of the original purchase by you, it is agreed that you shall forfeit your
right to, and refund to us, any discount received by you on such shares.
7. No person is authorized to make any representations concerning
shares of a Portfolio except those contained in the current Prospectus and
Statement of Additional Information relating to the Fund and in such printed
information subsequently issued by us or the Fund as information supplemental
to such Prospectus and Statement of Additional Information. In purchasing
shares through us you shall rely solely on the representations contained in
the Prospectus and Statement of
A-2
<PAGE>
Additional Information and supplemental information above mentioned. Any
printed information which we furnish you other than the Prospectus, Statement
of Additional Information, periodic reports and proxy solicitation material
of the Fund relating to each Portfolio is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no
liability or responsibility to you in these respects unless expressly assumed
in connection therewith.
8. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and
interim reports and proxy solicitation materials of the Fund relating to each
Portfolio. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of such Prospectus and Statement of Additional
Information, annual or interim reports and proxy solicitation materials will
be supplied to you in reasonable quantities upon request.
9. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of shares entirely or to certain persons or
entities in a class or classes specified by us. Each party hereto has the
right to cancel this agreement upon notice to the other party.
10. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering.
We shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of compliance
with any provision of the Securities Act of 1933, as amended, or of the rules
and regulations of the Securities and Exchange Commission issued thereunder.
11. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such
Association.
12. Upon application to us, we will inform you as to the states in
which we believe the shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but
we assume no responsibility or obligation as to your right to sell shares in
any jurisdiction. We will file with the Department of State in
A-3
<PAGE>
New York a Further State Notice with respect to the shares, if necessary.
13. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
14. Your first order placed pursuant to this Agreement for the purchase
of shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By:
----------------------------------
(Authorized Signature)
Please return one signed copy
of this agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
P.O. Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
------------------------------------------
By:
-------------------------------------------------
Address:
--------------------------------------------
-----------------------------------------------------
Date:
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A-4
<PAGE>
<PAGE>
Exhibit 8
AGREEMENT BETWEEN
BROWN BROTHERS HARRIMAN & CO.
AND
MERRILL LYNCH GLOBAL INSTITUTIONAL SERIES, INC.
1
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made this ____ day of_____________, 1995, between MERRILL
LYNCH GLOBAL INSTITUTIONAL SERIES, INC. (the "Fund") and Brown Brothers
Harriman & Co. (the "Custodian").
WITNESSETH: That in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. The Fund hereby employs and appoints the Custodian as a custodian
for the term and subject to the provisions of this Agreement. The
Custodian shall not be under any duty or obligation to require the Fund to
deliver to it any securities or funds owned by the Fund and shall have no
responsibility or liability for or on account of securities or funds not so
delivered. The Fund will deposit with the Custodian copies of the
Certificate of Incorporation and By-Laws (or comparable documents) of the
Fund and all amendments thereto, and copies of such votes and other
proceedings of the Fund as may be necessary for or convenient to the
Custodian in the performance of its duties.
2. Except for securities and funds held by subcustodians appointed
pursuant to the provisions of Section 3 hereof, the Custodian shall have
and perform the following powers and duties:
A. Safekeeping - To keep safely the securities of the Fund that have
-----------
been delivered to the Custodian and from time to time to receive delivery
of securities for safekeeping.
1
<PAGE>
B. Manner of Holding Securities - To hold securities of the Fund (1)
----------------------------
by physical possession of the share certificates or other instruments
representing such securities in registered or bearer form, or (2) in
book-entry form by a Securities System (as said term is defined in Section
2S).
C. Registered Name; Nominee - To hold registered securities of the
------------------------
Fund (1) in the name or any nominee name of the Custodian or the Fund, or
in the name or any nominee name of any agent appointed pursuant to Section
5E, or (2) in street certificate form, so-called, and in any case with or
without any indication of fiduciary capacity.
D. Purchases - Upon receipt of Proper Instructions, as defined in
---------
Section V on Page 14, insofar as funds are available for the purpose, to
pay for and receive securities purchased for the account of the Fund,
payment being made only upon receipt of the securities (1) by the
Custodian, or (2) by a clearing corporation of a national securities
exchange of which the Custodian is a member, or (3) by a Securities System.
However, (i) in the case of repurchase agreements entered into by the Fund,
the Custodian may release funds to a Securities System or to a Subcustodian
prior to the receipt of advice from the Securities System or Subcustodian
that the securities underlying such repurchase agreement have been
transferred by book entry into the Account (as defined in Section 2S) of
the Custodian maintained with such Securities System or Subcustodian, so
long
2
<PAGE>
as such payment instructions to Securities System or Subsustodian include a
requirement that delivery is only against payment of securities, and (ii)
in the case of time deposits, call account deposits, currency deposits, and
other deposits, contracts or options pursuant to Sections 2K, 2L and 2M,
the Custodian may make payment therefor without receiving an instrument
evidencing said deposit so long as such payment instructions detail
specific securities to be acquired.
E. Exchanges - Upon receipt of proper instructions, to exchange
---------
securities held by it for the account of the Fund for other securities in
connection with any reorganization, recapitalization, split-up of
shares, change of par value, conversion or other event, and to
deposit any such securities in accordance with the terms of any
reorganization or protective plan. Without such instructions, the
Custodian may surrender securities in temporary form for definitive
securities, may surrender securities for transfer into a name or nominee
name as permitted in Section 2C, and may surrender securities for a
different number of certificates or instruments representing the same
number of shares or same principal amount of indebtedness, provided the
securities to be issued are to be delivered to the Custodian and
further provided Custodian shall at the time of surrendering securities
or instruments receive a receipt or other evidence of ownership thereof.
3
<PAGE>
F. Sales of Securities - Upon receipt of proper instructions, to make
-------------------
delivery of securities which have been sold for the account of the Fund,
but only against payment therefor (1) in cash, by a certified check, bank
cashier's check, bank credit, or bank wire transfer, or (2) by credit to
the account of the Custodian with a clearing corporation of a national
securities exchange of which the Custodian is a member, or (3) by credit to
the account of the Custodian or an Agent of the Custodian with a Securities
System.
G. Depositary Receipts - Upon receipt of proper instructions, to
-------------------
instruct a subcustodian appointed pursuant to Section 3 hereof (a
"Subcustodian") or an agent of the Custodian appointed pursuant to Section
5E hereof (an "Agent") to surrender securities to the depositary used by an
issuer of American Depositary Receipts or International Depositary Receipts
(hereinafter collectively referred to as "ADRs") for such securities
against a written receipt therefor adequately describing such securities
and written evidence satisfactory to the Subcustodian or Agent that the
depositary has acknowledged receipt of instructions to issue with respect
to such securities ADRs in the name of the Custodian, or a nominee of the
Custodian, for delivery to the Custodian in Boston, Massachusetts, or at
such other place as the Custodian may from time to time designate.
Upon receipt of proper instructions, to surrender ADRs to the issuer
thereof against a written receipt therefor adequately
4
<PAGE>
describing the ADRs surrendered and written evidence satisfactory to the
Custodian that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depositary to deliver the securities underlying
such ADRs to a Subcustodian or an Agent.
H. Exercise of Rights; Tender Offers - Upon timely receipt of proper
---------------------------------
instructions, to deliver to the issuer or trustee thereof, or to the agent
of either, warrants, puts, calls, rights or similar securities for the
purpose of being exercised or sold, provided that the new securities and
cash, if any, acquired by such action are to be delivered to the Custodian,
and, upon receipt of proper instructions, to deposit securities upon
invitations for tenders of securities, provided that the consideration is
to be paid or delivered or the tendered securities are to be returned to
the Custodian.
I. Stock Dividends, Rights, Etc. - To receive and collect all stock
-----------------------------
dividends, rights and other items of like nature; and to deal with the same
pursuant to proper instructions relative thereto.
J. Borrowings - Upon receipt of proper instructions, to deliver
----------
securities of the Fund to lenders or their agents as collateral for
borrowings effected by the Fund, provided that such borrowed money is
payable to or upon the Custodian's order as Custodian for the Fund.
K. Demand Deposit Bank Accounts - To open and operate an account or
----------------------------
accounts in the name of the Fund on the Custodian's
5
<PAGE>
books subject only to draft or order by the Custodian. All funds received
by the Custodian from or for the account of the Fund shall be deposited in
said account(s). The responsibilities of the Custodian to the Fund for
deposits accepted on the Custodian's books shall be that of a U.S. bank for
a similar deposit.
If and when authorized by proper instructions, the Custodian may open
and operate an additional account(s) in such other banks or trust companies
as may be designated by the Fund in such instructions (any such bank or
trust company so designated by the Fund being referred to hereafter as a
"Banking Institution"), provided that such account(s) shall be in the name
of the Custodian for account of the Fund and subject only to the
Custodian's draft or order. Such accounts may be opened with Banking
Institutions in the United States and in other countries and may be
denominated in either U.S. Dollars or other currencies as the Fund may
determine. All such deposits shall be deemed to be portfolio securities of
the Fund and accordingly the responsibility of the Custodian therefore
shall be the same as and neither lesser nor greater than the Custodian's
responsibility in respect of other portfolio securities of the Fund.
L. Interest Bearing Call or Time Deposits - To place interest bearing
--------------------------------------
fixed term and call deposits with such banks and in such amounts as the
Fund may authorize pursuant to proper
6
<PAGE>
instructions. Such deposits may be placed with the Custodian or with
Subcustodians or other Banking Institutions as the Fund may determine.
Deposits may be denominated in U.S. Dollars or other currencies and need
not be evidenced by the issuance or delivery of a certificate to the
Custodian, provided that the Custodian shall include in its records with
respect to the assets of the Fund, appropriate notation as to the amount
and currency of each such deposit, the accepting Banking Institution, and
other appropriate details. Such deposits, other than those placed with the
Custodian, shall be deemed portfolio securities of the Fund and the
responsibilities of the Custodian therefor shall be the same as those for
demand deposit bank accounts placed with other banks, as described in
Section K of this Agreement. The responsibility of the Custodian for such
deposits accepted on the Custodian's books shall be that of a U.S. bank for
a similar deposit.
M. Foreign Exchange Transactions and Futures Contracts - Pursuant to
---------------------------------------------------
proper instructions, to enter into foreign exchange contracts or options to
purchase and sell foreign currencies for spot and future delivery on behalf
and for the account of the Fund. Such transactions may be undertaken by
the Custodian with such Banking Institutions, including the Custodian and
Subcustodian(s) as principals, as approved and authorized by the Fund.
Foreign exchange contracts and options other than those executed with the
Custodian, shall be deemed to be portfolio
7
<PAGE>
securities of the Fund and the responsibilities of the Custodian therefor
shall be the same as those for demand deposit bank accounts placed with
other banks as described in Section 2K of this Agreement. Upon receipt of
proper instructions, to receive and retain confirmations evidencing the
purchase or sale of a futures contract or an option on a futures contract
by the Fund; to deposit and maintain in a segregated account, for the
benefit of any futures commission merchant or to pay to such futures
commission merchant, assets designated by the Fund as initial, maintenance
or variation "margin" deposits intended to secure the Fund's performance of
its obligations under any futures contracts purchased or sold or any
options on futures contracts written by the Fund, in accordance with the
provisions of any agreement or agreements among any of the Fund, the
Custodian and such futures commission merchant, designated to comply with
the rules of the Commodity Futures Trading Commission and/or any contract
market, or any similar organization or organizations, regarding such margin
deposits; and to release and/or transfer assets in such margin accounts
only in accordance with any such agreements or rules.
N. Stock Loans - Upon receipt of proper instructions, to deliver
-----------
securities of the Fund, in connection with loans of securities by the Fund,
to the borrower thereof upon the receipt of the cash collateral, if any,
for such borrowing. In the event U.S. Government securities are to be used
as collateral, the
8
<PAGE>
Custodian will not release the securities to be loaned until it has
received confirmation that such collateral has been delivered to the
Custodian. The Custodian and Fund understand that the timing of receipt of
such confirmation will normally require that the delivery of securities to
be loaned will be made one day after receipt of the U.S. Government
collateral.
O. Collections - To collect, receive and deposit in said account or
-----------
accounts all income and other payments with respect to the securities held
hereunder, and to execute ownership and other certificates and affidavits
for all federal and state tax purposes in connection with receipt of income
or other payments with respect to securities of the Fund or in connection
with transfer of securities, and pursuant to proper instructions to take
such other actions with respect to collection or receipt of funds or
transfer of securities which involve an investment decision.
P. Dividends, Distributions and Redemptions - Upon receipt of proper
----------------------------------------
instructions from the Fund, or upon receipt of instructions from the Fund's
shareholder servicing agent or agent with comparable duties (the
"Shareholder Servicing Agent") (given by such person or persons and in such
manner on behalf of the Shareholder Servicing Agent as the Fund shall have
authorized) the Custodian shall release funds or securities to the
Shareholder Servicing Agent or otherwise apply funds or securities, insofar
as available, for the payment of dividends or
9
<PAGE>
other distributions to Fund shareholders. Upon receipt of proper
instructions from the Fund, or upon receipt of instructions from the
Shareholder Servicing Agent (given by such person or persons and in such
manner on behalf of the Shareholder Servicing Agent as the Fund shall have
authorized), the Custodian shall release funds or securities, insofar as
available, to the Shareholder Servicing Agent or as such Agent shall
otherwise instruct for payment to Fund shareholders who have delivered to
such Agent a request for repurchase or redemption of their shares of
capital stock of the Fund.
Q. Proxies, Notices, Etc. - Promptly to deliver or mail to the Fund
----------------------
all forms of proxies and all notices of meetings and any other notices or
announcements affecting or relating to securities owned by the Fund that
are received by the Custodian, and upon receipt of proper instructions, to
execute and deliver or cause its nominee to execute and deliver such
proxies or other authorizations as may be required. Neither the Custodian
nor its nominee shall vote upon any of such securities or execute any proxy
to vote thereon or give any consent or take any other action with respect
thereto (except as otherwise herein provided) unless ordered to do so by
proper instructions.
R. Bills - Upon receipt of proper instructions from the Administrator,
-----
to pay or cause to be paid, insofar as funds are available for the purpose,
bills, statements, or other obligations of the Fund.
10
<PAGE>
S. Deposit of Fund Assets in Securities Systems - The Custodian may
--------------------------------------------
deposit and/or maintain securities owned by the Fund in (i) The Depository
Trust Company, (ii) any book-entry system as provided in Subpart O of
Treasury Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350, or the
book-entry regulations of federal agencies substantially in the form of
Subpart O, or (iii) any other domestic clearing agency registered with the
Securities and Exchange Commission under Section 17A of the Securities
Exchange Act of 1934 which acts as a securities depository and whose use
the Fund has previously approved in writing (each of the foregoing being
referred to in this Agreement as a "Securities System"). Utilization of a
Securities System shall be in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and regulations, if any,
and subject to the following provisions:
1) The Custodian may deposit and/or maintain Fund securities, either
directly or through one or more Agents appointed by the Custodian (provided
that any such Agent shall be qualified to act as a custodian of the Fund
pursuant to the Investment Company Act of 1940 and the rules and
regulations thereunder), in a Securities System provided that such
securities are represented in an account ("Account") of the Custodian or
such Agent in the Securities System which shall not include any assets of
the Custodian or Agent other than assets held as a fiduciary, custodian, or
otherwise for customers;
11
<PAGE>
2) The records of the Custodian with respect to securities of the
Fund which are maintained in a Securities System shall identify by book
entry those securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the account
of the Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such payment and transfer
for the account of the Fund. The Custodian shall transfer securities sold
for the account of the Fund upon (i) receipt of advice from the Securities
System that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Fund. Copies of
all advices from the Securities System of transfers of securities for the
account of the Fund shall identify the Fund, be maintained for the Fund by
the Custodian or an Agent as referred to above, and be provided to the Fund
at its request. The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund in the form of a written advice
or notice and shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for the account
of the Fund on the next business day;
12
<PAGE>
4) The Custodian shall provide the Fund with any report obtained by
the Custodian or any Agent as referred to above on the Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities System; and the
Custodian and such Agents shall send to the Fund such reports on their own
systems of internal accounting control as the Fund may reasonably request
from time to time.
5) At the written request of the Fund, the Custodian will terminate
the use of any such Securities System on behalf of the Fund as promptly as
practicable.
T. Other Transfers - Upon receipt of proper instructions, to deliver
---------------
securities, funds and other property of the Fund to a Subcustodian or
another custodian of the Fund; and, upon receipt of proper instructions, to
make such other disposition of securities, funds or other property of the
Fund in a manner other than or for purposes other than as enumerated
elsewhere in this Agreement, provided that the instructions relating to
such disposition shall include a statement of the purpose for which the
delivery is to be made, the amount of securities to be delivered and the
name of the person or persons to whom delivery is to be made.
U. Investment Limitations - In performing its duties generally, and
----------------------
more particularly in connection with the purchase, sale and exchange of
securities made by or for the Fund, the
13
<PAGE>
Custodian may assume unless and until notified in writing to the contrary
that proper instructions received by it are not in conflict with or in any
way contrary to any provisions of the Fund's Certificate of Incorporation
or By-Laws (or comparable documents) or votes or proceedings of the
shareholders or Directors of the Fund. The Custodian shall in no event be
liable to the Fund and shall be indemnified by the Fund for any violation
which occurs in the course of carrying out instructions given by the Fund
of any investment limitations to which the Fund is subject or other
limitations with respect to the Fund's powers to make expenditures,
encumber securities, borrow or take similar actions affecting its
portfolio.
V. Proper Instructions - Proper instructions shall mean a tested telex
-------------------
from the Fund or a written request, direction, instruction or
certification signed or initialled on behalf of the Fund by two or more
persons as the Board of Directors of the Fund shall have from time to time
authorized, provided, however, that no such instructions directing the
delivery of securities or the payment of funds to an authorized signatory
of the Fund shall be signed by such person. Those persons authorized to
give proper instructions may be identified by the Board of Directors
by name, title or position and will include at least one officer empowered
by the Board to name other individuals who are authorized to give proper
instructions on behalf of the Fund. Telephonic or other oral
instructions given by any one of the
14
<PAGE>
above persons will be considered proper instructions if the Custodian
reasonably believes them to have been given by a person authorized to give
such instructions with respect to the transaction involved. Oral
instructions will be confirmed by tested telex or in writing in the manner
set forth above but the lack of such confirmation shall in no way affect
any action taken by the Custodian in reliance upon such oral instructions.
The Fund authorizes the Custodian to tape record any and all telephonic or
other oral instructions given to the Custodian by or on behalf of the Fund
(including any of its officers, Directors, employees or agents) and will
deliver to the Custodian a similar authorization from any investment
manager or adviser or person or entity with similar responsibilities which
is authorized to give proper instructions on behalf of the Fund to the
Custodian. Proper instructions may relate to specific transactions or to
types or classes of transactions, and may be in the form of standing
instructions.
Proper instructions may include communications effected directly
between electro-mechanical or electronic devices or systems, in addition to
tested telex, provided that the Fund and the Custodian agree to the use of
such device or system.
3. Securities, funds and other property of the Fund may be held by
subcustodians appointed pursuant to the provisions of this Section 3 (a
"Subcustodian"). The Custodian may, at any time and from time to time,
appoint any bank or trust company
15
<PAGE>
(meeting the requirements of a custodian or a foreign custodian under the
Investment Company Act of 1940 and the rules and regulations thereunder) to
act as a Subcustodian for the Fund, provided that the Fund shall have
approved in writing (1) any such bank or trust company and the subcustodian
agreement to be entered into between such bank or trust company and the
Custodian, and (2) if the Subcustodian is a bank organized under the laws
of a country other than the United States, the holding of securities, cash
and other property of the Fund in the country in which it is proposed to
utilize the services of such Subcustodian. Upon such approval by the Fund,
the Custodian is authorized on behalf of the Fund to notify each
Subcustodian of its appointment as such. The Custodian may, at any time in
its discretion, remove any bank or trust company that has been appointed as
a Subcustodian but will promptly notify the Fund of any such action.
Those Subcustodians, their offices or branches which the Fund has
approved to date are set forth on Appendix A hereto. Such Appendix shall
be amended from time to time as Subcustodians, branches or offices are
changed, added or deleted. The Fund shall be responsible for informing the
Custodian sufficiently in advance of a proposed investment which is to be
held at a location not listed on Appendix A, in order that there shall be
sufficient time for the Fund to give the approval required by the preceding
paragraph and for the Custodian to put
16
<PAGE>
the appropriate arrangements in place with such Subcustodian pursuant to
such subcustodian agreement.
Although the Fund does not intend to invest in a country before the
foregoing procedures have been completed, in the event that an investment
is made prior to approval, if practical, such security shall be removed to
an approved location or if not practical such security shall be held by
such agent as the Custodian may appoint. In such event, the Custodian
shall be liable to the Fund for the actions of such agent if and only to
the extent the Custodian shall have recovered from such agent for any
damages caused the Fund by such agent and provided that the Custodian shall
pursue its rights against such agent.
In the event that any Subcustodian appointed pursuant to the
provisions of this Section 3 fails to perform any of its obligations under
the terms and conditions of the applicable subcustodian agreement, the
Custodian shall use its best efforts to cause such Subcustodian to perform
such obligations. In the event that the Custodian is unable to cause such
Subcustodian to perform fully its obligations thereunder, the Custodian
shall forthwith upon the Fund's request terminate such Subcustodian and, if
necessary or desirable, appoint another subcustodian in accordance with the
provisions of this Section 3. At the election of the Fund, it shall have
the right to enforce, to the extent permitted by the subcustodian agreement
and applicable
17
<PAGE>
law, the Custodian's rights against any such Subcustodian for loss or
damage caused the Fund by such Subcustodian.
At the written request of the Fund, the Custodian will terminate any
Subcustodian appointed pursuant to the provisions of this Section 3 in
accordance with the termination provisions under the applicable
subcustodian agreement. The Custodian will not amend any subcustodian
agreement or agree to change or permit any changes thereunder except upon
the prior written approval of the Fund.
In the event the Custodian receives a claim from a Subcustodian under
the indemnification provisions of any subcustodian agreement, the Custodian
shall promptly give written notice to the Fund of such claim. No more than
thirty days after written notice to the Fund of the Custodian's intention
to make such payment, the Fund will reimburse the Custodian the amount of
such payment except in respect of any negligence or misconduct of the
Custodian.
4. The Custodian may assist generally in the preparation of reports
to Fund shareholders and others, audits of accounts, and other ministerial
matters of like nature.
5. A. The Custodian shall not be liable for any action taken or
omitted in reliance upon proper instructions believed by it to be genuine
or upon any other written notice, request, direction, instruction,
certificate or other instrument believed by it to be genuine and signed by
the proper party or parties.
18
<PAGE>
The Chairman of the Board of the Fund shall certify to the Custodian
the names, signatures and scope of authority of all persons authorized to
give proper instructions or any other such notice, request, direction,
instruction, certificate or instrument on behalf of the Fund, the names and
signatures of the officers of the Fund, the name and address of the
Shareholder Servicing Agent, and any resolutions, votes, instructions or
directions of the Fund's Board of Directors or shareholders. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and may be considered in full force
and effect until receipt of a similar certificate to the contrary.
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement.
The Custodian shall be entitled, at the expense of the Fund (but only
to the extent such expenses are reasonable), to receive and act upon advice
of counsel (who may be counsel for the Fund) on all matters, and the
Custodian shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
B. With respect to the portfolio securities, cash and other property
of the Fund held by a Securities System, the
19
<PAGE>
Custodian shall be liable to the Fund only for any loss or damage to the
Fund resulting from use of the Securities System if caused by any
negligence, misfeasance or misconduct of the Custodian or any of its agents
or of any of its or their employees or from any failure of the Custodian or
any such agent to enforce effectively such rights as it may have against
the Securities System.
C. The Custodian shall be liable to the Fund for any loss or damage
to the Fund caused by or resulting from the acts or omissions of any
Subcustodian if such acts or omissions would be deemed to be negligence,
gross negligence or willful misconduct hereunder if such acts or omissions
were those of the Custodian taken or omitted by the Custodian in the
country in which the Subcustodian is operating. The Custodian shall also
be liable to the Fund for its own negligence in transmitting any
instructions received by it from the Fund and for its own negligence in
connection with the delivery of any securities or funds held by it to any
Subcustodian.
D. Except as may otherwise be set forth in this Agreement with
respect to particular matters, the Custodian shall be held only to the
exercise of reasonable care and diligence in carrying out the provisions of
this Agreement, provided that the Custodian shall not thereby be required
to take any action which is in contravention of any applicable law.
However, nothing herein shall exempt the Custodian from liability due to
its own negligence or willful misconduct. The Fund agrees to indemnify
20
<PAGE>
and hold harmless the Custodian and its nominees from all claims and
liabilities (including reasonable counsel fees) incurred or assessed
against it or its nominees in connection with the performance of this
Agreement, except such as may arise from its or its nominee's breach of the
relevant standard of conduct set forth in this Agreement. Without limiting
the foregoing indemnification obligation of the Fund, the Fund agrees to
indemnify the Custodian and its nominees against any liability the
Custodian or such nominee may incur by reason of taxes assessed to the
Custodian or such nominee or other costs, liability or expense incurred by
the Custodian or such nominee resulting directly or indirectly from the
fact that portfolio securities or other property of the Fund is registered
in the name of the Custodian or such nominee.
In order that the indemnification provisions contained in this
Paragraph 5C shall apply, however, it is understood that if in any case the
Fund may be asked to indemnify or hold the Custodian harmless, the Fund
shall be fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the Custodian will
use all reasonable care to identify and notify the Fund promptly concerning
any situation which presents or appears likely to present the probability
of such a claim for indemnification against the Fund. The Fund shall have
the option to defend the Custodian against any claim which may be the
subject of this
21
<PAGE>
indemnification, and in the event that the Fund so elects it will so notify
the Custodian, and thereupon the Fund shall take over complete defense of
the claim, and the Custodian shall in such situation initiate no further
legal or other expenses for which it shall seek indemnification under this
Paragraph 5C. The Custodian shall in no case confess any claim or make any
compromise in any case in which the Fund will be asked to indemnify the
Custodian except with the Fund's prior written consent.
It is also understood that the Custodian shall not be liable for any
loss involving any securities, currencies, deposits or other property of
the Fund, whether maintained by it, a Subcustodian, an agent of the
Custodian or a Subcustodian, a Securities System, or a Banking Institution,
or a loss arising from a foreign currency transaction or contract,
resulting from a Sovereign Risk. A "Sovereign Risk" shall mean
nationalization, expropriation, devaluation, revaluation, confiscation,
seizure, cancellation, destruction or similar action by any governmental
authority, de facto or de jure; or enactment, promulgation, imposition or
enforcement by any such governmental authority of currency restrictions,
exchange controls, taxes, levies or other charges affecting the Fund's
property; or acts of war, terrorism, insurrection or revolution; or any
other similar act or event beyond the Custodian's control.
22
<PAGE>
E. The Custodian shall be entitled to receive reimbursement from the
Fund on demand, in the manner provided in Section 6, for its cash
disbursements, expenses and charges (including the fees and expenses of any
Subcustodian or any Agent) in connection with this Agreement, but excluding
salaries and usual overhead expenses.
F. The Custodian may at any time or times in its discretion appoint
(and may at any time remove) any other bank or trust company as its agent
(an "Agent") to carry out such of the provisions of this Agreement as the
Custodian may from time to time direct, provided, however, that the
appointment of such Agent (other than an Agent appointed pursuant to the
third paragraph of Section 3) shall not relieve the Custodian of any of its
responsibilities under this Agreement.
G. Upon request, the Fund shall deliver to the Custodian such
proxies, powers of attorney or other instruments as may be reasonable and
necessary or desirable in connection with the performance by the Custodian
or any Subcustodian of their respective obligations under this Agreement or
any applicable subcustodian agreement.
6. The Fund shall pay the Custodian a custody fee based on such fee
schedule as may from time to time be agreed upon in writing by the
Custodian and the Fund. Such fee, together with all amounts for which the
Custodian is to be reimbursed in accordance with Section 5D, shall be
billed to the Fund in such a
23
<PAGE>
manner as to permit payment by a direct cash payment to the Custodian.
7. This Agreement shall continue in full force and effect until
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid, to the other party, such termination to take effect not
sooner than seventy-five (75) days after the date of such delivery or
mailing. In the event of termination the Custodian shall be entitled to
receive prior to delivery of the securities, funds and other property held
by it all accrued fees and unreimbursed expenses the payment of which is
contemplated by Sections 5D and 6, upon receipt by the Fund of a statement
setting forth such fees and expenses.
In the event of the appointment of a successor custodian, it is agreed
that the funds and securities owned by the Fund and held by the Custodian
or any Subcustodian shall be delivered to the successor custodian, and the
Custodian agrees to cooperate with the Fund in execution of documents and
performance of other actions necessary or desirable in order to substitute
the successor custodian for the Custodian under this Agreement.
8. This Agreement constitutes the entire understanding and agreement
of the parties hereto with respect to the subject matter hereof. No
provision of this Agreement may be amended or terminated except by a
statement in writing signed by the party
24
<PAGE>
against which enforcement of the amendment or termination is sought.
In connection with the operation of this Agreement, the Custodian and
the Fund may agree in writing from time to time on such provisions
interpretative of or in addition to the provisions of this Agreement as may
in their joint opinion be consistent with the general tenor of this
Agreement. No interpretative or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this
Agreement.
9. This instrument is executed and delivered in The Commonwealth of
Massachusetts and shall be governed by and construed according to the laws
of said Commonwealth.
10. Notices and other writings delivered or mailed postage prepaid to
the Fund addressed to the Fund in care of Merrill Lynch Asset Management,
Inc., 800 Scudders Mill Road, Plainsboro, New Jersey 08536, Mailing
address: Post Office Box 9011, Princeton, New Jersey 08543, Attention:
Mr. Gerald M. Richard, Senior Vice President/Treasurer, or to such other
address as the Fund may have designated to the Custodian in writing, or to
the Custodian at 40 Water Street, Boston, Massachusetts 02109, Attention:
Manager, Securities Department, or to such other address as the Custodian
may have designated to the Fund in writing, shall be deemed to have been
properly delivered or given hereunder to the respective addressee.
25
<PAGE>
11. This Agreement shall be binding on and shall inure to the benefit
of the Fund and the Custodian and their respective successors and assigns,
provided that neither party hereto may assign this Agreement or any of its
rights or obligations hereunder without the prior written consent of the
other party.
12. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original. This Agreement shall become
effective when one or more counterparts have been signed and delivered by
each of the parties.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed in its name and behalf on the day and year first above written.
MERRILL LYNCH GLOBAL
INSTITUTIONAL SERIES, INC. BROWN BROTHERS HARRIMAN & CO.
By per pro
----------------------- ---------------------
26
<PAGE>
<PAGE>
Exhibit 9(a)
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the ____ day of ________, 1995, by and between
Merrill Lynch Global Institutional Series, Inc., on behalf of itself and its
constituent Series (the "Fund") and Financial Data Services, Inc. ("FDS"), a
New Jersey corporation.
WITNESSETH:
WHEREAS, the Fund wishes to appoint FDS to be the Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent upon, and subject
to, the terms and provisions of this Agreement, and FDS is desirous of
accepting such appointment upon, and subject to, such terms and provisions:
NOW THEREFORE, in consideration of mutual covenants contained in this
Agreement, the Fund and FDS agree as follows:
I. Appointment of FDS as Transfer Agent, Dividend Disbursing Agent and
-------------------------------------------------------------------
Shareholder Servicing Agent.
- ----------------------------
A. The Fund hereby appoints FDS to act as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund upon, and
subject to, the terms and provisions of this Agreement.
B. FDS hereby accepts the appointment as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund, and
agrees to act as such upon, and subject to, the terms and provisions of
this Agreement.
II. Definitions.
------------
In this Agreement:
A. The term "Act" means the Investment Company Act of 1940, as
amended from time to time, and any rule or regulation thereunder;
B. The term "Account" means any account of a Shareholder, or, if
the shares are held in an account in the name of MLPF&S for benefit of
an identified customer, such account, including a Plan Account, any
account under a plan (by whatever name referred to in the Prospectus)
pursuant to the Self-Employed Individuals Retirement Act of 1962 ("Keogh
Act Plan") and any plan (by whatever name referred to in the Prospectus)
in conjunction with Section 401 of the Internal Revenue Code
("Corporation Master Plan");
1
<PAGE>
C. The term "application" means an application made by a
Shareholder or prospective Shareholder respecting the opening of an
Account;
D. The term "MLFD" means Merrill Lynch Funds Distributor, Inc., a
Delaware corporation;
E. The term "MLPF&S" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, a Delaware corporation;
F. The term "Officer's Instruction" means an instruction in
writing given on behalf of the Fund to FDS, and signed on behalf of the
Fund by the President, any Vice President, the Secretary or the
Treasurer of the Fund;
G. The term "Plan Account" means an account opened by a
Shareholder or prospective Shareholder in respect to an open account,
monthly payment or withdrawal plan (in each case by whatever name
referred to in the Prospectus), and may also include an account relating
to any other Plan if and when provision is made for such plan in the
Prospectus.
H. The term "Prospectus" means the Prospectus and the Statement of
Additional Information of the Fund as from time to time in effect;
I. The term "Shares" means shares of stock of the Fund,
irrespective of class or series;
J. The term "Shareholder" means the holder of record of Shares;
III. Duties of FDS as Transfer Agent, Dividend Disbursing Agent and
--------------------------------------------------------------
Shareholder Servicing Agent.
- ----------------------------
A. Subject to the succeeding provisions of the Agreement, FDS
hereby agrees to perform the following functions as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund:
1. Issuing, transferring and redeeming Shares;
2. Opening, maintaining, servicing and closing Accounts;
3. Acting as agent for the Fund Shareholders and/or customers of
MLPF&S in connection with Plan Accounts, upon the terms and subject to
the conditions contained in the Prospectus and application relating to
the specific Plan Account;
2
<PAGE>
4. Acting as agent of the Fund and/or MLPF&S, maintaining such
records as may permit the imposition of such contingent deferred sales
charges as may be described in the Prospectus, including such reports as
may be reasonably requested by the Fund with respect to such Shares as
may be subject to a contingent deferred sales charge;
5. Upon the redemption of Shares subject to such a contingent
deferred sales charge, calculating and deducting from the redemption
proceeds thereof the amount of such charge in the manner set forth in
the Prospectus. FDS shall pay, on behalf of MLFD, to MLPF&S such
deducted contingent deferred sales charges imposed upon all Shares
maintained in the name of MLPF&S, or maintained in the name of an
account identified as a customer account of MLPF&S. Sales charges
imposed upon any other Shares shall be paid by FDS to MLFD.
6. Exchanging the investment of an investor into, or from the
shares of other open-end investment companies or other series portfolios
of the Fund, if any, if and to the extent permitted by the Prospectus at
the direction of such investor.
7. Processing redemptions;
8. Examining and approving legal transfers;
9. Replacing lost, stolen or destroyed certificates representing
Shares, in accordance with, and subject to, procedures and conditions
adopted by the Fund;
10. Furnishing such confirmations of transactions relating to
their Shares as required by applicable law;
11. Acting as agent for the Fund and/or MLPF&S, furnishing such
appropriate periodic statements relating to Accounts, together with
additional enclosures, including appropriate income tax information and
income tax forms duly completed, as required by applicable law;
12. Acting as agent for the Fund and/or MLPF&S, mailing annual,
semi-annual and quarterly reports prepared by or on behalf of the Fund,
and mailing new Prospectuses upon their issue to Shareholders as
required by applicable law;
13. Furnishing such periodic statements of transactions effected
by FDS, reconciliations, balances and summaries as the Fund may
reasonably request;
14. Maintaining such books and records relating to transactions
effected by FDS as are required by the Act, or
3
<PAGE>
by any other applicable provision of law, rule or regulation, to be
maintained by the Fund or its transfer agent with respect to such
transactions, and preserving, or causing to be preserved any such books
and records for such periods as may be required by any such law, rule or
regulation and as may be agreed upon from time to time between FDS and
the Fund. In addition, FDS agrees to maintain and preserve master files
and historical computer tapes on a daily basis in multiple separate
locations a sufficient distance apart to insure preservation of at least
one copy of such information;
15. Withholding taxes on non-resident alien Accounts, preparing
and filing U.S. Treasury Department Form 1099 and other appropriate
forms as required by applicable law with respect to dividends and
distributions; and
16. Reinvesting dividends for full and fractional shares and
disbursing cash dividends, as applicable.
B. FDS agrees to act as proxy agent in connection with the holding
of annual, if any, and special meetings of Shareholders, mailing such
notices, proxies and proxy statements in connection with the holding of
such meetings as may be required by applicable law, receiving and
tabulating votes cast by proxy and communicating to the Fund the results
of such tabulation accompanied by appropriate certifications, and
preparing and furnishing to the Fund certified lists of Shareholders as
of such date, in such form and containing such information as may be
required by the Fund.
C. FDS agrees to deal with, and answer in a timely manner, all
correspondence and inquiries relating to the functions of FDS under this
Agreement with respect to Accounts.
D. FDS agrees to furnish to the Fund such information and at such
intervals as is necessary for the Fund to comply with the registration
and/or the reporting requirements (including applicable escheat laws) of
the Securities and Exchange Commission, Blue Sky authorities or other
governmental authorities.
E. FDS agrees to provide to the Fund such information as may
reasonably be required to enable the Fund to reconcile the number of
outstanding Shares between FDS's records and the account books of the
Fund.
F. Notwithstanding anything in the foregoing provisions of this
paragraph, FDS agrees to perform its functions thereunder subject to
such modification (whether
4
<PAGE>
in respect of particular cases or in any particular class of cases) as
may from time to time be contained in an Officer's Instruction.
IV. Compensation.
-------------
The charges for services described in this Agreement, including
"out-of-pocket" expenses, will be set forth in the Schedule of Fees attached
hereto.
V. Right of Inspection.
--------------------
FDS agrees that it will in a timely manner make available to, and
permit, any officer, accountant, attorney or authorized agent of the Fund to
examine and make transcripts and copies (including photocopies and computer
or other electronic information storage media and print-outs) of any and all
of its books and records which relate to any transaction or function
performed by FDS under or pursuant to this Agreement.
VI. Confidential Relationship.
--------------------------
FDS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all
information germane thereto, as confidential and not to be disclosed to any
person (other than the Shareholder concerned, or the Fund, or as may be
disclosed in the examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the Fund by way
of an Officer's Instruction.
VII. Indemnification.
----------------
The Fund shall indemnify and hold FDS harmless from any loss, costs,
damage and reasonable expenses, including reasonable attorney's fees
(provided that such attorney is appointed with the Fund's consent, which
consent shall not be unreasonably withheld), incurred by it resulting from
any claim, demand, action, or suit in connection with the performance of its
duties hereunder, provided that this indemnification shall not apply to
actions or omissions of FDS in cases of willful misconduct, failure to act in
good faith or negligence by FDS, its officers, employees or agents, and
further provided, that prior to confessing any claim against it which may be
subject to this indemnification, FDS shall give the Fund reasonable
opportunity to defend against said claim in its own name or in the name of
FDS. An action taken by FDS upon any Officer's Instruction reasonably
believed by it to have been properly executed shall not constitute willful
misconduct, failure to act in good faith or negligence under this Agreement.
5
<PAGE>
VIII. Regarding FDS.
--------------
A. FDS hereby agrees to hire, purchase, develop and maintain such
dedicated personnel, facilities, equipment, software, resources and
capabilities as may be reasonably determined by the Fund to be necessary
for the satisfactory performance of the duties and responsibilities of
FDS. FDS warrants and represents that its officers and supervisory
personnel charged with carrying out its functions as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund
possess the special skill and technical knowledge appropriate for that
purpose. FDS shall at all times exercise due care and diligence in the
performance of its functions as Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent for the Fund. FDS agrees that, in
determining whether it has exercised due care and diligence, its conduct
shall be measured by the standard applicable to persons possessing such
special skill and technical knowledge.
B. FDS warrants and represents that it is duly authorized and
permitted to act as Transfer Agent, Dividend Disbursing Agent and
Shareholder Servicing Agent under all applicable laws and that it will
immediately notify the Fund of any revocation of such authority or
permission or of the commencement of any proceeding or other action
which may lead to such revocation.
IX. Termination.
------------
A. This Agreement shall become effective as of the date first
above written and shall thereafter continue from year to year. This
Agreement may be terminated by the Fund or FDS (without penalty to the
Fund or FDS) provided that the terminating party gives the other party
written notice of such termination at least sixty (60) days in advance,
except that the Fund may terminate this Agreement immediately upon
written notice to FDS if the authority or permission of FDS to act as
Transfer Agent, Dividend Disbursing Agent and Shareholder Servicing
Agent has been revoked or if any proceeding or other action which the
Fund reasonably believes will lead to such revocation has been
commenced.
B. Upon termination of this Agreement, FDS shall deliver all
unissued and canceled stock certificates representing Shares remaining
in its possession, and all Shareholder records, books, stock ledgers,
instruments and other documents (including computerized or other
electronically stored information) made or accumulated in the
performance of its duties as Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent for the
6
<PAGE>
Fund along with a certified locator document clearly indicating the
complete contents therein, to such successor as may be specified in a
notice of termination or Officer's Instruction; and the Fund assumes all
responsibility for failure thereafter to produce any paper, record or
documents so delivered and identified in the locator document, if and
when required to be produced.
X. Amendment.
----------
Except to the extent that the performance by FDS or its functions under
this Agreement may from time to time be modified by an Officer's Instruction,
this Agreement may be amended or modified only by further written Agreement
between the parties.
XI. Governing Law.
--------------
This Agreement shall be governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers and their respective
corporate seals hereunto duly affixed and attested, as of the day and year
above written.
MERRILL LYNCH GLOBAL INSTITUTIONAL
SERIES, INC.
By:
-------------------------------
Title:
----------------------------
FINANCIAL DATA SERVICES, INC.
By:
-------------------------------
Title:
----------------------------
7
<PAGE>
<PAGE>
Exhibit 9(b)
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT made as of the ____ day of ________ 1995, by and between
MERRILL LYNCH & CO., INC., a Delaware corporation ("ML & Co."), and MERRILL
LYNCH GLOBAL INSTITUTIONAL SERIES, INC., a Maryland corporation (the "Fund");
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, ML & Co. was incorporated under the laws of the State of
Delaware on March 27, 1973 under the corporate name "Merrill Lynch & Co.,
Inc." and has used such name at all times thereafter;
WHEREAS, ML & Co. was duly qualified as a foreign corporation under the
laws of the State of New York on April 25, 1973 and has remained so qualified
at all times thereafter;
WHEREAS, the Fund was incorporated under the laws of the State of
Maryland on November 18, 1994; and
WHEREAS, the Fund desires to qualify as a foreign corporation under the
laws of the State of New York and has requested ML & Co. to give its consent
to the use of the name "Merrill Lynch" in the Fund's corporate name.
NOW, THEREFORE, in consideration of the premises and of the covenants
hereinafter contained, ML & Co. and the Fund hereby agree as follows:
1. ML & Co. hereby grants the Fund a non-exclusive license to use the
words "Merrill Lynch" in its corporate name.
1
<PAGE>
2. ML & Co. hereby consents to the qualification of the Fund as a
foreign corporation under the laws of the State of New York with the words
"Merrill Lynch" in its corporate name and agrees to execute such formal
consents as may be necessary in connection with such filing.
3. The non-exclusive license hereinabove referred to has been given and
is given by ML & Co. on the condition that it may at any time, in its sole
and absolute discretion, withdraw the non-exclusive license to the use of the
words "Merrill Lynch" in the name of the Fund; and, as soon as practicable
after receipt by the Fund of written notice of the withdrawal of such
non-exclusive license, and in no event later than ninety days thereafter, the
Fund will change its name so that such name will not thereafter include the
words "Merrill Lynch" or any variation thereof.
4. ML & Co. reserves and shall have the right to grant to any other
company, including without limitation, any other investment company, the
right to use the words "Merrill Lynch" or variations thereof in its name and
no consent or permission of the Fund shall be necessary; but, if required by
an applicable law of any state, the Fund will forthwith grant all requisite
consents.
5. The Fund will not grant to any other company the right to use a name
similar to that of the Fund or ML & Co. without the written consent of ML &
Co.
2
<PAGE>
6. Regardless of whether the Fund should hereafter change its name and
eliminate the words "Merrill Lynch" or any variation thereof from such name,
the Fund hereby grants to ML & Co. the right to cause the incorporation of
other corporations or the organization of voluntary associations which may
have names similar to that of the Fund or to that to which the Fund may
change its name and to own all or any portion of the shares of such other
corporations or associations and to enter into contractual relationships with
such other corporations or associations, subject to any requisite approval of
a majority of the Fund's shareholders and the Securities and Exchange
Commission and subject to the payment of a reasonable amount to be determined
at the time of use, and the Fund agrees to give and execute any such formal
consents or agreements as may be necessary in connection therewith.
7. This Agreement may be amended at any time by a writing signed by the
parties hereto.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH & CO., INC.
By
------------------------------
MERRILL LYNCH GLOBAL INSTITUTIONAL
SERIES, INC.
By
------------------------------
4
