1
EXHIBIT (17)(a)
PROSPECTUS
March 6, 1998
MERRILL LYNCH GLOBAL GROWTH FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------
Merrill Lynch Global Growth Fund, Inc. (the "Fund") is a diversified,
open-end management investment company that seeks to provide shareholders with
long-term growth of capital. The Fund will seek to achieve its investment
objective by investing in a diversified portfolio of equity securities of
issuers located in various foreign countries and the United States, placing
particular emphasis on companies that have exhibited above-average growth rates
in earnings. The Fund may employ a variety of techniques, including derivative
investments, to hedge against market and currency risk, to enhance total return
or to gain exposure to equity markets. The Fund should be considered as a means
of diversifying an investment portfolio and not in itself a balanced investment
program. There can be no assurance that the Fund's investment objective will be
achieved. For more information on the Fund's investment objective and policies,
see "Investment Objective and Policies" on page 13.
Investments on an international basis in foreign securities markets involve
risks and special considerations not typically associated with investments in
securities of United States issuers. See "Risk Factors and Special
Considerations."
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select Pricing(SM) System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 [(609)
282-2800], and other securities dealers that have entered into selected dealer
agreements with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). To permit the Fund 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 its shares, except for dividend reinvestments. The
minimum initial purchase is $1,000, and the minimum subsequent purchase is $50,
except that for retirement plans, the minimum initial purchase is $100, and the
minimum subsequent purchase is $1 and for participants in certain fee-based
programs, the minimum initial purchase is $500 and the minimum subsequent
purchase is $50. Merrill Lynch may charge its customers a processing fee
(presently $5.35) for confirming purchases and repurchases. Purchases and
redemptions made directly through Merrill Lynch Financial Data Services, Inc.
(the "Transfer Agent") are not subject to the processing fee. See "Purchase of
Shares" and "Redemption of Shares."
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------
This Prospectus is a concise statement of information about the Fund that
is relevant to making an investment in the Fund. This Prospectus should be
retained for future reference. A statement containing additional information
about the Fund, dated March 6, 1998 (the "Statement of Additional Information"),
has been filed with the Securities and Exchange Commission (the "Commission")
and is available, without charge, by calling or by writing the Fund at the above
telephone number or address. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund. The
Statement of Additional Information is hereby incorporated by reference into
this Prospectus.
------------
MERRILL LYNCH ASSET MANAGEMENT, L.P. - MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. - DISTRIBUTOR
2
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
CLASS A(a) CLASS B(b) CLASS C CLASS D
---------- ---------- ------- -------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)...................... 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on Dividend Reinvestments....... None None None None
Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower)............................................. None(d) 4.0% during the first year, 1.0% for one None(d)
decreasing 1.0% annually year(f)
to 0.0% after the fourth year(e)
Exchange Fee......................................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Investment Advisory Fees(g).......................... 0.75% 0.75% 0.75% 0.75%
12b-1 Fees (includes account maintenance fees and
distribution fees)(h).............................. None 1.00% 1.00% 0.25%
(Class B shares convert to Class D
shares automatically after
approximately eight years and cease
being subject to distribution fees)
Other Expenses(i):
Shareholder Servicing Costs(j)....................... 0.08% 0.10% 0.10% 0.08%
Other................................................ 0.11% 0.11% 0.11% 0.11%
----- ----- ----- -----
Total Other Expenses............................... 0.19% 0.21% 0.21% 0.19%
----- ----- ----- -----
Total Fund Operating Expenses.......................... 0.94% 1.96% 1.96% 1.19%
===== ===== ===== =====
- ----------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and participants in certain
fee-based programs. See "Purchase of Shares-Initial Sales Charge
Alternatives--Class A and Class D Shares" on page 24 and "Shareholder
Services--Fee-Based Programs" on page 36.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Purchase of Shares-Deferred Sales Charge
Alternatives-Class B and Class C Shares" on page 26.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of
Class A shares by certain retirement plans and participants in connection
with certain fee-based programs. Class A and Class D purchases of
$1,000,000 or more may not be subject to an initial sales charge. See
"Purchase of Shares--Initial Sales Charge Alternatives-Class A and Class D
Shares" on page 24.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more which
are not subject to an initial sales charge may instead be subject to a CDSC
of 1.0% of amounts redeemed within the first year after purchase. Such CDSC
may be waived in connection with certain fee-based programs. See
"Shareholder Services-Fee-Based Programs" on page 36.
(e) The CDSC may be modified in connection with certain fee-based programs. See
"Shareholder Services-Fee-Based Programs" on page 36.
(f) The CDSC may be waived in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs" on page 36.
(g) See "Management of the Fund-Management and Advisory Arrangements" on page
20.
(h) See "Purchase of Shares--Distribution Plans" on page 29.
(i) Information under "Other Expenses" is estimated for the Fund's first
fiscal year ending August 31, 1998.
(j) See "Management of the Fund--Transfer Agency Services" on page 21.
2
3
EXAMPLE:
CUMULATIVE
EXPENSES PAID
FOR THE PERIOD OF:
------------------
1 YEAR 3 YEARS
------ -------
An investor would pay the following expenses on a $1,000 investment including the
maximum $52.50 initial sales charge (Class A and Class D shares only) and
assuming (1) the Total Fund Operating Expenses for each class set forth on
page 2; (2) a 5% annual return throughout the periods and (3) redemption at the
end of the period (including any applicable CDSC for Class B and Class C shares):
Class A................................................................................ $62 $81
Class B................................................................................ $60 $82
Class C................................................................................ $30 $62
Class D................................................................................ $64 $88
An investor would pay the following expenses on the same $1,000 investment assuming
no redemption at the end of the period:
Class A................................................................................ $62 $81
Class B................................................................................ $20 $62
Class C................................................................................ $20 $62
Class D................................................................................ $64 $88
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The expenses set forth under "Other Expenses" are based on estimated
amounts for the Fund's first fiscal year ending August 31, 1998 on an annualized
basis. The Example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by Commission
regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR ANNUAL RATE OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATE OF
RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class
B and Class C shareholders who hold their shares for an extended period of time
may pay more in Rule 12b-1 distribution fees than the economic equivalent of the
maximum front-end sales charge permitted under the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD"). Merrill Lynch may charge
its customers a processing fee (presently $5.35) for confirming purchases and
repurchases. Purchases and redemptions made directly through the Fund's transfer
agent are not subject to the processing fee. See "Purchase of Shares" and
"Redemption of Shares."
MERRILL LYNCH SELECT PRICING(SM) SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives, and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. The Merrill Lynch Select Pricing SM System is used by more than 50
registered investment companies advised by Merrill Lynch Asset Management, L.P.
("MLAM" or the "Manager") or Fund Asset Management, L.P. ("FAM"), an affiliate
of MLAM. Funds advised by MLAM or FAM that utilize the Merrill Lynch Select
Pricing(SM) System are referred to herein as "MLAM-advised mutual funds."
3
4
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
CDSCs, distribution fees and account maintenance fees that are imposed on Class
B and Class C shares, as well as the account maintenance fees that are imposed
on Class D shares, are imposed directly against those classes and not against
all assets of the Fund and, accordingly, such charges will not affect the net
asset value of any other class or have any impact on investors choosing another
sales charge option. Dividends paid by the Fund for each class of shares will be
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Each class has different exchange privileges. See "Shareholder
Services-Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges and distribution fees with respect to the
Class B and Class C shares in that the sales charges and distribution fees, if
any, applicable to each class provide for the financing of the distribution of
the shares of the Fund. The distribution-related revenues paid with respect to a
class will not be used to finance the distribution expenditures of another
class. Sales personnel may receive different compensation for selling different
classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing(SM) System that the investor
believes is the most beneficial under his or her particular circumstances. More
detailed information as to each class of shares is set forth under "Purchase of
Shares."
- -------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
- -------------------------------------------------------------------------------------------------
Maximum 5.25% initial
A sales charge(2)(3) No No No
- -------------------------------------------------------------------------------------------------
CDSC for a period of four B shares convert to
years, at a rate of 4.0% during D shares automatically
the first year, decreasing 1.0% after approximately
B annually to 0.0%(4) 0.25% 0.75% eight years(5)
- -------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(6) 0.25% 0.75% No
- -------------------------------------------------------------------------------------------------
Maximum 5.25% initial
D sales charge(3) 0.25% No No
- -------------------------------------------------------------------------------------------------
- ----------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs are imposed if the redemption occurs within
the applicable CDSC time period. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the shares
being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares-Initial Sales
Charge Alternatives-Class A and Class D Shares-Eligible Class A Investors."
(Footnotes continued on next page)
4
5
(3) Reduced for purchases of $25,000 or more and waived for purchases of Class
A shares by certain retirement plans and participants in connection with
certain fee-based programs. Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but
instead may be subject to a 1.0% CDSC if redeemed within one year. Such
CDSC may be waived in connection with certain fee-based programs. A 0.75%
sales charge for 401(k) purchases over $1,000,000 will apply. See "Class A"
and "Class D" below.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and the conversion
and holding periods for certain retirement plans are modified. Also, Class
B shares of certain other MLAM-advised mutual funds into which exchanges
may be made have a ten-year conversion period. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual fund,
the conversion period applicable to the Class B shares acquired in the
exchange will apply, and the holding period for the shares exchanged will
be tacked onto the holding period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares.
Investors who currently own Class A shares of the Fund in a shareholder
account are entitled to purchase additional Class A shares of the Fund
in that account. Other eligible investors include participants in
certain fee-based programs. In addition, Class A shares will be offered
at net asset value to Merrill Lynch & Co., Inc. ("ML & Co.") and its
subsidiaries (the term "subsidiaries" when used herein with respect to
ML & Co. includes the Manager, FAM and certain other entities directly
or indirectly wholly owned and controlled by ML & Co.), and their
directors and employees and to members of the Boards of MLAM-advised
mutual funds. The maximum initial sales charge is 5.25%, which is
reduced for purchases of $25,000 and over and waived for purchases by
certain retirement plans and participants in connection with certain
fee-based programs. Purchases of $1,000,000 or more may not be subject
to an initial sales charge, but instead may be subject to a 1.0% CDSC
if the shares are redeemed within one year after purchase. Such CDSC
may be waived in connection with certain fee-based programs. Sales
charges are also reduced under a right of accumulation that takes into
account the investor's holdings of all classes of all MLAM-advised
mutual funds. See "Purchase of Shares-Initial Sales Charge
Alternatives-Class A and Class D Shares."
Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25% and
an ongoing distribution fee of 0.75% of the Fund's average net assets
attributable to the Class B shares, as well as a CDSC if they are
redeemed within four years of purchase. Such CDSC may be modified in
connection with certain fee-based programs. Approximately eight years
after issuance, Class B shares will convert automatically into Class D
shares of the Fund, which are subject to an account maintenance fee but
no distribution fee; Class B shares of certain other MLAM-advised
mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares
of the Fund are exchanged for Class B shares of another MLAM-advised
mutual fund, the conversion period applicable to the Class B shares
acquired in the exchange will apply, as will the Class D account
maintenance fee of the acquired fund upon the conversion, and the
holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired. Automatic conversion of Class B shares
into Class D shares will occur at least once a month on the basis of
the relative net asset values of the shares of the two classes on the
conversion date, without the imposition of any sales load, fee or other
charge. Conversion of Class B shares to Class D shares will not be
deemed a purchase or sale of the shares for Federal income tax
5
6
purposes. Shares purchased through reinvestment of dividends on Class
B shares also will convert automatically to Class D shares. The
conversion period for dividend reinvestment shares and for certain
retirement plans is modified as described under "Purchase of
Shares-Deferred Sales Charge Alternatives-Class B and Class C
Shares-Conversion of Class B Shares to Class D Shares."
Class C: Class C shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25% and
an ongoing distribution fee of 0.75% of the Fund's average net assets
attributable to the Class C shares. Class C shares are also subject to
a 1.00% CDSC if they are redeemed within one year of purchase. Such
CDSC may be waived in connection with certain fee-based programs.
Although Class C shares are subject to a CDSC for only one year (as
compared to four years for Class B), Class C shares have no conversion
feature and, accordingly, an investor who purchases Class C shares will
be subject to distribution fees that will be imposed on Class C shares
for an indefinite period subject to annual approval by the Fund's Board
of Directors and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Fund's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. The maximum initial sales charge is 5.25%, which is
reduced for purchases of $25,000 and over. Purchases of $1,000,000 or
more may not be subject to an initial sales charge, but if the initial
sales charge is waived such purchases may be subject to a 1.0% CDSC if
the shares are redeemed within one year after purchase. Such CDSC may
be waived in connection with certain fee-based programs. The schedule
of initial sales charges and reductions for Class D shares is the same
as the schedule for Class A shares, except that there is no waiver for
purchases in connection with certain fee-based programs. Class D shares
also will be issued upon conversion of Class B shares as described
above under "Class B." See "Purchase of Shares-Initial Sales Charge
Alternatives-Class A and Class D Shares."
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing(SM) System that the investor believes is most beneficial under his or
her particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative particularly
attractive because similar sales charge reductions are not available with
respect to the CDSCs imposed in connection with purchases of Class B or Class C
shares. Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time also may elect to
purchase Class A or Class D shares, because over time the accumulated ongoing
account maintenance and distribution fees on Class B or Class C shares may
exceed the initial sales charge and, in the case of Class D shares, the account
maintenance fee. Although some investors who previously purchased Class A shares
may no longer be eligible to purchase Class A shares of other MLAM-advised
mutual funds, those previously purchased Class A shares, together with Class B,
Class C and Class D share holdings, will count toward a right of accumulation
that may qualify the investor for reduced
6
7
initial sales charges on new initial sales charge purchases. In addition, the
ongoing Class B and Class C account maintenance and distribution fees will cause
Class B and Class C shares to have higher expense ratios, pay lower dividends
and have lower total returns than the initial sales charge shares. The ongoing
Class D account maintenance fees will cause Class D shares to have a higher
expense ratio, pay lower dividends and have a lower total return than Class A
shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. The deferred sales charge alternatives may be particularly appealing to
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account maintenance fees and
distribution fees; however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return is realized on the
additional funds initially invested in Class B or Class C shares. In addition,
Class B shares will be converted into Class D shares of the Fund after a
conversion period of approximately eight years, and thereafter investors will be
subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. Investors in Class B shares
should take into account whether they intend to redeem their shares within the
CDSC period and, if not, whether they intend to remain invested until the end of
the conversion period and thereby take advantage of the reduction in ongoing
fees resulting from the conversion into Class D shares. Other investors,
however, may elect to purchase Class C shares if they determine that it is
advantageous to have all their assets invested initially and they are uncertain
as to the length of time they intend to hold their assets in MLAM-advised mutual
funds. Although Class C shareholders are subject to a shorter CDSC period at a
lower rate, they forego the Class B conversion feature, making their investment
subject to account maintenance and distribution fees for an indefinite period of
time. In addition, while both Class B and Class C distribution fees are subject
to the limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See "Purchase of Shares-Limitations on the Payment of Deferred
Sales Charges."
7
8
FINANCIAL HIGHLIGHTS
The financial information in the table below is unaudited. Unaudited
financial statements for the fiscal period October 31, 1997 (commencement of
operations) to December 31, 1997, are included in the Statement of Additional
Information.
The following per share data and ratios have been derived from information
provided in the Fund's unaudited financial statements.
FOR THE PERIOD
OCTOBER 31, 1997+ TO DECEMBER 31, 1997
------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................................... $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- -------- -------- --------
Investment income (loss)-net........................................... .02 .00++ .00++ .01
Realized and unrealized gain (loss) on investments and foreign currency
transactions-net....................................................... (.01) (.01) (.01) .00++
------- -------- -------- --------
Total from investment operations....................................... .01 (.01) (.01) .01
------- -------- -------- --------
Less dividends and distributions:
Investment income-net.................................................. - - - -
In excess of investment income-net..................................... - - - -
------- -------- -------- --------
Total dividends and distributions...................................... - - - -
------- -------- -------- --------
Net asset value, end of period......................................... $ 10.01 $ 9.99 $ 9.99 $ 10.01
======= ======== ======== ========
TOTAL INVESTMENT RETURN:*
Based on net asset value per share..................................... 0.10%* (0.10%)* (0.10%)* 0.10%*
======= ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................................... .94%** 1.96%** 1.96%** 1.19%**
======= ======== ======== ========
Investment income (loss)-net........................................... .98%** (.03%)** (.02%)** .75%**
======= ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............................... $32,985 $943,188 $189,768 $173,898
======= ======== ======== ========
Portfolio turnover..................................................... 3.81% 3.81% 3.81% 3.81%
======= ======== ======== ========
Average commission rate paid##......................................... $ .0327 $ .0327 $ .0327 $ .0327
======= ======== ======== ========
- ----------
+ Commencement of operations.
++ Amount is less than $.01 per share.
* Total investment returns exclude the effect of sales loads.
** Annualized.
# Aggregate total investment return.
## Includes commissions paid in foreign currencies, which have been converted
into U.S. dollars using the prevailing exchange rate on the date of the
transaction. Such conversions may significantly affect the rate shown.
8
9
RISK FACTORS AND SPECIAL CONSIDERATIONS
GENERAL
Because a substantial portion of the Fund's assets may be invested in
securities of non-U.S. issuers, an investor in the Fund should be aware of
certain risk factors and special considerations relating to international
investing, which may involve risks that are not typically associated with
investments in securities of U.S. issuers. The Fund may be appropriate only for
long-term investors who can assume the risk of loss of principal, do not seek
current income and can accommodate taxable distributions of income and capital
gains. The Fund 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 involves certain risks
not involved in domestic investments, including 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 the Fund
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 the Fund 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
that 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 of these potential risks, the Manager may determine that,
notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular country. The Fund may
invest in countries in which foreign investors, including the Manager, have had
no or limited prior experience.
Public Information. Many of the securities held by the Fund will not be
registered with the Commission, nor will the issuers thereof be subject to the
reporting requirements of such agency. 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
9
10
companies. Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been 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 the Fund incurring additional
costs and delays in transporting and custodying such securities outside such
countries. Delays in settlement could result in periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems or the risk of
intermediary counterparty failures could cause the Fund to miss attractive
investment opportunities. The inability to dispose of a portfolio security due
to settlement problems could result either in losses to the Fund due to
subsequent declines in the value of such portfolio security or, if the Fund 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. The Fund 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 Fund. 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 that 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 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, as amended (the
"Investment Company Act"), the Fund 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 the Fund 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 the Fund acquires
10
11
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. The Fund
also may seek, at its own cost, to create its own investment entities under the
laws of certain countries.
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 the Fund'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 the Fund's investments in certain foreign banks and other financial
institutions.
Foreign Sub-custodians and Securities Depositories. Rules adopted under the
Investment Company Act permit the Fund 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 the Fund, in which event the Fund may be precluded from
purchasing securities in certain foreign countries in which it otherwise would
invest or the Fund may incur additional costs and delays in providing
transportation and custody services for such securities outside of such
countries. The Fund 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 the Fund to recover assets held in custody by foreign
sub-custodians in the event of the bankruptcy of the sub-custodian.
BORROWING
The Fund may borrow up to 33 1/3% of its total assets (including the amount
borrowed), taken at market value, but only from banks as a temporary measure for
extraordinary or emergency purposes, including to meet redemptions (so as not to
force the Fund to liquidate securities at a disadvantageous time) or to settle
securities transactions. The Fund will not purchase securities at any time when
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 the Fund. Such leveraging increases the Fund's exposure to capital
risk, and borrowed funds are subject to interest costs that will reduce net
income.
DERIVATIVE INVESTMENTS
The Fund may engage in transactions in certain instruments that may be
characterized as derivatives. These instruments include various types of
options, futures and options thereon. The Fund may engage in these transactions
for hedging purposes to enhance total return or to gain exposure to equity
markets.
Transactions involving options, futures and options on futures or
currencies may involve the loss of an opportunity to profit from a price
movement in the underlying asset beyond certain levels or a price increase on
other portfolio assets (in the case of transactions for hedging purposes) or
expose the Fund to potential losses which exceed the amount originally invested
by the Fund in such instruments. For a further discussion of the risks
associated with these investments, see "Investment Objective and Policies-Other
Investment Policies
11
12
and Practices--Portfolio Strategies Involving Options, Futures and Foreign
Exchange Transactions" and the Appendix to this Prospectus, "Investment
Practices Involving the Use of Options, Futures and Foreign Exchange."
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in securities that lack an
established secondary trading market or otherwise are considered illiquid.
Liquidity of a security relates to the ability to dispose easily of the security
and the price to be obtained upon disposition of the security, which may be less
than would be obtained for a comparable more liquid security. Investment of the
Fund's assets in illiquid securities may restrict the ability of the Fund to
dispose of its investments in a timely fashion and for a fair price as well as
its ability to take advantage of market opportunities. The risks associated with
illiquidity will be particularly acute in situations in which the Fund's
operations require cash, such as when the Fund redeems shares or pays dividends,
and could result in the Fund borrowing to meet short-term cash requirements or
incurring capital losses on the sale of illiquid investments. Further, issuers
whose securities are not publicly traded are not subject to the disclosure and
other investor protection requirements that would be applicable if their
securities were publicly traded. In making investments in such securities, the
Fund may obtain access to material nonpublic information which may restrict the
Fund's ability to conduct portfolio transactions in such securities. In
addition, the Fund may invest in privately placed securities that may or may not
be freely transferable under the laws of the applicable jurisdiction or due to
contractual restrictions on resale. See "Investment Objective and
Policies--Description of Certain Investments--Illiquid Securities" on page 14.
WITHHOLDING AND OTHER TAXES
Income and capital gains on securities held by the Fund may be subject to
withholding and other taxes imposed by certain jurisdictions, which would reduce
the return to the Fund on those securities. The Fund intends, unless ineligible,
to elect to "pass-through" to the Fund's shareholders the amount of foreign
taxes paid by the Fund. The taxes passed through to shareholders will be
included in each shareholder's income and could potentially be offset by either
a deduction or a credit. Certain shareholders, including non-U.S. shareholders,
will not be entitled to the benefit of a deduction or credit with respect to
foreign taxes paid by the Fund. Non-U.S. shareholders may nevertheless be
subject to withholding tax on the foreign taxes included in their income. Other
taxes, such as transfer taxes, may be imposed on the Fund, but would not give
rise to a credit or deduction for shareholders.
FEES AND EXPENSES
The management fee (at the annual rate of 0.75% of the Fund's average daily
net assets) and other operating expenses of the Fund may be higher than the
management fees and operating expenses of other mutual funds managed by the
Manager and other investment advisers or of investment companies investing
exclusively in the securities of U.S. issuers. The management fees and operating
expenses, however, are believed by the Manager to be comparable to expenses of
other open-end management investment companies that invest on a global basis
with investment objectives similar to the investment objective of the Fund.
12
13
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term growth of
capital. The Fund will seek to achieve its investment objective by investing in
a diversified portfolio of equity securities of issuers located in various
foreign countries and the United States, placing particular emphasis on
companies that have exhibited above-average growth rates in earnings. There can
be no assurance that the investment objective of the Fund will be realized. The
investment objective of the Fund set forth in the first sentence of this
paragraph is a fundamental policy of the Fund which may not be changed without a
vote of a majority of its outstanding shares as defined below.
The Fund should be considered as a means of diversifying an investment
portfolio and not in itself a balanced investment program. The Fund may be
appropriate only for long-term investors who can assume the risk of loss of
principal, do not seek current income and can accommodate taxable distributions
of income and capital gains.
Issuers may achieve above-average growth rates in earnings from a variety
of factors including, but not limited to, above-average growth rates in sales,
profit margin improvement, proprietary or niche products or services, leading
market shares, and underlying strong industry growth. Management of the Fund
believes that companies which possess above-average earnings growth frequently
provide the prospect of above-average stock market returns, although such
companies tend to have higher relative stock market valuations. Emphasis also
will be given to companies having medium to large stock market capitalizations
($2 billion or more). Investment in companies with lower market capitalizations,
especially those under $1 billion, may involve special risks including limited
product lines, market or financial resources or a limited management group. In
addition, many smaller company stocks trade less frequently and in smaller
volume, and may be subject to more abrupt or erratic price movements or may be
more sensitive to market fluctuations, than stocks of larger companies.
The Fund will emphasize investments in equity securities, primarily common
stock, and, to a lesser extent, securities convertible into common stock,
preferred stock, rights to subscribe for common stock and other investments the
return on which is determined by the performance of a common stock or a basket
or index of common stocks. Under normal market conditions, at least 65% of the
Fund's total assets will be invested in equity securities of issuers from at
least three different countries. The Fund reserves the right, as a defensive
measure and to provide for redemptions, to hold other types of securities,
including non-convertible preferred stocks and debt securities rated investment
grade by a nationally recognized statistical rating organization, U.S.
Government and money market securities, including repurchase agreements, or
cash, in such proportions as, in the opinion of the Manager, prevailing market
or economic conditions warrant.
DESCRIPTION OF CERTAIN INVESTMENTS
Temporary Investments. The Fund reserves the right, as a temporary
defensive measure, to hold in excess of 35% of its total assets in cash or cash
equivalents in U.S. dollars or foreign currencies and investment grade,
short-term securities including money market securities denominated in U.S.
dollars or foreign currencies ("Temporary Investments"). Under certain adverse
investment conditions, the Fund may restrict the markets in which its assets
will be invested and may increase the proportion of assets invested in Temporary
Investments. Investments made for defensive purposes will be maintained only
during periods in which the Manager determines that economic or financial
conditions are adverse for holding or being fully invested in equity securities.
A portion of the Fund normally would be held in Temporary Investments in
anticipation of investment in equity securities or to provide for possible
redemptions.
13
14
Depositary Receipts. The Fund may invest in the securities of foreign
issuers in the form of 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. ADRs are receipts typically issued by an American bank or
trust company that evidence ownership of underlying securities issued by a
foreign corporation. EDRs are receipts issued in Europe that evidence a similar
ownership arrangement. GDRs are receipts issued throughout the world that
evidence a similar 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 in Europe and are designed for use throughout the world. The Fund may
invest in unsponsored Depositary Receipts. The issuers of 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.
Warrants. The Fund may invest in warrants, which are securities permitting,
but not obligating, their holder to subscribe for other securities. Warrants do
not carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holders to purchase, and they do not
represent any rights in the assets of the issuer. As a result, an investment in
warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to its expiration date.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest generally paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
several unique investment characteristics such as (i) higher yields than common
stocks, but lower yields than comparable nonconvertible securities, (ii) a
lesser degree of fluctuation in value than the underlying stock since they have
fixed-income characteristics, and (iii) the potential for capital appreciation
if the market price of the underlying common stock increases. A convertible
security might be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. If a convertible
security held by the Fund is called for redemption, the Fund may be required to
permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party.
Illiquid Securities. The Fund may invest up to 15% of its net assets in
securities that lack an established secondary trading market or otherwise are
considered illiquid. The Fund may invest in securities of issuers that are sold
in private placement transactions between the issuers and their purchasers and
that are neither listed on an exchange nor traded in other established markets.
In many cases, privately placed securities will be subject to contractual or
legal restrictions on transfer. See "Investment Restrictions" herein.
The Fund may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under the Securities Act. The Board of Directors has determined to
treat as liquid Rule 144A securities that are freely tradeable in their primary
markets offshore. The Board of Directors may adopt guidelines and delegate to
the Manager the daily function of determining and monitoring liquidity of
restricted
14
15
securities. The Board of Directors, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Board of Directors
will carefully monitor the Fund's investments in these securities purchased
pursuant to Rule 144A, focusing on such factors, among others, as valuation,
liquidity and availability of information. Investment in these types of
securities could have the effect of increasing the level of illiquidity in the
Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing these securities.
OTHER INVESTMENT POLICIES AND PRACTICES
Portfolio Strategies Involving Options, Futures and Foreign Exchange
Transactions. The Fund is authorized to engage in certain investment practices
involving the use of options, futures and foreign exchange, which may expose the
Fund to certain risks. These investment practices and the associated risks are
described in detail in the Appendix attached to this Prospectus.
Portfolio Transactions. Subject to policies established by the Board of
Directors of the Fund, the Manager is primarily responsible for the execution of
the Fund's portfolio transactions. Since portfolio transactions may be effected
on foreign securities exchanges, the Fund may incur settlement delays on certain
of such exchanges. See "Risk Factors and Special Considerations." In executing
portfolio transactions, the Manager seeks to obtain the best net results for the
Fund, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution
and operational facilities of the firm involved and the firm's risk in
positioning a block of securities. While the Manager generally seeks reasonably
competitive fees, commissions or spreads, the Fund does not necessarily pay the
lowest fee, commission or spread available. The Fund may invest in certain
securities traded in the over-the-counter ("OTC") 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
futures, options and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options. The Fund contemplates that,
consistent with its policy of obtaining the best net results, it will place
orders for transactions with a number of brokers and dealers, including Merrill
Lynch, an affiliate of the Manager. Subject to obtaining the best price and
execution, securities firms that provide supplemental investment research to the
Manager, including Merrill Lynch, may receive orders for transactions by the
Fund. Information so received will be in addition to and not in lieu of the
services required to be performed by the Manager, and the expenses of the
Manager will not necessarily be reduced as a result of the receipt of such
supplemental information. See "Management of the Fund-Management and Advisory
Arrangements."
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 the Fund as a principal in the purchase
and sale of securities unless a permissive order allowing such transactions is
obtained from the Commission. Affiliated persons of the Fund, and affiliated
persons of such affiliated persons, may serve as the Fund's broker in
transactions conducted on an exchange and in OTC transactions conducted on an
agency basis and may receive brokerage commissions from the Fund. In addition,
the Fund may not purchase securities during the existence of any underwriting
syndicate for such securities of which Merrill Lynch is a member or in a private
placement in which Merrill Lynch serves as placement agent except pursuant to
procedures approved by the
15
16
Board of Directors of the Fund that either comply with rules adopted by the
Commission or with interpretations of the Commission staff. In addition,
consistent with the Conduct Rules of the NASD, the Fund may consider sales of
shares of the Fund as a factor in the selection of brokers or dealers to execute
portfolio transactions for the Fund. It is expected that the majority of the
shares of the Fund will be sold by Merrill Lynch. Costs associated with
transactions in foreign securities are generally higher than in the United
States, although the Fund will endeavor to achieve the best net results in
effecting its portfolio transactions.
The Fund 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 countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions generally are higher than in the United States, although the Fund
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 United States. See "Risk Factors
and Special Considerations."
The Fund's ability and decisions to purchase and sell portfolio securities
may be affected by foreign laws and regulations relating to the convertibility
and repatriation of assets.
Lending of Portfolio Securities. The Fund, from time to time, may lend
securities from its portfolio, with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government,
which collateral is maintained at all times in an amount equal to at least 100%
of the current market value of the loaned securities. This limitation is a
fundamental policy, and it may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, as defined in
the Investment Company Act. During the period of such a loan, the Fund typically
receives the income on both the loaned securities and the collateral and thereby
increases its yield. In certain circumstances, the Fund may receive a flat fee.
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, the Fund could experience delays and costs
in gaining access to the collateral and could suffer a loss to the extent the
value of the collateral falls below the market value of the borrowed securities.
Portfolio Turnover. Generally, the Fund does not purchase securities for
short-term trading profits. However, the Fund may dispose of securities without
regard to the time they have been held when such actions, for defensive or other
reasons, appear advisable to the Manager in light of a change in circumstances
in general market, economic or financial conditions. As a result of its
investment policies, the Fund may engage in a substantial number of portfolio
transactions. Accordingly, while the Fund anticipates that its annual portfolio
turnover rate should not exceed 100% under normal conditions, it is impossible
to predict portfolio turnover rates. The portfolio turnover rate is calculated
by dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
the securities in the portfolio during the year. A high portfolio turnover rate
involves certain tax consequences and correspondingly greater transaction costs
in the form of dealer spreads and brokerage commissions, which are borne
directly by the Fund.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase or sell securities that it is entitled to receive on a when-issued
basis, and it may purchase or sell securities for delayed delivery. These
transactions occur when securities are purchased or sold by the Fund with
payment and delivery taking place in
16
17
the future to secure what is considered an advantageous yield and price to the
Fund at the time of entering into the transaction. Although the Fund has not
established any limit on the percentage of its assets that may be committed in
connection with such transactions, the Fund will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government securities or
other liquid securities denominated in U.S. dollars or non-U.S. currencies in an
aggregate amount equal to the amount of its commitments in connection with such
purchase transactions.
There can be no assurance that a security purchased on a when-issued basis
or purchased or sold for delayed delivery will be issued, and the value of the
security, if issued, on the delivery date may be more or less than its purchase
price. The Fund may bear the risk of a decline in the value of such security and
may not benefit from an appreciation in the value of the security during the
commitment period.
Standby Commitment Agreements. The Fund, from time to time, may enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of equity securities that may be
issued and sold to the Fund at the option of the issuer. The price and coupon of
the security is fixed at the time of the commitment. At the time of entering
into the agreement, the Fund is paid a commitment fee, regardless of whether or
not the security is ultimately issued, which is typically approximately 0.50% of
the aggregate purchase price of the security that the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a price that is
considered advantageous to the Fund. The Fund 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 that affect their
marketability, will not exceed 15% of its net assets taken at the time of
acquisition of such a commitment. The Fund at all times will maintain a
segregated account with its custodian of cash, cash equivalents, U.S. Government
securities or other liquid securities denominated in U.S. dollars or non-U.S.
currencies in an aggregate amount equal to the purchase price of the securities
underlying a commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued, and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, the Fund
may bear the risk of a decline in the value of such security and may not benefit
from an appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
can reasonably be expected to be issued, and the value of the security
thereafter will be reflected in the calculation of the Fund's net asset value.
The cost basis of the security will be adjusted by the amount of the commitment
fee. In the event the security is not issued, the commitment fee will be
recorded as income on the expiration date of the standby commitment.
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements and purchase and sale contracts may be entered into only
with financial institutions that (i) have, in the opinion of the Manager,
substantial capital relative to the Fund's exposure, or (ii) have provided the
Fund with a third-party guaranty or other credit enhancement. Under a repurchase
agreement, the seller agrees, upon entering into the contract with the Fund, to
repurchase a security (typically a security issued or guaranteed by the U.S.
Government) at a mutually agreed-upon time and price, thereby determining the
yield during the term of the agreement. This results in a fixed yield for the
Fund insulated from fluctuations in the market value of the underlying security
during such period
17
18
although, to the extent the repurchase agreement is not denominated in U.S.
dollars, the Fund's return may be affected by currency fluctuations. In the case
of repurchase agreements, the prices at which the trades are conducted do not
reflect accrued interest on the underlying obligation; whereas, in the case of
purchase and sale contracts, the prices take into account accrued interest. Such
agreements usually cover short periods, such as under one week. Repurchase
agreements may be construed to be collateralized loans by the purchaser to the
seller secured by the securities transferred to the purchaser. In the case of a
repurchase agreement, as a purchaser, the Fund will require the seller to
provide additional collateral if the market value of the securities falls below
the repurchase price at any time during the term of the repurchase agreement;
the Fund does not have the right to seek additional collateral in the case of
purchase and sale contracts. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs or possible losses in connection with the
disposition of the collateral. A purchase and sale contract differs from a
repurchase agreement in that the contract arrangements stipulate that the
securities are owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract, instead of the
contractual fixed rate, the rate of return to the Fund shall be dependent upon
intervening fluctuations of the market value of such securities and the accrued
interest on the securities. In such event, the Fund would have rights against
the seller for breach of contract with respect to any losses arising from market
fluctuations following the failure of the seller to perform. 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. The Fund may not invest more than 15% of its net assets in repurchase
agreements or purchase and sale contracts maturing in more than seven days
together with all other illiquid investments.
INVESTMENT RESTRICTIONS
The Fund's investment activities are subject to further restrictions that
are described in the Statement of Additional Information. Investment
restrictions and policies that are fundamental policies may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities (which for this purpose and under the Investment Company Act
means the lesser of (a) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (b) more than 50% of the
outstanding shares). Among its fundamental policies, the Fund may not invest
more than 25% of its total assets, taken at market value at the time of each
investment, in the securities of issuers in any particular industry (excluding
the U.S. Government and its agencies and 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, the Fund may not borrow money or pledge its assets, except that the Fund
(a) may borrow from a bank as a temporary measure for extraordinary or emergency
purposes or to meet redemptions in amounts not exceeding 33 1/3% (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 the Fund from purchasing securities on
margin). (The deposit or payment by the Fund of initial or variation margin in
connection with futures contracts or options transactions is not considered to
be the purchase of a security on margin). The purchase of securities while
borrowings are
18
19
outstanding will have the effect of leveraging the Fund. Such leveraging or
borrowing increases the Fund's exposure to capital risk, and borrowed funds are
subject to interest costs which will reduce net income.
As a non-fundamental policy, the Fund will not invest in securities that
cannot readily be resold because of legal or contractual restrictions or that
are not otherwise readily marketable, including repurchase agreements and
purchase and sale contracts maturing in more than seven days, if, regarding all
such securities, more than 15% of its net assets taken at market value would be
invested in such securities. Notwithstanding the foregoing, the Fund 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 it is liquid. The Board of
Directors may adopt guidelines and delegate to the Manager the daily function of
determining and monitoring liquidity of restricted securities. The Board has
determined that securities which are freely tradeable in their primary market
outside of the United States should be deemed liquid. The Board, however, will
retain sufficient oversight and be ultimately responsible for the
determinations.
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.
MANAGEMENT OF THE FUND
DIRECTORS
The Directors of the Fund consist of seven individuals, six of whom are not
"interested persons" of the Fund as defined in the Investment Company Act. The
Directors are responsible for the overall supervision of the operations of the
Fund and perform the various duties imposed on the directors or trustees of
investment companies by the Investment Company Act.
The Directors are:
ARTHUR ZEIKEL*-Chairman of the Manager and its affiliate, FAM; Chairman and
Director of Princeton Services, Inc. ("Princeton Services"); and Executive Vice
President of ML & Co.
DONALD CECIL-Special Limited Partner of Cumberland Partners (an investment
partnership).
M. COLYER CRUM-Currently James R. Williston Professor of Investment
Management Emeritus, Harvard Business School.
EDWARD H. MEYER-Chairman of the Board of Directors, President and Chief
Executive Officer of Grey Advertising Inc.
JACK B. SUNDERLAND-President and Director of American Independent Oil
Company, Inc. (an energy company).
J. THOMAS TOUCHTON-Managing Partner of The Witt-Touchton Company (a private
investment partnership).
FRED G. WEISS-Managing Director of FGW Associates; and Director of Noven
Corporation (a pharmaceutical company).
- ------
* Interested person, as defined by the Investment Company Act, of the Fund.
19
20
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager acts as the manager for the Fund and provides the Fund with
investment management services. The Manager is owned and controlled by ML & Co.,
a financial services holding company and the parent of Merrill Lynch. The
Manager or FAM acts as the investment adviser for more than 100 registered
investment companies. The Manager also offers portfolio management services to
individuals and institutions. As of January 31, 1998, the Manager and FAM had a
total of approximately $287.0 billion in investment company and other portfolio
assets under management, including accounts of certain affiliates of the
Manager. The principal business address of the Manager is 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.
The Fund has entered into an investment advisory agreement with the Manager
(the "Management Agreement"). The Management Agreement provides that, subject to
the direction of the Board of Directors of the Fund, the Manager is responsible
for the actual management of the Fund's portfolio and constantly reviews the
Fund's holdings in light of its own research analysis and that from other
relevant sources. The responsibility for making decisions to buy, sell or hold a
particular security rests with the Manager, subject to review by the Board of
Directors.
The Manager provides the portfolio manager for the Fund who considers
analyses from various sources (including brokerage firms with which the Fund
does business), makes the necessary decisions, and places orders for
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.
The Manager receives for its services to the Fund monthly compensation at
the annual rate of 0.75% of the average daily net assets of the Fund. For the
period October 31, 1997 (commencement of operations) to December 31, 1997, the
fee paid by the Fund to the Manager was $1,632,926 (based on average daily net
assets of approximately $1.3 billion).
The Manager has also entered into a sub-advisory agreement (the
"Sub-Advisory Agreement") with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K."), an indirect, wholly owned subsidiary of ML & Co. and an affiliate
of the Manager, pursuant to which the Manager pays MLAM U.K. a fee for providing
investment advisory services to the Manager with respect to the Fund in an
amount to be determined from time to time by the Manager and MLAM U.K. but in no
event in excess of the amount the Manager actually receives for providing
services to the Fund pursuant to the Management Agreement. MLAM U.K. has offices
at Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
Lawrence R. Fuller, Senior Vice President of the Fund, is the Fund's
Portfolio Manager. Mr. Fuller has been a First Vice President of the Manager
since 1997. Mr. Fuller was a Vice President of the Manager from 1992 to 1997 and
is responsible for the day-to-day management of the Fund's investment portfolio.
The Fund pays certain expenses incurred in its operations including, among
other things, the investment advisory fees, legal and audit fees, registration
fees, unaffiliated Directors' fees and expenses, custodian and transfer fees,
accounting and pricing costs and certain of the costs of printing proxies,
shareholder reports, prospectuses and statements of additional information
distributed to shareholders. Accounting services are provided to the Fund by the
Manager and the Fund reimburses the Manager for its costs in connection with
such
20
21
services on a semi-annual basis. For the period October 31, 1997 (commencement
of operations) to December 31, 1997, the Fund reimbursed the Manager $21,828 for
accounting services. For the period October 31, 1997 (commencement of
operations) to December 31, 1997, the ratio of total expenses to average net
assets for Class A, Class B, Class C and Class D shares was 0.94%, 1.96%, 1.96%
and 1.19%, respectively.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-l of the Investment Company Act that 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 that 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).
TRANSFER AGENCY SERVICES
The Transfer Agent, which is a subsidiary of ML & Co., acts as the Fund's
transfer agent pursuant to a Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement (the "Transfer Agency Agreement").
Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening and maintenance
of shareholder accounts. Pursuant to the Transfer Agency Agreement, the Transfer
Agent receives a fee of up to $11.00 per Class A or Class D account and up to
$14.00 per Class B or Class C account and is entitled to reimbursement for
certain transaction charges and out-of-pocket expenses incurred by the Transfer
Agent under the Transfer Agency Agreement. Additionally, a $.20 monthly closed
account charge will be assessed on all accounts that close during the calendar
year. Application of this fee will commence the month following the month the
account is closed. At the end of the calendar year, no further fees will be due.
For purposes of the Transfer Agency Agreement, the term "account" includes a
shareholder account maintained directly by the Transfer Agent and any other
account representing the beneficial interest of a person in the relevant share
class on a recordkeeping system, provided the recordkeeping system is maintained
by a subsidiary of ML & Co. For the period October 31, 1997 (commencement of
operations) to December 31, 1997, the Fund paid $202,972 to the Transfer Agent
pursuant to the Transfer Agency Agreement.
PURCHASE OF SHARES
The Distributor, an affiliate of each of the Manager, FAM, and Merrill
Lynch, acts as the distributor of the shares of the Fund. Shares of the Fund are
offered continuously for sale by the Distributor and other eligible
21
22
securities dealers (including Merrill Lynch). Shares of the Fund may be
purchased from securities dealers or by mailing a purchase order directly to the
Transfer Agent. The minimum initial purchase is $1,000, and the minimum
subsequent purchase is $50, except for retirement plans, for which the minimum
initial purchase is $100 and the minimum subsequent purchase is $1, and for
participants in certain fee-based programs, the minimum initial purchase is $500
and the minimum subsequent purchase is $50. Different minimums may apply to
purchases made through the Merrill Lynch Blueprint(SM) Program. See "Purchase of
Shares-Merrill Lynch Blueprint(SM) Program" in the Statement of Additional
Information.
The Fund offers its shares in four classes at a public offering price equal
to the next determined net asset value per share plus sales charges imposed
either at the time of purchase or on a deferred basis depending upon the class
of shares selected by the investor under the Merrill Lynch Select Pricing(SM)
System, as described below. The applicable offering price for purchase orders is
based upon the net asset value of the Fund next determined after receipt of the
purchase orders by the Distributor. As to purchase orders received by securities
dealers prior to the close of business on the New York Stock Exchange (the
"NYSE") (generally, 4:00 P.M., New York time), which include orders received
after the close of business on the previous day, the applicable offering price
will be based on the net asset value determined as of 15 minutes after the close
of business on the NYSE on the day the orders are placed with the Distributor,
provided the Distributor receives the orders from the securities dealer prior to
30 minutes after the close of business on the NYSE on that day. If the purchase
orders are not received by the Distributor prior to 30 minutes after the close
of business on the NYSE on that day, such orders shall be deemed received on the
next business day. The Fund or the Distributor may suspend the continuous
offering of the Fund's shares of any class at any time in response to conditions
in the securities markets or otherwise and may thereafter resume such offering
from time to time. Any order may be rejected by the Distributor or the Fund.
Neither the Distributor nor the dealers are permitted to withhold placing orders
to benefit themselves by a price change. Merrill Lynch may charge its customers
a processing fee (presently $5.35) to confirm a sale of shares to such
customers. Purchases made directly through the Transfer Agent are not subject to
the processing fee.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the shares and
other relevant circumstances. Shares of Class A and Class D are sold to
investors choosing the initial sales charge alternatives and shares of Class B
and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Fund with the investment
thereafter being subject to a CDSC and ongoing distribution fees. A discussion
of the factors that investors should consider in determining the method of
purchasing shares under the Merrill Lynch Select Pricing(SM) System is set forth
under "Merrill Lynch Select Pricing(SM) System" on page 3.
Each Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
CDSCs, distribution fees and account maintenance fees that are imposed on Class
B and Class C shares, as well as the account maintenance fees that are imposed
on Class D shares, will be imposed directly against those classes and not
against all assets of the Fund and, accordingly, such charges will not affect
22
23
the net asset value of any other class or have any impact on investors choosing
another sales charge option. Dividends paid by the Fund for each class of shares
will be calculated in the same manner at the same time and will differ only to
the extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect to
such class pursuant to which account maintenance and/or distribution fees are
paid (except that Class B shares may vote upon any material changes to expenses
charged under the Class D Distribution Plan). See "Distribution Plans" below.
Each class has different exchange privileges. See "Shareholder Services-Exchange
Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the CDSCs and distribution fees with respect to Class B and Class C shares in
that the sales charges and distribution fees, if any, applicable to each class
provide for the financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
Investors are advised that only Class A and Class D shares may be available for
purchase through securities dealers, other than Merrill Lynch, which are
eligible to sell shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System.
- ----------------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
- ----------------------------------------------------------------------------------------------------------
Maximum 5.25% initial
A sales charge(2)(3) No No No
- ----------------------------------------------------------------------------------------------------------
CDSC for a period of four years, 0.25% 0.75% B shares convert to D shares
at a rate of 4.0% during the automatically after approximately
first year, decreasing 1.0% eight years(5)
B annually to 0.0%(4)
- ----------------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(6) 0.25% 0.75% No
- ----------------------------------------------------------------------------------------------------------
Maximum 5.25% initial
D sales charge(3) 0.25% No No
- ----------------------------------------------------------------------------------------------------------
- ----------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs are imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives-Class A and Class D Shares-Eligible Class A Investors."
(3) Reduced for purchases of $25,000 or more and waived for purchases of Class A
shares by certain retirement plans and participants in connection with
certain fee-based programs. Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but, if the
initial sales charge is waived, may be subject to a 1.0% CDSC if redeemed
within one year. Such CDSC may be waived in connection with certain
fee-based programs. A 0.75% sales charge for 401(k) purchases over
$1,000,000 will apply.
(4) The CDSC may be modified in connection with certain fee-based programs. (5)
The conversion period for dividend reinvestment shares and the conversion
and holding periods for certain retirement plans are modified. Also, Class B
shares of certain other MLAM-advised mutual funds into which exchanges may
be made have a ten-year conversion period. If Class B shares of the Fund are
exchanged for Class B shares of another MLAM-advised mutual fund, the
(Footnotes continued on next page)
23
24
conversion period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked
onto the holding period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
INITIAL SALES CHARGE ALTERNATIVES-CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible to
purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternative is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below:
SALES CHARGE AS DISCOUNT TO
SALES CHARGE AS PERCENTAGE* OF SELECTED DEALERS
PERCENTAGE OF THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED THE OFFERING PRICE
- ------------------ --------------- --------------- ------------------
Less than $25,000................... 5.25% 5.54% 5.00%
$25,000 but less than $50,000....... 4.75 4.99 4.50
$50,000 but less than $100,000...... 4.00 4.17 3.75
$100,000 but less than $250,000..... 3.00 3.09 2.75
$250,000 but less than $1,000,000... 2.00 2.04 1.80
$1,000,000 and over**............... 0.00 0.00 0.00
- ----------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D share purchases
of $1,000,000 or more and on Class A share purchases by certain retirement
plan investors and participants in connection with certain fee-based
programs. If the sales charge is waived in connection with a purchase of
$1,000,000 or more, such purchases may be subject to a 1.0% CDSC if the
shares are redeemed within one year after purchase. Such CDSC may be waived
in connection with certain fee-based programs. The charge is assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed. A sales charge of 0.75% will be charged on purchases
of $1 million or more of Class A or Class D shares by certain
employer-sponsored retirement or savings plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act. The
proceeds from the account maintenance fees are used to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) for providing
continuing account maintenance activities.
On September 10, 1997, the Fund commenced the public offering of Class A and
Class D shares. On October 28, 1997, the Fund completed the subscription
offering of its shares of Common Stock by issuing 2,652,387 Class A shares for
net proceeds to the Fund of $26,523,870, and 14,755,679 Class D shares for net
proceeds to the Fund of $147,556,789. There were no gross sales charges for the
sale of Class A shares of the Fund in the subscription offering. The gross sales
charges for the sale of Class D shares in the subscription offering were
$4,971,837, all of which were received by Merrill Lynch. For the period October
31, 1997 (commencement of operations) to December 31, 1997, the Fund sold
756,768 Class A shares for aggregate net proceeds of $7,528,278. The gross sales
charges for the sale of Class A shares of the Fund for that period were $16, of
which $1 and $15 were received by the Distributor and Merrill Lynch,
respectively. For that period, the Distributor received no CDSCs with respect to
redemptions within one year after purchase of Class A shares
24
25
purchased subject to a front-end sales charge waiver. For the period October 31,
1997 (commencement of operations) to December 31, 1997, the Fund sold 3,231,347
Class D shares for aggregate net proceeds of $32,140,425. The gross sales
charges for the sale of Class D shares of the Fund for that period were
$354,004, of which $22,956 and $331,048 were received by the Distributor and
Merrill Lynch, respectively. For that period, the Distributor received no CDSCs
with respect to redemptions within one year after purchase of Class D shares
purchased subject to a front-end sales charge waiver.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares of the
Fund in a shareholder account, including participants in the Merrill Lynch
Blueprint(SM) Program, are entitled to purchase additional Class A shares of the
Fund in that account. Certain employer-sponsored retirement or savings plans,
including eligible 401(k) plans, may purchase Class A shares at net asset value
provided such plans meet the required minimum number of eligible employees or
required amount of assets advised by MLAM or any of its affiliates. Class A
shares are available at net asset value to corporate warranty insurance reserve
fund programs and U.S. branches of foreign banking institutions provided that
the program or branch has $3 million or more initially invested in MLAM-advised
mutual funds. Also eligible to purchase Class A shares at net asset value are
participants in certain investment programs including TMA(SM) Managed Trusts to
which Merrill Lynch Trust Company provides discretionary trustee services,
collective investment trusts for which Merrill Lynch Trust Company serves as
trustee and purchases made in connection with certain fee-based programs. In
addition, Class A shares are offered at net asset value to ML & Co. and its
subsidiaries and their directors and employees and to members of the Boards of
MLAM-advised investment companies, including the Fund. Certain persons who
acquired shares of certain MLAM-advised closed-end funds in their initial
offerings who wish to reinvest the net proceeds from a sale of their closed-end
fund shares of common stock in shares of the Fund also may purchase Class A
shares of the Fund if certain conditions set forth in the Statement of
Additional Information are met (for closed-end funds that commenced operations
prior to October 21, 1994). In addition, Class A shares of the Fund and certain
other MLAM-advised mutual funds are offered at net asset value to shareholders
of Merrill Lynch Senior Floating Rate Fund, Inc. and, if certain conditions set
forth in the Statement of Additional Information are met, to shareholders of
Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income
Municipal Bond Fund, Inc. who wish to reinvest the net proceeds from a sale of
certain of their shares of common stock pursuant to a tender offer conducted by
such funds in shares of the Fund and certain other MLAM-advised mutual funds.
Reduced Initial Sales Charges. No sales charges are imposed upon Class A
and Class D shares issued as a result of the automatic reinvestment of dividends
or capital gains distributions. Class A and Class D sales charges also may be
reduced under a Right of Accumulation and a Letter of Intention. Class A shares
are offered at net asset value to certain eligible Class A investors as set
forth above under "Eligible Class A Investors." See "Shareholder
Services-Fee-Based Programs."
Provided applicable threshold requirements are met, either Class A or Class
D shares are offered at net asset value to Employee Access (SM) Accounts
available through authorized employers. Class A shares are offered at net asset
value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc., and
subject to certain conditions, Class A and Class D shares are offered at net
asset value to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch High Income Municipal Bond Fund, Inc., who wish to reinvest in
shares of the
25
26
Fund the net proceeds from a sale of certain of their shares of common stock
pursuant to tender offers conducted by those funds.
Class D shares are offered at net asset value, without a sales charge, to
an investor who has a business relationship with a Merrill Lynch Financial
Consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint(SM) Program.
Additional information concerning these reduced initial sales charges is
set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES-CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. On September 10, 1997, the Fund commenced the public offering of Class
B and Class C shares. On October 28, 1997, the Fund completed the subscription
offering of its shares of Common Stock by issuing 81,511,175 Class B shares for
net proceeds to the Fund of $815,111,750 and 16,348,060 Class C shares for net
proceeds to the Fund of $163,480,600. As discussed below, Class B shares are
subject to a four-year CDSC, which declines each year, while Class C shares are
subject only to a one-year 1.0% CDSC. On the other hand, approximately eight
years after Class B shares are issued, such Class B shares, together with shares
issued upon dividend reinvestment with respect to those shares, are
automatically converted into Class D shares of the Fund and thereafter will be
subject to lower continuing fees. See "Conversion of Class B Shares to Class D
Shares" below. Both Class B and Class C shares are subject to an account
maintenance fee of 0.25% of net assets and distribution fees of 0.75% of net
assets as discussed below under "Distribution Plans." The proceeds from the
ongoing account maintenance fees are used to compensate the Distributor and
Merrill Lynch (pursuant to a sub-agreement) for providing continuing account
maintenance activities.
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its Financial Consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for selling
Class B and Class C shares from the dealers' own funds. The combination of the
CDSC and the ongoing distribution fee facilitates the ability of the Fund to
sell the Class B and Class C shares without a sales charge being deducted at the
time of purchase. Approximately
26
27
eight years after issuance, Class B shares will convert automatically into Class
D shares of the Fund, which are subject to an account maintenance fee but no
distribution fee; Class B shares of certain other MLAM-advised mutual funds into
which exchanges may be made convert into Class D shares automatically after
approximately ten years. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period applicable to
the Class B shares acquired in the exchange will apply, and the holding period
for the shares exchanged will be tacked onto the holding period for the shares
acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations on
the Payment of Deferred Sales Charges" below. Class B shareholders of the Fund
exercising the exchange privilege described under "Shareholder Services-Exchange
Privilege" will continue to be subject to the Fund's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the Class B shares
acquired as a result of the exchange.
Contingent Deferred Sales Charges-Class B Shares. Class B shares that are
redeemed within four years after purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no charge will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
CLASS B
CDSC AS A
PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
- ------------ -----------------
0-1 ....................................................... 4.0%
1-2 ....................................................... 3.0%
2-3 ....................................................... 2.0%
3-4 ....................................................... 1.0%
4 and thereafter .......................................... None
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
applicable rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over four years or shares acquired pursuant to
reinvestment of dividends or distributions and then of shares held longest
during the four-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase. A
transfer of shares from a shareholder's account to another account will be
assumed to be made in the same order as a redemption.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share (at a cost of $1,000) and in the third year after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional shares through dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 shares (proceeds of $600), 10
shares will not be subject to the CDSC because of dividend reinvestment. With
respect to the remaining 40 shares, the CDSC is applied only to the original
cost of $10 per share and not to the increase in net asset value of $2 per
share. Therefore, $400 of the $600 redemption proceeds will be charged at a rate
of 2.0% (the applicable rate in the third year after purchase).
27
28
For the period October 31, 1997 (commencement of operations) to December
31, 1997, the Distributor received CDSC's of $83,778 with respect to redemptions
of Class B shares, all of which were paid to Merrill Lynch. Additional CDSCs
payable to the Distributor may have been waived or converted to a contingent
obligation in connection with a shareholder's participation in certain fee-based
programs.
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following death or disability (as defined in
the Code) of a shareholder. The Class B CDSC also is waived on redemptions of
shares by certain eligible 401(a) and eligible 401(k) plans and in connection
with certain group plans placing orders through the Merrill Lynch Blueprint(SM)
Program. The CDSC is also waived for any Class B shares that are purchased by
eligible 401(a) or eligible 401(k) plans that are rolled over into a Merrill
Lynch or Merrill Lynch Trust Company custodied IRA and held in such account at
the time of redemption. The Class B CDSC also is waived for any Class B shares
which are purchased by a Merrill Lynch rollover IRA that was funded by a
rollover from a terminated 401(k) plan managed by the MLAM Private Portfolio
Group and held in such account at the time of redemption. The Class B CDSC is
also waived for any Class B shares that are purchased within qualifying Employee
Access(SM) Accounts. Additional information concerning the waiver of the Class B
CDSC is set forth in the Statement of Additional Information. The terms of the
CDSC may be modified in connection with certain fee-based programs. See
"Shareholder Services-Fee-Based Programs."
Contingent Deferred Sales Charges-Class C Shares. Class C shares that are
redeemed within one year after purchase may be subject to a 1.0% CDSC charged as
a percentage of the dollar amount subject thereto. The charge will be assessed
on an amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed. Accordingly, no Class C CDSC will be imposed on
increases in net asset value above the initial purchase price. In addition, no
Class C CDSC will be assessed on shares derived from reinvestment of dividends
or capital gains distributions. The Class C CDSC may be waived in connection
with certain fee-based programs. See "Shareholder Services-Fee-Based Programs."
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
For the period October 31, 1997 (commencement of operations) to December
31, 1997, the Distributor received CDSCs of $8,806 with respect to redemptions
of Class C shares, all of which were paid to Merrill Lynch.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Fund. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
28
29
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a 10-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans that qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("Class B Retirement Plans").
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for 10 years (i.e., 10 years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of the
appropriate funds. Subsequent to such conversion, that Class B Retirement Plan
will be sold Class D shares of the appropriate funds at net asset value per
share.
The Conversion Period also may be modified for retirement plan investors
who participate in certain fee-based programs. See "Shareholder
Services-Fee-Based Programs."
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
"Distribution Plan") with respect to the account maintenance and/or distribution
fees paid by the Fund to the Distributor with respect to such classes. The Class
B and Class C Distribution Plans provide for the payment of account maintenance
fees and distribution fees, and the Class D Distribution Plan provides for the
payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities.
29
30
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Fund in that the deferred sales charges provide for the financing
of the distribution of the Fund's Class B and Class C shares.
For the period October 31, 1997 (commencement of operations) to December
31, 1997, the Fund paid the Distributor $1,528,435 pursuant to the Class B
Distribution Plan (based on average daily net assets subject to such Class B
Distribution Plan of approximately $899.8 million) all of which was paid to
Merrill Lynch for providing account maintenance and distribution-related
activities and services in connection with Class B shares. For the period
October 31, 1997 (commencement of operations) to December 31, 1997, the Fund
paid the Distributor $310,152 pursuant to the Class C Distribution Plan (based
on average daily net assets subject to such Class C Distribution Plan of
approximately $182.6 million) all of which was paid to Merrill Lynch for
providing account maintenance and distribution-related activities and services
in connection with Class C shares. For the period October 31, 1997 (commencement
of operations) to December 31, 1997, the Fund paid the Distributor $71,188
pursuant to the Class D Distribution Plan (based on average daily net assets
subject to such Class D Distribution Plan of approximately $167.6 million) all
of which was paid to Merrill Lynch for providing account maintenance activities
in connection with Class D shares.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSCs and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs
and the expenses consist of financial consultant compensation.
Information about the fully allocated revenues and expenses incurred by the
Distributor and Merrill Lynch with respect to Class B and Class C shares as of
December 31, 1997 is not presented because such information is not yet
available. As of December 31, 1997, direct cash expenses for the period since
the commencement of operations of Class B shares exceeded direct cash revenues
by $10,093,700 (1.07% of Class B net assets at that
30
31
date). As of December 31, 1997, direct cash expenses for the period since the
commencement of operations of Class C shares exceeded direct cash revenues by
$289,634 (0.15% of Class C net assets at that date).
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with the Class B, Class C and Class D shares, and there is no
assurance that the Directors of the Fund will approve the continuance of the
Distribution Plans from year to year. However, the Distributor intends to seek
annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or distribution
of each class of shares separately. The initial sales charges, the account
maintenance fee, the distribution fee and/or the CDSCs received with respect to
one class will not be used to subsidize the sale of shares of another class.
Payments of the distribution fee on Class B shares will terminate upon
conversion of those Class B shares into Class D shares as set forth under
"Deferred Sales Charge Alternatives-Class B and Class C Shares-Conversion of
Class B Shares to Class D Shares."
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the NASD imposes a
limitation on certain asset-based sales charges such as the distribution fee and
the CDSC borne by the Class B and Class C shares but not the account maintenance
fee. The maximum sales charge rule is applied separately to each class. As
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible
gross sales of Class B shares and Class C shares, computed separately (defined
to exclude shares issued pursuant to dividend reinvestments and exchanges) plus
(2) interest on the unpaid balance for the respective class, computed
separately, at the prime rate plus 1% (the unpaid balance being the maximum
amount payable minus amounts received from the payment of the distribution fee
and the CDSC). In connection with the Class B shares, the Distributor has
voluntarily agreed to waive interest charges on the unpaid balance in excess of
0.50% of eligible gross sales. Consequently, the maximum amount payable to the
Distributor (referred to as the "voluntary maximum") in connection with the
Class B shares is 6.75% of eligible gross sales. The Distributor retains the
right to stop waiving the interest charges at any time. To the extent payments
would exceed the voluntary maximum, the Fund will not make further payments of
the distribution fee with respect to Class B shares, and any CDSCs will be paid
to the Fund rather than to the Distributor; however, the Fund will continue to
make payments of the account maintenance fee. In certain circumstances the
amount payable pursuant to the voluntary maximum may exceed the amount payable
under the NASD formula. In such circumstances payments in excess of the amount
payable under the NASD formula will not be made.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares of the Fund on receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive on redemption all dividends
declared through the date of redemption. The value of shares at the time of
redemption may be more or less than the shareholder's cost, depending on the
market value of the securities held by the Fund at such time.
31
32
REDEMPTION
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Fund's Transfer Agent, Merrill Lynch Financial Data Services,
Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests
delivered other than by mail should be delivered to Merrill Lynch Financial Data
Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Proper notice of redemption in the case of shares deposited with the Transfer
Agent may be accomplished by a written letter requesting redemption. Proper
notice of redemption in the case of shares for which certificates have been
issued may be accomplished by a written letter as noted above accompanied by
certificates for the shares to be redeemed. Redemption requests should not be
sent to the Fund. The redemption request requires the signature(s) of all
persons in whose name(s) the shares are registered, signed exactly as such
name(s) appear(s) on the Transfer Agent's register or on the certificate, as the
case may be. The signature(s) on the redemption request must be guaranteed by an
"eligible guarantor institution" (including, for example, Merrill Lynch branches
and certain other financial institutions) as such term is defined in Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended, the existence and
validity of which may be verified by the Transfer Agent through the use of
industry publications. Notarized signatures are not sufficient. In certain
instances, the Transfer Agent may require additional documents such as, but not
limited to, trust instruments, death certificates, appointments as executor or
administrator, or certificates of corporate authority. For shareholders
redeeming directly with the Transfer Agent, payments will be mailed within seven
days of receipt of a proper notice of redemption.
At various times, the Fund may be requested to redeem shares for which it
has not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that good
payment (e.g., cash, or certified check drawn on a United States bank) has been
collected for the purchase of such shares. Normally, this delay will not exceed
10 days.
REPURCHASE
The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund will normally accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request for
repurchase is received by the dealer prior to the regular close of business on
the NYSE (generally, 4:00 p.m., New York time) 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 NYSE 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 NYSE in order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any applicable
CDSC in the case of Class B or Class C shares). However, securities firms that
do not have selected dealer agreements with the Distributor may impose a charge
on the shareholder for transmitting the notice of repurchase to the Fund.
Merrill Lynch may charge its customers a processing fee (presently $5.35) to
confirm a repurchase of shares. Repurchases made directly through the Fund's
Transfer Agent are not subject to the processing fee. The Fund reserves the
right to reject any order for repurchase, which right of rejection might 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.
32
33
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.
REINSTATEMENT PRIVILEGE-CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
privilege to reinstate their accounts by purchasing Class A or Class D shares,
as the case may be, of the Fund at net asset value without a sales charge up to
the dollar amount redeemed. The reinstatement privilege may be exercised by
sending a notice of exercise along with a check for the amount to be reinstated
to the Transfer Agent within 30 days after the date the request for redemption
was accepted by the Transfer Agent or the Distributor. Alternatively, the
reinstatement privilege may be exercised through the investor's Merrill Lynch
Financial Consultant within 30 days after the date the request was accepted by
the Transfer Agent or the Distributor. The reinstatement will be made at the net
asset value per share next determined after the notice of reinstatement is
received and cannot exceed the amount of the redemption proceeds.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in shares of the
Fund. Certain of such services are not available to investors who place orders
for the Fund through the Merrill Lynch Blueprint(SM) Program. Full details as to
each of such services, copies of the various plans described below and
instructions as to how to participate in the various plans and services, or to
change options with respect thereto, can be obtained from the Fund by calling
the telephone number on the cover page hereof or from the Distributor or Merrill
Lynch. Certain of these services are available only to U.S. investors.
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 quarterly statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. These
statements will also show any other activity in the account since the preceding
statement. Shareholders will receive separate transaction confirmations for each
purchase or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gains
distributions. Shareholders may make additions to their Investment Accounts at
any time by mailing a check directly to the Transfer Agent. Shareholders may
also maintain their accounts through Merrill Lynch. Upon the transfer of shares
out of a Merrill Lynch brokerage account, an Investment Account in the
transferring shareholder's name may be opened automatically at the Transfer
Agent. Shareholders considering transferring their Class A or Class D shares
from Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage
33
34
firm to maintain such shares in an account registered in the name of the
brokerage firm for the benefit of the shareholder at the Transfer Agent.
Shareholders considering transferring a tax-deferred retirement account such as
an individual retirement account from Merrill Lynch to another brokerage firm or
financial institution should be aware that, if the firm to which the retirement
account is to be transferred will not take delivery of shares of the Fund, a
shareholder either must redeem the shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm, or such
shareholder must continue to maintain a retirement account at Merrill Lynch for
those shares.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund each have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated in accordance
with the rules of the Commission.
Under the Merrill Lynch Select Pricing(SM) System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
the account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second MLAM-advised
mutual fund, and the shareholder does not hold Class A shares of the second fund
in his or her account at the time of the exchange and is not otherwise eligible
to acquire Class A shares of the second fund, the shareholder will receive Class
D shares of the second fund as a result of the exchange. Class D shares also may
be exchanged for Class A shares of a second MLAM-advised mutual fund at any time
as long as, at the time of the exchange, the shareholder holds Class A shares of
the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Fund that are subject to a CDSC are exchangeable on the basis
of relative net asset value per share without the payment of any CDSC that might
otherwise be due upon redemption of the shares of the Fund. For purposes of
computing the CDSC that may be payable upon a disposition of the shares acquired
in the exchange, the holding period for the previously owned shares of the Fund
is "tacked" to the holding period for the newly acquired shares of the other
fund.
Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
34
35
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale of the exchanged
shares and a purchase of the acquired shares for Federal income tax purposes.
For further information, see "Shareholder Services-Exchange Privilege" in the
Statement of Additional Information.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions are reinvested automatically
in full and fractional shares of the Fund, without a sales charge, at the net
asset value per share next determined after the close of business on the NYSE 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. The Fund is not
responsible for any failure of delivery to the shareholder's address of record
and no interest will accrue on amounts represented by uncashed distribution or
redemption checks. Cash payments also can be directly deposited to the
shareholder's bank account. No CDSC will be imposed upon redemption of shares
issued as a result of the automatic reinvestment of dividends or capital gains
distributions.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawal payments from his
or her Investment Account in the form of payments by check or through automatic
payment by direct deposit to his or her bank account on either a monthly or
quarterly basis. Alternatively, a shareholder whose shares are held within a
CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed on a
monthly, bimonthly, quarterly, semiannual or annual basis through the Systematic
Redemption Program, subject to certain conditions. With respect to redemptions
of Class B and Class C shares pursuant to a systematic withdrawal plan, the
maximum number of Class B or Class C shares that can be redeemed from an account
annually shall not exceed 10% of the value of shares of such class in that
account at the time the election to join the systematic withdrawal plan was
made. Any CDSC that otherwise might be due on such redemption of Class B or
Class C shares will be waived. Shares redeemed pursuant to a systematic
withdrawal plan will be redeemed in the same order as Class B or Class C shares
are otherwise redeemed. See "Purchase of Shares-Deferred Sales Charge
Alternatives-Class B and Class C Shares-Contingent Deferred Sales Charges-Class
B Shares" and "-Contingent Deferred Sales Charges-Class C Shares." Where the
systematic withdrawal plan is applied to Class B shares, upon conversion of the
last Class B shares in an account to Class D shares, the systematic withdrawal
plan will automatically be applied thereafter to Class D shares. See "Purchase
of Shares-Deferred Sales Charge Alternatives-Class B and Class C
Shares-Conversion of Class B Shares to Class D Shares."
35
36
AUTOMATIC INVESTMENT PLANS
Regular additions of Class A, Class B, Class C and Class D shares may be
made to an investor's Investment Account by pre-arranged charges of $50 or more
to his or her regular bank account. Investors who maintain CMA(R) or CBA(R)
accounts may arrange to have periodic investments made in the Fund in their
CMA(R) or CBA(R) accounts or in certain related accounts in amounts of $100 or
more through the CMA(R) or CBA(R) Automated Investment Program.
FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing alternatives
for securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares that will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of shares
held therein or the automatic exchange thereof to another class at net asset
value, which may be shares of a money market fund. In addition, upon termination
of participation in a Program, shares that have been held for less than
specified periods within such Program may be subject to a fee based upon the
current value of such shares. These Programs also generally prohibit such shares
from being transferred to another account at Merrill Lynch, to another
broker-dealer or to the Transfer Agent. Except in limited circumstances (which
may also involve an exchange as described above), such shares must be redeemed
and another class of shares purchased (which may involve the imposition of
initial or deferred sales charges and distribution and account maintenance fees)
in order for the investment not to be subject to Program fees. Additional
information regarding a specific Program (including charges and limitations on
transferability applicable to shares that may be held in such Program) is
available in such Program's client agreement and from the Transfer Agent at
(800) MER-FUND or (800) 637-3863.
TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as it
so qualifies, the Fund (but not its shareholders) will not be subject to Federal
income tax on the part of its net ordinary income and net realized capital gains
which it distributes to Class A, Class B, Class C and Class D shareholders
(together, the "shareholders"). The Fund intends to distribute substantially all
of such income.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in warrants, futures and options) ("capital
gain dividends") are taxable to shareholders as long-term capital gains,
regardless of the length of time the shareholder has owned Fund shares. Any loss
upon the sale or exchange of Fund shares held for six months or less will be
treated as long-term capital loss to the extent of any capital gain dividends
received by the shareholder. Distributions in excess of the Fund's earnings and
profits will first reduce the adjusted tax basis of a holder's shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder
36
37
(assuming the shares are held as a capital asset). Recent legislation creates
additional categories of capital gains taxable at different rates. Generally not
later than 60 days after the close of its taxable year, the Fund will provide
its shareholders with a written notice designating the amounts of any ordinary
income dividends or capital gain dividends, as well as the amount of capital
gain dividends in the different categories of capital gain referred to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. A portion of the Fund's ordinary income dividends
may be eligible for the dividends received deduction allowed to corporations
under the Code if certain requirements are met. If the Fund pays a dividend in
January which was declared in the previous October, November or December to
shareholders of record on a specified date in one of such months, then such
dividend will be treated for tax purposes as being paid by the Fund and received
by its shareholders on December 31 of the year in which such dividend was
declared.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% U.S. withholding tax under existing
provisions of the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. In addition, recent legislation permits a foreign
tax credit to be claimed with respect to withholding tax on a dividend only if
the shareholder meets certain holding period requirements. If more than 50% in
value of the Fund's total assets at the close of its taxable year consists of
securities of foreign corporations, the Fund will be eligible, and intends, to
file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their proportionate shares
of such withholding taxes in their U.S. income tax returns as gross income,
treat such proportionate shares as taxes paid by them, and deduct such
proportionate shares in computing their taxable incomes or, alternatively, use
them as foreign tax credits against their U.S. income taxes. In the case of
foreign taxes passed through by a RIC, the holding period requirements referred
to above must be met by both the shareholder and the RIC. No deductions for
foreign taxes, moreover, 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 and other
information needed to claim the foreign tax credit.
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.
37
38
The Fund may invest up to 10% of its total assets in securities of other
investment companies. If the Fund purchases shares of an investment company (or
similar investment entity) organized under foreign law, the Fund will be treated
as owning shares in a passive foreign investment company ("PFIC") for U.S.
Federal income tax purposes. The Fund may be subject to U.S. Federal income tax,
and additional tax in the nature of interest (the "interest charge"), on a
portion of the distributions from such a company and on gain from the
disposition of the shares of such a company (collectively referred to as "excess
distributions"), even if such excess distributions are paid by the Fund as a
dividend to its shareholders. The Fund 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 Fund to
recognize income in a particular year in excess of the distributions received
from such PFICs. Alternatively, under recent legislation, the Fund could 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 Fund would recognize as ordinary income any
increase in the value of such shares over their adjusted basis and as ordinary
loss any decrease in such value to the extent it did not exceed prior increases
included in income. By making the mark-to-market election, the Fund 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 the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
income dividend distributions, and all or a portion of distributions made before
the losses were realized but in the same taxable year would be recharacterized
as a return of capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than such shareholder's tax basis in Fund
shares (assuming the shares were held as a capital asset).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon the purchase of the new shares in the absence
of the exchange privilege. Instead, such sales charge will be treated as an
amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code
38
39
sections and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
that are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with
formulas specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return will be computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including any CDSC that would be applicable to a
complete redemption of the investment at the end of the specified period such as
in the case of Class B and Class C shares and the maximum sales charge in the
case of Class A and Class D shares. Dividends paid by the Fund with respect to
all shares, to the extent any dividends are paid, will be calculated in the same
manner at the same time on the same day and will be in the same amount, except
that account maintenance and distribution charges and any incremental transfer
agency costs relating to each class of shares will be borne exclusively by that
class. The Fund will include performance data for all classes of shares of the
Fund in any advertisement or information including performance data of the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return and (2) the maximum applicable sales charges will not
be included with respect to annual or annualized rates of return calculations.
Aside from the impact on the performance data calculations of including or
excluding the maximum applicable sales charges, actual annual or annualized
total return data generally will be lower than average annual total return data
since the average annual rates of return reflect compounding; aggregate total
return data generally will be higher than average annual total return data since
the aggregate rates of return reflect compounding over a longer period of time.
In advertisements distributed to investors whose purchases are subject to waiver
of the CDSC in the case of Class B and Class C shares (such as investors in
certain retirement plans)
39
40
or to reduced sales loads in the case of Class A and Class D shares, the
performance data may take into account the reduced, and not the maximum, sales
charge or may not take into account the CDSC and therefore may reflect greater
total return since, due to the reduced sales charges or waiver of the CDSC, a
lower amount of expenses is deducted. See "Purchase of Shares." The Fund's total
return may be expressed either as a percentage or as a dollar amount in order to
illustrate such total return on a hypothetical $1,000 investment in the Fund at
the beginning of each specified period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or losses during the period. The value of an investment in the
Fund will fluctuate and an investor's shares, when redeemed, may be worth more
or less than their original cost.
On occasion, the Fund may compare its performance to that of the Standard &
Poor's 500 Index, The Financial Times/Standard & Poor's Actuarial World Indices,
the Morgan Stanley Capital International Indices, the Dow Jones Industrial
Average or performance data published by Lipper Analytical Services, Inc. and
Morningstar Publications, Inc., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., Forbes Magazine, Fortune
Magazine or other industry publications. From time to time, the Fund may include
the Fund's risk-adjusted performance ratings assigned by Morningstar
Publications, Inc. in advertisements or supplemental sales literature. As with
other performance data, performance comparisons should not be considered
representative of the Fund's relative performance for any future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute substantially all of its net
investment income, if any. Dividends from such net investment income will be
paid at least annually. All net realized capital gains, if any, are distributed
as dividends to the Fund's shareholders annually after the close of the Fund's
fiscal year. The per share dividends on each class of shares will be reduced as
a result of any account maintenance, distribution and transfer agency fees
applicable to that class. See "Additional Information-Determination of Net Asset
Value." Dividends and distributions will be automatically reinvested in shares
of the Fund at net asset value without a sales charge. However, a shareholder
whose account is maintained at the Transfer Agent or whose account is maintained
through Merrill Lynch may elect in writing to receive any such dividends or
distributions or both in cash. Dividends and distributions are taxable to
shareholders as discussed below whether they are reinvested in shares of the
Fund or received in cash. From time to time, the Fund may declare a special
distribution at or about the end of the calendar year in order to comply with
Federal tax requirements that certain percentages of its ordinary income and
capital gains be distributed during the calendar year.
Gains or losses attributable to certain foreign currency transactions may
increase or decrease the amount of the Fund's income available for distribution
to shareholders. If such losses exceed other ordinary income during a taxable
year, (a) the Fund would not be able to make any ordinary income dividend
distributions and (b) all or a portion of distributions made before the losses
were realized but in the same taxable year would be recharacterized as returns
of capital to shareholders, rather than as ordinary income dividends, thereby
reducing
40
41
each shareholder's tax basis in his or her Fund shares for Federal income tax
purposes and resulting in a capital gain for any shareholder who received a
distribution greater than the shareholder's tax basis in Fund shares (assuming
that the shares were held as a capital asset). For a detailed discussion of the
Federal tax considerations relevant to foreign currency transactions, see
"Additional Information-Taxes."
DETERMINATION OF NET ASSET VALUE
The net asset value of shares of all classes of the Fund is determined by
the Manager once daily, 15 minutes after the close of business on the NYSE
(generally, 4:00 p.m. New York time), on each day during which the NYSE is open
for trading. Any assets or liabilities initially expressed in terms of non-U.S.
dollar currencies are translated into U.S. dollars at the prevailing market
rates as quoted by one or more banks or dealers on the day of valuation. The net
asset value per share is computed by dividing the sum of the value of the
securities held by the Fund plus any cash or other assets (including interest
and dividends accrued but not yet received) minus all liabilities (including
accrued expenses) by the total number of shares outstanding at such time,
rounded to the nearest cent. Expenses, including the investment advisory fees
payable to the Manager and any account maintenance and/or distribution fees
payable to the Distributor, are accrued daily.
The per share net asset value of Class A shares generally will be higher
than the per share net asset value of shares of other classes, reflecting the
daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to the Class B and Class C shares
and the daily expense accruals of the account maintenance fees applicable with
respect to Class D shares; in addition, the per share net asset value of Class D
shares generally will be higher than the per share net asset value of Class B
and Class C shares, reflecting the daily expense accruals of the distribution
and higher transfer agency fees applicable with respect to Class B and Class C
shares. It is expected, however, that the per share net asset value of the four
classes will tend to converge (although not necessarily meet) immediately after
the payment of dividends or distributions, which will differ by approximately
the amount of the expense accrual differentials between the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price for long positions and at
the last available ask price for short positions. In cases where securities are
traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as the primary
market. Long positions in securities traded in the OTC market are valued at the
last available bid price in the OTC market prior to the time of valuation. Short
positions in securities traded in the OTC market are valued at the last
available ask price in the OTC market prior to the time of valuation. Securities
that are traded both in the OTC market and on a stock exchange are valued
according to the broadest and most representative market. When the Fund writes
an option, the amount of the premium received is recorded on the books of the
Fund as an asset and an equivalent liability. The amount of the liability is
subsequently valued to reflect the current market value of the option written,
based upon the last sale price in the case of exchange-traded options or, in the
case of options traded in the OTC market, the last asked price. Options
purchased by the Fund are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Any assets or liabilities expressed in terms of foreign
currencies are translated into U.S. dollars at the prevailing market rates as
obtained from one or more dealers. Other investments, including futures
contracts and related options, are stated at market value. Securities and assets
for which market quotations are not readily available
41
42
are valued at fair value as determined in good faith by or under the direction
of the Board of Directors of the Fund. Such valuations and procedures will be
reviewed periodically by the Board of Directors.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on August 4, 1997. As of the
date of this Prospectus, the Fund has an authorized capital of 600,000,000
shares of Common Stock, par value $0.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D Common Stock. Class A, Class C
and Class D each consists of 100,000,000 shares and Class B consists of
300,000,000 shares. Shares of Class A, Class B, Class C and Class D Common Stock
represent an interest in the same assets of the Fund and are identical in all
respects except that Class B, Class C and Class D shares bear certain expenses
related to the account maintenance associated with such shares, and Class B and
Class C shares bear certain expenses related to distribution of such shares.
Each class has exclusive voting rights with respect to matters relating to
account maintenance and distribution expenditures, as applicable. See "Purchase
of Shares." The Directors of the Fund may classify and reclassify the shares of
the Fund into additional classes of Common Stock at a future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Fund does not intend to
hold meetings of shareholders in any year in which the Investment Company Act
does not require shareholders to act upon any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent accountants. Also, the by-laws of the Fund require that a special
meeting of shareholders be held upon the written request of at least a majority
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. Shares have the conversion rights described in this
Prospectus. Each share of Common Stock is entitled to participate equally in
dividends and distributions declared by the Fund and in the net assets of the
Fund upon liquidation or dissolution after satisfaction of outstanding
liabilities except, as noted above, the Class B, Class C and Class D shares bear
certain additional expenses.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch and/or mutual fund account numbers.
If you have any questions regarding this please call your Merrill Lynch
Financial Consultant or Merrill Lynch Financial Data Services, Inc. at
800-637-3863.
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.
42
43
APPENDIX
INVESTMENT PRACTICES INVOLVING THE USE OF OPTIONS, FUTURES
AND FOREIGN EXCHANGE
The Fund is authorized to engage in certain investment practices involving
the use of options, futures and foreign exchange, as described below. Such
instruments, which may be regarded as derivatives, are referred to collectively
herein as "Strategic Instruments."
OPTIONS ON SECURITIES AND SECURITIES INDICES
Purchasing Options. The Fund is authorized to purchase put options on
securities held in its portfolio or securities indices the performance of which
is substantially correlated with securities held in its portfolio. When the Fund
purchases a put option, in consideration for an up-front payment (the "option
premium"), the Fund acquires a right to sell to another party specified
securities owned by the Fund at a specified price (the "exercise price") on or
before a specified date (the "expiration date"), in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index declines below a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase of
a put option limits the Fund's risk of loss in the event of a decline in the
market value of the portfolio holdings underlying the put option prior to the
option's expiration date. In the event the market value of the portfolio
holdings underlying the put option increases rather than decreases, however, the
Fund will lose the option premium and will consequently realize a lower return
on the portfolio holdings than would have been realized without the purchase of
the put.
The Fund is also authorized to purchase call options on securities it
intends to purchase or securities indices the performance of which substantially
correlates with the performance of the types of securities it intends to
purchase. When the Fund purchases a call option, in consideration for the option
premium, the Fund acquires a right to purchase from another party specified
securities at the exercise price on or before the expiration date, in the case
of an option on securities, or to receive from another party a payment based on
the amount a specified securities index increases beyond a specified level on or
before the expiration date, in the case of an option on a securities index. The
purchase of a call option may protect the Fund from having to pay more for a
security as a consequence of increases in the market value for the security
during a period when the Fund is contemplating its purchase, in the case of an
option on a security, or attempting to identify specific securities in which to
invest in a market the Fund believes to be attractive, in the case of an option
on an index (an "anticipatory hedge"). In the event the Fund determines not to
purchase a security underlying a call option, however, the Fund may lose the
entire option premium.
The Fund may also purchase put or call options in connection with closing
out put or call options it has previously sold. However, the Fund will not
purchase options on securities if, as a result of such purchase, the aggregate
cost (option premiums paid) of all outstanding options on securities held by the
Fund would exceed 5% of the market value of the Fund's total assets.
Writing Options. The Fund is authorized to write (i.e., sell) call options
on securities held in its portfolio or securities indices the performance of
which is substantially correlated with securities held in its portfolio. When
the Fund writes a call option, in return for an option premium, the Fund gives
another party the right
43
44
to buy specified securities owned by the Fund at the exercise price on or before
the expiration date, in the case of an option on securities, or agrees to pay to
another party an amount based on any gain in a specified securities index beyond
a specified level on or before the expiration date, in the case of an option on
a securities index. The Fund may write call options to earn income, through the
receipt of option premiums. In the event the party to which the Fund has written
an option fails to exercise its rights under the option because the value of the
underlying securities is less than the exercise price, the Fund will partially
offset any decline in the value of the underlying securities through the receipt
of the option premium and will realize a greater return than would have been
realized on the underlying securities alone. By writing a call option, however,
the Fund limits its ability to sell the underlying securities, and gives up the
opportunity to profit from any increase in the value of the underlying
securities beyond the exercise price, while the option remains outstanding. The
Fund may not write covered call options on underlying securities in an amount
exceeding 15% of the market value of its assets.
The Fund may also write put options on securities or securities indices.
When the Fund writes a put option, in return for an option premium, the Fund
gives another party the right to sell to the Fund a specified security at the
exercise price on or before the expiration date, in the case of an option on a
security, or agrees to pay to another party an amount on any decline in a
specified securities index below a specified level on or before the expiration
date, in the case of an option on a securities index. The Fund may write put
options to earn income, through the receipt of option premiums. In the event the
party to which the Fund has written an option fails to exercise its right under
the option because the value of the underlying securities is greater than the
exercise price, the Fund will profit by the amount of the option premium. By
writing a put option, however, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of the
security at the time of exercise as long as the put option is outstanding.
Accordingly, when the Fund writes a put option it is exposed to a risk of loss
in the event the value of the underlying securities falls below the exercise
price, which loss potentially may substantially exceed the amount of option
premium received by the Fund for writing the put option. The Fund will write a
put option on a security or a securities index only if the Fund is using the put
as an anticipatory hedge or is writing the put in connection with trading
strategies involving combinations of options, for example, the sale and purchase
of options with identical expiration dates on the same security or index but
different exercise prices (a technique called a "spread").
The Fund is also authorized to sell call or put options in connection with
closing out call or put options it has previously purchased.
Other than with respect to closing transactions, the Fund will only write
call or put options that are "covered." A call or put option will be considered
covered if the Fund has segregated assets with respect to such option in the
manner described in "Risk Factors in Options, Futures and Currency Instruments"
below. A call option will also be considered covered if the Fund owns the
securities it would be required to deliver upon exercise of the option (or, in
the case of an option on a securities index, securities which substantially
replicate the performance of such index) or owns a call option, warrant or
convertible instrument which is immediately exercisable for, or convertible
into, such security.
Types of Options. The Fund may engage in transactions in options on
securities or securities indices on exchanges and in the over-the-counter
("OTC") markets. In general, exchange-traded options have standardized exercise
prices and expiration dates and require the parties to post margin against their
obligations, and the performance of the parties' obligations in connection with
such options is guaranteed by the exchange or a related
44
45
clearing corporation. OTC options have more flexible terms negotiated between
the buyer and the seller, but generally do not require the parties to post
margin and are subject to greater risk of counterparty default. See "Additional
Risk Factors of OTC Transactions; Limitations on the Use of OTC Strategic
Investments" below.
FUTURES
The Fund may engage in transactions in futures, including stock index
futures contracts and financial futures contracts, and options thereon.
Financial futures contracts are standardized, exchange-traded contracts which
obligate a purchaser to take delivery, and a seller to make delivery, of a
specific amount of a commodity at a specified future date at a specified price.
Stock index futures contracts are similar to other futures contracts except that
they do not require actual delivery of securities but instead result in cash
settlement based on the difference in value of the index between the time the
contract was entered into and the time of its settlement.
No price is paid upon entering into a futures contract. Rather, upon
purchasing or selling a futures contract the Fund is required to deposit
collateral ("margin") equal to a percentage (generally less than 10%) of the
contract value. Each day thereafter until the futures position is closed, the
Fund will pay additional margin representing any loss experienced as a result of
the futures position the prior day or be entitled to a payment representing any
profit experienced as a result of the futures position the prior day.
The sale of a futures contract for hedging purposes limits the Fund's risk
of loss through a decline in the market value of portfolio holdings correlated
with the futures contract prior to the futures contracts expiration date. In the
event the market value of the portfolio holdings correlated with the futures
contract increases rather than decreases, however, the Fund will realize a loss
on the futures position and a lower return on the portfolio holdings than would
have been realized without the purchase of the futures contract.
The purchase of a futures contract as an anticipatory hedge may protect the
Fund from having to pay more for securities as consequence of increases in the
market value for such securities during a period when the Fund was attempting to
identify specific securities in which to invest in a market the Fund believes to
be attractive. In the event that such securities decline in value or the Fund
determines not to complete an anticipatory hedge transaction in a futures
contract, however, the Fund may realize a loss relating to the futures position.
The Fund will limit transactions in futures and options on futures to the
extent necessary to prevent the Fund from being deemed a "commodity pool" under
regulations of the Commodity Futures Trading Commission.
FOREIGN EXCHANGE TRANSACTIONS
The Fund may engage in spot and forward foreign exchange transactions and
currency swaps, purchase and sell options on currencies and purchase and sell
currency futures and related options thereon (collectively, "Currency
Instruments") for the purpose of hedging against the decline in the value of
currencies in which its portfolio holdings are denominated against the United
States dollar.
Forward foreign exchange transactions are OTC contracts to purchase or sell
a specified amount of a specified currency or multinational currency unit at a
price and future date set at the time of the contract. Spot foreign exchange
transactions are similar but require current, rather than future, settlement.
The Fund will enter into foreign exchange transactions for the purpose of
hedging either a specific transaction or a portfolio position.
45
46
The Fund may enter into a foreign exchange transaction for purposes of hedging a
specific transaction by, for example, purchasing a currency needed to settle a
security transaction or selling a currency in which the Fund has received or
anticipates receiving a dividend or distribution. The Fund may enter into a
foreign exchange transaction for purposes of hedging a portfolio position by
selling forward a currency in which a portfolio position of the Fund is
denominated or by purchasing a currency in which the Fund anticipates acquiring
a portfolio position in the near future. The Fund may also hedge portfolio
positions through currency swaps, which are transactions in which one currency
is simultaneously bought for a second currency on a spot basis and sold for the
second currency on a forward basis.
The Fund may also hedge against the decline in the value of a currency
against the United States dollar through use of currency futures or options
thereon. Currency futures are similar to forward foreign exchange transactions
except that futures are standardized, exchange-traded contracts. See "Futures"
above.
The Fund may also hedge against the decline in the value of a currency
against the United States dollar through the use of currency options. Currency
options are similar to options on securities, but in consideration for an option
premium the writer of a currency option is obligated to sell (in the case of a
call option) or purchase (in the case of a put option) a specified amount of a
specified currency on or before the expiration date for a specified amount of
another currency. The Fund may engage in transactions in options on currencies
either on exchanges or OTC markets. See "Types of Options" above and "Additional
Risk Factors of OTC Transactions; Limitations on the Use of OTC Strategic
Instruments" below.
When entering into a transaction in a Currency Instrument, the Fund will
not hedge a currency substantially in excess of the aggregate market value of
the securities which it owns (including receivables for unsettled securities
sales), or has committed to or anticipates purchasing, which are denominated in
such currency. The Fund may, however, hedge a currency by entering into a
transaction in a Currency Instrument denominated in a currency other than the
currency being hedged (a "cross-hedge"). The Fund will only enter into a
cross-hedge if the Manager believes that (i) there is a demonstrable high
correlation between the currency in which the cross-hedge is denominated and the
currency being hedged and (ii) executing a cross-hedge through the currency in
which the cross-hedge is denominated will be significantly more cost-effective
or provide substantially greater liquidity than executing a similar hedging
transaction by means of the currency being hedged. The Fund will not incur
potential net liabilities of more than 33 1/3% of its total assets from Currency
Instruments.
Risk Factors in Hedging Foreign Currency Risks. While the Fund's use of
Currency Instruments to effect hedging strategies is intended to reduce the
volatility of the net asset value of the Fund's shares, the net asset value of
the Fund's shares will fluctuate. Moreover, although Currency Instruments will
be used with the intention of hedging against adverse currency movements,
transactions in Currency Instruments involve the risk that anticipated currency
movements will not be accurately predicted and that the Fund's hedging
strategies will be ineffective. To the extent that the Fund hedges against
anticipated currency movements which do not occur, the Fund may realize losses,
and lower its total return, as the result of its hedging transactions.
Furthermore, the Fund will only engage in hedging activities from time to time
and may not be engaging in hedging activities when movements in currency
exchange rates occur. It may not be possible for the Fund to hedge against
currency exchange rate movements, even if correctly anticipated, in the event
that (i) the currency exchange rate movement is so generally anticipated that
the Fund is not able to enter into a hedging transaction at an effective price
or (ii) the currency exchange rate movement relates to a market with respect to
which Currency Instruments are not available (such as certain developing
markets) and it is not possible to engage in effective foreign currency hedging.
46
47
RISK FACTORS IN OPTIONS, FUTURES AND CURRENCY INSTRUMENTS
Use of Strategic Instruments for hedging purposes involves the risk of
imperfect correlation in movements in the value of the Strategic Instruments and
the value of the instruments being hedged. If the value of the Strategic
Instruments moves more or less than the value of the hedged instruments the Fund
will experience a gain or loss which will not be completely offset by movements
in the value of the hedged instruments.
The Fund intends to enter transactions involving Strategic Instruments only
if there appears to be a liquid secondary market for such instruments or, in the
case of illiquid instruments traded in OTC transactions, such instruments
satisfy the criteria set forth below under "Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Strategic Instruments." However,
there can be no assurance that, at any specific time, either a liquid secondary
market will exist for a Strategic Instrument or the Fund will otherwise be able
to sell such instrument at an acceptable price. It may therefore not be possible
to close a position in a Strategic Instrument without incurring substantial
losses, if at all.
Certain transactions in Strategic Instruments (e.g., forward foreign
exchange transactions, futures transactions, sales of put options) may expose
the Fund to potential losses which exceed the amount originally invested by the
Fund in such instruments. When the Fund engages in such a transaction, the Fund
will deposit in a segregated account at its custodian liquid securities with a
value at least equal to the Fund's exposure, on a mark-to-market basis, to the
transaction (as calculated pursuant to requirements of the Securities and
Exchange Commission). Such segregation will ensure that the Fund has assets
available to satisfy its obligations with respect to the transaction, but will
not limit the Fund's exposure to loss.
ADDITIONAL RISK FACTORS OF OTC TRANSACTIONS; LIMITATIONS ON THE USE OF OTC
STRATEGIC INSTRUMENTS
Certain Strategic Instruments traded in OTC markets, including OTC options,
may be substantially less liquid than other instruments in which the Fund may
invest. The absence of liquidity may make it difficult or impossible for the
Fund to sell such instruments promptly at an acceptable price. The absence of
liquidity may also make it more difficult for the Fund to ascertain a market
value for such instruments. The Fund will therefore acquire illiquid OTC
instruments (i) if the agreement pursuant to which the instrument is purchased
contains a formula price at which the instrument may be terminated or sold or
(ii) for which the Manager anticipates the Fund can receive on each business day
at least two independent bids or offers, unless a quotation from only one dealer
is available, in which case that dealer's quotation may be used.
The staff of the Securities and Exchange Commission has taken the position
that purchased OTC options and the assets underlying written OTC options are
illiquid securities. The Fund has therefore adopted an investment policy
pursuant to which it will not purchase or sell OTC options (including OTC
options on futures contracts) if, as a result of such transactions, the sum of
the market value of OTC options currently outstanding which are held by the
Fund, the market value of the securities underlying OTC call options currently
outstanding which have been sold by the Fund and margin deposits on the Fund's
outstanding OTC options exceeds 15% of the total assets of the Fund, taken at
market value, together with all other assets of the Fund which are deemed to be
illiquid or are otherwise not readily marketable. However, if an OTC option is
sold by the Fund to a dealer in U.S. government securities recognized as a
"primary dealer" by the Federal Reserve Bank of New York and the Fund has the
unconditional contractual right to repurchase such OTC option at a predetermined
price, then the Fund will treat as illiquid such amount of the underlying
securities as is equal to the repurchase price less the
47
48
amount by which the option is "in-the-money" (i.e., current market value of the
underlying security minus the option's exercise price).
Because Strategic Instruments traded in OTC markets are not guaranteed by
an exchange or clearing corporation and generally do not require payment of
margin, to the extent that the Fund has unrealized gains in such instruments or
has deposited collateral with its counterparty the Fund is at risk that its
counterparty will become bankrupt or otherwise fail to honor its obligations.
The Fund will attempt to minimize the risk that a counterparty will become
bankrupt or otherwise fail to honor its obligations by engaging in transactions
in Strategic Instruments traded in OTC markets only with financial institutions
which have substantial capital or which have provided the Fund with a
third-party guaranty or other credit enhancement. In particular, the Fund will
engage in OTC Options, including OTC 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.
ADDITIONAL LIMITATIONS ON THE USE OF STRATEGIC INSTRUMENTS
The Fund may not use any Strategic Instrument to gain exposure to an asset
or class of assets that it would be prohibited from purchasing directly by its
investment restrictions.
48
49
MERRILL LYNCH GLOBAL GROWTH FUND, INC.-AUTHORIZATION FORM (PART 1)
- -------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT(SM) PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT(SM)
PROGRAM APPLICATION BY CALLING TOLL FREE (800) 637-3766.
- -------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
/ / Class A shares / / Class B shares
/ / Class C shares / / Class D shares
of Merrill Lynch Global Growth Fund, Inc. and establish an Investment Account as
described in the Prospectus. In the event that I am not eligible to purchase
Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $____________ payable to Merrill Lynch
Financial Data Services, Inc., as an initial investment (minimum $1,000). I
understand that this purchase will be executed at the applicable offering
price next to be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds
that would qualify for the Right of Accumulation as outlined in the
Statement of Additional Information: (Please list all funds. Use a separate
sheet of paper if necessary.)
1. __________________________________ 4. __________________________________
2. __________________________________ 5. __________________________________
3. __________________________________ 6. __________________________________
Name____________________________________________________________________________
First Name Initial Last Name
Name of Co-Owner (if any)_______________________________________________________
First Name Initial Last Name
Address_________________________________________________________________________
(Zip Code)
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 right of survivorship will be
presumed unless otherwise specified.)
- -------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Ordinary Income Dividends Long-Term Capital Gains
------------------------- -----------------------
Select / / Reinvest Select / / Reinvest
One: / / Cash One: / / Cash
------------------------- -----------------------
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU:
/ / Check or / / Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Global Growth Fund, Inc. Authorization Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE): / / checking / / savings
Name on your account ___________________________________________________________
Bank Name ______________________________________________________________________
Bank Number __________________________ Account Number _______________________
Bank Address____________________________________________________________________
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Signature of Depositor _________________________________________________________
Signature of Depositor _______________________________ Date _________________
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS
APPLICATION.
- -------------------------------------------------------------------------------
49
50
MERRILL LYNCH GLOBAL GROWTH FUND, INC.-AUTHORIZATION FORM (PART 1) - (CONTINUED)
- -------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
------------------------------
------------------------------
Social Security Number or
Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security Number or Taxpayer Identification Number and (2) that
I am not subject to backup withholding (as discussed in the Prospectus under
"Taxes") either because I have not been notified that I am subject thereto as a
result of a failure to report all interest or dividends, or the Internal Revenue
Service ("IRS") has notified me that I am no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
Signature of Owner _____________________________________________________________
Signature of Co-Owner (if any) _________________________________________________
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION-CLASS A AND D SHARES ONLY (SEE TERMS AND CONDITIONS IN
THE STATEMENT OF ADDITIONAL INFORMATION)
________________________________, 19_____
Date of Initial Purchase
Dear Sir/Madam:
Although I am not obligated to do so, I intend to purchase shares of
Merrill Lynch Global Growth Fund, Inc. or any other investment company with an
initial sales charge or deferred sales charge for which Merrill Lynch Funds
Distributor, Inc. acts as distributor over the next 13 month period which will
equal or exceed:
/ / $25,000 / / $50,000 / / $100,000 / / $250,000 / / $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Global Growth Fund,
Inc. Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Global Growth Fund, Inc. held as security.
By _____________________________________________________________________________
Signature of Owner
________________________________________________________________________________
Signature of Co-Owner (If registered in joint parties, both must sign)
In making purchases under this letter, the following are the related accounts on
which reduced offering prices are to apply:
(1) Name _____________________________ (2) Name _____________________________
Account Number _______________________ Account Number _______________________
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp
/ /
/ /
This form when completed should be mailed to:
Merrill Lynch Global Growth Fund, Inc.
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the Distributor of any purchases or sales made under a Letter of Intention,
Automatic Investment Plan or Systematic Withdrawal Plan. We guarantee the
Shareholder's signature.
________________________________________________________________________________
Dealer Name and Address
By _____________________________________________________________________________
Authorized Signature of Dealer
-- -- -- -- -- -- --
/ / / / / / / / /
-- -- -- -- -- -- -- ____________________________________
Branch-Code F/C No. F/C Last Name
-- -- -- -- -- -- -- --
/ / / / / / / / / /
-- -- -- -- -- -- -- --
Dealer's Customer Account No.
50
51
MERRILL LYNCH GLOBAL GROWTH FUND, INC.-AUTHORIZATION FORM (PART 2)
- -------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR AUTOMATIC
INVESTMENT PLANS ONLY.
- -------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
(PLEASE PRINT)
Name of Owner __________________________________________________________________
First Name Initial Last Name
Name of Co-Owner (if any)_______________________________________________________
First Name Initial Last Name
Address ________________________________________________________________________
(Zip Code)
- ----------------------------------------
- ----------------------------------------
Social Security Number or
Taxpayer Identification Number
Account Number__________________________
(if existing account)
- -------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN (SEE TERMS AND CONDITIONS IN THE STATEMENT OF
ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of / / Class A, / / Class B*, / / Class C*, or / / Class D shares
in Merrill Lynch Global Growth Fund, Inc. at cost or current offering price.
Withdrawals to be made either (check one) / / Monthly on the 24th day of each
month, or / / Quarterly on the 24th day of March, June, September and
December. If the 24th falls on a weekend or holiday, the next succeeding
business day will be utilized. Begin systematic withdrawal on _________ (month),
or as soon as possible thereafter.
SPECIFY THE AMOUNT OF WITHDRAWAL YOU WOULD LIKE PAID TO YOU: $_________ of
(check one) / / Class A, / / Class B*, / / Class C* or / / Class D
shares in the account.
SPECIFY WITHDRAWAL METHOD: / / check or / / direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a) I hereby authorize payment by check
/ / as indicated in Item 1.
/ / to the order of _________
Mail to (check one)
/ / the address indicated in Item 1.
/ / Name (Please Print) ___________________________________________________
Address ________________________________________________________________________
___________________________________________________________________________
Signature of Owner ___________________________________ Date _____________
Signature of Co-Owner (if any) ____________________________________________
(b) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO MY BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Specify type of account (check one): / / checking / / savings
Name on your Account ___________________________________________________________
Bank Name ______________________________________________________________________
Bank Number _____________________________ Account Number _____________________
Bank Address ___________________________________________________________________
___________________________________________________________________
Signature of Owner _____________________________________________________________
Signature of Depositor ____________________________________ Date _____________
Signature of Depositor _________________________________________________________
(If joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
- ----------
* Annual withdrawal cannot exceed 10% of the value of shares of such class held
in the account at the time the election to join the Systematic Withdrawal Plan
is made.
51
52
MERRILL LYNCH GLOBAL GROWTH FUND, INC.-AUTHORIZATION FORM (PART 2) - (CONTINUED)
- -------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described below
each month to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch Global Growth Fund, Inc., subject to the terms set forth below.
In the event that I am not eligible to purchase Class A shares, I understand
that Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Global Growth Fund, Inc. as indicated below:
Amount of each check or ACH debit $___________________
Account Number _______________________________________
Please date and invest ACH debits on the 20th of each month beginning
_____________________________ (month) or as soon thereafter as possible.
I agree that you are preparing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such debit. If I change banks or desire to terminate or
suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroneous ACH debits of my bank
account or purchases of fund shares including liquidating shares of the Fund and
crediting my bank account. I further agree that if a debit is not honored upon
presentation, Merrill Lynch Financial Data Services, Inc. is authorized to
discontinue immediately the Automatic Investment Plan and to liquidate
sufficient shares held in my account to offset the purchase made with the
dishonored debit.
________________________ ______________________________________________
Date Signature of Depositor
______________________________________________
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS
DRAWN BY MERRILL LYNCH FINANCIAL DATA
SERVICES, INC.
To _________________________________________________________________________Bank
(Investor's Bank)
Bank Address ___________________________________________________________________
City __________________________________ State ____________ Zip _______________
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc. I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
________________________ ______________________________________________
Date Signature of Depositor
________________________ ______________________________________________
Bank Account Number Signature of Depositor
(If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
52
53
(THIS PAGE INTENTIONALLY LEFT BLANK)
54
(THIS PAGE INTENTIONALLY LEFT BLANK)
55
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 9081
Princeton, New Jersey 08536-9081
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 351
225 Franklin Street
Boston, Massachusetts 02101
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Ernst & Young LLP
202 Carnegie Center
Princeton, New Jersey 08543-5321
COUNSEL
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
56
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE MANAGER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------
TABLE OF CONTENTS
Page
----
Fee Table................................................................. 2
Merrill Lynch Select Pricing(SM) System................................... 3
Financial Highlights...................................................... 8
Risk Factors and Special Considerations................................... 9
Investment Objective and Policies......................................... 13
Description of Certain Investments...................................... 13
Other Investment Policies and Practices................................. 15
Investment Restrictions................................................... 18
Management of the Fund.................................................... 19
Directors............................................................... 19
Management and Advisory Arrangements.................................... 20
Code of Ethics.......................................................... 21
Transfer Agency Services................................................ 21
Purchase of Shares........................................................ 21
Initial Sales Charge Alternatives-
Class A and Class D Shares............................................ 24
Deferred Sales Charge Alternatives-
Class B and Class C Shares............................................ 26
Distribution Plans...................................................... 29
Limitations on the Payment of Deferred Sales
Charges............................................................... 31
Redemption of Shares...................................................... 31
Redemption.............................................................. 32
Repurchase.............................................................. 32
Reinstatement Privilege-Class A and Class D
Shares................................................................ 33
Shareholder Services...................................................... 33
Investment Account...................................................... 33
Exchange Privilege...................................................... 34
Automatic Reinvestment of Dividends and Capital
Gains Distributions................................................... 35
Systematic Withdrawal Plans............................................. 35
Automatic Investment Plans.............................................. 36
Fee-Based Programs...................................................... 36
Taxes..................................................................... 36
Performance Data.......................................................... 39
Additional Information.................................................... 40
Dividends and Distributions............................................. 40
Determination of Net Asset Value........................................ 41
Organization of the Fund................................................ 42
Shareholder Reports..................................................... 42
Shareholder Inquiries................................................... 42
Appendix.................................................................. 43
Authorization Form........................................................ 49
[LOGO]
MERRILL LYNCH GLOBAL GROWTH FUND, INC.
[COMPASS]
PROSPECTUS
March 6, 1998
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
57
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL GROWTH FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------
Merrill Lynch Global Growth Fund, Inc. (the "Fund") is a diversified,
open-end management investment company that seeks to provide shareholders with
long-term growth of capital. The Fund will seek to achieve its investment
objective by investing in a diversified portfolio of equity securities of
issuers located in various foreign countries and the United States, placing
particular emphasis on companies that have exhibited above-average growth rates
in earnings. The Fund may employ a variety of techniques, including derivative
investments, to hedge against market and currency risk, to enhance total return
or to gain exposure to equity markets. The Fund should be considered as a means
of diversifying an investment portfolio and not in itself a balanced investment
program. There can be no assurance that the Fund's investment objective will be
achieved.
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances.
------------
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated March
6, 1998 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission (the "Commission") and can be obtained, without charge, by
calling or by writing the Fund at the above telephone number or address. This
Statement of Additional Information has been incorporated by reference into the
Prospectus. Capitalized terms used but not defined herein have the same meanings
as in the Prospectus.
------------
MERRILL LYNCH ASSET MANAGEMENT - MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. - DISTRIBUTOR
------------
The date of this Statement of Additional Information is March 6, 1998.
58
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term growth of
capital. The Fund will seek to achieve its investment objective by investing in
a diversified portfolio of equity securities of issuers located in various
foreign countries and the United States, placing particular emphasis on
companies that have exhibited above-average growth rates in earnings. The Fund
may employ a variety of techniques, including derivative investments, to hedge
against market and currency risk, to enhance total return or to gain exposure to
equity markets. The Fund should be considered as a means of diversifying an
investment portfolio and not in itself a balanced investment program. There can
be no assurance that the Fund's investment objective will be achieved.
While it is the policy of the Fund generally not to engage in trading for
short-term gains, the Manager will effect portfolio transactions without regard
to holding period, if, in its judgment, such transactions are advisable in light
of a change in circumstances of a particular company or within a particular
industry or in the general market, economic or financial conditions. The
portfolio turnover rate is calculated by dividing the lesser of the Fund's
annual sales or purchases of portfolio securities (exclusive of purchases or
sales of all securities whose maturities at the time of acquisition were one
year or less) by the monthly average value of the securities in the portfolio
during the year. For the period October 31, 1997 (commencement of operations) to
December 31, 1997, the Fund's portfolio turnover rate was 3.81%. While the Fund
anticipates that its annual portfolio turnover rate should not exceed 100% under
normal conditions, it is impossible to predict portfolio turnover rates. Higher
portfolio turnover may contribute to higher transactional costs and negative tax
consequences, such as an increase in capital gain dividends or in ordinary
income dividends of accrued market discount. See "Dividends, Distributions and
Taxes."
PORTFOLIO STRATEGIES INVOLVING OPTIONS, FUTURES AND FOREIGN EXCHANGE
TRANSACTIONS
The Fund is authorized to engage in certain investment practices involving
the use of options, futures and foreign exchange, which may expose the Fund to
certain risks. These investment practices and the associated risks are described
in detail in the Appendix in the Prospectus.
OTHER INVESTMENT POLICIES AND PRACTICES
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase securities on a when-issued basis, and it may purchase or sell
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future to secure what is considered an advantageous yield and price to the Fund
at the time of entering into the transaction. Although the Fund has not
established any limit on the percentage of its assets that may be committed in
connection with such transactions, the Fund will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government securities or
other liquid 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.
There can be no assurance that a security purchased on a when-issued basis
or purchased or sold through a forward 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. The Fund may bear the risk of a decline in the value of such
security and may not benefit from an appreciation in the value of the security
during the commitment period.
2
59
Standby Commitment Agreements. The Fund, from time to time, may enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of equity securities which may be
issued and sold to the Fund at the option of the issuer. The price of the
security is fixed at the time of the commitment. At the time of entering into
the agreement the Fund is paid a commitment fee, regardless of whether or not
the security is ultimately issued, which is typically approximately 0.50% of the
aggregate purchase price of the security that the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a price that is
considered advantageous to the Fund. The Fund 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 that affect their
marketability, will not exceed 15% of its net assets taken at the time of
acquisition of such a commitment. The Fund at all times will maintain a
segregated account with its custodian of cash, cash equivalents, U.S. Government
securities or other liquid securities denominated in U.S. dollars or non-U.S.
currencies in an aggregate amount equal to the purchase price of the securities
underlying a commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued, and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, the Fund
may bear the risk of a decline in the value of such security and may not benefit
from an appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
can reasonably be expected to be issued, and the value of the security
thereafter will be reflected in the calculation of the Fund's net asset value.
The cost basis of the security will be adjusted by the amount of the commitment
fee. In the event the security is not issued, the commitment fee will be
recorded as income on the expiration date of the standby commitment.
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements and purchase and sale contracts may be entered into only
with financial institutions which (i) have, in the opinion of the Manager,
substantial capital relative to the Fund's exposure, or (ii) have provided the
Fund with a third-party guaranty or other credit enhancement. Under a repurchase
agreement or a purchase and sale contract, the seller agrees, upon entering into
the contract with the Fund, to repurchase the security at a mutually agreed-upon
time and price in a specified currency, thereby determining the yield during the
term of the agreement. This results in a fixed rate of return insulated from
market fluctuations during such period although it may be affected by currency
fluctuations. In the case of repurchase agreements, the price at which the
trades are conducted do not reflect accrued interest on the underlying
obligation; whereas, in the case of purchase and sale contracts, the prices take
into account accrued interest. Such agreements usually cover short periods, such
as under one week. Repurchase agreements may be construed to be collateralized
loans by the purchaser to the seller secured by the securities transferred to
the purchaser. In the case of a repurchase agreement, as a purchaser, the Fund
will require the seller to provide additional collateral if the market value of
the securities falls below the repurchase price at any time during the term of
the repurchase agreement; the Fund does not have the right to seek additional
collateral in the case of purchase and sale contracts. In the event of default
by the seller under a repurchase agreement construed to be a collateralized
loan, the underlying securities are not owned by the Fund but only constitute
collateral for the
3
60
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs or possible losses in connection with the
disposition of the collateral. A purchase and sale contract differs from a
repurchase agreement in that the contract arrangements stipulate that the
securities are owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract, instead of the
contractual fixed rate, the rate of return to the Fund shall be dependent upon
intervening fluctuations of the market value of such securities and the accrued
interest on the securities. In such event, the Fund would have rights against
the seller for breach of contract with respect to any losses arising from market
fluctuations following the failure of the seller to perform. 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. The Fund may not invest more than 15% of its net assets in repurchase
agreements or purchase and sale contracts maturing in more than seven days
together with all other illiquid investments.
Lending of Portfolio Securities. Subject to the investment restrictions
set forth in the Prospectus and herein, the Fund may lend securities from its
portfolio to approved borrowers and receive therefor collateral in cash or
securities issued or guaranteed by the United States Government, which
collateral is 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, for
example is to permit the borrower to use such securities for delivery to
purchasers when such borrower has sold short. If cash collateral is received by
the Fund, it is invested in short-term money market securities, and a portion of
the yield received in respect of such investment is retained by the Fund.
Alternatively, if securities are delivered to the Fund as collateral, the Fund
and the borrower negotiate a rate for the loaned premium to be received by the
Fund for lending its portfolio securities. In either event, the total yield on
the Fund's portfolio is increased by loans of its portfolio securities. The Fund
will have the right to regain record ownership of loaned securities to exercise
beneficial rights such as voting rights, subscription rights and rights to
dividends, interest or other distributions. Such loans are terminable at any
time, and the borrower, after notice, will be required to return borrowed
securities within five business days. The Fund may pay reasonable finder's,
administrative and custodial fees in connection with such loans. With respect to
the lending of portfolio securities, there is the risk of failure by the
borrower to return the securities involved in such transactions.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of fundamental and non-fundamental
restrictions and policies relating to the investment of its assets and its
activities. The fundamental policies set forth below may not be changed without
the approval of the holders of a majority of the Fund's outstanding voting
securities (which for this purpose and under the Investment Company Act of 1940,
as amended (the "Investment Company Act") means the lesser of (i) 67% of the
Fund's shares represented at a meeting at which more than 50% of the outstanding
shares of the Fund are represented or (ii) more than 50% of the Fund's
outstanding shares). The Fund may not:
1. Make any investment inconsistent with the Fund's classification
as a diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value at the
time of each investment, in the securities of issuers in any particular
industry (excluding issuers principally engaged in the real estate
industry and the U.S. Government and its agencies and instrumentalities).
For purposes of this restriction, states, municipalities and their
political subdivisions are not considered part of any industry.
4
61
3. Make investments for the purpose of exercising control or
management. Investments by the Fund in wholly-owned investment entities
created under the laws of certain countries will not be deemed to be the
making of investments for the purpose of exercising control or management.
4. Purchase or sell real estate, except that, to the extent
permitted by applicable law, the Fund may invest in securities directly or
indirectly secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein and may hold
and sell real estate acquired by the Fund as a result of the ownership of
securities.
5. Make loans to other persons, except that the acquisition of
bonds, debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers' acceptances and repurchase agreements
and purchase and sale contracts or any similar instruments shall not be
deemed to be the making of a loan, and except further that the Fund may
lend its portfolio securities, provided that the lending of portfolio
securities may be made only in accordance with applicable law and the
guidelines set forth in the Fund's Prospectus and this Statement of
Additional Information, as they may be amended from time to time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may, to the
extent permitted by applicable law, borrow up to an additional 5% of its
total assets for temporary purposes, (iii) the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and (iv) the Fund may purchase securities on
margin to the extent permitted by applicable law. The Fund may not pledge
its assets other than to secure such borrowings or, to the extent
permitted by the Fund's investment policies as set forth in its Prospectus
and Statement of Additional Information, as they may be amended from time
to time, in connection with hedging transactions, short sales, when-issued
and forward commitment transactions and similar investment strategies.
8. Underwrite securities of other issuers, except insofar as the
Fund technically may be deemed an underwriter under the Securities Act of
1933, as amended (the "Securities Act"), in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except
to the extent that the Fund may do so in accordance with applicable law
and the Fund's Prospectus and Statement of Additional Information, as they
may be amended from time to time, and without registering as a commodity
pool operator under the Commodity Exchange Act.
Under the non-fundamental investment restrictions, the Fund may not:
a. Purchase securities of other investment companies except to the
extent permitted by applicable law. As a matter of policy, however, the
Fund will not purchase shares of any registered open-end investment
company or registered unit investment trust in reliance on Section
12(d)(1)(F) or (G) (the "fund of funds" provisions) of the Investment
Company Act, at any time its shares are owned by another investment
company that is part of the same group of investment companies as the
Fund.
5
62
b. Make short sales of securities or maintain a short position,
except to the extent permitted by applicable law. The Fund currently does
not intend to engage in short sales, except short sales "against the box."
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund
has otherwise determined to be liquid pursuant to applicable law.
Securities purchased in accordance with Rule 144A under the Securities Act
and determined to be liquid by the Board of Directors are not subject to
the limitations set forth in this investment restriction.
d. Notwithstanding fundamental investment restriction (7) above,
borrow money or pledge its assets, except that the Fund (a) may borrow
from a bank as a temporary measure for extraordinary or emergency purposes
or to meet redemptions in amounts not exceeding 33 1/3% (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 the Fund from
purchasing securities on margin. The deposit or payment by the Fund 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 the Fund's exposure to capital risk, and borrowed funds are
subject to interest costs which will reduce net income. The Fund will not
purchase securities while borrowings exceed 5% of its total assets.
Portfolio securities of the Fund generally may not be purchased from, sold
or loaned to the Manager or its affiliates or any of their directors, 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 it will not purchase or sell OTC options if, as a
result of any such transaction, the sum of the market value of OTC options
currently outstanding that are held by the Fund, the market value of the
underlying securities covered by OTC call options currently outstanding that
were sold by the Fund and margin deposits on the Fund's existing OTC options on
financial futures contracts exceeds 15% of the net assets of the Fund, taken at
market value, together with all other assets of the Fund that are illiquid or
are not otherwise readily marketable. However, if the OTC option is sold by the
Fund to a primary U.S. Government securities dealer recognized by the Federal
Reserve Bank of New York and if the Fund has the unconditional contractual right
to repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities as is equal
to the repurchase price less the amount by which the option is "in-the-money"
(i.e., current market value of the underlying securities minus the option's
strike price). The repurchase price with the primary dealers is typically a
formula price which is generally based on a multiple of the premium received for
the option, plus the amount by which the option is "in-the-money." This policy
as to OTC options is not a fundamental policy of the Fund and may be amended by
the 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.
6
63
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 (2), 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, the Fund will not invest in securities
that are subject to material legal restrictions on repatriation of assets.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Fund, the Fund is prohibited from
engaging in certain transactions involving such firm or its affiliates except
for brokerage transactions permitted under the Investment Company Act involving
only usual and customary commissions or transactions permitted pursuant to an
exemptive order under the Investment Company Act. See "Portfolio Transactions
and Brokerage." Without such an exemptive order, the Fund is prohibited from
engaging in portfolio transactions with Merrill Lynch or its affiliates acting
as principal.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
Information about the Directors and executive officers of the Fund,
including their ages and their principal occupations for at least the last five
years, is set forth below. Unless otherwise noted, the address of each executive
officer and Director is P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (65)-President and Director(1)(2)-Chairman of the Manager
and Fund Asset Management, L.P. ("FAM") (which terms as used herein include
their corporate predecessors) since 1997; President of the Manager and FAM from
1977 to 1997; Chairman of Princeton Services, Inc. ("Princeton Services") since
1997, and Director thereof since 1993; President of Princeton Services from 1993
to 1997; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.")
since 1990.
DONALD CECIL (71)-Director(2)-1114 Avenue of the Americas, New York, New
York 10036. Special Limited Partner of Cumberland Partners (an investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
M. COLYER CRUM (65)-Director(2)-Soldiers Field Road, Boston, Massachusetts
02163. Currently James R. Williston Professor of Investment Management Emeritus,
Harvard Business School; James R. Williston Professor of Investment Management,
Harvard Business School, from 1971 to 1996; Director of Cambridge Bancorp,
Copley Properties, Inc. and Sun Life Assurance Company of Canada.
EDWARD H. MEYER (71)-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), Harman
International Industries, Inc. and Ethan Allen Interiors, Inc.
JACK B. SUNDERLAND (69)-Director(2)-P.O. Box 7, West Cornwall, Connecticut
06796. President and Director of American Independent Oil Company, Inc. (an
energy company) since 1987; Member of Council on Foreign Relations since 1971.
7
64
J. THOMAS TOUCHTON (59)-Director(2)-Suite 3405, One Tampa City Center, 201
North Franklin Street, Tampa, Florida 33602. Managing Partner of The
Witt-Touchton Company and its predecessor The Witt Co. (a private investment
partnership) since 1972; Trustee Emeritus of Washington and Lee University;
Director of TECO Energy, Inc. (an electric utility holding company).
FRED G. WEISS (56)-Director(2)-5141 Via de Amalfi Drive, Boca Raton,
Florida 33496. Managing Director of FGW Associates since 1997; Director of Noven
Corporation (a pharmaceutical company); Vice President, Planning, Investment,
and Development of Warner-Lambert Co. from 1979 to 1997.
TERRY K. GLENN (57)-Executive Vice President(1)(2)-Executive Vice
President of Merrill Lynch Funds Distributor, Inc. ("MLFD" or the "Distributor")
the Manager and FAM since 1983; President of Merrill Lynch Funds Distributor,
Inc. ("MLFD" or the "Distributor") since 1986 and Director thereof since 1991;
Executive Vice President and Director of Princeton Services since 1993;
President of Princeton Administrators, L.P. since 1988.
NORMAN R. HARVEY (64)-Senior Vice President(1)(2)-Senior Vice President of
the Manager and FAM since 1982; Senior Vice President of Princeton Services
since 1993.
LAWRENCE R. FULLER (56)- Senior Vice President(1)-First Vice President of
the Manager since 1997; Vice President of the Manager from 1992 to 1997; Senior
Vice President and Director of Benefit Capital Management from 1984 to 1992.
DONALD C. BURKE (37)-Vice President(1)(2)-First Vice President of the
Manager since 1997; Vice President of the Manager from 1990 to 1997; and
Director of Taxation of the Manager since 1990.
GERALD M. RICHARD (48)-Treasurer(1)(2)-Senior Vice President and Treasurer
of the Manager and FAM since 1984; Senior Vice President and Treasurer of
Princeton Services since 1993; Vice President of the Distributor since 1981 and
Treasurer thereof since 1984.
PHILIP M. MANDEL (50)-Secretary(1)(2)- First Vice President of the Manager
since 1997; Assistant General Counsel of Merrill Lynch from 1989 to 1997.
- ----------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a trustee, director or officer of certain
other investment companies for which the Manager or FAM acts as investment
adviser or manager.
At February 2, 1998, the officers and Directors of the Fund as a group (13
persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund and owned less than 1% of the outstanding shares of common stock of ML &
Co.
COMPENSATION OF DIRECTORS
The Fund pays each Director who is not affiliated with the Manager (each a
"non-affiliated Director") a fee of $3,500 per year plus $500 per Board meeting
attended, together with such Director's actual out-of-pocket expenses relating
to attendance at meetings. The Fund also compensates each member of the Audit
and Nominating Committee (the "Committee"), which consists of the non-affiliated
Directors, a fee of $2,500 per year. The Chairman of the Committee receives an
additional $1,000 annually. Fees and expenses paid to non-
8
65
affiliated Directors aggregated $43,400 for the period October 31, 1997
(commencement of operations) to December 31, 1997.
The following table sets forth for the period October 31, 1997
(commencement of operations) to December 31, 1997 compensation paid by the Fund
to the non-affiliated Directors, and for the calendar year ended December 31,
1997 the aggregate compensation paid by all registered investment companies
advised by MLAM or its affiliate, FAM ("MLAM/FAM-Advised Funds"), to the
non-affiliated Directors.
AGGREGATE
COMPENSATION
FROM FUND AND
PENSION OR RETIREMENT MLAM/FAM-ADVISED
COMPENSATION BENEFITS ACCRUED AS FUNDS PAID TO
NAME OF DIRECTOR FROM FUND PART OF FUND EXPENSES DIRECTORS(1)
- --------------------- ------------ --------------------- ----------------
Donald Cecil......... $8,000 None $275,850
M. Colyer Crum....... 7,000 None 115,600
Edward H. Meyer...... 7,000 None 222,100
Jack B. Sunderland... 7,000 None 132,600
J. Thomas Touchton... 6,500 None 132,100
Fred G. Weiss(2)..... 0 None 0
- --------------
(1) The Directors serve on the boards of MLAM/FAM-Advised Funds as follows:
Mr. Cecil (33 registered investment companies consisting of 33
portfolios); Mr. Crum (15 registered investment companies consisting of 15
portfolios); Mr. Meyer (33 registered investment companies consisting of
33 portfolios); Mr. Sunderland (18 registered investment companies
consisting of 30 portfolios); Mr. Touchton (18 registered investment
companies consisting of 30 portfolios); and Mr. Weiss (15 registered
investment companies consisting of 15 portfolios).
(2) Mr. Weiss was elected a Director of the Fund on February 3, 1998.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund-Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.
Securities may be held by, or be appropriate investments for, the Fund as
well as other funds or investment advisory clients for which the Manager or its
affiliates act as an adviser. Because of different objectives or other factors,
a particular security may be bought for one or more clients when one or more
clients are selling the same security. If purchases or sales of securities by
the Manager for the Fund or other funds for which it acts as investment adviser
or for its advisory clients arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all. To the extent
that transactions on behalf of more than one client of the Manager or its
affiliates during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
The Fund has entered into an investment advisory agreement with the
Manager (the "Management Agreement"). As discussed in the Prospectus, the
Manager receives for its services to the Fund monthly compensation at the annual
rate of 0.75% of the average daily net assets of the Fund. For the period
October 31, 1997 (commencement of operations) to December 31, 1997, the total
advisory fees payable by the Fund to the Manager aggregated $1,632,926. For the
period October 31, 1997 (commencement of operations) to December 31, 1997, the
Fund reimbursed the Manager $21,828 for accounting services.
9
66
As described in the Prospectus, the Manager has also entered into a
sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited ("MLAM
U.K.") pursuant to which MLAM U.K. provides investment advisory services to the
Manager with respect to the Fund.
The Management Agreement obligates the Manager to provide investment
advisory services and to pay all compensation of and furnish office space for
officers and employees of the Fund connected with investment and economic
research, trading and investment management of the Fund, as well as the fees of
all Directors of the Fund who are affiliated persons of the Manager. The Fund
pays all other expenses incurred in the operation of the Fund, including, among
other things, taxes, expenses for legal and auditing services, costs of printing
proxies, stock certificates, shareholder reports and prospectuses and statements
of additional information (except to the extent paid by the Distributor),
charges of the custodian, any 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 non-affiliated Directors,
accounting and pricing costs (including the daily calculation of net asset
value), insurance, interest, brokerage costs, litigation and other extraordinary
or nonrecurring expenses, and other expenses properly payable by the Fund.
Accounting services are provided to the Fund by the Manager, and the Fund
reimburses the Manager for its costs in connection with such services on a
semi-annual basis. The Distributor will pay certain promotional expenses of the
Fund incurred in connection with the offering of shares of the Fund. Certain
expenses will be financed by the Fund pursuant to distribution plans in
compliance with Rule 12b-1 under the Investment Company Act. See "Purchase of
Shares-Distribution Plans."
The Manager is a limited partnership, the partners of which are ML & Co.
and Princeton Services. ML & Co. and Princeton Services are "controlling
persons" of the Manager as defined under the Investment Company Act because of
their ownership of its voting securities or their power to exercise a
controlling influence over its management or policies. Similarly, the following
entities may be considered "controlling persons" of MLAM U.K.: Merrill Lynch
Europe Limited (MLAM U.K.'s parent), a subsidiary of ML International Holdings,
a subsidiary of Merrill Lynch International, Inc., a subsidiary of ML & Co.
Duration and Termination. Unless earlier terminated as described herein,
the Management Agreement will continue in effect for a period of two years from
the date of execution and will remain in effect from year to year thereafter if
approved annually (a) by the Board of Directors or by a majority of the
outstanding shares of the Fund and (b) by a majority of the Directors who are
not parties to such contract or "interested persons" (as defined in the
Investment Company Act) of any such party. Such contracts are not assignable and
may be terminated without penalty on 60 days' written notice at the option of
either party thereto or by the vote of the shareholders of the Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System; shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives, and shares of Class B and Class C are
sold to investors choosing the deferred sales charge alternatives. Each Class A,
Class B, Class C and Class D share of the Fund represents an identical interest
in the investment portfolio of the Fund and has the same rights except that
Class B, Class C and Class D shares bear the expenses of the ongoing account
maintenance
10
67
fees, and Class B and Class C shares bear the expenses of the ongoing
distribution fees and the additional incremental transfer agency costs resulting
from the deferred sales charge arrangements. Class B, Class C and Class D shares
each have exclusive voting rights with respect to the Rule 12b-1 distribution
plan adopted with respect to such class pursuant to which account maintenance
and/or distribution fees are paid (except that Class B shareholders may vote
upon any material changes to expenses charged under the Class D Distribution
Plan). Each class has different exchange privileges. See "Shareholder
Services-Exchange Privilege."
The Merrill Lynch Select Pricing(SM) System is used by more than 50
registered investment companies advised by the Manager or its affiliate, FAM.
Funds advised by the Manager or FAM that utilize the Merrill Lynch Select
Pricing(SM) System are referred to herein as "MLAM-advised mutual funds."
The Fund has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Fund (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the offering
of each class of shares of the Fund. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and
prospective investors. The Distributor also pays for other supplementary sales
literature and advertising costs. The Distribution Agreements are subject to the
same renewal requirements and termination provisions as the Management Agreement
described under "Management of the Fund-Management and Advisory Arrangements."
INITIAL SALES CHARGE ALTERNATIVES - CLASS A AND CLASS D SHARES
For the period October 31, 1997 (commencement of operations) to December
31, 1997, the Fund sold its Class A shares and Class D shares through the
Distributor and Merrill Lynch, as selected dealer. The gross sales charges for
the sale of Class A shares of the Fund for that period were $16, of which $1 and
$15 were received by the Distributor and Merrill Lynch, respectively. For that
period, the Distributor received no CDSCs with respect to redemptions within one
year after purchase of Class A shares purchased subject to a front-end sales
charge waiver. The gross sales charges for the sale of Class D shares of the
Fund for that period were $354,004, of which $22,956 and $331,048 were received
by the Distributor and Merrill Lynch, respectively. For that period, the
Distributor received no CDSCs with respect to redemptions within one year after
purchase of Class D shares purchased subject to a front-end sales charge waiver.
The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund, refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts by an individual, his or her spouse and their children under
the age of 21 years purchasing shares for his, her or their own account and
single purchases by a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases by
any such company that has not been in existence for at least six months or that
has no purpose other than the purchase of shares of the Fund or shares of other
registered investment companies at a discount; provided, however, that it shall
not include purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients or an investment advisor.
11
68
Closed-End Fund Investment Option. Class A shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class A shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Manager or FAM
who purchased such closed-end fund shares prior to October 21, 1994 (the date
the Merrill Lynch Select Pricing(SM) System commenced operations) and wish to
reinvest the net proceeds of a sale of their closed-end fund shares of common
stock in Eligible Class A shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased such shares
on or after October 21, 1994 and wish to reinvest the net proceeds from a sale
of their closed-end fund shares are offered Class A shares (if eligible to buy
Class A shares) or Class D shares of the Fund and other MLAM-advised mutual
funds ("Eligible Class D shares"), if the following conditions are met. First,
the sale of closed-end fund shares must be made through Merrill Lynch and the
net proceeds therefrom must be reinvested immediately in Eligible Class A or
Class D shares. Second, the closed-end fund shares must either have been
acquired in the initial public offering or be shares representing dividends from
shares of common stock acquired in such offering. Third, the closed-end fund
shares must have been continuously maintained in a Merrill Lynch securities
account. Fourth, there must be a minimum purchase of $250 to be eligible for the
investment option.
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Fund, except that shareholders already
owning Class A shares of the Fund will be eligible to purchase additional Class
A shares pursuant to this option, if such additional Class A shares will be held
in the same account as the existing Class A shares and other requirements
pertaining to the reinvestment privilege are met. In order to exercise this
investment option, a shareholder of one of the above-referenced continuously
offered closed-end funds (an "eligible fund") must sell his or her shares of
common stock of the eligible fund (the "eligible shares") back to the eligible
fund in connection with a tender offer conducted by the eligible fund and
reinvest the proceeds immediately in the designated class of shares of the Fund.
This investment option is available only with respect to eligible shares as to
which no Early Withdrawal Charge or CDSC (each as defined in the eligible fund's
prospectus) is applicable. Purchase orders from eligible fund shareholders
wishing to exercise this investment option will be accepted only on the day that
the related tender offer terminates and will be effected at the net asset value
of the designated class of the Fund on such day.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Fund and of other MLAM-advised mutual funds. For any such right
of accumulation to be made available, the Distributor must be provided at the
time of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing, or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.
12
69
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of the Fund or of
any other MLAM-advised mutual funds made within a 13-month period starting with
the first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at Merrill Lynch Financial Data Services, Inc., the
Fund's transfer agent (the "Transfer Agent"). The Letter of Intention is not
available to employee benefit plans for which Merrill Lynch provides plan
participant recordkeeping services. The Letter of Intention is not a binding
obligation to purchase any amount of Class A or Class D shares but its execution
will result in the purchaser paying a lower sales charge at the appropriate
quantity purchase level. A purchase not originally made pursuant to a Letter of
Intention may be included under a subsequent Letter of Intention executed within
90 days of such purchase if the Distributor is informed in writing of this
intent within such 90-day period. The value of Class A and Class D shares of the
Fund and of other MLAM-advised mutual funds presently held, at cost or maximum
offering price (whichever is higher), on the date of the first purchase under
the Letter of Intention, may be included as a credit toward the completion of
such Letter, but the reduced sales charge applicable to the amount covered by
such Letter will be applied only to new purchases. If the total amount of shares
purchased does not equal the amount stated in the Letter of Intention (minimum
of $25,000), the investor will be notified and must pay, within 20 days of the
expiration of such Letter, the difference between the sales charge on the Class
A or Class D shares purchased at the reduced rate and the sales charge
applicable to the sales actually purchased through the Letter. Class A or Class
D shares equal to five percent of the intended amount will be held in escrow
during the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If a purchase
during the term of such Letter otherwise would be subject to a further reduced
sales charge based on the right of accumulation, the purchaser will be entitled
on that purchase and subsequent purchases to the reduced percentage sales charge
which would be applicable to a single purchase equal to the total dollar value
of the Class A or Class D shares then being purchased under such Letter, but
there will be no retroactive reduction of the sales charges on any previous
purchase. The value of any shares redeemed or otherwise disposed of by the
purchaser prior to termination or completion of the Letter of Intention will be
deducted from the total purchases made under such Letter. An exchange from a
MLAM-advised money market fund into the Fund that creates a sales charge will
count toward completing a new or existing Letter of Intention from the Fund.
Merrill Lynch Blueprint(SM) Program. Class D shares of the Fund are
offered to participants in the Merrill Lynch Blueprint(SM) Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares of
the Fund may purchase additional Class A shares of the Fund through Blueprint.
Blueprint is directed to small investors, group Individual Retirement Accounts
("IRAs") and participants in certain affinity groups such as credit unions,
trade associations and benefit plans. Investors placing orders to purchase Class
A or Class D shares of the Fund through Blueprint will acquire the Class A or
Class D shares at net asset value plus a sales charge calculated in accordance
with the Blueprint sales charge schedule (i.e., up to $5,000 at 3.50% and
$5,000.01 or more at the standard sales charge rates disclosed in the
Prospectus). In addition, Class A and Class D shares of the Fund are being
offered at net asset value plus a sales charge of .50% for corporate or group
IRA programs placing orders to purchase their Class A or Class D shares through
Blueprint. Services available to Class A and Class D investors through
Blueprint, including exchange privileges, may differ from those available to
other investors in Class A or Class D shares.
Class A and Class D shares are offered at net asset value to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial
13
70
Services, a business unit of Merrill Lynch. The IRA Rollover Program is
available to custodian rollover assets from Employee Sponsored Retirement and
Savings Plans (as defined below) whose trustee and/or plan sponsor has entered
into the Merrill Lynch Directed IRA Rollover Program Service Agreement.
Orders for purchases and redemptions of Class A or Class D shares of the
Fund may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint(SM) Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Employee Access(SM) Accounts. Provided applicable threshold requirements
are met, either Class A or Class D shares are offered at net asset value to
Employee Access (SM) Accounts available through authorized employers. The
initial minimum for such accounts is $500, except that the initial minimum for
shares purchased for such accounts pursuant to the Automatic Investment Program
is $50.
Purchase Privilege of Certain Persons. Directors of the Fund, directors
and trustees of other MLAM-advised mutual funds, ML & Co. and its subsidiaries
(the term "subsidiaries," when used herein with respect to ML & Co., includes
the Manager, FAM and certain other entities directly or indirectly wholly owned
and controlled by ML & Co.) and their directors and employees, and any trust,
pension, profit-sharing or other benefit plan for such persons, may purchase
Class A shares of the Fund at net asset value.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis; and second, the investor also must establish that such redemption had
been made within 60 days prior to the investment in the Fund, and the proceeds
from the redemption had been maintained in the interim in cash or a money market
fund.
Class D shares of the Fund are also offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and the shares of
such other fund were subject to a sales charge either at the time of purchase or
on a deferred basis; and second, such purchase of Class D shares must be made
within 90 days after such notice.
Class D shares of the Fund are also offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: first, the investor
14
71
must advise Merrill Lynch that it will purchase Class D shares of the Fund with
proceeds from the redemption of shares of such other mutual fund and that such
shares have been outstanding for a period of no less than six months; and
second, such purchase of Class D shares must be made within 60 days after the
redemption and the proceeds from the redemption must be maintained in the
interim in cash or a money market fund.
TMA(SM) Managed Trusts. Class A shares are offered to TMA(SM) Managed
Trusts to which Merrill Lynch Trust Company provides discretionary trustee
services at net asset value.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares of the Fund may be reduced to the net asset value per Class D
share in connection with the acquisition of the assets of or merger or
consolidation with a public or private investment company. The value of the
assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible adverse tax consequences to the Fund that
might result from an acquisition of assets having net unrealized appreciation
that is disproportionately higher at the time of acquisition than the realized
or unrealized appreciation of the Fund. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities that (i) meet the
investment objective and policies of the Fund; (ii) are acquired for investment
and not for resale (subject to the understanding that the disposition of the
Fund's portfolio securities shall at all times remain within its control); and
(iii) are liquid securities, the value of which is readily ascertainable, that
are not restricted as to transfer either by law or liquidity of market (except
that the Fund may acquire through such transactions restricted or illiquid
securities to the extent the Fund does not exceed the applicable limits on
acquisition of such securities set forth under "Investment Objective and
Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based on
the number of employees or number of employees eligible to participate in the
plan, the aggregate amount invested by the plan in specified investments and/or
the services provided by Merrill Lynch to the plan. Certain other plans may
purchase Class B shares with a waiver of the contingent deferred sales charge
("CDSC") upon redemption, based on similar criteria. Such Class B shares will
convert into Class D shares approximately ten years after the plan purchases the
first share of any MLAM-advised mutual fund. Minimum purchase requirements may
be waived or varied for such plans. Additional information regarding purchases
by employer-sponsored retirement or savings plans and certain other arrangements
is available toll-free from Merrill Lynch Business Financial Services at (800)
237-7777.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares-Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Fund to the Distributor with
respect to such classes.
15
72
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Directors shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each Distribution Plan, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Fund and its related class of shareholders. Each
Distribution Plan further provides that so long as the Distribution Plan remains
in effect, the selection and nomination of Directors who are not "interested
persons" of the Fund, as defined in the Investment Company Act (the "Independent
Directors"), shall be committed to the discretion of the Independent Directors
then in office. In approving each Distribution Plan in accordance with Rule
12b-1, the Independent Directors concluded that there is a reasonable likelihood
that such Distribution Plan will benefit the Fund and its related class of
shareholders. Each Distribution Plan can be terminated at any time, without
penalty, by the vote of a majority of the Independent Directors or by the vote
of the holders of a majority of the outstanding related class of voting
securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholders, and all material amendments are required to be
approved by the vote of Directors, including a majority of the Independent
Directors who have no direct or indirect financial interest in such Distribution
Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further
requires that the Fund preserve copies of each Distribution Plan and any report
made pursuant to such plan for a period of not less than six years from the date
of such Distribution Plan or such report, the first two years in an easily
accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD") imposes a limitation on
certain asset-based sales charges such as the distribution fee and the CDSC
borne by the Class B and Class C shares but not the account maintenance fee. The
maximum sales charge rule is applied separately to each class. As applicable to
the Fund, the maximum sales charge rule limits the aggregate of distribution fee
payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of
Class B shares and Class C shares, computed separately (defined to exclude
shares issued pursuant to dividend reinvestments and exchanges), plus (2)
interest on the unpaid balance for the respective class, computed separately, at
the prime rate plus 1% (the unpaid balance being the maximum amount payable
minus amounts received from the payment of the distribution fee and the CDSC).
In connection with the Class B shares, the Distributor has voluntarily agreed to
waive interest charges on the unpaid balance in excess of 0.50% of eligible
gross sales. Consequently, the maximum amount payable to the Distributor
(referred to as the "voluntary maximum") in connection with the Class B shares
is 6.75% of eligible gross sales. The Distributor retains the right to stop
waiving the interest charges at any time. To the extent payments would exceed
the voluntary maximum, the Fund will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid to
the Fund rather than to the Distributor; however, the Fund will continue to make
payments of the account maintenance fee. In certain circumstances the amount
payable pursuant to the voluntary maximum may exceed the amount payable under
the NASD formula. In such circumstances payment in excess of the amount payable
under the NASD formula will not be made.
The following table sets forth comparative information for the period
October 31, 1997 (commencement of operations) to November 30, 1997, with respect
to the Class B and Class C shares of the Fund indicating the
16
73
maximum allowable payments that can be made under the NASD maximum sales charge
rule and, with respect to Class B shares, the Distributor's voluntary maximum.
DATA CALCULATED FOR THE PERIOD OCTOBER 31, 1997
(COMMENCEMENT OF OPERATIONS) TO NOVEMBER 30, 1997
---------------------------------------------------------------------------------------------
ALLOWABLE ALLOWABLE AMOUNTS ANNUAL
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE DISTRIBUTION
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID FEE AT CURRENT
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE NET ASSET LEVEL(4)
-------- --------- ---------- ------- -------------- --------- ------------------
(IN THOUSANDS)
CLASS B SHARES:
Under NASD Rule
as Adopted ......... $872,561 $54,535 $ 11 $54,546 $532 $54,014 $6,733
Under Distributor's
Voluntary Waiver ... $872,561 $54,265 $4,632 $58,897 $532 $58,365 $6,733
CLASS C SHARES:
Under NASD Rule
as Adopted ......... $184,766 $11,548 $ 42 $11,590 $104 $11,486 $1,371
- ----------
(1) Purchase price of all eligible Class B or Class C shares sold during the
period indicated other than shares acquired through dividend reinvestment
and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1%, as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. See
"Purchase of Shares-Distribution Plans" in the Prospectus. This figure may
include CDSCs that were deferred when a shareholder redeemed shares prior
to the expiration of the applicable CDSC period and invested the proceeds,
without the imposition of a sales charge, in Class A shares in conjunction
with the shareholder's participation in the Merrill Lynch Mutual Fund
Advisor (Merrill Lynch MFA(SM)) Program (the "MFA Program"). The CDSC is
booked as a contingent obligation that may be payable if the shareholder
terminates participation in the MFA program.
(4) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any CDSC payments) is amortizing
the unpaid balance. No assurance can be given that payments of the
distribution fee will reach either the NASD maximum or, with respect to
Class B shares, the voluntary maximum.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days after the tender of such
shares only for periods during which trading on the New York Stock Exchange (the
"NYSE") is restricted as determined by the Commission or such Exchange is closed
(other than customary weekend and holiday closings), for any period during which
an emergency exists, as defined by the Commission, as a result of which disposal
of portfolio securities or determination of the net asset value of the Fund is
not reasonably practicable, and for such other periods as the Commission may by
order permit for the protection of shareholders of the Fund.
The value of shares at the time of redemption may be more or less than the
shareholder's cost depending on the market value of the securities held by the
Fund at any such time.
17
74
DEFERRED SALES CHARGES-CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares-Deferred Sales
Charge Alternatives-Class B and Class C Shares," while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived (i) on redemptions of Class B shares in certain instances,
including in connection with certain post-retirement withdrawals from an IRA or
other retirement plan or (ii) on redemptions of Class B shares following the
death or disability of a Class B shareholder. Redemptions for which the waiver
applies in the case of such withdrawals are: (a) any partial or complete
redemption in connection with a tax-free distribution following retirement under
a tax-deferred retirement plan or attaining age 59 1/2 in the case of an IRA or
other retirement plan, or part of a series of equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) or any
redemption resulting from the tax-free return of an excess contribution to an
IRA; or (b) any partial or complete redemption following the death or disability
(as defined in the Code) of a Class B shareholder (including one who owns the
Class B shares as joint tenant with his or her spouse), provided the redemption
is requested within one year of the death or initial determination of
disability. For the period October 31, 1997 (commencement of operations) to
December 31, 1997, the Distributor received CDSCs of $83,778 with respect to
redemptions of Class B shares, and $8,806 with respect to redemptions of Class C
shares, all of which were paid to Merrill Lynch. Additional CDSCs payable to the
Distributor with respect to Class B shares may have been waived or converted to
a contingent obligation in connection with a shareholder's participation in
certain fee-based programs.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to certain
participants in the Blueprint(SM) Program. Blueprint is directed to small
investors, group IRAs and participants in certain affinity groups such as trade
associations and credit unions. Class B shares of the Fund are offered through
Blueprint only to members of certain affinity groups. The CDSC is waived in
connection with purchase orders placed through Blueprint. Services, including
the exchange privilege, available to Class B investors through Blueprint,
however, may differ from those available to other Class B investors. Orders for
purchases and redemptions of Class B shares of the Fund will be grouped for
execution purposes which, in some circumstances, may involve the execution of
such orders two business days following the day such orders are placed. The
minimum initial purchase price is $100, with a $50 minimum for subsequent
purchases through Blueprint. There is no minimum initial or subsequent purchase
requirement for investors who are part of a Blueprint automatic investment plan.
Additional information concerning these Blueprint programs, including any annual
fees or transaction charges, is available from Merrill Lynch, Pierce, Fenner &
Smith Incorporated, The Blueprint(SM) Program, P.O. Box 30441, New Brunswick,
New Jersey 08989-0441.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Fund, the
Manager is primarily responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage. The Fund has no obligation to deal
with any broker or group of brokers in the execution of transactions in
portfolio securities and does not use any particular broker or dealer. In
executing transactions with brokers and dealers, the Manager seeks to obtain the
best net results for the Fund, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution and operational facilities of the firm involved and the
firm's risk in positioning a block of securities. While the Manager generally
seeks reasonably competitive commission rates, the Fund does not necessarily pay
the lowest commission or spread
18
75
available. In addition, consistent with the Conduct Rules of the NASD and
policies established by the Board of Directors of the Fund, the Manager may
consider sales of shares of the Fund as a factor in the selection of brokers or
dealers to execute portfolio transactions for the Fund; however, whether or not
a particular broker or dealer sells shares of the Fund neither qualifies nor
disqualifies such broker or dealer to execute transactions for the Fund.
Subject to obtaining the best price and execution, brokers who provide
supplemental investment research services to the Manager may receive orders for
transactions by the Fund. Such supplemental research services ordinarily consist
of assessments and analyses of the business or prospects of a company, industry
or economic sector. Information so received will be in addition to and not in
lieu of the services required to be performed by the Manager under the
Management Agreement, and the expenses of the Manager will not necessarily be
reduced as a result of the receipt of such supplemental information. If in the
judgment of the Manager the Fund will benefit from supplemental research
services, the Manager is authorized to pay brokerage commissions to a broker
furnishing such services that are in excess of commissions that another broker
may have charged for effecting the same transaction. Certain supplemental
research services may primarily benefit one or more other investment companies
or other accounts for which the Manager exercises investment discretion.
Conversely, the Fund may be the primary beneficiary of the supplemental research
services received as a result of portfolio transactions effected for such other
accounts or investment companies.
For the period October 31, 1997 (commencement of operations) to December
31, 1997, the Fund paid total brokerage commissions of $1,366,145, of which
$11,396 or 0.83% was paid to Merrill Lynch for effecting 0.55% of the aggregate
dollar amount of transactions in which the Fund paid brokerage commissions.
The Fund may invest in certain securities traded in the OTC market and
intends to 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 affiliated persons are
prohibited from dealing with the Fund as principal in the purchase and sale of
securities unless a permissive order allowing such transactions is obtained from
the Commission. Since transactions in the OTC market usually involve
transactions with dealers acting as principal for their own accounts, the Fund
will not deal with affiliated persons, including Merrill Lynch and its
affiliates, in connection with such transactions. However, an affiliated person
of the Fund may serve as its broker in OTC 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.
In addition, the Fund may not purchase securities during the existence of any
underwriting syndicate for such securities of which Merrill Lynch is a member or
in a private placement in which Merrill Lynch serves as placement agent except
pursuant to procedures approved by the Board of Directors of the Fund that
either comply with rules adopted by the Commission or with interpretations of
the Commission staff. See "Investment Objective and Policies-Investment
Restrictions."
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, will be subject to
negotiated commission rates. The Fund's ability and decisions to purchase or
19
76
sell portfolio securities of foreign issuers may be affected by laws or
regulations relating to the convertibility and repatriation of assets. Because
the shares of the Fund are redeemable on a daily basis in United States dollars,
the Fund intends to manage its portfolio so as to give reasonable assurance that
it will be able to obtain United States dollars to the extent necessary to meet
anticipated redemptions. Under present conditions, it is not believed that these
considerations will have any significant effect on its portfolio strategy.
Section 11(a) of the Securities Exchange Act of 1934, as amended,
generally prohibits members of the United States national securities exchanges
from executing exchange transactions for their affiliates and institutional
accounts that 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 the aggregate compensation received by the
member in effecting such transactions, and (iii) complies with any rules the
Commission has prescribed with respect to the requirements of clauses (i) and
(ii). To the extent Section 11(a) would apply to Merrill Lynch acting as a
broker for the Fund in any of its portfolio transactions executed on any such
securities exchange of which it is a member, appropriate consents have been
obtained from the Fund and annual statements as to aggregate compensation will
be provided to the Fund.
The Board of Directors of the Fund has considered the possibility of
seeking to recapture for the benefit of the Fund brokerage commissions and other
expenses of possible portfolio transactions by conducting portfolio transactions
through affiliated entities. For example, brokerage commissions received by
affiliated brokers could be offset against the advisory fee paid by the Fund to
the Manager. After considering all factors deemed relevant, the Board of
Directors made a determination not to seek such recapture. The Board will
reconsider this matter from time to time.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund will be determined by the
Manager once daily Monday through Friday, as of 15 minutes after the close of
business on the NYSE (generally, 4:00 p.m., New York time), on each day during
which the NYSE is open for trading. The NYSE is not open on New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation. Net asset value is computed by
dividing the value of the securities held by the Fund plus any cash or other
assets (including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time. Expenses, including the investment advisory fees and
any account maintenance and/or distribution fees, are accrued daily. The per
share net asset value of Class B, Class C and Class D shares generally will be
lower than the per share net asset value of Class A shares, reflecting the daily
expense accruals of the account maintenance, distribution and higher transfer
agency fees applicable with respect to Class B and Class C shares and the daily
expense accruals of the account maintenance fees applicable with respect to
Class D shares; moreover, the per share net asset value of Class B and Class C
shares generally will be lower than the per share net asset value of Class D
shares, reflecting the daily expense accruals of the distribution fees and
higher transfer agency fees applicable with respect to Class B and Class C
shares of the Fund. It is expected, however, that the per share net asset value
of the four classes will tend to converge (although not necessarily meet)
immediately after the payment of dividends or distributions, which will differ
by approximately the amount of the expense accrual differentials between the
classes.
20
77
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price for long positions and at
the last available ask price for short positions. In cases where securities are
traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as the primary
market. Long positions in securities traded in the OTC market are valued at the
last available bid price in the OTC market prior to the time of valuation. Short
positions in securities traded in the OTC market are valued at the last
available ask price in the OTC market prior to the time of valuation. Portfolio
securities that are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market. When the Fund
writes an option, the amount of the premium received is recorded on the books of
the Fund as an asset and an equivalent liability. The amount of the liability is
subsequently valued to reflect the current market value of the option written,
based upon the last sale price in the case of exchange-traded options or, in the
case of options traded in the OTC market, the last asked price. Options
purchased by the Fund are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Other investments, including financial futures contracts and
related options, are valued at market value. Securities and assets for which
market quotations are not readily available are stated at fair value as
determined in good faith by or under the direction of the Board of Directors of
the Fund. Such valuations and procedures will be reviewed periodically by the
Board of Directors.
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 business on the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the close of business on the NYSE. 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 business on the
NYSE that will not be reflected in the computation of the Fund's net asset
value. 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 a number of shareholder services described below which are
designed to facilitate investment in its shares. Full details as to each of such
services and copies of the various plans described below can be obtained from
the Fund, the Distributor or Merrill Lynch. Certain of these services are
available only to U.S. investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. The statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and capital gain distributions. The statements also will show any other activity
in the account since the preceding statement. Shareholders will receive separate
transaction confirmations for each purchase or sale transaction other than
automatic investment purchases, the reinvestment of ordinary income dividends
and long-term capital gain distributions. A shareholder may make additions to
his or her Investment Account at any time by mailing a check directly to the
Fund's Transfer Agent.
21
78
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
shareholders directly from the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the Fund, a shareholder either must redeem
the Class A or Class D shares so that the cash proceeds can be transferred to
the account at the new firm or such shareholder must continue to maintain an
Investment Account at the Transfer Agent for those Class A or Class D shares.
Shareholders interested in transferring their Class B or Class C shares from
Merrill Lynch and who do not wish to have an Investment Account maintained for
such shares at the Transfer Agent may request their new brokerage firm to
maintain such shares in an account registered in the name of the brokerage firm
for the benefit of the shareholder. If the new brokerage firm is willing to
accommodate the shareholder in this manner, the shareholder must request that he
or she be issued certificates for the shares and then must turn the certificates
over to the new firm for re-registration as described in the preceding sentence.
Shareholders considering transferring a tax-deferred retirement account such as
an IRA from Merrill Lynch to another brokerage firm or financial institution
should be aware that, if the firm to which the retirement account is to be
transferred will not take delivery of shares of the Fund, a shareholder must
either redeem the shares (paying any applicable CDSC) so that the cash proceeds
can be transferred to the account at the new firm, or such shareholder must
continue to maintain a retirement account at Merrill Lynch for those shares. A
shareholder may make additions to his or her Investment Account at any time by
mailing a check directly to the Transfer Agent.
AUTOMATIC INVESTMENT PLANS
A U.S. shareholder may make additions to an Investment Account at any time
by purchasing Class A shares (if an eligible Class A investor as described in
the Prospectus) or Class B, Class C or Class D shares at the applicable public
offering price either through the shareholder's securities dealer, or by mail
directly to the Transfer Agent, acting as agent for such securities dealer.
Voluntary accumulation also can be made through a service known as the Fund's
Automatic Investment Plan whereby the Fund is authorized through pre-authorized
checks or automated clearing house debits of $50 or more to charge the regular
bank account of the shareholder on a regular basis to provide systematic
additions to the Investment Account of such shareholder. An investor whose
shares of the Fund are held within a CMA(R) or CBA(R) account may arrange to
have periodic investments made in the Fund in amounts of $100 or more ($1 for
retirement accounts) through the CMA(R) or CBA(R) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will be automatically reinvested in additional shares of the Fund.
Such reinvestment will be at the net asset value of shares of the Fund, without
a sales charge, as of the close of business on the ex-dividend date of the
dividend or distribution. Shareholders may elect in writing to receive either
their dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed on or about the payment date. Cash payments also can be
directly deposited to the shareholder's bank account.
22
79
Shareholders may, at any time, notify Merrill Lynch in writing if the
shareholder's account is maintained with Merrill Lynch or notify the Transfer
Agent in writing or by telephone (1-800-MER-FUND) if their account is maintained
with the Transfer Agent that they no longer wish to have their dividends and/or
capital gains distributions reinvested in shares of the Fund or vice versa and,
commencing ten days after the receipt by the Transfer Agent of such notice,
those instructions will be effected. The Fund is not responsible for any failure
of delivery to the shareholder's address of record and no interest will accrue
on amounts represented by uncashed distribution or redemption checks.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to make systematic withdrawals from an Investment
Account of Class A, Class B, Class C or Class D shares in the form of payments
by check or through automatic payment by direct deposit to such shareholder's
bank account on either a monthly or quarterly basis as provided below. Quarterly
withdrawals are available for shareholders who have acquired shares of the Fund
having a value, based on cost or the current offering price, of $5,000 or more,
and monthly withdrawals are available for shareholders with shares having a
value of $10,000 or more.
At the time of each withdrawal payment, sufficient shares are redeemed
from those on deposit in the shareholder's account to provide the withdrawal
payment specified by the shareholder. The shareholder may specify the dollar
amount and class of shares to be redeemed. Redemptions will be made at net asset
value as determined as of 15 minutes after the close of business on the NYSE
(generally, 4:00 p.m., New York time) on the 24th day of each month or the 24th
day of the last month of each quarter, whichever is applicable. If the NYSE is
not open for business on such date, the shares will be redeemed at the close of
business on the following business day. The check for the withdrawal payment
will be mailed, or the direct deposit for the withdrawal payment will be made,
on the next business day following redemption. When a shareholder is making
systematic withdrawals, dividends on all shares in the Investment Account are
reinvested automatically in shares of the Fund. A shareholder's Systematic
Withdrawal Plan may be terminated at any time, without charge or penalty, by the
shareholder, the Fund, the Transfer Agent or the Distributor.
Withdrawal payments should not be considered as dividends, yield or
income. Each withdrawal is a taxable event. If periodic withdrawals continuously
exceed reinvested dividends, the shareholder's original investment may be
reduced correspondingly. Purchases of additional shares concurrent with
withdrawals are ordinarily disadvantageous to the shareholder because of sales
charges and tax liabilities. The Fund will not knowingly accept purchase orders
for shares of the Fund from investors who maintain a Systematic Withdrawal Plan
unless such purchase is equal to at least one year's scheduled withdrawals or
$1,200, whichever is greater. Periodic investments may not be made into an
Investment Account in which the shareholder has elected to make systematic
withdrawals.
A shareholder whose shares are held within a CMA(R), CBA(R) or Retirement
Account may elect to have shares redeemed on a monthly, bimonthly, quarterly,
semiannual or annual basis through the CMA(R) or CBA(R) Systematic Redemption
Program. The minimum fixed dollar amount redeemable is $50. The proceeds of
systematic redemptions will be posted to the shareholder's account three
business days after the date the shares are redeemed. All redemptions are made
at net asset value. A shareholder may elect to have his or her shares redeemed
on the first, second, third or fourth Monday of each month, in the case of
monthly redemptions, or of
23
80
every other month, in the case of bimonthly redemptions. For quarterly,
semiannual or annual redemptions, the shareholder may select the month in which
the shares are to be redeemed and may designate whether the redemption is to be
made on the first, second, third or fourth Monday of the month. If the Monday
selected is not a business day, the redemption will be processed at net asset
value on the next business day. The CMA(R) or CBA(R) Systematic Redemption
Program is not available if Fund shares are being purchased within the account
pursuant to the Automatic Investment Program. For more information on the CMA(R)
or CBA(R) Systematic Redemption Program, eligible shareholders should contact
their Merrill Lynch Financial Consultant.
With respect to redemptions of Class B and Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares that
can be redeemed from an account annually shall not exceed 10% of the value of
shares of such class in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that otherwise might be due on
such redemption of Class B or Class C shares will be waived. Shares redeemed
pursuant to a systematic withdrawal plan will be redeemed in the same order as
Class B or Class C shares are otherwise redeemed. See "Purchase of Shares --
Deferred Sales Charge Alternatives - Class B and Class C Shares - Contingent
Deferred Sales Charges - Class B Shares" and "- Contingent Deferred Sales
Charges - Class C Shares" in the Prospectus. Where the systematic withdrawal
plan is applied to Class B shares, upon conversion of the last Class B shares in
an account to Class D shares, the systematic withdrawal plan will automatically
be applied thereafter to Class D shares. See "Purchase of Shares-Deferred Sales
Charge Alternatives - Class B and Class C Shares - Conversion of Class B Shares
to Class D Shares" in the Prospectus; if an investor wishes to change the
amounts being withdrawn in a systematic withdrawal plan the investor should
contact his or her financial consultant.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other MLAM-advised mutual funds. Under the Merrill Lynch
Select Pricing(SM) System, Class A shareholders may exchange Class A shares of
the Fund for Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second fund in the account in which
the exchange is made at the time of the exchange or is otherwise eligible to
purchase Class A shares of the second fund. If the Class A shareholder wants to
exchange Class A shares for shares of a second MLAM-advised mutual fund, but
does not hold Class A shares of the second fund in his or her account at the
time of the exchange and is not otherwise eligible to acquire Class A shares of
the second fund, the shareholder will receive Class D shares of the second fund
as a result of the exchange. Class D shares also may be exchanged for Class A
shares of a second MLAM-advised mutual fund at any time as long as, at the time
of the exchange, the shareholder holds Class A shares of the second fund in the
account in which the exchange is made or is otherwise eligible to purchase Class
A shares of the second fund. Class B, Class C and Class D shares are
exchangeable with shares of the same class of other MLAM-advised mutual funds.
For purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period for the previously owned
shares of the Fund is "tacked" to the holding period of the newly acquired
shares of the other fund as more fully described below. Class A, Class B, Class
C and Class D shares also are exchangeable for shares of certain MLAM-advised
money market funds as follows: Class A shares may be exchanged for shares of
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Reserves Money Fund
(available only for exchanges within certain retirement plans), Merrill Lynch
U.S.A. Government Reserves and Merrill Lynch U.S. Treasury Money Fund; Class B,
Class C and Class D shares may be exchanged for shares of Merrill Lynch
Government Fund, Merrill Lynch Institutional Fund,
24
81
Merrill Lynch Institutional Tax-Exempt Fund and Merrill Lynch Treasury Fund.
Shares with a net asset value of at least $100 are required to qualify for the
exchange privilege, and any shares utilized in an exchange must have been held
by the shareholder for 15 days. It is contemplated that the exchange privilege
may be applicable to other new mutual funds whose shares may be distributed by
the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A
or Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charges paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A and Class D shares of the Fund generally will be
exchanged into the Class A or Class D shares of the other funds or into shares
of certain money market funds without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, of another
MLAM-advised mutual fund ("new Class B or Class C shares") on the basis of
relative net asset value per Class B or Class C share, without the payment of
any CDSC that might otherwise be due on redemption of the outstanding Class B or
Class C shares. Class B shareholders of the Fund exercising the exchange
privilege will continue to be subject to the Fund's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the new Class B shares
acquired through use of the exchange privilege. In addition, Class B or Class C
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B or Class C shares of the fund from which the
exchange has been made. For purposes of computing the sales load that may be
payable on a disposition of the new Class B or Class C shares, the holding
period for the outstanding Class B or Class C shares is "tacked" to the holding
period of the new Class B or Class C shares. For example, an investor may
exchange Class B or Class C shares of the Fund for those of Merrill Lynch
Special Value Fund, Inc. ("Special Value Fund") after having held the Fund's
Class B shares for two and a half years. The 2% CDSC that generally would apply
to a redemption would not apply to the exchange. Three years later the investor
may decide to redeem the Class B shares of Special Value Fund and receive cash.
There will be no CDSC due on this redemption, since by "tacking" the two and a
half year holding period of the Fund Class B shares to the three year holding
period for the Special Value Fund Class B shares, the investor will be deemed to
have held the Special Value Fund Class B shares for more than five years.
Shareholders also may exchange shares of the Fund into shares of certain
money market funds advised by the Manager or its affiliates, but the period of
time that Class B or Class C shares are held in a money market fund will not
count towards satisfaction of the holding period requirement for purposes of
reducing the CDSC or, with respect to Class B shares, towards satisfaction of
the conversion period. However, shares of a money
25
82
market fund that were acquired as a result of an exchange for Class B or Class C
shares of the Fund may, in turn, be exchanged back into Class B or Class C
shares, respectively, of any fund offering such shares, in which event the
holding period for Class B or Class C shares of the newly acquired fund will be
aggregated with previous holding periods for purposes of reducing the CDSC.
Thus, for example, an investor may exchange Class B shares of the Fund for
shares of Merrill Lynch Institutional Fund ("Institutional Fund") after having
held the Fund Class B shares for two and a half years and three years later
decide to redeem the shares of Institutional Fund for cash. At the time of this
redemption, the 2% CDSC that would have been due had the Class B shares of the
Fund been redeemed for cash rather than exchanged for shares of Institutional
Fund will be payable. If, instead of such redemption the shareholder exchanged
such shares for Class B shares of a fund that the shareholder continued to hold
for an additional two and a half years, any subsequent redemption would not
incur a CDSC.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, a shareholder should contact his or
her Merrill Lynch Financial Consultant, who will advise the Fund of the
exchange. Shareholders of the Fund, and shareholders of other MLAM-advised
mutual funds with shares for which certificates have not been issued, may
exercise the exchange privilege by wire through their securities dealers. The
Fund reserves the right to require a properly completed Exchange Application.
This exchange privilege may be modified or terminated in accordance with the
rules of the Commission. The Fund reserves the right to limit the number of
times an investor may exercise the exchange privilege. Certain funds may suspend
the offering of their shares to the general public at any time and thereafter
may resume such offering from time to time. The exchange privilege is available
only to U.S. shareholders in states where the exchange legally may be made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all its net investment
income, if any. Dividends from such net investment income will be paid at least
annually. All net realized capital gains, if any, will be distributed to the
Fund's shareholders at least annually. From time to time, the Fund may declare a
special distribution at or about the end of the calendar year in order to comply
with Federal tax requirements that certain percentages of its ordinary income
and capital gains be distributed during the year. If in any fiscal year, the
Fund has net income from certain foreign currency transactions, such income will
be distributed at least annually.
See "Shareholder Services-Automatic Reinvestment of Dividends and Capital
Gains Distributions" for information concerning the manner in which dividends
and distributions may be reinvested automatically in shares of the Fund. A
shareholder whose account is maintained at the Transfer Agent or whose account
is maintained through Merrill Lynch may elect in writing to receive any such
dividends or distributions, or both, in cash. Dividends and distributions are
taxable to shareholders, as discussed below, whether they are reinvested in
shares of the Fund or received in cash. The per share dividends on each class of
shares will be reduced as a result of any account maintenance, distribution and
transfer agency fees applicable with respect to such class of shares. See
"Determination of Net Asset Value."
26
83
TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as it
so qualifies, the Fund (but not its shareholders) will not be subject to Federal
income tax on the part of its net ordinary income and net realized capital gains
that it distributes to Class A, Class B, Class C and Class D shareholders
(together, the "shareholders"). The Fund intends to distribute substantially
all of such income.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in warrants, futures and options) ("capital
gain dividends") are taxable to shareholders as long-term capital gains,
regardless of the length of time the shareholder has owned Fund shares. Any loss
upon the sale or exchange of Fund shares held for six months or less will be
treated as long-term capital loss to the extent of any capital gain dividends
received by the shareholder. Distributions in excess of the Fund's earnings and
profits will first reduce the adjusted tax basis of a holder's shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming the shares are held as a capital asset). Recent
legislation creates additional categories of capital gains taxable at different
rates. Generally not later than 60 days after the close of its taxable year, the
Fund will provide its shareholders with a written notice designating the amounts
of any ordinary income dividends or capital gain dividends as well as the amount
of capital gain dividends in the different categories of capital gain referred
to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. A portion of the Fund's ordinary income dividends
may be eligible for the dividends received deduction allowed to corporations
under the Code, if certain requirements are met. For this purpose, the Fund will
allocate dividends eligible for the dividends received deduction among the Class
A, Class B, Class C and Class D shareholders according to a method (which it
believes is consistent with the Commission rule permitting the issuance and sale
of multiple classes of stock) that is based on the gross income allocable to
Class A, Class B, Class C and Class D shareholders during the taxable year, or
such other method as the Internal Revenue Service may prescribe. If the Fund
pays a dividend in January that was declared in the previous October, November
or December to shareholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by the Fund
and received by its shareholders on December 31 of the year in which such
dividend was declared.
Ordinary income dividends paid 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
27
84
an account, an investor must certify under penalty of perjury that such number
is correct and that such investor is not otherwise subject to backup
withholding.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Shareholders
may be able to claim United States foreign tax credits with respect to such
taxes, subject to certain conditions and limitations contained in the Code. For
example, certain retirements accounts cannot claim foreign tax credits on
investments in foreign securities held in the Fund. In addition, recent
legislation permits a foreign tax credit to be claimed with respect to
withholding tax on a dividend only if the shareholder meets certain holding
period requirements. If more than 50% in value of the Fund's total assets at the
close of its taxable year consists of securities of foreign corporations, the
Fund will be eligible, and intends, to file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be required to
include their proportionate shares of such withholding taxes in their United
States income tax returns as gross income, treat such proportionate shares as
taxes paid by them, and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against their
United States income taxes. In the case of foreign taxes passed through by a
RIC, the holding period requirements referred to above must be met by both the
shareholder and the RIC. No deductions for foreign taxes, moreover, may be
claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign corporation may
be subject to United States withholding tax on the income resulting from the
Fund's election described in this paragraph but may not be able to claim a
credit or deduction against such United States tax for the foreign taxes treated
as having been paid by such shareholder. The Fund will report annually to its
shareholders the amount per share of such withholding taxes and other
information needed to claim the foreign tax credit. For this purpose, the Fund
will allocate foreign source income among the Class A, Class B, Class C and
Class D shareholders according to a method similar to that described above for
the allocation of dividends eligible for the dividends received deduction.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon the purchase of the new shares in the absence
of the exchange privilege. Instead, such sales charge will be treated as an
amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The 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
28
85
previous years. While the Fund intends to distribute its income and capital
gains in the manner necessary to minimize imposition of the 4% excise tax, there
can be no assurance that sufficient amounts of the Fund's taxable income and
capital gains will be distributed to avoid entirely the imposition of the tax.
In such event, the Fund will be liable for the tax only on the amount by which
it does not meet the foregoing distribution requirements.
The Fund may invest up to 10% of its total assets in securities of other
investment companies. If the Fund purchases shares of an investment company (or
similar investment entity) organized under foreign law, the Fund will be treated
as owning shares in a passive foreign investment company ("PFIC") for U.S.
Federal income tax purposes. The Fund may be subject to U.S. Federal income tax,
and an additional tax in the nature of interest (the "interest charge"), on a
portion of the distributions from such a company and on gain from the
disposition of the shares of such a company (collectively referred to as "excess
distributions"), even if such excess distributions are paid by the Fund as a
dividend to its shareholders. The Fund 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 Fund to
recognize income in a particular year in excess of the distributions received
from such PFICs. Alternatively, under recent legislation, the Fund could 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 Fund would recognize as ordinary income any
increase in the value of such shares over their adjusted basis and as ordinary
loss any decrease in such value to the extent it did not exceed prior increases
included in income. By making the mark-to-market election, the Fund 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.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year. Unless
such contract is a forward foreign exchange contract, or is a non-equity option
or a regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code Section
988 (as described below), gain or loss from Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss. Application of these rules to
Section 1256 contracts held by the Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above, however,
will not apply to certain transactions entered into by the Fund solely to reduce
the risk of changes in price or interest or currency exchange rates with respect
to its investments.
A forward foreign exchange contract that is a Section 1256 contract will
be marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The Fund
may, nonetheless, elect to treat the gain or loss from certain forward foreign
exchange contracts as capital. In this case, gain or loss realized in connection
with a forward foreign exchange contract that is a Section 1256 contract will be
characterized as 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and transactions in options, futures
and forward foreign exchange contracts. Under Section 1092, the Fund may be
required to postpone recognition for tax purposes of losses incurred in certain
sales of securities and certain closing transactions in options, futures and
forward foreign exchange contracts.
29
86
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 stocks, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, futures, or forward
foreign exchange contracts will be valued for purposes of the RIC
diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain
transactions in a foreign currency other than the taxpayer's functional currency
(i.e., unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are not
"regulated futures contracts" and from unlisted options will be treated as
ordinary income or loss under Code Section 988. In certain circumstances, the
Fund may elect capital gain or loss treatment for such transactions. Regulated
futures contracts, as described above, will be taxed under Code Section 1256
unless application of Section 988 is elected by the Fund. In general, however,
Code Section 988 gains or losses will increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income. Additionally, if Code Section 988 losses exceed
other investment company taxable income during a taxable year, the Fund would
not be able to make any ordinary income dividend distributions, and all or a
portion of distributions made before the losses were realized but in the same
taxable year would be recharacterized as a return of capital to shareholders,
thereby reducing the basis of each shareholder's Fund shares and resulting in a
capital gain for any shareholder who received a distribution greater than such
shareholder's basis in Fund shares (assuming the shares were held as a capital
asset). These rules and the mark-to-market rules described above, however, will
not apply to certain transactions entered into by the Fund solely to reduce the
risk of currency fluctuations with respect to its investments.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state
and local taxes.
Certain states exempt from state income taxation dividends paid by RICs
that are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding
specific questions as to Federal, foreign, state or local taxes. Foreign
investors should consider applicable foreign taxes in their evaluation of an
investment in the Fund.
30
87
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective shareholders. Total return figures are based on the Fund's
historical performance and are not intended to indicate future performance.
Average annual total return is determined separately for Class A, Class B, Class
C and Class D shares in accordance with formulas specified by the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends are reinvested
and taking into account all applicable recurring and nonrecurring expenses,
including the maximum sales charge in the case of Class A and Class D shares and
the CDSC that would be applicable to a complete redemption of the investment at
the end of the specified period in the case of Class B and Class C shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (i) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and
(ii) the maximum applicable sales charges will not be included with respect to
annual or annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum applicable
sales charges, actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates of return
reflect compounding of return; aggregate total return data generally will be
higher than average annual total return data since the aggregate rates of return
reflect compounding over a longer period of time.
Set forth in the tables below is total return information for the Class A,
Class B, Class C and Class D shares of the Fund for the period indicated.
CLASS A SHARES CLASS B SHARES
----------------------------------------- ------------------------------------------
EXPRESSED AS A REDEEMABLE VALUE EXPRESSED AS A REDEEMABLE VALUE
PERCENTAGE BASED OF A HYPOTHETICAL PERCENTAGE BASED OF A HYPOTHETICAL
ON A HYPOTHETICAL $1,000 INVESTMENT AT ON A HYPOTHETICAL $1,000 INVESTMENT AT
PERIOD $1,000 INVESTMENT THE END OF THE PERIOD $1,000 INVESTMENT THE END OF THE PERIOD
- ---------------------------------------- ------------------ --------------------- ------------------- ---------------------
Average Annual Total Return
(including maximum applicable sales charges)
Inception (October 31, 1997) to December
31, 1997................................ (27.15)% $ 948.40 (22.14)% $959.00
Annual Total Return
(excluding maximum applicable sales charges)
Inception (October 31, 1997) to December
31, 1997................................ 0.10 % $1,001.00 (0.10)% $999.00
Aggregate Total Return
(including maximum applicable sales charges)
Inception (October 31, 1997) to December
31, 1997................................ (5.16)% $ 948.40 (4.10)% $959.00
31
88
Class C Shares Class D Shares
---------------------------------------- ------------------------------------------
Expressed as a Redeemable value Expressed as a Redeemable value
percentage based of a hypothetical percentage based on of a hypothetical
on a hypothetical $1,000 investment at a hypothetical $1,000 investment at
Period $1,000 investment the end of the period $1,000 investment the end of the period
- -------------------------------------------- ----------------- --------------------- ------------------- ---------------------
Average Annual Total Return
(including maximum applicable sales charges)
Inception (October 31, 1997) to December
31, 1997.................................. (6.40)% $989.00 (27.15)% $ 948.40
Annual Total Return
(excluding maximum applicable sales charges)
Inception (October 31, 1997) to December
31, 1997.................................. (0.10)% $999.00 0.10% $1,001.00
Aggregate Total Return
(including maximum applicable sales charges)
Inception (October 31, 1997) to December
31, 1997 ................................. (1.10)% $989.00 (5.16)% $ 948.40
In order to reflect the reduced sales charges in the case of Class A or
Class D shares or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares," respectively, the total return data quoted by the
Fund in advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charge or may not take into account the CDSC
and therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of sales charges, a lower amount of expenses is deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on August 4, 1997. As of the
date of this Statement of Additional Information, the Fund has an authorized
capital of 600,000,000 shares of Common Stock, par value $.10 per share, divided
into four classes designated Class A, Class B, Class C and Class D Common Stock.
Class A, Class C and Class D each consists of 100,000,000 shares and Class B
consists of 300,000,000 shares. Shares of Class A, Class B, Class C and Class D
Common Stock represent interests in the same assets of the Fund and are
identical in all respects except that the Class B, Class C and Class D shares
bear certain expenses related to the account maintenance and/or distribution of
such shares and have exclusive voting rights with respect to matters relating to
such expenditures. The Fund may issue additional classes or shares if the Board
of Directors deems such issuance to be in the best interests of the Fund. Upon
liquidation of the Fund, shareholders of each class are entitled to share pro
rata in the net assets of the Fund available for distribution to shareholders,
except for any expenses which may be attributable only to one class. Shares have
no preemptive or conversion rights. The rights of redemption and exchange are
described elsewhere herein and in the Prospectus. Shares are fully paid and
nonassessable by the Fund.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in 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 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
32
89
accountants. Also, the by-laws of the Fund require that a special meeting of
shareholders be held upon the written request of at least 25% 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 and conversion rights are discussed elsewhere herein and in the
Prospectus. Each share of Class B, Class C and Class D Common Stock is entitled
to participate equally in dividends and distributions declared by the Fund and
in the net assets of the Fund upon liquidation or dissolution after satisfaction
of outstanding liabilities. Stock certificates will be issued by the Transfer
Agent only on specific request. Certificates for fractional shares are not
issued in any case.
The Manager provided the initial capital for the Fund by purchasing 10,000
shares of common stock (2,500 shares each of Class A, Class B, Class C and Class
D) of the Fund for $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 $68,600) will be paid by the Fund and will be
amortized over a period not exceeding five years. The proceeds realized by the
Manager upon the redemption of any of the shares initially purchased by it will
be reduced by the proportional amount of the unamortized organizational expenses
that the number of such initial shares being redeemed bears to the number of
shares initially purchased.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class B,
Class C and Class D shares of the Fund based on the value of the Fund's net
assets on December 31, 1997 and its shares outstanding on December 31, 1997 is
calculated as set forth below:
Class A Class B Class C Class D
------------ ------------- ------------- -------------
Net Assets ..................................... $ 32,984,965 $ 943,187,873 $ 189,767,857 $ 173,897,951
============ ============= ============= =============
Number of Shares Outstanding ................... 3,295,383 94,396,060 18,992,443 17,381,080
============ ============= ============= =============
Net Asset Value Per Share (net assets divided by
number of shares outstanding) ................ $ 10.01 $ 9.99 $ 9.99 $ 10.01
Sales Charge (for Class A and Class D Shares:
5.25% of offering price (5.54% of net amount
invested*) ................................... .55 ** ** .55
------------ ------------- ------------- --------------
Offering Price ................................. $ 10.56 $ 9.99 $ 9.99 $ 10.56
============ ============= ============= ==============
- ----------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption. See "Purchase of Shares-Deferred
Sales Charge Alternatives-Class B and Class C Shares" in the Prospectus
and "Redemption of Shares-Deferred Sales Charges-Class B and Class C
Shares" herein.
INDEPENDENT AUDITORS
Ernst & Young LLP has been selected as the independent auditors of the Fund.
The selection of independent auditors is subject to approval by the Independent
Directors of the Fund. The independent auditors are responsible for auditing the
annual financial statements of the Fund.
33
90
CUSTODIAN
State Street Bank and Trust Company acts as the Custodian of the Fund's
assets. Under its contract with the Fund, the Custodian is authorized, among
other things, to establish separate accounts in foreign currencies and to cause
foreign securities owned by the Fund to be held in its offices outside of the
United States and with certain foreign banks and securities depositories. The
Custodian is responsible for safeguarding and controlling the Fund's cash and
securities, handling the receipt and delivery of securities and collecting
interest and dividends on the Fund's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Fund's Transfer Agent. The
Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts. See
"Management of the Fund-Transfer Agency Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood LLP, 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 August 31 of each year. The Fund sends
to its shareholders at least semi-annually reports showing the Fund's portfolio
and other information. An annual report, containing financial statements audited
by independent auditors, is sent to shareholders each year. After the end of
each year, shareholders will receive Federal income tax information regarding
dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act and the Investment
Company Act, to which reference is hereby made.
------------
Under a separate agreement, ML & Co. 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 ML & Co., under certain conditions,
the use of any other name it might assume in the future, with respect to any
corporation organized by ML & Co.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the knowledge of the Fund, no person owned beneficially 5% or more of
the Fund's shares on February 2, 1998.
34
91
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
MERRILL LYNCH GLOBAL GROWTH FUND, INC.
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Global Growth Fund, Inc. as of September 5, 1997. This statement of assets
and liabilities is the responsibility of the Fund's management. Our
responsibility is to express an opinion on 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 the 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, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Merrill
Lynch Global Growth Fund, Inc. at September 5, 1997 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Princeton, New Jersey
September 8, 1997
35
92
MERRILL LYNCH GLOBAL GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 5, 1997
Assets:
Cash in Bank............................................................................... $100,000
Prepaid registration fees (Note 3)......................................................... 94,600
Deferred organization expenses (Note 4).................................................... 68,600
--------
Total Assets................................................................................. 263,200
Liabilities-accrued expenses................................................................. 163,200
--------
Net Assets (equivalent to $10.00 per share on 2,500 Class A shares of Common Stock (par value
$0.10), 2,500 Class B shares of Common Stock (par value $0.10), 2,500 Class C shares of
Common Stock (par value $0.10) and 2,500 Class D shares of Common Stock (par value
$0.10) outstanding with 400,000,000 shares authorized) (Note 1)............................ $100,000
========
- ---------
Notes to Statement of Assets and Liabilities.
(1) Merrill Lynch Global Growth Fund, Inc. (the "Fund") was organized as a
Maryland corporation on August 4, 1997. The Fund is registered under the
Investment Company Act of 1940 as an open-end management investment
company. To date, the Fund has not had any transactions other than those
relating to organizational matters and the sale of 2,500 Class A shares,
2,500 Class B shares, 2,500 Class C shares and 2,500 Class D shares of
Common Stock to Merrill Lynch Asset Management, L.P. (the "Manager").
(2) The Fund has entered into a management agreement (the "Management
Agreement") with the Manager, and distribution agreements (the
"Distribution Agreements") with Merrill Lynch Funds Distributor, Inc. (the
"Distributor"). (See "Management of the Fund-Management and Advisory
Arrangements" in the Statement of Additional Information.) Certain
officers and/or directors of the Fund are officers and/or directors of the
Manager and the Distributor.
(3) Prepaid registration fees are charged to income as the related shares are
issued.
(4) Deferred organization expenses will be amortized over a period from the
date the Fund commences operations not exceeding five years. In the event
that the Manager (or any subsequent holder) redeems any of its original
shares prior to the end of the five-year period, the proceeds of the
redemption payable in respect of such shares 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 Fund is liquidated prior to
the end of the five-year period, the Manager (or any subsequent holder)
shall bear the unamortized deferred organization expenses.
36
93
UNAUDITED FINANCIAL STATEMENTS FOR
MERRILL LYNCH GLOBAL GROWTH FUND, INC.
FOR THE PERIOD OCTOBER 31, 1997 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1997
37
94
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (IN US DOLLARS)
- --------------------------------------------------------------------------------
SHARES VALUE PERCENT OF
INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
NORTH AMERICA
CANADA
- ---------------------------------------------------------------------------------------------------------------
Banking 380,000 Bank of Montreal $17,744,280 $16,821,326 1.3%
575,000 Canadian Imperial Bank of Commerce 18,142,347 17,919,782 1.3
500,000 National Bank of Canada 7,419,127 8,245,406 0.6
300,000 Royal Bank of Canada 16,480,599 15,847,949 1.2
----------- ----------- -----
59,786,353 58,834,463 4.4
Communications 330,000 +Newbridge Networks Corp. 15,967,272 11,541,122 0.9
Equipment 250,000 Northern Telecom Ltd. 23,928,428 22,211,935 1.6
----------- ----------- -----
39,895,700 33,753,057 2.5
TOTAL INVESTMENTS IN CANADA 99,682,053 92,587,520 6.9
- ----------------------------------------------------------------------------------------------------------------
UNITED STATES
- ----------------------------------------------------------------------------------------------------------------
Advertising 85,000 Interpublic Group of Companies, Inc. 4,101,446 4,234,063 0.3
Banking & Financial 140,000 Banc One Corp. 7,522,284 7,603,750 0.6
200,000 BankAmerica Corp. 15,030,600 14,600,000 1.1
132,000 Citicorp 17,428,427 16,689,750 1.2
245,000 Mellon Bank Corp. 13,235,775 14,853,125 1.1
145,000 State Street Corp. 8,424,401 8,437,188 0.6
----------- ----------- -----
61,641,487 62,183,813 4.6
Beverages 80,000 Coca-Cola Company 4,643,760 5,330,000 0.4
Computer Services 135,000 +Cisco Systems, Inc. 7,735,941 7,526,250 0.6
Communications 440,000 +FORE Systems, Inc. 7,553,744 6,710,000 0.5
Equipment 90,000 Lucent Technologies, Inc. 7,704,135 7,188,750 0.5
----------- ----------- -----
15,257,879 13,898,750 1.0
Computers 350,000 Compaq Computer Corp. 23,821,910 19,753,125 1.5
45,000 Hewlett-Packard Co. 2,922,777 2,812,500 0.2
----------- ----------- -----
26,744,687 22,565,625 1.7
Cosmetics & 110,000 Gillette Company 10,104,061 11,048,125 0.8
Toiletries 20,000 International Flavors & Fragrances, Inc. 968,044 1,030,000 0.1
----------- ----------- -----
11,072,105 12,078,125 0.9
Electrical Equipment 35,000 Emerson Electric Co. 1,975,074 1,975,312 0.2
260,000 General Electric Co. 18,067,322 19,077,500 1.4
60,000 Honeywell, Inc. 4,264,134 4,110,000 0.3
----------- ----------- -----
24,306,530 25,162,812 1.9
Electronics 227,000 Intel Corporation 17,179,260 15,932,563 1.2
Energy 185,000 El Paso Natural Gas Co. 11,683,959 12,302,500 0.9
230,000 Enron Corp. 8,842,626 9,559,375 0.7
----------- ----------- -----
20,526,585 21,861,875 1.6
38
95
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
SHARES VALUE PERCENT OF
INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
NORTH AMERICA (CONTINUED)
UNITED STATES (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------
Entertainment 150,000 +Viacom, Inc. (Class B) $ 4,666,230 $6,215,625 0.4%
90,000 Walt Disney Company 7,702,866 8,915,625 0.7
----------- ---------- -----
12,369,096 15,131,250 1.1
Financial Services 130,000 American Express Company 10,480,860 11,602,500 0.9
380,000 Federal National Mortgage Association 19,743,079 21,683,750 1.6
----------- ---------- -----
30,223,939 33,286,250 2.5
Food 205,000 Albertson's, Inc. 7,862,784 9,711,875 0.7
70,000 ConAgra, Inc. 2,380,203 2,296,875 0.2
175,000 +Fred Meyer, Inc. 5,481,473 6,365,625 0.5
35,000 Wrigley (Wm.) Jr. Company (Class B) 2,610,412 2,784,688 0.2
----------- ---------- -----
18,334,872 21,159,063 1.6
Hotels 25,000 Marriott International, Inc. 1,702,250 1,731,250 0.1
Household Products 70,000 Colgate-Palmolive Co. 4,576,684 5,145,000 0.4
20,000 Kimberly-Clark Corp. 1,056,650 986,250 0.1
115,000 Procter & Gamble Company 8,266,016 9,178,438 0.7
----------- ---------- -----
13,899,350 15,309,688 1.2
Information Processing 290,000 First Data Corp. 8,605,112 8,482,500 0.6
Insurance 10,000 Aetna Inc. 737,856 705,625 0.1
110,000 American International Group, Inc. 11,521,852 11,962,500 0.9
400,000 Travelers Group, Inc. 19,984,610 21,550,000 1.6
----------- ---------- -----
32,244,318 34,218,125 2.6
Medical Technology 150,000 +Boston Scientific Corp. 7,648,860 6,881,250 0.5
90,000 Guidant Corporation 5,835,558 5,602,500 0.4
----------- ---------- -----
13,484,418 12,483,750 0.9
Oil Services 250,000 Baker Hughes, Inc. 11,947,955 10,906,250 0.8
280,000 Diamond Offshore Drilling, Inc. 18,685,044 13,475,000 1.0
190,000 Schlumberger Ltd. 17,756,792 15,295,000 1.2
----------- ---------- -----
48,389,791 39,676,250 3.0
Pharmaceuticals 115,000 Amgen, Inc. 6,112,399 6,224,375 0.5
120,000 Bristol-Myers Squibb Co. 11,138,426 11,355,000 0.8
50,000 Johnson & Johnson 3,006,780 3,293,750 0.2
70,000 Merck & Co., Inc. 6,160,511 7,437,500 0.6
100,000 Pfizer Inc. 7,279,046 7,456,250 0.6
----------- ---------- -----
33,697,162 35,766,875 2.7
Photography 30,000 Eastman Kodak Co. 1,880,844 1,824,375 0.1
Pollution Control 20,000 Waste Management, Inc. 505,400 550,000 0.0
39
96
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
SHARES VALUE PERCENT OF
INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
- --------------------------------------------------------------------------------------------------------------
NORTH AMERICA (CONCLUDED)
UNITED STATES (CONCLUDED)
- --------------------------------------------------------------------------------------------------------------
Restaurants 30,000 McDonald's Corporation $ 1,391,850 $ 1,432,500 0.1%
Retail Stores 420,000 Wal-Mart Stores, Inc. 15,286,530 16,563,750 1.2
165,000 Walgreen Co. 4,931,108 5,176,875 0.4
----------- ------------ ----
20,217,638 21,740,625 1.6
Retail - Specialty 80,000 CVS Corporation 5,197,738 5,125,000 0.4
290,000 +Staples, Inc. 7,849,691 8,047,500 0.6
----------- ------------ ----
13,047,429 13,172,500 1.0
Software Computer 35,000 +Microsoft Corp. 4,676,564 4,521,563 0.3
85,000 +Oracle Corp. 2,832,084 1,891,250 0.2
----------- ------------ ----
7,508,648 6,412,813 0.5
Toys 200,000 Mattel, Inc. 7,823,472 7,450,000 0.6
Travel & Lodging 60,000 Carnival Corp. (Class A) 2,997,084 3,322,500 0.3
TOTAL INVESTMENTS IN THE UNITED STATES 461,532,353 463,924,190 34.7
TOTAL INVESTMENTS IN NORTH AMERICA 561,214,406 556,511,710 41.6
- --------------------------------------------------------------------------------------------------------------
PACIFIC BASIN
JAPAN
- --------------------------------------------------------------------------------------------------------------
Automobiles 160,000 Honda Motor Co., Ltd. 5,634,642 5,884,069 0.4
500,000 Toyota Motor Corp. 13,656,899 14,357,006 1.1
----------- ------------ ----
19,291,541 20,241,075 1.5
Computers 350,000 Fujitsu Ltd. 3,810,106 3,761,996 0.3
350,000 NEC Corporation 3,809,917 3,735,125 0.3
----------- ------------ ----
7,620,023 7,497,121 0.6
Leisure 70,000 Sony Corp. 6,073,720 6,234,165 0.5
Office Equipment 100,000 Canon, Inc. 2,458,831 2,333,973 0.2
Photography 150,000 Fuji Photo Film Co., Ltd. 5,749,735 5,758,157 0.4
Telecommunications 4,000 Nippon Telegraph & Telephone Corp. 17,026,750 17,197,696 1.2
TOTAL INVESTMENTS IN JAPAN 58,220,600 59,262,187 4.4
TOTAL INVESTMENTS IN THE PACIFIC BASIN 58,220,600 59,262,187 4.4
40
97
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
SHARES VALUE PERCENT OF
INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
WESTERN EUROPE
DENMARK
- ---------------------------------------------------------------------------------------------------------------
Telecommunications 70,000 Tele-Danmark A.S. $ 4,531,731 $4,342,685 0.3%
TOTAL INVESTMENTS IN DENMARK 4,531,731 4,342,685 0.3
- ---------------------------------------------------------------------------------------------------------------
FINLAND
- ---------------------------------------------------------------------------------------------------------------
Communication
Equipment 130,000 Nokia Oyj (Class A) 11,910,977 9,235,429 0.7
TOTAL INVESTMENTS IN FINLAND 11,910,977 9,235,429 0.7
- ---------------------------------------------------------------------------------------------------------------
FRANCE
- ---------------------------------------------------------------------------------------------------------------
Communication 50,000 Alcatol Alsthom Cie Generale d'Electricite
Equipment S.A. 6,141,367 6,354,876 0.5
Cosmetics 10,000 L'OREAL 3,739,626 3,912,610 0.3
Information 180,000 Cap Gemini S.A. 15,395,411 14,758,265 1.1
Processing
Insurance 100,000 Assurances Generales de France S.A. (AGF) 5,670,755 5,298,222 0.4
165,000 Axa-UAP 11,694,023 12,766,323 1.0
----------- ----------- ----
17,364,778 18,064,545 1.4
Retail 20,000 Carrefour S.A. 11,290,715 10,433,627 0.8
Semiconductor 75,000 +SGS-Thomson Microelectronics N.V.
Capital Equipment (NY Registered Shares) 5,759,158 4,641,552 0.3
TOTAL INVESTMENTS IN FRANCE 59,691,055 58,165,475 4.4
- ---------------------------------------------------------------------------------------------------------------
GERMANY
- ---------------------------------------------------------------------------------------------------------------
Apparel 50,000 Adidas AG 7,026,333 6,576,607 0.5
Automobiles 40,000 Daimler-Benz AG 2,783,283 2,806,315 0.2
Banking 600,000 Commerzbank AG 21,297,933 23,615,744 1.7
335,000 Deutsche Bank AG 21,864,670 23,651,879 1.8
525,000 Dresdner Bank AG 22,202,477 24,224,483 1.8
----------- ----------- ----
65,365,080 71,492,106 5.3
Chemicals 150,000 BASF AG 5,213,865 5,316,044 0.4
150,000 Bayer AG 5,341,904 5,603,736 0.4
140,000 Hoechst AG 5,771,079 4,903,269 0.4
----------- ----------- ----
16,326,848 15,823,049 1.2
41
98
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
SHARES VALUE PERCENT OF
INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------
WESTERN EUROPE (CONTINUED)
GERMANY (CONCLUDED)
- ----------------------------------------------------------------------------------------------------------------------
Electronics 250,000 Siemens AG $16,074,487 $14,801,534 1.1%
Insurance 50,000 Allianz AG 12,294,451 12,953,080 1.0
Multi-Industry 50,000 VEBA AG 2,887,107 3,405,048 0.2
Retail 180,000 Metro AG 7,700,813 6,454,303 0.5
Software 110,000 SAP AG (Systems, Anwendungen, Producte
in der Datenverarbeitung) (Preferred) 34,118,327 35,987,881 2.7
TOTAL INVESTMENTS IN GERMANY 64,576,729 170,299,923 12.7
- ----------------------------------------------------------------------------------------------------------------------
IRELAND
- ----------------------------------------------------------------------------------------------------------------------
Banking & Financial 500,000 Allied Irish Banks PLC 4,385,255 4,769,081 0.4
TOTAL INVESTMENTS IN IRELAND 4,385,255 4,769,081 0.4
- ----------------------------------------------------------------------------------------------------------------------
ITALY
- ----------------------------------------------------------------------------------------------------------------------
Insurance 200,000 Assicurazioni Generali S.p.A. 4,582,887 4,911,825 0.3
2,500,000 Instituto Nazionale delle Assicurazioni S.p.A.
(INA) 4,431,867 5,065,849 0.4
TOTAL INVESTMENTS IN ITALY 9,014,754 9,977,674 0.7
- ----------------------------------------------------------------------------------------------------------------------
NETHERLANDS
- ----------------------------------------------------------------------------------------------------------------------
Household Products 200,000 Unilever N.V. 11,380,224 12,329,848 0.9
Insurance 70,000 AEGON N.V. 5,669,294 6,231,505 0.5
235,000 ING Groep N.V. 10,003,319 9,897,909 0.7
----------- ----------- -----
15,672,613 16,129,414 1.2
Leisure 35,000 Philips Electronics N.V. 2,809,946 2,099,033 0.1
50,000 PolyGram N.V. 2,816,709 2,391,991 0.2
----------- ----------- -----
5,626,655 4,491,024 0.3
Retail Stores 200,000 Koninklijke Ahold N.V. 5,266,766 5,217,992 0.4
Software 720,000 +Baan Company, N.V. 26,223,931 23,578,615 1.8
TOTAL INVESTMENTS IN THE NETHERLANDS 64,170,189 61,746,893 4.6
42
99
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
SHARES VALUE PERCENT OF
INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
WESTERN EUROPE (CONTINUED)
SPAIN
- ------------------------------------------------------------------------------------------------------------------------
Banking 200,000 Banco Bilbao Vizcaya, S.A. $ 5,505,054 $ 6,460,913 0.5%
175,000 Banco Santander S.A. 4,941,976 5,836,773 0.4
TOTAL INVESTMENTS IN SPAIN 10,447,030 12,297,686 0.9
- ------------------------------------------------------------------------------------------------------------------------
SWEDEN
- ------------------------------------------------------------------------------------------------------------------------
Communication 500,000 Telefonaktiebolaget LM Ericsson (Class B) 22,955,241 18,798,413 1.4
Equipment
TOTAL INVESTMENTS IN SWEDEN 22,955,241 18,798,413 1.4
- ------------------------------------------------------------------------------------------------------------------------
SWITZERLAND
- ------------------------------------------------------------------------------------------------------------------------
Foods 7,000 Nestle S.A. (Registered) 10,009,777 10,498,801 0.8
Insurance 20,000 Zurich Versicherungs-Gesellschaft
(Registered Shares) 8,709,180 9,537,513 0.7
Pharmaceuticals 17,000 Novartis AG (Registered Shares) 26,865,087 27,605,344 2.1
TOTAL INVESTMENTS IN SWITZERLAND 45,584,044 47,641,658 3.6
- ------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM
- ------------------------------------------------------------------------------------------------------------------------
Banking & 875,000 Barclays PLC 22,582,208 23,253,694 1.7
Financial 200,000 HSBC Holdings PLC 5,150,870 5,124,600 0.4
1,800,000 Lloyds TSB Group PLC 22,830,755 23,267,655 1.7
1,500,000 National Westminster Bank PLC (Ordinary) 22,162,632 24,933,150 1.9
---------- ---------- ----
72,726,465 76,579,099 5.7
Chemicals 365,000 Imperial Chemical Industries PLC 5,501,341 5,701,364 0.4
Diversified 500,000 Siebe PLC 9,950,432 9,813,938 0.7
Household Products 750,000 Unilever PLC 5,692,608 6,418,069 0.5
Retail 1,320,000 J Sainsbury PLC 11,275,003 11,035,629 0.8
1,400,000 Tesco PLC 11,323,155 11,382,525 0.8
---------- ---------- ----
22,598,158 22,418,154 1.6
Information - Processing 1,200,000 Reuters Holdings PLC 13,444,894 13,107,150 1.0
Insurance 1,000,000 Commercial Union PLC 14,287,623 13,944,825 1.1
2,500,000 Guardian Royal Exchange PLC 13,253,258 13,581,422 1.0
1,500,000 Royal & Sun Alliance Insurance Group PLC 14,866,023 15,102,787 1.1
---------- ---------- ----
42,406,904 42,629,034 3.2
43
100
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (concluded) (IN US DOLLARS)
- --------------------------------------------------------------------------------
SHARES VALUE PERCENT OF
INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
WESTERN EUROPE (CONCLUDED)
UNITED KINGDOM (CONCLUDED)
- ---------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 265,000 Glaxo Wellcome PLC $ 5,881,443 $ 6,267,780 0.5%
575,000 SmithKline Beecham PLC 5,491,124 5,883,846 0.4
100,000 Zeneca Group PLC 3,282,246 3,510,022 0.3
-------------- -------------- -----
14,654,813 15,661,648 1.2
Publishing 500,000 Pearson PLC 6,515,593 6,496,087 0.5
Stores 750,000 Boots Company PLC 11,223,919 10,797,384 0.8
Telecommunications 300,000 +COLT Telecom Group PLC 2,965,073 3,030,412 0.2
2,000,000 Vodafone Group PLC 11,380,920 14,421,150 1.1
-------------- -------------- -----
14,345,993 17,451,562 1.3
TOTAL INVESTMENTS IN THE UNITED
KINGDOM 219,061,120 227,073,489 16.9
TOTAL INVESTMENTS IN WESTERN EUROPE 616,328,125 624,348,406 46.6
SHORT-TERM FACE
SECURITIES AMOUNT
Commercial Paper* $10,000,000 CBC Inc., 6.10% due 1/05/1998 9,993,222 9,993,222 0.7
59,518,000 General Motors Acceptance Corp., 6.75%
due 1/02/1998 59,506,841 59,506,841 4.5
15,000,000 Lehman Brothers Holdings, Inc., 6.00%
due 1/20/1998 14,952,500 14,952,500 1.1
-------------- -------------- -----
84,452,563 84,452,563 6.3
US Government
Agency Obligations* 15,000,000 Federal Home Loan Mortgage Corp.,
5.72% due 1/15/1998 14,966,633 14,966,633 1.1
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES 99,419,196 99,419,196 7.4
TOTAL INVESTMENTS $1,335,182,327 1,339,541,499 100.0
==============
OTHER ASSETS LESS LIABILITIES 297,147 0.0
-------------- -----
NET ASSETS $1,339,838,646 100.0
============== =====
* Commercial Paper and certain US Government Agency Obligations are traded
on a discount basis; the interest rates shown are the discount rates paid
at the time of purchase by the Fund.
+ Non-income producing security.
See Notes to Financial Statements.
44
101
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1997
Assets: Investments, at value (identified cost - $1,335,182,327) (Note 1a). $1,339,541,499
Cash............................................................... 220
Foreign cash (Note 1b)............................................. 1,772,281
Receivables:
Securities sold.................................................. $61,660,000
Capital Shares sold.............................................. 3,333,552
Dividends........................................................ 909,594 65,903,146
-----------
Deferred organization expenses (Note 1f)........................... 134,583
Prepaid registration fees and other assets (Note 1f)............... 426,917
--------------
Total assets....................................................... 1,407,778,646
--------------
Liabilities: Payables:
Securities purchased............................................. 63,832,753
Capital Shares redeemed.......................................... 1,690,951
Distributor (Note 2)............................................. 1,042,601
Investment adviser (Note 2)...................................... 891,441 67,457,746
----------
Accrued expenses and other liabilities............................. 482,254
-------------
Total liabilities.................................................. 67,940,000
-------------
Net Assets: Net assets......................................................... $1,339,838,646
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized.................................................. $ 329,538
Class B Shares of Common Stock, $0.10 par value, 300,000,000
shares authorized.................................................. 9,439,606
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized.................................................. 1,899,244
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized.................................................. 1,738,108
Paid-in capital in excess of par................................... 1,325,946,711
Undistributed investment income - net.............................. 219,664
Accumulated realized capital losses on investments and foreign
currency transactions - net........................................ (4,092,736)
Unrealized appreciation on investments and foreign currency
transactions - net................................................. 4,358,511
--------------
Net assets......................................................... $1,339,838,646
==============
Net Asset Value: Class A - Based on net assets of $32,984,965 and 3,295,383 shares
outstanding.............................................. $ 10.01
=============
Class B - Based on net assets of $943,187,873 and 94,396,060
shares outstanding....................................... $ 9.99
=============
Class C - Based on net assets of $189,767,857 and 18,992,443
shares outstanding....................................... $ 9.99
=============
Class D - Based on net assets of $173,897,951 and 17,381,080
shares outstanding....................................... $ 10.01
=============
See Notes to Financial Statements.
45
102
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE PERIOD OCTOBER 31, 1997+ TO DECEMBER 31, 1997
Investment Dividends (net of $93,492 foreign withholding tax).................. $1,222,461
Income Interest and discount earned........................................ 2,981,079
----------
(Notes 1d & 1e): Total income........................................................ 4,203,540
----------
Expenses: Investment advisory fees (Note 2)................................... 1,632,926
Account maintenance and distribution fees - Class B (Note 2)........ 1,528,435
Account maintenance and distribution fees - Class C (Note 2)........ 310,152
Transfer agent fees - Class B (Note 2).............................. 146,197
Registration fees (Note 1f)......................................... 124,438
Account maintenance fees - Class D (Note 2)......................... 71,188
Custodian fees...................................................... 50,763
Transfer agent fees - Class C (Note 2).............................. 30,833
Printing and shareholder reports.................................... 23,182
Accounting services (Note 2)........................................ 21,828
Transfer agent fees - Class D (Note 2).............................. 21,815
Directors' fees and expenses........................................ 7,344
Professional fees................................................... 4,569
Amortization of organization expenses (Note 1f)..................... 4,554
Transfer agent fees - Class A (Note 2).............................. 4,127
Pricing fees........................................................ 846
Other............................................................... 679
----------
Total expenses...................................................... 3,983,876
----------
Investment income - net............................................. 219,664
----------
Realized & Realized loss from:
Unrealized Investments - net................................................... $(2,865,797)
Gain (Loss) on Foreign currency transactions - net................................. (1,226,939) (4,092,736)
-----------
Foreign Currency Unrealized appreciation/depreciation on:
Transactions - Net Investments - net................................................... 4,359,172
(Notes 1b, 1c, Foreign currency transactions - net................................. (661) 4,358,511
1e & 3): ----------- ==========
Net realized and unrealized gain on investments and foreign currency
transactions........................................................ 265,775
==========
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................ $ 485,439
==========
+Commencement of operations.
See Notes to Financial Statements.
46
103
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Period
October 31, 1997+
to December 31,
Increase (Decrease) in Net Assets: 1997
Operations: Investment income - net ......................................................... $ 219,664
Realized loss on investments and foreign currency transactions - net ............ (4,092,736)
Unrealized appreciation on investments and foreign currency transactions - net... 4,358,511
---------------
Net increase in net assets resulting from operations ............................ 485,439
---------------
Beneficial Interest Net increase in net assets derived from capital share transactions .............. 1,339,253,207
Transactions ---------------
(Note 4):
Net Assets: Total increase in net assets .................................................... 1,339,738,646
Beginning of period ............................................................. 100,000
---------------
End of period* .................................................................. $ 1,339,838,646
===============
*Undistributed investment income - net ......................................... $ 219,664
===============
+ Commencement of operations.
See Notes to Financial Statements.
47
104
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM INFORMATION PROVIDED IN THE
FINANCIAL STATEMENTS. CLASS A
----------------
FOR THE PERIOD
OCTOBER 31, 1997+
TO DECEMBER 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1997
Per Share Net asset value, beginning of period .............................................. $ 10.00
------------
Operating Investment income - net ........................................................... 0.02
Performance: Realized and unrealized loss on investments and foreign currency transactions - net (0.01)
------------
Total from investment operations .................................................. 0.01
------------
Net asset value, end of period .................................................... $ 10.01
------------
Total Investment Based on net asset value per share ................................................ 0.10%#
------------
Return:**
Ratios to Average Expenses .......................................................................... 0.94%*
------------
Net Assets: Investment income - net ........................................................... 0.98%*
------------
Supplemental Net assets, end of period (in thousands) .......................................... $ 32,985
------------
Data: Portfolio turnover ................................................................ 3.81%
------------
Average commission rate paid## .................................................... $ 0.0327
------------
* Annualized.
**Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
##Includes commissions paid in foreign currencies, which have
been converted into US dollars using the prevailing exchange
rate on the date of the transaction. Such conversions may
significantly affect the rate shown.
See Notes to Financial Statements.
48
105
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM INFORMATION PROVIDED IN THE
FINANCIAL STATEMENTS. CLASS B
-----------------
FOR THE PERIOD
OCTOBER 31, 1997+
TO DECEMBER 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1997
Per Share Net asset value, beginning of period .............................................. $ 10.00
-------------
Operating Investment loss - net ............................................................. 0.00++
Performance: Realized and unrealized loss on investments and foreign currency transactions - net (0.01)
-------------
Total from investment operations .................................................. (0.01)
-------------
Net asset value, end of period .................................................... $ 9.99
-------------
Total Investment Based on net asset value per share ................................................ (0.10)%#
-------------
Return:**
Ratios to Average Expenses .......................................................................... 1.96%*
-------------
Net Assets: Investment loss - net ............................................................. (0.03)%*
-------------
Supplemental Net assets, end of period (in thousands) .......................................... $ 943,188
-------------
Data: Portfolio turnover ................................................................ 3.81%
-------------
Average commission rate paid## .................................................... $ 0.0327
-------------
* Annualized.
**Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++Amount is less than $.01 per share.
# Aggregate total investment return.
##Includes commissions paid in foreign currencies, which have
been converted into US dollars using the prevailing exchange
rate on the date of the transaction. Such conversions may
significantly affect the rate shown.
See Notes to Financial Statements.
49
106
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM INFORMATION PROVIDED IN THE
FINANCIAL STATEMENTS. CLASS C
----------------
FOR THE PERIOD
OCTOBER 31, 1997+
TO DECEMBER 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1997
Per Share Net asset value, beginning of period .............................................. $ 10.00
Operating -------------
Performance:
Investment loss - net ............................................................. 0.00++
Realized and unrealized loss on investments and foreign currency transactions - net (0.01)
-------------
Total from investment operations .................................................. (0.01)
-------------
Net asset value, end of period .................................................... $ 9.99
=============
Total Investment Based on net asset value per share ................................................ (0.10)%#
Return:** =============
Ratios to Expenses .......................................................................... 1.96%*
Average =============
Net Assets:
Investment loss - net ............................................................. (0.02)%*
=============
Supplemental Net assets, end of period (in thousands) .......................................... $ 189,768
=============
Data:
Portfolio turnover ................................................................ 3.81%
=============
Average commission rate paid## .................................................... $ 0.0327
=============
* Annualized.
**Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++Amount is less than $.01 per share.
# Aggregate total investment return.
##Includes commissions paid in foreign currencies, which have
been converted into US dollars using the prevailing exchange
rate on the date of the transaction. Such conversions may
significantly affect the rate shown.
See Notes to Financial Statements.
50
107
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONCLUDED)
- --------------------------------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM INFORMATION PROVIDED IN THE
FINANCIAL STATEMENTS. CLASS D
-----------------
FOR THE PERIOD
OCTOBER 31, 1997+
TO DECEMBER 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1997
Per Share Net asset value, beginning of period .............................................. $ 10.00
Operating -------------
Performance:
Investment income - net ........................................................... 0.01
Realized and unrealized loss on investments and foreign currency transactions - net 0.00++
-------------
Total from investment operations .................................................. 0.01
-------------
Net asset value, end of period .................................................... $ 10.01
=============
Total Investment Based on net asset value per share ................................................ 0.10%#
Return:** =============
Ratios to Expenses .......................................................................... 1.19%*
Average =============
Net Assets:
Investment income - net ........................................................... 0.75%*
=============
Supplemental Net assets, end of period (in thousands) .......................................... $ 173,898
Data: =============
Portfolio turnover ................................................................ 3.81%
=============
Average commission rate paid## .................................................... $ 0.0327
=============
* Annualized.
**Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++Amount is less than $.01 per share.
# Aggregate total investment return.
##Includes commissions paid in foreign currencies, which have
been converted into US dollars using the prevailing exchange
rate on the date of the transaction. Such conversions may
significantly affect the rate shown.
See Notes to Financial Statements.
51
108
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Global Growth Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. Prior to commencement of operations on October 31, 1997, the Fund had
no operations other than those relating to organizational matters and the
issuance of 10,000 capital shares of the Fund to Merrill Lynch Asset Management,
L.P. ("MLAM") for $100,000. These unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. The Fund offers four classes of shares under
the Merrill Lynch Select Pricing(SM) System. Shares of Class A and Class D are
sold with a front-end sales charge. Shares of Class B and Class C may be subject
to a contingent deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and Class B and
Class C Shares also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The following is a
summary of significant accounting policies followed by the Fund.
(a) Valuation of investments - Portfolio securities which are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities
which are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
are valued at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last asked price.
Options purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last bid price. Short-term securities are valued at
amortized cost, which approximates market value. Other investments, including
futures contracts and related options, are stated at market value. Securities
and assets for which market quotations are not available are valued at fair
value as determined in good faith by or under the direction of the Fund's Board
of Directors.
(b) Foreign currency transactions - Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(c) Derivative financial instruments - The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the equity, debt, and currency markets. Losses may arise
due to changes in the value of the contract or if the counterparty does not
perform under the contract.
- - Options - The Fund is authorized to write and purchase call and put options.
When the Fund writes an option, an amount equal to the premium received by the
Fund is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid or received).
52
109
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Written and purchased options are non-income producing investments.
- - Forward foreign exchange contracts - The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Fund's records. However, the effect on operations is recorded from the date the
Fund enters into such contracts. Premium or discount is amortized over the life
of the contracts.
- - Foreign currency options and futures - The Fund may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-US dollar denominated securities owned by the
Fund, sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
- - Financial futures contracts - The Fund may purchase or sell stock index
futures contracts and options on such futures contracts for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. Futures contracts are contracts for delayed delivery of securities
at a specific future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount of cash
equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
(d) Income taxes - It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(e) Security transactions and investment income - Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently recorded
when the Fund has determined of the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(f) Deferred organization expenses and prepaid registration fees - Deferred
organization expenses are charged to expense on a straight-line basis over a
five year period. Prepaid registration fees are charged to expense as the
related shares are issued.
(g) Dividends and distributions - Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management, L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner. The Fund has also entered
into a Distribution Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee of
0.75%, on an annual basis, of the average daily value of the Fund's net assets.
53
110
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- ----------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION
FEE FEE
- ----------------------------------------------
Class B......... 0.25% 0.75%
Class C......... 0.25% 0.75%
Class D......... 0.25% --
- ----------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the period October 31, 1997 (commencement of operations) to December 31,
1997, MLFD earned underwriting discounts and commissions and MLPF&S earned
dealer concessions on sales of the Fund's Class A and Class D Shares as follows:
- ------------------------------------
MLFD MLPF&S
- ------------------------------------
Class A....... $ 1 $ 15
Class D....... $22,956 $5,302,885
- ------------------------------------
For the period October 31, 1997 (commencement of operations) to December 31,
1997, MLPF&S received contingent deferred sales charges of $83,778 and $8,806
relating to transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $11,396 in commissions on the execution of
portfolio security transactions for the Fund for the period October 31, 1997
(commencement of operations) to December 31, 1997.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
MLAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the
period October 31, 1997 (commencement of operations) to December 31, 1997 were
$1,269,294,502 and $30,665,572, respectively.
Net realized and unrealized gains (losses) as of December 31, 1997 were as
follows:
- ----------------------------------------------------------
REALIZED UNREALIZED
LOSSES GAINS (LOSSES)
- ----------------------------------------------------------
Long-term investments.... $(2,865,797) $ 4,359,172
Foreign currency
transactions ............ (1,226,939) (661)
----------- -----------
Total ................... $(4,092,736) $ 4,358,511
=========== ===========
- ----------------------------------------------------------
As of December 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $4,359,172, of which $51,773,674 related to appreciated
securities and $47,414,502 related to depreciated securities. At December 31,
1997, the aggregate cost of investments for Federal income tax purposes was
$1,335,182,327.
54
111
MERRILL LYNCH GLOBAL GROWTH FUND, INC. DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS:
Net increase in net assets derived from capital share transactions was
$1,339,253,207 for the period October 31, 1997 (commencement of operations) to
December 31, 1997.
Transactions in capital shares for each class were as follows:
- ---------------------------------------------------------
CLASS A SHARES FOR THE
PERIOD OCTOBER 31, 1997+ DOLLAR
TO DECEMBER 31, 1997 SHARES AMOUNT
- ---------------------------------------------------------
Shares sold ............ 3,409,155 $ 34,052,148
Shares redeemed......... (116,272) (1,150,458)
---------- ------------
Net increase ........... 3,292,883 $ 32,901,690
========== ============
- ---------------------------------------------------------
+Prior to October 31, 1997 (commencement of operations), the Fund issued 2,500
shares to MLAM for $25,000.
- -------------------------------------------------------------
CLASS B SHARES FOR THE
PERIOD OCTOBER 31, 1997+ DOLLAR
TO DECEMBER 31, 1997 SHARES AMOUNT
- -------------------------------------------------------------
Shares sold .............. 96,426,773 $ 962,956,707
Shares redeemed .......... (2,008,005) (19,778,001)
Automatic conversion of
shares ................... (25,208) (249,963)
----------- -------------
Net increase ............. 94,393,560 $ 942,928,743
=========== =============
- -------------------------------------------------------------
+Prior to October 31, 1997 (commencement of operations), the Fund issued 2,500
shares to MLAM for $25,000.
- ----------------------------------------------------------
CLASS C SHARES FOR THE
PERIOD OCTOBER 31, 1997+ DOLLAR
TO DECEMBER 31, 1997 SHARES AMOUNT
- ----------------------------------------------------------
Shares sold .......... 19,539,339 $ 195,154,082
Shares redeemed....... (549,396) (5,420,961)
---------- -------------
Net increase ......... 18,989,943 $ 189,733,121
=========== =============
- ----------------------------------------------------------
+Prior to October 31, 1997 (commencement of operations), the Fund issued 2,500
shares to MLAM for $25,000.
- --------------------------------------------------------------
CLASS D SHARES FOR THE
PERIOD OCTOBER 31, 1997+ DOLLAR
TO DECEMBER 31, 1997 SHARES AMOUNT
- --------------------------------------------------------------
Shares sold ........... 17,987,026 $ 179,697,214
Automatic conversion of
shares .............. 25,182 249,963
----------- -------------
Total issued .......... 18,012,208 179,947,177
Shares redeemed ....... (633,628) (6,257,524)
----------- -------------
Net increase .......... 17,378,580 $ 173,689,653
=========== =============
- --------------------------------------------------------------
+Prior to October 31, 1997 (commencement of operations), the Fund issued 2,500
shares to MLAM for $25,000.
5. COMMITMENTS:
At December 31, 1997, the Fund had entered into foreign exchange contracts under
which it had agreed to purchase foreign currency with an approximate value of
$2,604,000.
55
112
TABLE OF CONTENTS
PAGE
----
Investment Objective and Policies.......................................... 2
Portfolio Strategies Involving Options, Futures and
Foreign Exchange Transactions.................................... 2
Other Investment Policies and Practices............................... 2
Investment Restrictions............................................... 4
Management of the Fund..................................................... 7
Directors and Officers................................................ 7
Compensation of Directors............................................. 8
Management and Advisory Arrangements.................................. 9
Purchase of Shares......................................................... 10
Initial Sales Charge Alternatives-
Class A and Class D Shares....................................... 11
Reduced Initial Sales Charges......................................... 12
Employer-Sponsored Retirement or Savings Plans and
Certain Other Arrangements....................................... 15
Distribution Plans.................................................... 15
Limitations on the Payment of Deferred Sales Charges.................. 16
Redemption of Shares....................................................... 17
Deferred Sales Charges-
Class B and Class C Shares....................................... 18
Portfolio Transactions and Brokerage....................................... 18
Determination of Net Asset Value........................................... 20
Shareholder Services....................................................... 21
Investment Account.................................................... 21
Automatic Investment Plans............................................ 22
Automatic Reinvestment of Dividends and Capital Gains
Distributions.................................................... 22
Systematic Withdrawal Plans........................................... 23
Exchange Privilege.................................................... 24
Dividends, Distributions and Taxes......................................... 26
Dividends and Distributions........................................... 26
Taxes................................................................. 27
Tax Treatment of Options and Futures Transactions..................... 29
Special Rules for Certain Foreign Currency
Transactions..................................................... 30
Performance Data........................................................... 31
General Information........................................................ 32
Description of Shares................................................. 32
Computation of Offering Price Per Share............................... 33
Independent Auditors.................................................. 33
Custodian............................................................. 34
Transfer Agent........................................................ 34
Legal Counsel......................................................... 34
Reports to Shareholders............................................... 34
Additional Information................................................ 34
Security Ownership of Certain Beneficial Owners....................... 34
Report of Independent Auditors............................................. 35
Statement of Assets and Liabilities........................................ 36
Financial Statements (unaudited)........................................... 37
[GRAPHIC OF BULL] MERRILL LYNCH
MERRILL LYNCH
GLOBAL GROWTH
FUND, INC.
[GRAPHIC]
STATEMENT OF
ADDITIONAL INFORMATION
March 6, 1998
Distributor:
Merrill Lynch
Funds Distributor, Inc.