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Merrill Builds on Base in Australia

It is no coincidence that Merrill Lynch Asset Management of Princeton, N.J., was the first fund company to offer U.S. dollar-denominated funds to Australian investors only three months after the Australian government eliminated taxes on unrealized capital gains on U.S. funds in June. (MFMN, 9/27/99) Merrill had actively lobbied for that law and was eagerly awaiting its enactment, said Charles Sickles, director of sales for global mutual funds at Merrill.

Merrill has been in the Australian market since 1972, when it first offered brokerage services, and the firm became a member of the Australian Stock Exchange in 1988, Sickles said. The company's early commitment to this market helped it develop a good relationship with the Australian Securities Investments Commission, Australia's equivalent of the SEC, and this relationship has proven invaluable, Sickles said. Together with the commission, Merrill lobbied the Australian government to forfeit its sizeable 48 percent capital gains tax on U.S. funds, Sickles said.

Merrill argued that the tax was so high that it dissuaded Australian investors from investing in foreign funds altogether and therefore brought in little if any in tax revenue, Sickles said.

Merrill also stressed the benefits of providing investors more choices and stimulating competition, Sickles said. While many foreign countries prefer investments to be placed locally, such parochial policies can often hurt investors, Sickles said. In the past 15 years, for instance, the average returns in many foreign markets have outpaced the returns in Australia, he said. Australian legislators are amenable to helping investors save adequately for their retirement, and so, accepted the argument that more competition is ultimately good for Australian investors, Sickles said.

American funds are the first foreign funds exempt from unrealized capital gains, Sickles said. American funds were the first to receive the exemption because Australia is the most confident in the safety of those funds due to the SEC's vigilant oversight, he said. U.K. unit trusts may be the next to be exempt from the tax, he said.

Merrill expects the 11 funds it introduced in Australia in September to be quite popular and attract $100 million in assets by September, 2000 because they cover a wide spectrum of investment goals and thus offer Australian investors more variety than what they currently have available, Sickles said. These will complement the Australian dollar-denominated funds that Merrill already sells in Australia through its Australian-domiciled subsidiary, Merrill Lynch Mercury Asset Management of Sydney.

In marketing these funds, Merrill plans to emphasize that they have already been in existence in the U.S. and have more than $150 billion in assets under management, Sickles said.

Merrill is promoting the funds through a print advertising campaign and has committed $250,000 through the end of the year to run ads in major Australian newspapers. The ads carry headlines saying, "You Are Here," and show a map of the world with pins placed in all of the major countries in which the funds invest.

"The emphasis is on global investments," Sickles said. "Through these funds, Australian investors will now have access to many of the world markets that were not quite so accessible through the local markets." The ads also note the change in the tax law.

Merrill has also strengthened its presence in Australia through recent acquisitions, Sickles said.