1
EXHIBIT (17)(c)
PROSPECTUS
March 5, 1998
MERRILL LYNCH GLOBAL HOLDINGS, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 ~ PHONE NO. (609) 282-2800
Merrill Lynch Global Holdings, Inc. (the "Company"), is a diversified,
open-end management investment company that seeks the highest total investment
return consistent with prudent risk through worldwide investment in an
internationally diversified portfolio of securities. Total investment return is
the aggregate of income and capital value changes. The Company will utilize a
fully managed investment policy which permits management of the Company to take
a flexible investment approach and vary its policies as to geographic
diversification and types of securities based upon its evaluation of changes in
economic and market trends throughout the world. Accordingly, investments may be
shifted among the various capital markets of the world and among different types
of equity, debt and convertible securities depending upon management's outlook
with respect to prevailing trends and developments. It is presently contemplated
that the Company's assets will be primarily invested in equity securities of
companies located in the United States, Japan and Western Europe. For more
information on the Company's investment objectives and policies, please see
"Investment Objective and Policies" on page 12.
Pursuant to the Merrill Lynch Select Pricing (SM) System, the Company
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], or from securities dealers that have entered into selected dealer
agreements with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000, and the
minimum subsequent purchase is $50, except that for retirement plans the minimum
initial purchase is $100, and the minimum subsequent purchase is $1, and for
participants in certain fee-based programs the minimum initial purchase is $500
and the minimum subsequent purchase is $50. Merrill Lynch may charge its
customers a processing fee (presently $5.35) for confirming purchases and
repurchases. Purchases and redemptions made directly through Merrill Lynch
Financial Data Services, Inc. (the "Transfer Agent") are not subject to the
processing fee. See "Purchase of Shares" and "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 Company
that is relevant to making an investment in the Company. This Prospectus should
be retained for future reference. A statement containing additional information
about the Company, dated March 5, 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
Company 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 - INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. - DISTRIBUTOR
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FEE TABLE
A general comparison of the sales arrangements and other nonrecurring
and recurring expenses applicable to shares of the Company 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, decreasing 1.0% for one year(f) None(d)
1.0% annually thereafter to 0.0% after
the fourth year(e)
Exchange Fee............................ None None None None
ANNUAL COMPANY OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE NET ASSETS):
Investment Advisory Fees(g)............. 1.00% 1.00% 1.00% 1.00%
12b-1 Fees(h):
Account Maintenance Fees.............. None 0.25% 0.25% 0.25%
Distribution Fees..................... None 0.75% 0.75% None
(Class B shares convert to Class D
shares automatically after approximately
eight years and cease being subject to
distribution fees)
Other Expenses:
Shareholder Servicing Costs(i)........ 0.22% 0.25% 0.27% 0.22%
Other................................. 0.17% 0.17% 0.16% 0.17%
Total Other Expenses................ 0.39% 0.42% 0.43% 0.39%
TOTAL COMPANY OPERATING EXPENSES...... 1.39% 2.42% 2.43% 1.64%
(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"-page 27 and "Shareholder Services--Fee-Based Programs"-page 39.
(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"-page 29.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of
Class A shares by certain retirement plans and participants in
connection with certain fee-based programs. Class A or Class D
purchases of $1,000,000 or more are not subject to an initial sales
charge. See "Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares"-page 27.
(d) Class A and Class D shares are not subject to a contingent deferred
sales charge ("CDSC"), except that certain purchases of $1,000,000 or
more that are not subject to an initial sales charge may instead be
subject to a CDSC of 1.0% of amounts redeemed within the first year
after purchase. Such CDSC may be waived in connection with certain
fee-based programs. See "Shareholder Services--Fee-Based Programs"-page
39.
(e) The CDSC may be modified in connection with certain fee-based programs.
See "Shareholder Services--Fee-Based Programs"-page 39.
(f) The CDSC may be waived in connection with certain fee-based programs.
See "Shareholder Services--Fee-Based Programs"-page 39.
(g) See "Management of the Company--Advisory and Management
Arrangements"-page 22.
(h) See "Purchase of Shares-Distribution Plans"-page 32.
(i) See "Management of the Company--Transfer Agency Services"-page 23.
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EXAMPLE:
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
EXAMPLE:
An investor would pay the following expenses on a $1,000
investment including the maximum $52.50 initial sales charge
(Class A and Class D shares only) and assuming (1) the Total
Company 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...................................................... $66 $ 94 $125 $211
Class B...................................................... $65 $ 95 $129 $257*
Class C...................................................... $35 $ 76 $130 $277
Class D...................................................... $68 $102 $137 $237
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of the
period:
Class A...................................................... $66 $ 94 $125 $211
Class B...................................................... $25 $ 75 $129 $257*
Class C...................................................... $25 $ 76 $130 $277
Class D...................................................... $68 $102 $137 $237
- ------------
* Assumes conversion to Class D shares approximately eight years after
purchase.
The foregoing Fee Table is intended to assist investors in
understanding the costs and expenses that a shareholder in the Company will bear
directly or indirectly. THE EXAMPLE SET FORTH ABOVE ASSUMES REINVESTMENT OF ALL
DIVIDENDS AND DISTRIBUTIONS AND UTILIZES A 5% ANNUAL RATE OF RETURN AS MANDATED
BY COMMISSION REGULATIONS. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL EXPENSES OR
ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF
THE EXAMPLE. Class B and Class C shareholders who hold their shares for an
extended period of time may pay more in Rule 12b-1 distribution fees than the
economic equivalent of the maximum front-end sales charges permitted under the
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 Company'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 Company 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
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the "Investment Adviser") or an affiliate of MLAM, Fund Asset Management, L.P.
("FAM"). Funds advised by MLAM or FAM that utilize the Merrill Lynch Select
Pricing(SM) System are referred to herein as "MLAM-advised mutual funds."
Each Class A, Class B, Class C or Class D share of the Company
represents an identical interest in the investment portfolio of the Company and
has the same rights, except that Class B, Class C and Class D shares bear the
expenses of the ongoing account maintenance fees and Class B and Class C shares
bear the expenses of the ongoing distribution fees and the additional
incremental transfer agency costs resulting from the deferred sales charge
arrangements. The CDSCs, distribution and account maintenance fees that are
imposed on Class B and Class C shares, as well as the account maintenance fees
that are imposed on Class D shares, are imposed directly against those classes
and not against all assets of the Company 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 Company
for each class of shares are calculated in the same manner at the same time and
will differ only to the extent that account maintenance and distribution fees
and any incremental transfer agency costs relating to a particular class are
borne exclusively by that class. Each class has different exchange privileges.
See "Shareholder Services-Exchange Privilege."
Investors should understand that the purpose and function of the
initial sales charges with respect to the Class A and Class D shares are the
same as those of the CDSCs and distribution fees with respect to the Class B and
Class C shares in that the sales charges and distribution fees applicable to
each class provide for the financing of the distribution of the shares of the
Company. 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
- -------------------------------------------------------------------------------------------------
B shares convert to
CDSC for a period of four years D shares automatically
at a rate of 4.0% during the first year after approximately
B decreasing 1.0% 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
- -------------------------------------------------------------------------------------------------
D Maximum 5.25% initial 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.
(Footnotes continue on next page)
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(2) Offered only to eligible investors. See "Purchase of Shares-Initial
Sales Charge Alternatives-Class A and Class D Shares-Eligible Class A
Investors."
(3) Reduced for purchases of $25,000 or more, and waived for purchases of
Class A shares by certain retirement plans and participants in
connection with certain fee-based programs. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead may be subject to a 1.0% CDSC if redeemed within one
year. Such CDSC may be waived in connection with certain fee-based
programs. A 0.75% sales charge for 401(k) purchases over $1,000,000
will apply. See "Class A" and "Class D" below.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a
ten-year conversion period. If Class B shares of the Company 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 of the Company 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 Company in
a shareholder account are entitled to purchase additional Class A
shares of the Company in that account. Other eligible investors include
certain retirement plans and participants in certain fee-based
programs. In addition, Class A shares will be offered at net asset
value to Merrill Lynch & Co., Inc. ("ML & Co.") and its subsidiaries
(the term "subsidiaries" when used herein with respect to ML & Co.
includes MLAM, FAM and certain other entities directly or indirectly
wholly owned and controlled by ML & Co.) and to their directors and
employees and to members of the Boards of MLAM-advised mutual funds.
The maximum initial sales charge of 5.25%, is 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. 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. 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 Company's average net assets
attributable to Class B shares, and a CDSC if they are redeemed within
four years of purchase. Such CDSC may be modified in connection with
certain fee-based programs. Approximately eight years after issuance,
Class B shares will convert automatically into Class D shares of the
Company, 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
Company are exchanged for Class B shares of another MLAM-advised mutual
fund, the conversion period applicable to the Class B shares acquired
in the exchange will apply, and the holding period for the shares
exchanged will be tacked onto the holding period for the shares
acquired. Automatic conversion of Class B shares into Class D shares
will occur at least once a
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month on the basis of the relative net asset values of the shares of
the two classes on the conversion date, without the imposition of any
sales load, fee or other charge. Conversion of Class B shares to Class
D shares will not be deemed a purchase or sale of the shares for
Federal income tax purposes. Shares purchased through reinvestment of
dividends on Class B shares also will convert automatically to Class D
shares. The conversion period for dividend reinvestment shares and the
conversion and holding periods for certain retirement plans are
modified as described under "Purchase of Shares-Deferred Sales Charge
Alternatives-Class B and Class C Shares-Conversion of Class B Shares to
Class D Shares."
Class C: Class C shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75% of the Company's average net assets
attributable to Class C shares. Class C shares are also subject to a
CDSC of 1.0% 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 Company'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
Company'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 of 5.25% 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 purchase 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 the Class D shares is the same
as the schedule for Class A shares, except that there is no waiver for
purchases by retirement plans and participants 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 deferred sales charges imposed in connection with purchases of
Class B or Class C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution
6
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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
that previously purchased Class A shares may no longer be eligible to purchase
Class A shares of other MLAM-advised mutual funds, those previously purchased
Class A shares, together with Class B, Class C and Class D share holdings, will
count toward a right of accumulation which may qualify the investor for reduced
initial sales charges on new initial sales charge purchases. In addition, the
ongoing Class B and Class C account maintenance and distribution fees will cause
Class B and Class C shares to have higher expense ratios, pay lower dividends
and have lower total returns than the initial sales charge shares. The ongoing
Class D account maintenance fees will cause Class D shares to have a higher
expense ratio, pay lower dividends and have a lower total return than Class A
shares.
Deferred Sales Charge Alternatives. Because no initial sales charges
are deducted at the time of purchase, Class B and Class C shares provide the
benefit of putting all of the investor's dollars to work from the time the
investment is made. The deferred sales charge alternatives may be particularly
appealing to investors who do not qualify for a reduction in initial sales
charges. Both Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing account maintenance
and distribution fees potentially may be offset to the extent any return is
realized on the additional funds initially invested in Class B or Class C
shares. In addition, Class B shares will be converted into Class D shares of the
Company 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 forgo 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."
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FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Company by
Deloitte & Touche LLP, independent auditors. Financial statements for the fiscal
year ended November 30, 1997, and the independent auditors' report thereon are
included in the Statement of Additional Information. Further information about
the performance of the Company is contained in the Company's most recent annual
report to shareholders which may be obtained, without charge, by calling or by
writing the Company at the telephone number or address on the front cover of
this Prospectus.
The following per share data and ratios have been derived from
information provided in the Company's audited financial statements.
CLASS A
--------------------------------------------------------------------------------------
FOR THE
SEVEN-
FOR THE YEAR ENDED NOVEMBER 30, MONTH
PERIOD
ENDED
---------------------------------------------------------------------------- NOV. 30,
1997++ 1996++ 1995++ 1994++ 1993++ 1992++ 1991 1990
--------- -------- -------- -------- -------- -------- -------- --------
Increase (Decrease) in Net
Asset Value:
Per Share Operating
Performance:
Net asset value, beginning of
period............................ $ 15.12 $ 13.87 $ 12.82 $ 13.07 $ 11.78 $ 10.95 $ 10.48 $ 10.91
--------- -------- -------- ------- ------- ------- -------- --------
Investment income (loss)-net....... (.02) .13 .05 .03 .04 .10 .16 .17
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions-net.................. .86 1.87 1.52 .53 2.07 1.05 .53 (.30)
--------- -------- -------- ------- ------- ------- -------- --------
Total from investment
operations........................ .84 2.00 1.57 .56 2.11 1.15 .69 (.13)
--------- -------- -------- ------- ------- ------- -------- --------
Less dividends and distributions:
Investment income-net............. (.02) - (.01) (.01) - (.10) (.21) (.13)
In excess of investment
income-net........................ (.10) - - - - - - -
Realized gain on investments-net... (.79) (.75) (.51) (.80) (.82) (.22) (.01) (.17)
--------- -------- -------- ------- ------- ------- -------- --------
Total dividends and
distributions..................... (.91) (.75) (.52) (.81) (.82) (.32) (.22) (.30)
--------- -------- -------- ------- ------- ------- -------- --------
Net asset value, end of
period............................ $ 15.05 $ 15.12 $ 13.87 $ 12.82 $ 13.07 $ 11.78 $ 10.95 $ 10.48
========= ======== ======== ======= ======= ======= ======== ========
Total Investment Return:**
Based on net asset value per
share............................. 6.04% 15.20% 12.92% 4.39% 19.16% 10.67% 6.77% (1.45)%#
========= ======== ======== ======= ======= ======= ======== ========
Ratios to Average Net Assets:
Expenses.......................... 1.39% 1.37% 1.51% 1.44% 1.43% 1.49% 1.48% 1.59%*
========= ======== ======== ======= ======= ======= ======== ========
Investment income (loss)-net....... (.12)% .92% .41% .23% .32% (.19)% 1.31% 2.63%*
========= ======== ======== ======= ======= ======= ======== ========
Supplemental Data:
Net assets, end of period (in
thousands)........................ $344,940 $398,310 $327,270 $330,132 $256,203 $166,947 $165,687 $176,898
========= ======== ======== ======= ======= ======= ======== ========
Portfolio turnover................. 54.50% 41.14% 44.64% 40.18% 56.98% 65.93% 63.94% 34.44%
========= ======== ======== ======= ======= ======= ======== ========
Average commission rate
paid##............................ $ .0103 $ .0063 - - - - - -
========= ======== ======== ======= ======= ======= ======== ========
FOR THE YEAR ENDED APRIL 30,
------------------------------
1990 1989 1988
-------- -------- --------
Increase (Decrease) in Net
Asset Value:
Per Share Operating
Performance:
Net asset value, beginning of
period............................ $ 11.79 $ 12.23 $ 16.90
-------- -------- --------
Investment income (loss)-net....... .20 .29 .43
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions-net.................. .62 .88 (1.09)
-------- -------- --------
Total from investment
operations........................ .82 1.17 (.66)
-------- -------- --------
Less dividends and distributions:
Investment income-net............. (.21) (.34) (.37)
In excess of investment
income-net........................ - - -
Realized gain on investments-net... (1.49) (1.27) (3.64)
-------- -------- --------
Total dividends and
distributions..................... (1.70) (1.61) (4.01)
-------- -------- --------
Net asset value, end of
period............................ $ 10.91 $ 11.79 $ 12.23
======== ======== ========
Total Investment Return:**
Based on net asset value per
share............................. 6.93% 10.99% (4.43)%
======== ======== ========
Ratios to Average Net Assets:
Expenses.......................... 1.49% 1.47% 1.31%
======== ======== ========
Investment income (loss)-net....... 1.65% 2.04% 2.90%
======== ======== ========
Supplemental Data:
Net assets, end of period (in
thousands)........................ $187,843 $195,932 $249,736
======== ======== ========
Portfolio turnover................. 84.21% 102.77% 109.68%
======== ======== ========
Average commission rate
paid##............................ - - -
======== ======== ========
(Footnotes on page 10)
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FINANCIAL HIGHLIGHTS - (Continued)
CLASS B
------------------------------------------------------------------------------------
FOR THE
SEVEN-
MONTH
PERIOD
FOR THE YEAR ENDED NOVEMBER 30, ENDED
------------------------------------------------------------------------- NOV. 30,
1997++ 1996++ 1995++ 1994++ 1993++ 1992++ 1991 1990
------- ------- ------- ------- ------- ------- ------- --------
Increase (Decrease) in Net
Asset Value:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................... $ 14.40 $ 13.38 $ 12.50 $ 12.74 $ 11.62 $ 10.82 $ 10.36 $ 10.82
------- ------- ------- ------- ------- ------- ------- -------
Investment income
(loss)-net.................. (.17) (.02) (.08) (.10) (.08) (.03) .04 .10
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions-net............ .84 1.79 1.47 .52 2.02 1.05 .54 (.30)
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations.................. .67 1.77 1.39 .42 1.94 1.02 .58 (.20)
------- ------- ------- ------- ------- ------- ------- -------
Less dividends and
distributions:
Investment income-
net......................... - - - - - - (.11) (.09)
Realized gain on
investments-net............. (.76) (.75) (.51) (.66) (.82) (.22) (.01) (.17)
------- ------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions............... (.76) (.75) (.51) (.66) (.82) (.22) (.12) (.26)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period...................... $ 14.31 $ 14.40 $ 13.38 $ 12.50 $ 12.74 $ 11.62 $ 10.82 $ 10.36
======= ======= ======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share....................... 4.98% 13.97% 11.78% 3.32% 17.87% 9.58% 5.67% (2.08)%#
======= ======= ======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses..................... 2.42% 2.40% 2.55% 2.48% 2.46% 2.52% 2.51% 2.63%*
======= ======= ======= ======= ======= ======= ======= =======
Investment income
(loss)-net.................. (1.11)% (.11)% (.63)% (.80)% (.72)% (1.19)% .25% 1.54%*
======= ======= ======= ======= ======= ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands).............. $66,791 $44,311 $44,387 $49,647 $34,241 $22,925 $24,960 $ 22,623
======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover........... 54.50% 41.14% 44.64% 40.18% 56.98% 65.93% 63.94% 34.44%
======= ======= ======= ======= ======= ======= ======= =======
Average commission rate
paid##...................... $ .0103 $ .0063 - - - - - -
======= ======= ======= ======= ======= ======= ======= =======
CLASS B
--------------------
FOR THE
FOR THE PERIOD
YEAR OCT. 21,
ENDED 1988+ TO
APRIL 30, APRIL 30,
1990 1989
------- --------
Increase (Decrease) in Net
Asset Value:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................... $ 11.74 $ 11.29
------- -------
Investment income
(loss)-net.................. .16 .06
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions-net............ .55 .93
------- -------
Total from investment
operations.................. .71 .99
------- -------
Less dividends and
distributions:
Investment income-
net......................... (.14) (.15)
Realized gain on
investments-net............. (1.49) (.39)
------- -------
Total dividends and
distributions............... (1.63) (.54)
------- -------
Net asset value, end of
period...................... $ 10.82 $ 11.74
======= =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share....................... 5.91% 9.10%#
======= =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses..................... 2.53% 2.50%*
======= =======
Investment income
(loss)-net.................. .65% .10%*
======= =======
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands).............. $ 16,342 $ 1,476
======= =======
Portfolio turnover........... 84.21% 102.77%
======= =======
Average commission rate
paid##...................... - -
======= =======
(Footnotes on Page 10)
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FINANCIAL HIGHLIGHTS - (CONCLUDED)
CLASS C++ CLASS D++
------------------------------------------- -----------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD YEAR ENDED PERIOD
NOVEMBER 30, OCT. 21, 1994+ NOVEMBER 30, OCT. 21, 1994+
-------------------------- TO NOV. 30, ------------------------ TO NOV. 30,
1997 1996 1995 1997 1996 1995 1994 1994
------ ------ ------ ------ ------ ------ ------ ------
Increase (Decrease) in Net Asset
Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................... $14.41 $13.38 $12.51 $13.08 $15.04 $13.84 $12.81 $13.39
------ ------ ------ ------ ------ ------ ------ ------
Investment income (loss)-net..... (.17) (.01) (.08) (.02) (.06) .09 .02 (.01)
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions-net................. .83 1.79 1.46 (.55) .87 1.86 1.52 (.57)
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations....................... .66 1.78 1.38 (.57) .81 1.95 1.54 (.58)
------ ------ ------ ------ ------ ------ ------ ------
Less dividends and distributions:
Investment income-net............ -+++ - - - (.01) - -+++ -
In excess of investment
income-net....................... -+++ - - - (.08) - - -
Realized gain on
investments-net.................. (.79) (.75) (.51) - (.79) (.75) (.51) -
------ ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions.................... (.79) (.75) (.51) - (.88) (.75) (.51) -
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period... $14.28 $14.41 $13.38 $12.51 $14.97 $15.04 $13.84 $12.81
====== ====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share............................ 4.96% 14.05% 11.69% (4.36)%# 5.80% 14.86% 12.73% (4.33)%#
====== ====== ====== ====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses......................... 2.43% 2.41% 2.55% 3.00%* 1.64% 1.63% 1.76% 2.23%*
====== ====== ====== ====== ====== ====== ====== ======
Investment income (loss)-net..... (1.09)% (.09)% (.63)% (1.31)%* (.39)% .60% .18% (.67)%*
====== ====== ====== ====== ====== ====== ====== ======
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)................... $5,964 $ 910 $ 376 $ 177 $8,486 $4,688 $3,459 $1,591
====== ====== ====== ====== ====== ====== ====== ======
Portfolio turnover............... 54.50% 41.14% 44.64% 40.18% 54.50% 41.14% 44.64% 40.18%
====== ====== ====== ====== ====== ====== ====== ======
Average commission rate
paid##........................... $.0103 $.0063 - - $.0103 $.0063 - -
====== ====== ====== ====== ====== ====== ====== ======
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
+++ Amount is less than $.01 per share.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Company
is required to disclose its average commission rate per share for
purchases and sales of equity securities. The "Average Commission Rate
Paid" includes commissions paid in foreign currencies, which have been
converted into U.S. dollars using the prevailing exchange rate on the
date of the transaction. Such conversions may significantly affect the
rate shown.
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INTERNATIONAL DIVERSIFICATION
The Company, utilizing the combined purchasing power of its
shareholders' funds, provides the investor with the opportunity to participate
with a minimum investment of $1,000 ($100 for retirement plans and $500 for
certain fee-based programs) in a diversified portfolio of securities in foreign
markets which typically would require substantially larger commitments. The
Investment Adviser believes that, based upon past performance, an
internationally diversified portfolio offers the possibility of a higher
expected return than a portfolio comprised of securities from one securities
market. The reason for this is that historically the securities markets of many
countries have moved relatively independently of one another due to different
economic, financial, political and social factors. When such lack of
correlation, or negative correlation, in movements of these securities markets
occurs, it may reduce risk for the Company's portfolio as a whole. Other
advantages include professional management and administrative convenience.
Investments on an international basis involve certain risks not
typically involved in domestic investments, including, but not limited to,
fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions applicable to such investments. Securities
prices in different countries are subject to different economic, financial,
political and social factors. Since the Company will invest 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 portfolio and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. Changes in foreign currency exchange
rates relative to the U.S. dollar will affect the U.S. dollar value of the
Company's assets denominated in that currency and the Company's yield on such
assets. The rate of exchange between the dollar and other currencies is
determined by forces of supply and demand in the foreign exchange markets. These
forces are, in turn, affected by the international balance of payments, the
level of interest and inflation rates and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments
position. Also, many of the securities held by the Company will not be
registered with the Commission nor will the issuers thereof be subject to the
reporting requirements of such agency.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments that could affect investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to those
of U.S. companies. In addition, certain foreign investments may be subject to
foreign withholding taxes. See "Additional Information-Taxes." Foreign financial
markets, while generally growing in volume, typically have substantially less
volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices more volatile than securities of comparable domestic
companies. The foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions making it
difficult to conduct such transactions. Delays or other problems in settlement
could result in temporary periods when assets of the Company are uninvested and
no return is earned thereon. The
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inability of the Company to make intended security purchases due to settlement
problems could cause the Company to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems either
could result in losses to the Company due to subsequent declines in value of the
portfolio security or, if the Company has entered into a contract to sell the
security, could result in possible liability to a purchaser. Brokerage
commissions and other transaction costs on foreign securities exchanges are
generally higher than in the United States. There is generally less governmental
supervision and regulation of exchanges, brokers and issuers in foreign
countries than there is in the United States.
The Company has made and may continue to make substantial investments
in the securities of issuers in lesser developed capital markets. The risks of
investment in foreign securities described above tend to be particularly
significant when investing in lesser developed capital markets.
The operating expense ratio of the Company can be expected to be higher
than that of an investment company investing exclusively in U.S. securities
since the expenses of the Company, such as custodial costs and the advisory fee,
are higher.
Other special considerations are that the Company may invest up to 15%
of its total assets in illiquid or otherwise not readily marketable securities
and that certain foreign investments may be subject to foreign withholding
taxes. In addition, the Company's investment restrictions do not permit it to
borrow money other than for extraordinary or emergency purposes.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek the highest total
investment return consistent with prudent risk through worldwide investment in
an internationally diversified portfolio of securities. Total investment return
is the aggregate of income and capital value changes. In pursuing this
objective, management of the Company will utilize a fully managed investment
policy which permits the Company to take a flexible investment approach and vary
its policies as to geographic diversification and types of securities based upon
its evaluation of economic and market trends throughout the world. Accordingly,
investments may be shifted among the various capital markets of the world and
among different types of equity, debt and convertible securities depending upon
management's outlook with respect to prevailing trends and developments. The
investment objective of the Company described in this paragraph is a fundamental
policy of the Company and may not be changed without the approval of the holders
of a majority of the Company's outstanding voting securities.
The Company will invest in a diversified international portfolio of
securities of companies located throughout the world. While there are no
prescribed limits on geographic asset distribution and the Company has the
authority to invest in any country in the world, it is expected that the
Company's assets will be invested in several countries, primarily the U.S.,
Japan and Western European nations. The allocation of the Company's assets among
the various securities markets of the world will be determined by the Investment
Adviser as described under "Management of the Company." In making the allocation
of assets among the securities markets, the Investment Adviser will consider
such factors as the condition and growth potential of the various economies and
securities markets, currency and taxation considerations and other pertinent
12
13
financial, social, national and political factors. Investments on an
international basis involve certain risks not typically involved in domestic
investments. See "International Diversification." Under certain adverse
investment conditions, the Company may restrict the securities markets in which
its assets will be invested and may increase the proportion of assets invested
in the U.S. securities markets.
As of the date of this Prospectus, investment emphasis is placed on
equity securities (i.e., common stocks) or securities convertible into equities.
However, the flexible fully managed investment approach enables the Company to
switch its emphasis to debt and convertible securities or non-convertible
preferred stocks if, in the opinion of the Investment Adviser, prevailing market
or economic conditions warrant. The Investment Adviser will determine the
emphasis among equity and debt securities, including convertible securities,
based upon its evaluation as to the types of securities presently providing the
opportunity for the highest total investment return consistent with the
Company's investment objective. Accordingly, while investment emphasis is
currently on equity securities, substantial portions of the Company's assets may
be invested in debt or convertible securities.
The Company has no established rating criteria for the debt securities
in which it may invest. Fixed income investments involve credit risk, which is
the risk that an issuer of such securities will not make timely payments of
interest or principal. Credit risk is greater in lower-rated securities. Fixed
income investments also involve interest rate risk, which is the risk that the
value of such an investment may fall when interest rates rise and rise when
interest rates fall. In general, fixed income securities with longer maturities
will be subject to greater volatility resulting from interest rate fluctuations
than will fixed income securities with shorter maturities.
As described above, the Investment Adviser will allocate the Company's
assets among the various securities markets of the world. In making these
allocations, the Investment Adviser will consider the factors described in the
preceding paragraphs in seeking to realize the Company's investment objective.
The Company reserves the right, as a temporary defensive measure and to provide
for redemptions, to hold cash or cash equivalents (in U.S. dollars or foreign
currencies) and short-term securities including money market securities. The
Company may invest in the securities of foreign issuers in the form of American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs) or other securities convertible into securities of
foreign issuers.
The Company 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 that Act. However, the Company will not invest
more than 15% of its total assets in illiquid investments, which includes
securities for which there is no readily available market, securities subject to
contractual restrictions on resale, certain investments in asset-backed and
receivable-backed securities and restricted securities, unless the Company's
Board of Directors continuously determines, based on the trading markets for the
specific restricted security, that it is liquid. The Board of Directors may
adopt guidelines and delegate to the Investment Adviser the daily function of
determining and monitoring liquidity of restricted securities. The Board of
Directors, however, will retain sufficient oversight and be ultimately
responsible for the determinations.
Since it is not possible to predict with assurance exactly how this
market for restricted securities sold and offered under Rule 144A will develop,
the Board of Directors will carefully monitor the Company's
13
14
investments in these securities, focusing on such factors, among others, as
valuation, liquidity and availability of information. This investment practice
could have the effect of increasing the level of illiquidity in the Company to
the extent that qualified institutional buyers become for a time uninterested in
purchasing these restricted securities.
HEDGING TECHNIQUES
The Company may engage in various portfolio strategies to hedge its
portfolio against investment, interest rate and currency risks. These strategies
include the use of options on portfolio securities, stock index options, stock
index futures, financial futures, currency options, currency futures, options on
such futures and forward foreign exchange transactions. The Company may enter
into such transactions only in connection with its hedging strategies. While the
Company's net asset value will continue to fluctuate and no assurance can be
given that the Company's hedging transactions will be effective, the Investment
Adviser believes that the ability of the Company to engage in these hedging
transactions would enhance the Company's ability to reduce the volatility of the
net asset value of Company shares. Furthermore, the Company will only engage in
hedging activities from time to time and may not necessarily be engaging in
hedging activities when movements in the equity markets, interest rates or
currency exchange rates occur. When the Company engages in transactions
denominated in foreign currencies, it will be subject to the risks of adverse
changes in the exchange rates between such foreign currencies and the U.S.
dollar, the currency used to value the Company's assets. Reference is made to
the Statement of Additional Information for further information concerning these
strategies.
Although certain risks are involved in options and futures transactions
(as discussed below in "Risk Factors in Options, Futures and Currency
Transactions"), the Investment Adviser believes that, because the Company will
only engage in these transactions for hedging purposes, the options and futures
portfolio strategies of the Company will not subject the Company to the risks
frequently associated with the speculative use of options and futures
transactions. Tax requirements may limit the Company's ability to engage in the
hedging transactions and strategies discussed below.
Set forth below is a description of the hedging instruments the Company
may utilize with respect to investment, interest rate and currency risks.
Writing Covered Call Options. The Company is authorized to write (i.e.,
sell) covered call options on the securities in which it may invest and to enter
into closing purchase transactions with respect to certain of such options. A
covered call option is an option where the Company, in return for a premium,
gives another party a right to buy specified securities owned by the Company on
or before a specified future date and at a specified price set at the time of
the contract. By writing covered call options, the Company gives up the
opportunity, while the option is in effect, to profit from any price increase in
the underlying security above the option exercise price. In addition, the
Company's ability to sell the underlying security will be limited while the
option is in effect unless the Company effects a closing purchase transaction. A
closing purchase transaction cancels out the Company's position as the writer of
an option by means of an offsetting purchase of an identical option prior to the
expiration of the option it has written. Covered call options serve as a partial
hedge against the price of the underlying security declining.
14
15
Purchasing Put Options. The Company is authorized to purchase put
options to hedge against a decline in the market value of its securities. By
buying a put option the Company has a right to sell the underlying security at
the stated exercise price, thus limiting the Company's risk of loss through a
decline in the market value of the security until the put option expires. The
amount of any appreciation in the value of the underlying security will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be sold in
a closing sale transaction and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs. A closing sale transaction cancels
out the Company's position as the purchaser of an option by means of an
offsetting sale of an identical option prior to the expiration of the option it
has purchased. The Company will not purchase put options on securities
(including stock index options discussed below) if, as a result of such
purchase, the aggregate cost (premiums paid) of all outstanding options on
securities held by the Company would exceed 5% of the market value of the
Company's total assets.
Stock or Other Financial Index Futures and Options. The Company is
authorized to engage in transactions in stock or other financial index options
and futures (including futures on government bonds) and related options on such
futures. The Company may purchase or write put and call options on stock or
other financial indices to hedge against the risks of market-wide stock price
movements in the securities in which the Company invests. Options on indices are
similar to options on securities except that, on settlement, the parties to the
contract pay or receive an amount of cash equal to the difference between the
closing value of the index on the relevant valuation date and the exercise price
of the option times a specified multiple. The Company may invest in stock or
other financial index options based on a broad market index, e.g., the S&P 500
Index, or on a narrow index representing an industry or market segment, e.g.,
the AMEX Oil & Gas Index.
The Company may also purchase and sell stock index futures contracts
and financial futures contracts ("futures contracts") as a hedge against adverse
changes in the market value of its portfolio securities as described below. A
futures contract is an agreement between two parties that obligates the
purchaser of the futures contract to buy and the seller of a futures contract to
sell a particular commodity for a set price on a future date. Unlike most other
futures contracts, a stock index futures contract does not require actual
delivery of a commodity, in this case securities, but results in cash settlement
based upon the difference in value of the stock index between the time the
contract was entered into and the time of its settlement. The Company may effect
transactions in stock index futures contracts in connection with equity
securities in which it invests and in financial futures contracts in connection
with the debt securities in which it invests. Transactions by the Company in
stock index futures and financial futures are subject to limitations as
described below under "Restrictions on the Use of Futures Transactions."
The Company may sell financial futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market values of fixed-income securities which may be held by the
Company as a temporary defensive measure will fall, thus reducing the net asset
value of the Company. However, as interest rates rise, the value of the
Company's short position in the futures contract will also tend to increase,
thus offsetting all or a portion of the depreciation in the market value of the
Company's investments that are being hedged. While the Company will incur
commission expenses in selling and closing out futures positions, these
commissions are generally less than the transaction expenses that the Company
15
16
would have incurred had the Company sold portfolio securities in order to reduce
its exposure to increases in interest rates. The Company also may purchase
financial futures contracts in anticipation of a decline in interest rates when
it is not fully invested in a particular market in which it intends to make
investments to gain market exposure that may in part or entirely offset an
increase in the cost of securities it intends to purchase. It is anticipated
that, in a substantial majority of these transactions, the Company will purchase
securities upon termination of the futures contract.
The Company is authorized to sell futures contracts in anticipation of
or during a market decline to attempt to offset the decrease in market value of
the Company's securities portfolio that might otherwise result. When the Company
is not fully invested in the securities markets and anticipates a significant
market advance, it would be able to purchase futures in order to gain rapid
market exposure that may in part or entirely offset increases in the cost of
securities that the Company intends to purchase. As such purchases are made, an
equivalent amount of futures contracts will be terminated by offsetting sales.
The Company does not consider purchases of futures contracts to be a speculative
practice under these circumstances. It is anticipated that, in a substantial
majority of these transactions, the Company will purchase such securities upon
termination of the long futures position, whether the long position is the
purchase of a futures contract or the purchase of a call option or the writing
of a put option on a future, but under unusual circumstances (e.g., the Company
experiences a significant amount of redemptions), a long futures position may be
terminated without the corresponding purchase of securities.
The Company also is authorized to purchase and write call and put
options on futures contracts and stock indices in connection with its hedging
activities. Generally, these strategies would be utilized under the same market
and market sector conditions (i.e., conditions relating to specific types of
investments) in which the Company enters into futures transactions. The Company
may purchase put options or write call options on futures contracts and stock
indices rather than selling the underlying futures contract in anticipation of a
decrease in the market value of its securities. Similarly, the Company can
purchase call options, or write put options on futures contracts and stock
indices, as a substitute for the purchase of such futures to hedge against the
increased cost resulting from an increase in the market value of securities
which the Company intends to purchase.
The Company is also authorized to engage in options and futures
transactions on U.S. and foreign exchanges and in options in the
over-the-counter markets ("OTC options"). In general, exchange traded contracts
are third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. OTC options transactions are two-party contracts
with prices and terms negotiated by the buyer and seller. See "Restrictions on
OTC Options" below for information as to restrictions on the use of OTC options.
To trade futures contracts, the Company is not required to deposit
funds equal to the value of the futures contract. The Company need only make a
deposit, called an "initial margin deposit", equal to a small percentage
(typically between 2% and 15%) of the value of the futures contract. As a
result, a relatively small adverse move in the price of a futures contract may
result in immediate and substantial losses to the Company. For example, if at
the time of purchase 10% of the price of a futures contract is deposited as
margin, a 10% decrease in the price of that contract would, if the contract were
then closed out, result in a total loss of the initial margin deposit before any
deduction for brokerage commissions and other transaction costs. A decrease of
more than 10% would result in a loss of more than the total initial margin
deposit.
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17
To some extent, options on futures contracts are even more highly
leveraged than futures contracts. For example, if an in-the-money call (put)
option is sold for its intrinsic value plus a premium representing the time
value of that option, a 10% rise (drop) in the value of the underlying futures
contract does not create a loss equal to just 10% of the value of the option.
Such a rise (drop) creates a loss approximately equal to 10% of the value of the
underlying interest, less the time value, which loss may be many times greater
than the price for which the Company sold the option. In addition, investors who
sell options are required only to deposit a percentage of the value of the
option at the time of sale as margin, thereby leveraging the investment even
further.
The Company is authorized to purchase or sell listed or
over-the-counter ("OTC") foreign currency options, foreign currency futures and
related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions could be
effected with respect to hedges on non-U.S. dollar denominated securities owned
by the Company, sold by the Company but not yet delivered, or committed or
anticipated to be purchased by the Company. As an illustration, the Company may
use such techniques to hedge the stated value in U.S. dollars of an investment
in a yen denominated security. In such circumstances, for example, the Company
can purchase a foreign currency put option enabling it to sell a specified
amount of yen for dollars at a specified price by a future date. To the extent
the hedge is successful, a loss in the value of the yen relative to the dollar
will tend to be offset by an increase in the value of the put option. To offset,
in whole or in part, the cost of acquiring such a put option, the Company may
also sell a call option which, if exercised, requires it to sell a specified
amount of yen for dollars at a specified price by a future date (a technique
called a "spread"). By selling such a call option in this illustration, the
Company gives up the opportunity to profit without limit from increases in the
relative value of the yen to the dollar. The Investment Adviser believes that
"spreads" of the type which may be utilized by the Company constitute hedging
transactions and are consistent with the policies described above.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the right to
buy or sell a currency at a fixed price on a future date. A futures contract on
a foreign currency is an agreement between two parties to buy and sell a
specified amount of a currency for a set price on a future date. Futures
contracts and options on futures contracts are traded on boards of trade or
futures exchanges. The Company will not speculate in foreign currency options,
futures or related options. Accordingly, the Company will not hedge a currency
substantially in excess of the market value of the securities denominated in
such currency which it owns, the expected acquisition price of securities which
it has committed or anticipates to purchase which are denominated in such
currency and, in the case of securities which have been sold by the Company but
not yet delivered, the proceeds thereof in its denominated currency. Further,
the Company will segregate at its custodian U.S. Government or other liquid
securities having a market value substantially representing any subsequent net
decrease in the market value of such hedged positions, including net positions
with respect to cross-currency hedges. The Company will not incur potential net
liabilities of more than 20% of its total assets from foreign currency options,
futures or related options.
Forward Foreign Exchange Transactions. The Company has authority to
deal in forward foreign exchange between currencies of the different countries
in which it will invest as a hedge against possible variations in the foreign
exchange rate between these currencies. This is accomplished through contractual
agreements to purchase or sell a specified currency at a specified future date
(up to one year) and price set at
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the time of the contract. The Company's dealings in forward foreign exchange
will be limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward foreign
currency with respect to specific receivables or payables of the Company
accruing in connection with the purchase and sale of its portfolio securities,
the sale and redemption of shares of the Company or the payment of dividends and
distributions by the Company. Position hedging is the sale of forward foreign
currency with respect to portfolio security positions denominated or quoted in
such foreign currency. The Company will not speculate in forward foreign
exchange. The Company will not attempt to hedge all of its foreign portfolio
positions.
In connection with its trading in forward foreign currency contracts,
the Company will contract with a foreign or domestic bank, or foreign or
domestic securities dealer, to make or take future delivery of a specified
amount of a particular currency. There are no limitations on daily price moves
in such forward contracts, and banks and dealers are not required to continue to
make markets in such contracts. There have been periods during which certain
banks or dealers have refused to quote prices for such forward contracts or have
quoted prices with an unusually wide spread between the price at which the bank
or dealer is prepared to buy and that at which it is prepared to sell.
Governmental imposition of credit controls might limit any such forward contract
trading. With respect to its trading of forward contracts, if any, the Company
will be subject to the risk of bank or dealer failure and the inability of, or
refusal by, a bank or dealer to perform with respect to such contracts. Any such
default would deprive the Company of any profit potential or force the Company
to cover its commitments for resale, if any, at the then-market price and could
result in a loss to the Company.
Restrictions on the Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission ("CFTC") applicable to the Company provide
that the futures trading activities described herein will not result in the
Company being deemed a "commodity pool," as defined under such regulations if
the Company adheres to certain restrictions. In particular, the Company may
purchase and sell futures contracts and options thereon (i) for bona fide
hedging purposes, and (ii) for non-hedging purposes, if the aggregate initial
margin and premiums required to establish positions in such contracts and
options does not exceed 5% of the liquidation value of the Company's portfolio,
after taking into account unrealized profits and unrealized losses on any such
contracts and options.
When the Company purchases a futures contract, or writes a put option
or purchases a call option thereon, an amount of cash and cash equivalents will
be deposited in a segregated account with the Company's custodian so that the
amount so segregated, plus the amount of initial and variation margin held in
the account of its broker, equals the market value of the futures contract,
thereby ensuring that the use of such futures contract or option strategy is
unleveraged.
Restrictions on OTC Options. The Company will engage in OTC options,
including OTC stock index options, 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 which have capital of at least $50 million or whose obligations
are guaranteed by an entity having capital of at least $50 million.
The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Company has adopted an investment
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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
Company, the market value of the underlying securities covered by OTC call
options currently outstanding which were sold by the Company and margin deposits
on the Company's existing OTC options on futures contracts exceeds 15% of the
total assets of the Company, taken at market value, together with all other
assets of the Company which are illiquid or are not otherwise readily
marketable. However, if an OTC option is sold by the Company to a primary U.S.
Government securities dealer recognized by the Federal Reserve Bank of New York
and if the Company has the unconditional contractual right to repurchase such
OTC option from the dealer at a predetermined price, then the Company 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.,
the current market value of the underlying security minus the option's strike
price). The repurchase price with 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 Company and may be amended by the
Board of Directors of the Company without the approval of the Company's
shareholders. However, the Company will not change or modify this policy prior
to change or modification by the Commission staff of its position.
Risk Factors in Options, Futures and Currency Transactions. Utilization
of options and futures transactions to hedge the portfolio involves the risk of
imperfect correlation in movements in the price of options and futures and
movements in the price of the securities or currencies which are the subject of
the hedge. If the price of the options or futures moves more or less than the
price of hedged securities or currencies, the Company will experience a gain or
loss that will not be completely offset by movements in the price of the subject
of the hedge. The successful use of options and futures also depends on the
Investment Adviser's ability to correctly predict price movements in the market
involved in a particular options or futures transaction. To compensate for
imperfect correlations, the Company may purchase or sell stock index options or
futures contracts in a greater dollar amount than the hedged securities if the
volatility of the hedged securities is historically greater than the volatility
of the stock index options or futures contracts. Conversely, the Company may
purchase or sell fewer stock index options or futures contracts if the
volatility of the price of the hedged securities is historically less than that
of the stock index options or futures contracts. The risk of imperfect
correlation generally tends to diminish as the maturity date of the stock index
option or futures contract approaches.
The Company intends to enter into options and futures transactions, on
an exchange or in the OTC market, only if there appears to be a liquid secondary
market for such options or futures or, in the case of OTC transactions, the
Investment Adviser believes the Company can receive on each business day at
least two independent bids or offers. However, there can be no assurance that a
liquid secondary market will exist at any specific time. Thus, it may not be
possible to close an options or futures position. The inability to close options
and futures positions also could have an adverse impact on the Company's ability
to hedge effectively its portfolio. There is also the risk of loss by the
Company of margin deposits or collateral in the event of bankruptcy of a broker
with whom the Company has an open position in an option, a futures contract or
related option.
The exchanges on which options on portfolio securities and currency
options are traded have generally established limitations governing the maximum
number of call or put options on the same underlying security
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or currency (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written in
one or more accounts or through one or more brokers). "Trading limits" are
imposed on the maximum number of contracts which any person may trade on a
particular trading day. The Investment Adviser does not believe that these
trading and position limits will have any adverse impact on the portfolio
strategies for hedging the Company's portfolio.
Because the Company will engage in the options and futures transactions
described above solely in connection with its hedging activities, the Investment
Adviser does not believe that such options and futures transactions necessarily
will have any significant effect on the Company's portfolio turnover.
OTHER INVESTMENT PRACTICES
Portfolio Transactions. In executing portfolio transactions, the
Investment Adviser seeks to obtain the best net results for the Company, 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 Investment Adviser generally seeks reasonably
competitive commission rates, the Company does not necessarily pay the lowest
commission or spread available. The Company has no obligation to deal with any
broker or group of brokers in the execution of transactions in portfolio
securities. Under the Investment Company Act, persons affiliated with the
Company and persons who are affiliated with such affiliated persons, including
Merrill Lynch, are prohibited from dealing with the Company 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 Company,
and affiliated persons of such affiliated persons, may serve as the Company's
broker in transactions conducted on an exchange and in OTC transactions
conducted on an agency basis and may receive brokerage commissions from the
Company. In addition, consistent with the Conduct Rules of the NASD, the Company
may consider sales of shares of the Company as a factor in the selection of
brokers or dealers to execute portfolio transactions for the Company. It is
expected that the majority of the shares of the Company will be sold by Merrill
Lynch. Brokerage commissions and other transaction costs on foreign stock
exchange transactions are generally higher than in the U.S., although the
Company will endeavor to achieve the best net results in effecting its portfolio
transactions.
Lending of Portfolio Securities. The Company may from time to time lend
securities from its portfolio, with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government
which will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. During the period of such a loan,
the Company receives the income on both the loaned securities and the collateral
and thereby increases its yield. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or otherwise, the
Company 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.
INVESTMENT RESTRICTIONS
The Company'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
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not be changed without the approval of the holders of a majority of the
Company'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 Company 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 Company may not borrow
amounts in excess of 20% of its total assets (taken at market value) and then
only from banks as a temporary measure for extraordinary or emergency purposes
such as the redemption of Company shares. The Company will not purchase
securities while borrowings are outstanding except to exercise prior commitments
and to exercise subscription rights.
As a non-fundamental policy, the Company will not invest in securities
that cannot readily be resold because of legal or contractual restrictions or
that are not otherwise readily marketable, if, regarding all such securities,
more than 15% of its total assets taken at market value would be invested in
such securities. Notwithstanding the foregoing, the Company 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 Company's
Board of Directors 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 Investment Adviser the daily function of
determining and monitoring liquidity of restricted securities. The Board has
determined that securities which are freely tradeable in their primary market
offshore should be deemed liquid. The Board, however, will retain sufficient
oversight and be ultimately responsible for the determinations.
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The Board of Directors of the Company consists of six individuals, five
of whom are not "interested persons" of the Company as defined in the Investment
Company Act. The Board of Directors of the Company is responsible for the
overall supervision of the operations of the Company and performs the various
duties imposed on the directors of investment companies by the Investment
Company Act.
The Directors of the Company are:
ARTHUR ZEIKEL*-Chairman of the Investment Adviser and its affiliate,
FAM; Chairman and Director of Princeton Services, Inc.; and Executive Vice
President of ML & Co.
DONALD CECIL-Special Limited Partner of Cumberland Partners (an
investment partnership).
EDWARD H. MEYER-Chairman of the Board, President and Chief Executive
Officer of Grey Advertising Inc.
CHARLES C. REILLY-Self-employed financial consultant; former President
and Chief Investment Officer of Verus Capital, Inc.; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc.
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RICHARD R. WEST-Dean Emeritus, New York University Leonard N. Stern
School of Business Administration.
EDWARD D. ZINBARG-Former Executive Vice President of The Prudential
Insurance Company of America.
* Interested person, as defined in the Investment Company Act, of the Company.
ADVISORY AND MANAGEMENT ARRANGEMENTS
MLAM acts as the investment adviser of the Company and provides the
Company with management and investment advisory services. The investment
advisory agreement with the Investment Adviser (the "Investment Advisory
Agreement") provides that, subject to the direction of the Board of Directors of
the Company, the Investment Adviser is responsible for the actual management of
the Company's portfolio. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Investment Adviser, subject to review
by the Board of Directors.
The Investment Adviser is owned and controlled by ML & Co., a financial
services holding company and the parent of Merrill Lynch. The Investment
Adviser, or its affiliate, FAM, acts as the investment adviser to more than 100
registered investment companies and provides investment advisory services to
individual and institutional accounts. As of January 31, 1998, the Investment
Adviser 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 Investment Adviser.
The Investment Adviser provides the portfolio managers for the Company
who consider analyses from various sources, make the necessary decisions, and
place transactions accordingly. The Investment Adviser is also obligated to
perform or arrange for affiliates to perform certain administrative and
management services for the Company and is obligated to provide all of the
office space, facilities, equipment and personnel necessary to perform its
duties under the Investment Advisory Agreement.
As compensation for its services to the Company, the Investment Adviser
receives monthly compensation at the annual rate of 1.0% of the average daily
net assets of the Company. This fee is higher than that charged most mutual
funds, but the Company believes it is justified by the special international
nature of the Company. For the fiscal year ended November 30, 1997, the fee paid
by the Company to the Investment Adviser was $4,776,233 (based on average daily
net assets of approximately $478.9 million).
Also, the Investment Adviser has entered into a sub-advisory agreement
(the "Sub-Advisory Agreement") with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K."), an indirect, wholly owned subsidiary of ML & Co. and an affiliate
of the Investment Adviser, pursuant to which the Investment Adviser pays MLAM
U.K. a fee for providing investment advisory services to the Investment Adviser
with respect to the Company in an amount to be determined from time to time by
the Investment Adviser and MLAM U.K. but in no event in excess of the amount the
Investment Adviser actually receives for providing services to the Company
pursuant to the Investment Advisory Agreement. No fee was paid to MLAM U.K. for
the fiscal year ended November 30, 1997. MLAM U.K. has offices at Milton Gate, 1
Moor Lane, London EC2Y 9HA, England.
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Lawrence R. Fuller is primarily responsible for the day-to-day
management of the Company's investment portfolio. Mr. Fuller has been a First
Vice President of the Investment Adviser since 1997. Mr. Fuller was a Vice
President of the Investment Adviser from 1992 to 1997.
The Company pays certain expenses incurred in its operations,
including, among other things, the investment advisory fees, legal and audit
fees, unaffiliated directors' fees and expenses, registration fees, custodian
and transfer agency fees, accounting and pricing costs, and certain of the costs
of printing proxies, shareholder reports, prospectuses and statements of
additional information. Also, accounting services are provided to the Company by
the Investment Adviser, and the Company reimburses the Investment Adviser for
its costs in connection with such services on a semi-annual basis. For the
fiscal year ended November 30, 1997, the amount of such reimbursement was
$115,158. For the fiscal year ended November 30, 1997, the ratio of total
expenses to average net assets was 1.39%, 2.42%, 2.43% and 1.64% for Class A,
Class B, Class C and Class D shares, respectively.
CODE OF ETHICS
The Board of Directors of the Company has adopted a Code of Ethics
under Rule 17j-1 of the Investment Company Act that incorporates the Code of
Ethics of the Investment Adviser (together, the "Codes"). The Codes
significantly restrict the personal investing activities of all employees of the
Investment Adviser and, as described below, impose additional, more onerous,
restrictions on fund investment personnel.
The Codes require that all employees of the Investment Adviser preclear
any personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Investment Adviser include a ban on acquiring any securities in a "hot" initial
public offering and a prohibition from profiting on short-term trading in
securities. In addition, no employee may purchase or sell any security which at
the time is being purchased or sold (as the case may be), or to the knowledge of
the employee is being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for trading "blackout
periods" which prohibit trading by investment personnel of the Company within
periods of trading by the Company in the same (or equivalent) security (15 or 30
days depending upon the transaction).
TRANSFER AGENCY SERVICES
The Transfer Agent, a subsidiary of ML & Co., acts as the Company'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
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Agency Agreement. Additionally, a $.20 monthly closed account charge will be
assessed on all accounts which 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 a
beneficial interest of a person in the relevant share class or a recordkeeping
system, provided the recordkeeping system is maintained by a subsidiary of ML &
Co. For the fiscal year ended November 30, 1997, the Company paid $1,077,383 to
the Transfer Agent pursuant to the Transfer Agency Agreement.
PURCHASE OF SHARES
The Distributor, an affiliate of each of the Investment Adviser and
Merrill Lynch, acts as the distributor of the shares of the Company. Shares of
the Company are offered continuously for sale by the Distributor and other
eligible securities dealers (including Merrill Lynch). Shares of the Company may
be purchased from securities dealers or by mailing a purchase order directly to
the Transfer Agent. The minimum initial purchase is $1,000, and the minimum
subsequent purchase is $50, except that for retirement plans, the minimum
initial purchase is $100, and the minimum subsequent purchase is $1 and for
participants in certain fee-based programs, the minimum initial purchase is $500
and the minimum subsequent purchase is $50.
The Company 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 Company 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
includes orders received after the close of business on the previous day, the
applicable offering price will be based on the net asset value determined as of
15 minutes after the close of business on the NYSE on that day, provided the
Distributor in turn receives 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 Company or the Distributor may suspend the continuous
offering of the Company'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
Company. 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 Company 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
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to incur an initial sales charge or to have the entire initial purchase price
invested in the Company 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 Company
represents identical interests in the investment portfolio of the Company and
has the same rights, except that Class B, Class C and Class D shares bear the
expenses of the ongoing account maintenance fees, and Class B and Class C shares
bear the expenses of the ongoing distribution fees and the additional
incremental transfer agency costs resulting from the deferred sales charge
arrangements. The CDSCs, distribution and account maintenance fees that are
imposed on Class B and Class C shares, as well as the account maintenance fees
that are imposed on Class D shares, are imposed directly against those classes
and not against all assets of the Company 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. 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. Dividends paid by the Company for each class of shares are
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect to
such class pursuant to which account maintenance and/or distribution fees are
paid (except that Class B shareholders may vote upon any material changes to
expenses charged under the Class D Distribution Plan). See "Distribution Plans"
below. Each class has different exchange privileges. See "Shareholder
Services-Exchange Privilege."
Investors should understand that the purpose and function of the
initial sales charges with respect to Class A and Class D shares are the same as
those of the CDSCs and distribution fees with respect to Class B and Class C
shares in that the sales charges and distribution fees, applicable to each class
provide for the financing of the distribution of the shares of the Company. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
Investors are advised that only Class A and Class D shares may be available for
purchase through securities dealers, other than Merrill Lynch, that are eligible
to sell shares.
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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.
- -----------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
Class SALES CHARGE(1) FEE FEE FEATURE
- -----------------------------------------------------------------------------------------------
Maximum 5.25% initial sales
A 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 sales
D 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 may be imposed if the redemption occurs
within the applicable CDSC time period. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors."
(3) Reduced for purchases of $25,000 or more and waived for purchases of
Class A shares by certain retirement plans in connection with certain
fee-based programs. Class A and Class D share purchases of $1,000,000 or
more may not be subject to an initial sales charge but instead may be
subject to a 1.0% CDSC if redeemed within one year. Such CDSC may be
waived in connection with certain fee-based programs. A 0.75% sales
charge for 401(k) purchases over $1,000,000 will apply.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares, certain
retirement plans and certain fee-based programs was 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
Company 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.
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INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are
eligible to purchase Class A shares should purchase Class A shares rather
than Class D shares because there is an account maintenance fee imposed
on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net
asset value plus varying sales charges (i.e., sales loads), as set forth
below.
SALES LOAD AS
PERCENTAGE* DISCOUNT TO
SALES LOAD AS OF THE NET SELECTED DEALERS
PERCENTAGE OF 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
purchases of $1,000,000 or more made on or after October 21, 1994 and
on Class A 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 will be
assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. A sales charge of
0.75% will be charged on purchases of $1,000,000 or more of Class A or
Class D shares by certain employer-sponsored retirement or savings
plans.
The Distributor may reallow discounts to selected dealers and retain
the balance over such discounts. At times the Distributor may reallow the
entire sales charge to such dealers. Since securities dealers selling
Class A and Class D shares of the Company will receive a concession equal
to most of the sales charge, they may be deemed to be underwriters under
the Securities Act. The proceeds from the account maintenance fees are
used to compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) for providing continuing account maintenance activities.
During the fiscal year ended November 30, 1997, the Company sold
10,593,236 Class A shares for aggregate net proceeds of $157,598,934. The
gross sales charges for the sale of Class A shares of the Company for
that year were $13,409, of which $841 and $12,568 were received by the
Distributor and Merrill Lynch, respectively. For the fiscal year ended
November 30, 1997, the Distributor received no CDSCs with respect to
redemption within one year after purchase of Class A shares purchased
subject to a front-end sales charge waiver. During the fiscal year ended
November 30, 1997, the Company sold 898,998 Class D shares for aggregate
net proceeds of $13,541,614. The gross sales charges for the sale of
Class D shares of the Company for that year were $3,722, of which $223
and $3,499 were received by the Distributor and Merrill Lynch,
respectively. For the fiscal year ended November 30, 1997, the
Distributor received no CDSCs with respect to redemption 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 who currently own Class A
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shares of the Company in a shareholder account, including participants in
the Merrill Lynch Blueprint(SM) Program, are entitled to purchase
additional Class A shares of the Company 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 owned 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
will be offered at net asset value to ML & Co. and its subsidiaries and
their directors and employees and to members of the Boards of investment
companies advised by MLAM or its affiliates, including the Company.
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 Company also may purchase Class A shares of the Company if certain
conditions set forth in the Statement of Additional Information are met.
In addition, Class A shares of the Company 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 Company and certain
other MLAM-advised mutual funds.
Reduced Initial Sales Charges. No initial sales charges are imposed
upon Class A and Class D shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions. Class A and 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 Company
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 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.
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Additional information concerning these reduced initial sales charges
is set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES -- CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should
consider Class B shares if they intend to hold their shares for an
extended period of time and Class C shares if they are uncertain as to
the length of time they intend to hold their assets in MLAM-advised
mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined
net asset value per share without the imposition of a sales charge at the
time of purchase. As discussed below, Class B shares are subject to a
four-year CDSC which declines each year, while Class C shares are subject
only to a one-year 1.0% CDSC. On the other hand, approximately 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 Company 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 a
distribution fee of 0.75% of net assets as discussed below under
"Distribution Plans." The proceeds from the account maintenance fees are
used to compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) for providing continuing account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so
that the Company 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 Company in connection with the sale
of 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 Company to sell the Class
B and Class C shares without a sales charge being deducted at the time of
purchase. Approximately eight years after issuance, Class B shares will
convert automatically into Class D shares of the Company, 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 Company 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 Company exercising the exchange privilege described
under "Shareholder Services--Exchange Privilege" will continue to be
subject to the Company'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.
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Contingent Deferred Sales Charges--Class B Shares. Class B shares that
are redeemed within four years of purchase may be subject to a CDSC at
the rates set forth below charged as a percentage of the dollar amount
subject thereto. The charge will be assessed on an amount equal to the
lesser of the proceeds of redemption or the cost of the shares being
redeemed. Accordingly, no CDSC will be imposed on increases in net asset
value above the initial purchase price. In addition, no CDSC will be
assessed on shares derived from reinvestment of dividends or capital
gains distributions.
The following table sets forth the rates of the Class B CDSC:
CLASS B CDSC
AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------------- -----------------
0-1................ 4.00%
1-2................ 3.00
2-3................ 2.00
3-4................ 1.00
4 and thereafter... 0.00
For the fiscal year ended November 30, 1997, the Distributor received
CDSCs of $134,859 with respect to redemptions of Class B shares, all of
which were paid to Merrill Lynch. Additional CDSCs payable to the
Distributor may have been waived or converted to a contingent obligation
in connection with a shareholder's participation in certain fee-based
programs.
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the
redemption is first of shares held for over four years or shares acquired
pursuant to reinvestment of dividends or distributions and then of shares
held longest during the four-year period. The charge will not be applied
to dollar amounts representing an increase in the net asset value since
the time of purchase. A transfer of shares from a shareholder's account
to another account will be assumed to be made in the same order as a
redemption.
To provide an example, assume an investor purchased 100 shares at $10
per share (at a cost of $1,000) and in the third year after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional shares through dividend reinvestment. If at such
time the investor makes his or her first redemption of 50 shares
(proceeds of $600), 10 shares will not be subject to a CDSC because of
dividend reinvestment. With respect to the remaining 40 shares, the CDSC
is applied only to the original cost of $10 per share and not to the
increase in net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 2.0% (the applicable
rate in the third year after purchase).
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of a
shareholder. The Class B CDSC also is waived on redemptions of shares by
certain eligible 401(a) and eligible 401(k) plans and in connection with
certain group plans placing orders through the Merrill Lynch
Blueprint(SM) Program. The CDSC also is waived for any Class B shares
that are purchased by eligible 401(k) or eligible 401(a) plans that are
rolled over into a Merrill Lynch or Merrill Lynch Trust Company custodied
IRA and held in such
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account at the time of redemption. The Class B CDSC also is waived for
any Class B shares that are purchased by a Merrill Lynch rollover IRA,
that was funded by a rollover from a terminated 401(k) plan managed by
the MLAM Private Portfolio Group, and held in such account at the time of
redemption. The Class B CDSC also is waived for any Class B shares which
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." For
the fiscal year ended November 30, 1997, the Distributor received CDSCs
of $2,200 with respect to redemptions of Class C shares all of which were
paid to Merrill Lynch.
In determining whether a Class C CDSC is applicable to a redemption,
the calculation will be determined in the manner that results in the
lowest possible rate being charged. Therefore, it will be assumed that
the redemption is first of shares held for over one year or shares
acquired pursuant to reinvestment of dividends or distributions and then
of shares held longest during the one-year period. The charge will not be
applied to dollar amounts representing an increase in the net asset value
since the time of purchase. A transfer of shares from a shareholder's
account to another account will be assumed to be made in the same order
as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately
eight years (the "Conversion Period"), Class B shares will be converted
automatically into Class D shares of the Company. Class D shares are
subject to an ongoing account maintenance fee of 0.25% of net assets but
are not subject to the distribution fee that is borne by Class B shares.
Automatic conversion of Class B shares into Class D shares will occur at
least once each month (on the "Conversion Date") on the basis of the
relative net asset values of the shares of the two classes on the
Conversion Date, without the imposition of any sales load, fee or other
charge. Conversion of Class B shares to Class D shares will not be deemed
a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on
Class B shares also will convert automatically to Class D shares. The
Conversion Date for dividend reinvestment shares will be calculated
taking into account the length of time the shares underlying such
dividend reinvestment shares were outstanding. If at a Conversion Date
the conversion of Class B shares to Class D shares of the Company 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 Company held in the
account on the Conversion Date will be converted to Class D shares of the
Company.
Share certificates for Class B shares of the Company 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
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shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will
convert approximately eight years after initial purchase, and Class B
shares of taxable and tax-exempt fixed income MLAM-advised mutual funds
will convert approximately ten years after initial purchase. If, during
the Conversion Period, a shareholder exchanges Class B shares with an
eight-year Conversion Period for Class B shares with a ten-year
Conversion Period, or vice versa, the Conversion Period applicable to the
Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period
for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class
B shares through certain retirement plans which qualified for a waiver of
the CDSC normally imposed on purchases of Class B shares ("Class B
Retirement Plans"). When the first share of any MLAM-advised mutual fund
purchased by a Class B Retirement Plan has been held for ten years (i.e.,
ten years from the date the relationship between MLAM-advised mutual
funds and the Class B Retirement Plan was established), all Class B
shares of all MLAM-advised mutual funds held in that Class B Retirement
Plan will be converted into Class D shares of the appropriate funds.
Subsequent to such conversion, that Class B Retirement Plan will be sold
Class D shares of the appropriate funds at net asset value.
The Conversion Period also may be modified for retirement plan
investors who participate in certain fee-based programs. See "Shareholder
Services--Fee-Based Programs."
DISTRIBUTION PLANS
The Company 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 Company 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 Company 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 Company attributable to shares of the relevant class in order to
compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that
the Company 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 Company
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 Company, including payments to
financial consultants for selling Class B and Class C shares of the
Company. 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
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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 Company in that the deferred sales
charges provide for the financing of the distribution of the Company's
Class B and Class C shares.
For the fiscal year ended November 30, 1997, the Company paid the
Distributor $705,358 pursuant to the Class B Distribution Plan (based on
average daily net assets subject to such Class B Distribution Plan of
approximately $70.7 million), all of which was paid to Merrill Lynch for
providing account maintenance and distribution-related activities and
services in connection with Class B shares. For the fiscal year ended
November 30, 1997, the Company paid the Distributor $54,363 pursuant to
the Class C Distribution Plan (based on average daily net assets subject
to such Class C Distribution Plan of approximately $5.5 million), all of
which was paid to Merrill Lynch for providing account maintenance and
distribution-related activities and services in connection with Class C
shares. For the fiscal year ended November 30, 1997, the Company paid the
Distributor $18,694 pursuant to the Class D Distribution Plan (based on
average daily net assets subject to such Class D Distribution Plan of
approximately $7.5 million), all of which was paid to Merrill Lynch for
providing account maintenance activities in connection with Class D
shares.
The payments under the Distribution Plans are based upon a percentage
of average daily net assets attributable to the shares regardless of the
amount of expenses incurred, and accordingly, distribution-related
revenues from the Distribution Plans may be more or less than
distribution-related expenses. Information with respect to the
distribution-related revenues and expenses is presented to the Directors
for their consideration in connection with their deliberations as to the
continuance of the Class B and Class C Distribution Plans. This
information is presented annually as of December 31 of each year on a
"fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues
consist of the account maintenance fees, distribution fees, the CDSCs and
certain other related revenues, and expenses consist of financial
consultant compensation, branch office and regional operation center
selling and transaction processing expenses, advertising, sales promotion
and marketing expenses, corporate overhead and interest expense. On the
direct expense and revenue/cash basis, revenues consist of the account
maintenance fees, distribution fees and CDSCs, and the expenses consist
of financial consultant compensation.
As of December 31, 1996, the last date for which fully allocated
accrual information is available, the fully allocated accrual expenses
incurred by the Distributor and Merrill Lynch for the period since the
commencement of operations of Class B shares exceeded fully allocated
accrual revenues by $387,000 (0.91% of Class B net assets at that date).
As of November 30, 1997, direct cash revenues for the period since the
commencement of operations of Class B shares exceeded direct cash
expenses by $2,577,423 (3.86% of Class B net assets at that date). As of
December 31, 1996, the fully allocated accrual expenses incurred by the
Distributor and Merrill Lynch for the period since the commencement of
operations of Class C shares exceeded fully allocated accrual revenues by
$6,000, (0.66% of Class C net assets at that date). As of November 30,
1997, direct cash revenues for the period since the commencement of
operations of Class C shares exceeded direct cash expenses by $47,022
(.0.79% of Class C net assets at that date).
The Company has no obligation with respect to distribution and/or
account maintenance-related expenses incurred by the Distributor and
Merrill Lynch in connection with Class B, Class C and Class D
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shares, and there is no assurance that the Directors of the Company 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 Company, the maximum sales
charge rule limits the aggregate of distribution fee payments and CDSCs
payable by the Company 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
interest charges at any time. To the extent payments would exceed the
voluntary maximum, the Company will not make further payments of the
distribution fee with respect to Class B shares, and any CDSC will be
paid to the Company rather than to the Distributor; however, the Company
will continue to make payments of the account maintenance fee. In certain
circumstances the amount payable pursuant to the voluntary maximum may
exceed the amount payable under the NASD formula. In such circumstances
payment in excess of the amount payable under the NASD formula will not
be made.
REDEMPTION OF SHARES
The Company is required to redeem for cash all full and fractional
shares of the Company 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 upon redemption all dividends
reinvested through the date of redemption. The value of shares at the
time of redemption may be more or less than the shareholder's cost,
depending on the market value of the securities held by the Company at
such time.
REDEMPTION
A shareholder wishing to redeem shares may do so, without charge, by
tendering the shares directly to the Transfer Agent, Merrill Lynch
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida
32232-5289. Redemption requests delivered other than by mail should be
delivered to Merrill Lynch
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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 Company. The
redemption request in either event requires the signatures of all persons
in whose names the shares are registered, signed exactly as their names
appear on the Transfer Agent's register or on the certificates, as the
case may be. The signature(s) on the redemption request must be
guaranteed by an "eligible guarantor institution" (including, for
example, Merrill Lynch branch offices and certain other financial
institutions) as such is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, the existence and validity of which may
be verified by the Transfer Agent through the use of industry
publications. Notarized signatures are not sufficient. In certain
instances, the Transfer Agent may require additional documents, such as,
but not limited to, trust instruments, death certificates, appointments
as executor or administrator, or certificates of corporate authority. For
shareholders redeeming directly with the Transfer Agent, payment will be
mailed within seven days of receipt of a proper notice of redemption.
At various times the Company may be requested to redeem shares for
which it has not yet received good payment. The Company 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 U.S. bank) has been collected for the purchase of such shares,
which will not exceed 10 days.
REPURCHASE
The Company also will repurchase shares through a shareholder's listed
securities dealer. The Company normally will accept orders to repurchase
shares by wire or telephone from dealers for their customers at the net
asset value next computed after receipt of the order by the dealer,
provided that the request for repurchase is received by the dealer prior
to the close of business on the NYSE on the day received and that such
request is received by the Company from such dealer not later than 30
minutes after the close of business on the NYSE (generally, 4:00 p.m.,
New York time) on the same day. Dealers have the responsibility of
submitting such repurchase requests to the Company 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 Company (other than any
applicable CDSC). Securities firms that do not have selected dealer
agreements with the Distributor, however, may impose a transaction charge
on the shareholder for transmitting the notice of repurchase to the
Company. Merrill Lynch may charge its customers a processing fee
(presently $5.35) to confirm a repurchase of shares to such customers.
Repurchases made directly through the Transfer Agent are not subject to
the processing fee. The Company reserves the right to reject any order
for repurchase, which right of rejection might adversely affect
shareholders seeking redemption through the repurchase procedure.
However, a shareholder whose order for repurchase is rejected by the
Company may redeem shares as set forth above.
Redemption payments will be made within seven days of the proper tender
of the certificates, if any, and stock power or letter requesting
redemption, in each instance with signatures guaranteed as noted above.
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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 Company at net asset value without a
sales charge up to the dollar amount redeemed. The reinstatement
privilege may be exercised by sending a notice of exercise along with a
check for the amount to be reinstated to the Transfer Agent within 30
days after the date the request for redemption was accepted by the
Transfer Agent or the Distributor. Alternatively, the reinstatement
privilege may be exercised through the investor's Merrill Lynch Financial
Consultant within 30 days after the date the request for redemption was
accepted by the Transfer Agent or the Distributor. The 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 Company offers a number of shareholder services and investment
plans designed to facilitate investment in shares of the Company. Certain
of such services are not available to investors who place purchase orders
for the Company's shares through the Merrill Lynch Blueprint(SM) Program.
Full details as to each of such services, copies of the various plans
described below and instructions as to how to participate in the various
services or plans, or to change options with respect thereto, can be
obtained from the Company by calling the telephone number on the cover
page hereof or from the Distributor or Merrill Lynch. Certain of these
services are available only to U.S. investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has
an Investment Account and will receive statements, at least quarterly,
from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
statements will also show any other activity in the account since the
preceding statement. Shareholders will receive separate transaction
confirmations for each purchase or sale transaction other than automatic
investment purchases and the reinvestment of ordinary income dividends
and long-term capital gain distributions. A shareholder may make
additions to his or her Investment Account at any time by mailing a check
directly to the Transfer Agent. Shareholders also may maintain their
accounts through Merrill Lynch. Upon the transfer of shares out of a
Merrill Lynch brokerage account, an Investment Account in the
transferring shareholder's name will be opened automatically, without
charge, at the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares
from Merrill Lynch to another brokerage firm or financial institution
should be aware that, if the firm to which the Class A or Class D shares
are to be transferred will not take delivery of shares of the Fund, a
shareholder either must redeem the Class A or Class D shares (paying any
applicable CDSC) so that the cash proceeds can be transferred to the
account at the new firm or such shareholder must continue to maintain an
Investment Account at the Transfer Agent for those Class A or Class D
shares. Shareholders interested in transferring their Class B or Class C
shares from Merrill Lynch and who do not wish to have an Investment
Account maintained for such shares at the Transfer Agent may request
their new brokerage firm to maintain such shares in an account registered
in the name of the brokerage firm for the benefit of the shareholder. If
the new brokerage firm is
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willing to accommodate the shareholder in this manner, the shareholder
must request that he or she be issued certificates for such 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 Company, 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.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawal payments from
his or her Investment Account in the form of payments by check or through
automatic payment by direct deposit to his or her bank account on either
a monthly or quarterly basis. A shareholder whose shares are held within
a CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed
on a monthly, bimonthly, quarterly, semiannual or annual basis through
the CMA(R) or CBA(R) Systematic Redemption Program, subject to certain
conditions. With respect to redemptions of Class B or Class C shares
pursuant to a systematic withdrawal plan, the maximum number of Class B
or Class C shares that can be redeemed from an account annually shall not
exceed 10% of the value of shares of such class in that account at the
time the election to join the systematic withdrawal plan was made. Any
CDSC that otherwise might be due on such redemption of Class B or Class C
shares will be waived. Shares redeemed pursuant to a systematic
withdrawal plan will be redeemed in the same order as Class B or Class C
shares are otherwise redeemed. See "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares--Contingent Deferred
Sales Charges--Class B Shares" and "--Contingent Deferred Sales
Charges--Class C Shares." Where the systematic withdrawal plan is applied
to Class B shares, upon conversion of the last Class B shares in an
account to Class D shares, the systematic withdrawal plan will
automatically be applied thereafter to Class D shares. See "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares."
AUTOMATIC INVESTMENT PLANS
Regular additions of Class A, Class B, Class C or Class D shares may be
made to an investor's Investment Account by pre-arranged charges of $50
or more to his regular bank account. Investors who maintain CMA(R) or
CBA(R) accounts may arrange to have periodic investments made in the
Company 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.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
All dividends and capital gains distributions are automatically
reinvested in full and fractional shares of the Company, without 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 both dividends and
capital gains distributions, paid in cash rather than reinvested, in
which event payment will be mailed on or about the payment date. The
Company is not responsible for any failure of delivery to the
shareholder's address of
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record and no interest will accrue on amounts represented by uncashed
distribution or redemption checks. Cash payments can also be directly
deposited to the shareholder's bank account. No CDSC will be imposed on
redemptions of shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Company 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 Company 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 Company 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
Company. 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 Company 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.
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Class B shareholders of the Company exercising the exchange privilege
will continue to be subject to the Company'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 Company acquired through use
of the exchange privilege will be subject to the Company'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.
FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing
alternatives for securities transactions (each referred to in this
paragraph as a "Program"), may permit the purchase of Class A shares at
net asset value. Under specified circumstances, participants in certain
Programs may deposit other classes of shares which will be exchanged for
Class A shares. Initial or deferred sales charges otherwise due in
connection with such exchanges may be waived or modified, as may the
Conversion Period applicable to the deposited shares. Termination of
participation in a Program may result in the redemption of shares held
therein or the automatic exchange thereof to another class at net asset
value, which may be shares of a money market fund. In addition, upon
termination of participation in a Program, shares that have been held for
less than specified periods within such Program may be subject to a fee
based upon the current value of such shares. These Programs also
generally prohibit such shares from being transferred to another account
at Merrill Lynch, to another broker-dealer or to the Transfer Agent.
Except in limited circumstances (which may also involve an exchange as
described above), such shares must be redeemed and another class of
shares purchased (which may involve the imposition of initial or deferred
sales charges and distribution and account maintenance fees) in order for
the investment not to be subject to Program fees. Additional information
regarding a specific Program (including charges and limitations on
transferability applicable to shares that may be held in such Program) is
available in such Program's client agreement and from the Transfer Agent
at (800) MER-FUND or (800) 637-3863.
PERFORMANCE DATA
From time to time the Company may include its average annual total
return for various specified time periods in advertisements or
information furnished to present or prospective shareholders. Average
annual total return is computed separately for Class A, Class B, Class C
and Class D shares in accordance with a formula specified by the
Commission.
Average annual total return quotations for the specified periods will
be computed by finding the average annual compounded rates of return
(based on net investment income and any capital gains or losses on
portfolio investments over such periods) that would equate the initial
amount invested to the redeemable value of such investment at the end of
each period. Average annual total return will be computed assuming all
dividends and distributions are reinvested and taking into account all
applicable recurring and nonrecurring expenses, including any CDSC that
would be applicable to a complete redemption of the
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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 Company with respect to
all shares, to the extent any dividends are paid, will be calculated in
the same manner at the same time on the same day and will be in the same
amount, except that account maintenance fees and distribution fees and
any incremental transfer agency costs relating to each class of shares
will be borne exclusively by that class. The Company will include
performance data for all classes of shares of the Company in any
advertisement or information including performance data of the Company.
The Company may also quote total return and aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that (1) the rates of
return calculated will not be average annual rates, but rather, actual
annual, annualized or aggregate rates of return, and (2) the maximum
applicable sales charges will not be included with respect to annual or
annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the
average annual rates of return reflect compounding; aggregate total
return data generally will be higher than average annual total return
data since the aggregate rates of return reflect compounding over longer
periods of time. In advertisements directed to investors whose purchases
are subject to reduced sales charges in the case of Class A or Class D
shares or waiver of the CDSC in the case of Class B or Class C shares
(such as investors in certain retirement plans), performance data may
take into account the reduced, and not the maximum, sales charge or may
not take into account the CDSC and therefore may reflect greater total
return since, due to the reduced sales charges or waiver of the CDSC, a
lower amount of expenses may be deducted. See "Purchase of Shares." The
Company's total return may be expressed either as a percentage or as a
dollar amount in order to illustrate the effect of such total return on a
hypothetical $1,000 investment in the Company at the beginning of each
specified period.
Total return figures are based on the Company's historical performance
and are not intended to indicate future performance. The Company's total
return will vary depending on market conditions, the securities
comprising the Company's portfolio, the Company'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 Company will fluctuate, and
an investor's shares, when redeemed, may be worth more or less than their
original cost.
On occasion, the Company may compare its performance to the Standard &
Poor's 500 Index, the Dow Jones Industrial Average, or to performance
data published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business
Week, CDA Investment Technology, Inc., Forbes Magazine, Fortune Magazine
or other industry publications. In addition, from time to time the
Company may include its risk-adjusted performance ratings assigned by
Morningstar Publications, Inc. in advertising or supplemental sales
literature. As with other performance data, performance comparisons
should not be considered indicative of the Company's relative performance
for any future period.
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ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Company's intention to distribute 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 Company's shareholders at least annually. The per
share dividends and distributions on each class of shares will be reduced
as a result of the account maintenance, distribution and transfer agency
fees applicable to that class. See "Additional Information--Determination
of Net Asset Value." Dividends and distributions will be reinvested
automatically in shares of the Company 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. Capital gains distributions will be automatically reinvested in
shares unless the shareholder elects to receive such distributions in
cash. Dividends and distributions are taxable to shareholders as
discussed below whether they are reinvested in shares of the Company or
received in cash. From time to time, the Company 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.
Gains or losses attributable to certain foreign currency transactions
may increase or decrease the amount of the Company's income available for
distribution to shareholders. If such losses exceed other income during a
taxable year, (a) the Company would not be able to make any ordinary
income dividend distributions, and (b) all or a portion of the
distributions made before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary income dividend, thereby reducing each shareholder's tax basis
in the Company 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 Company 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."
See "Shareholder Services--Automatic Reinvestment of Dividends and
Capital Gains Distributions" for information as to how to elect cash
payment.
TAXES
The Company intends to continue to qualify for the special tax
treatment afforded regulated investment companies ("RICs") under the
Internal Revenue Code of 1986, as amended (the "Code"). As long as it so
qualifies, the Company (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 Company
intends to distribute substantially all of such income.
Dividends paid by the Company from its ordinary income or from an
excess of net short-term capital gains over net long-term capital losses
(together referred to hereafter as "ordinary income dividends") are
taxable to shareholders as ordinary income. Distributions made from an
excess of net long-term capital gains over net short-term capital losses
(including gains or losses from certain transactions in futures and
options) ("capital gain dividends") are taxable to shareholders as
long-term capital gains, regardless of the length of time the shareholder
has owned Company shares. Any loss upon the sale or exchange of Company
shares
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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 Company'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 Company 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 Company. A portion of the Company'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 Company 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 Company 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 Company 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 Company. 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 Company's total assets at the close of its taxable year
consists of securities of foreign corporations, the Company will be
eligible, and intends, to file an election with the Internal Revenue
Service pursuant to which shareholders of the Company 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 Company'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 Company will report annually to its shareholders the amount per share
of such withholding taxes and other information needed to claim the
foreign tax credit.
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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 Company or
who, to the Company's knowledge, have furnished an incorrect number. When
establishing an account, an investor must certify under penalty of
perjury that such number is correct and that such investor is not
otherwise subject to backup withholding.
Under Code Section 988, foreign currency gains or losses from certain
debt instruments, from certain forward contracts, from futures contracts
that are not "regulated futures contracts" and from unlisted options will
generally be treated as ordinary income or loss. Such Code Section 988
gains or losses will generally increase or decrease the amount of the
Company'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 Company 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 Company shares and resulting in a capital
gain for any shareholder who received a distribution greater than such
shareholder's basis in Company 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 the
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 Company on the exchanged shares reduces any sales
charge the shareholder would have owed upon purchase of the new shares in
the absence of the exchange privilege. Instead, such sales charge will be
treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company shares are acquired (whether through the
automatic reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date that the
shares are disposed of. In such a case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For
the complete provisions, reference should be made to the pertinent Code
sections and the Treasury regulations promulgated thereunder. The Code
and the Treasury regulations are subject to change by legislative,
judicial or administrative action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state
and local taxes.
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Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law
varies as to whether dividend income attributable to U.S. Government
obligations is exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an
investment in the Company.
DETERMINATION OF NET ASSET VALUE
Net asset value per share of all classes of the Company is determined
once daily as of 15 minutes after the close of business on the NYSE
(generally, 4:00 p.m., New York time), on each day during which the NYSE
is open for trading. Any assets or liabilities initially expressed in
terms of non-U.S. dollar currencies are translated into U.S. dollars at
the prevailing market rates as quoted by one or more banks or dealers on
the day of valuation. The net asset value is computed by dividing the sum
of the value of the securities held by the Company 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 to the nearest cent. Expenses, including
the fee payable to the Investment Adviser and any account maintenance
and/or distribution fees payable to the Distributor, are accrued daily.
The per share net asset value of Class A shares will generally be higher
than the per share net asset value of shares of the other classes,
reflecting the daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with respect to
Class B and Class C shares and the daily expense accruals of the account
maintenance fees applicable with respect to Class D shares; 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 fees 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 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 Company writes an option, the amount of
the premium received is recorded on the books of the Company 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 Company are valued at their last sale price in
the case of exchange-traded options or, in the case of options traded in
the OTC market, the last bid price. Any assets or liabilities
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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 are valued at fair market value as determined
in good faith by or under the direction of the Board of Directors of the
Company.
ORGANIZATION OF THE COMPANY
The Company was incorporated under Maryland law on March 7, 1984. As of
the date of this Prospectus it has an authorized capital of 400,000,000
shares of Common Stock, par value $0.10 per share, divided into four
classes, designated Class A, Class B, Class C and Class D Common Stock,
each of which consists of 100,000,000 shares. Shares of Class A, Class B,
Class C and Class D Common Stock represent an interest in the same assets
of the Company and are identical in all respects except that Class B,
Class C and Class D shares bear certain expenses relating to the account
maintenance associated with such shares, and Class B and Class C shares
bear certain expenses relating to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating to
distribution and/or account maintenance and distribution expenditures, as
applicable. See "Purchase of Shares." The Directors of the Company may
classify and reclassify the shares of the Company into additional or
other 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
Company 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
auditors. 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 Company and in the net assets of the
Company upon liquidation or dissolution after satisfaction of outstanding
liabilities, and 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, FL 32232-5289
The written notification should include the shareholder's name,
address, tax identification number and Merrill Lynch and/or mutual fund
account numbers. If you have any questions regarding this, please call
your Merrill Lynch Financial Consultant or Merrill Lynch Financial Data
Services, Inc. at 1-800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Company at the address or
telephone number set forth on the cover page of this Prospectus.
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MERRILL LYNCH GLOBAL HOLDINGS, 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 Holdings, 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 .......................................................................
................................................................................
................................................. Date ......................
(Zip Code)
Occupation .......................... Name and Address of Employer ........
......................................
......................................
...................................... ......................................
Signature of Owner Signature of Co-Owner (if any)
(In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
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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 Holdings, Inc. Authorization Form.
Specify type of account (check one): / / checking / / savings
Name on your account ..........................................................
Bank Name .....................................................................
Bank Number ........................ Account Number ........................
Bank Address ..................................................................
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Signature of Depositor ........................................................
Signature of Depositor ............................ Date ...................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS
APPLICATION.
47
48
MERRILL LYNCH GLOBAL HOLDINGS, INC.-- AUTHORIZATION FORM (PART 1) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER
--------------------------------------------------------
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above
is my correct Social Security Number or Taxpayer Identification Number and (2)
that I am not subject to backup withholding (as discussed in the Prospectus
under "Additional Information--Taxes") either because I have not been notified
that I am subject thereto as a result of a failure to report all interest or
dividends, or the Internal Revenue Service ("IRS") has notified me that I am no
longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE
BEEN NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDER-REPORTING
AND IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS
BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION
TO OTHER MERRILL LYNCH-SPONSORED MUTUAL FUNDS.
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
- --------------------------------------------------------------------------------
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 Holdings, 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
Holdings, 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 Holdings, Inc. held as security.
By: ................................ .....................................
Signature of Owner Signature of Co-Owner
(If registered in joint names,
both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name ........................... (2) Name ...........................
Account Number ..................... Account Number .....................
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp
This form when completed should be mailed to:
Merrill Lynch Global Holdings, 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
- ----------- --------------
// // // // // // // ....................
F/C Last Name
- ----------- --------------
Branch-Code F/C No.
// // // // // // // //
- ----------- --------------
Dealer's Customer Account No.
48
49
MERRILL LYNCH GLOBAL HOLDINGS, 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
Address .......................................................................
................................................................................
(Zip Code)
Name of Co-Owner (if any) .....................................................
First Name Initial Last Name
Address .......................................................................
................................................................................
(Zip Code)
- ----------------------------------------------------------------------
Social Security No. or Taxpayer Identification No.
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 Holdings, Inc., at cost or current offering price. Withdrawals to
be made either (check one) / / Monthly on the 24th day of each month, or / /
Quarterly on the 24th day of March, June, September and December. If the 24th
falls on a weekend or holiday, the next succeeding business day will be
utilized. Begin systematic withdrawal on . . . . . . . . . . . . or as soon as
possible thereafter. (month)
SPECIFY THE AMOUNT OF THE WITHDRAWAL YOU WOULD LIKE PAID TO YOU: $ . . . . . . .
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 BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Specify type of account (check one): / / checking / / savings
Name on your account ..........................................................
Bank Name .....................................................................
Bank Number ........................... Account Number ......................
Bank Address ..................................................................
.......................................................................
Signature of Depositor ................................ Date ...............
Signature of Depositor ........................................................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
* ANNUAL WITHDRAWAL CANNOT EXCEED 10% OF THE VALUE OF SHARES OF SUCH CLASS HELD
IN THE ACCOUNT AT THE TIME THE ELECTION TO JOIN THE SYSTEMATIC WITHDRAWAL PLAN
IS MADE.
49
50
MERRILL LYNCH GLOBAL HOLDINGS, 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 Holdings, 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 Holdings, Inc., as indicated below:
Amount of each check or ACH debit $ ..................................
Account Number .......................................................
Please date and invest ACH debits on the 20th of each month beginning . . . . .
or as soon as possible thereafter. (month)
I agree that you are drawing these ACH debits voluntarily at my request
and that you shall not be liable for any loss arising from any delay in
preparing or failure to prepare any such debit. If I change banks or desire to
terminate or suspend this program, I agree to notify you promptly in writing. I
hereby authorize you to take any action to correct erroneous ACH debits of my
bank account or purchases of Company shares including liquidating shares of the
Company and crediting my bank account. I further agree that if a check or debit
is not honored upon presentation, Merrill Lynch Financial Data Services, Inc. is
authorized to discontinue immediately the Automatic Investment Plan and to
liquidate sufficient shares held in my account to offset the purchase made with
the dishonored debit.
................................... ........................................
Date Signature of Depositor
........................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS DRAWN BY
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
To ..................................................................... Bank
(Investor's Bank)
Bank Address ..................................................................
City ....................... State .................... Zip Code ........
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc. I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
................................... ........................................
Date Signature of Depositor
................................... ........................................
Bank Account 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.
50
51
INVESTMENT ADVISER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
The Chase Manhattan Bank, N.A.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, New York 11245
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
52
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 Company, the Investment Adviser or the Distributor. This Prospectus does
not constitute an offering in any state in which such offering may not lawfully
be made.
------------
TABLE OF CONTENTS
Page
----
Fee Table...................................... 2
Merrill Lynch Select Pricing(SM) System........ 3
Financial Highlights........................... 8
International Diversification.................. 11
Investment Objective and Policies.............. 12
Hedging Techniques........................... 14
Other Investment Practices................... 20
Investment Restrictions........................ 20
Management of the Company...................... 21
Board of Directors........................... 21
Advisory and Management
Arrangements............................... 22
Code of Ethics............................... 23
Transfer Agency Services..................... 23
Purchase of Shares............................. 24
Initial Sales Charge Alternatives-Class A
and Class D Shares......................... 27
Deferred Sales Charge Alternatives-Class
B and Class C Shares....................... 29
Distribution Plans........................... 32
Limitations on the Payment of Deferred ......
Sales Charges.............................. 34
Redemption of Shares........................... 34
Redemption................................... 34
Repurchase................................... 35
Reinstatement Privilege-Class A and
Class D Shares............................. 36
Shareholder Services........................... 36
Investment Account........................... 36
Systematic Withdrawal Plans.................. 37
Automatic Investment Plans................... 37
Automatic Reinvestment of Dividends and
Distributions............................... 37
Exchange Privilege........................... 38
Fee-Based Programs........................... 39
Performance Data............................... 39
Additional Information......................... 41
Dividends and Distributions.................. 41
Taxes........................................ 41
Determination of Net Asset Value............. 44
Organization of the Company.................. 45
Shareholder Reports.......................... 45
Shareholder Inquiries........................ 45
Authorization Form............................. 47
[MERRILL LYNCH LOGO]
MERRILL LYNCH
GLOBAL HOLDINGS, INC.
PROSPECTUS
March 5, 1998
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
53
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL HOLDINGS, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
Merrill Lynch Global Holdings, Inc. (the "Company"), is a diversified,
open-end management investment company that seeks the highest total investment
return consistent with prudent risk through worldwide investment in an
internationally diversified portfolio of securities. Total investment return is
the aggregate of income and capital value changes. The Company will utilize a
fully managed investment policy which permits management of the Company to take
a flexible investment approach and vary its policies as to geographic
diversification and types of securities based upon its evaluation of changes in
economic and market trends throughout the world. Accordingly, investments may be
shifted among the various capital markets of the world and among different types
of equity, debt and convertible securities depending upon management's outlook
with respect to prevailing trends and developments. It is presently contemplated
that the Company's assets will be primarily invested in equity securities of
companies located in the United States, Japan and Western Europe.
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Company 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 Company is not a prospectus
and should be read in conjunction with the prospectus of the Company, dated
March 5, 1998 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission (the "Commission") and can be obtained, without charge, by
calling or writing the Company at the above telephone number or address. This
Statement of Additional Information has been incorporated by reference into the
Prospectus.
------------
MERRILL LYNCH ASSET MANAGEMENT - INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. - DISTRIBUTOR
------------
The date of this Statement of Additional Information is March 5, 1998.
54
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek the highest total
investment return consistent with prudent risk through worldwide investment in
an internationally diversified portfolio of securities. Reference is made to
"Investment Objective and Policies" in the Prospectus for a discussion of the
investment objective and policies of the Company.
The securities markets of many countries have at times in the past moved
relatively independently of one another due to different economic, financial,
political and social factors. When such lack of correlation, or negative
correlation, in movements of these securities markets occurs, it may reduce risk
for the Company's portfolio as a whole. This negative correlation also may
offset unrealized gains the Company has derived from movements in a particular
market. To the extent the various markets move independently, total portfolio
volatility is reduced when the various markets are combined into a single
portfolio. Of course, movements in the various securities markets may be offset
by changes in foreign currency exchange rates. Exchange rates frequently move
independently of securities markets in a particular country. As a result, gains
in a particular securities market may be affected by changes in exchange rates.
While it is the policy of the Company generally not to engage in trading
for short-term gains, Merrill Lynch Asset Management, L.P. (the "Investment
Adviser") will effect portfolio transactions without regard to holding period
if, in its judgment, such transactions are advisable in light of a change in
circumstances of a particular company or within a particular industry or in
general market, economic or financial conditions. As a result of the investment
policies described in the Prospectus, including changes in asset allocation
under certain market conditions, the Company's portfolio turnover rate may be
higher than that of other investment companies. The portfolio turnover rate is
calculated by dividing the lesser of the Company'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. For the fiscal
years ended November 30, 1996 and 1997, the rates of portfolio turnover were
41.14% and 54.50%, respectively.
The Company may invest in the securities of foreign issuers in the form of
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") or other securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. GDRs are receipts issued throughout the world which
evidence a similar ownership arrangement. Generally, ADRs, in registered form,
are designed for use in the U.S. securities markets, and EDRs, in bearer form,
are designed for use in European securities markets. GDRs are tradeable both in
the U.S. and Europe and are designed for use throughout the world.
2
55
HEDGING TECHNIQUES
Reference is made to the discussion under the caption "Investment Objective
and Policies-Hedging Techniques" in the Prospectus for information with respect
to various portfolio strategies involving options and futures. The Company may
seek to hedge its portfolio against movements in the equity markets, interest
rates and exchange rates between currencies through the use of options and
futures transactions and forward foreign exchange transactions. The Company has
authority to write (i.e., sell) covered call options on its portfolio
securities, purchase put options on securities and engage in transactions in
stock index options, stock index futures and financial futures, and related
options on such futures. The Company may also deal in forward foreign exchange
transactions and foreign currency options and futures, and related options on
such futures. The Company is authorized to enter into such options and futures
transactions either on exchanges or in the over-the-counter ("OTC") markets.
Each of such portfolio strategies is described in the Prospectus. Although
certain risks are involved in options and futures transactions (as discussed in
the Prospectus and below), the Investment Adviser believes that, because the
Company will only engage in these transactions for hedging purposes, the options
and futures portfolio strategies of the Company will not subject the Company to
the risks frequently associated with the speculative use of options and futures
transactions. While the Company's use of hedging strategies is intended to
reduce the volatility of the net asset value of its shares, the net asset value
of the Company's shares will fluctuate. There can be no assurance that the
Company's hedging transactions will be effective. The following is further
information relating to portfolio strategies involving options and futures that
the Company may utilize.
Hedging Investment and Interest Rate Risks. The Company may write (i.e.,
sell) covered call options on the equity securities in which it may invest and
may enter into closing purchase transactions with respect to certain of such
options. Covered call options serve as a partial hedge against the decline in
price of the underlying security. A covered call option is an option where the
Company, in return for a premium, gives another party a right to buy specified
securities owned by the Company on or before a specified future date and price
set at the time of the contract. By writing covered call options, the Company
gives up the opportunity, while the option is in effect, to profit from any
price increase in the underlying security above the option exercise price. In
addition, the Company's ability to sell the underlying security will be limited
while the option is in effect unless the Company effects a closing purchase
transaction. A closing purchase transaction cancels out the Company's position
as the writer of an option by means of an offsetting purchase of an identical
option prior to the expiration of the option it has written. The writer of a
covered call option has no control over when he may be required to sell his
securities since he may be assigned an exercise notice at any time prior to the
termination of his obligation as a writer. If an option expires unexercised, the
writer realizes a gain in the amount of the premium. Such a gain, of course, may
be offset by a decline in the market value of the underlying security during the
option period. If a call option is exercised, the writer realizes a gain or loss
from the sale of the underlying security.
The Company may also purchase put options to hedge against a decline in the
market value of its securities holdings. By buying a put the Company has a right
to sell the underlying security at the exercise price, thus limiting the
Company's risk of loss through a decline in the market value of the security
until the put option expires. The amount of any appreciation in the value of the
underlying security will be offset partially by the amount of the premium paid
for the put option and any related transaction costs. Prior to its expiration, a
put option may be sold in a closing sale transaction, and profit or loss from
the sale will depend on whether the amount received is more or less than the
premium paid for the put option plus the related
3
56
transaction cost. A closing sale transaction cancels out the Company's position
as the purchaser of an option by means of an offsetting sale of an identical
option prior to the expiration of the option it has purchased.
The Company also may engage in transactions in stock index options and
futures, financial futures in U.S. and foreign agency and government securities
and corporate debt securities, and related options on such futures. A futures
contract is an agreement between two parties to buy and sell a particular
commodity, such as a security, or, in the case of an index-based futures
contract, to make and accept a cash settlement for a set price on a future date.
A majority of transactions in futures contracts, however, do not result in the
actual delivery of the underlying instrument or cash settlement but are settled
through liquidation, i.e., by entering into an offsetting transaction. Futures
contracts have been designed by boards of trade which have been designated
"contracts markets" by the Commodity Futures Trading Commission ("CFTC").
The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is typically between 2% to 15% of the contract amount,
must be deposited with the broker. This amount is known as "initial margin" and
represents a "good faith" deposit assuring the performance of both the purchaser
and seller under the futures contract. Subsequent payments to and from the
broker, called "variation margin," are required to be made on a daily basis as
the price of the futures contracts fluctuates making the long and short
positions in the futures contracts more or less valuable, a process known as
"marking to the market". At any time prior to the settlement date of the futures
contract, the position may be closed out by taking an opposite position which
will operate to terminate the position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker and the purchaser realizes a loss or gain.
In addition, a nominal commission is paid on each completed sale transaction.
The Company has received an order from the Commission exempting it from the
provisions of Section 17(f) and Section 18(f) of the Investment Company Act of
1940, as amended (the "Investment Company Act"), in connection with its strategy
of investing in futures contracts. Section 17(f) relates to the custody of
securities and other assets of an investment company and may be deemed to
prohibit certain arrangements between the Company and commodities brokers with
respect to initial and variation margin. Section 18(f) of the Investment Company
Act prohibits an open-end investment company such as the Company from issuing a
"senior security" other than a borrowing from a bank. The staff of the
Commission has in the past indicated that a futures contract may be a "senior
security" under the Investment Company Act.
Risk Factors in Options and Futures Transactions. Utilization of options
and futures transactions involves the risk of imperfect correlation in movements
in the prices of options and futures contracts and movements in the prices of
the securities and currencies which are the subject of the hedge. If the price
of the options and futures contract moves more or less than the prices of the
hedged securities or currencies, the Company will experience a gain or loss that
will not be completely offset by movements in the prices of the securities and
currencies that are the subject of the hedge.
Prior to exercise or expiration, an exchange-traded option position can
only be terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange for call or put options of the same
series. The Company will enter into an option or futures transaction on an
exchange only
4
57
if there appears to be a liquid secondary market for such options or futures.
However, there can be no assurance that a liquid secondary market will exist for
any particular call or put option or futures contract at any specific time.
Thus, it may not be possible to close an option or futures position. The Company
will acquire only OTC options for which management believes the Company can
receive on each business day at least two independent bids or offers (one of
which will be from an entity other than a party to the option). In the case of a
futures position or an option on a futures position written by the Company, in
the event of adverse price movements, the Company would continue to be required
to make daily cash payments of variation margin. In such situations, if the
Company has insufficient cash, it may have to sell portfolio securities to meet
daily variation margin requirements at a time when it may be disadvantageous to
do so. In addition, the Company may be required to take or make delivery of the
security or currency underlying the futures contracts it holds. The inability to
close options and futures positions also could have an adverse impact on the
Company's ability to hedge its portfolio effectively. There is also the risk of
loss by the Company of margin deposits in the event of bankruptcy of a broker
with whom the Company has an open position in a futures contract or related
option. The risk of loss from investing in futures transactions is theoretically
unlimited.
The exchanges on which the Company intends to conduct options transactions
have generally established limitations governing the maximum number of call or
put options on the same underlying currency (whether or not covered) which may
be written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). "Trading limits" are imposed on the maximum number of contracts which
any person may trade on a particular trading day. An exchange may order the
liquidation of positions found to be in violation of these limits, and it may
impose other sanctions or restrictions. The Investment Adviser does not believe
that these trading and position limits will have any adverse impact on the
portfolio strategies for hedging the Company's portfolio.
Hedging Foreign Currency Risks. Generally, the foreign exchange
transactions of the Company will be conducted on a spot, i.e., cash, basis at
the spot rate then prevailing for purchasing or selling currency in the foreign
exchange market. This rate under normal market conditions differs from the
prevailing exchange rate in an amount generally less than 1/10 of 1% due to the
costs of converting from one currency to another. However, the Company has
authority to deal in forward foreign exchange between currencies of Far Eastern
and Western Pacific countries and the dollar as a hedge against possible
variations in the foreign exchange rates between these currencies. This is
accomplished through contractual agreements to purchase or to sell a specified
currency at a specified future date and price set at the time of the contract.
The Company's dealings in forward foreign exchange will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward foreign currency with respect to
specific receivables or payables of the Company accruing in connection with the
purchase and sale of its portfolio securities, the sale and redemption of shares
of the Company or the payment of dividends and distributions by the Company.
Position hedging is the sale of forward currency with respect to portfolio
security positions denominated or quoted in such foreign currency. The Company
will not speculate in forward foreign exchange. All dealings in forward exchange
will be limited to contracts involving currencies of Far Eastern and Western
Pacific countries and the dollar. The Company may not position hedge with
respect to the currency of a particular country to an extent greater than the
aggregate market value (at the time of making such sale) of the securities held
in its portfolio denominated or quoted in that particular foreign currency. If
5
58
the Company enters into a position hedging transaction, its custodian bank
will place cash or liquid securities in a separate account of the Company in an
amount equal to the value of the Company's total assets committed to the
consummation of such forward contract. If the value of the securities placed in
the separate account declines, additional cash or securities will be placed in
the account so that the value of the account will equal the amount of the
Company's commitment with respect to such contracts. The Company will not
attempt to hedge all of its portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by the Investment
Adviser of the Company. The Company will not enter into a forward contract with
a term of more than one year.
As discussed in the Prospectus, the Company may also purchase or sell
listed or OTC foreign currency options, foreign currency futures and related
options on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the price of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Company to hedge against a devaluation that is so
generally anticipated that the Company is not able to contract to sell the
currency at a price above the devaluation level it anticipates. The cost to the
Company of engaging in foreign currency transactions varies with such factors as
the currencies involved, the length of the contract period and the market
conditions then prevailing. Since transactions in foreign currency exchange
usually are conducted on a principal basis, no fees or commissions are involved.
The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such as
the Company. If such restrictions should be reinstituted, it might become
necessary for the Company to invest all or substantially all of its assets in
U.S. securities. In such event, the Company would review its investment
objective and investment policies to determine whether changes are appropriate.
The Company's ability and decisions to purchase or sell portfolio
securities may be affected by laws or regulations relating to the convertibility
and repatriation of assets. Because the shares of the Company are redeemable on
a daily basis in U.S. dollars, the Company intends to manage its portfolio so as
to give reasonable assurance that it will be able to obtain U.S. dollars to the
extent necessary to meet anticipated redemptions. Under present conditions, it
is not believed that these considerations will have any significant effect on
its portfolio strategy.
High Yield Bonds. The Company is authorized to invest in fixed income
securities rated below investment grade by a nationally recognized statistical
rating agency or in unrated debt securities which, in the Investment Adviser's
judgment, possess similar credit characteristics ("high yield bonds"). Issuers
of high yield bonds may be highly leveraged and may not have available to them
more traditional methods of financing. Therefore, the risks associated with
acquiring the securities of such issuers generally are greater than is the case
with higher rated securities. For example, during an economic downturn or a
sustained period of rising interest rates, issuers of high yield bonds may be
more likely to experience financial stress, especially if such issuers are
highly leveraged. During such periods, such issuers may not have sufficient
revenues to meet their interest payment obligations. The issuer's ability to
service its debt obligations also may be adversely affected by specific issuer
developments or the issuer's inability to meet specific projected business
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forecasts or the unavailability of additional financing. The risk of loss due to
default by the issuer is significantly greater for the holder of high yield
bonds because such securities may be unsecured and may be subordinated to other
creditors of the issuer.
High yield bonds frequently have call or redemption features which would
permit issuers to repurchase such securities from the Company. If a call were
exercised by an issuer during a period of declining interest rates, the Company
likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Company and dividends
to shareholders.
The Company may have difficulty disposing of certain high yield bonds
because there may be a thin trading market for such securities. The secondary
trading market for high yield bonds is generally not as liquid as the secondary
market for higher rated securities. Reduced secondary market liquidity may have
an adverse impact on market price and the Company's ability to dispose of
particular issues when necessary to meet the Company's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
bonds, particularly in a thinly traded market. Factors adversely affecting the
market value of high yield bonds are likely to affect adversely the Company's
net asset value. In addition the Company may incur additional expenses to the
extent it is required to seek recovery upon a default on a portfolio holding or
participate in the restructuring of the obligation.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the Prospectus, the
Company 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 Company's outstanding voting securities (which
for this purpose and under the Investment Company Act means the lesser of (i)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares).
Under the fundamental investment restrictions, the Company may not:
1. Make any investment inconsistent with the Company's classification
as a diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
3. Make investments for the purpose of exercising control or
management.
4. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Company may invest in securities directly or
indirectly secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers acceptances, repurchase agreements or
any similar instruments shall not be deemed to be the making of a loan,
and except further that the Company may lend its portfolio
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securities, provided that the lending of portfolio securities may be made
only in accordance with applicable law and the guidelines set forth in
the Company's Prospectus and Statement of Additional Information, as they
may be amended from time to time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Company 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 Company may borrow
up to an additional 5% of its total assets for temporary purposes, (iii)
the Company may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the
Company may purchase securities on margin to the extent permitted by
applicable law. The Company may not pledge its assets other than to
secure such borrowings or, to the extent permitted by the Company'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 Company
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 Company may do so in accordance with applicable law
and the Company's Prospectus and Statement of Additional Information, as
they may be amended from time to time, and without registering as a
commodity pool operator under the Commodity Exchange Act.
In addition, the Company has adopted non-fundamental restrictions which
may be changed by the Board of Directors. Under the non-fundamental
investment restrictions, the Company may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. As a matter of
policy, however, the Company 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 Company.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Company 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
Company 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 Fund's Board of Directors are not
subject to the limitations set forth in this investment
restriction.
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d. Notwithstanding fundamental investment restriction (7) above, borrow
amounts in excess of 20% of its total assets, taken at market value, and
then only from banks as a temporary measure for extraordinary or
emergency purposes such as the redemption of Company shares. The Company
will not purchase securities while borrowings are outstanding except to
exercise prior commitments and to exercise subscription rights.
Portfolio securities of the Company may not be purchased from, sold or
loaned to the Investment Adviser or its affiliates or any of its directors,
general partners, officers or employees, acting as principal.
The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Company has adopted an investment policy pursuant to
which it will not purchase or sell OTC options if, as a result of such
transaction, the sum of the market value of OTC options currently outstanding
that are held by the Company, the market value of the underlying securities
covered by OTC call options currently outstanding that were sold by the Company
and margin deposits on the Company's existing OTC options on futures contracts
exceeds 15% of the total assets of the Company, taken at market value, together
with all other assets of the Company that are illiquid or are not otherwise
readily marketable. However, if the OTC option is sold by the Company to a
primary U.S. Government securities dealer recognized by the Federal Reserve Bank
of New York and if the Company has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Company 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 Company and may
be amended by the Board of Directors of the Company without the approval of the
Company's shareholders. However, the Company will not change or modify this
policy prior to the change or modification by the Commission staff of its
position.
Because of the affiliation of the Investment Adviser with the Company, the
Company is prohibited from engaging in certain transactions involving such firm
or its affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Portfolio Transactions and Brokerage."
The investment restrictions contain an exception that permits the Company
to purchase securities pursuant to the exercise of subscription rights, subject
to the condition that such purchase will not result in the Company ceasing to be
a diversified investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). Japanese and European corporations frequently issue
additional capital stock by means of subscription rights offerings to existing
shareholders at a price substantially below the market price of the shares. The
failure to exercise such rights would result in the Company's interest in the
issuing company being diluted. The market for such rights is not well developed,
and accordingly, the Company may not always realize full value on the sale of
rights. Therefore, the exception applies in cases where the limits set forth in
the investment restrictions would otherwise be exceeded by exercising rights or
have already been exceeded as a result of fluctuations in the market value of
the Company's portfolio securities with the result that the Company would
otherwise be forced either to sell securities at a time when it might not
otherwise have done so or to forego exercising the rights.
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Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Company, the Company is prohibited from
engaging in certain transactions involving Merrill Lynch except pursuant to a
permissive order or otherwise in compliance with the provisions of the
Investment Company Act and the rules and regulations thereunder. Included among
such restricted transactions are purchases from or sales to Merrill Lynch of
securities in transactions in which it acts as principal and purchases of
securities from underwriting syndicates of which Merrill Lynch is a member.
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
Information about the Directors, executive officers and portfolio manager
of the Company, including their ages and their principal occupations for at
least the last five years, is set forth below. Unless otherwise noted, the
address of the portfolio manager and 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 Investment
Adviser (which term as used herein includes its corporate predecessors) since
1997; Chairman of Fund Asset Management, L.P. ("FAM," which term as used herein
includes its corporate predecessors) since 1997; President of the Investment
Adviser and FAM from 1977 to 1997; Chairman of Princeton Services, Inc.
("Princeton Services") since 1997, Director thereof since 1993 and President
thereof 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 (investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
EDWARD H. MEYER (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), Ethan
Allen Interiors Inc. and Harman International Industries, Inc.
CHARLES C. REILLY (66)-Director(2)-9 Hampton Harbor Road, Hampton Bays,
N.Y. 11946. Self-employed financial consultant since 1990; President and Chief
Investment Officer of Verus Capital, Inc. from 1979 to 1990; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, University of Pennsylvania from 1989 to 1990;
Partner, Small Cities Cable Television since 1986.
RICHARD R. WEST (60)-Director(2)-Box 604, Genoa, Nevada 89491. Professor of
Finance since 1984, Dean from 1984 to 1993 and currently Dean Emeritus of New
York University Leonard N. Stern School of Business Administration; Director of
Bowne & Co., Inc. (financial printers), Vornado, Inc. (real estate holding
company), and Alexander's, Inc. (real estate company).
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EDWARD D. ZINBARG (63)-Director(2)-5 Hardwell Road, Short Hills, New Jersey
07078-2117. Executive Vice President of The Prudential Insurance Company of
America from 1988 to 1994; former Director of Prudential Reinsurance Company and
former Trustee of the Prudential Foundation.
TERRY K. GLENN (57)-Executive Vice President(1)(2)-Executive Vice President
of the Investment Adviser and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President of Merrill Lynch Funds
Distributor, Inc. ("MLFD" or the "Distributor") since 1986, and Director thereof
since 1991; President of Princeton Administrators, L.P. since 1988.
NORMAN R. HARVEY (64)-Senior Vice President(1)(2)-Senior Vice President of
the Investment Adviser and FAM since 1982.
PHILIP L. KIRSTEIN (52)-Senior Vice President(1)(2)-Senior Vice President
and General Counsel of the Investment Adviser and FAM since 1984; Senior Vice
President, General Counsel, Director and Secretary of Princeton Services;
Secretary of the Investment Adviser since 1984; Secretary of FAM since 1982.
LAWRENCE R. FULLER (56)-Portfolio Manager(1)-First Vice President of the
Investment Adviser since 1997; Vice President of the Investment Adviser from
1992 to 1997.
DONALD C. BURKE (37)-Vice President(1)(2)-First Vice President of the
Investment Adviser since 1997; Vice President of the Investment Adviser from
1990 to 1997; Director of Taxation of the Investment Adviser since 1990.
GERALD M. RICHARD (48)-Treasurer(1)(2)-Senior Vice President and Treasurer
of the Investment Adviser and FAM since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993; Vice President of the Distributor
since 1981 and Treasurer thereof since 1984.
PHILIP M. MANDEL (50)-Secretary(1)(2)-First Vice President of the
Investment Adviser since 1997; Assistant General Counsel of Merrill Lynch from
1989 to 1997.
- ------
(1) Interested person, as defined in the Investment Company Act, of the
Company.
(2) Such Director or officer is a director, trustee or officer of one or
more additional investment companies for which the Investment Adviser
or an affiliate, FAM, acts as investment adviser or manager.
At February 2, 1998, the officers and Directors of the Company as a group
(12 persons) owned an aggregate of less than 1% of the outstanding shares of the
Company. At such date, Mr. Zeikel, a Director and officer of the Company, and
the other officers of the Company, owned less than 1% of the outstanding shares
of common stock of ML & Co.
COMPENSATION OF DIRECTORS
The Company pays each Director not affiliated with the Investment Adviser
(each a "non-affiliated Director") a fee of $3,500 per year plus $500 per
meeting attended, together with such Director's actual out-of-pocket expenses
relating to attendance at meetings. The Company also compensates members of its
Audit and Nominating Committee (the "Committee"), which consists of all of the
non-affiliated Directors at a rate of $500 per meeting attended. The Chairman of
the Committee receives an additional fee of $250 per meeting
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attended. Fees and expenses paid to the non-affiliated Directors aggregated
$37,937 for the fiscal year ended November 30, 1997.
The following table sets forth for the fiscal year ended November 30, 1997,
compensation paid by the Company 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 the Investment Adviser and its
affiliate, FAM ("MLAM/FAM Advised Funds") to the non-affiliated Directors.
AGGREGATE
COMPENSATION
PENSION OR FROM COMPANY AND
RETIREMENT BENEFITS OTHER MLAM/FAM
COMPENSATION ACCRUED AS PART OF ADVISED FUNDS PAID
NAME OF DIRECTOR FROM COMPANY COMPANY EXPENSES TO DIRECTORS(1)
- ------------------- ------------ ------------------- ------------------
Donald Cecil....... $8,500 None $280,350
Edward H. Meyer.... $6,000 None $222,100
Charles C. Reilly.. $7,500 None $313,000
Richard R. West.... $7,500 None $290,000
Edward D. Zinbarg.. $7,500 None $133,500
- ------
(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. Meyer (33 registered investment companies consisting
of 33 portfolios); Mr. Reilly (46 registered investment companies
consisting of 59 portfolios); Mr. West (47 registered investment
companies consisting of 69 portfolios); and Mr. Zinbarg (18 registered
investment companies consisting of 18 portfolios).
ADVISORY AND MANAGEMENT ARRANGEMENTS
Reference is made to "Management of the Company-Advisory and Management
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Company.
Securities held by the Company may also be held by, or be appropriate
investments for, other funds or other investment advisory clients for which the
Investment Adviser 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 Investment Adviser for the Company or other funds for
which it acts as investment adviser or for its other advisory clients arise for
consideration at or about the same time, transactions in such securities will be
made, insofar as feasible, for the respective funds and clients in a manner
deemed equitable to all. To the extent that transactions on behalf of more than
one client of the Investment Adviser or its affiliates during the same period
may increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price.
The Company has entered into an investment advisory agreement with the
Investment Adviser (the "Investment Advisory Agreement"). As discussed in the
Prospectus, the Investment Advisory Agreement provides that the Investment
Adviser is entitled to receive for its services to the Company monthly
compensation at the annual rate of 1.0% of the Company's average daily net
assets.
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For the fiscal years ended November 30, 1995, 1996 and 1997, the Investment
Adviser earned fees of $3,740,624, $4,169,360 and $4,776,233, respectively.
The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of the Company connected with investment
and economic research, trading and investment management of the Company, as well
as the fees of all Directors of the Company who are affiliated persons of the
Investment Adviser. The Company pays all other expenses incurred in its
operation, including, among other things, taxes; expenses for legal and auditing
services; costs of printing proxies, stock certificates, shareholder reports and
prospectuses and statements of additional information (except to the extent paid
by the Distributor); charges of the custodian, any sub-custodian and transfer
agent; expenses of redemption of shares; Commission fees; expenses of
registering the shares under Federal, state or foreign laws; fees and expenses
of unaffiliated Directors; accounting and pricing costs (including the daily
calculation of net asset value); insurance; interest; brokerage costs;
litigation and other extraordinary or non-recurring expenses; and other expenses
properly payable by the Company. Accounting services are provided to the Company
by the Investment Adviser, and the Company reimburses the Investment Adviser for
its costs in connection with such services on a semiannual basis. For the fiscal
years ended November 30, 1995, 1996 and 1997, the amount of such reimbursement
was $171,044, $104,828 and $115,158, respectively. As required by the Company's
distribution agreements, the Distributor will pay certain of the promotional
expenses of the Company incurred in connection with the offering of its shares.
Certain expenses in connection with the distribution of Class B, Class C and
Class D shares will be financed by the Company pursuant to distribution plans in
compliance with Rule 12b-1 under the Investment Company Act. See "Purchase of
Shares-Distribution Plans."
As described in the Prospectus, the Investment Adviser entered into a
sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited ("MLAM
U.K."), a wholly owned, indirect subsidiary of ML & Co. and an affiliate of the
Investment Adviser, pursuant to which MLAM U.K. provides investment advisory
services to the Investment Adviser with respect to the Company. MLAM U.K.
received no fees under the sub-advisory agreement during the fiscal years ended
November 30, 1996 and 1997.
The Investment Adviser is a limited partnership, the partners of which are
ML & Co. and Princeton Services. ML & Co. and Princeton Services are
"controlling persons" of the Investment Adviser as defined under the Investment
Company Act because of their ownership of its voting securities or their power
to exercise a controlling influence over its management or policies. 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 Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Board of Directors of the Company or by a majority
of the outstanding shares of the Company 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 contract is 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 a majority of the shareholders of the
Company.
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PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Company shares.
The Company 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 Company represents identical
interests in the investment portfolio of the Company and has the same rights,
except that Class B, Class C and Class D shares bear the expenses of the ongoing
account maintenance fees, and Class B and Class C shares bear the expenses of
the ongoing distribution fees and the additional incremental transfer agency
costs resulting from the deferred sales charge arrangements. Class B, Class C
and Class D shares each have exclusive voting rights with respect to the Rule
12b-1 distribution plan adopted with respect to such class pursuant to which
account maintenance and/or distribution fees are paid (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 Investment Adviser, or its
affiliate, FAM. Funds advised by FAM or the Investment Adviser that utilize the
Merrill Lynch Select Pricing (SM) System are referred to herein as "MLAM-advised
mutual funds."
The Company has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Company (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 Company. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and investors.
The Distributor also pays for other supplementary sales literature and
advertising costs. The Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Investment Advisory Agreement
described under "Management of the Company -- Advisory and Management
Arrangements."
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
For the fiscal years ended November 30, 1995, 1996 and 1997, the Company
sold its Class A and Class D shares through the Distributor and Merrill Lynch.
The gross sales charges for the sale of Class A shares of the Company for the
fiscal year ended November 30, 1995, were $19,143, of which $17,301 was received
by Merrill Lynch, and $1,842 was received by the Distributor. The gross sales
charges for the sale of Class A shares for the fiscal year ended November 30,
1996, were $20,339, of which $19,087 was received by Merrill Lynch, and $1,252
was received by the Distributor. The gross sales charges for the sale of Class A
shares of the Company for the fiscal year ended November 30, 1997, were $13,409,
of which $12,568 was received by Merrill Lynch, and $841 was received by the
Distributor. The gross sales charges for the sale of
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Class D shares of the Company for the fiscal year ended November 30, 1995, were
$14,803, of which $13,922 was received by Merrill Lynch and $881 was received by
the Distributor. The gross sales charges for the sale of Class D shares for the
fiscal year ended November 30, 1996, were $14,881, of which $13,781 was received
by Merrill Lynch and $1,100 was received by the Distributor. The gross sales
charges for the sale of Class D shares for the fiscal year ended November 30,
1997, were $3,722, of which $3,499 was received by Merrill Lynch and $223 was
received by the Distributor. During such periods, the Distributor received no
contingent deferred sales charges ("CDSCs") with respect to redemptions within
one year after purchase of Class A or 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 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 or their own account and single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified under Section 401 of
the Code) although more than one beneficiary is involved. The term "purchase"
also includes purchases by any "company," as that term is defined in the
Investment Company Act, but does not include purchases by any such company that
has not been in existence for at least six months or that has no purpose other
than the purchase of shares of the Company or shares of other registered
investment companies at a discount; provided, however, that it shall not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit cardholders of a company, policyholders of
an insurance company, customers of either a bank or broker-dealer or clients of
an investment adviser. The term "purchase" also includes purchases by employee
benefit plans not qualified under Section 401 of the Code, including purchases
of shares of the Company by employees or by employers on behalf of employees, by
means of a payroll deduction plan or otherwise. Purchases by such a company or
non-qualified employee benefit plan will qualify for the quantity discounts
discussed above only if the Company and the Distributor are able to realize
economies of scale in sales effort and sales related expense by means of the
company, employer or plan making the Company's Prospectus available to
individual investors or employees and forwarding investments by such persons to
the Company and by any such employer or plan bearing the expense of any payroll
deduction plan.
Closed-End Fund Investment Option. Class A shares of the Company 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 Investment
Adviser or its affiliate, 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 from a sale of their
closed-end fund shares of common stock in Eligible Class A Shares, if the
conditions set forth below are satisfied. Alternatively, closed-end fund
shareholders who purchased such shares on or after October 21, 1994, and wish to
reinvest the net proceeds from a sale of their closed-end fund shares are
offered Class A shares (if eligible to purchase Class A shares) or Class D
shares of the Company 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 immediately reinvested in Eligible Class A or Class D Shares. Second,
the closed-end fund shares must either have been acquired in the initial public
offering or be shares representing dividends from shares of common stock
acquired in such offering. Third, the closed-end fund shares must
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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 Company. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Company 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 Company, except that shareholders
already owning Class A shares of the Company will be eligible to purchase
additional Class A shares pursuant to this option if such additional Class A
shares will be held in the same account as the existing Class A shares and the
other requirements pertaining to the reinvestment privilege are met. In order to
exercise this investment option, a shareholder of one of the above-referenced
continuously offered closed-end funds (an "eligible fund") must sell his or her
shares of common stock of the eligible fund (the "eligible shares") back to the
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
Company. 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 Company's shares 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 Company 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 Company 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, and
acceptance of the purchase order is subject to such confirmation. The right of
accumulation may be amended or terminated at any time. Shares held in the name
of a nominee or custodian under pension, profit sharing, or other employee
benefit plans may not be combined with other shares to qualify for the right of
accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A or Class D shares of the Company or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Company's transfer agent. The Letter of Intention
is not available to employee benefit plans for which Merrill Lynch provides
plan-participant record-keeping services. The Letter of Intention is not a
binding obligation to purchase any amount of Class A or Class D shares; however,
its execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90
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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
Company 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 completion of
such Letter, but the reduced sales charge applicable to the amount covered by
such Letter will be applied only to new purchases. If the total amount of shares
does not equal the amount stated in the Letter of Intention (minimum of
$25,000), the investor will be notified and must pay, within 20 days of the
expiration of such Letter, the difference between the sales charge on the Class
A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to five percent of the intended amount will be held in escrow
during the 13-month period (while registered in the name of the purchaser) for
this purpose. The first purchase under the Letter of Intention must be at least
five percent of the dollar amount of such Letter. If a purchase during the term
of such Letter would otherwise be subject to a further reduced sales charge
based on the right of accumulation, the purchaser will be entitled on that
purchase and subsequent purchases to the reduced percentage sales charge which
would be applicable to a single purchase equal to the total dollar value of the
Class A or Class D shares then being purchased under such Letter, but there will
be no retroactive reduction of the sales charges on any previous purchase.
The value of any shares redeemed or otherwise disposed of by the purchaser
prior to termination or completion of the Letter of Intention will be deducted
from the total purchases made under such Letter. An exchange from a MLAM-advised
money market fund into the Company that creates a sales charge will count toward
completing a new or existing Letter of Intention from the Company.
Merrill Lynch Blueprint (SM) Program. Class D shares of the Company are
offered to participants in the Merrill Lynch Blueprint (SM) Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares of
the Fund may purchase additional Class A shares of the Fund through Blueprint.
Blueprint is directed to small investors, group IRAs and participants in certain
affinity groups such as credit unions, trade associations and benefit plans.
Investors placing orders to purchase Class D shares of the Company through
Blueprint will acquire the Class D shares at net asset value plus a sales charge
calculated in accordance with the Blueprint sales charge schedule (i.e., up to
$300 at 4.25%, $300.01 to $5,000 at 3.25% plus $3.00 and $5,000.01 or more at
the standard sales charge rates disclosed in the Prospectus). Class D shares of
the Company are offered at net asset value plus a sales charge of .50% of 1% for
corporate or group IRA programs placing orders to purchase their Class D shares
through Blueprint. Services, including the exchange privilege, available to
Class A and Class D shareholders through Blueprint, however, may differ from
those available to other investors in Class D shares.
Class A and Class D shares are offered at net asset value, to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from employer-sponsored retirement and savings plans
whose trustee and/or plan sponsor offers the Merrill Lynch Directed IRA Rollover
Program.
Orders for purchases and redemptions of Class A or Class D shares of the
Company 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
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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 08989-0041.
TMA (SM) Managed Trusts. Class A shares are offered to TMA (SM) Managed
Trusts to which Merrill Lynch Trust Company provides discretionary trustee
services at net asset value.
Employee Access (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 Company, members of
the Boards of other MLAM-advised investment companies, ML & Co. and its
subsidiaries (the term "subsidiaries," when used herein with respect to ML &
Co., includes MLAM, FAM and certain other entities directly or indirectly wholly
owned and controlled by ML & Co.), and their directors and employees and any
trust, pension, profit-sharing or other benefit plan for such persons may
purchase Class A shares of the Company at net asset value.
Class D shares of the Company are offered at net asset value, without sales
charge, to an investor who has a business relationship with a Financial
Consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Company 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 Company, and the
proceeds from the redemption had been maintained in the interim in cash or a
money market fund.
Class D shares of the Company are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Company 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 Company are offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: first, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Company with proceeds from the redemption of such
shares of other mutual funds and that such shares have been
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outstanding for a period of no less than six months; and second, such purchase
of Class D shares must be made within 60 days after the redemption, and the
proceeds from the redemption must be maintained in the interim in cash or a
money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a public or private investment company. The value of the assets or company
acquired in a tax-free transaction may be adjusted in appropriate cases to
reduce possible adverse tax consequences to the Company 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 Company. 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 objectives and policies of the Company, (ii) are acquired for
investment and not for resale (subject to the understanding that the disposition
of the Company'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 Company may acquire through such transactions
restricted or illiquid securities to the extent the Company does not exceed the
applicable limits on acquisition of such securities set forth under "Investment
Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based on
the number of employees or number of employees eligible to participate in the
plan, the aggregate amount invested by the plan in specified investments and/or
the services provided by Merrill Lynch to the plan. Certain other plans may
purchase Class B shares with a waiver of the CDSC upon redemption, based on
similar criteria. Such Class B shares will convert into Class D shares
approximately ten years after the plan purchases the first share of any
MLAM-advised mutual fund. Minimum purchase requirements may be waived or varied
for such plans. Additional information regarding purchases by employer-sponsored
retirement or savings plans and certain other arrangements is available
toll-free from Merrill Lynch Business Financial Services at (800) 237-7777.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares-Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Company to the Distributor with
respect to such classes.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Directors shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each
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Distribution Plan, the Directors must consider all factors they deem relevant,
including information as to the benefits of the Distribution Plan to the Company
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 Company, 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 Company 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 Company. A
Distribution Plan cannot be amended to increase materially the amount to be
spent by the Company without the approval of the related class of shareholder,
and all material amendments are required to be approved by the vote of the
Directors, including a majority of the Independent Directors who have no direct
or indirect financial interest in such Distribution Plan, cast in person at a
meeting for that purpose. Rule 12b-1 further requires that the Company 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. ("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
Company, the maximum sales charge rule limits the aggregate of distribution fee
payments and CDSCs payable by the Company 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 Company will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid to
the Company rather than to the Distributor; however, the Company 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.
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The following table sets forth comparative information as of November
30, 1997, with respect to the Class B and Class C shares of the Company
indicating the maximum allowable payments that can be made under the NASD
maximum sales charge rule and, with respect to Class B shares, the
Distributor's voluntary maximum.
DATA CALCULATED AS OF NOVEMBER 30, 1997
(IN THOUSANDS)
ANNUAL
DISTRIBUTION
ALLOWABLE ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
-------- ------- ---------- ------- -------------- ------- ----------
CLASS B SHARES, FOR THE PERIOD ..
OCTOBER 21, 1988
(COMMENCEMENT OF OPERATIONS) ...
TO NOVEMBER 30, 1997:
Under NASD Rule As Adopted ...... $77,543 $4,846 $1,650 $6,496 $3,083 $3,413 $501
Under Distributor's Voluntary
Waiver .......................... $77,543 $4,846 $ 388 $5,234 $3,083 $2,151 $501
CLASS C SHARES, FOR THE PERIOD
OCTOBER 21, 1994
(COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1997:
Under NASD Rule As Adopted ...... $ 1,706 $ 107 $ 13 $ 120 $ 52 $ 68 $ 45
(1) Purchase price of all eligible Class B or Class C shares sold during
periods indicated other than shares acquired through dividend
reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1%, as permitted under the
NASD Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of
the distribution fee payments made with respect to Class B shares prior
to July 7, 1993, under the distribution plan in effect at that time, at
the 1.0% rate, 0.75% of average daily net assets has been treated as a
distribution fee and 0.25% of average daily net assets has been deemed
to have been a service fee and not subject to the NASD maximum sales
charge rule. 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 Company shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the New York Stock Exchange (the "NYSE") is restricted as
determined by the Commission or the NYSE is closed (other than customary weekend
and holiday closings), for any period during which an emergency exists, as
defined by the
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Commission, as a result of which disposal of portfolio securities or
determination of the net asset value of the Company is not reasonably
practicable, and for such other periods as the Commission may by order permit
for the protection of shareholders of the Company.
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
Company at such time.
DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares," while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived on redemptions of Class B shares in certain instances,
including in connection with certain post-retirement withdrawals from an
Individual Retirement Account ("IRA") or other retirement plan or following the
death or disability of a Class B shareholder. Redemptions for which the waiver
applies 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 fiscal years ended November 30, 1995 and 1996, the
Distributor received CDSCs of $89,423 and $60,215, respectively, with regard to
redemptions of Class B shares, all of which were paid to Merrill Lynch. For the
fiscal year ended November 30, 1997, the Distributor received CDSCs of $134,859,
with regard to redemptions of Class B shares, all of which were paid to Merrill
Lynch. Additional CDSCs payable to the Distributor during the fiscal year ended
November 30, 1997 may have been waived or converted to a contingent obligation
in connection with a shareholder's participation in certain fee-based programs.
For the fiscal years ended November 30, 1995 and 1996 and 1997, the Distributor
received CDSCs of $97, $1,249 and $2,200, respectively, with regard to
redemptions of Class C shares, all of which were paid to Merrill Lynch.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations and
credit unions. Class B shares of the Company are offered through Blueprint only
to members of certain affinity groups. The CDSC is waived in connection with
purchase orders placed through Blueprint. Services, including the exchange
privilege, available to Class B investors through Blueprint, however, may differ
from those available to other investors in Class B shares. Orders for purchases
and redemptions of Class B shares of the Company 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 order is $100, with a $50 minimum for subsequent purchases through
Blueprint. There is no minimum initial or subsequent purchase requirement for
investors who are part of the Blueprint automatic investment plan. Additional
information concerning these Blueprint programs, including any annual fees or
transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith
Incorporated, The Blueprint(SM) Program, P.O. Box 30441, New Brunswick, New
Jersey 08989-0441.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Company,
the Investment Adviser is primarily responsible for the execution of the
Company's portfolio transactions and the allocation of brokerage. In executing
such transactions, the Investment Adviser seeks to obtain the best net results
for the Company, 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 Investment Adviser generally seeks
reasonably competitive commission rates, the Company does not necessarily pay
the lowest commission or spread available. The Company has no obligation to deal
with any broker or group of brokers in execution of transactions in portfolio
securities. Subject to obtaining the best price and execution, brokers who
provide supplemental investment research to the Investment Adviser may receive
orders for transactions by the Company. Information so received will be in
addition to and not in lieu of the services required to be performed by the
Investment Adviser under the Investment Advisory Agreement, and the expenses of
the Investment Adviser will not necessarily be reduced as a result of the
receipt of such supplemental information. It is possible that certain of the
supplementary investment research so received will primarily benefit one or more
other investment companies or other accounts for which investment discretion is
exercised. Conversely, the Company may be the primary beneficiary of the
research or services received as a result of portfolio transactions effected for
such other accounts or investment companies. In addition, consistent with the
Conduct Rules of the NASD and policies established by the Board of Directors of
the Company, the Investment Adviser may consider sales of shares of the Company
as a factor in the selection of brokers or dealers to execute portfolio
transactions for the Company.
The Company anticipates that its brokerage transactions involving
securities of companies domiciled in countries other than the United States will
be conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions are generally higher than in the United States, although the
Company will endeavor to achieve the best net results in effecting its portfolio
transactions. There is generally less government supervision and regulation of
foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Company in the form of ADRs,
EDRs, 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 U.S. or Europe, as the case may be. ADRs, like other securities
traded in the U.S., as well as GDRs traded in the U.S., will be subject to
negotiated commission rates.
The Company may invest in securities traded in the over-the-counter markets
and intends to deal directly with the dealers who make markets in the securities
involved except in those circumstances where better prices and execution are
available elsewhere. Under the Investment Company Act, persons affiliated with
the Company and persons who are affiliated with such affiliated persons are
prohibited from dealing with the Company as principal in the purchase and sale
of securities unless a permissive order allowing such transactions is obtained
from the Commission. Since transactions in the over-the-counter market usually
involve transactions with dealers acting as principal for their own account, the
Company will not deal with affiliated persons, including Merrill Lynch and its
affiliates, in connection with such transactions. However, affiliated persons of
the Company may serve as its broker in over-the-counter transactions conducted
on an
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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. See "Investment Objective and Policies-Investment Restrictions."
For the fiscal year ended November 30, 1995, the Company paid brokerage
commissions of $1,122,486. Merrill Lynch and its affiliates received $38,165, or
3.4%, of such amount for effecting transactions involving 3.2% of the aggregate
dollar amount of transactions in which the Company paid brokerage commissions.
For the fiscal year ended November 30, 1996, the Company paid brokerage
commissions of $761,962. Merrill Lynch and its affiliates received $31,344, or
4.11%, of such amount for effecting transactions involving 4.14% of the
aggregate dollar amount of transactions in which the Company paid brokerage
commissions. For the fiscal year ended November 30, 1997, the Company paid
brokerage commissions of $1,321,578. Merrill Lynch and its affiliates received
$130,458, or 9.87%, of such amount for effecting transactions involving 7.37% of
the aggregate dollar amount of transactions in which the Company paid brokerage
commissions.
The Board of Directors has considered the possibility of seeking to
recapture for the benefit of the Company 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 Company.
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.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the U.S. national securities exchanges from executing
exchange transactions for their affiliates and institutional accounts 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 a statement disclosing the aggregate compensation received by the
member in effecting such transactions, and (iii) complies with any rules the
Commission has prescribed with respect to the requirements of clauses (i) and
(ii). To the extent Section 11(a) would apply to Merrill Lynch acting as a
broker for the Company 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 Company and annual statements as to aggregate compensation
will be provided to the Company.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Company is determined 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.
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Net asset value per share is computed by dividing the value of the
securities held by the Company 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 fee payable to the Investment Adviser 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 the 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 Company. 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 among the classes.
Portfolio securities, including ADRs, EDRs or GDRs, 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 on both the
OTC market and on a stock exchange are valued according to the broadest and most
representative market. When the Company writes an option, the amount of the
premium received is recorded on the books of the Company 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 Company are
valued at their last sale price in the case of exchange-traded options or, in
the case of options traded in the OTC market, the last bid price. Securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
Directors of the Company.
Generally, trading in foreign securities, as well as corporate bonds, 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 Company'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 Company'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.
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SHAREHOLDER SERVICES
The Company offers a number of shareholder services described below which
are designed to facilitate investment in its shares. Certain of such services
are not available to investors who place orders for the Company's shares through
the Merrill Lynch Blueprint (SM) Program. Full details as to each of such
services and copies of the various plans described below can be obtained from
the Company, the Distributor or Merrill Lynch. Certain of these services are
available only to U.S. investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the transfer agent has an
Investment Account and will receive statements at least quarterly from the
transfer agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gain distributions. The statements will also show any
other activity in the account since the preceding statement. Shareholders will
receive separate transaction confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestment of ordinary
income dividends and long-term capital gain distributions. A shareholder may
make additions to his Investment Account at any time by mailing a check directly
to the Transfer Agent.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the transfer agent.
Shareholders considering transferring their Class A shares 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 Company, a shareholder
either must redeem the Class A or Class D shares (paying any applicable CDSC) so
that the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the transfer
agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the transfer
agent may request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the shareholder
at the Transfer Agent. If the new brokerage firm is willing to accommodate the
shareholder in this manner, the shareholder must request that he or she be
issued certificates for his or her 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 Company, 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.
AUTOMATIC INVESTMENT PLANS
A U.S. shareholder may make additions to an Investment Account at any time
by purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer or by mail
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directly to the transfer agent, acting as agent for such securities dealer.
Voluntary accumulation also can be made through a service known as the Company's
Automatic Investment Plan whereby the Company 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. Investors
who maintain CMA (R) or CBA (R) accounts may arrange to have periodic
investments made in the Company in their CMA (R) or CBA (R) account or certain
related accounts in amounts of $100 or more ($1 for retirement accounts) through
the CMA (R) or CBA (R) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions 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
Company. Such reinvestment will be at the net asset value of shares of the
Company as of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing to receive either their
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed or direct deposited on or about the payment date. The
Company 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
distributions or redemption checks.
Shareholders may, at any time, notify Merrill Lynch in writing if the
shareholder's account is maintained by Merrill Lynch or notify the Transfer
Agent in writing or by telephone (1-800-MER-FUND) if the shareholder's account
is maintained by the Transfer Agent that they no longer wish to have their
dividends and/or distributions reinvested in shares of the Company or vice
versa, and commencing ten days after receipt by the transfer agent of such
notice, those instructions will be effected.
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
Company having a value, based upon cost or the current offering price, of $5,000
or more, and monthly withdrawals are available for shareholders with shares
having such 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 of the withdrawal payment will be made, on the next
business day following redemption. When a shareholder is making systematic
withdrawals, dividends and distributions on all shares in the Investment Account
are automatically reinvested in shares of the Company. A shareholder's
Systematic Withdrawal Plan may be terminated at any time, without a charge or
penalty, by the shareholder, the Company, the Transfer Agent or the Distributor.
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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
correspondingly reduced. Purchases of additional shares concurrent with
withdrawals are ordinarily disadvantageous to the shareholder because of sales
charges and tax liabilities. The Company will not knowingly accept purchase
orders for shares of the Company from investors who maintain a Systematic
Withdrawal Plan unless such purchase is equal to at least one year's scheduled
withdrawals or $1,200, whichever is greater. Periodic investments may not be
made into an Investment Account in which the shareholder has elected to make
systematic withdrawals.
Alternatively, a shareholder whose shares are held with 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 $25. The
proceeds of systematic redemptions will be posted to the shareholder's account
three business days after the date the shares are redeemed. All redemptions are
made at net asset value. A shareholder may elect to have his or her shares
redeemed on the first, second, third or fourth Monday of each month, in the case
of monthly redemptions, or of every other month, in the case of bimonthly
redemptions. For quarterly, semiannual or annual redemptions, the shareholder
must 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 Company
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 or Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares that
can be redeemed from an account annually shall not exceed 10% of the value of
shares of such class in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that otherwise might be due on
such redemption of Class B or Class C shares will be waived. Shares redeemed
pursuant to a systematic withdrawal plan will be redeemed in the same order as
Class B or Class C shares are otherwise redeemed. See "Purchase of
Shares-Deferred Sales Charge Alternatives-Class B and Class C Shares-Contingent
Deferred Sales Charges-Class B Shares" and "-Contingent Deferred Sales
Charges-Class C Shares" in the Prospectus. Where the systematic withdrawal plan
is applied to Class B shares, upon conversion of the last Class B shares in an
account to Class D shares, the systematic withdrawal plan will automatically be
applied thereafter to Class D shares. See "Purchase of Shares-Deferred Sales
Charge Alternatives-Class B and Class C Shares-Conversion of Class B Shares to
Class D Shares" in the Prospectus; if an investor wishes to change the amount
being withdrawn in a systematic withdrawal plan the investor should contact his
or her Financial Consultant.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Company 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 Company for Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second fund in his or her account in
which the exchange is made
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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 disposition of the shares acquired in the
exchange, the holding period for the previously owned shares of the Company is
"tacked" to the holding period for 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, 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 at least 15 days. It is
contemplated that the exchange privilege may be applicable to other new mutual
funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class
A or Class D shares") for Class A or Class D shares of another MLAM-advised
mutual fund ("new class A or Class D shares") are transacted on the basis of
relative net asset value per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the outstanding Class A or Class D shares and the sales charge payable at the
time of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charge paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A and Class D shares of the Company generally may
be exchanged into the Class A or Class D shares of the other funds or into
shares of certain money market funds with a reduced or without a sales charge.
In addition, each of the funds with Class B and Class C shares
outstanding ("outstanding Class B or Class C shares") offers to exchange its
Class B or Class C shares for Class B or Class C shares, respectively, ("new
Class B or Class C shares") of another MLAM-advised mutual fund on the basis of
relative net asset value per Class B or Class C share without the payment of any
CDSC that might otherwise be due on redemption of the outstanding shares. Class
B shareholders of the Company exercising the exchange privilege will continue to
be subject to the Company'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,
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Class B shares of the Company acquired through use of the exchange privilege
will be subject to the Company's CDSC schedule if such schedule is higher than
the CDSC schedule relating to the Class B shares of the fund from which the
exchange has been made. For purposes of computing the sales charge that may be
payable on a disposition of the new Class B or Class C shares, the holding
period for the outstanding Class B or Class C shares is "tacked" to the holding
period for the new Class B or Class C shares. For example, an investor may
exchange Class B shares of the Company for those of Merrill Lynch Special Value
Fund, Inc. ("Special Value Fund") after having held the Company 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 Company 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 Company into shares of
certain money market funds advised by the Investment Adviser or its affiliates,
but the period of time that Class B or Class C shares are held in a money market
fund will not count towards satisfaction of the holding period requirement for
purposes of reducing the CDSC or with respect to Class B shares, towards
satisfaction of the conversion period. However, shares of a money market fund
that were acquired as a result of an exchange for Class B or Class C shares of
the Company 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 Company for
shares of Merrill Lynch Institutional Fund ("Institutional Fund") after having
held the Company 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
Company 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 Company of the
exchange. Shareholders of the Company, and shareholders of the 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 Company 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 Securities and Exchange Commission. The Fund reserves the
right to limit the number of times an investor may exercise the exchange
privilege. Certain funds may suspend the continuous offering of their shares at
any time and 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.
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TAXES
The Company intends to continue to qualify for the special tax
treatment afforded regulated investment companies ("RICs") under the Internal
Revenue Code of 1986, as amended (the "Code"). As long as it so qualifies, the
Company (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 Company intends to distribute substantially all of such
income.
Dividends paid by the Company from its ordinary income or from an
excess of net short-term capital gains over net long-term capital losses
(together referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in futures and options) ("capital gain
dividends") are taxable to shareholders as long-term capital gains, regardless
of the length of time the shareholder has owned Company shares. Any loss upon
the sale or exchange of Company 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 Company'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
Company 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 Company. A portion of the Company'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 Company 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 Company 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 Company 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% United States withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. 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
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identification number is on file with the Company or who, to the Company's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.
Dividends and interest received by the Company 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 Company. 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 Company's total assets at
the close of its taxable year consists of securities of foreign corporations,
the Company will be eligible, and intends, to file an election with the Internal
Revenue Service pursuant to which shareholders of the Company 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, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Company'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 Company 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 Company will allocate foreign taxes and 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 Company on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company 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 the 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
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98% of its capital gains, determined, in general, on an October 31 year end,
plus certain undistributed amounts from previous years. While the Company
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 Company's taxable income and capital gains will be
distributed to avoid entirely the imposition of the tax. In such event, the
Company will be liable for the tax only on the amount by which it does not meet
the foregoing distribution requirements.
The Company may invest in securities rated in the medium to lower
rating categories of nationally recognized rating organizations, and in unrated
securities ("high yield bonds"), as previously described. Some of these high
yield bonds may be purchased at a discount and may therefore cause the Company
to accrue and distribute income before amounts due under the obligations are
paid. In addition, a portion of the interest payments on such high yield bonds
may be treated as dividends for Federal income tax purposes; in such case, if
the issuer of such high yield bonds is a domestic corporation, dividend payments
by the Company will be eligible for the dividends received deduction to the
extent of the deemed dividend portion of such interest payments.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Company 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 Company
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 Company 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 Company 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
Company 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 Company's sales of securities and transactions in options,
futures and forward foreign exchange contracts. Under Section 1092, the Company
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.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will
33
86
be qualifying income for purposes of determining whether the Company qualifies
as a RIC. It is currently unclear, however, who will be treated as the issuer of
a foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for purposes of
the RIC diversification requirements applicable to the Company.
Under Code Section 988, special rules are provided for certain
transactions in a currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the Company 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 Company. In general, however, Code
Section 988 gains or losses will increase or decrease the amount of the
Company'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 Company 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 Company shares and resulting in
a capital gain for any shareholder who received a distribution greater than such
shareholder's basis in Company 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 Company
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 Company.
PERFORMANCE DATA
From time to time the Company 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
Company's historical performance and are not intended to indicate future
performance. Average
34
87
annual total return is determined separately for Class A, Class B, Class C and
Class D shares in accordance with a formula specified by the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.
The Company also may quote annual, average annual and annualized total
return and aggregate total return performance data, both as a percentage and as
a dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted,
and (2) the maximum applicable sales charges will not be included with respect
to annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the average
rates of return reflect compounding of return; aggregate total return data
generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over longer periods of time.
35
88
Set forth in the tables below is total return information for Class A,
Class B, Class C and Class D shares of the Company for the periods
indicated.
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------------------- ------------------------- -------------------------
REDEEMABLE REDEEMABLE REDEEMABLE
EXPRESSED VALUE OF A EXPRESSED VALUE OF A EXPRESSED VALUE OF A
AS A HYPOTHETICAL AS A HYPOTHETICAL AS A HYPOTHETICAL
PERCENTAGE $1,000 PERCENTAGE $1,000 PERCENTAGE $1,000
BASED ON A INVESTMENT BASED ON A INVESTMENT BASED ON A INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
$1,000 OF THE $1,000 OF THE $1,000 OF THE
PERIOD INVESTMENT PERIOD INVESTMENT PERIOD INVESTMENT PERIOD
------ ------------ ------------ ------------ ------------ ------------ ------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended November 30,
1997 ............................. 0.47 % $1,004.70 0.99 % $1,009.90 3.96 % $1,039.60
Five Years Ended November 30,
1997 ............................. 10.21 % $1,625.70 10.25 % $1,628.90
Ten Years Ended November 30,
1997 ............................. 9.87 % $2,563.70
Inception (October 21, 1988) to
November 30, 1997 ................ 8.68 % $2,134.00
Inception (October 21, 1994) to
November 30, 1997 ................ 8.23 % $1,278.80
CLASS D SHARES
---------------------------
REDEEMABLE
EXPRESSED VALUE OF A
AS A HYPOTHETICAL
PERCENTAGE $1,000
BASED ON A INVESTMENT
HYPOTHETICAL AT THE END
$1,000 OF THE
PERIOD INVESTMENT PERIOD
------ ------------ ------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended November 30,
1997 .............................. 0.24 % $1,002.40
Five Years Ended November 30,
1997 ..............................
Ten Years Ended November 30,
1997 ..............................
Inception (October 21, 1988) to
November 30, 1997 .................
Inception (October 21, 1994) to
November 30, 1997 ................. 7.21 % $1,241.70
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Year Ended November 30, 1997 ...... 6.04 % $1,060.40 4.98 % $1,049.80 4.96 % $1,049.60 5.80 % $1,058.00
Year Ended November 30, 1996 ...... 15.20 % $1,152.00 13.97 % $1,139.70 14.05 % $1,140.50 14.86 % $1,148.60
Year Ended November 30, 1995 ...... 12.92 % $1,129.20 11.78 % $1,117.80 11.69 % $1,116.90 12.73 % $1,127.30
Year Ended November 30, 1994 ...... 4.39 % $1,043.90 3.32 % $1,033.20
Inception (October 21, 1994) to
November 30, 1994 ................. (4.36)% $ 956.40 (4.33)% $ 956.70
Year Ended November 30, 1993 ...... 19.16 % $1,191.60 17.87 % $1,178.70
Year Ended November 30, 1992 ...... 10.67 % $1,106.70 9.58 % $1,095.80
Year Ended November 30, 1991 ...... 6.77 % $1,067.70 5.67 % $1,056.70
Year Ended November 30, 1990 ...... (4.90)% $ 951.00 (5.88)% $ 941.20
Year Ended November 30, 1989 ...... 19.36 % $1,193.60 18.22 % $1,182.20
Year Ended November 30, 1988 ...... 17.59 % $1,175.90
Inception (October 21, 1988) to
November 30, 1988 ................. 13.37 % $1,133.70
Year Ended November 30, 1987 ..... 0.67 % $1,006.70
Year Ended November 30, 1986 ...... 33.34 % $1,333.40
Year Ended November 30, 1985 ...... 31.69 % $1,316.90
Inception (July 2, 1984) to
November 30, 1984 ................. 3.01 % $1,030.10
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (July 2, 1984) to
November 30, 1997............ 366.85 % $4,668.50
Inception (October 21, 1988) to
November 30, 1997.............. 113.40 % $2,134.00
Inception (October 21, 1994) to
November 30, 1997.............. 27.88 % $1,278.80 24.17 % $1,241.70
36
89
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
Company in advertisements directed to such investors may take into account a
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 the CDSC, a lower amount of expenses may be deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Company was incorporated under Maryland law on March 7, 1984. At
the date of this Statement of Additional Information, the Company has an
authorized capital of 400,000,000 shares of Common Stock, par value of $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock, each of which consists of 100,000,000 shares. Each share of
Class A, Class B, Class C and Class D Common Stock represents an interest in the
same assets of the Company and is 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 they have exclusive voting
rights with respect to matters relating to such account maintenance and/or
distribution expenditures. The Board of Directors of the Company may classify
and reclassify the shares of the Company 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 Company 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 auditors. Generally, under Maryland law, a meeting of
shareholders may be called for any purpose on the written request of the holders
of at least 25% of the outstanding shares of the Company. Voting rights for
Directors are not cumulative. Shares issued are fully paid and non-assessable
and have no preemptive rights. Redemption and conversion rights are discussed
elsewhere herein and in the Prospectus. Each share is entitled to participate
equally in dividends and distributions declared by the Company and in the net
assets of the Company upon liquidation or dissolution after satisfaction of
outstanding liabilities. Stock certificates are issued by the transfer agent
only on specific request. Certificates for fractional shares are not issued in
any case. Shareholders may, in accordance with Maryland law, cause a meeting of
shareholders to be held for the purpose of voting on the removal of Directors at
the request of 25% of the outstanding shares of the Company. A Director may be
removed at a special meeting of shareholders by a vote of a majority of the
votes entitled to be cast for the election of Directors.
The Company was incorporated under the name "Merrill Lynch
International Holdings, Inc." On November 1, 1993, the Company commenced doing
business under the name "Merrill Lynch Global Holdings" and on October 21, 1994,
changed its name to Merrill Lynch Global Holdings, Inc. As investing in overseas
markets has become more common, the term "international fund" has widely come to
mean one which invests exclusively outside the United States, whereas a "global
fund" is one which may invest within
37
90
the United States as well as in other markets. Management of the Company
believes that the name "Merrill Lynch Global Holdings, Inc." better portrays the
Company's worldwide investment capabilities, which include the ability to invest
both within the United States and abroad.
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 Company based on the value of the
Company's net assets on November 30, 1997, and its shares outstanding on that
date is as follows:
CLASS A CLASS B CLASS C CLASS D
------------- ------------ ------------ -------------
Net Assets .............................................. $ 344,940,056 $ 66,791,027 $ 5,964,338 $ 8,485,613
============= ============ ============ =============
Number of Shares Outstanding ............................ 22,920,493 4,667,281 417,765 566,770
============= ============ ============ =============
Net Asset Value Per Share (net assets divided by
number of shares outstanding) .......................... $ 15.05 $ 14.31 $ 14.28 $ 14.97
Sales Charge (for Class A and Class D shares:
5.25% of offering price (5.54% of net asset value
per share))* ........................................... .83 ** ** .83
------------- ------------ ------------ -------------
Offering Price .......................................... $ 15.88 $ 14.31 $ 14.28 $ 15.80
============= ============ ============ =============
- ----------------
* 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 of shares. See "Purchase of
Shares-Deferred Sales Charge Alternatives-Class B and Class C Shares"
in the Prospectus and "Redemption of Shares-Deferred Sales
Charges-Class B and Class C Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540,
has been selected as the independent auditors of the Company. The selection of
independent auditors is subject to approval by the independent Directors of the
Company. The independent auditors are responsible for auditing the annual
financial statements of the Company.
CUSTODIAN
The Chase Manhattan Bank, N.A., Global Securities Services, 4 Chase
MetroTech Center, 18th Floor, Brooklyn, New York 11245 (the "Custodian"), acts
as the custodian of the Company's assets. Under its contract with the Company,
the Custodian is authorized to establish separate accounts in foreign currencies
and to cause foreign securities owned by the Company to be held in its offices
outside the U.S. and with certain foreign banks and securities depositories. The
Custodian is responsible for safeguarding and controlling the Company's cash and
securities, handling the receipt and delivery of securities and collecting
interest and dividends on the Company's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Company's transfer agent (the
"Transfer Agent"). The Transfer Agent is responsible for the
38
91
issuance, transfer and redemption of shares and the opening, maintenance and
servicing of shareholder accounts. See "Management of the Company-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 Company.
REPORTS TO SHAREHOLDERS
The fiscal year of the Company ends on November 30 of each year. The
Company sends to its shareholders at least semi-annually reports showing the
Company'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 Company has filed with the 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 Company 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 Company at any time or to grant the use
of such name to any other company, and the Company 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
On February 2, 1998, Merrill Lynch Trust entities owned of record an
aggregate of approximately 14.46% of the outstanding shares of the Company on
behalf of certain employee retirement or savings plan accounts for which such
entities act as trustee. The address of Merrill Lynch Trust entities is P.O. Box
30532, New Brunswick, NJ 08989.
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92
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Global Holdings, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Global Holdings, Inc. as of
November 30, 1997, the related statements of operations for the year then ended
and changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial highlights are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at November
30, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Global
Holdings, Inc. as of November 30, 1997, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
January 14, 1998
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93
SCHEDULE OF INVESTMENTS
(in US dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
LATIN SHARES VALUE PERCENT OF
AMERICA INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina BANKING 125,000 Banco de Galicia y Buenos Aires
S.A. (ADR)* $3,084,280 $2,898,438 0.7%
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY 100,000 Yacimientos Petroliferos Fiscales
S.A. (YPF) (ADR)* 2,354,250 3,356,250 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 278,810 Compania Naviera Perez Companc
S.A.C.F.I.M.F.A. 1,023,485 1,985,922 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN ARGENTINA 6,462,015 8,240,610 1.9
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil FOREST PRODUCTS 100,000 Aracruz Celulose S.A. (ADR)* 1,835,000 1,437,500 0.3
& PAPER
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 30,000,000 Telecommunicacoes Brasileiras
S.A. -- Telebras PN (Preferred) 1,069,928 3,148,215 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN BRAZIL 2,904,928 4,585,715 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Mexico BANKING 2,000,000 +Grupo Financiero Banorte, S.A.
de C.V. (Class B) 2,113,918 2,778,793 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 125,000 DESC, Sociedad de Fomento
Industrial S.A. de C.V. (ADR)* 3,668,116 4,695,313 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN MEXICO 5,782,034 7,474,106 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
Panama BANKING 75,000 Banco Latinoamericano de
Exportaciones, S.A. (E Shares) 3,704,425 3,046,875 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN PANAMA 3,704,425 3,046,875 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN LATIN AMERICA 18,853,402 23,347,306 5.5
- ------------------------------------------------------------------------------------------------------------------------------------
MIDDLE
EAST
- ------------------------------------------------------------------------------------------------------------------------------------
Israel ELECTRICAL & 150,000 +NICE -- Systems Ltd. (ADR)* 3,331,379 6,562,500 1.5
ELECTRONICS
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE MIDDLE
EAST 3,331,379 6,562,500 1.5
- ------------------------------------------------------------------------------------------------------------------------------------
NORTH
AMERICA
- ------------------------------------------------------------------------------------------------------------------------------------
Canada CHEMICALS 300,000 Agrium, Inc. 4,041,373 3,024,874 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 50,000 Northern Telecom Ltd. 1,474,875 4,490,625 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN CANADA 5,516,248 7,515,499 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
United States BANKING 120,000 Bank of New York, Inc. (The) 3,130,284 6,450,000 1.5
95,000 Northern Trust Corporation 3,777,776 5,907,813 1.4
65,000 Wachovia Corporation 4,173,125 5,005,000 1.2
------------- ------------- ------
11,081,185 17,362,813 4.1
- ------------------------------------------------------------------------------------------------------------------------------------
BUSINESS & PUBLIC 25,000 +Microsoft Corp. 512,083 3,535,938 0.8
SERVICES 300,000 +Molten Metal Technology, Inc. 4,511,661 84,375 0.0
150,000 +Oracle Corporation 2,653,264 4,987,500 1.2
175,000 +US Filter Corp. 5,537,286 5,490,625 1.3
------------- ------------- ------
13,214,294 14,098,438 3.3
- ------------------------------------------------------------------------------------------------------------------------------------
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94
SCHEDULE OF INVESTMENTS
(in US dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
NORTH AMERICA SHARES VALUE PERCENT OF
(concluded) INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
United States ELECTRONICS/ 65,000 +Cisco Systems, Inc. $ 3,206,875 $ 5,602,188 1.3%
(concluded) COMPONENTS 85,000 Intel Corp. 1,087,344 6,598,125 1.6
90,000 Texas Instruments Inc. 2,012,563 4,432,500 1.0
------------- ------------- ------
6,306,782 16,632,813 3.9
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY SOURCES 400,000 +Global Industries Ltd. 3,636,351 6,400,000 1.5
125,000 Transocean Offshore Inc. 3,606,055 5,929,688 1.4
------------- ------------- ------
7,242,406 12,329,688 2.9
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH & PERSONAL 100,000 Johnson & Johnson 5,281,813 6,293,750 1.5
CARE 55,000 Merck & Co., Inc. 3,287,350 5,200,938 1.2
90,000 Pfizer, Inc. 2,529,031 6,547,500 1.5
125,000 Pharmacia & Upjohn Inc. 4,720,980 4,218,750 1.0
------------- ------------- ------
15,819,174 22,260,938 5.2
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE 150,000 Mercury General Corp. 3,010,895 7,500,000 1.8
80,000 The PMI Group, Inc. 4,385,425 5,200,000 1.2
------------- ------------- ------
7,396,320 12,700,000 3.0
- ------------------------------------------------------------------------------------------------------------------------------------
MACHINERY & 150,000 Harnischfeger Industries, Inc. 5,717,313 5,728,125 1.3
EQUIPMENT 125,000 Kennametal, Inc. 5,048,372 6,585,937 1.6
------------- ------------- ------
10,765,685 12,314,062 2.9
- ------------------------------------------------------------------------------------------------------------------------------------
MERCHANDISING 110,000 CVS Corporation 5,633,409 7,301,250 1.7
150,000 +Federated Department Stores, Inc. 4,921,701 6,834,375 1.6
125,000 Home Depot, Inc. 3,653,625 6,992,187 1.7
450,000 +PETsMART, Inc. 6,002,962 3,515,625 0.8
------------- ------------- ------
20,211,697 24,643,437 5.8
- ------------------------------------------------------------------------------------------------------------------------------------
PACKAGING 200,000 Stone Container Corporation 2,586,246 2,500,000 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
RAILROADS 125,000 Illinois Central Corp. 3,777,500 4,507,812 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 1 +CommScope Inc. 12 11 0.0
EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE UNITED
STATES 98,401,301 139,350,012 32.7
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN NORTH AMERICA 103,917,549 146,865,511 34.5
- ------------------------------------------------------------------------------------------------------------------------------------
PACIFIC
BASIN/ASIA
- ------------------------------------------------------------------------------------------------------------------------------------
Australia BROADCASTING & 351,883 News Corp., Ltd. (Ordinary) 1,873,092 1,883,281 0.4
PUBLISHING
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN AUSTRALIA 1,873,092 1,883,281 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
Hong Kong MULTI-INDUSTRY 500,000 CITIC Pacific Ltd. 2,539,752 1,992,290 0.5
400,000 Hutchison Whampoa Ltd. 1,949,838 2,665,011 0.6
------------- ------------- ------
4,489,590 4,657,301 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE 200,000 Sun Hung Kai Properties, Ltd. 1,247,335 1,526,560 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
42
95
UTILITIES -- GAS 1,500,000 Hong Kong and China Gas Company
Ltd. $ 1,987,876 $ 2,697,353 0.6%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN HONG KONG 7,724,801 8,881,214 2.1
- ------------------------------------------------------------------------------------------------------------------------------------
Indonesia CONSTRUCTION & 3,256,000 P.T. Jaya Real Property 3,095,258 403,081 0.1
HOUSING
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 60,000 P.T. Telekomunikasi Indonesia
(ADR)* 1,190,805 877,500 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
TEXTILES 1,374,500 P.T. Indorama Synthetics (Foreign) 988,303 708,992 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN INDONESIA 5,274,366 1,989,573 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
Japan BROADCASTING & 300,000 Tokyo Broadcasting System, Inc. 3,736,661 4,561,129 1.1
PUBLISHING
- ------------------------------------------------------------------------------------------------------------------------------------
CABLE & WIRE 250,000 Sumitomo Electric Industry, Ltd. 2,791,441 3,350,313 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
DATA PROCESSING & 100,000 Canon Inc. 1,758,792 2,413,793 0.6
REPRODUCTION
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL & 30,000 Keyence Corp. 2,162,440 4,373,041 1.0
ELECTRONICS 200,000 Matsushita Electric Industrial Co. 2,837,637 3,119,122 0.7
90,000 Murata Manufacturing Co., Ltd. 2,616,519 2,701,411 0.6
300,000 NEC Corporation 3,767,865 3,173,981 0.7
30,000 Sony Corp. 2,723,743 2,562,696 0.6
70,000 Tokyo Electron Ltd. 2,215,190 2,682,602 0.6
------------- ------------- ------
16,323,394 18,612,853 4.2
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 15,000 Nichiei Co. Ltd. 1,398,379 1,645,768 0.4
CONSUMER
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE 270,000 Tokio Marine & Fire Insurance Co.,
Ltd. 3,338,891 2,560,345 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
MACHINERY & 350,000 Minebea Co., Ltd. 2,942,184 3,894,984 0.9
ENGINEERING 500,000 Mitsubishi Heavy Industries Ltd. 3,654,177 1,967,085 0.5
------------- ------------- ------
6,596,361 5,862,069 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
MERCHANDISING 40,000 Ito-Yokado Co., Ltd. 1,760,352 1,805,643 0.4
150,000 Marui Co., Ltd. 2,736,736 2,351,097 0.6
------------- ------------- ------
4,497,088 4,156,740 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE 200,000 Mitsui Fudosan Co., Ltd. 2,474,245 2,115,987 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 400 Nippon Telephone & Telegragh Corp.
(Ordinary) 3,217,188 3,291,536 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN JAPAN 46,132,440 48,570,533 11.4
- ------------------------------------------------------------------------------------------------------------------------------------
Malaysia BANKING 1,440,799 Commerce Asset-Holding BHD 2,027,950 777,023 0.2
150,083 Commerce Asset-Holding BHD
(Warrants)(a) 95,215 16,360 0.0
------------- ------------- ------
2,123,165 793,383 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS 1,000,000 Sungei Way Holdings BHD 2,085,002 401,606 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS 1,500,000 Land & General BHD (Ordinary) 2,275,824 473,322 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 800,000 Sime Darby BHD 2,837,011 803,213 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN MALAYSIA 9,321,002 2,471,524 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
Singapore BANKING 380,000 Overseas Chinese Banking Corp. 3,284,321 2,279,809 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING & 190,000 Singapore Press Holdings Limited 2,976,641 2,602,086 0.6
PUBLISHING
- ------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & 330,000 City Development Ltd. 2,201,466 1,627,403 0.4
HOUSING
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SINGAPORE 8,462,428 6,509,298 1.5
- ------------------------------------------------------------------------------------------------------------------------------------
43
96
SCHEDULE OF INVESTMENTS (in US dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
PACIFIC BASIN/ SHARES VALUE PERCENT OF
ASIA (concluded) INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Thailand BANKING 200,000 Bangkok Bank Public Company Ltd. $ 2,049,723 $ 597,758 0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS 60,000 The Siam Cement Public Co. Ltd.
(Foreign Registered) 2,167,775 472,229 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY SOURCES 130,000 PTT Exploration and Prodution
Public Co. (PTTEP) 1,587,284 1,444,085 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 600,000 Total Access Communication Public
Co. Ltd. 2,433,299 786,000 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THAILAND 8,238,081 3,300,072 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE PACIFIC
BASIN/ASIA 87,026,210 73,605,495 17.3
- ------------------------------------------------------------------------------------------------------------------------------------
WESTERN
EUROPE
- ------------------------------------------------------------------------------------------------------------------------------------
Finland TELECOMMUNICATIONS 95,600 Nokia OY AS 'A' 3,283,620 7,824,151 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN FINLAND 3,283,620 7,824,151 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
France BANKING 46,000 Cetelem S.A. 4,689,077 5,907,327 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
BUSINESS & PUBLIC 180,000 Dassault Systemes S.A. 2,382,131 4,787,802 1.1
SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY 50,000 Societe Nationale Elf Aquitane S.A. 4,845,082 5,802,626 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN FRANCE 11,916,290 16,497,755 3.9
- ------------------------------------------------------------------------------------------------------------------------------------
Germany BANKING 70,000 Deutsche Bank AG 4,697,032 4,488,604 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 210,000 SKW Trostberg AG 5,676,684 7,256,775 1.7
120,000 Veba AG 5,406,473 7,130,060 1.7
------------- ------------- ------
11,083,157 14,386,835 3.4
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN GERMANY 15,780,189 18,875,439 4.4
- ------------------------------------------------------------------------------------------------------------------------------------
Italy TEXTILES 125,000 Gucci Group N.V. 8,151,212 5,085,937 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN ITALY 8,151,212 5,085,937 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
Netherlands BUSINESS & PUBLIC 140,000 +Baan Company N.V. 2,254,885 10,060,386 2.4
SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS 41,000 Akzo Nobel N.V. 5,917,636 7,212,963 1.7
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL & 70,000 Philips Electronics N.V. 2,440,144 4,625,101 1.1
ELECTRONICS
- ------------------------------------------------------------------------------------------------------------------------------------
MERCHANDISING 216,342 Koninklijke Ahold N.V. 3,698,668 5,769,991 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
NETHERLANDS 14,311,333 27,668,441 6.5
- ------------------------------------------------------------------------------------------------------------------------------------
Norway AUTOMOBILES 389,300 +Sensonor A/S 2,900,899 1,678,344 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
OIL -- INTEGRATED 90,000 +Fred Olsen Energy ASA 1,819,982 1,915,000 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN NORWAY 4,720,881 3,593,344 0.9
- ------------------------------------------------------------------------------------------------------------------------------------
Portugal BUILDING PRODUCTS 200,000 Cimpor -- Cimentos de Portugal
S.A. 4,062,517 5,065,483 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCE 200,000 BPI -- SGPS S.A. (Registered
Shares) 3,773,829 4,445,061 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN PORTUGAL 7,836,346 9,510,544 2.2
- ------------------------------------------------------------------------------------------------------------------------------------
44
97
Spain BUSINESS & PUBLIC 400,000 Prosegur Compania de Seguridad
SERVICES S.A. $ 4,176,481 $ 3,998,658 1.0%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SPAIN 4,176,481 3,998,658 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
Sweden ENVIRONMENTAL 325,000 +Munters AB 3,401,427 3,115,003 0.7
CONTROL
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SWEDEN 3,401,427 3,115,003 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
Switzerland HEALTH & PERSONAL 1,000 Roche Holdings Ltd. 5,320,796 8,953,129 2.1
CARE
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SWITZERLAND 5,320,796 8,953,129 2.1
- ------------------------------------------------------------------------------------------------------------------------------------
United Kingdom BANKING 500,000 The Royal Bank of Scotland Group
PLC 5,132,385 5,734,701 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
BUSINESS & PUBLIC 1,200,000 Capita Group PLC 5,471,985 6,629,011 1.6
SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS 2,100,000 Astec (BSR) PLC 3,743,542 4,085,027 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY 404,575 British Petroleum Co. PLC 2,100,965 5,519,220 1.3
500,000 Enterprise Oil PLC 3,604,380 4,917,864 1.1
------------- ------------- ------
5,705,345 10,437,084 2.4
- ------------------------------------------------------------------------------------------------------------------------------------
HOME BUILDING 611,111 The Berkeley Group PLC 6,564,040 6,875,277 1.6
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 911,944 BBA Group PLC 5,114,591 5,774,969 1.4
399,999 Siebe PLC 4,107,799 7,255,515 1.7
------------- ------------- ------
9,222,390 13,030,484 3.1
- ------------------------------------------------------------------------------------------------------------------------------------
STEEL 200,000 +Ispat International N.V. 5,087,777 4,478,663 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE UNITED
KINGDOM 40,927,464 51,270,247 12.0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN WESTERN
EUROPE 119,826,039 156,392,648 36.7
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM FACE
SECURITIES AMOUNT ISSUE
United States COMMERCIAL $15,460,000 General Motors Acceptance Corp.,
PAPER** 5.75% due 12/01/1997 15,455,061 15,455,061 3.6
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES 15,455,061 15,455,061 3.6
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $348,409,640 422,228,521 99.1
=============
OTHER ASSETS LESS LIABILITIES 3,952,513 0.9
------------- ------
NET ASSETS $426,181,034 100.0%
============= ======
- ------------------------------------------------------------------------------------------------------------------------------------
* American Depositary Receipts (ADR).
** Commercial Paper is traded on a discount basis; the interest rates shown are the discount rates paid at
the time of purchase by the Company.
(a) Warrants entitle the Company to purchase a predetermined number of shares of common stock. The purchase
price and number of shares are subject to adjustment under conditions until the expiration date.
+ Non-income producing security.
See Notes to Financial Statements.
45
98
STATEMENT OF ASSETS AND LIABILITIES
AS OF NOVEMBER 30, 1997
- --------------------------------------------------------------------------------------------------------------------------------
Assets: Investments, at value (identified cost -- $348,409,640) (Note 1a) $422,228,521
Cash 58,051
Foreign cash (Note 1b) 273
Receivables:
Securities sold $5,254,025
Dividends 387,390
Capital shares sold 117,958 5,759,373
------------
Prepaid registration fees and other assets (Note 1f) 26,247
------------
Total assets 428,072,465
------------
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Capital shares redeemed 775,371
Investment adviser (Note 2) 332,693
Securities purchased 281,585
Distributor (Note 2) 58,667 1,448,316
------------
Accrued expenses and other liabilities 443,115
------------
Total liabilities 1,891,431
------------
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets $426,181,034
============
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares
Consist of: authorized $2,292,050
Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 466,729
Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 41,777
Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 56,677
Paid-in capital in excess of par 302,058,532
Accumulated distributions in excess of investment income -- net (Note 1g) (1,332,387)
Undistributed realized capital gains on investments and foreign currency
transactions -- net 48,840,738
Unrealized appreciation on investments and foreign currency transactions
-- net 73,756,918
------------
Net assets $426,181,034
============
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Class A -- Based on net assets of $344,940,056 and 22,920,493 shares
Value: outstanding $15.05
============
Class B -- Based on net assets of $66,791,027 and 4,667,281 shares
outstanding $14.31
============
Class C -- Based on net assets of $5,964,338 and 417,765 shares
outstanding $14.28
============
Class D -- Based on net assets of $8,485,613 and 566,770 shares
outstanding $14.97
============
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
46
99
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1997
- --------------------------------------------------------------------------------------------------------------------------------
Investment Income Dividends (net of $649,557 foreign withholding tax) $5,202,879
(Notes 1d & 1e): Interest and discount earned (net of $192 foreign withholding tax) 870,387
------------
Total income 6,073,266
------------
- --------------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) $4,776,233
Transfer agent fees -- Class A (Note 2) 869,198
Account maintenance and distribution fees -- Class B (Note 2) 705,358
Custodian fees 296,296
Transfer agent fees -- Class B (Note 2) 176,881
Printing and shareholder reports 161,774
Accounting services (Note 2) 115,158
Professional fees 81,191
Registration fees (Note 1f) 61,141
Account maintenance and distribution fees -- Class C (Note 2) 54,363
Directors' fees and expenses 37,937
Pricing fees 19,365
Account maintenance fees -- Class D (Note 2) 18,694
Transfer agent fees -- Class D (Note 2) 16,820
Transfer agent fees -- Class C (Note 2) 14,484
Other 19,605
------------
Total expenses 7,424,498
------------
Investment loss -- net (1,351,232)
------------
- --------------------------------------------------------------------------------------------------------------------------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments -- net 51,342,484
(Loss) on Foreign currency transactions -- net (400,508) 50,941,976
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions -- Net Investments -- net (17,185,490)
(Notes 1b, 1c, Foreign currency transactions -- net (57,606) (17,243,096)
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign currency
transactions 33,698,880
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $32,347,648
============
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
47
100
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30,
----------------------------
INCREASE (DECREASE) IN NET ASSETS: 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Operations: Investment income (loss) -- net $(1,351,232) $3,358,903
Realized gain on investments and foreign currency transactions -- net 50,941,976 22,566,229
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions -- net (17,243,096) 32,273,292
------------ ------------
Net increase in net assets resulting from operations 32,347,648 58,198,424
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income -- net:
Distributions to Class A (472,191) --
Shareholders Class C (24) --
(Note 1g): Class D (3,962) --
In excess of investment income -- net:
Class A (2,756,330) --
Class C (141) --
Class D (23,124) --
Realized gain on investments -- net:
Class A (20,709,718) (17,594,423)
Class B (2,278,771) (2,476,721)
Class C (49,977) (26,025)
Class D (245,755) (192,712)
------------ ------------
Net decrease in net assets resulting from dividends and distributions to
shareholders (26,539,993) (20,289,881)
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Share Net increase (decrease) in net assets derived from capital share transactions (27,845,951) 34,818,380
Transactions ------------ ------------
(Note 4):
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets (22,038,296) 72,726,923
Beginning of year 448,219,330 375,492,407
============ ============
End of year* $426,181,034 $448,219,330
============ ============
- ----------------------------------------------------------------------------------------------------------------------------------
* Undistributed (accumulated distributions of) investment income -- net $(1,332,387) $1,827,409
============ ============
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
THE FOLLOWING PER SHARE DATA AND RATIOS CLASS A+
HAVE BEEN DERIVED FROM INFORMATION ------------------------------------------------------------
PROVIDED IN THE FINANCIAL STATEMENTS. FOR THE YEAR ENDED NOVEMBER 30,
------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
Per Share Net asset value, beginning of year $15.12 $13.87 $12.82 $13.07 $11.78
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income (loss) -- net (.02) .13 .05 .03 .04
Realized and unrealized gain on
investments and foreign currency
transactions -- net .86 1.87 1.52 .53 2.07
---------- ---------- ---------- ---------- ----------
48
101
Total from investment operations .84 2.00 1.57 .56 2.11
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.02) -- (.01) (.01) --
In excess of investment income -- net (.10) -- -- -- --
Realized gain on investments -- net (.79) (.75) (.51) (.80) (.82)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.91) (.75) (.52) (.81) (.82)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $15.05 $15.12 $13.87 $12.82 $13.07
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share 6.04% 15.20% 12.92% 4.39% 19.16%
Return:* ========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses 1.39% 1.37% 1.51% 1.44% 1.43%
Net Assets: ========== ========== ========== ========== ==========
Investment income (loss) -- net (.12%) .92% .41% .23% .32%
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) $344,940 $398,310 $327,270 $330,132 $256,203
Data: ========== ========== ========== ========== ==========
Portfolio turnover 54.50% 41.14% 44.64% 40.18% 56.98%
========== ========== ========== ========== ==========
Average commission rate paid++++ $.0103 $.0063 -- -- --
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS CLASS B+
HAVE BEEN DERIVED FROM INFORMATION ------------------------------------------------------------
PROVIDED IN THE FINANCIAL STATEMENTS. FOR THE YEAR ENDED NOVEMBER 30,
------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
Per Share Net asset value, beginning of year $14.40 $13.38 $12.50 $12.74 $11.62
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment loss -- net (.17) (.02) (.08) (.10) (.08)
Realized and unrealized gain on
investments and foreign currency
transactions -- net .84 1.79 1.47 .52 2.02
---------- ---------- ---------- ---------- ----------
Total from investment operations .67 1.77 1.39 .42 1.94
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain on
investments -- net (.76) (.75) (.51) (.66) (.82)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $14.31 $14.40 $13.38 $12.50 $12.74
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share 4.98% 13.97% 11.78% 3.32% 17.87%
Return:* ========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses 2.42% 2.40% 2.55% 2.48% 2.46%
Net Assets: ========== ========== ========== ========== ==========
Investment loss -- net (1.11%) (.11%) (.63%) (.80%) (.72%)
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) $66,791 $44,311 $44,387 $49,647 $34,241
Data: ========== ========== ========== ========== ==========
Portfolio turnover 54.50% 41.14% 44.64% 40.18% 56.98%
========== ========== ========== ========== ==========
Average commission rate paid++++ $.0103 $.0063 -- -- --
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
* Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
++++ For fiscal years beginning on or after September 1, 1995, the Company is required to disclose its
average commission rate per share for purchases and sales of equity securities. The "Average Commission
Rate Paid" includes commissions paid in foreign currencies, which have been converted into US dollars
using the prevailing exchange rate on the date of the transaction. Such conversions may significantly
affect the rate shown.
See Notes to Financial Statements.
49
102
CLASS C++
--------------------------------------------------------
FOR THE
THE FOLLOWING PER SHARE DATA AND RATIOS PERIOD
HAVE BEEN DERIVED FROM INFORMATION OCT. 21,
PROVIDED IN THE FINANCIAL STATEMENTS. FOR THE YEAR ENDED NOV. 30, 1994+ TO
----------------------------------------- NOV. 30,
INCREASE (DECREASE) IN NET ASSET VALUE: 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
Per Share Net asset value, beginning of period $14.41 $13.38 $12.51 $13.08
Operating ---------- ---------- ---------- ----------
Performance: Investment loss -- net (.17) (.01) (.08) (.02)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net .83 1.79 1.46 (.55)
---------- ---------- ---------- ----------
Total from investment operations .66 1.78 1.38 (.57)
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net -- +++++ -- -- --
In excess of investment income -- net -- +++++ -- -- --
Realized gain on investments -- net (.79) (.75) (.51) --
---------- ---------- ---------- ----------
Total dividends and distributions (.79) (.75) (.51) --
---------- ---------- ---------- ----------
Net asset value, end of period $14.28 $14.41 $13.38 $12.51
========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share 4.96% 14.05% 11.69% (4.36%)++++
Return:** ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses 2.43% 2.41% 2.55% 3.00%*
Net Assets: ========== ========== ========== ==========
Investment loss -- net (1.09%) (.09%) (.63%) (1.31%)*
========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $5,964 $910 $376 $177
Data: ========== ========== ========== ==========
Portfolio turnover 54.50% 41.14% 44.64% 40.18%
========== ========== ========== ==========
Average commission rate paid++++++ $.0103 $.0063 -- --
========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
CLASS D++
--------------------------------------------------------
FOR THE
THE FOLLOWING PER SHARE DATA AND RATIOS PERIOD
HAVE BEEN DERIVED FROM INFORMATION OCT. 21,
PROVIDED IN THE FINANCIAL STATEMENTS. FOR THE YEAR ENDED NOV. 30, 1994+ TO
----------------------------------------- NOV. 30,
INCREASE (DECREASE) IN NET ASSET VALUE: 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
Per Share Net asset value, beginning of period $15.04 $13.84 $12.81 $13.39
Operating ---------- ---------- ---------- ----------
Performance: Investment income (loss) -- net (.06) .09 .02 (.01)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net .87 1.86 1.52 (.57)
---------- ---------- ---------- ----------
Total from investment operations .81 1.95 1.54 (.58)
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.01) -- --+++++ --
50
103
In excess of investment income -- net (.08) -- -- --
Realized gain on investments -- net (.79) (.75) (.51) --
---------- ---------- ---------- ----------
Total dividends and distributions (.88) (.75) (.51) --
---------- ---------- ---------- ----------
Net asset value, end of period $14.97 $15.04 $13.84 $12.81
========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share 5.80% 14.86% 12.73% (4.33%)++++
Return:** ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses 1.64% 1.63% 1.76% 2.23%*
Net Assets: ========== ========== ========== ==========
Investment income (loss) -- net (.39%) .60% .18% (.67%)*
========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $8,486 $4,688 $3,459 $1,591
Data: ========== ========== ========== ==========
Portfolio turnover 54.50% 41.14% 44.64% 40.18%
========== ========== ========== ==========
Average commission rate paid++++++ $.0103 $.0063 -- --
========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding.
++++ Aggregate total investment return.
+++++ Amount is less than $.01 per share.
++++++ For fiscal years beginning on or after September 1, 1995, the Company
is required to disclose its average commission rate per share for
purchases and sales of equity securities. The "Average Commission
Rate Paid" includes commissions paid in foreign currencies, which
have been converted into US dollars using the prevailing exchange
rate on the date of the transaction. Such conversions may significantly affect the rate shown.
See Notes to Financial Statements.
51
104
Merrill Lynch Global Holdings, Inc., November 30, 1997
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Global Holdings, Inc. (the "Company") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Company 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 Company.
(a) Valuation of securities -- Portfolio securities which are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities
which are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
are valued at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last asked price.
Options purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the over-
the-counter market, the last bid price. Short-term securities are valued at
amortized cost, which approximates market value. Other investments, including
futures contracts and related options, are stated at market value. Securities
and assets for which market value quotations are not available are valued at
their fair value as determined in good faith by or under the direction of the
Company'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 Company 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 Company is authorized to write covered call options and
purchase put options. When the Company writes an option, an amount equal to the
premium received by the Company 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 Company enters into a closing
transaction), the Company realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
- - Forward foreign exchange contracts -- The Company 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
Company's records. However, the effect on operations is recorded from the date
the Company enters into such contracts. Premium or discount is amortized over
the life of the contracts.
- - Foreign currency options and futures -- The Company 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
Company, sold by the Company but not yet delivered, or committed or anticipated
to be purchased by the Company.
- - Financial futures contracts -- The Company may purchase or sell interest rate
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 Company deposits and maintains as collateral such initial margin
as required by the exchange on which the transaction is effected. Pursuant to
the contract, the Company 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 Company as
unrealized gains or losses. When the contract is closed, the Company 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 Company'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 Company has determined the ex-dividend date. Interest income is
recognized on the accrual basis. Realized gains and losses on security
transactions are determined on the identified cost basis.
(f) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(g) Dividends and distributions -- Dividends and distributions paid by the
Company are recorded on the ex-dividend dates. Distributions in excess of net
investment income are due primarily to differing tax treatments for post-October
losses.
(h) Reclassification -- Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $1,447,208 have been reclassified between undistributed
net realized capital gains and accumulated distributions in excess of net
investment income. These reclassifications have no effect on net assets or net
asset values per share.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Company 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 Company 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.
As compensation for its services to the Company, MLAM receives monthly
compensation at the annual rate of 1.0% of the average daily net assets of the
Company.
Pursuant to the Distribution Plans adopted by the Company in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Company pays the
Distributor ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the average daily net
assets of the shares as follows:
- ------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- ------------------------------------------------------------------
Class B 0.25% 0.75%
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 Company. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution- related services to Class B and Class C
shareholders.
For the year ended November 30, 1997, MLFD earned underwriting discounts and
direct commissions and MLPF&S earned dealer concessions on sales of the
Company's Class A and Class D Shares as follows:
- ------------------------------------------------------------------
MLFD MLPF&S
- ------------------------------------------------------------------
Class A $841 $12,568
Class D $223 $3,499
- ------------------------------------------------------------------
For the year ended November 30, 1997, MLPF&S received contingent deferred sales
charges of $339,089 and $2,200 relating to transactions in Class B and Class C
Shares, respectively.
52
105
In addition, MLPF&S received $130,458 in commissions on the execution of
portfolio security transactions for the Company for the year ended November 30,
1997.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned subsidiary
of ML & Co., acts as the Company's transfer agent.
Accounting services are provided to the Company by MLAM at cost.
Certain officers and/or directors of the Company are officers and/or directors
of MLAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the
year ended November 30, 1997 were $249,563,304 and $283,973,274, respectively.
Net realized and unrealized gains (losses) as of November 30, 1997 were as
follows:
- ------------------------------------------------------------------
REALIZED UNREALIZED
GAINS GAINS
(LOSSES) (LOSSES)
- ------------------------------------------------------------------
Long-term investments $51,344,229 $73,818,881
Short-term investments (1,745) --
Foreign currency transactions (400,508) (61,963)
------------- -------------
Total $50,941,976 $73,756,918
============= =============
- ------------------------------------------------------------------
As of November 30, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $73,571,492, of which $112,057,022 related to appreciated
securities and $38,485,530 related to depreciated securities. The aggregate cost
of investments at November 30, 1997 for Federal income tax purposes was
$348,657,029.
4. CAPITAL SHARE TRANSACTIONS:
A net increase (decrease) in net assets derived from capital share transactions
was $(27,845,951) and $34,818,380 for the years ended November 30, 1997 and
November 30, 1996, respectively.
Transactions in capital shares for each class were as follows:
- ------------------------------------------------------------------
CLASS A SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1997 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 10,593,236 $157,598,934
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,586,229 22,175,485
------------- -------------
Total issued 12,179,465 179,774,419
Shares redeemed (15,605,732) (236,649,109)
------------- -------------
Net decrease (3,426,267) $(56,874,690)
============= =============
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS A SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1996 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 11,176,887 $157,434,230
Shares issued to shareholders
in reinvestment of distributions 1,233,289 16,242,414
------------- -------------
Total issued 12,410,176 173,676,644
Shares redeemed (9,655,805) (136,577,975)
------------- -------------
Net increase 2,754,371 $37,098,669
============= =============
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS B SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1997 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 4,144,750 $57,686,337
Shares issued to shareholders
in reinvestment of distributions 148,413 1,993,180
------------- -------------
Total issued 4,293,163 59,679,517
Automatic conversion of shares (126,229) (1,871,700)
Shares redeemed (2,575,781) (37,239,859)
------------- -------------
Net increase 1,591,153 $20,567,958
============= =============
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS B SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1996 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 617,667 $8,295,124
Shares issued to shareholders
in reinvestment of distributions 174,046 2,205,170
------------- -------------
Total issued 791,713 10,500,294
Shares redeemed (1,011,647) (13,729,276)
Automatic conversion of shares (20,731) (275,360)
------------- -------------
Net decrease (240,665) $(3,504,342)
============= =============
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS C SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1997 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 590,713 $8,199,909
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,548 47,542
------------- -------------
Total issued 594,261 8,247,451
Shares redeemed (239,693) (3,447,217)
------------- -------------
Net increase 354,568 $4,800,234
============= =============
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS C SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1996 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 54,247 $725,543
Shares issued to shareholders
in reinvestment of distributions 1,898 24,054
------------- -------------
Total issued 56,145 749,597
Shares redeemed (21,017) (286,099)
------------- -------------
Net increase 35,128 $463,498
============= =============
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS D SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1997 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 898,998 $13,541,614
Shares issued to shareholders
in reinvestment of dividends
and distributions 18,140 252,873
Automatic conversion of shares 120,997 1,871,700
------------- -------------
Total issued 1,038,135 15,666,187
Shares redeemed (783,014) (12,005,640)
------------- -------------
Net increase 255,121 $3,660,547
============= =============
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS D SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1996 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 1,072,031 $14,751,733
Shares issued to shareholders
in reinvestment of distributions 13,662 179,386
Automatic conversion of shares 19,948 275,360
------------- -------------
Total issued 1,105,641 15,206,479
Shares redeemed (1,043,928) (14,445,924)
------------- -------------
Net increase 61,713 $760,555
============= =============
- ------------------------------------------------------------------
5. COMMITMENTS:
On November 30, 1997, the Company had entered into foreign exchange contracts
under which it had agreed to purchase and sell various foreign currencies with
approximate values of $171,000 and $5,278,000, respectively.
6. SUBSEQUENT EVENT:
On December 1, 1997, the Company's Board of Directors declared an ordinary
income dividend in the amount of $.274225 per Class A Share, $.115003 per Class
B Share, $.135529 per Class C Share and $.241836 per Class D Share and a
long-term capital gain distribution in the amount of $1.489670 per share for all
four classes of shares, payable on December 30, 1997 to shareholders of record
as of December 19, 1997.
53
106
TABLE OF CONTENTS MERRILL LYNCH
PAGE MERRILL LYNCH
---- GLOBAL HOLDINGS, INC.
Investment Objective and Policies........... 2
Hedging Techniques......................... 3
Investment Restrictions.................... 7
Management of the Company................... 10
Directors and Officers..................... 10
Compensation of Directors.................. 11
Advisory and Management Arrangements....... 12
Purchase of Shares.......................... 14
Initial Sales Charge Alternatives--Class A
and Class D Shares........................ 14
Reduced Initial Sales Charges.............. 16
Employer-Sponsored Retirement or Savings
Plans and Certain Other Arrangements...... 19
Distribution Plans......................... 19
Limitations on the Payment of Deferred
Sales Charges............................. 20
Redemption of Shares........................ 21
Deferred Sales Charges--Class B and
Class C Shares............................ 22
Portfolio Transactions and Brokerage........ 23
Determination of Net Asset Value............ 24
Shareholder Services........................ 26
Investment Account......................... 26
Automatic Investment Plans................. 26
Automatic Reinvestment of Dividends and
Capital Gains Distributions............... 27
Systematic Withdrawal Plans................ 27
Exchange Privilege......................... 28
Taxes....................................... 31
Tax Treatment of Options, Futures and
Forward Foreign Exchange Transactions..... 33
Special Rules for Certain Foreign Currency
Transactions.............................. 33
Performance Data............................ 34
General Information......................... 37
Description of Shares...................... 37
Computation of Offering Price Per Share.... 38
Independent Auditors....................... 38
Custodian.................................. 38
Transfer Agent............................. 38
Legal Counsel.............................. 39 STATEMENT OF
Reports to Shareholders.................... 39 ADDITIONAL
Additional Information..................... 39 INFORMATION
Security Ownership of Certain Beneficial
Owners.................................... 39 March 5, 1998
Independent Auditors' Report................ 40
Financial Statements........................ 41 Distributor:
Merrill Lynch
Code # 10245-0398 Funds Distributor, Inc.