<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 2, 1998
SECURITIES ACT FILE NO. 333-
INVESTMENT COMPANY ACT FILE NO. 811-8721
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
[ ] PRE-EFFECTIVE AMENDMENT NO. [ ] POST-EFFECTIVE AMENDMENT NO.
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
MERRILL LYNCH GLOBAL TECHNOLOGY FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
(609) 282-2800
(AREA CODE AND TELEPHONE NUMBER)
------------------------
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES:
NUMBER, STREET, CITY, STATE, ZIP CODE)
------------------------
ARTHUR ZEIKEL
MERRILL LYNCH GLOBAL TECHNOLOGY FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
FRANK P. BRUNO, ESQ. MICHAEL J. HENNEWINKEL, ESQ.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT
ONE WORLD TRADE CENTER 800 SCUDDERS MILL ROAD
NEW YORK, NY 10048-0557 PLAINSBORO, NJ 08536
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
------------------------
TITLE OF SECURITIES BEING REGISTERED: COMMON STOCK, PAR VALUE $.10 PER
SHARE.
No filing fee is required because of reliance on Section 24(f) under the
Investment Company Act of 1940, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH GLOBAL TECHNOLOGY FUND, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
FORM N-14 PROXY STATEMENT AND
ITEM NO. PROSPECTUS CAPTION
- --------- -------------------
<S> <C> <C>
PART A
- ---------
Item 1. Beginning of Registration Statement and
Outside Front Cover Page of Prospectus Registration Statement Cover Page;
Proxy Statement and Prospectus Cover
Page
Item 2. Beginning and Outside Back Cover Page
of Prospectus Table of Contents
Item 3. Fee Table, Synopsis Information and
Risk Factors Summary; Risk Factors and Special
Considerations
Item 4. Information about the Transaction Summary; The Reorganization--Agreement
and Plan of Reorganization
Item 5. Information about the Registrant Proxy Statement and Prospectus Cover
Page; Summary; Comparison of the Funds;
Additional Information
Item 6. Information about the Company Being
Acquired Proxy Statement and Prospectus Cover
Page; Summary; Comparison of the Funds;
Additional Information
Item 7. Voting Information Notice of Special Meeting of
Stockholders; Introduction; Summary;
Comparison of the Funds; Information
Concerning the Special Meeting;
Additional Information
Item 8. Interest of Certain Persons and Experts Not Applicable
Item 9. Additional Information Required for
Reoffering by Persons Deemed to be
Underwriters Not Applicable
PART B
- ---------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. Additional Information about the
Registrant General Information
Item 13. Additional Information about the
Company Being Acquired General Information
Item 14. Financial Statements Financial Statements
PART C
- ---------
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE> 3
MERRILL LYNCH TECHNOLOGY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 12, 1999
TO THE STOCKHOLDERS OF
MERRILL LYNCH TECHNOLOGY FUND, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the
"Meeting") of Merrill Lynch Technology Fund, Inc. ("Technology Fund") will be
held at the offices of Merrill Lynch Asset Management, L.P., 800 Scudders Mill
Road, Plainsboro, New Jersey on January 12, 1999 at 9:00 a.m., New York time,
for the following purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization
(the "Agreement and Plan of Reorganization") providing for the acquisition
of substantially all of the assets of Technology Fund by Merrill Lynch
Global Technology Fund, Inc. ("Global Technology Fund"), and the assumption
of substantially all of the liabilities of Technology Fund by Global
Technology Fund, in exchange solely for an equal aggregate value of
newly-issued shares of Global Technology Fund. The Agreement and Plan of
Reorganization also provides for distribution of such shares of Global
Technology Fund to stockholders of Technology Fund in liquidation of
Technology Fund. A vote in favor of this proposal will constitute a vote in
favor of the liquidation and dissolution of Technology Fund and the
termination of its registration under the Investment Company Act of 1940,
as amended; and
(2) To transact such other business as properly may come before the
Meeting or any adjournment thereof.
The Board of Directors of Technology Fund has fixed the close of business
on November 18, 1998 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
A complete list of the stockholders of Technology Fund entitled to vote at
the Meeting will be available and open to the examination of any stockholders of
Technology Fund for any purpose germane to the Meeting during ordinary business
hours from and after December 29, 1998 at the offices of Technology Fund, 800
Scudders Mill Road, Plainsboro, New Jersey.
You are cordially invited to attend the Meeting. Stockholders who do not
expect to attend the Meeting in person are requested to complete, date and sign
the enclosed form of proxy and return it promptly in the envelope provided for
that purpose. The enclosed proxy is being solicited on behalf of the Board of
Directors of Technology Fund.
By Order of the Board of Directors,
PHILIP M. MANDEL
Secretary
Plainsboro, New Jersey
Dated:
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT AND PROSPECTUS DATED NOVEMBER 2, 1998
MERRILL LYNCH TECHNOLOGY FUND, INC.
MERRILL LYNCH GLOBAL TECHNOLOGY FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
SPECIAL MEETING OF STOCKHOLDERS OF
MERRILL LYNCH TECHNOLOGY FUND, INC.
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Merrill Lynch
Technology Fund, Inc., a Maryland corporation ("Technology Fund"), for use at
the Special Meeting of Stockholders of Technology Fund (the "Meeting") called to
approve or disapprove the proposed reorganization whereby Merrill Lynch Global
Technology Fund, Inc., a Maryland corporation ("Global Technology Fund"), will
acquire substantially all of the assets, and will assume substantially all of
the liabilities, of Technology Fund, in exchange solely for an equal aggregate
value of newly-issued shares of Global Technology Fund (the "Reorganization").
Immediately upon the receipt by Global Technology Fund of the assets of
Technology Fund and the assumption by Global Technology Fund of the liabilities
of Technology Fund, as described in the preceding sentence, Technology Fund will
distribute the shares of Global Technology Fund received in the Reorganization
to the stockholders of Technology Fund. Thereafter, Technology Fund will
terminate its registration under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), and will dissolve in accordance with the laws of
the State of Maryland.
Holders of shares in Technology Fund will receive that class of shares of
Global Technology Fund having the same letter designation (i.e., Class A, Class
B, Class C or Class D) and the same distribution fees, account maintenance fees
and sales charges (including contingent deferred sales charges ("CDSCs")), if
any (the "Corresponding Shares"), as the shares of Technology Fund held by them
immediately prior to the Reorganization. The aggregate net asset value of the
Corresponding Shares of Global Technology Fund to be issued to the stockholders
of Technology Fund will equal the aggregate net asset value of the outstanding
shares of Technology Fund as set forth in the Agreement and Plan of
Reorganization. Technology Fund and Global Technology Fund sometimes are
referred to herein collectively as the "Funds" and individually as a "Fund," as
the context requires. The fund resulting from the reorganization is sometimes
referred to herein as the "Combined Fund."
This Proxy Statement and Prospectus serves as a prospectus of Global
Technology Fund under the Securities Act of 1933, as amended (the "Securities
Act"), in connection with the issuance of shares of Global Technology Fund to
Technology Fund pursuant to the terms of the Reorganization.
Both Technology Fund and Global Technology Fund are open-end management
investment companies with substantially identical investment objectives. Each
Fund seeks long-term capital appreciation through worldwide investment in equity
securities of issuers, that in the opinion of Merrill Lynch Asset Management,
L.P. ("MLAM"), derive a substantial portion of their income from technology
related industries. There can be no assurance that, after the Reorganization,
Global Technology Fund will achieve its investment objective.
The current prospectus relating to Global Technology Fund, dated May 20,
1998 (the "Global Technology Fund Prospectus"), accompanies this Proxy Statement
and Prospectus and is incorporated herein by reference. The Semi-Annual Report
to Stockholders of Global Technology Fund dated September 30, 1998 also
accompanies this Proxy Statement and Prospectus. A statement of additional
information relating to Global Technology Fund, dated May 20, 1998 (the "Global
Technology Fund Statement"), a prospectus of Technology Fund dated June 30, 1998
(the "Technology Fund Prospectus") and a statement of additional information
relating to Technology Fund, dated June 30, 1998 (the "Technology Fund
Statement"), have been filed with the Securities and Exchange Commission (the
"Commission"). Such documents may be obtained, without charge, by writing either
Technology Fund or Global Technology Fund at the address above, or by calling
1-800-456-4587, ext. 123.
------------------------
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 PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Proxy Statement and Prospectus sets forth concisely the information
about Global Technology Fund that stockholders of Technology Fund should know
before considering the Reorganization and should be retained for future
reference. Technology Fund has authorized the solicitation of proxies in
connection with the Reorganization solely on the basis of this Proxy Statement
and Prospectus and the accompanying documents.
A statement of additional information relating to the Reorganization (the
"Statement of Additional Information"), including pro forma financial statements
of Technology Fund and Global Technology Fund, is on file with the Commission.
It is available from Global Technology Fund without charge, upon oral request by
calling the toll free telephone number set forth above or upon written request
by writing Global Technology Fund at its principal executive offices. The
Statement of Additional Information, dated , 1998 is incorporated by
reference into this Proxy Statement and Prospectus. The Commission maintains a
web site (http://www.sec.gov) that contains the Statement of Additional
Information, the Global Technology Fund Prospectus, the Technology Fund
Prospectus, the Global Technology Fund Statement, the Technology Fund Statement,
other material incorporated by reference and other information regarding the
Funds.
The address of the principal executive offices of both Technology Fund and
Global Technology Fund is 800 Scudders Mill Road, Plainsboro, New Jersey 08536,
and the telephone number is (609) 282-2800.
------------------------
THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS , 1998.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION 3
SUMMARY 3
The Reorganization 3
Pro Forma Fee Table for Class A and Class B Stockholders
of Technology Fund, Global Technology Fund and the
Combined Fund as of August 31, 1998 (unaudited) 5
Pro Forma Fee Table for Class C and Class D Stockholders
of Technology Fund, Global Technology Fund and the
Combined Fund as of August 31, 1998 (unaudited) 6
RISK FACTORS AND SPECIAL CONSIDERATIONS 11
COMPARISON OF THE FUNDS 14
Financial Highlights 14
Investment Objectives and Policies 17
Other Investment Policies 20
Information Regarding Options, Futures and Foreign
Exchange Transactions 21
Investment Restrictions 21
Management 21
Purchase of Shares 22
Redemption of Shares 22
Performance 22
Stockholder Rights 23
Dividends and Distributions 23
Tax Information 24
Portfolio Transactions 24
Portfolio Turnover 24
Additional Information 24
THE REORGANIZATION 25
General 25
Procedure 26
Terms of the Agreement and Plan of Reorganization 26
Potential Benefits to Stockholders as a Result of the
Reorganization 27
Tax Consequences of the Reorganization 28
Capitalization 29
INFORMATION CONCERNING THE SPECIAL MEETING 30
Date, Time and Place of Meeting 30
Solicitation, Revocation and Use of Proxies 30
Record Date and Outstanding Shares 30
Security Ownership of Certain Beneficial Owners and
Management of Technology Fund and Global Technology
Fund 30
Voting Rights and Required Vote 30
ADDITIONAL INFORMATION 31
LEGAL PROCEEDINGS 32
LEGAL OPINIONS 32
EXPERTS 32
STOCKHOLDER PROPOSALS 32
EXHIBIT I--AGREEMENT AND PLAN OF REORGANIZATION I-1
</TABLE>
2
<PAGE> 6
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Technology Fund
for use at the Meeting to be held at the offices of MLAM, 800 Scudders Mill
Road, Plainsboro, New Jersey on January 12, 1999, at 9:00 a.m., New York time.
The mailing address for Technology Fund is P.O. Box 9011, Princeton, New Jersey
08543-9011. The approximate mailing date of this Proxy Statement and Prospectus
is , 1998.
Any person giving a proxy may revoke it at any time prior to its exercise
by executing a superseding proxy, by giving written notice of the revocation to
the Secretary of Technology Fund at the address indicated above or by voting in
person at the Meeting. All properly executed proxies received prior to the
Meeting will be voted at the Meeting in accordance with the instructions marked
thereon or otherwise as provided therein. Unless instructions to the contrary
are marked, properly executed proxies will be voted "FOR" the proposal to
approve the Agreement and Plan of Reorganization between Technology Fund and
Global Technology Fund (the "Agreement and Plan of Reorganization").
Approval of the Agreement and Plan of Reorganization will require the
affirmative vote of Technology Fund stockholders representing a majority of the
total number of votes entitled to be cast thereon. Stockholders will vote as a
single class on the proposal to approve the Agreement and Plan of
Reorganization. See "Information Concerning the Special Meeting."
The Board of Directors of Technology Fund knows of no business other than
that discussed above which will be presented for consideration at the Meeting.
If any other matter is properly presented, it is the intention of the persons
named in the enclosed proxy to vote in accordance with their best judgment.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus (including documents incorporated by
reference) and is qualified in its entirety by reference to the more complete
information contained in this Proxy Statement and Prospectus and in the
Agreement and Plan of Reorganization, attached hereto as Exhibit I.
In this Proxy Statement and Prospectus, the term "Reorganization" refers
collectively to (i) the acquisition of substantially all of the assets and the
assumption of substantially all of the liabilities of Technology Fund by Global
Technology Fund in exchange for the Corresponding Shares and the subsequent
distribution of Corresponding Shares of Global Technology Fund to the
stockholders of Technology Fund; and (ii) the subsequent deregistration and
dissolution of Technology Fund.
THE REORGANIZATION
At a meeting of the Board of Directors of Technology Fund held on October
21, 1998, the Board of Directors of Technology Fund approved a proposal that
Global Technology Fund acquire substantially all of the assets, and assume
substantially all of the liabilities, of Technology Fund in exchange solely for
shares of Global Technology Fund to be distributed to the stockholders of
Technology Fund.
Based upon their evaluation of all relevant information, the Directors of
Technology Fund have determined that the Reorganization will potentially benefit
the stockholders of Technology Fund. Specifically, after the Reorganization,
Technology Fund stockholders will remain invested in an open-end fund that has a
substantially identical investment objective to that of Technology Fund. Since
the net assets of Global Technology Fund as of August 31, 1998 were
approximately $417.4 million and will increase by approximately $319.3 million
(the net asset value of Technology Fund as of August 31, 1998) as a result of
the Reorganization, Technology Fund stockholders are likely to experience
certain benefits, including, without limitation, lower expenses per share,
economies of scale and greater flexibility in portfolio management. See "The
Reorganization--Potential Benefits to Stockholders as a Result of the
Reorganization."
The Board of Directors of Technology Fund, including all of the Directors
who are not "interested persons," as defined in the Investment Company Act, has
determined that the Reorganization is in the best
3
<PAGE> 7
interests of Technology Fund and that the interests of existing Technology Fund
stockholders will not be diluted as a result of effecting the Reorganization.
If all of the requisite approvals are obtained, it is anticipated that the
Reorganization will occur as soon as practicable after such approval, provided
that Technology Fund and Global Technology Fund have obtained prior to that time
either (a) a favorable private letter ruling from the Internal Revenue Service
(the "IRS") or (b) an opinion of counsel concerning the tax consequences of the
Reorganization as set forth in the Agreement and Plan of Reorganization. The
Agreement and Plan of Reorganization may be terminated, and the Reorganization
abandoned, whether before or after approval by the stockholders of Technology
Fund, at any time prior to the Exchange Date (as defined below), (i) by mutual
consent of the Board of Directors of Technology Fund and the Board of Directors
of Global Technology Fund; (ii) by the Board of Directors of Technology Fund if
any condition to Technology Fund's obligations has not been fulfilled or waived
by such Board; or (iii) by the Board of Directors of Global Technology Fund if
any condition to Global Technology Fund's obligations has not been fulfilled or
waived by such Board.
4
<PAGE> 8
PRO FORMA FEE TABLE FOR CLASS A AND CLASS B STOCKHOLDERS OF TECHNOLOGY FUND,
GLOBAL TECHNOLOGY FUND
AND THE COMBINED FUND AS OF AUGUST 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
CLASS A SHARES(A)
------------------------------------------
ACTUAL
-----------------------------
TECHNOLOGY GLOBAL PRO FORMA
FUND TECHNOLOGY FUND COMBINED
---------- --------------- ---------
<S> <C> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as
a percentage of offering price) 5.25%(c) 5.25%(c) 5.25%(c)
Sales Charge Imposed on Dividend Reinvestments None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower) None(d) None(d) None(d)
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE
OF TOTAL NET ASSETS):
Management Fees(f) 1.00% 1.00% 1.00%
12b-1 Fees(g):
Account Maintenance Fees None None None
Distribution Fees None None None
Other Expenses:
Stockholder Servicing Costs(h) 0.48% 0.15% 0.21%
Other 0.16% 0.22% 0.14%
------ -------- -----
Total Other Expenses 0.64% 0.37% 0.35%
------ -------- -----
Total Fund Operating Expenses 1.64% 1.37% 1.35%
------ -------- -----
------ -------- -----
<CAPTION>
CLASS B SHARES(B)
----------------------------------------------------------------------
ACTUAL
----------------------------------------------
TECHNOLOGY GLOBAL PRO FORMA
FUND TECHNOLOGY FUND COMBINED
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as
a percentage of offering price) None None None
Sales Charge Imposed on Dividend Reinvestments None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower) 4.0% during the first 4.0% during the first 4.0% during the first
year, decreasing 1.0% year, decreasing 1.0% year, decreasing 1.0%
annually thereafter to annually thereafter to annually thereafter to
0.0% after the fourth 0.0% after the fourth 0.0% after the fourth
year(e) year(e) year(e)
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE
OF TOTAL NET ASSETS):
Management Fees(f) 1.00% 1.00% 1.00%
12b-1 Fees(g):
Account Maintenance Fees 0.25% 0.25% 0.25%
Distribution Fees 0.75% 0.75% 0.75%
(Class B shares convert to Class D shares automatically after
approximately
Other Expenses: eight years and cease being subject to distribution fees)
Stockholder Servicing Costs(h) 0.48% 0.15% 0.21%
--- --- ---
--- --- ---
--- --- ---
</TABLE>
- ---------------
(a) Class A shares are sold to a limited group of investors including existing
Class A stockholders, certain retirement plans and participants in certain
fee-based programs. See "Comparison of the Funds--Purchase of Shares."
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Comparison of the Funds--Purchase of
Shares."
(c) Reduced for Class A purchases of $25,000 and over, and waived for purchases
by certain retirement plans and in connection with certain fee-based
programs. Purchases of $1,000,000 or more may not be subject to an initial
sales charge. See "Comparison of the Funds--Purchase of Shares."
(d) Class A shares are not subject to a 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 of purchase. Such CDSC may be waived in connection with certain
fee-based programs.
(e) The CDSC may be modified in connection with certain fee-based programs.
(f) See "Comparison of the Funds--Management."
(g) See "Comparison of the Funds--Purchase of Shares."
(h) See "Comparison of the Funds--Additional Information--Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent."
5
<PAGE> 9
PRO FORMA FEE TABLE FOR CLASS C AND CLASS D STOCKHOLDERS OF TECHNOLOGY FUND,
GLOBAL TECHNOLOGY FUND
AND THE COMBINED FUND AS OF AUGUST 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
CLASS C SHARES CLASS D SHARES
------------------------------------------------ ----------------------------------------
ACTUAL ACTUAL
--------------------------------- ----------------------------
GLOBAL PRO FORMA TECHNOLOGY GLOBAL PRO FORMA
TECHNOLOGY FUND TECHNOLOGY FUND COMBINED FUND TECHNOLOGY FUND COMBINED
--------------- --------------- --------- ---------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) None None None 5.25% (a) 5.25% (a) 5.25% (a)
Sales Charge Imposed on Dividend
Reinvestments None None None None None None
Deferred Sales Charge (as a
percentage of original
purchase price or redemption
proceeds, whichever is lower) 1.0% for one 1.0% for one 1.0% for one None (c) None (c) None (c)
year(b) year(b) year(b)
Exchange Fee None None None None None None
ANNUAL FUND OPERATING EXPENSES (AS
A PERCENTAGE OF TOTAL NET
ASSETS):
Management Fees(d) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
12b-1 Fees(e):
Account Maintenance Fees 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Distribution Fees 0.75% 0.75% 0.75% None None None
Other Expenses:
Stockholder Servicing Costs(f) 0.48% 0.15% 0.21% 0.48% 0.15% 0.21%
Other 0.16% 0.22% 0.14% 0.16% 0.22% 0.14%
----- ----- --- ------ -------- -----
Total Other Expenses 0.64% 0.37% 0.35% 0.64% 0.37% 0.35%
----- ----- --- ------ -------- -----
Total Fund Operating Expenses 2.64% 2.37% 2.35% 1.89% 1.62% 1.60%
----- ----- --- ------ -------- -----
----- ----- --- ------ -------- -----
</TABLE>
- ---------------
(a) Reduced for Class D purchases of $25,000 and over. Like Class A purchases,
certain Class D purchases of $1,000,000 or more may not be subject to an
initial sales charge. See "Comparison of the Funds--Purchase of Shares."
(b) The CDSC may be waived in connection with certain fee-based programs.
(c) Like Class A shares, Class D shares are not subject to a CDSC, except that
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.
(d) See "Comparison of the Funds--Management."
(e) See "Comparison of the Funds--Purchase of Shares."
(f) See "Comparison of the Funds--Additional Information--Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent."
6
<PAGE> 10
EXAMPLES:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID ON CLASS A AND CLASS B SHARES FOR THE PERIOD OF:
-----------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
------------------------------------- -------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, including the
maximum sales load of $52.50 (Class A
shares only) and assuming (1) the Total
Fund Operating Expenses set forth on page
5 for the relevant Fund, (2) a 5% annual
return throughout the periods and (3)
redemption at the end of the period
(including any applicable
CDSC for Class B shares):
Technology Fund $68 $102 $137 $237 $67 $102 $140 $279*
Global Technology Fund 66 94 124 208 64 94 127 252*
Combined Fund+ 66 93 123 206 64 93 126 250*
An investor would pay the following expenses
on the same $1,000 investment assuming no
redemption at the end of the period:
Technology Fund $68 $102 $137 $237 $27 $82 $140 $279*
Global Technology Fund 66 94 124 208 24 74 127 252*
Combined Fund+ 66 93 123 206 24 73 126 250*
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID ON CLASS C AND CLASS D SHARES FOR THE PERIOD OF:
-----------------------------------------------------------------------------
CLASS C SHARES CLASS D SHARES
------------------------------------- -------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, including the
maximum sales load of $52.50 (Class D
shares only) and assuming (1) the Total
Fund Operating Expenses set forth on page
6 for the relevant Fund, (2) a 5% annual
return throughout the periods and (3)
redemption at the end of the period
(including any applicable
CDSC for Class C shares):
Technology Fund $37 $82 $140 $297 $71 $109 $149 $262
Global Technology Fund 34 74 127 271 68 101 136 235
Combined Fund+ 34 73 126 269 68 100 135 233
An investor would pay the following expenses
on the same $1,000 investment assuming no
redemption at the end of the period:
Technology Fund $27 $82 $140 $297 $71 $109 $149 $262
Global Technology Fund 24 74 127 271 68 101 136 235
Combined Fund+ 24 73 126 269 68 100 135 233
</TABLE>
- ---------------
* Assumes conversion of Class B shares to Class D shares approximately eight
years after initial purchase.
+ Assuming the Reorganization had taken place on August 31, 1998.
7
<PAGE> 11
The foregoing Fee Tables are intended to assist investors in understanding
the costs and expenses that a Technology Fund or Global Technology Fund
stockholder bears directly or indirectly as compared to the costs and expenses
that would be borne by such investors taking into account the Reorganization.
The Examples set forth above assume reinvestment of all dividends and
distributions and utilize a 5% annual rate of return as mandated by Commission
regulations. THE EXAMPLES 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 EXAMPLES.
See "Summary," "The Reorganization--Potential Benefits to Stockholders as a
Result of the Reorganization" and "Comparison of the Funds--Management,"
"--Purchase of Shares" and "--Redemption of Shares."
BUSINESS OF TECHNOLOGY FUND Technology Fund was incorporated under the laws of
the State of Maryland on August 27, 1991 and
commenced operations on April 27, 1992. Technology
Fund is a non-diversified, open-end management
investment company.
As of August 31, 1998, Technology Fund had net
assets of approximately $319,272,328.
BUSINESS OF GLOBAL
TECHNOLOGY
FUND Global Technology Fund was incorporated under the
laws of the State of Maryland on March 24, 1998 and
commenced operations on June 26, 1998. Global
Technology Fund is a diversified, open-end
management investment company.
As of August 31, 1998, Global Technology Fund had
net assets of approximately $417,369,018.
COMPARISON OF THE FUNDS Investment Objectives. The investment objectives
of Global Technology Fund and Technology Fund are
substantially identical, although Global Technology
Fund is a diversified investment company and
Technology Fund is nondiversified. Each Fund seeks
long-term capital appreciation through worldwide
investment in equity securities of issuers that, in
the opinion of the Manager, derive a substantial
portion of their income from technology related
industries.
Investment Policies. Global Technology Fund
invests, under normal circumstances, at least 65%
of its total assets in equity securities of issuers
from at least three different countries. To a
lesser extent, Global Technology Fund may invest in
securities convertible into common stock, preferred
stock, rights to subscribe for common stock and
other investments the return on which is determined
by the performance of a particular common stock or
a basket or index of common stocks.
Technology Fund's investment policy permits the
management of Technology Fund to vary its policies
as to geographic diversification and types of
securities; it is expected, however, that its
assets will be invested in several countries,
primarily the United States, Japan and Western
European nations. Technology Fund's current
emphasis is placed on equity securities, but
substantial portions of its assets may be invested
in debt, convertible securities or non-convertible
preferred stocks.
Both Global Technology Fund and Technology Fund may
invest heavily in securities denominated in
currencies other than the United States dollar.
Each Fund may engage in various portfolio
strategies to seek to increase its return through
the use of options on portfolio securities and to
hedge its portfolio against movements in the equity
markets, interest rates and exchange rates between
currencies.
8
<PAGE> 12
Global Technology Fund and Technology Fund are each
subject to a fundamental investment restriction,
which provides that the Fund may borrow from banks
in amounts up to 33 1/3% of its total assets taken
at market value and may borrow an additional 5% of
its total assets for temporary purposes.
Advisory Fees. The investment adviser for both
Technology Fund and Global Technology Fund is MLAM.
MLAM is responsible for the management of each
Fund's investment portfolio and for providing
administrative services to each Fund.
Paul G. Meeks serves as portfolio manager for both
Funds. Mr. Meeks has served as Portfolio Manager of
Global Technology Fund since its inception (June
26, 1998) and was appointed Portfolio Manager of
Technology Fund in August 1998.
Pursuant to a management agreement between Global
Technology Fund and MLAM, Global Technology Fund
pays MLAM a monthly fee at the annual rate of 1.00%
of the average daily net assets of the Fund not
exceeding $1.0 billion and 0.95% of the average
daily net assets of the Fund in excess of $1.0
billion; pursuant to a management agreement between
Technology Fund and MLAM, Technology Fund pays MLAM
a monthly fee at the annual rate of 1.00% of the
average daily net assets of the Fund. After the
Reorganization, the advisory fee paid by the
Combined Fund would be at Global Technology Fund's
rate. See "Summary--Pro Forma Fee Tables" and
"Comparison of the Funds--Management."
MLAM has retained Merrill Lynch Asset Management
U.K. Limited ("MLAM U.K.") as sub-adviser to each
of the Funds. Pursuant to a separate sub-advisory
agreement between MLAM and MLAM U.K. with respect
to each Fund, MLAM pays MLAM U.K. a fee for
providing investment advisory services to MLAM with
respect to each Fund, in an amount to be determined
from time to time by MLAM and MLAM U.K. but in no
event in excess of the amount MLAM actually
receives for providing services to each Fund
pursuant to each management agreement.
Class Structure. Each Fund offers four classes of
shares under the Merrill Lynch Select Pricing(SM)
System. The Class A, Class B, Class C and Class D
shares issued by Global Technology Fund are
identical in all respects to the Class A, Class B,
Class C and Class D shares issued by Technology
Fund, except that they represent ownership
interests in a different investment portfolio. See
"Comparison of the Funds--Purchase of Shares."
Overall Expense Ratio. The overall operating
expense ratio for Class A shares as of August 31,
1998 was 1.64% for Technology Fund and 1.37% for
Global Technology Fund. If the Reorganization had
taken place on that date, the overall operating
expense ratio for Class A shares of the Combined
Fund on a pro forma basis would have been 1.35%.
The foregoing expense ratios are for Class A
shares. Such ratios would differ for Class B, Class
C and Class D shares as a result of class specific
distribution and account maintenance expenditures.
See "Summary--Pro Forma Fee Tables."
Purchase of Shares. Shares of Global Technology
Fund are offered continuously for sale to the
public in substantially the same manner as
9
<PAGE> 13
shares of Technology Fund. See "Comparison of the
Funds--Purchase of Shares."
Redemption of Shares. The redemption procedures
for shares of Global Technology Fund are
substantially the same as the redemption procedures
for shares of Technology Fund. For purposes of
computing any CDSC that may be payable upon
disposition of Corresponding Shares of Global
Technology Fund acquired by Technology Fund
stockholders in the Reorganization, the holding
period of Technology Fund shares outstanding on the
date the Reorganization takes place will be
"tacked" onto the holding period of the
Corresponding Shares of Global Technology Fund
acquired in the Reorganization. See "Comparison of
the Funds--Redemption of Shares."
Dividends and Distributions. Technology Fund's
policies with respect to dividends and
distributions are substantially the same as those
of Global Technology Fund. See "Comparison of the
Funds--Dividends and Distributions."
Net Asset Value. Both Technology Fund and Global
Technology Fund determine net asset value of each
class of shares once daily 15 minutes after the
close of business on the New York Stock Exchange
(the "NYSE") (generally, 4:00 p.m. New York time),
on each day during which the NYSE is open for
trading. Both Funds compute net asset value per
share in the same manner. See "Comparison of the
Funds--Additional Information--Net Asset Value."
Voting Rights. The corresponding voting rights of
the holders of shares of common stock of each Fund
are substantially the same. See "The
Reorganization--Comparison of the Funds--Capital
Stock."
Other Significant Considerations. Stockholder
services, including exchange privileges, available
to Technology Fund and Global Technology Fund
stockholders are substantially the same. See
"Comparison of the Funds--Additional
Information--Stockholder Services." An automatic
dividend reinvestment plan is available to
stockholders of each Fund. The plans are identical.
See "Comparison of the Funds--Automatic Dividend
Reinvestment Plan." Other stockholder services,
including the provision of annual and semi-annual
reports, are the same for both Funds. See
"Comparison of the Funds--Stockholder Services."
TAX CONSIDERATIONS Technology Fund and Global Technology Fund jointly
have requested a private letter ruling from the IRS
with respect to the Reorganization to the effect
that, among other things, neither Technology Fund
nor Global Technology Fund will recognize gain or
loss on the transaction, and Technology Fund
stockholders will not recognize gain or loss on the
exchange of their shares of Technology Fund stock
for Corresponding Shares of Global Technology Fund.
The consummation of the Reorganization is subject
to the receipt of such ruling or receipt of an
opinion of counsel to the same effect. The
Reorganization will not affect the status of Global
Technology Fund as a regulated investment company.
Technology Fund has significant net realized
capital losses. After the Reorganization, Global
Technology Fund stockholders will benefit from the
ability of Global Technology Fund to offset these
capital losses against any realized capital gains.
Conversely, the benefit of these losses to
Technology Fund stockholders will be diluted.
10
<PAGE> 14
RISK FACTORS AND SPECIAL CONSIDERATIONS
Many of the investment risks associated with an investment in Global
Technology Fund are substantially the same as those of Technology Fund. Such
risks include investing in derivative instruments, illiquid securities and
unrated debt securities as well as investing on an international basis and in
the technology sector. As a result of the Reorganization, the risk factors
applicable to Technology Fund will be modified by (i) the elimination of the
risks associated with non-diversification currently applicable to Technology
Fund and (ii) the short operating history of Global Technology Fund, which
commenced operations on June 26, 1998.
Investments in Technology. Technology oriented investment companies such
as the Funds, as with other sector funds, may be subject to rapidly changing
asset inflows and outflows, which could affect portfolio management and
investment decisions. Moreover, the Funds' investments in securities of
technology related issuers present certain risks that may not exist to the same
degree in other types of investments. Technology securities, in general, tend to
be relatively volatile as compared to other types of investments. Any such
volatility will be reflected in changes in the Funds' net asset value. While
volatility may create investment opportunities, it does entail risk.
While the Funds will invest in the securities of entities in a variety of
different industries considered by MLAM to be technology related, many of those
entities share common characteristics which may affect an investment in the
Funds. For example, industries throughout the technology field include many
smaller and less seasoned issuers. Although the Funds will seek to invest
primarily in well established companies that are typically large and mid-cap
issuers, the Funds also may invest in smaller issuers. These types of issuers
may present greater opportunities for capital appreciation, but may also involve
greater risks. Such small-cap issuers may have limited product lines, markets,
or financial resources, or may depend on a limited management group. In
addition, the securities of smaller issuers trade less frequently and in smaller
volume, and may be subject to more abrupt or erratic price movements or may be
more sensitive to market fluctuations than the securities of larger, more
established companies. The issuers in which the Funds invest are also strongly
affected by worldwide scientific or technological developments, and their
products may rapidly fall into obsolescence. Certain of such issuers also offer
products or services that are subject to governmental regulations and may,
therefore, be affected adversely by governmental policies.
Investing on an International Basis. Because a substantial portion of each
Fund's assets may be invested in securities of non-U.S. issuers, investors
should be aware of certain risk factors and special considerations relating to
international investing, which may involve risks that are not typically
associated with investments in securities of U.S. issuers, including
fluctuations in foreign exchange rates, future political and economic
developments, different legal systems and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. Securities prices
in different countries are subject to different economic, financial, political
and social factors. Since both Funds invest heavily in securities denominated or
quoted in currencies other than the U.S. dollar, changes in foreign currency
exchange rates may affect the value of securities in each Fund and the
unrealized appreciation or depreciation of investments so far as U.S. investors
are concerned. Currencies of certain countries may be volatile and, therefore,
may affect the value of securities denominated in such currencies. In addition,
with respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, difficulty in obtaining or
enforcing a court judgment, economic, political or social instability or
diplomatic developments that could affect investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross domestic product, rates of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. Certain foreign investments also may be subject to foreign
withholding taxes. These risks often are heightened for investments in smaller,
emerging capital markets.
As a result of these potential risks, MLAM may determine that,
notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular country. Both Funds may
invest in countries in which foreign investors, including MLAM, have had no or
limited prior experience.
11
<PAGE> 15
Many of the foreign securities held by the Funds will not be registered
with the Commission, nor will the issuers thereof be subject to the reporting
requirements of such agency. Accordingly, there may be less publicly available
information about a foreign issuer than about a U.S. issuer and such foreign
issuers may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those of U.S. issuers. As a result,
traditional investment measurements, such as price/earnings ratios, as used in
the United States, may not be applicable to certain smaller, emerging foreign
capital markets. Foreign issuers, and issuers in smaller, emerging capital
markets in particular, may not be subject to uniform accounting, auditing and
financial reporting standards or to practices and requirements comparable to
those applicable to domestic issuers.
Foreign financial markets, while often growing in trading volume, have, for
the most part, substantially less volume than U.S. markets, and securities of
many foreign companies are less liquid and their prices may be more volatile
than securities of comparable domestic companies. Foreign markets also have
different clearance and settlement procedures, and in certain markets there have
been times when settlements have failed to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Further, satisfactory custodial services for investment securities may not be
available in some countries that have smaller, emerging capital markets, which
may result in the Funds incurring additional costs and delays in transporting
and custodying such securities outside such countries. Delays in settlement
could result in periods when assets of the Funds are uninvested and no return is
earned thereon. The inability of the Funds to make intended security purchases
due to settlement problems or the risk of intermediary counterparty failures
could cause the Funds to miss attractive investment opportunities. The inability
to dispose of a portfolio security due to settlement problems could result
either in losses to the Funds due to subsequent declines in the value of such
portfolio security or, if a contract to sell the security has been entered,
could result in possible liability to the purchaser.
There generally is less governmental supervision and regulation of
exchanges, brokers and issuers in foreign countries than there is in the United
States. For example, there may be no comparable provisions under certain foreign
laws to insider trading and similar investor protection securities laws that
apply with respect to securities transactions consummated in the United States.
Further, brokerage commissions and other transaction costs on foreign securities
exchanges generally are higher than in the United States.
Some countries prohibit or impose substantial restrictions on investments
in their capital markets, particularly their equity markets, by foreign entities
such as Global Technology Fund. As illustrations, certain countries require
governmental approval prior to investments by foreign persons, or limit the
amount of investment by foreign persons in a company to only a specific class of
securities that may have less advantageous terms than securities of the company
available for purchase by nationals. Certain countries may restrict investment
opportunities in issuers or industries deemed important to national interests.
Borrowing. Each Fund may borrow up to 33 1/3% of its total assets
(including the amount borrowed), taken at market value, but only from banks as a
temporary measure for extraordinary or emergency purposes, including to meet
redemptions (so as not to force a Fund to liquidate securities at a
disadvantageous time) or to settle securities transactions. Neither Fund will
purchase securities at any time when borrowings exceed 5% of its total assets,
except (a) to honor prior commitments or (b) to exercise subscription rights
when outstanding borrowings have been obtained exclusively for settlements of
other securities transactions. The purchase of securities while borrowings are
outstanding will have the effect of leveraging the Funds. Such leveraging
increases the Funds' exposure to capital risk, and borrowed funds are subject to
interest costs that will reduce net income.
Derivative Investments. Each Fund may engage in transactions in certain
instruments that may be characterized as derivatives. These instruments include
various types of options, futures and options thereon. The Funds may engage in
these transactions for hedging purposes to enhance total return or to gain
exposure to equity markets.
Transactions involving options, futures, options on futures or currencies
may involve the loss of an opportunity to profit from a price movement in the
underlying asset beyond certain levels or a price increase on
12
<PAGE> 16
other portfolio assets (in the case of transactions for hedging purposes) or
expose the Funds to potential losses that exceed the amount originally invested
by each respective Fund in such instruments.
Illiquid Securities. Global Technology Fund may invest up to 15% of its
net assets and Technology Fund may invest up to 15% of its total assets in
securities that lack an established secondary trading market or otherwise are
considered illiquid (including, in the case of Technology Fund, venture capital
investments). Liquidity of a security relates to the ability to dispose easily
of the security and the price to be obtained upon disposition of the security,
which may be less than would be obtained for a comparable more liquid security.
Investment of a Fund's assets in illiquid securities may restrict the ability of
a Fund to dispose of its investments in a timely fashion and for a fair price as
well as its ability to take advantage of market opportunities. The risks
associated with illiquidity will be particularly acute in situations in which a
Fund's operations require cash, such as when a Fund redeems shares or pays
dividends, and could result in a Fund borrowing to meet short-term cash
requirements or incurring capital losses on the sale of illiquid investments.
Further, issuers whose securities are not publicly traded are not subject to the
disclosure and other investor protection requirements that would be applicable
if their securities were publicly traded. In making investments in such
securities, a Fund may obtain access to material nonpublic information which may
restrict the Fund's ability to conduct portfolio transactions in such
securities. In addition, each of the Funds may invest in privately placed
securities that may or may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on resale.
Withholding and Other Taxes. Income and capital gains on securities held
by the Funds may be subject to withholding and other taxes imposed by certain
jurisdictions, which would reduce the return to the respective Fund on those
securities. The Funds intend, unless ineligible, to elect to "pass-through" to
their respective stockholders the amount of foreign taxes paid by that Fund. If
certain holding period requirements are met, the taxes passed through to
stockholders will be included in each stockholder's income and could potentially
be offset by either a deduction or a credit. Certain stockholders, including
non-U.S. stockholders, will not be entitled to the benefit of a deduction or
credit with respect to foreign taxes paid at the Fund level. Non-U.S.
stockholders may nevertheless be subject to withholding tax on the foreign taxes
included in their income. Other taxes, such as transfer taxes, may be imposed on
the Funds, but would not give rise to a credit or deduction for stockholders.
13
<PAGE> 17
COMPARISON OF THE FUNDS
FINANCIAL HIGHLIGHTS
Global Technology Fund. The financial information in the table below is
unaudited and has been provided by MLAM. Financial information is not presented
prior to June 26, 1998 since no shares were publicly issued prior to that date.
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 26, 1998+ TO SEPTEMBER 30, 1998
----------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------- -------- -------- --------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- -------- -------- --------
Investment income (loss)--net
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net
------- -------- -------- --------
Total from investment operations
------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- --
In excess of investment income--net -- -- -- --
------- -------- -------- --------
Total dividends and distributions -- -- -- --
------- -------- -------- --------
Net asset value, end of period $ $ $ $
======= ======== ======== ========
TOTAL INVESTMENT RETURN:*
Based on net asset value per share %# %# %# %#
======= ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses %** %** %** %**
======= ======== ======== ========
Investment income (loss)--net %** %** %** %**
======= ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ $ $ $
======= ======== ======== ========
Portfolio turnover % % % %
======= ======== ======== ========
</TABLE>
- ---------------
<TABLE>
<C> <S>
+ Commencement of operations.
++ Amount is less than $.01 per share.
* Total investment returns exclude the effect of sales loads.
** Annualized.
# Aggregate total investment return.
</TABLE>
Technology Fund. The financial information in the table below has been
audited in conjunction with the annual audits of the financial statements of
Technology Fund by Deloitte & Touche LLP, independent auditors.
14
<PAGE> 18
The following per share data and ratios have been derived from information
provided in the financial statements:
<TABLE>
<CAPTION>
CLASS A++
-------------------------------------------------------------------------------------------
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FOR THE YEAR ENDED MARCH 31, APRIL 27, 1992+
SEPTEMBER 30, ---------------------------------------------------- TO MARCH 31,
1998 1998 1997 1996 1995 1994 1993
------------- -------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period $ 5.07 $ 4.82 $ 4.89 $ 5.17 $ 5.08 $ 3.83
-------- -------- -------- -------- -------- -------- --------
Investment income (loss)--net (.04) (.03) (.03) .05 (.01) --
Realized and unrealized gain
on investments and foreign
currency transactions--net .46 .72 .28 .11 1.51 1.59
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations .42 .69 .25 .16 1.50 1.59
-------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income--net -- -- -- (.02) -- --
In excess of investment
income--net -- -- -- (.01) -- --
Realized gain on
investments--net (1.06) (.44) (.17) (.05) (1.41) (.34)
In excess of realized gain on
investments--net (.16) -- (.15) (.36) -- --
-------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions (1.22) (.44) (.32) (.44) (1.41) (.34)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 4.27 $ 5.07 $ 4.82 $ 4.89 $ 5.17 $ 5.08
======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share 3.96% 14.60% 5.15% 2.86% 35.68% 42.09%#
======== ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.27% 1.30% 1.31% 1.33% 1.35% 1.59%*
======== ======== ======== ======== ======== ======== ========
Investment income (loss)--net (.82)% (.63)% (.62)% .87% (.11)% .04%*
======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $211,443 $222,118 $246,909 $254,188 $174,809 $100,830
======== ======== ======== ======== ======== ======== ========
Portfolio turnover 206.40% 176.51% 108.36% 175.57% 350.64% 482.79%
======== ======== ======== ======== ======== ======== ========
<CAPTION>
CLASS B++
-----------------------------------------------------------------------------------------------
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FOR THE YEAR ENDED MARCH 31, APRIL 27, 1992+
SEPTEMBER 30, ---------------------------------------------------- TO MARCH 31,
1998 1998 1997 1996 1995 1994 1993
------------------ -------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period $ 4.89 $ 4.66 $ 4.78 $ 5.08 $ 5.03 $ 3.83
-------- -------- -------- -------- -------- -------- -------
Investment income (loss)--net (.09) (.08) (.09) (.01) (.05) (.04)
Realized and unrealized gain
on investments and foreign
currency transactions--net .46 .69 .29 .11 1.48 1.58
-------- -------- -------- -------- -------- -------- -------
Total from investment
operations .37 .61 .20 .10 1.43 1.54
-------- -------- -------- -------- -------- -------- -------
Less dividends and
distributions:
Investment income--net -- -- -- --+++ -- --
In excess of investment
income--net -- -- -- --+++ -- --
Realized gain on
investments--net (1.05) (.38) (.17) (.05) (1.38) (.34)
In excess of realized gain on
investments--net (.15) -- (.15) (.35) -- --
-------- -------- -------- -------- -------- -------- -------
Total dividends and
distributions (1.20) (.38) (.32) (.40) (1.38) (.34)
-------- -------- -------- -------- -------- -------- -------
Net asset value, end of period $ 4.06 $ 4.89 $ 4.66 $ 4.78 $ 5.08 $ 5.03
======== ======== ======== ======== ======== ======== =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share 3.09% 13.20% 4.21% 1.78% 34.22% 40.77%#
======== ======== ======== ======== ======== ======== =======
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.31% 2.35% 2.34% 2.38% 2.36% 2.53%
======== ======== ======== ======== ======== ======== =======
Investment income (loss)--net (1.85)% (1.66)% (1.65)% (.10)% (1.08)% .93%
======== ======== ======== ======== ======== ======== =======
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $285,193 $375,630 $553,819 $614,935 $224,330 $57,592
======== ======== ======== ======== ======== ======== =======
Portfolio turnover 206.40% 176.51% 108.36% 175.57% 350.64% 482.79%
======== ======== ======== ======== ======== ======== =======
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding.
+++ Amount is less than $.01 per share.
# Aggregate total investment return.
15
<PAGE> 19
TECHNOLOGY FUND--FINANCIAL HIGHLIGHTS (CONCLUDED)
<TABLE>
<CAPTION>
CLASS C++ CLASS D++
--------------------------------------------------------------------- -------------------
FOR THE SIX FOR THE YEAR ENDED FOR THE PERIOD FOR THE SIX
MONTHS ENDED MARCH 31, OCTOBER 21, 1994+ MONTHS ENDED
SEPTEMBER 30, --------------------------- FOR MARCH 31 SEPTEMBER 30,
1998 1998 1997 1996 1995 1998
------------------- ------- ------- ------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET
VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $ 4.87 $ 4.64 $ 4.76 $ 5.75
------- ------- ------- ------- ------- -------
Investment loss--net (.09) (.08) (.09) --
Realized and unrealized gain
(loss) on investments
and foreign currency
transactions--net .45 .68 .29 (.62)
------- ------- ------- ------- ------- -------
Total from investment operations .36 .60 .20 (.62)
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net -- -- -- (.02)
In excess of investment
income--net -- -- -- (.01)
Realized gain on
investments--net (1.05) (.37) (.17) (.04)
In excess of realized gain on
investments--net (.15) -- (.15) (.30)
------- ------- ------- ------- ------- -------
Total dividends and distributions (1.20) (.37) (.32) (.37)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 4.03 $ 4.87 $ 4.64 $ 4.76
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share 2.87% 13.19% 4.22% (11.11)%#
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.33% 2.37% 2.36% 2.59%*
======= ======= ======= ======= ======= =======
Investment loss--net (1.87)% (1.68)% (1.69)% (.02)%*
======= ======= ======= ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $15,424 $19,015 $31,090 $23,259
======= ======= ======= ======= ======= =======
Portfolio turnover 206.40% 176.51% 108.36% 175.57%
======= ======= ======= ======= ======= =======
<CAPTION>
CLASS D++
-----------------------------------------------
FOR THE YEAR ENDED FOR THE PERIOD
MARCH 31, OCTOBER 21, 1994+
--------------------------- TO MARCH 31
1998 1997 1996 1995
------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET
VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $ 5.05 $ 4.81 $ 4.89 $ 5.88
------- ------- ------- -------
Investment loss--net (.05) (.04) (.05) (.02)
Realized and unrealized gain
(loss) on investments
and foreign currency
transactions--net .46 .71 .29 (.60)
------- ------- ------- -------
Total from investment operations .41 .67 .24 (.62)
------- ------- ------- -------
Less dividends and distributions:
Investment income--net -- -- -- (.02)
In excess of investment
income--net -- -- -- (.01)
Realized gain on
investments--net (1.05) (.43) (.17) (.04)
In excess of realized gain on
investments--net (.16) -- (.15) (.30)
------- ------- ------- -------
Total dividends and distributions (1.21) (.43) (.32) (.32)
------- ------- ------- -------
Net asset value, end of period $ 4.25 $ 5.05 $ 4.81 $ 4.89
======= ======= ======= =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share 3.90% 14.09% 4.94% (10.76)%#
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.52% 1.55% 1.56% 1.80%*
======= ======= ======= =======
Investment loss--net (1.07)% (.88)% (.89)% (.81)%*
======= ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $34,712 $35,372 $43,858 $32,646
======= ======= ======= =======
Portfolio turnover 206.40% 176.51% 108.36% 175.57%
======= ======= ======= =======
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on the average shares outstanding.
# Aggregate total investment return.
16
<PAGE> 20
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of Global Technology Fund and Technology Fund are
substantially identical, although Global Technology Fund is a diversified
investment company and Technology Fund is non-diversified. Each Fund seeks
long-term capital appreciation through worldwide investment in equity securities
of issuers that, in the opinion of MLAM, derive a substantial portion of their
income from technology related industries. Global Technology Fund will pursue
this objective by investing in a global portfolio of securities of issuers that
are, and are expected to remain, leaders in their product or service niches as
measured by market share and superiority in technology. In addition, part of
Global Technology Fund's portfolio will be invested in issuers which management
believes are likely to develop leadership positions. Technology Fund pursues
this objective by investing in a global portfolio of securities of companies in
various stages of development. Current income from dividends and interest will
not be an important consideration for either Fund in selecting portfolio
securities. The investment objective of each Fund described in the second
sentence of this paragraph is a fundamental policy of each Fund and may not be
changed without the approval of the holders of a majority of each Fund's
outstanding voting securities.
There can be no assurance that, after the Reorganization, Global Technology
Fund will achieve its investment objective.
The investment objective of the Funds is based upon the belief that
continuing advances in technology are providing issuers throughout the world
with opportunities to develop innovative products and services and that
investment in such issuers offers significant long-term growth possibilities.
Global Technology Fund invests in issuers offering products and services in
telecommunications equipment, computers, semiconductors, networking, internet
and on-line service companies, office automation, server hardware producers and
software companies (e.g., design, consumer and industrial). Technology Fund
invests in similar industries in addition to other companies substantially
involved in the more general field of technology. Technology Fund also invests
in energy conservation and development, new materials, specialty chemicals,
aerospace and military technology. Neither Fund invests more than 25% of its
total assets in any one industry.
Both Funds invest in a portfolio of securities of issuers located
throughout the world. There are no prescribed limits on geographic asset
distribution, based upon the public market values in the world equity markets
and anticipated technological innovations. A majority of each Fund's assets will
be invested in the securities of issuers domiciled in the United States, Japan
and Western Europe. Western European countries include, among others, the United
Kingdom, Germany, The Netherlands, Switzerland, Sweden, France, Italy, Belgium,
Norway, Denmark, Finland, Portugal, Austria and Spain. Each Fund may restrict
the securities markets in which its assets will be invested and may increase the
proportion of assets invested in U.S. securities markets. As a result, when MLAM
believes it is in the best interests of the shareholders of either Fund, that
Fund may have few investments outside the United States.
Securities. Since Global Technology Fund will invest primarily in issuers
that are, and are expected to remain, leaders in their product or service
niches, it is expected that investment emphasis will be given to issuers having
large stock market capitalizations ($5 billion or more). It is contemplated,
however, that a portion of Global Technology Fund's assets will be invested in
issuers Global Technology Fund has identified as emerging leaders in their
industries that would be considered mid-cap issuers (capitalization between $1
and $5 billion) or small-cap issuers (capitalization below $1 billion).
Investments in issuers with lower market capitalization may involve special
risks. See "Risk Factors and Special Considerations--Investments in Technology."
There is no assurance that MLAM will be able to generate positive returns
for Global Technology Fund, especially in light of the inherently volatile
nature of the stock sector in which its assets are invested. While volatility
may create investment opportunities, it does entail risk and may result in a
high rate of portfolio turnover.
Each Fund's investment emphasis is on equity securities, primarily common
stocks and, to a lesser extent, securities convertible into common stocks,
rights to subscribe for common stock, and in the case of Global Technology Fund,
preferred stocks and other investments the return on which is determined by the
17
<PAGE> 21
performance of a common stock or a basket or index of common stocks. Under
normal conditions at least 65% of Global Technology Fund's assets will be
invested in equity securities of technology related issuers from at least three
different countries, including the United States. Technology Fund also invests
at least 65% of its total assets in technology companies under normal
conditions, but is not required to be diversified among different countries.
Because of the inherently volatile nature of stocks in the technology sector,
MLAM may be more likely to sell particular stocks and hold a large cash position
in Technology Fund than it would in a mutual fund that invests in stocks of
companies in a variety of other industries.
Temporary Investments. Global Technology Fund reserves the right, as a
temporary defensive measure, to hold in excess of 35% of its total assets in
cash or cash equivalents in U.S. dollars or foreign currencies and investment
grade, short-term securities including money market securities denominated in
U.S. dollars or foreign currencies ("Temporary Investments"), the issuers of
which may not be involved in technology. Under certain adverse investment
conditions, Global Technology Fund may restrict the markets in which its assets
will be invested and may increase the proportion of assets invested in Temporary
Investments. Investments made for defensive purposes will be maintained only
during periods in which MLAM determines that economic or financial conditions
are adverse for holding or being fully invested in equity securities. A portion
of the Global Technology Fund normally would be held in Temporary Investments in
anticipation of investment in equity securities or to provide for possible
redemptions. Technology Fund also 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 other types of securities, the issuers
of which may not be involved in technology, including non-convertible preferred
stocks and investment grade debt securities and government and money market
securities, in such proportions as, in the opinion of MLAM, prevailing market or
economic conditions warrant. In the case of Technology Fund, no limit is stated
as to the percentage of assets which may be invested in such Temporary
Investments.
Depositary Receipts. Both Global Technology Fund and Technology Fund may
invest in the securities of foreign issuers in the form of Depositary Receipts
or other securities convertible into securities of foreign issuers. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. American Depositary
Receipts ("ADRs") are receipts typically issued by an American bank or trust
company that evidence ownership of underlying securities issued by a foreign
corporation. European Depositary Receipts ("EDRs") are receipts issued in Europe
that evidence a similar ownership arrangement. Global Depositary Receipts
("GDRs") are receipts issued throughout the world that evidence a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
U.S. securities markets, and EDRs, in bearer form, are designed for use in
European securities markets. GDRs are tradable both in the U.S. and in Europe
and are designed for use throughout the world. Global Technology Fund may invest
in unsponsored Depositary Receipts. Technology Fund may invest in unsponsored
ADRs only. The issuers of unsponsored Depositary Receipts are not obligated to
disclose material information in the United States, and therefore, there may be
less information available regarding such issuers and there may not be a
correlation between such information and the market value of the Depositary
Receipts.
Warrants. Global Technology Fund may invest in warrants. Warrants do not
carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holders to purchase, and they do not
represent any rights in the assets of the issuer. In addition, warrants involve
the risk that the price of the security underlying the warrant may not exceed
the exercise price of the warrant and the warrant may expire without any value.
Convertible Securities. Each of the Funds may invest in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a particular
period of time at a specified price or formula. A convertible security entitles
the holder to receive interest generally paid or accrued on debt or the dividend
paid on preferred stock until the convertible security matures or is redeemed,
converted or exchanged. Convertible securities have several unique investment
characteristics such as (i) higher yields than common stocks, but lower yields
than comparable nonconvertible securities, (ii) a lesser degree of fluctuation
in value than the underlying stock since they have fixed-income characteristics
and (iii) the potential for capital appreciation if the market price of the
underlying common stock increases. A
18
<PAGE> 22
convertible security might be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by one of the Funds is called for redemption, the Fund
may be required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
Illiquid Securities. Global Technology Fund may invest up to 15% of its
net assets and Technology Fund may invest up to 15% of its total assets in
securities that lack an established secondary trading market or otherwise are
considered illiquid. Liquidity of a security relates to the ability to dispose
easily of the security and the price to be obtained upon disposition of the
security, which may be less than would be obtained for a comparable more liquid
security. Investment of a Fund's assets in illiquid securities may restrict the
ability of that Fund to dispose of its investments in a timely fashion and for a
fair price as well as its ability to take advantage of market opportunities.
Global Technology Fund may invest in securities of issuers that are sold in
private placement transactions between the issuers and their purchasers and that
are neither listed on an exchange nor traded in other established markets. In
many cases, privately placed securities will be subject to contractual or legal
restrictions on transfer.
Swap Agreements. Global Technology Fund is authorized to enter into equity
swap agreements, which are contracts in which one party agrees to make periodic
payments based on the change in market value of a specified equity security,
basket of equity securities or equity index in return for periodic payments
based on a fixed or variable interest rate or the change in market value of a
different equity security, basket of equity securities or equity index. For
example, swap agreements may be used to invest in a market without owning or
taking physical custody of securities in circumstances in which direct
investment is restricted for legal reasons or is otherwise impractical. The swap
agreement will be structured to provide for early termination in the event, for
example, that the Global Technology Fund desires to lock in appreciation.
Swap agreements entail the risk that a party will default on its payment
obligations to the Fund thereunder. Global Technology Fund will seek to lessen
the risk to some extent by entering into a transaction only with financial
institutions that have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million. Swap agreements
also bear the risk that Global Technology Fund will not be able to meet its
obligation to the counterparty. Global Technology Fund, however, will deposit in
a segregated account with its custodian liquid securities, cash or cash
equivalents or other assets permitted to be so segregated by the Commission in
an amount equal to or greater than the market value of the liabilities under the
swap agreement or the amount it would have cost Global Technology Fund initially
to make an equivalent direct investment, plus or minus any amount the Fund is
obligated to pay or is to receive under the swap agreement. The Fund will enter
into a swap transaction only if, immediately following the time Global
Technology Fund enters into the transaction, the aggregate notional principal
amount of swap transactions to which Global Technology Fund is a party would not
exceed 5% of Global Technology Fund's total assets.
Indexed and Inverse Securities. Global Technology Fund may invest in
securities the potential return of which is based on the change in particular
measurements of value or rate (an "index"). As an illustration, Global
Technology Fund may invest in a debt security that pays interest and returns
principal based on the change in the value of a securities index or a basket of
securities, or based on the relative changes of two indices. In addition, Global
Technology Fund may invest in securities the potential return on which is based
inversely on the change in an index. For example, Global Technology Fund may
invest in securities that pay a higher rate of interest when a particular index
decreases and pay a lower rate of interest (or do not fully return principal)
when the value of the index increases. If Global Technology Fund invests in such
securities, it may be subject to reduced or eliminated interest payments or loss
of principal in the event of an adverse movement in the relevant index or
indices.
Certain indexed and inverse securities may have the effect of providing
investment leverage because the rate of interest or amount of principal payable
increases or decreases at a rate that is a multiple of the changes in the
relevant index. As a consequence, the market value of such securities may be
substantially more volatile than the market values of other debt securities.
Global Technology Fund believes that indexed and inverse securities may provide
portfolio management flexibility that permits Global Technology Fund to seek
19
<PAGE> 23
enhanced returns, hedge other portfolio positions or vary the degree of
portfolio leverage with greater efficiency than would otherwise be possible
under certain market conditions.
Investment in Other Investment Companies. Global Technology Fund may
invest in other investment companies whose investment objectives and policies
are consistent with those of Global Technology Fund. In accordance with the
Investment Company Act, Global Technology Fund may invest up to 10% of its total
assets in securities of other investment companies. In addition, under the
Investment Company Act, Global Technology Fund may not own more than 3% of the
total outstanding voting stock of any investment company and not more than 5% of
the value of the Fund's total assets may be invested in the securities of any
investment company. If Global Technology Fund acquires shares in investment
companies, stockholders would bear both their proportionate share of expenses in
Global Technology Fund (including management and advisory fees) and, indirectly,
the expenses of such investment companies (including management and advisory
fees). Investments by Global Technology Fund in wholly owned investment entities
created under the laws of certain countries will not be deemed an investment in
other investment companies. Technology Fund is subject to a non-fundamental
restriction by which it may invest in other investment companies to the extent
permitted by applicable law, as described above.
OTHER INVESTMENT POLICIES
Both Global Technology Fund and Technology Fund have adopted certain other
investment policies as set forth below:
Borrowings. Global Technology Fund and Technology Fund are each subject to
a fundamental investment restriction, which provides that the Fund may borrow
from banks in amounts up to 33 1/3% of its total assets taken at market value
and may borrow an additional 5% of its total assets for temporary purposes. As a
non-fundamental restriction, each Fund is further limited and may not borrow
money or pledge its assets, except that either Fund may borrow from banks as a
temporary measure for extraordinary or emergency purposes or to meet
redemptions. See "Summary--Comparison of the Funds--Investment Policies."
Hedging Techniques. Both Global Technology Fund and Technology Fund may
engage in various portfolio strategies to hedge their respective portfolios
against investment, interest rate and currency risks. For a description of
hedging instruments and risks associated with investment in such instruments,
see the Appendix titled "Investment Practices Involving the Use of Options,
Futures and Foreign Exchange" in the Global Technology Fund Prospectus, and
"Investment Objective and Policies--Hedging Techniques" in the Technology Fund
Prospectus.
Standby Commitment Agreements. Global Technology Fund may from time to
time enter into standby commitment agreements. For a description of standby
commitment agreements and the risks associated with investment in such
agreements, see "Investment Objective and Policies--Other Investment Policies
and Practices" in the Global Technology Fund Prospectus.
Repurchase Agreements and Purchase and Sale Contracts. Global Technology
Fund may enter into repurchase agreements and purchase and sale contracts. For a
description of repurchase agreements and the risks associated with investment in
such agreements, see "Investment Objective and Policies--Other Investment
Policies and Practices" in the Global Technology Fund Prospectus.
When-Issued Securities and Delayed Delivery Transactions. Global
Technology Fund may purchase or sell securities on a delayed delivery basis or
on a when-issued basis at fixed purchase or sale terms. For a description of
when-issued securities and delayed delivery transactions, including the risks
associated with investment therein, see "Investment Objective and
Policies--Other Investment Policies and Practices" in the Global Technology Fund
Prospectus.
Lending of Portfolio Securities. Each Fund may from time to time lend
securities from its portfolio with a value not exceeding 10% of its total assets
in the case of Technology Fund, or 33 1/3% of total assets in the case of Global
Technology Fund, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government.
20
<PAGE> 24
INFORMATION REGARDING OPTIONS, FUTURES AND FOREIGN EXCHANGE TRANSACTIONS
Each Fund may engage in certain investment practices including the use of
options, futures and foreign exchange. Global Technology Fund may utilize these
strategies for hedging purposes, to enhance total return or to gain exposure to
equity markets. Technology Fund may engage in such transactions to hedge its
portfolio against investment, interest rate and currency risks. Each Fund 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. Each Fund may also deal in forward foreign exchange
transactions and foreign currency options and futures, and related options on
such futures.
The investment policies of each Fund with respect to futures and options
transactions are not fundamental policies and may be modified by the Board of
Directors of each Fund without the approval of the Fund's stockholders. Each
Fund is subject to the restrictions of the Commodity Futures Trading Commission
with respect to its investments in futures and options thereon.
For a detailed discussion of the Funds' investment policies regarding
futures and options, including the risks associated therewith, see the Appendix
titled "Investment Practices Involving the Use of Options, Futures and Foreign
Exchange," in the Global Technology Fund Prospectus and "Investment Objective
and Policies--Hedging Techniques" in the Technology Fund Prospectus.
INVESTMENT RESTRICTIONS
Other than as noted above under "Comparison of the Funds--Investment
Objectives and Policies," Global Technology Fund and Technology Fund have
identical investment restrictions. See "Investment Objective and
Policies--Investment Restrictions" in the Global Technology Fund Statement and
"Investment Objective and Policies--Investment Restrictions" in the Technology
Fund Statement.
MANAGEMENT
Directors. The Boards of Directors of Global Technology Fund and
Technology Fund consist of seven individuals, six of whom are not "interested
persons" as defined in the Investment Company Act. The same six individuals
serve on both Boards. After the Reorganization, the Board of Directors of Global
Technology Fund will serve as the Board of Directors of the Combined Fund. The
Directors are responsible for the overall supervision of the operation of each
Fund and perform the various duties imposed on the directors of investment
companies by the Investment Company Act.
The Directors of Global Technology Fund are:
ARTHUR ZEIKEL*--Chairman of MLAM and its affiliate, FAM; Chairman and
Director of Princeton Services, Inc. ("Princeton Services"); and Executive Vice
President of ML & Co.
DONALD CECIL--Special Limited Partner of Cumberland Associates (an
investment partnership).
ROLAND M. MACHOLD--Retired Director of the Division of Investment of the
State of New Jersey.
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.
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 by the Investment Company Act, of each of the
Funds.
21
<PAGE> 25
Management and Advisory Arrangements. MLAM serves as the manager for both
Global Technology Fund and Technology Fund pursuant to separate management
agreements (each, a "Management Agreement") that, except for their fee
structures and certain minor differences, are identical.
Pursuant to the Management Agreement between Global Technology Fund and
MLAM, Global Technology Fund pays MLAM a monthly fee at the annual rate of 1.00%
of the average daily net assets of the Fund not exceeding $1.0 billion and 0.95%
of the average daily net assets of the Fund in excess of $1.0 billion. After the
Reorganization, the Combined Fund will pay the management fee rate paid by
Global Technology Fund. Pursuant to the Management Agreement between Technology
Fund and MLAM, the Fund pays MLAM a monthly fee at the annual rate of 1.00% of
the average daily net assets of the Fund.
MLAM has retained MLAM U.K. as sub-adviser to each of Technology Fund and
Global Technology Fund. Pursuant to a separate sub-advisory agreement between
MLAM and MLAM U.K. with respect to each Fund, MLAM pays MLAM U.K. a fee for
providing investment advisory services to MLAM with respect to each Fund, in an
amount to be determined from time to time by MLAM and MLAM U.K. but in no event
in excess of the amount MLAM actually receives for providing services to each
Fund pursuant to each Management Agreement. The address of MLAM U.K. is Milton
Gate, 1 Moor Lane, London EC2Y 9HA, England.
After the Reorganization, on a pro forma combined basis, the total
operating expenses of Global Technology Fund, as a percent of net assets, would
be less than the current operating expenses of Technology Fund. In addition,
certain fixed costs, such as costs of printing stockholder reports and proxy
statements, legal expenses, audit fees, registration fees, mailing costs and
other expenses would be spread across a larger asset base, thereby lowering the
expense ratio borne by Technology Fund stockholders. The Board of Directors of
each of the Funds has determined that the Reorganization would be potentially
beneficial to that Fund and the Fund's stockholders. See "The
Reorganization--Potential Benefits to Stockholders as a Result of the
Reorganization" and "Summary--Pro Forma Fee Tables."
PURCHASE OF SHARES
The class structure and purchase and distribution procedures for shares of
Technology Fund are substantially the same as those of Global Technology Fund.
For a complete discussion of the four classes of shares and the purchase and
distribution procedures related thereto, see "Merrill Lynch Select Pricing(SM)
System" and "Purchase of Shares" in either the Global Technology Fund Prospectus
or the Technology Fund Prospectus.
REDEMPTION OF SHARES
The procedure for redeeming shares of Global Technology Fund is
substantially the same as the procedure for redeeming shares of Technology Fund.
For purposes of computing any CDSC that may be payable upon disposition of
Corresponding Shares of Global Technology Fund acquired by Technology Fund
stockholders in the Reorganization, the holding period of Technology Fund shares
outstanding on the date the Reorganization takes place will be tacked onto the
holding period of the Corresponding Shares of Global Technology Fund acquired in
the Reorganization. See "Redemption of Shares" in either the Global Technology
Fund Prospectus or the Technology Fund Prospectus.
PERFORMANCE
General. The following tables provide performance information for each
class of shares of Technology Fund and Global Technology Fund, including and
excluding maximum applicable sales charges, for the periods indicated. Past
performance is not indicative of future performance.
22
<PAGE> 26
GLOBAL TECHNOLOGY FUND
AGGREGATE TOTAL RETURN
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS D SHARES
---------------------- ---------------------- ---------------------- ----------------------
WITHOUT WITHOUT WITHOUT WITHOUT
SALES WITH SALES SALES WITH SALES SALES WITH SALES SALES WITH SALES
PERIOD CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%)
------ --------- ---------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception through 8/31/98+ (22.50) (26.57) (22.60) (25.70) (22.60) (23.37) (22.50) (26.57)
</TABLE>
- ---------------
* Assumes the maximum applicable sales charge. The maximum initial sales charge
on Class A and Class D shares is 5.25%. The maximum contingent deferred sales
charge ("CDSC") on Class B shares is 4.0% and is reduced to 0% after four
years. Class C shares are subject to a 1.0% CDSC for one year.
+ Figures are since inception (June 26, 1998).
TECHNOLOGY FUND
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS D SHARES
---------------------- ---------------------- ---------------------- ----------------------
WITHOUT WITHOUT WITHOUT WITHOUT
SALES WITH SALES SALES WITH SALES SALES WITH SALES SALES WITH SALES
PERIOD CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%)
------ --------- ---------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 months ended 8/31/98+ (25.53) (29.44) (25.86) (28.83) (25.81) (26.55) (25.65) (29.55)
Year Ended 3/31/98 3.96 (1.50) 3.09 (0.06) 2.87 2.08 3.90 (1.55)
Five Years Ended 3/31/98 11.82 10.62 10.68 10.08 -- -- -- --
Inception** through 3/31/98 16.60 15.34 15.41 15.41 2.22 2.22 3.68 1.48
</TABLE>
- ---------------
* Assumes the maximum applicable sales charge. The maximum initial sales charge
on Class A and Class D shares is 5.25%. The maximum CDSC on Class B shares is
4.0% and is reduced to 0% after four years. Class C shares are subject to a
1.0% CDSC for one year.
** Class A and Class B shares commenced operations on April 27, 1992. Class C
and Class D shares commenced operations on October 21, 1994.
+ Aggregate total returns.
STOCKHOLDER RIGHTS
Stockholders of Global Technology Fund 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 stockholder vote.
Global Technology Fund does not intend to hold meetings of stockholders in any
year in which the Investment Company Act does not require stockholders to act
upon any of the following matters: (i) election of Directors; (ii) approval of
an investment advisory agreement; (iii) approval of distribution arrangements;
and (iv) ratification of selection of independent accountants. Voting rights for
Directors are not cumulative. Shares of Global Technology Fund to be issued to
Technology Fund stockholders in the Reorganization will be fully paid and
non-assessable, will have no preemptive rights and will have the conversion
rights described in this Prospectus and Proxy Statement and in the Global
Technology Fund Prospectus. Each share of Global Technology Fund common stock is
entitled to participate equally in dividends and distributions declared by the
Fund and in the net assets of the Fund on liquidation or dissolution after
satisfaction of outstanding liabilities, except that Class B, Class C and Class
D shares bear certain additional expenses. Rights attributable to shares of
Technology Fund are substantially identical to those described above.
DIVIDENDS AND DISTRIBUTIONS
The current policy of Technology Fund with respect to dividends and
distributions is substantially identical to the policy of Global Technology
Fund. It is each Fund's intention to distribute all of its net investment
income, if any. In addition, each Fund distributes all net realized capital
gains, if any, to stockholders at least annually.
23
<PAGE> 27
TAX INFORMATION
The tax consequences associated with investment in shares of Technology
Fund are substantially identical to the tax consequences associated with
investment in shares of Global Technology Fund. See "Taxes" in the Global
Technology Fund Prospectus.
PORTFOLIO TRANSACTIONS
The procedures for engaging in portfolio transactions are generally the
same for both Technology Fund and Global Technology Fund. For a discussion of
these procedures, see "Investment Objective and Policies--Other Investment
Policies and Practices" in the Global Technology Fund Prospectus and "Portfolio
Transactions and Brokerage" in the Global Technology Fund Statement.
Each Fund may effect portfolio transactions on foreign securities exchanges
and may incur settlement delays on certain of such exchanges. In addition, costs
associated with transactions in foreign securities are generally higher than
such costs associated with transactions in U.S. securities.
PORTFOLIO TURNOVER
Generally, neither Technology Fund nor Global Technology Fund purchases
securities for short-term trading profits. However, either Fund may dispose of
securities without regard to the time that they have been held when such action,
for defensive or other reasons, appears advisable to MLAM. Neither Fund has any
limit on its rate of portfolio turnover. The portfolio turnover rates for
Technology Fund for its fiscal years ended March 31, 1996, 1997 and 1998 were
108.36%, 176.51% and 206.40% respectively. The portfolio turnover rate for
Global Technology Fund for the period June 26, 1998 (commencement of operations)
to September 30, 1998 was %. Higher portfolio turnover may contribute
to higher transactional costs and negative tax consequences, such as an increase
in capital gain dividends or in ordinary income dividends of accrued market
discount.
ADDITIONAL INFORMATION
Net Asset Value. Both Global Technology Fund and Technology Fund determine
net asset value of each class of its shares once daily 15 minutes after the
close of business on the NYSE (generally, 4:00 p.m. New York time), on each day
during which the NYSE is open for trading. Net asset value is computed by
dividing the market value of the securities held by the Fund plus any cash or
other assets (including interest and dividends accrued but not yet received)
minus all liabilities (including accrued expenses) by the total number of shares
outstanding at such time.
Stockholder Services. Global Technology Fund offers a number of
stockholder services and investment plans designed to facilitate investment in
shares of the Fund. In addition, U.S. stockholders of each class of shares of
Global Technology Fund have an exchange privilege with certain other
MLAM-advised mutual funds. Stockholder services, including exchange privileges,
available to stockholders of Technology Fund and Global Technology Fund are
substantially identical. For a description of these services, see "Stockholder
Services" in the Global Technology Fund Prospectus.
Custodian. Brown Brothers Harriman & Co. ("Brown Brothers") acts as
custodian of the cash and securities of Global Technology Fund. The principal
business address of Brown Brothers is 40 Water Street, Boston, MA 02109. The
Chase Manhattan Bank ("Chase") acts as custodian for Technology Fund. Chase's
principal business address is 4 Chase MetroTech Center, Brooklyn, New York
11245. It is presently anticipated that Brown Brothers will serve as the
custodian of the Combined Fund.
Transfer Agent, Dividend Disbursing Agent and Shareholder Servicing
Agent. Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, serves as the transfer agent, dividend disbursing agent and
shareholder servicing agent with respect to each Fund (the "Transfer Agent"), at
the same fee schedule, pursuant to separate transfer agency, dividend disbursing
and service agreements with each of the Funds.
24
<PAGE> 28
Capital Stock. Technology Fund has an authorized capital of 800,000,000
shares of common stock, par value $.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D common stock. Class A and Class
C each consists of 100,000,000 shares and Class B and Class D each consists of
300,000,000 shares. Global Technology Fund has an authorized capital of
500,000,000 shares of common stock, par value $0.10 per share, divided into four
classes, also designated Class A, Class B, Class C and Class D common stock.
Class A, Class C and Class D each consists of 100,000,000 shares and Class B
consists of 200,000,000 shares. The rights, preferences and expenses
attributable to the Class A, Class B, Class C and Class D shares of Technology
Fund are identical in all respects to those of the Class A, Class B, Class C and
Class D shares of Global Technology Fund.
Stockholder Inquiries. Stockholder inquiries with respect to Technology
Fund and Global Technology Fund may be addressed to either Fund by telephone at
(609) 282-2800 or at the address set forth on the cover page of this Proxy
Statement and Prospectus.
THE REORGANIZATION
GENERAL
Under the Agreement and Plan of Reorganization (attached hereto as Exhibit
I), Global Technology Fund will acquire substantially all of the assets, and
will assume substantially all of the liabilities, of Technology Fund, in
exchange solely for an equal aggregate value of shares to be issued by Global
Technology Fund. Upon receipt by Technology Fund of such shares, Technology Fund
will distribute the shares to the holders of shares of Technology Fund, as
described below.
Generally, the assets transferred by Technology Fund to Global Technology
Fund will equal all investments of Technology Fund held in its portfolio as of
the Valuation Time (as defined in the Agreement and Plan of Reorganization) and
all other assets of Technology Fund as of such time.
Technology Fund will distribute the shares of Global Technology Fund
received by it pro rata to its stockholders in exchange for such stockholders'
proportional interests in Technology Fund. The shares of Global Technology Fund
received by Technology Fund stockholders will be of the same class and have the
same aggregate net asset value as each such stockholder's interest in Technology
Fund as of the Valuation Time (previously defined as the "Corresponding
Shares"). (See "The Agreement and Plan of Reorganization--Valuation of Assets
and Liabilities" for information concerning the calculation of net asset value.)
The distribution will be accomplished by opening new accounts on the books of
Global Technology Fund in the names of all stockholders of Technology Fund,
including stockholders holding Technology Fund shares in certificate form, and
transferring to each stockholder's account the Corresponding Shares of Global
Technology Fund representing such stockholder's interest previously credited to
the account of Technology Fund. Stockholders holding Technology Fund shares in
certificate form may receive certificates representing the Corresponding Shares
of Global Technology Fund credited to their account in respect of such
Technology Fund shares by sending the certificates to the Transfer Agent
accompanied by a written request for such exchange.
Since the Corresponding Shares of Global Technology Fund would be issued at
net asset value in exchange for the net assets of Technology Fund having a value
equal to the aggregate net asset value of those shares of Technology Fund, the
net asset value per share of Global Technology Fund should remain virtually
unchanged solely as a result of the Reorganization. Thus, the Reorganization
should result in virtually no dilution of net asset value of Global Technology
Fund immediately following consummation of the Reorganization. However, as a
result of the Reorganization, a stockholder of Technology Fund likely would hold
a smaller percentage of ownership in Global Technology Fund than he or she did
in Technology Fund prior to the Reorganization.
25
<PAGE> 29
PROCEDURE
On October 21, 1998, the Board of Directors of Technology Fund, including
all of the Directors who are not "interested persons," as defined by the
Investment Company Act, approved the Agreement and Plan of Reorganization and
the submission of such Agreement and Plan to Technology Fund stockholders for
approval. The Board of Directors of Global Technology Fund, including all of the
Directors who are not interested persons, also approved the Agreement and Plan
of Reorganization on October 21, 1998.
If the stockholders of Technology Fund approve the Reorganization at the
Meeting, all required regulatory approvals are obtained and certain conditions
are either met or waived, it is presently anticipated that the Reorganization
will take place during the first calendar quarter of 1999.
THE BOARD OF DIRECTORS OF TECHNOLOGY FUND RECOMMENDS THAT TECHNOLOGY FUND
STOCKHOLDERS APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION.
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
The following is a summary of the significant terms of the Agreement and
Plan of Reorganization. This summary is qualified in its entirety by reference
to the Agreement and Plan of Reorganization, attached hereto as Exhibit I.
Valuation of Assets and Liabilities. The respective assets of Technology
Fund and Global Technology Fund will be valued as of the Valuation Time. The
assets in each Fund will be valued according to the procedures set forth under
"Additional Information--Determination of Net Asset Value" in the Global
Technology Fund Prospectus. Purchase orders for Technology Fund shares which
have not been confirmed as of the Valuation Time will be treated as assets of
Technology Fund for purposes of the Reorganization; redemption requests with
respect to Technology Fund shares which have not settled as of the Valuation
Time will be treated as liabilities of Technology Fund for purposes of the
Reorganization.
Distribution of Global Technology Fund Shares. On the next full business
day following the Valuation Time (the "Exchange Date"), Global Technology Fund
will issue to Technology Fund a number of shares the aggregate net asset value
of which will equal the aggregate net asset value of shares of Technology Fund
as of the Valuation Time. Each holder of Technology Fund shares will receive, in
exchange for his or her proportionate interest in Technology Fund, Corresponding
Shares of Global Technology Fund of the same class and having the same aggregate
net asset value as the Technology Fund shares held by such stockholder as of the
Valuation Time.
Expenses. The expenses of the Reorganization that are directly
attributable to each Fund and the conduct of its business will be deducted from
the assets of that Fund as of the Valuation Time. These expenses are expected to
include the expenses incurred in preparing materials to be distributed to each
Fund's board, legal fees incurred in preparing each Fund's board materials,
attending each Fund's board meetings and preparing the minutes, and accounting
fees associated with each Fund's financial statements. The expenses of the
Reorganization that are attributable to the transaction itself, including
expenses in connection with obtaining the IRS private letter ruling, will be
borne pro rata by each Fund according to its net assets as of the Valuation
Time. These expenses are expected to include expenses incurred in connection
with the preparation of the Agreement and Plan of Reorganization and the
Registration Statement on Form N-14 (including the Prospectus and Proxy
Statement), Commission and other filing fees and legal and audit fees in
connection with the Reorganization.
Required Approvals. Under Technology Fund's Articles of Incorporation (as
amended to date) and relevant Maryland law, stockholder approval of the
Agreement and Plan of Reorganization requires the affirmative vote of Technology
Fund stockholders representing a majority of the total number of votes entitled
to be cast thereon.
Deregistration and Dissolution. Following the transfer of the assets and
liabilities of Technology Fund to Global Technology Fund and the distribution of
Corresponding Shares of Global Technology Fund to
26
<PAGE> 30
Technology Fund stockholders, Technology Fund will terminate its registration
under the Investment Company Act and its incorporation under Maryland law and
will withdraw its authority to do business in any state where it is required to
do so.
Amendments and Conditions. The Agreement and Plan of Reorganization may be
amended at any time prior to the Exchange Date with respect to any of the terms
therein. The obligations of Technology Fund and Global Technology Fund pursuant
to the Agreement and Plan of Reorganization are subject to various conditions,
including a registration statement on Form N-14 being declared effective by the
Commission, approval of the Reorganization by Technology Fund stockholders, a
favorable IRS ruling or an opinion of counsel being received as to tax matters,
an opinion of counsel being received as to securities matters and the continuing
accuracy of various representations and warranties of Technology Fund and Global
Technology Fund being confirmed by the respective parties.
Termination, Postponement and Waivers. The Agreement and Plan of
Reorganization may be terminated, and the Reorganization abandoned at any time,
whether before or after adoption thereof by the Technology Fund stockholders,
prior to the Exchange Date, or the Exchange Date may be postponed: (i) by mutual
consent of the Boards of Directors of Technology Fund and Global Technology
Fund; (ii) by the Board of Directors of Technology Fund if any condition to
Technology Fund's obligations has not been fulfilled or waived by such Board; or
(iii) by the Board of Directors of Global Technology Fund if any condition to
Global Technology Fund's obligations has not been fulfilled or waived by such
Board.
POTENTIAL BENEFITS TO STOCKHOLDERS AS A RESULT OF THE REORGANIZATION
MLAM and the Board of Directors of Technology Fund have identified certain
potential benefits to stockholders that are likely to result from the
Reorganization. First, following the Reorganization, Technology Fund
stockholders will remain invested in an open-end fund that has an investment
objective substantially identical to that of Technology Fund. In addition,
Technology Fund stockholders are likely to experience certain additional
benefits, including lower expenses per share, economies of scale and greater
flexibility in portfolio management.
Specifically, as described above under "Comparison of the
Funds--Management--Management and Advisory Fees," after the Reorganization, on a
pro forma basis, the total operating expenses of Global Technology Fund, as a
percent of net assets, would be less than the current operating expenses for
Technology Fund. See "Summary--Pro Forma Fee Tables." In addition, certain fixed
costs, such as costs of printing stockholder reports and proxy statements, legal
expenses, audit fees, registration fees, mailing costs and other expenses would
be spread across a larger asset base, thereby lowering the expense ratio borne
by Technology Fund stockholders. To illustrate the potential economies of scale
for Technology Fund, on August 31, 1998, the total operating expense ratio for
Technology Fund Class A shares was 1.64% (based on total fund net assets of
approximately $319.3 million) and the total operating expense ratio for Global
Technology Fund Class A shares was 1.37% (based on total fund net assets of
approximately $417.4 million). If the Reorganization had taken place on that
date, the total operating expense ratio for Global Technology Fund Class A
shares on a pro forma basis would have been 1.35% (based on total fund net
assets of approximately $736.7 million).
The following table sets forth (i) the net assets of Technology Fund for
the last three fiscal year ends and as of August 31, 1998 and (ii) the net
assets of Global Technology Fund as of June 30, 1998 and as of August 31, 1998.
<TABLE>
<CAPTION>
GLOBAL TECHNOLOGY FUND TECHNOLOGY FUND
- ---------------------------- ---------------------------
PERIOD NET ASSETS PERIOD NET ASSETS
- -------------- ------------ ------------- ------------
<S> <C> <C> <C>
As of 6/30/98* $439,392,080 As of 3/31/96 $875,675,953
As of 8/31/98 $417,369,018 As of 3/31/97 $652,135,210
As of 3/31/98 $546,772,119
As of 8/31/98 $319,272,328
</TABLE>
- ---------------
* Global Technology Fund commenced operations on June 26, 1998.
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<PAGE> 31
The net assets of Technology Fund as of August 31, 1998 are below the level
reached at fiscal year end March 31, 1996 and have been steadily decreasing
since that date. MLAM believes that the economies of scale that may be realized
as a result of the Reorganization would be beneficial to Technology Fund
stockholders.
Based on the foregoing, the Board of Directors of Technology Fund concluded
that the Reorganization presents no significant risks or costs (including legal,
accounting and administrative costs) that would outweigh the benefits discussed
above. In approving the Reorganization, the Board of Directors of each Fund
determined that the interests of existing stockholders of that Fund would not be
diluted as a result of the Reorganization.
TAX CONSEQUENCES OF THE REORGANIZATION
General. The Reorganization has been structured with the intention that it
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. Technology Fund and Global Technology Fund
have elected and qualified for the special tax treatment afforded "regulated
investment companies" under the Code, and Global Technology Fund intends to
continue to so qualify after the Reorganization. Technology Fund and Global
Technology Fund have jointly requested a private letter ruling from the IRS to
the effect that for Federal income tax purposes: (i) the Reorganization, as
described, will constitute a reorganization within the meaning of Section
368(a)(1)(C) of the Code and Technology Fund and Global Technology Fund will
each be deemed a "party" to the Reorganization within the meaning of Section
368(b); (ii) in accordance with Section 354(a)(1) of the Code, no gain or loss
will be recognized by the stockholders of Technology Fund upon the receipt of
Corresponding Shares of Global Technology Fund in the Reorganization solely in
exchange for their shares of Technology Fund; (iii) in accordance with Section
358 of the Code, immediately after the Reorganization, the tax basis of the
Corresponding Shares of Global Technology Fund received by the stockholders of
Technology Fund in the Reorganization will be equal, in the aggregate, to the
tax basis of the shares of Technology Fund surrendered in exchange; (iv) in
accordance with Section 1223 of the Code, the holding period of the
Corresponding Shares of Global Technology Fund received by stockholders of
Technology Fund in the Reorganization will include the holding period of the
shares of Technology Fund immediately prior to the liquidation of Technology
Fund (provided that at the time of the Reorganization the shares of Technology
Fund were held as capital assets); (v) in accordance with Section 361(a) of the
Code, no gain or loss will be recognized by Technology Fund on the asset
transfer solely in exchange for Global Technology Fund shares or on the
distribution of Global Technology Fund shares to Technology Fund stockholders
under Section 361(c)(1); (vi) under Section 1032 of the Code, no gain or loss
will be recognized by Global Technology Fund on the exchange of its shares for
Technology Fund assets; (vii) in accordance with Section 362(b) of the Code, the
tax basis of the assets of Technology Fund in the hands of Global Technology
Fund will be the same as the tax basis of such assets in the hands of Technology
Fund immediately prior to the Reorganization; (viii) in accordance with Section
1223 of the Code, the holding period of the transferred assets in the hands of
Global Technology Fund will include the holding period of such assets in the
hands of Technology Fund; and (ix) the taxable year of Technology Fund will end
on the effective date of the Reorganization and pursuant to Section 381(a) of
the Code and regulations thereunder, Global Technology Fund will succeed to and
take into account certain tax attributes of Technology Fund, such as earnings
and profits, capital loss carryovers and method of accounting. If the IRS does
not issue a favorable private letter ruling in advance of the selected closing
date, the Funds may proceed with the closing of the Reorganization upon receipt
of an opinion of counsel regarding the tax matters covered by the ruling
request.
Technology Fund has significant net realized capital losses. After the
Reorganization, Global Technology Fund shareholders will benefit from the
ability of Global Technology Fund to offset these capital losses against any
realized capital gains. Conversely, the benefit of these losses to Technology
Fund shareholders will be diluted. Stockholders should consult their tax
advisers regarding the effect of the Reorganization in light of their individual
circumstances. As the foregoing relates only to Federal income tax consequences,
stockholders also should consult their tax advisers as to the foreign, state and
local tax consequences of the Reorganization.
Status as a Regulated Investment Company. Both Technology Fund and Global
Technology Fund have elected and qualified to be taxed as regulated investment
companies under Sections 851-855 of the Code, and after the Reorganization,
Global Technology Fund intends to continue to operate so as to qualify as a
28
<PAGE> 32
regulated investment company. Following the liquidation and dissolution of
Technology Fund and distribution of shares of Global Technology Fund to
Technology Fund stockholders, Technology Fund will terminate its registration
under the Investment Company Act and its incorporation under Maryland law.
CAPITALIZATION
The following table sets forth as of August 31, 1998: (i) the
capitalization of Technology Fund, (ii) the capitalization of Global Technology
Fund and (iii) the pro forma capitalization of the Combined Fund as adjusted to
give effect to the Reorganization.
PRO FORMA CAPITALIZATION OF GLOBAL TECHNOLOGY FUND, TECHNOLOGY FUND AND
COMBINED FUND AS OF AUGUST 31, 1998
GLOBAL TECHNOLOGY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total Net Assets: $ 16,526,682 $279,044,846 $67,046,929 $54,750,561
Shares Outstanding: 2,131,417 36,056,599 8,663,448 7,064,150
Net Asset Value Per Share: $ 7.75 $ 7.74 $ 7.74 $ 7.75
</TABLE>
TECHNOLOGY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total Net Assets: $137,142,176 $153,020,320 $ 8,034,393 $21,075,440
Shares Outstanding: 43,141,345 50,885,197 2,690,479 6,672,849
Net Asset Value Per Share: $ 3.18 $ 3.01 $ 2.99 $ 3.16
</TABLE>
COMBINED FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total Net Assets:* $153,668,858 $432,065,166 $75,081,322 $75,826,001
Shares Outstanding: 19,828,240 55,822,373 9,700,429 9,784,000
Net Asset Value Per Share:* $ 7.75 $ 7.74 $ 7.74 $ 7.75
</TABLE>
- ---------------
* Total Net Assets and Net Asset Value Per Share include the aggregate value of
Technology Fund's net assets which would have been transferred to Global
Technology Fund had the Reorganization been consummated on August 31, 1998.
The data does not take into account expenses incurred in connection with the
Reorganization or the actual number of shares that would have been issued. No
assurance can be given as to how many shares of Global Technology Fund the
Technology Fund stockholders will receive on the date the Reorganization takes
place, and the foregoing should not be relied upon to reflect the number of
shares of Global Technology Fund that actually will be received on or after
such date.
29
<PAGE> 33
INFORMATION CONCERNING THE SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING
The Meeting will be held on January 12, 1999, at the offices of Merrill
Lynch Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey at
9:00 a.m., New York time.
SOLICITATION, REVOCATION AND USE OF PROXIES
A stockholder executing and returning a proxy has the power to revoke it at
any time prior to its exercise by executing a superseding proxy or by submitting
a notice of revocation to the Secretary of Technology Fund. Although mere
attendance at the Meeting will not revoke a proxy, a stockholder present at the
Meeting may withdraw his proxy and vote in person.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated on a properly
executed proxy, such shares will be voted "FOR" approval of the Agreement and
Plan of Reorganization.
It is not anticipated that any matters other than the adoption of the
Agreement and Plan of Reorganization will be brought before the Meeting. If,
however, any other business properly is brought before the Meeting, proxies will
be voted in accordance with the judgment of the persons designated on such
proxies.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of shares of Technology Fund at the close of
business on November 18, 1998 (the "Record Date") are entitled to vote at the
Meeting or any adjournment thereof. At the close of business on the Record Date,
there were [ ] shares of Technology Fund common stock issued and
outstanding and entitled to vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF TECHNOLOGY
FUND
AND GLOBAL TECHNOLOGY FUND
To the knowledge of Technology Fund, as of the Record Date, no person or
entity owned beneficially or of record 5% or more of any class of shares of
Technology Fund or of all classes of Technology Fund shares in the aggregate.
At the Record Date, the Directors and officers of Technology Fund as a
group (13 persons) owned an aggregate of less than 1% of the outstanding shares
of Technology Fund and owned an aggregate of less than 1% of the outstanding
shares of common stock of ML & Co.
To the knowledge of Global Technology Fund, as of the Record Date, no
person or entity owned beneficially or of record 5% or more of any class of
shares of Global Technology Fund or of all classes of Global Technology Fund
shares in the aggregate.
At the Record Date, the Directors and officers of Global Technology Fund as
a group (13 persons) owned an aggregate of less than 1% of the outstanding
shares of Global Technology Fund and owned less than 1% of the outstanding
shares of common stock of ML & Co.
VOTING RIGHTS AND REQUIRED VOTE
For purposes of this Proxy Statement and Prospectus, each share of each
class of Technology Fund is entitled to one vote. Approval of the Agreement and
Plan of Reorganization requires the affirmative vote of Technology Fund
stockholders representing a majority of the total votes entitled to be cast
thereon, with all shares voting as a single class.
Under Maryland law, stockholders of a registered open-end investment
company such as Technology Fund are not entitled to demand the fair value of
their shares upon a transfer of assets and will be bound by the
30
<PAGE> 34
terms of the Reorganization if approved at the Meeting. However, any stockholder
of Technology Fund may redeem his or her Technology Fund shares prior to the
Reorganization.
A quorum for purposes of the Meeting consists of a majority of the shares
entitled to vote at the Meeting, present in person or by proxy. If, by the time
scheduled for the Meeting, a quorum of Technology Fund's stockholders is not
present or if a quorum is present but sufficient votes in favor of the Agreement
and Plan of Reorganization are not received from the stockholders of Technology
Fund, the persons named as proxies may propose one or more adjournments of the
Meeting to permit further solicitation of proxies from stockholders. Any such
adjournment will require the affirmative vote of a majority of the shares of
Technology Fund present in person or by proxy and entitled to vote at the
session of the Meeting to be adjourned. The persons named as proxies will vote
in favor of any such adjournment if they determine that adjournment and
additional solicitation are reasonable and in the interests of the stockholders
of Technology Fund.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form of
proxy, the accompanying Notice and this Proxy Statement and Prospectus will be
borne by Global Technology Fund and Technology Fund pro rata according to the
aggregate net assets of each Fund's portfolio at the Valuation Time. Such
expenses are currently estimated to be $375,000.
Technology Fund will reimburse banks, brokers and others for their
reasonable expenses in forwarding proxy solicitation materials to the beneficial
owners of shares of Technology Fund and will reimburse certain persons that
Technology Fund may employ for their reasonable expenses in assisting in the
solicitation of proxies from such beneficial owners of shares of Technology
Fund.
In order to obtain the necessary quorum at the Meeting, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of Technology Fund. Technology Fund also may hire proxy solicitors at
its expense. Technology Fund has retained [name], [an affiliate of ML & Co.],
with offices at [ ] to aid in the solicitation of proxies at a cost to
be borne by Technology Fund of approximately $[ ], plus out-of-pocket
expenses.
Broker-dealer firms, including Merrill Lynch, holding shares of Technology
Fund in "street name" for the benefit of their customers and clients will
request the instructions of such customers and clients on how to vote their
shares before the Meeting. Broker-dealer firms, including Merrill Lynch, will
not be permitted to vote without instructions with respect to the approval of
the Agreement and Plan of Reorganization. Properly executed proxies that are
returned but that are marked "abstain" or with respect to which a broker-dealer
has received no instructions and therefore has declined to vote on the proposal
("broker non-votes") will be counted as present for the purposes of determining
a quorum. However, abstentions and broker non-votes will have the same effect as
a vote against approval of the Agreement and Plan of Reorganization.
This Proxy Statement and Prospectus does not contain all of the information
set forth in the registration statements and the exhibits relating thereto which
Technology Fund and Global Technology Fund, respectively, have filed with the
Commission under the Securities Act and the Investment Company Act, to which
reference is hereby made.
Technology Fund and Global Technology Fund both file reports and other
information with the Commission. Reports, proxy statements, registration
statements and other information filed by Technology Fund and Global Technology
Fund can be inspected and copied at the public reference facilities of the
Commission in Washington, D.C. and at the New York Regional Office of the
Commission at Seven World Trade Center, New York, New York 10048. Copies of such
materials also can be obtained by mail from the Public Reference Branch, Office
of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates. The Commission
maintains a web site (http://www.sec.gov) that contains the Statement of
Additional Information, the Global Technology Fund Prospectus, the Technology
Fund Prospectus, the Global Technology Fund Statement, the Technology Fund
Statement, other material incorporated by reference and other information
regarding the Funds.
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<PAGE> 35
LEGAL PROCEEDINGS
There are no material legal proceedings to which Technology Fund or Global
Technology Fund is a party.
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be passed
upon for Technology Fund and Global Technology Fund by Brown & Wood LLP, One
World Trade Center, New York, New York 10048.
EXPERTS
The financial highlights of Technology Fund included in this Proxy
Statement and Prospectus have been so included in reliance on the report of
Deloitte & Touche LLP ("D&T"), independent auditors, given on their authority as
experts in auditing and accounting. The principal business address of D&T is 117
Campus Drive, Princeton, New Jersey 08540. D&T are also the independent auditors
for Global Technology Fund. D&T will serve as the independent auditors for the
Combined Fund after the Reorganization.
STOCKHOLDER PROPOSALS
A stockholder proposal intended to be presented at any subsequent meeting
of stockholders of Technology Fund must be received by Technology Fund in a
reasonable time before Technology Fund begins to print and mail the proxy
solicitation materials to be utilized in connection with such meeting in order
to be considered in Technology Fund's proxy statement and form of proxy relating
to the meeting.
By Order of the Board of Directors,
Philip M. Mandel
Secretary, Merrill Lynch Technology
Fund, Inc.
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<PAGE> 36
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the day of , 1998, by and between Merrill Lynch Global
Technology Fund, Inc., a Maryland corporation ("Global Technology"), and Merrill
Lynch Technology Fund, Inc., a Maryland corporation ("Technology").
PLAN OF REORGANIZATION
The reorganization will comprise the acquisition by Global Technology of
substantially all of the assets, and the assumption of substantially all of the
liabilities, of Technology in exchange solely for an equal aggregate value of
newly issued shares of Global Technology's common stock, with a par value of
$.10 per share, and the subsequent distribution of Corresponding Shares (defined
below) of Global Technology to the stockholders of Technology in exchange for
their shares of common stock of Technology, each with a par value of $.10 per
share, in liquidation of Technology, all upon and subject to the terms
hereinafter set forth (the "Reorganization").
In the course of the Reorganization, shares of Global Technology will be
distributed to Technology stockholders as follows: each holder of Technology
shares will be entitled to receive that class of shares of Global Technology
having the same letter designation (e.g., Class A, Class B, Class C or Class D),
and the same distribution fees, account maintenance fees and sales charges
(including contingent deferred sales charges), if any ("Corresponding Shares"),
as the shares of Technology owned by such stockholder on the Exchange Date (as
defined in Section 7 of this Agreement). The aggregate net asset value of the
Corresponding Shares of Global Technology to be received by each stockholder of
Technology will equal the aggregate net asset value of the Technology shares
owned by such stockholder on the Exchange Date. In consideration therefor, on
the Exchange Date, Global Technology shall acquire substantially all of
Technology's assets and assume substantially all of Technology's obligations and
liabilities then existing, whether absolute, accrued, contingent or otherwise.
It is intended that the Reorganization described in this Plan shall be a
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"), and any successor provision.
As promptly as practicable after the consummation of the Reorganization,
Technology shall be dissolved in accordance with the laws of the State of
Maryland and will terminate its registration under the Investment Company Act of
1940, as amended (the "1940 Act").
AGREEMENT
In order to consummate the Reorganization and in consideration of the
promises and the covenants and agreements hereinafter set forth, and intending
to be legally bound, Global Technology and Technology hereby agree as follows:
1. Representations and Warranties of Global Technology.
Global Technology represents and warrants to, and agrees with, Technology
that:
(a) Global Technology is a corporation duly organized, validly existing and
in good standing in conformity with the laws of the State of Maryland, and has
the power to own all of its assets and to carry out this Agreement. Global
Technology has all necessary Federal, state and local authorizations to carry on
its business as it is now being conducted and to carry out this Agreement.
(b) Global Technology is duly registered under the 1940 Act as a
diversified, open-end management investment company (File No. 811-8721), and
such registration has not been revoked or rescinded and is in full force and
effect. Global Technology has elected and qualified for the special tax
treatment afforded regulated investment companies ("RICs") under Sections
851-855 of the Code at all times since its inception and intends to continue to
so qualify until consummation of the Reorganization and thereafter.
<PAGE> 37
(c) Technology has been furnished with an unaudited statement of assets and
liabilities and an unaudited schedule of investments of Global Technology, each
as of September 30, 1998. An unaudited statement of assets and liabilities of
Global Technology and an unaudited schedule of investments of Global Technology,
each as of the Valuation Time, will be furnished to Technology at or prior to
the Exchange Date for the purpose of determining the number of shares of Global
Technology to be issued pursuant to Section 4 of this Agreement; and each will
fairly present the financial position of Global Technology as of the Valuation
Time in conformity with generally accepted accounting principles applied on a
consistent basis.
(d) Technology has been furnished with the prospectus and statement of
additional information of Global Technology, each dated May 20, 1998, and said
prospectus and statement of additional information do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(e) Global Technology has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary action
of its Board of Directors, and this Agreement constitutes a valid and binding
contract enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto.
(f) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Global Technology, threatened against it which
assert liability on the part of Global Technology or which materially affect its
financial condition or its ability to consummate the Reorganization. Global
Technology is not charged with or, to the best of its knowledge, threatened with
any violation or investigation of any possible violation of any provisions of
any Federal, state or local law or regulation or administrative ruling relating
to any aspect of its business.
(g) Global Technology is not a party to or obligated under any provision of
its Articles of Incorporation, or its by-laws, or any contract or other
commitment or obligation, and is not subject to any order or decree which would
be violated by its execution of or performance under this Agreement.
(h) There are no material contracts outstanding to which Global Technology
is a party that have not been disclosed in the N-14 Registration Statement (as
defined in subsection (k) below) or will not otherwise be disclosed to
Technology prior to the Valuation Time.
(i) Global Technology has no known liabilities of a material amount,
contingent or otherwise, other than those shown on its statements of assets and
liabilities referred to above, those incurred in the ordinary course of its
business as an investment company since September 30, 1998, and those incurred
in connection with the Reorganization. As of the Valuation Time, Global
Technology will advise Technology in writing of all known liabilities,
contingent or otherwise, whether or not incurred in the ordinary course of
business, existing or accrued as of such time.
(j) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Global Technology of
the Reorganization, except such as may be required under the Securities Act of
1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934, as
amended (the "1934 Act") and the 1940 Act or state securities laws (which term
as used herein shall include the laws of the District of Columbia and Puerto
Rico).
(k) The registration statement filed by Global Technology on Form N-14
relating to the shares of Global Technology to be issued pursuant to this
Agreement which includes the proxy statement of Technology and the prospectus of
Global Technology with respect to the transaction contemplated herein, and any
supplement or amendment thereto or to the documents therein (as amended, the
"N-14 Registration Statement"), on its effective date, at the time of the
stockholders' meeting referred to in Section 6(a) of this Agreement and at the
Exchange Date, insofar as it relates to Global Technology (i) complied or will
comply in all material respects with the provisions of the 1933 Act, the 1934
Act and the 1940 Act and the rules and regulations thereunder and (ii) did not
or will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the
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prospectus included therein did not or will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties
in this subsection only shall apply to statements in or omissions from the N-14
Registration Statement made in reliance upon and in conformity with information
furnished by Global Technology for use in the N-14 Registration Statement as
provided in Section 6(e) of this Agreement.
(l) Global Technology is authorized to issue 500,000,000 shares of common
stock, par value $.10 per share, divided into four classes, designated Class A,
Class B, Class C and Class D Common Stock; Class A, Class C and Class D each
consists of 100,000,000 shares and Class B consists of 200,000,000 shares; each
outstanding share is fully paid and nonassessable and has full voting rights.
(m) Global Technology shares to be issued to Technology pursuant to this
Agreement will have been duly authorized and, when issued and delivered pursuant
to this Agreement, will be legally and validly issued and will be fully paid and
nonassessable and will have full voting rights, and no stockholder of Global
Technology will have any preemptive right of subscription or purchase in respect
thereof.
(n) At or prior to the Exchange Date, Global Technology shares to be
transferred to Technology for distribution to the stockholders of Technology on
the Exchange Date will be duly qualified for offering to the public in all
states of the United States in which the sale of shares of Global Technology
presently are qualified, and there are a sufficient number of such shares
registered under the 1933 Act and, as may be necessary, with each pertinent
state securities commission to permit the transfers contemplated by this
Agreement to be consummated.
(o) At or prior to the Exchange Date, Global Technology will have obtained
any and all regulatory, Director and stockholder approvals necessary to issue
the shares of Global Technology to Technology.
2. Representations and Warranties of Technology.
Technology represents and warrants to, and agrees with, Global Technology
that:
(a) Technology is a corporation duly organized, validly existing and in
good standing in conformity with the laws of the State of Maryland, and has the
power to own all of its assets and to carry out this Agreement. Technology has
all necessary Federal, state and local authorizations to carry on its business
as it is now being conducted and to carry out this Agreement.
(b) Technology is duly registered under the 1940 Act as a non-diversified,
open-end management investment company (File No. 811-6407), and such
registration has not been revoked or rescinded and is in full force and effect.
Technology has elected and qualified for the special tax treatment afforded RICs
under Sections 851-855 of the Code at all times since its inception, and intends
to continue to so qualify for its taxable year ending upon liquidation.
(c) As used in this Agreement, the term "Investments" shall mean (i) the
investments of Technology shown on the schedule of its investments as of the
Valuation Time (as defined in Section 3(c) of this Agreement) furnished to
Global Technology, with such additions thereto and deletions therefrom as may
have arisen in the course of Technology's business up to the Valuation Time; and
(ii) all other assets owned by Technology or liabilities incurred as of the
Valuation Time.
(d) Technology has full power and authority to enter into and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary action of its Board of
Directors and this Agreement constitutes a valid and binding contract
enforceable in accordance with its terms, subject to the effects of bankruptcy,
insolvency, moratorium, fraudulent conveyance and similar laws relating to or
affecting creditors' rights generally and court decisions with respect thereto.
(e) Global Technology has been furnished with a statement of assets and
liabilities and a schedule of investments of Technology, each as of March 31,
1998, said financial statements having been examined by Deloitte & Touche LLP,
independent public accountants. An unaudited statement of assets and liabilities
of
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<PAGE> 39
Technology and an unaudited schedule of investments of Technology, each as of
the Valuation Time, will be furnished to Global Technology at or prior to the
Exchange Date for the purpose of determining the number of shares of Global
Technology to be issued pursuant to Section 4 of this Agreement; and each will
fairly present the financial position of Technology as of the Valuation Time in
conformity with generally accepted accounting principles applied on a consistent
basis.
(f) Global Technology has been furnished with Technology's Annual Report to
Stockholders for the year ended March 31, 1998 and the financial statements
appearing therein fairly present the financial position of Technology as of the
dates indicated, in conformity with generally accepted accounting principles
applied on a consistent basis.
(g) Global Technology has been furnished with the prospectus and statement
of additional information of Technology, each dated June 30, 1998, and said
prospectus and statement of additional information do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(h) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Technology, threatened against it which assert
liability on the part of Technology or which materially affect its financial
condition or its ability to consummate the Reorganization. Technology is not
charged with or, to the best of its knowledge, threatened with any violation or
investigation of any possible violation of any provisions of any Federal, state
or local law or regulation or administrative ruling relating to any aspect of
its business.
(i) There are no material contracts outstanding to which Technology is a
party that have not been disclosed in the N-14 Registration Statement or will
not otherwise be disclosed to Global Technology prior to the Valuation Time.
(j) Technology is not a party to or obligated under any provision of its
Articles of Incorporation, as amended, or its by-laws, as amended, or any
contract or other commitment or obligation, and is not subject to any order or
decree which would be violated by its execution of or performance under this
Agreement.
(k) Technology has no known liabilities of a material amount, contingent or
otherwise, other than those shown on its statements of assets and liabilities
referred to above, those incurred in the ordinary course of its business as an
investment company since March 31, 1998 and those incurred in connection with
the Reorganization. As of the Valuation Time, Technology will advise Global
Technology in writing of all known liabilities, contingent or otherwise, whether
or not incurred in the ordinary course of business, existing or accrued as of
such time.
(l) Technology has filed, or has obtained extensions to file, all Federal,
state and local tax returns which are required to be filed by it, and has paid
or has obtained extensions to pay, all Federal, state and local taxes shown on
said returns to be due and owing and all assessments received by it, up to and
including the taxable year in which the Exchange Date occurs. All tax
liabilities of Technology have been adequately provided for on its books, and no
tax deficiency or liability of Technology has been asserted and no question with
respect thereto has been raised by the Internal Revenue Service or by any state
or local tax authority for taxes in excess of those already paid, up to and
including the taxable year in which the Exchange Date occurs.
(m) At both the Valuation Time and the Exchange Date, Technology will have
full right, power and authority to sell, assign, transfer and deliver the
Investments. At the Exchange Date, subject only to the delivery of the
Investments as contemplated by this Agreement, Technology will have good and
marketable title to all of the Investments, and Global Technology will acquire
all of the Investments free and clear of any encumbrances, liens or security
interests and without any restrictions upon the transfer thereof (except those
imposed by the Federal or state securities laws and those imperfections of title
or encumbrances as do not materially detract from the value or use of the
Investments or materially affect title thereto).
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Technology of the
Reorganization, except such as may be required under the 1933 Act, the 1934 Act,
the 1940 Act or state securities laws.
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<PAGE> 40
(o) The N-14 Registration Statement, on its effective date, at the time of
the stockholders' meeting referred to in Section 6(a) of this Agreement and on
the Exchange Date, insofar as it relates to Technology (i) complied or will
comply in all material respects with the provisions of the 1933 Act, the 1934
Act and the 1940 Act and the rules and regulations thereunder, and (ii) did not
or will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the prospectus included therein did not or will not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the
representations and warranties in this subsection shall apply only to statements
in or omissions from the N-14 Registration Statement made in reliance upon and
in conformity with information furnished by Technology for use in the N-14
Registration Statement as provided in Section 6(e) of this Agreement.
(p) Technology is authorized to issue 800,000,000 shares of common stock,
par value $.10 per share, divided into four classes, designated Class A and
Class C Common Stock, each of which consists of 100,000,000 shares, and Class B
and Class D Common Stock, each of which consists of 300,000,000 shares, each
outstanding share of which is fully paid and nonassessable and has full voting
rights.
(q) The books and records of Technology made available to Global Technology
and/or its counsel are substantially true and correct and contain no material
misstatements or omissions with respect to the operations of Technology.
(r) Technology will not sell or otherwise dispose of any of the shares of
Global Technology to be received in the Reorganization, except in distribution
to the stockholders of Technology.
3. The Reorganization.
(a) Subject to receiving the requisite approval of the stockholders of
Technology, and to the other terms and conditions contained herein, Technology
agrees to convey, transfer and deliver to Global Technology and Global
Technology agrees to acquire from Technology, on the Exchange Date, all of the
Investments (including interest accrued as of the Valuation Time on debt
instruments) of Technology, and assume substantially all of the liabilities of
Technology, in exchange solely for that number of shares of Global Technology
provided in Section 4 of this Agreement. Pursuant to this Agreement, as soon as
practicable Technology will distribute all shares of Global Technology received
by it to its stockholders in exchange for their corresponding Technology shares.
Such distribution shall be accomplished by the opening of stockholder accounts
on the stock ledger records of Global Technology in the amounts due the
stockholders of Technology based on their respective holdings in Technology as
of the Valuation Time.
(b) Technology will pay or cause to be paid to Global Technology any
interest it receives on or after the Exchange Date with respect to the
Investments transferred to Technology hereunder.
(c) The Valuation Time shall be 4:00 P.M., New York time, on ,
1999, or such earlier or later day and time as may be mutually agreed upon in
writing (the "Valuation Time").
(d) Global Technology will acquire substantially all of the assets of, and
assume substantially all of the known liabilities of, Technology, except that
recourse for such liabilities will be limited to the net assets of Technology
acquired by Global Technology. The known liabilities of Technology as of the
Valuation Time shall be confirmed in writing to Global Technology by Technology
pursuant to Section 2(k) of this Agreement.
(e) Global Technology and Technology will jointly file Articles of Transfer
with the State Department of Assessments and Taxation of Maryland and any other
such instrument as may be required by the State of Maryland to effect the
transfer of the Investments of Technology to Global Technology.
(f) Technology will be dissolved following the Exchange Date by filing
Articles of Dissolution with the State Department of Assessments and Taxation of
Maryland.
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4. Issuance and Valuation of Shares of Global Technology in the
Reorganization.
Full shares of Global Technology, and to the extent necessary, fractional
shares of Global Technology, of an aggregate net asset value equal to the net
asset value of the assets of Technology acquired, determined as hereinafter
provided, reduced by the amount of liabilities of Technology assumed by Global
Technology, shall be issued by Global Technology in exchange for such assets of
Technology. The net asset value of Technology and Global Technology shall be
determined in accordance with the procedures described in the prospectus of
Global Technology as of the Valuation Time. Such valuation and determination
shall be made by Global Technology in cooperation with Technology. Global
Technology shall issue its Class A, Class B, Class C and Class D shares to
Technology in certificates or share deposit receipts (one in respect of each
class) registered in the name of Technology. Technology shall distribute
Corresponding Shares of Global Technology to its stockholders by redelivering
such certificates to Financial Data Services, Inc.
5. Payment of Expenses.
(a) With respect to expenses incurred in connection with the
Reorganization, (i) Global Technology shall pay all expenses incurred which are
attributable solely to Global Technology and the conduct of its business, (ii)
Technology shall pay all expenses incurred which are attributable solely to
Technology and the conduct of its business and (iii) Global Technology and
Technology shall bear pro rata according to each Fund's net assets at the
Valuation Time, all expenses incurred in connection with the Reorganization,
including, but not limited to, all costs related to the preparation of the N-14
Registration Statement and the distribution of the Proxy Statement and
Prospectus. Such fees and expenses shall include the cost of preparing and
filing a ruling request with the Internal Revenue Service, legal and accounting
fees, printing costs, filing fees, portfolio transfer taxes (if any) and any
similar expenses incurred in connection with the Reorganization. All expenses
associated with Technology's dissolution under Maryland law and the termination
of Technology's registration as an investment company under the 1940 Act shall
be paid by Global Technology following the Reorganization.
(b) If for any reason the Reorganization is not consummated, no party shall
be liable to any other party for any damages resulting therefrom, including,
without limitation, consequential damages.
6. Covenants of Global Technology and Technology.
(a) Technology agrees to call a special meeting of the stockholders of
Technology as soon as is practicable after the effective date of the N-14
Registration Statement for the purpose of considering the Reorganization as
described in this Agreement, and it shall be a condition to the obligations of
each of the parties hereto that the holders of a majority of the shares of
Technology issued and outstanding and entitled to vote thereon, shall have
approved this Agreement at such a meeting at or prior to the Valuation Time.
(b) Global Technology and Technology each covenants to operate the business
of Global Technology and Technology, respectively, as presently conducted
between the date hereof and the Exchange Date.
(c) Technology agrees that following the consummation of the
Reorganization, it will dissolve in accordance with the laws of the State of
Maryland and any other applicable law, it will not make any distributions of any
Global Technology shares other than to the stockholders of Technology and
without first paying or adequately providing for the payment of all of
Technology's liabilities not assumed by Global Technology, if any, and on and
after the Exchange Date it shall not conduct any business except in connection
with its dissolution.
(d) Technology undertakes that if the Reorganization is consummated, it
will file an application pursuant to Section 8(f) of the 1940 Act for an order
declaring that Technology has ceased to be a registered investment company.
(e) Global Technology will file the N-14 Registration Statement with the
Securities and Exchange Commission (the "Commission") and will use its best
efforts to provide that the N-14 Registration Statement becomes effective as
promptly as practicable. Global Technology and Technology agree to cooperate
fully with each other, and each will furnish to the other the information
relating to itself to be set forth in the N-14
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Registration Statement as required by the 1933 Act, the 1934 Act the 1940 Act,
and the rules and regulations thereunder and the state securities laws.
(f) Global Technology has no plan or intention to sell or otherwise dispose
of the assets of Technology to be acquired in the Reorganization, except for
dispositions made in the ordinary course of business.
(g) Technology and Global Technology each agrees that by the Exchange Date
all of its Federal and other tax returns and reports required to be filed on or
before such date shall have been filed and all taxes shown as due on said
returns either have been paid or adequate liability reserves have been provided
for the payment of such taxes. In connection with this covenant, the Funds agree
to cooperate with each other in filing any tax return, amended return or claim
for refund, determining a liability for taxes or a right to a refund of taxes or
participating in or conducting any audit or other proceeding in respect of
taxes. Global Technology agrees to retain for a period of ten (10) years
following the Exchange Date all returns, schedules and work papers and all
material records or other documents relating to tax matters of Technology for
its taxable period first ending after the Exchange Date and for all prior
taxable periods. Any information obtained under this subsection shall be kept
confidential except as otherwise may be necessary in connection with the filing
of returns or claims for refund or in conducting an audit or other proceeding.
After the Exchange Date, Technology shall prepare, or cause its agents to
prepare, any Federal, state or local tax returns, including any Forms 1099,
required to be filed by Technology with respect to Technology's final taxable
year ending with its complete liquidation and for any prior periods or taxable
years and further shall cause such tax returns and Forms 1099 to be duly filed
with the appropriate taxing authorities. Notwithstanding the aforementioned
provisions of this subsection, any expenses incurred by Technology (other than
for payment of taxes) in connection with the preparation and filing of said tax
returns and Forms 1099 after the Exchange Date shall be borne by Technology to
the extent such expenses have been accrued by Technology in the ordinary course
without regard to the Reorganization; any excess expenses shall be borne by
Merrill Lynch Asset Management, L.P. ("MLAM") at the time such tax returns and
Forms 1099 are prepared.
(h) Technology agrees to mail to its stockholders of record entitled to
vote at the special meeting of stockholders at which action is to be considered
regarding this Agreement, in sufficient time to comply with requirements as to
notice thereof, a combined Proxy Statement and Prospectus which complies in all
material respects with the applicable provisions of Section 14(a) of the 1934
Act and Section 20(a) of the 1940 Act, and the rules and regulations,
respectively, thereunder.
(i) Following the consummation of the Reorganization, Global Technology
expects to stay in existence and continue its business as a diversified,
open-end management investment company registered under the 1940 Act.
7. Exchange Date.
(a) Delivery of the assets of Technology to be transferred, together with
any other Investments, and the Global Technology shares to be issued, shall be
made at the offices of Brown & Wood LLP, One World Trade Center, New York, New
York 10048, at 10:00 A.M. on the next full business day following the Valuation
Time, or at such other place, time and date agreed to by Technology and Global
Technology, the date and time upon which such delivery is to take place being
referred to herein as the "Exchange Date." To the extent that any Investments,
for any reason, are not transferable on the Exchange Date, Technology shall
cause such Investments to be transferred to Global Technology's account with
Brown Brothers Harriman & Co. at the earliest practicable date thereafter.
(b) Technology will deliver to Global Technology on the Exchange Date
confirmations or other adequate evidence as to the tax basis of each of the
Investments delivered to Global Technology hereunder, certified by Deloitte &
Touche LLP.
(c) As soon as practicable after the close of business on the Exchange
Date, Technology shall deliver to Global Technology a list of the names and
addresses of all of the stockholders of record of Technology on the Exchange
Date and the number of shares of Technology owned by each such stockholder,
certified to the best of their knowledge and belief by the transfer agent for
Technology or by its President.
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8. Technology Conditions.
The obligations of Technology hereunder shall be subject to the following
conditions:
(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the affirmative vote of the holders of a majority
of the shares of Technology, issued and outstanding and entitled to vote
thereon, voting together as a single class, and by the Board of Directors of
Global Technology; and that Global Technology shall have delivered to Technology
a copy of the resolution approving this Agreement adopted by Global Technology's
Board of Directors, certified by the Secretary of Global Technology.
(b) That Global Technology shall have furnished to Technology a statement
of Global Technology's assets and liabilities, with values determined as
provided in Section 4 of this Agreement, together with a schedule of its
investments, all as of the Valuation Time, certified on Global Technology's
behalf by its President (or any Vice President) and its Treasurer, and a
certificate signed by Global Technology's President (or any Vice President) and
its Treasurer, dated as of the Exchange Date, certifying that as of the
Valuation Time and as of the Exchange Date there has been no material adverse
change in the financial position of Global Technology since September 30, 1998,
other than changes in its portfolio securities since that date or changes in the
market value of its portfolio securities.
(c) That Global Technology shall have furnished to Technology a certificate
signed by Global Technology's President (or any Vice President) and its
Treasurer, dated as of the Exchange Date, certifying that, as of the Valuation
Time and as of the Exchange Date all representations and warranties of Global
Technology made in this Agreement are true and correct in all material respects
with the same effect as if made at and as of such dates, and that Global
Technology has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied at or prior to each of such
dates.
(d) That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(e) That Technology shall have received an opinion of Brown & Wood LLP, as
counsel to both Global Technology and Technology, in form and substance
satisfactory to Technology and dated the Exchange Date, to the effect that (i)
each of Global Technology and Technology is a corporation duly organized,
validly existing and in good standing in conformity with the laws of the State
of Maryland; (ii) the Corresponding Shares of Global Technology to be issued
pursuant to this Agreement are duly authorized and, upon delivery, will be
validly issued and outstanding and fully paid and nonassessable by Global
Technology, and no stockholder of Global Technology has any preemptive right to
subscription or purchase in respect thereof (pursuant to the Articles of
Incorporation or the by-laws of Global Technology or, to the best of such
counsel's knowledge, otherwise); (iii) this Agreement has been duly authorized,
executed and delivered by each of Global Technology and Technology, and
represents a valid and binding contract, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws pertaining to the enforcement of creditors'
rights generally and court decisions with respect thereto; provided, such
counsel shall express no opinion with respect to the application of equitable
principles in any proceeding, whether at law or in equity; (iv) the execution
and delivery of this Agreement does not, and the consummation of the
Reorganization will not, violate any material provisions of the Articles of
Incorporation, as amended, the by-laws, as amended, or any agreement (known to
such counsel) to which either Global Technology or Technology is a party or by
which either Global Technology or Technology is bound, except insofar as the
parties have agreed to amend such provision as a condition precedent to the
Reorganization or Maryland law; (v) Technology has the power to sell, assign,
transfer and deliver the assets transferred by it hereunder and, upon
consummation of the Reorganization in accordance with the terms of this
Agreement, Technology will have duly transferred such assets and liabilities in
accordance with this Agreement; (vi) to the best of such counsel's knowledge, no
consent, approval, authorization or order of any United States federal court,
Maryland state court or governmental authority is required for the consummation
by Global Technology and Technology of the Reorganization, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act and the
published rules and regulations of the Commission thereunder and under Maryland
law and such as may be required under state securities laws; (vii) the N-14
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Registration Statement has become effective under the 1933 Act, no stop order
suspending the effectiveness of the N-14 Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated under the 1933 Act, and the N-14 Registration Statement, and each
amendment or supplement thereto, as of their respective effective dates, appear
on their face to be appropriately responsive in all material respects to the
requirements of the 1933 Act, the 1934 Act and the 1940 Act and the published
rules and regulations of the Commission thereunder; (viii) the descriptions in
the N-14 Registration Statement of statutes, legal and governmental proceedings
and contracts and other documents are accurate and fairly present the
information required to be shown; (ix) such counsel does not know of any
statutes, legal or governmental proceedings or contracts or other documents
related to the Reorganization of a character required to be described in the
N-14 Registration Statement which are not described therein or, if required to
be filed, filed as required; (x) neither Global Technology nor Technology, to
the knowledge of such counsel, is required to qualify to do business as a
foreign corporation in any jurisdiction except as may be required by state
securities laws, and except where each has so qualified or the failure so to
qualify would not have a material adverse effect on Global Technology,
Technology or their respective stockholders; (xi) such counsel does not have
actual knowledge of any material suit, action or legal or administrative
proceeding pending or threatened against Global Technology or Technology, the
unfavorable outcome of which would materially and adversely affect Global
Technology or Technology; (xii) all corporate actions required to be taken by
Global Technology and Technology to authorize this Agreement and to effect the
Reorganization have been duly authorized by all necessary corporate actions on
the part of Global Technology and Technology; and (xiii) such opinion is solely
for the benefit of Global Technology and Technology and their Directors and
officers. Such opinion also shall state that (x) while such counsel cannot make
any representation as to the accuracy or completeness of statements of fact in
the N-14 Registration Statement or any amendment or supplement thereto, nothing
has come to their attention that would lead them to believe that, on the
respective effective dates of the N-14 Registration Statement and any amendment
or supplement thereto, (1) the N-14 Registration Statement or any amendment or
supplement thereto contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; and (2) the prospectus included in the
N-14 Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
(y) such counsel does not express any opinion or belief as to the financial
statements or other financial or statistical data relating to Global Technology
or Technology contained or incorporated by reference in the N-14 Registration
Statement. In giving the opinion set forth above, Brown & Wood LLP may state
that it is relying on certificates of officers of Global Technology and
Technology with regard to matters of fact and certain certificates and written
statements of governmental officials with respect to the good standing of Global
Technology and Technology.
(f) That Technology shall have received either (a) a private letter ruling
from the Internal Revenue Service or (b) an opinion of Brown & Wood LLP, to the
effect that for Federal income tax purposes (i) the transfer of substantially
all of the Investments of Technology to Global Technology in exchange solely for
shares of Global Technology as provided in this Agreement will constitute a
reorganization within the meaning of Section 368(a)(1)(C) of the Code, and
Technology and Global Technology will each be deemed to be a "party" to the
Reorganization within the meaning of Section 368(b); (ii) in accordance with
Section 361(a) of the Code, no gain or loss will be recognized to Technology as
a result of the asset transfer solely in exchange for Global Technology shares
or on the distribution of the Global Technology stock to Technology stockholders
under Section 361(c)(1); (iii) under Section 1032 of the Code, no gain or loss
will be recognized to Global Technology on the receipt of assets of Technology
in exchange for Global Technology shares; (iv) in accordance with Section
354(a)(1) of the Code, no gain or loss will be recognized to the stockholders of
Technology on the receipt of Corresponding Shares of Global Technology in
exchange for their shares of Technology; (v) in accordance with Section 362(b)
of the Code, the tax basis of the Technology assets in the hands of Global
Technology will be the same as the tax basis of such assets in the hands of
Technology immediately prior to the consummation of the Reorganization; (vi) in
accordance with Section 358 of the Code, immediately after the Reorganization,
the tax basis of the Corresponding Shares of Global Technology received by the
stockholders of Technology in the Reorganization will be equal, in the
aggregate, to the tax
I-9
<PAGE> 45
basis of the shares of Technology surrendered in exchange; (vii) in accordance
with Section 1223 of the Code, a stockholder's holding period for the
Corresponding Shares of Global Technology will be determined by including the
period for which such stockholder held the shares of Technology exchanged
therefor, provided, that such Technology shares were held as a capital asset;
(viii) in accordance with Section 1223 of the Code, Global Technology's holding
period with respect to the Technology assets transferred will include the period
for which such assets were held by Technology; and (ix) the taxable year of
Technology will end on the effective date of the Reorganization and pursuant to
Section 381(a) of the Code and regulations thereunder, Global Technology will
succeed to and take into account certain tax attributes of Technology, such as
earnings and profits, capital loss carryovers and method of accounting.
(g) That all proceedings taken by Global Technology and its counsel in
connection with the Reorganization and all documents incidental thereto shall be
satisfactory in form and substance to Technology.
(h) That the N-14 Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of Global Technology, be contemplated by the
Commission.
(i) That Technology shall have received from Deloitte & Touche LLP a letter
dated as of the effective date of the N-14 Registration Statement and a similar
letter dated within five days prior to the Exchange Date, in form and substance
satisfactory to Technology, to the effect that (i) they are independent public
accountants with respect to Global Technology within the meaning of the 1933 Act
and the applicable published rules and regulations thereunder, (ii) in their
opinion, the financial statements and supplementary information of Global
Technology included or incorporated by reference in the N-14 Registration
Statement and reported on by them comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the published
rules and regulations thereunder; and (iii) on the basis of limited procedures
agreed upon by Technology and Global Technology and described in such letter
(but not an examination in accordance with generally accepted auditing
standards) consisting of a reading of any unaudited interim financial statements
and unaudited supplementary information of Global Technology included in the
N-14 Registration Statement, and inquiries of certain officials of Global
Technology responsible for financial and accounting matters, nothing came to
their attention that caused them to believe that (a) such unaudited financial
statements and related unaudited supplementary information do not comply as to
form in all material respects with the applicable accounting requirements of the
1933 Act and the published rules and regulations thereunder, (b) such unaudited
financial statements are not fairly presented in conformity with generally
accepted accounting principles, applied on a basis substantially consistent with
that of the audited financial statements, or (c) such unaudited supplementary
information is not fairly stated in all material respects in relation to the
unaudited financial statements taken as a whole; and (iv) on the basis of
limited procedures agreed upon by Technology and Global Technology and described
in such letter (but not an examination in accordance with generally accepted
auditing standards), the information relating to Global Technology appearing in
the N-14 Registration Statement, which information is expressed in dollars (or
percentages derived from such dollars) (with the exception of performance
comparisons, if any), if any, has been obtained from the accounting records of
Global Technology or from schedules prepared by officials of Global Technology
having responsibility for financial and reporting matters and such information
is in agreement with such records, schedules or computations made therefrom.
(j) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the Reorganization
under Section 25(c) of the 1940 Act, and no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect the
financial condition of Global Technology or would prohibit the Reorganization.
(k) That Technology shall have received from the Commission such orders or
interpretations as Brown & Wood LLP, as counsel to Technology, deems reasonably
necessary or desirable under the 1933 Act and the 1940 Act in connection with
the Reorganization, provided, that such counsel shall have requested such orders
as promptly as practicable, and all such orders shall be in full force and
effect.
I-10
<PAGE> 46
9. Global Technology Conditions.
The obligations of Global Technology hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the Board of Directors of Technology and by the
affirmative vote of the holders of a majority of the shares of common stock of
Technology issued and outstanding and entitled to vote thereon, voting together
as a single class; and that Technology shall have delivered to Global Technology
a copy of the resolution approving this Agreement adopted by Technology's Board
of Directors, and a certificate setting forth the vote Technology stockholders
obtained, each certified by the Secretary of Technology.
(b) That Technology shall have furnished to Global Technology a statement
of Technology's assets and liabilities, with values determined as provided in
Section 4 of this Agreement, together with a schedule of investments with their
respective dates of acquisition and tax costs, all as of the Valuation Time,
certified on Technology's behalf by its President (or any Vice President) and
its Treasurer, and a certificate signed by Technology's President (or any Vice
President) and its Treasurer, dated as of the Exchange Date, certifying that as
of the Valuation Time and as of the Exchange Date there has been no material
adverse change in the financial position of Technology since March 31, 1998,
other than changes in the Investments since that date or changes in the market
value of the Investments.
(c) That Technology shall have furnished to Global Technology a certificate
signed by Technology's President (or any Vice President) and its Treasurer,
dated the Exchange Date, certifying that as of the Valuation Time and as of the
Exchange Date all representations and warranties of Technology made in this
Agreement are true and correct in all material respects with the same effect as
if made at and as of such dates and Technology has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied at or prior to such dates.
(d) That Technology shall have delivered to Global Technology a letter from
Deloitte & Touche LLP, dated the Exchange Date, stating that such firm has
performed a limited review of the Federal, state and local income tax returns of
Technology for the period ended March 31, 1998 (which returns originally were
prepared and filed by Technology), and that based on such limited review,
nothing came to their attention which caused them to believe that such returns
did not properly reflect, in all material respects, the Federal, state and local
income taxes of Technology for the period covered thereby; and that for the
period from April 1, 1998, to and including the Exchange Date and for any
taxable year of Technology ending upon the liquidation of Technology, such firm
has performed a limited review to ascertain the amount of applicable Federal,
state and local taxes, and has determined that either such amount has been paid
or reserves have been established for payment of such taxes, this review to be
based on unaudited financial data; and that based on such limited review,
nothing has come to their attention which caused them to believe that the taxes
paid or reserves set aside for payment of such taxes were not adequate in all
material respects for the satisfaction of Federal, state and local taxes for the
period from April 1, 1998, to and including the Exchange Date and for any
taxable year of Technology ending upon the liquidation of Technology or that
Technology would not continue to qualify as a regulated investment company for
Federal income tax purposes for the tax years in question.
(e) That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(f) That Global Technology shall have received an opinion of Brown & Wood
LLP, as counsel to both Global Technology and Technology, in form and substance
satisfactory to Global Technology and dated the Exchange Date, with respect to
the matters specified in Section 8(e) of this Agreement and such other matters
as Global Technology reasonably may deem necessary or desirable.
(g) That Global Technology shall have received a private letter ruling from
the Internal Revenue Service or an opinion of Brown & Wood LLP with respect to
the matters specified in Section 8(f) of this Agreement.
(h) That Global Technology shall have received from Deloitte & Touche LLP a
letter dated as of the effective date of the N-14 Registration Statement and a
similar letter dated within five days prior to the
I-11
<PAGE> 47
Exchange Date, in form and substance satisfactory to Global Technology, to the
effect that (i) they are independent public accountants with respect to
Technology within the meaning of the 1933 Act and the applicable published rules
and regulations thereunder; (ii) in their opinion, the financial statements and
supplementary information of Technology included or incorporated by reference in
the N-14 Registration Statement and reported on by them comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the published rules and regulations thereunder; (iii) on the basis of
limited procedures agreed upon by Technology and Global Technology and described
in such letter (but not an examination in accordance with generally accepted
auditing standards) consisting of a reading of any unaudited interim financial
statements and unaudited supplementary information of Technology included in the
N-14 Registration Statement, and inquiries of certain officials of Technology
responsible for financial and accounting matters, nothing came to their
attention that caused them to believe that (a) such unaudited financial
statements and related unaudited supplementary information do not comply as to
form in all material respects with the applicable accounting requirements of the
1933 Act and the published rules and regulations thereunder, (b) such unaudited
financial statements are not fairly presented in conformity with generally
accepted accounting principles, applied on a basis substantially consistent with
that of the audited financial statements, or (c) such unaudited supplementary
information is not fairly stated in all material respects in relation to the
unaudited financial statements taken as a whole; and (iv) on the basis of
limited procedures agreed upon by Global Technology and Technology and described
in such letter (but not an examination in accordance with generally accepted
auditing standards), the information relating to Technology appearing in the
N-14 Registration Statement, which information is expressed in dollars (or
percentages derived from such dollars) (with the exception of performance
comparisons, if any), if any, has been obtained from the accounting records of
Technology or from schedules prepared by officials of Technology having
responsibility for financial and reporting matters and such information is in
agreement with such records, schedules or computations made therefrom.
(i) That the Investments to be transferred to Global Technology shall not
include any assets or liabilities which Global Technology, by reason of charter
limitations or otherwise, may not properly acquire or assume.
(j) That the N-14 Registration Statement shall have become effective under
the 1933 Act and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of Technology, be contemplated by the
Commission.
(k) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the Reorganization
under Section 25(c) of the 1940 Act, and no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect the
financial condition of Technology or would prohibit the Reorganization.
(l) That Global Technology shall have received from the Commission such
orders or interpretations as Brown & Wood LLP, as counsel to Global Technology,
deems reasonably necessary or desirable under the 1933 Act and the 1940 Act in
connection with the Reorganization, provided, that such counsel shall have
requested such orders as promptly as practicable, and all such orders shall be
in full force and effect.
(m) That all proceedings taken by Technology and its counsel in connection
with the Reorganization and all documents incidental thereto shall be
satisfactory in form and substance to Global Technology.
(n) That prior to the Exchange Date, Technology shall have declared a
dividend or dividends which, together with all such previous dividends, shall
have the effect of distributing to its stockholders all of its investment
company taxable income for the period from , 199 to and including
the Exchange Date, if any (computed without regard to any deduction for
dividends paid), and all of its net capital gain, if any, realized for the
period from , 199 to and including the Exchange Date.
10. Termination, Postponement and Waivers.
(a) Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated and the Reorganization abandoned at any time
(whether before or after adoption thereof by the stockholders of Technology)
prior to the Exchange Date, or the Exchange Date may be postponed, (i) by
I-12
<PAGE> 48
mutual consent of the Boards of Directors of Technology and Global Technology;
(ii) by the Board of Directors of Technology if any condition of Technology's
obligations set forth in Section 8 of this Agreement has not been fulfilled or
waived by such Board; or (iii) by the Board of Directors of Global Technology if
any condition of Global Technology's obligations set forth in Section 9 of this
Agreement has not been fulfilled or waived by such Board.
(b) If the transactions contemplated by this Agreement have not been
consummated by , 1999, this Agreement automatically shall terminate on
that date, unless a later date is mutually agreed to by the Boards of Directors
of Technology and Global Technology.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect, and
there shall not be any liability on the part of either Technology or Global
Technology or persons who are their directors, trustees, officers, agents or
stockholders in respect of this Agreement.
(d) At any time prior to the Exchange Date, any of the terms or conditions
of this Agreement may be waived by the Board of Directors of either Technology
or Global Technology, respectively (whichever is entitled to the benefit
thereof), if, in the judgment of such Board after consultation with its counsel,
such action or waiver will not have a material adverse effect on the benefits
intended under this Agreement to the stockholders of their respective fund, on
behalf of which such action is taken. In addition, the Boards of Directors of
Technology and Global Technology have delegated to MLAM the ability to make
non-material changes to the transaction if it deems it to be in the best
interests of Technology and Global Technology to do so.
(e) The respective representations and warranties contained in Sections 1
and 2 of this Agreement shall expire with, and be terminated by, the
consummation of the Reorganization, and neither Technology nor Global Technology
nor any of their officers, directors or trustees, agents or stockholders shall
have any liability with respect to such representations or warranties after the
Exchange Date. This provision shall not protect any officer, director or
trustee, agent or stockholder of Technology or Global Technology against any
liability to the entity for which that officer, director or trustee, agent or
stockholder so acts or to its stockholders, to which that officer, director or
trustee, agent or stockholder otherwise would be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties in
the conduct of such office.
(f) If any order or orders of the Commission with respect to this Agreement
shall be issued prior to the Exchange Date and shall impose any terms or
conditions which are determined by action of the Boards of Directors of
Technology and Global Technology to be acceptable, such terms and conditions
shall be binding as if a part of this Agreement without further vote or approval
of the stockholders of Technology unless such terms and conditions shall result
in a change in the method of computing the number of shares of Global Technology
to be issued to Technology in which event, unless such terms and conditions
shall have been included in the proxy solicitation materials furnished to the
stockholders of Technology prior to the meeting at which the Reorganization
shall have been approved, this Agreement shall not be consummated and shall
terminate unless Technology promptly shall call a special meeting of
stockholders at which such conditions so imposed shall be submitted for
approval.
11. Indemnification.
(a) Technology hereby agrees to indemnify and hold Global Technology
harmless from all loss, liability and expense (including reasonable counsel fees
and expenses in connection with the contest of any claim) which Global
Technology may incur or sustain by reason of the fact that (i) Global Technology
shall be required to pay any corporate obligation of Technology, whether
consisting of tax deficiencies or otherwise, based upon a claim or claims
against Technology which were omitted or not fairly reflected in the financial
statements to be delivered to Global Technology in connection with the
Reorganization; (ii) any representations or warranties made by Technology in
this Agreement should prove to be false or erroneous in any material respect;
(iii) any covenant of Technology has been breached in any material respect; or
(iv) any claim is made alleging that (a) the N-14 Registration Statement
included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
I-13
<PAGE> 49
therein not misleading or (b) the Proxy Statement and Prospectus delivered to
the stockholders of Technology and forming a part of the N-14 Registration
Statement included any untrue statement of a material fact or omitted to state
any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except insofar as such
claim is based on written information furnished to Technology by Global
Technology.
(b) Global Technology hereby agrees to indemnify and hold Technology
harmless from all loss, liability and expenses (including reasonable counsel
fees and expenses in connection with the contest of any claim) which Technology
may incur or sustain by reason of the fact that (i) any representations or
warranties made by Global Technology in this Agreement should prove false or
erroneous in any material respect, (ii) any covenant of Global Technology has
been breached in any material respect, or (iii) any claim is made alleging that
(a) the N-14 Registration Statement included any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, not misleading or (b) the Proxy
Statement and Prospectus delivered to stockholders of Technology and forming a
part of the N-14 Registration Statement included any untrue statement of a
material fact or omitted to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except insofar as such claim is based on written
information furnished to Global Technology by Technology.
(c) In the event that any claim is made against Global Technology in
respect of which indemnity may be sought by Global Technology from Technology
under Section 11(a) of this Agreement, or in the event that any claim is made
against Technology in respect of which indemnity may be sought by Technology
from Global Technology under Section 11(b) of this Agreement, then the party
seeking indemnification (the "Indemnified Party"), with reasonable promptness
and before payment of such claim, shall give written notice of such claim to the
other party (the "Indemnifying Party"). If no objection as to the validity of
the claim is made in writing to the Indemnified Party by the Indemnifying Party
within thirty (30) days after the giving of notice hereunder, then the
Indemnified Party may pay such claim and shall be entitled to reimbursement
therefor, pursuant to this Agreement. If, prior to the termination of such
thirty-day period, objection in writing as to the validity of such claim is made
to the Indemnified Party, the Indemnified Party shall withhold payment thereof
until the validity of such claim is established (i) to the satisfaction of the
Indemnifying Party, or (ii) by a final determination of a court of competent
jurisdiction, whereupon the Indemnified Party may pay such claim and shall be
entitled to reimbursement thereof, pursuant to this Agreement, or (iii) with
respect to any tax claims, within seven (7) calendar days following the earlier
of (A) an agreement between Technology and Global Technology that an indemnity
amount is payable, (B) an assessment of a tax by a taxing authority, or (C) a
"determination" as defined in Section 1313(a) of the Code. For purposes of this
Section 11, the term "assessment" shall have the same meaning as used in Chapter
63 of the Code and Treasury Regulations thereunder, or any comparable provision
under the laws of the appropriate taxing authority. In the event of any
objection by the Indemnifying Party, the Indemnifying Party promptly shall
investigate the claim, and if it is not satisfied with the validity thereof, the
Indemnifying Party shall conduct the defense against such claim. All costs and
expenses incurred by the Indemnifying Party in connection with such
investigation and defense of such claim shall be borne by it. These
indemnification provisions are in addition to, and not in limitation of, any
other rights the parties may have under applicable law.
12. Other Matters.
(a) Pursuant to Rule 145 under the 1933 Act, and in connection with the
issuance of any shares to any person who at the time of the Reorganization is,
to its knowledge, an affiliate of a party to the Reorganization pursuant to Rule
145(c), Global Technology will cause to be affixed upon the certificate(s)
issued to such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO MERRILL
LYNCH GLOBAL TECHNOLOGY FUND, INC. (OR ITS STATUTORY SUCCESSOR) OR ITS
PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933
I-14
<PAGE> 50
OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE FUND, SUCH
REGISTRATION IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to Global
Technology's transfer agent with respect to such shares. Technology will provide
Global Technology on the Exchange Date with the name of any Technology
stockholder who is to the knowledge of Technology an affiliate of Technology on
such date.
(b) All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement shall
be deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
(c) Any notice, report or demand required or permitted by any provision of
this Agreement shall be in writing and shall be made by hand delivery, prepaid
certified mail or overnight service, addressed to Technology or Global
Technology, in either case at 800 Scudders Mill Road, Plainsboro, New Jersey
08536, Attn: Arthur Zeikel, President.
(d) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the Reorganization, constitutes the
only understanding with respect to the Reorganization, may not be changed except
by a letter of agreement signed by each party and shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said state.
(e) Copies of the Articles of Incorporation, as amended, of Technology and
Global Technology are on file with the Department of Assessments and Taxation of
the State of Maryland and notice is hereby given that this instrument is
executed on behalf of the Directors of each fund.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original but all
such counterparts together shall constitute but one instrument.
MERRILL LYNCH GLOBAL TECHNOLOGY FUND,
INC.
BY:
------------------------------------
([ ])
ATTEST:
- --------------------------------------
MERRILL LYNCH TECHNOLOGY FUND, INC.
BY:
------------------------------------
([ ])
ATTEST:
- ----------------------------------------
([ ])
I-15
<PAGE> 51
SUBJECT TO COMPLETION
STATEMENT OF ADDITIONAL INFORMATION
DATED NOVEMBER 2, 1998
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH TECHNOLOGY FUND, INC.
MERRILL LYNCH GLOBAL TECHNOLOGY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Proxy Statement and Prospectus of Merrill Lynch
Technology Fund, Inc. ("Technology Fund") and Merrill Lynch Global Technology
Fund, Inc. ("Global Technology Fund") dated , 1998 (the "Proxy
Statement and Prospectus"), which has been filed with the Securities and
Exchange Commission and can be obtained, without charge, by calling Global
Technology Fund at 1-800-456-4587, ext. 123, or by writing to Global Technology
Fund at the above address. This Statement of Additional Information has been
incorporated by reference into the Proxy Statement and Prospectus.
Further information about Global Technology Fund is contained in and
incorporated by reference to its Prospectus, dated May 20, 1998, and its
Statement of Additional Information, dated May 20, 1998, which are incorporated
by reference into this Statement of Additional Information. Global Technology
Fund's Statement of Additional Information accompanies this Statement of
Additional Information.
Further information about Technology Fund is contained in and incorporated
by reference to its Prospectus, dated June 30, 1998, and its Statement of
Additional Information, dated June 30, 1998, which are incorporated by reference
into this Statement of Additional Information. The Technology Fund Statement of
Additional Information accompanies this Statement of Additional Information.
The Commission maintains a web site (http://www.sec.gov) that contains the
prospectus and statement of additional information of each of Technology Fund
and Global Technology Fund, other material incorporated by reference and other
information regarding Technology Fund and Global Technology Fund.
The date of this Statement of Additional Information is , 1998.
<PAGE> 52
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information 2
Financial Statements 2
Pro Forma Combined Schedule of Investments for Global
Technology Fund and Technology Fund as of September 30,
1998 (unaudited)
Pro Forma Combined Statement of Assets and Liabilities for
Global Technology Fund and Technology Fund as of
September 30, 1998 (unaudited)
Pro Forma Combined Statement of Operations for Global
Technology Fund and Technology Fund as of September 30,
1998 (unaudited)
</TABLE>
GENERAL INFORMATION
The stockholders of Technology Fund are being asked to approve the
acquisition of substantially all of the assets of Technology Fund, and the
assumption of substantially all of the liabilities of Technology Fund, by Global
Technology Fund in exchange solely for an equal aggregate value of shares of
Global Technology Fund (the "Reorganization"). Global Technology Fund is an
open-end management investment company organized as a Maryland corporation. A
Special Meeting of Stockholders of Technology Fund to consider the
Reorganization will be held at 800 Scudders Mill Road, Plainsboro, New Jersey,
on January 12, 1999, at 9:00 a.m., New York time.
For detailed information about the Reorganization, stockholders of
Technology Fund should refer to the Proxy Statement and Prospectus. For further
information about Global Technology Fund, stockholders should refer to Global
Technology Fund's Statement of Additional Information, dated May 20, 1998, which
accompanies this Statement of Additional Information and is incorporated by
reference herein. For further information about Technology Fund, stockholders
should refer to Technology Fund's Statement of Additional Information, dated
June 30, 1998, which accompanies this Statement of Additional Information and is
incorporated by reference herein.
FINANCIAL STATEMENTS
Pro forma financial statements reflecting consummation of the
Reorganization are included herein.
GLOBAL TECHNOLOGY FUND
Unaudited financial statements and accompanying notes for the period June
26, 1998 through September 30, 1998 of Global Technology Fund are incorporated
by reference from Global Technology Fund's Semi-Annual Report to Shareholders.
TECHNOLOGY FUND
Audited financial statements and accompanying notes for the fiscal year
ended March 31, 1998, and the independent auditor's report thereon, dated May 6,
1998, of Technology Fund are incorporated by reference from Technology Fund's
Statement of Additional Information, dated June 30, 1998.
2
<PAGE> 53
PRO FORMA FINANCIAL STATEMENTS OF THE GLOBAL TECHNOLOGY FUND
AND THE TECHNOLOGY FUND AS OF SEPTEMBER 30, 1998 TO BE FILED BY AMENDMENT.
<PAGE> 54
MERRILL LYNCH TECHNOLOGY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn
and Philip M. Mandel as proxies, each with the power to appoint his substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all of the shares of common stock of Merrill Lynch
Technology Fund, Inc. (the "Fund") held of record by the undersigned on
, 1998, at a Special Meeting of Stockholders of the Fund to be held
on , 1998, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSAL 1.
By signing and dating this card, you authorize the proxies to
vote each proposal as marked, or if not marked, to vote "FOR" each proposal, and
to use their discretion to vote for any other matter as may properly come before
the meeting or any adjournment thereof. If you do not intend to personally
attend the meeting, please complete and return this card at once in the enclosed
envelope.
TO VOTE MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION
FOR YOUR RECORDS
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN
THIS PORTION ONLY
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney or as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized
persons.
Vote on Proposal
1. To approve the Agreement and Plan of Reorganization between
Merrill Lynch Technology Fund, Inc. and Merrill Lynch Global
Technology Fund, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
Signature (PLEASE Date Signature (Joint Owners) Date
SIGN WITHIN BOX)
<PAGE> 55
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
Reference is made to Article V of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Class A, Class B, Class C and Class D
Distribution Agreements.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent directors, after
review of the facts, that such officer or director is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Each officer and director of the Registrant claiming indemnification within
the scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland; provided, however,
that the person seeking indemnification shall provide to the Registrant a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Registrant has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Registrant for his undertaking; (b) the Registrant is insured against losses
arising by reason of the advance; (c) a majority of a quorum of non-party
independent directors, or independent legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the Registrant at the
time the advance is proposed to be made, that there is reason to believe that
the person seeking indemnification will ultimately be found to be entitled to
indemnification.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his or her activities as an
officer or director of the Registrant. The Registrant, however, may not purchase
insurance on behalf of any officer or director of the Registrant that protects
or purports to protect such person from liability to the Registrant or to its
stockholders to which such officer or director would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
In Section 9 of the Class A, Class B, Class C and Class D Distribution
Agreements relating to the securities being offered hereby, the Registrant
agrees to indemnify the Distributor and each person, if any, who controls the
Distributor within the meaning of the Securities Act of 1933 (the "1933 Act"),
against certain types of civil liabilities arising in connection with the
Registration Statement or Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to Directors, officers and controlling persons of the Registrant
and the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In
C-1
<PAGE> 56
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a Director,
officer, or controlling person of the Registrant and the principal underwriter
in connection with the successful defense of any action, suit or proceeding) is
asserted by such Director, officer or controlling person or the principal
underwriter in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C> <C>
(1)(a) -- Articles of Incorporation of the Registrant, dated March 24,
1998.(a)
(1)(b) -- Articles of Amendment to Articles of Incorporation of the
Registrant, dated May 6, 1998.(b)
(2) -- Amended and Restated By-Laws of the Registrant.(b)
(3) -- Not applicable.
(4) -- Form of Agreement and Plan of Reorganization between the
Registrant and Merrill Lynch Technology Fund, Inc.(c)
(5) -- Copies of instruments defining the rights of stockholders,
including the relevant portions of the Articles of
Incorporation, and the By-Laws of the Registrant.(d)
(6)(a) -- Form of Management Agreement between the Registrant and
Merrill Lynch Asset Management, L.P. ("MLAM").(b)
(6)(b) -- Form of Sub-Advisory Agreement between MLAM and Merrill
Lynch Asset Management U.K. Limited.(b)
(7)(a) -- Form of Class A Shares Distribution Agreement between the
Registrant and Merrill Lynch Funds Distributor, Inc. (now
known as Princeton Funds Distributor, Inc.) (the
"Distributor").(b)
(7)(b) -- Form of Class B Shares Distribution Agreement between the
Registrant and the Distributor.(b)
(7)(c) -- Form of Class C Shares Distribution Agreement between the
Registrant and the Distributor.(b)
(7)(d) -- Form of Class D Shares Distribution Agreement between the
Registrant and the Distributor.(b)
(8) -- None.
(9) -- Form of Custody Agreement between the Registrant and Brown
Brothers Harriman & Co.(b)
(10)(a) -- Form of Class B Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(b)
(10)(b) -- Form of Class C Shares Distribution Plan and Class C Shares
Distribution Plan Sub-Agreement of the Registrant.(b)
(10)(c) -- Form of Class D Shares Distribution Plan and Class D Shares
Distribution Plan Sub-Agreement of the Registrant.(b)
(10)(d) -- Merrill Lynch Select Pricing(SM)System Plan pursuant to Rule
18f-3.(e)
(11) -- Opinion and Consent of Brown & Wood LLP, counsel for the
Registrant.(f)
(12) -- Private Letter Ruling from the Internal Revenue Service.(f)
(13) -- Not applicable.
(14)(a) -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.(f)
(14)(b) -- Consent of Deloitte & Touche LLP, independent auditors for
Merrill Lynch Technology Fund, Inc.(f)
(15) -- Not applicable.
(16) -- Power of Attorney (included on the signature page of this
Registration Statement).
(17)(a) -- Prospectus dated May 20, 1998, and Statement of Additional
Information dated May 20, 1998, of the Registrant.
(17)(b) -- Semi-Annual Report to Shareholders of the Registrant.(f)
(17)(c) -- Prospectus dated June 30, 1998, and Statement of Additional
Information dated June 30, 1998, of Merrill Lynch Technology
Fund, Inc.
</TABLE>
C-2
<PAGE> 57
- ---------------
(a) Filed on March 31, 1998, as an Exhibit to the Registrant's Registration
Statement on Form N-1A (File No. 333-48929) under the Securities Act of
1933 (the "Registration Statement").
(b) Filed on May 20, 1998 as an Exhibit to Pre-Effective Amendment No. 1 to the
Registration Statement.
(c) Included as Exhibit I to the Proxy Statement and Prospectus contained in
this Registration Statement.
(d) Reference is made to Articles IV, V (Sections 3, 5, 6 and 7), VI, VII and IX
of the Registrant's Articles of Incorporation, as amended, filed as Exhibits
1(a) and 1(b) to the Registration Statement; and to Articles II, III
(Sections 1, 3, 5 and 6), VI, VII, XIII and XIV of the Registrant's By-Laws,
filed as Exhibit 2 to the Registration Statement.
(e) Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A under the Securities Act of
1933, as amended, filed on January 25, 1996, relating to shares of Merrill
Lynch New York Municipal Bond Fund series of Merrill Lynch Multi-State
Municipal Series Trust (File No. 2-99473).
(f) To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through use of a prospectus which is part of this
Registration Statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act of 1933, as amended, the
reoffering prospectus will contain information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, as
amended, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of securities at
that time shall be deemed to be the initial bona fide offering of them.
(3) The Registrant undertakes to file, by post-effective amendment, either
a copy of the Internal Revenue Service private letter ruling applied for or an
opinion of counsel as to certain tax matters, within a reasonable time after
receipt of such ruling or opinion.
C-3
<PAGE> 58
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the Township of Plainsboro and State
of New Jersey, on the 2nd day of November, 1998.
MERRILL LYNCH GLOBAL TECHNOLOGY FUND,
INC.
(Registrant)
/s/ ARTHUR ZEIKEL
---------------------------------------
(ARTHUR ZEIKEL, PRESIDENT)
Each person whose signature appears below hereby authorizes Arthur Zeikel,
Terry K. Glenn and Gerald M. Richard, or any of them, as attorney-in-fact, to
sign on his behalf, individually and in each capacity stated below, any
amendments to this Registration Statement (including post-effective amendments)
and to file the same, with all exhibits thereto, with the Securities and
Exchange Commission.
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ARTHUR ZEIKEL President (Principal November 2, 1998
--------------------------------------------------- Executive Officer) and
(ARTHUR ZEIKEL) Director
/s/ GERALD M. RICHARD Treasurer (Principal November 2, 1998
--------------------------------------------------- Financial and Accounting
(GERALD M. RICHARD) Officer)
/s/ DONALD CECIL Director November 2, 1998
---------------------------------------------------
(DONALD CECIL)
/s/ EDWARD H. MEYER Director November 2, 1998
---------------------------------------------------
(EDWARD H. MEYER)
/s/ CHARLES C. REILLY Director November 2, 1998
---------------------------------------------------
(CHARLES C. REILLY)
/s/ RICHARD R. WEST Director November 2, 1998
---------------------------------------------------
(RICHARD R. WEST)
/s/ EDWARD D. ZINBARG Director November 2, 1998
---------------------------------------------------
(EDWARD D. ZINBARG)
/s/ ROLAND M. MACHOLD Director November 2, 1998
---------------------------------------------------
(ROLAND M. MACHOLD)
</TABLE>
C-4
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
17(a) -- Prospectus dated May 20, 1998, and Statement of Additional
Information dated May 20, 1998, of the Registrant.
17(c) -- Prospectus dated June 30, 1998, and Statement of Additional
Information dated June 30, 1998 of Merrill Lynch Technology
Fund, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 17(A)
PROSPECTUS
MAY 20, 1998
MERRILL LYNCH GLOBAL TECHNOLOGY FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Global Technology Fund, Inc. (the "Fund") is a diversified,
open-end management investment company that seeks long-term capital appreciation
through worldwide investment in equity securities of issuers that, in the
opinion of Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager"),
derive a substantial portion of their income from products and services in
technology related industries. The Fund will pursue this objective by investing
primarily in a global portfolio of securities of issuers that are, and are
expected to remain, leaders in their product or service niches as measured by
market share and superiority in technology. In addition, part of the Fund's
portfolio will be invested in issuers which management believes are likely to
develop leadership positions. Although the Fund will not concentrate its
investments in any one industry, it is contemplated that substantial investments
will be made in issuers engaged in such technology related industries as
telecommunications equipment, computers, semiconductors, networking, internet
and on-line service companies, office automation, server hardware producers and
software companies (e.g., design, consumer and industrial). The Fund should be
considered as a means of diversifying an investment portfolio and not itself a
balanced investment program. The Fund may employ a variety of techniques,
including derivative investments, to hedge against market and currency risk or
to gain exposure to equity markets. There can be no assurance that the Fund's
investment objective will be achieved. For more information on the Fund's
investment objective and policies, please see "Investment Objective and
Policies" on page 12.
Investments on an international basis in foreign securities markets involve
risks and special considerations not typically associated with investments in
securities of United States issuers. See "Risk Factors and Special
Considerations."
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select Pricing(SM) System" on page 3.
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), P.O. Box 9081,
Princeton, New Jersey 08543-9081 ((609) 282-2800), and other securities dealers
which have entered into selected dealer agreements with the Distributor,
including Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
will solicit subscriptions for shares of the Fund during a period expected to
end on June 23, 1998, unless extended. On the third business day after the
conclusion of the subscription period, the subscriptions will be payable, the
shares will be issued and the Fund will commence operations. The public offering
price of the shares during the subscription offering will be $10.00 per share in
the case of Class B and Class C shares and $10.00 per share plus a sales charge
of $.554, subject to reductions on purchases in single transactions of $25,000
or more, in the case of Class A and Class D shares. After the completion of the
initial subscription offering, the Fund will engage in a continuous offering of
its shares as described herein under "Merrill Lynch Select Pricing(SM) System."
The minimum initial purchase during the subscription and continuous offerings is
$1,000 and the minimum subsequent purchase in the continuous offering is $50,
except that for certain 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 $250 and the minimum
subsequent purchase is $50. Merrill Lynch may charge its customers a processing
fee (presently $5.35) for confirming purchases and repurchases. Purchases and
redemptions made directly through Merrill Lynch Financial Data Services, Inc.
(the "Transfer Agent") are not subject to the processing fee. See "Purchase of
Shares" and "Redemption of Shares."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
This Prospectus is a concise statement of information about the Fund that is
relevant to making an investment in the Fund. This Prospectus should be retained
for future reference. A statement containing additional information about the
Fund, dated May 20, 1998 (the "Statement of Additional Information"), has been
filed with the Securities and Exchange Commission (the "Commission") and is
available, without charge, by calling or by writing the Fund at the above
telephone number or address. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
materials 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 -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE> 2
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION>
CLASS A(a) CLASS B(b) CLASS C CLASS D
---------- ---------- -------- -------
<S> <C> <C> <C> <C>
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 1.0% for None(d)
year, decreasing 1.0% one
annually to 0.0% after year(f)
the fourth year(e)
Exchange Fee................................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS):
Investment Advisory Fees(g).................... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees (includes account maintenance fees
and distribution fees)(h):................... None 1.00% 1.00% 0.25%
(Class B shares convert
to Class D shares
automatically after
approximately eight
years and cease being
subject to distribution
fees)
Other Expenses(i):
Shareholder Servicing Costs(j)................. .12% .12% .12% .12%
Other.......................................... .27% .27% .27% .27%
---- ---- ---- ----
Total Other Expenses......................... .39% .39% .39% .39%
---- ---- ---- ----
Total Fund Operating Expenses.................. 1.39% 2.39% 2.39% 1.64%
==== ==== ==== ====
</TABLE>
- ---------------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and certain participants in
fee-based programs. See "Purchase of Shares -- Initial Sales Charge
Alternatives -- Class A and Class D Shares" on page 26 and "Shareholder
Services -- Fee-Based Programs" on page 37.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares" on page 27.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of
Class A shares by certain retirement plans and participants in certain
fee-based programs. Class A and Class D purchases of $1,000,000 or more may
not be subject to an initial sales charge. See "Purchase of
Shares -- Initial Sales Charge Alternatives -- Class A and Class D Shares"
on page 26.
(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" on page 37.
(e) The CDSC may be modified in connection with certain fee-based programs. See
"Shareholder Services -- Fee-Based Programs" on page 37.
(f) The CDSC may be waived in connection with certain fee-based programs. See
"Shareholder Services -- Fee-Based Programs" on page 37.
(g) See "Management of the Fund -- Management and Advisory Arrangements" on
page 20.
(h) See "Purchase of Shares -- Distribution Plans" on page 30.
(i) Information under "Other Expenses" is estimated for the Fund's first fiscal
year ending March 31, 1999.
(j) See "Management of the Fund -- Transfer Agency Services" on page 22.
2
<PAGE> 3
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
-----------------------
1 YEAR 3 YEARS
------- --------
<S> <C> <C>
An investor would pay the following expenses on a $1,000
investment including the maximum $52.50 initial sales
charge (Class A and Class D shares only) and assuming (1)
the Total Fund Operating Expenses for each class set forth
on page 2, (2) a 5% annual return throughout the periods
and (3) redemption at the end of the period (including any
applicable CDSC for Class B and Class C shares):
Class A................................................ $66 $ 94
Class B................................................ $64 $ 95
Class C................................................ $34 $ 75
Class D................................................ $68 $102
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
Class B................................................ $24 $ 75
Class C................................................ $24 $ 75
Class D................................................ $68 $102
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The expenses set forth under "Other Expenses" are based on estimated
amounts through the end of the Fund's first fiscal year on an annualized basis.
The Example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by Commission
regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR ANNUAL RATE OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATE OF
RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class
B and Class C shareholders who hold their shares for an extended period of time
may pay more in Rule 12b-1 distribution fees than the economic equivalent of the
maximum front-end sales charge permitted under the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD"). Merrill Lynch may charge
its customers a processing fee (presently $5.35) for confirming purchases and
repurchases. Purchases and redemptions made directly through the Fund's Transfer
Agent are not subject to the processing fee. See "Purchase of Shares" and
"Redemption of Shares."
MERRILL LYNCH SELECT PRICING(SM) SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives, and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. The Merrill Lynch Select Pricing(SM) System is used by more than
50 registered investment companies advised by MLAM or Fund Asset Management,
L.P. ("FAM"), an
3
<PAGE> 4
affiliate of MLAM. Funds advised by MLAM or FAM that utilize the Merrill Lynch
Select Pricing(SM) System are referred to herein as "MLAM-advised mutual funds."
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
CDSCs, distribution fees and account maintenance fees that are imposed on Class
B and Class C shares, as well as the account maintenance fees that are imposed
on Class D shares, are imposed directly against those classes and not against
all assets of the Fund and, accordingly, such charges will not affect the net
asset value of any other class or have any impact on investors choosing another
sales charge option. Dividends paid by the Fund for each class of shares will be
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Each class has different exchange privileges. See "Shareholder
Services -- Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the CDSCs and distribution fees with respect to the Class B and Class C
shares in that the sales charges and distribution fees, if any, applicable to
each class provide for the financing of the distribution of the shares of the
Fund. The distribution-related revenues paid with respect to a class will not be
used to finance the distribution expenditures of another class. Sales personnel
may receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM 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 PricingSM 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."
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A Maximum 5.25% initial sales charge(2)(3) No No No
-----------------------------------------------------------------------------------------------------------------
B CDSC for a period of four years, at a rate
of 4.0% during the first year, decreasing B shares convert to
1.0% annually to 0.0%(4) 0.25% 0.75% D shares automatically
after approximately
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
-----------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs are imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares -- Initial Sales
Charge Alternatives -- Class A and Class D Shares -- Eligible Class A
Investors."
(3) Reduced for purchases of $25,000 or more and waived for purchases of Class A
shares by certain retirement plans and participants in connection with
certain fee-based programs. Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but instead
may be subject to a 1.0% CDSC if redeemed within one year. Such CDSC may be
waived in connection with certain fee-based programs. A 0.75% sales charge
for 401(k) purchases over $1,000,000 will apply. See "Class A" and "Class D"
below.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and the conversion
and holding periods for certain retirement plans are modified. Also, Class B
shares of certain other MLAM-advised mutual funds into which exchanges may
be made have a ten-year conversion period. If Class B shares of the Fund are
exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked
onto the holding period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares.
Investors who currently own Class A shares of the Fund in a shareholder
account are entitled to purchase additional Class A shares of the Fund
in that account. Other eligible investors include 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 the Manager, FAM and
certain other entities directly or indirectly wholly owned and
controlled by ML & Co.), and their directors and employees and to
members of the Boards of MLAM-advised mutual funds. The maximum initial
sales charge is 5.25%, which is reduced for purchases of $25,000 and
over and waived for purchases 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
which takes into account the investor's holdings of all classes of all
MLAM-advised mutual funds. See "Purchase of Shares -- Initial Sales
Charge Alternatives -- Class A and Class D Shares."
Class B: Class B shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75% of the Fund's average net assets
attributable to Class B shares, as well as a CDSC if they are redeemed
within four years of purchase. Such CDSC may be modified in connection
with certain fee-based programs. Approximately eight years after
issuance, Class B shares will convert automatically into Class D shares
of the Fund, which are subject to an account maintenance fee but no
distribution fee; Class B shares of certain other MLAM-advised mutual
funds into which exchanges may be made
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<PAGE> 6
convert into Class D shares automatically after approximately ten
years. If Class B shares of the Fund are exchanged for Class B shares
of another MLAM-advised mutual fund, the conversion period applicable
to the Class B shares acquired in the exchange will apply, as will the
Class D account maintenance fee of the acquired fund upon the
conversion, and the holding period for the shares exchanged will be
tacked onto the holding period for the shares acquired. Automatic
conversion of Class B shares into Class D shares will occur at least
once a month on the basis of the relative net asset values of the
shares of the two classes on the conversion date, without the
imposition of any sales load, fee or other charge. Conversion of Class
B shares to Class D shares will not be deemed a purchase or sale of the
shares for Federal income tax purposes. Shares purchased through
reinvestment of dividends on Class B shares also will convert
automatically to Class D shares. The conversion period for dividend
reinvestment shares and for certain retirement plans is modified as
described under "Purchase of Shares -- Deferred Sales Charge
Alternatives -- Class B and Class C Shares -- Conversion of Class B
Shares to Class D Shares."
Class C: Class C shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75% of the Fund's average net assets
attributable to Class C shares. Class C shares are also subject to a
1.0% CDSC if they are redeemed within one year of purchase. Such CDSC
may be waived in connection with certain fee-based programs. Although
Class C shares are subject to a CDSC for only one year (as compared to
four years for Class B), Class C shares have no conversion feature and,
accordingly, an investor who purchases Class C shares will be subject
to distribution fees that will be imposed on Class C shares for an
indefinite period subject to annual approval by the Fund's Board of
Directors and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Fund's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. The maximum initial sales charge is 5.25%, which is
reduced for purchases of $25,000 and over. Purchases of $1,000,000 or
more may not be subject to an initial sales charge, but if the initial
sales charge is waived such purchases may be subject to a 1.0% CDSC if
the shares are redeemed within one year after purchase. Such CDSC may
be waived in connection with certain fee-based programs. The schedule
of initial sales charges and reductions for Class D shares is the same
as the schedule for Class A shares, except that there is no waiver for
purchases 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
PricingSM 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
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<PAGE> 7
significantly reduced initial sales charges may find the initial sales charge
alternative particularly attractive because similar sales charge reductions are
not available with respect to the CDSCs imposed in connection with purchases of
Class B or Class C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or
Class C shares may exceed the initial sales charge and, in the case of Class D
shares, the account maintenance fee. Although some investors who previously
purchased Class A shares may no longer be eligible to purchase Class A shares of
other MLAM-advised mutual funds, those previously purchased Class A shares,
together with Class B, Class C and Class D share holdings, will count toward a
right of accumulation that may qualify the investor for reduced initial sales
charges on new initial sales charge purchases. In addition, the ongoing Class B
and Class C account maintenance and distribution fees will cause Class B and
Class C shares to have higher expense ratios, pay lower dividends and have lower
total returns than the initial sales charge shares. The ongoing Class D account
maintenance fees will cause Class D shares to have a higher expense ratio, pay
lower dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. The deferred sales charge alternatives may be particularly appealing to
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account maintenance fees and
distribution fees; however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return is realized on the
additional funds initially invested in Class B or Class C shares. In addition,
Class B shares will be converted into Class D shares of the Fund after a
conversion period of approximately eight years, and thereafter investors will be
subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. Investors in Class B shares
should take into account whether they intend to redeem their shares within the
CDSC period and, if not, whether they intend to remain invested until the end of
the conversion period and thereby take advantage of the reduction in ongoing
fees resulting from the conversion into Class D shares. Other investors,
however, may elect to purchase Class C shares if they determine that it is
advantageous to have all their assets invested initially and they are uncertain
as to the length of time they intend to hold their assets in MLAM-advised mutual
funds. Although Class C shareholders are subject to a shorter CDSC period at a
lower rate, they forego the Class B conversion feature, making their investment
subject to account maintenance and distribution fees for an indefinite period of
time. In addition, while both Class B and Class C distribution fees are subject
to the limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See "Purchase of Shares -- Limitations on the Payment of Deferred
Sales Charges."
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<PAGE> 8
RISK FACTORS AND SPECIAL CONSIDERATIONS
GENERAL
Because the Fund invests in securities of issuers in technology related
industries, investors should be aware of certain risk factors and considerations
related to such investments. Also, because a substantial portion of the Fund's
assets may be invested in securities of non-U.S. issuers, an investor in the
Fund should be aware of certain risk factors and special considerations relating
to international investing, which may involve risks that are not typically
associated with investments in securities of U.S. issuers. The Fund should be
considered as a means of diversifying an investment portfolio and not in itself
a balanced investment program. The Fund may be appropriate only for long-term
investors who can assume the risk of loss of principal, do not seek current
income and can accommodate taxable distributions of income and capital gains.
INVESTMENTS IN TECHNOLOGY
Technology oriented investment companies such as the Fund, as with other
sector funds, may be subject to rapidly changing asset inflows and outflows,
which could affect portfolio management and investment decisions. Moreover, the
Fund's investments in securities of technology related issuers present certain
risks that may not exist to the same degree in other types of investments.
Technology securities, in general, tend to be relatively volatile as compared to
other types of investments. Any such volatility will be reflected in changes in
the Fund's net asset value. While volatility may create investment
opportunities, it does entail risk.
While the Fund will invest in the securities of entities in a variety of
different industries considered by the Manager of the Fund to be technology
related, many of those entities share common characteristics which may affect an
investment in the Fund. For example, industries throughout the technology field
include many smaller and less seasoned issuers. Although the Fund will seek to
invest primarily in well established companies that are typically large and
mid-cap issuers, the Fund also may invest in smaller issuers. These types of
issuers may present greater opportunities for capital appreciation, but may also
involve greater risks. Such small-cap issuers may have limited product lines,
markets, or financial resources, or may depend on a limited management group. In
addition, the securities of smaller issuers trade less frequently and in smaller
volume, and may be subject to more abrupt or erratic price movements or may be
more sensitive to market fluctuations than the securities of larger, more
established companies. The issuers in which the Fund invests are also strongly
affected by worldwide scientific or technological developments, and their
products may rapidly fall into obsolescence. Certain of such issuers also offer
products or services that are subject to governmental regulation and may,
therefore, be affected adversely by governmental policies.
INVESTING ON AN INTERNATIONAL BASIS
Specific Risks. Investing on an international basis involves certain risks
not involved in domestic investments, including fluctuations in foreign exchange
rates, future political and economic developments, different legal systems and
the possible imposition of exchange controls or other foreign governmental laws
or restrictions. Securities prices in different countries are subject to
different economic, financial, political and social factors. Since the Fund may
invest in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates may affect the value of
securities in the Fund and the unrealized appreciation or depreciation of
investments. Currencies of certain countries may be volatile and therefore may
affect the value of securities denominated in such currencies. In addition, with
respect to certain foreign countries, there is the possibility of expropriation
of assets, confiscatory taxation, difficulty in obtaining or enforcing a court
judgment, economic, political or social instability or diplomatic developments
that could
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<PAGE> 9
affect investments in those countries. Moreover, individual foreign economies
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross domestic product, rates of inflation, capital reinvestment,
resources, self-sufficiency and balance of payments position. Certain foreign
investments also may be subject to foreign withholding taxes. These risks often
are heightened for investments in smaller, emerging capital markets.
As a result of these potential risks, the Manager may determine that,
notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular country. The Fund may
invest in countries in which foreign investors, including the Manager, have had
no or limited prior experience.
Public Information. Many of the securities held by the Fund may not be
registered with the Commission, nor will the issuers thereof be subject to the
reporting requirements of such agency. Accordingly, there may be less publicly
available information about a foreign issuer than about a U.S. issuer and such
foreign issuers may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those of U.S. issuers. As a
result, traditional investment measurements, such as price/earnings ratios, as
used in the United States, may not be applicable to certain smaller, emerging
foreign capital markets. Foreign issuers, and issuers in smaller, emerging
capital markets in particular, generally are not subject to uniform accounting,
auditing and financial reporting standards or to practices and requirements
comparable to those applicable to domestic issuers.
Trading Volume, Clearance and Settlement. Foreign financial markets, while
often growing in trading volume, have, for the most part, substantially less
volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices may be more volatile than securities of comparable
domestic companies. Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
failed to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Further, satisfactory custodial services
for investment securities may not be available in some countries having smaller,
emerging capital markets, which may result in the Fund incurring additional
costs and delays in transporting and custodying such securities outside such
countries. Delays in settlement could result in periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems or the risk of
intermediary counterparty failures could cause the Fund to miss attractive
investment opportunities. The inability to dispose of a portfolio security due
to settlement problems could result either in losses to the Fund due to
subsequent declines in the value of such portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser.
Government Supervision and Regulation. There generally is less governmental
supervision and regulation of exchanges, brokers and issuers in foreign
countries than there is in the United States. For example, there may be no
comparable provisions under certain foreign laws to insider trading and similar
investor protection securities laws that apply with respect to securities
transactions consummated in the United States. Further, brokerage commissions
and other transaction costs on foreign securities exchanges generally are higher
than in the United States.
Depositary Receipts. The Fund may purchase sponsored or unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
Global Depositary Receipts ("GDRs") (collectively, "Depositary Receipts") or
other securities convertible into securities of foreign issuers. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In addition, the issuers
of the securities underlying unsponsored Depositary Receipts
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<PAGE> 10
are not obligated to disclose material information in the United States, and
therefore, there may be less information available regarding such issuers and
there may not be a correlation between such information and the market value of
the Depositary Receipts. Depositary Receipts also involve the risks of other
investments in foreign securities, as discussed above.
Restrictions on Foreign Investment. Some countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the Fund. As illustrations,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment by foreign persons in a company to only a
specific class of securities that may have less advantageous terms than
securities of the company available for purchase by nationals. Certain countries
may restrict investment opportunities in issuers or industries deemed important
to national interests.
A number of countries have authorized the formation of closed-end
investment companies to facilitate indirect foreign investment in their capital
markets. In accordance with the Investment Company Act of 1940, as amended (the
"Investment Company Act"), the Fund may invest up to 10% of its total assets in
securities of closed-end investment companies, not more than 5% of which may be
invested in any one such company. This restriction on investments in securities
of closed-end investment companies may limit opportunities for the Fund to
invest indirectly in certain smaller capital markets. Shares of certain
closed-end investment companies may at times be acquired only at market prices
representing premiums to their net asset values. If the Fund acquires shares in
closed-end investment companies, shareholders would bear both their
proportionate share of expenses in the Fund (including investment advisory fees)
and, indirectly, the expenses of such closed-end investment companies. The Fund
also may seek, at its own cost, to create its own investment entities under the
laws of certain countries.
BORROWING
The Fund may borrow up to 33 1/3% of its total assets (including the amount
borrowed), taken at market value, but only from banks as a temporary measure for
extraordinary or emergency purposes, including to meet redemptions (so as not to
force the Fund to liquidate securities at a disadvantageous time) or to settle
securities transactions. The Fund will not purchase securities at any time when
borrowings exceed 5% of its total assets, except (a) to honor prior commitments
or (b) to exercise subscription rights when outstanding borrowings have been
obtained exclusively for settlements of other securities transactions. The
purchase of securities while borrowings are outstanding will have the effect of
leveraging the Fund. Such leveraging increases the Fund's exposure to capital
risk, and borrowed funds are subject to interest costs that will reduce net
income.
DERIVATIVE INVESTMENTS
In order to seek to hedge various portfolio positions or to gain exposure
to equity markets, the Fund may invest in certain instruments that may be
characterized as derivatives. These instruments include various types of options
transactions, futures and options thereon and currency transactions.
Such investments also may consist of swap agreements and indexed
securities. The Fund may also invest in listed options on indices including the
Merrill Lynch 100 Technology Index, which is an index of technology related
equity securities, the options of which are traded on the American Stock
Exchange pursuant to a license granted by an affiliate of the Manager. The Fund
has express limitations on the percentage of its assets that may be committed to
certain of such investments. Other such investments have no express quantitative
10
<PAGE> 11
limitations, although they may be made solely for hedging purposes, not for
speculation, and may in some cases require limitations as to the type of
permissible counterparty to the transactions. Swap agreements entail the risk
that a counterparty will default on its payment obligations to the Fund
thereunder.
Investments in indexed securities subject the Fund to the risks associated
with changes in the particular indices, which may include losses of amounts
invested. Options transactions involve the potential loss of the opportunity to
profit from any price increase in the underlying security above the option
exercise price or the potential loss of the premium paid for an option.
Similarly, utilization of futures and options thereon and currency transactions
involves the risk of imperfect correlation in movements in the price of futures,
options or currency hedge and movements in the price of the securities or
currency which are the subject of the hedge. For a further discussion of the
risks associated with these investments, see "Investment Objective and
Policies -- Description of Certain Investments -- Swap Agreements," " -- Indexed
and Inverse Securities," " -- Other Investment Policies and
Practices -- Portfolio Strategies Involving Options, Futures and Foreign
Exchange Transactions" and the Appendix to this Prospectus, "Investment
Practices Involving the Use of Options, Futures and Foreign Exchange."
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in securities that lack an
established secondary trading market or otherwise are considered illiquid.
Liquidity of a security relates to the ability to dispose easily of the security
and the price to be obtained upon disposition of the security, which may be less
than would be obtained for a comparable more liquid security. Investment of the
Fund's assets in illiquid securities may restrict the ability of the Fund to
dispose of its investments in a timely fashion and for a fair price as well as
its ability to take advantage of market opportunities. The risks associated with
illiquidity will be particularly acute in situations in which the Fund's
operations require cash, such as when the Fund redeems shares or pays dividends,
and could result in the Fund borrowing to meet short-term cash requirements or
incurring capital losses on the sale of illiquid investments. Further, issuers
whose securities are not publicly traded are not subject to the disclosure and
other investor protection requirements that would be applicable if their
securities were publicly traded. In making investments in such securities, the
Fund may obtain access to material nonpublic information which may restrict the
Fund's ability to conduct portfolio transactions in such securities. In
addition, the Fund may invest in privately placed securities that may or may not
be freely transferable under the laws of the applicable jurisdiction or due to
contractual restrictions on resale. See "Investment Objective and
Policies -- Description of Certain Investments -- Illiquid Securities" on page
14.
WITHHOLDING AND OTHER TAXES
Income and capital gains on securities held by the Fund may be subject to
withholding and other taxes imposed by certain jurisdictions, which would reduce
the return to the Fund on those securities. The Fund intends, unless ineligible,
to elect to "pass-through" to the Fund's shareholders the amount of foreign
taxes paid by the Fund. The taxes passed through to shareholders will be
included in each shareholder's income and could potentially be offset by either
a deduction or a credit. Certain shareholders, including non-U.S. shareholders,
will not be entitled to the benefit of a deduction or credit with respect to
foreign taxes paid by the Fund. Non-U.S. shareholders may nevertheless be
subject to withholding tax on the foreign taxes included in their income. Other
taxes, such as transfer taxes, may be imposed on the Fund, but would not give
rise to a credit or deduction for shareholders.
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<PAGE> 12
FEES AND EXPENSES
The management fee (at the annual rate of 1.0% of the Fund's average daily
net assets) and other operating expenses of the Fund may be higher than the
management fees and operating expenses of other mutual funds managed by the
Manager and other investment advisers or of investment companies investing
exclusively in the securities of U.S. issuers. The management fees and operating
expenses, however, are believed by the Manager to be comparable to expenses of
other open-end management investment companies that invest on a global basis
with investment objectives similar to the investment objective of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital
appreciation through worldwide investment in equity securities of issuers that,
in the opinion of the Manager, derive a substantial portion of their income from
technology related industries. The Fund will pursue this objective by investing
in a global portfolio of securities of issuers that are, and are expected to
remain, leaders in their product or service niches as measured by market share
and superiority in technology. In addition, part of the Fund's portfolio will be
invested in issuers which management believes are likely to develop leadership
positions. Current income from dividends and interest will not be an important
consideration in selecting portfolio securities. The investment objective of the
Fund described in the first sentence of this paragraph is a fundamental policy
of the Fund and may not be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. There can be no assurance
that the Fund's investment objective will be achieved.
The investment objective of the Fund is based upon the belief that
continuing advances in technology are providing issuers throughout the world
with opportunities to develop innovative products and services and that
investment in such issuers offers significant long-term growth possibilities.
The Fund will invest in issuers offering products and services in
telecommunications equipment, computers, semiconductors, networking, internet
and on-line service companies, office automation, server hardware producers and
software companies (e.g., design, consumer and industrial). The Fund will not
invest more than 25% of its total assets in any one industry.
The Fund will invest in a portfolio of securities of issuers located
throughout the world. While there are no prescribed limits on geographic asset
distribution, based upon the public market values in the world equity markets
and anticipated technological innovations, it is presently contemplated that a
majority of the Fund's assets will be invested in the securities of issuers
domiciled in the United States, Japan and Western Europe. Western European
countries include, among others, the United Kingdom, Germany, The Netherlands,
Switzerland, Sweden, France, Italy, Belgium, Norway, Denmark, Finland, Portugal,
Austria and Spain. The Fund may restrict the securities markets in which its
assets will be invested and may increase the proportion of assets invested in
U.S. securities markets. As a result, when the Manager believes it is in the
best interests of the shareholders of the Fund, the Fund may have few
investments outside the United States.
Since the Fund will invest primarily in issuers that are, and are expected
to remain, leaders in their product or service niches, it is expected that
investment emphasis will be given to issuers having large stock market
capitalizations ($5 billion or more). It is contemplated, however, that a
portion of the Fund's assets will be invested in issuers the Fund has identified
as emerging leaders in their industries that would be considered mid-cap issuers
(capitalization between $1 and $5 billion) or small-cap issuers (capitalization
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<PAGE> 13
below $1 billion). Investments in issuers with lower market capitalization may
involve special risks. See "Risk Factors and Special
Considerations -- Investments in Technology."
There is no assurance that the Manager will be able to generate positive
returns for the Fund, especially in light of the inherently volatile nature of
the stock sector in which its assets are invested. While volatility may create
investment opportunities, it does entail risk and may result in a high rate of
portfolio turnover. See "Other Investment Policies and Practices -- Portfolio
Turnover" below.
Investment emphasis will be on equity securities, primarily common stocks
and, to a lesser extent, securities convertible into common stocks, preferred
stocks, rights to subscribe for common stock and other investments the return on
which is determined by the performance of a common stock or a basket or index of
common stocks. The Fund anticipates that under normal conditions at least 65% of
its total assets will be invested in equity securities of technology related
issuers from at least three different countries, including the United States.
The Fund should be considered as a means of diversifying an investment
portfolio and not in itself a balanced investment program. The Fund may be
appropriate only for long-term investors who can assume the risk of loss of
principal, do not seek current income and can accommodate taxable distributions
of income and capital gains.
DESCRIPTION OF CERTAIN INVESTMENTS
Temporary Investments. The Fund reserves the right, as a temporary
defensive measure, to hold in excess of 35% of its total assets in cash or cash
equivalents in U.S. dollars or foreign currencies and investment grade,
short-term securities including money market securities denominated in U.S.
dollars or foreign currencies ("Temporary Investments") the issuers of which may
not be involved in technology. Under certain adverse investment conditions, the
Fund may restrict the markets in which its assets will be invested and may
increase the proportion of assets invested in Temporary Investments. Investments
made for defensive purposes will be maintained only during periods in which the
Manager determines that economic or financial conditions are adverse for holding
or being fully invested in equity securities. A portion of the Fund normally
would be held in Temporary Investments in anticipation of investment in equity
securities or to provide for possible redemptions.
Depositary Receipts. The Fund may invest in the securities of foreign
issuers in the form of Depositary Receipts or other securities convertible into
securities of foreign issuers. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. ADRs are receipts typically issued by an American bank or
trust company that evidence ownership of underlying securities issued by a
foreign corporation. EDRs are receipts issued in Europe that evidence a similar
ownership arrangement. GDRs are receipts issued throughout the world that
evidence a similar arrangement. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets, and EDRs, in bearer form, are
designed for use in European securities markets. GDRs are tradable both in the
U.S. and in Europe and are designed for use throughout the world. The Fund may
invest in unsponsored Depositary Receipts. The issuers of unsponsored Depositary
Receipts are not obligated to disclose material information in the United
States, and therefore, there may be less information available regarding such
issuers and there may not be a correlation between such information and the
market value of the Depositary Receipts.
Warrants. The Fund may invest in warrants, which are securities
permitting, but not obligating, their holder to subscribe for other securities.
Warrants do not carry with them the right to dividends or voting rights
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<PAGE> 14
with respect to the securities that they entitle their holders to purchase, and
they do not represent any rights in the assets of the issuer. As a result, an
investment in warrants may be considered more speculative than certain other
types of investments. In addition, the value of a warrant does not necessarily
change with the value of the underlying securities and a warrant ceases to have
value if it is not exercised prior to its expiration date.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest generally paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
several unique investment characteristics such as (i) higher yields than common
stocks, but lower yields than comparable nonconvertible securities, (ii) a
lesser degree of fluctuation in value than the underlying stock since they have
fixed-income characteristics, and (iii) the potential for capital appreciation
if the market price of the underlying common stock increases. A convertible
security might be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. If a convertible
security held by the Fund is called for redemption, the Fund may be required to
permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party.
Illiquid Securities. The Fund may invest up to 15% of its net assets in
securities that lack an established secondary trading market or otherwise are
considered illiquid. The Fund may invest in securities of issuers that are sold
in private placement transactions between the issuers and their purchasers and
that are neither listed on an exchange nor traded in other established markets.
In many cases, privately placed securities will be subject to contractual or
legal restrictions on transfer. See "Investment Restrictions" herein.
The Fund may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under the Securities Act. The Board of Directors has determined to
treat as liquid Rule 144A securities that are freely tradable in their primary
markets offshore. The Board of Directors may adopt guidelines and delegate to
the Manager the daily function of determining and monitoring liquidity of
restricted securities. The Board of Directors, however, will retain sufficient
oversight and be ultimately responsible for the determinations. The Board of
Directors will carefully monitor the Fund's investments in securities purchased
pursuant to Rule 144A, focusing on such factors, among others, as valuation,
liquidity and availability of information. Investment in these types of
securities could have the effect of increasing the level of illiquidity in the
Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing the securities.
Swap Agreements. The Fund is authorized to enter into equity swap
agreements, which are contracts in which one party agrees to make periodic
payments based on the change in market value of a specified equity security,
basket of equity securities or equity index in return for periodic payments
based on a fixed or variable interest rate or the change in market value of a
different equity security, basket of equity securities or equity index. For
example, swap agreements may be used to invest in a market without owning or
taking physical custody of securities in circumstances in which direct
investment is restricted for legal reasons or is otherwise impractical. The swap
agreement will be structured to provide for early termination in the event, for
example, that the Fund desires to lock in appreciation.
Swap agreements entail the risk that a party will default on its payment
obligations to the Fund thereunder. The Fund will seek to lessen the risk to
some extent by entering into a transaction only with
14
<PAGE> 15
financial institutions that have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
Swap agreements also bear the risk that the Fund will not be able to meet its
obligation to the counterparty. The Fund, however, will deposit in a segregated
account with its custodian liquid securities, cash or cash equivalents or other
assets permitted to be so segregated by the Commission in an amount equal to or
greater than the market value of the liabilities under the swap agreement or the
amount it would have cost the Fund initially to make an equivalent direct
investment, plus or minus any amount the Fund is obligated to pay or is to
receive under the swap agreement. The Fund will enter into a swap transaction
only if, immediately following the time the Fund enters into the transaction,
the aggregate notional principal amount of swap transactions to which the Fund
is a party would not exceed 5% of the Fund's total assets.
Indexed and Inverse Securities. The Fund may invest in securities the
potential return of which is based on the change in particular measurements of
value or rate (an "index"). As an illustration, the Fund may invest in a debt
security that pays interest and returns principal based on the change in the
value of a securities index or a basket of securities, or based on the relative
changes of two indices. In addition, the Fund may invest in securities the
potential return of which is based inversely on the change in an index. For
example, the Fund may invest in securities that pay a higher rate of interest
when a particular index decreases and pay a lower rate of interest (or do not
fully return principal) when the value of the index increases. If the Fund
invests in such securities, it may be subject to reduced or eliminated interest
payments or loss of principal in the event of an adverse movement in the
relevant index or indices.
Certain indexed and inverse securities may have the effect of providing
investment leverage because the rate of interest or amount of principal payable
increases or decreases at a rate that is a multiple of the changes in the
relevant index. As a consequence, the market value of such securities may be
substantially more volatile than the market values of other debt securities. The
Fund believes that indexed and inverse securities may provide portfolio
management flexibility that permits the Fund to seek enhanced returns, hedge
other portfolio positions or vary the degree of portfolio leverage with greater
efficiency than would otherwise be possible under certain market conditions.
Investment in Other Investment Companies. The Fund may invest in other
investment companies whose investment objectives and policies are consistent
with those of the Fund. In accordance with the Investment Company Act, the Fund
may invest up to 10% of its total assets in securities of other investment
companies. In addition, under the Investment Company Act the Fund may not own
more than 3% of the total outstanding voting stock of any investment company and
not more than 5% of the value of the Fund's total assets may be invested in the
securities of any investment company. If the Fund acquires shares in investment
companies, shareholders would bear both their proportionate share of expenses in
the Fund (including management and advisory fees) and, indirectly, the expenses
of such investment companies (including management and advisory fees).
Investments by the Fund in wholly owned investment entities created under the
laws of certain countries will not be deemed an investment in other investment
companies.
OTHER INVESTMENT POLICIES AND PRACTICES
Portfolio Strategies Involving Options, Futures and Foreign Exchange
Transactions. The Fund is authorized to engage in certain investment practices
involving the use of options, futures and foreign exchange, which may expose the
Fund to certain risks. These investment practices and the associated risks are
described in detail in the Appendix attached to this Prospectus.
15
<PAGE> 16
Portfolio Transactions. Subject to policies established by the Board of
Directors of the Fund, the Manager is primarily responsible for the execution of
the Fund's portfolio transactions. Since portfolio transactions may be effected
on foreign securities exchanges, the Fund may incur settlement delays on certain
of such exchanges. See "Risk Factors and Special Considerations." In executing
portfolio transactions, the Manager seeks to obtain the best net results for the
Fund, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution
and operational facilities of the firm involved and the firm's risk in
positioning a block of securities. While the Manager generally seeks reasonably
competitive fees, commissions or spreads, the Fund does not necessarily pay the
lowest fee, commission or spread available. The Fund may invest in certain
securities traded in the over-the-counter ("OTC") market and, where possible,
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Such
portfolio securities are generally traded on a net basis and do not normally
involve either brokerage commissions or transfer taxes. Securities firms may
receive brokerage commissions on certain portfolio transactions, including
futures, options and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options. The Fund contemplates that,
consistent with its policy of obtaining the best net results, it will place
orders for transactions with a number of brokers and dealers, including Merrill
Lynch, an affiliate of the Manager. Subject to obtaining the best price and
execution, securities firms that provide supplemental investment research to the
Manager, including Merrill Lynch, may receive orders for transactions by the
Fund. Information so received will be in addition to and not in lieu of the
services required to be performed by the Manager, and the expenses of the
Manager will not necessarily be reduced as a result of the receipt of such
supplemental information. See "Management of the Fund -- Management and Advisory
Arrangements."
Under the Investment Company Act, persons affiliated with the Fund and
persons who are affiliated with such affiliated persons, including Merrill
Lynch, are prohibited from dealing with the Fund as a principal in the purchase
and sale of securities unless a permissive order allowing such transactions is
obtained from the Commission. Affiliated persons of the Fund, and affiliated
persons of such affiliated persons, may serve as the Fund's broker in
transactions conducted on an exchange and in OTC transactions conducted on an
agency basis and may receive brokerage commissions from the Fund. In addition,
the Fund may not purchase securities during the existence of any underwriting
syndicate for such securities of which Merrill Lynch is a member or in a private
placement in which Merrill Lynch serves as placement agent except pursuant to
procedures approved by the Board of Directors of the Fund that either comply
with rules adopted by the Commission or with interpretations of the Commission
staff. In addition, consistent with the Conduct Rules of the NASD, the Fund may
consider sales of shares of the Fund as a factor in the selection of brokers or
dealers to execute portfolio transactions for the Fund. It is expected that the
majority of the shares of the Fund will be sold by Merrill Lynch. Costs
associated with transactions in foreign securities are generally higher than in
the United States, although the Fund will endeavor to achieve the best net
results in effecting its portfolio transactions.
The Fund anticipates that its brokerage transactions involving securities
of issuers domiciled in countries other than the United States generally will be
conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions generally are higher than in the United States, although the Fund
will endeavor to achieve the best net results in
16
<PAGE> 17
effecting its portfolio transactions. There generally is less governmental
supervision and regulation of foreign stock exchanges and brokers than in the
United States. See "Risk Factors and Special Considerations."
The Fund's ability and decisions to purchase and sell portfolio securities
may be affected by foreign laws and regulations relating to the convertibility
and repatriation of assets.
Lending of Portfolio Securities. The Fund, from time to time, may lend
securities from its portfolio, with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government,
which collateral is maintained at all times in an amount equal to at least 100%
of the current market value of the loaned securities. This limitation is a
fundamental policy, and it may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, as defined in
the Investment Company Act. During the period of such a loan, the Fund typically
receives the income on both the loaned securities and the collateral and thereby
increases its yield. In certain circumstances, the Fund may receive a flat fee.
Such loans are terminable at any time, and the borrower, after notice, will be
required to return borrowed securities within five business days. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or otherwise, the Fund could experience delays and costs
in gaining access to the collateral and could suffer a loss to the extent the
value of the collateral falls below the market value of the borrowed securities.
Portfolio Turnover. Generally, the Fund does not purchase securities for
short-term trading profits. However, the Fund may dispose of securities without
regard to the time they have been held when such actions, for defensive or other
reasons, appear advisable to the Manager in light of a change in circumstances
in general market, economic or financial conditions. As a result of its
investment policies, the Fund may engage in a substantial number of portfolio
transactions. Accordingly, while the Fund anticipates that its annual portfolio
turnover rate should not exceed 100% under normal conditions, it is impossible
to predict portfolio turnover rates. The portfolio turnover rate is calculated
by dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
the securities in the portfolio during the year. A high portfolio turnover rate
involves certain tax consequences and correspondingly greater transaction costs
in the form of dealer spreads and brokerage commissions, which are borne
directly by the Fund.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase or sell securities that it is entitled to receive on a when-issued
basis, and it may purchase or sell securities for delayed delivery. These
transactions occur when securities are purchased or sold by the Fund with
payment and delivery taking place in the future to secure what is considered an
advantageous yield and price to the Fund at the time of entering into the
transaction. Although the Fund has not established any limit on the percentage
of its assets that may be committed in connection with such transactions, the
Fund will maintain a segregated account with its custodian of cash, cash
equivalents, U.S. Government securities or other liquid securities denominated
in U.S. dollars or non-U.S. currencies in an aggregate amount equal to the
amount of its commitments in connection with such purchase transactions.
There can be no assurance that a security purchased on a when-issued basis
or purchased or sold for delayed delivery will be issued, and the value of the
security, if issued, on the delivery date may be more or less than its purchase
price. The Fund may bear the risk of a decline in the value of such security and
may not benefit from an appreciation in the value of the security during the
commitment period.
17
<PAGE> 18
Standby Commitment Agreements. The Fund, from time to time, may enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of equity securities that may be
issued and sold to the Fund at the option of the issuer. The price and coupon of
the security is fixed at the time of the commitment. At the time of entering
into the agreement the Fund is paid a commitment fee, regardless of whether or
not the security is ultimately issued, which is typically approximately 0.50% of
the aggregate purchase price of the security that the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a price that is
considered advantageous to the Fund. The Fund will not enter into a standby
commitment with a remaining term in excess of 45 days and presently will limit
its investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale that affect their
marketability, will not exceed 15% of its net assets taken at the time of
acquisition of such a commitment. The Fund at all times will maintain a
segregated account with its custodian of cash, cash equivalents, U.S. Government
securities or other liquid securities denominated in U.S. dollars or non-U.S.
currencies in an aggregate amount equal to the purchase price of the securities
underlying a commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued, and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, the Fund
may bear the risk of a decline in the value of such security and may not benefit
from an appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
can reasonably be expected to be issued, and the value of the security
thereafter will be reflected in the calculation of the Fund's net asset value.
The cost basis of the security will be adjusted by the amount of the commitment
fee. In the event the security is not issued, the commitment fee will be
recorded as income on the expiration date of the standby commitment.
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements and purchase and sale contracts may be entered into only
with financial institutions that (i) have, in the opinion of the Manager,
substantial capital relative to the Fund's exposure, or (ii) have provided the
Fund with a third-party guaranty or other credit enhancement. Under a repurchase
agreement or purchase and sale contract the seller agrees, upon entering into
the contract with the Fund, to repurchase a security (typically a security
issued or guaranteed by the U.S. Government) at a mutually agreed-upon time and
price in a specified currency, thereby determining the yield during the term of
the agreement. This results in a fixed yield for the Fund insulated from
fluctuations in the market value of the underlying security during such period
although to the extent the repurchase agreement is not denominated in U.S.
dollars, the Fund's return may be affected by currency fluctuations. In the case
of repurchase agreements, the prices at which the trades are conducted do not
reflect accrued interest on the underlying obligation; whereas, in the case of
purchase and sale contracts, the prices take into account accrued interest. Such
agreements usually cover short periods, such as under one week. Repurchase
agreements may be construed to be collateralized loans by the purchaser to the
seller secured by the securities transferred to the purchaser. In the case of a
repurchase agreement, as a purchaser, the Fund will require the seller to
provide additional collateral if the market value of the securities falls below
the repurchase price at any time during the term of the repurchase agreement;
the Fund does not have the right to seek additional collateral in the case of
purchase and sale contracts. In the event of default by the
18
<PAGE> 19
seller under a repurchase agreement construed to be a collateralized loan, the
underlying securities are not owned by the Fund but only constitute collateral
for the seller's obligation to pay the repurchase price. Therefore, the Fund may
suffer time delays and incur costs or possible losses in connection with the
disposition of the collateral. A purchase and sale contract differs from a
repurchase agreement in that the contract arrangements stipulate that the
securities are owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract, instead of the
contractual fixed rate, the rate of return to the Fund shall be dependent upon
intervening fluctuations of the market value of such securities and the accrued
interest on the securities. In such event, the Fund would have rights against
the seller for breach of contract with respect to any losses arising from market
fluctuations following the failure of the seller to perform. While the substance
of purchase and sale contracts is similar to repurchase agreements, because of
the different treatment with respect to accrued interest and additional
collateral, management believes that purchase and sale contracts are not
repurchase agreements as such term is understood in the banking and brokerage
community. The Fund may not invest more than 15% of its net assets in repurchase
agreements or purchase and sale contracts maturing in more than seven days
together with all other illiquid investments.
INVESTMENT RESTRICTIONS
The Fund's investment activities are subject to further restrictions that
are described in the Statement of Additional Information. Investment
restrictions and policies that are fundamental policies may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities (which for this purpose and under the Investment Company Act
means the lesser of (a) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (b) more than 50% of the
outstanding shares). Among its fundamental policies, the Fund may not invest
more than 25% of its total assets, taken at market value at the time of each
investment, in the securities of issuers in any particular industry (excluding
the U.S. Government and its agencies and instrumentalities). Investment
restrictions and policies that are non-fundamental policies may be changed by
the Board of Directors without shareholder approval. As a non-fundamental
policy, the Fund may not borrow money or pledge its assets, except that the Fund
(a) may borrow from a bank as a temporary measure for extraordinary or emergency
purposes or to meet redemptions in amounts not exceeding 33 1/3% (taken at
market value) of its total assets and pledge its assets to secure such
borrowings, (b) may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (c) may purchase
securities on margin to the extent permitted by applicable law. (However, at the
present time, applicable law prohibits the Fund from purchasing securities on
margin.) (The deposit or payment by the Fund of initial or variation margin in
connection with futures contracts or options transactions is not considered to
be the purchase of a security on margin). The purchase of securities while
borrowings are outstanding will have the effect of leveraging the Fund. Such
leveraging or borrowing increases the Fund's exposure to capital risk, and
borrowed funds are subject to interest costs which will reduce net income.
As a non-fundamental policy, the Fund will not invest in securities that
cannot readily be resold because of legal or contractual restrictions or that
are not otherwise readily marketable, including repurchase agreements and
purchase and sale contracts maturing in more than seven days, if, regarding all
such securities, more than 15% of its net assets taken at market value would be
invested in such securities. Notwithstanding the foregoing, the Fund may
purchase without regard to this limitation securities that are not registered
under the Securities Act, but that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the Securities Act, provided that
the Fund's Board of Directors continuously determines, based on the trading
19
<PAGE> 20
markets for the specific Rule 144A security, that it is liquid. The Board of
Directors may adopt guidelines and delegate to the Manager the daily function of
determining and monitoring liquidity of restricted securities. The Board has
determined that securities which are freely tradable in their primary market
outside of the United States should be deemed liquid. The Board, however, will
retain sufficient oversight and be ultimately responsible for the
determinations.
MANAGEMENT OF THE FUND
DIRECTORS
The Directors of the Fund consist of six individuals, five of whom are not
"interested persons" of the Fund as defined in the Investment Company Act. The
Directors are responsible for the overall supervision of the operations of the
Fund and perform the various duties imposed on the directors or trustees of
investment companies by the Investment Company Act.
The Directors are:
ARTHUR ZEIKEL* -- Chairman of the Manager and its affiliate, FAM; Chairman
and Director of Princeton Services, Inc. ("Princeton Services"); and Executive
Vice President of ML & Co.
DONALD CECIL -- Special Limited Partner of Cumberland Partners (an
investment partnership).
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.
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 by the Investment Company Act, of the Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager acts as the manager for the Fund and provides the Fund with
investment management services. The Manager is owned and controlled by ML & Co.,
a financial services holding company and the parent of Merrill Lynch. The Asset
Management Group of ML & Co. (which includes the Manager), acts as the
investment adviser for more than 100 registered investment companies and offers
portfolio management services to individuals and institutions. As of April,
1998, the Asset Management Group had a total of approximately $487 billion in
investment company and other portfolio assets under management. This amount
includes assets managed for certain affiliates of the Manager. The principal
business address of the Manager is 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.
The Fund has entered into a management agreement with the Manager (the
"Management Agreement"). As described in the Management Agreement, the Manager
will receive for its services to the Fund monthly compensation at the annual
rate of 1.0% of the average daily net assets of the Fund. The Management
Agreement provides that, subject to the direction of the Board of Directors of
the Fund, the
20
<PAGE> 21
Manager is responsible for the actual management of the Fund's portfolio. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Manager, subject to review by the Board of Directors.
The Manager provides the portfolio manager for the Fund who considers
analyses from various sources (including brokerage firms with which the Fund
does business), makes the necessary decisions, and places orders for
transactions accordingly. The Manager is also obligated to perform certain
administrative and management services for the Fund and is obligated to provide
all of the office space, facilities, equipment and personnel necessary to
perform its duties under the Management Agreement.
Paul Gerard Meeks is Senior Vice President and Portfolio Manager of the
Fund. Mr. Meeks has been associated with the Manager since May, 1998 and is
responsible for the day-to-day management of the Fund's investment portfolio.
Prior to joining the Manager, Mr. Meeks held various positions with Jurika &
Voyles, L.P. including technology analyst from 1994 to 1998, director of
research from 1995 to 1998, principal from 1996 to 1998 and portfolio manager of
the Jurika & Voyles Mini-Cap Fund from 1997 to 1998. From 1992 to 1994, Mr.
Meeks held various positions with Strong/Corneliuson Capital Management, Inc.,
including equity analyst and researcher.
The Manager has also entered into a sub-advisory agreement (the
"Sub-Advisory Agreement") with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K."), an indirect, wholly owned subsidiary of ML & Co. and an affiliate
of the Manager, pursuant to which the Manager pays MLAM U.K. a fee for providing
investment advisory services to the Manager with respect to the Fund in an
amount to be determined from time to time by the Manager and MLAM U.K. but in no
event in excess of the amount the Manager actually receives for providing
services to the Fund pursuant to the Management Agreement. MLAM U.K. has offices
at Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
The Management Agreement obligates the Fund to pay certain expenses
incurred in its operations including, among other things, the investment
advisory fees, legal and audit fees, registration fees, unaffiliated Directors'
fees and expenses, custodian and transfer agency fees, accounting and pricing
costs and certain of the costs of printing proxies, shareholder reports,
prospectuses and statements of additional information distributed to
shareholders. Accounting services are provided to the Fund by the Manager and
the Fund reimburses the Manager for its costs in connection with such services.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-l of the Investment Company Act which incorporates the Code of Ethics of the
Manager (together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Manager and, as described below,
impose additional, more onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Manager preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Manager include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security that at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Manager.
Furthermore, the Codes provide for trading "blackout periods" which prohibit
trading by investment
21
<PAGE> 22
personnel of the Fund within periods of trading by the Fund in the same (or
equivalent) security (15 or 30 days depending upon the transaction).
TRANSFER AGENCY SERVICES
The Transfer Agent, a subsidiary of ML & Co., acts as the Fund's transfer
agent pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement (the "Transfer Agency Agreement"). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the Fund pays the Transfer
Agent 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 from the Fund for
certain transaction charges and out-of-pocket expenses incurred by it under the
Transfer Agency Agreement. Additionally, a $.20 monthly closed account charge
will be assessed on all accounts that close during the calendar year.
Application of this fee will commence the month following the month the account
is closed. At the end of the calendar year, no further fees will be due. For
purposes of the Transfer Agency Agreement, the term "account" includes a
shareholder account maintained directly by the Transfer Agent and any other
account representing the beneficial interest of a person in the relevant share
class on a recordkeeping system, provided the recordkeeping system is maintained
by a subsidiary of ML & Co.
PURCHASE OF SHARES
SUBSCRIPTION OFFERING
The Distributor, an affiliate of each of the Manager and Merrill Lynch,
will act as the distributor of the shares of the Fund.
The Distributor, Merrill Lynch and other securities dealers which have
entered into selected dealer agreements with the Distributor will solicit
subscriptions for shares of the Fund during a period expected to end on June 23,
1998. The subscription period may be extended upon agreement between the Fund
and the Distributor. On the third business day after the conclusion of the
subscription period, the subscriptions will be payable, the Class A, Class B,
Class C and Class D shares will be issued and the Fund will commence operations.
The subscription offering may be terminated by the Fund or the Distributor at
any time, in which event no Class A, Class B, Class C or Class D shares will be
issued (and, therefore, the Fund will not commence operations and no amounts
will be payable by subscribers, and no sales charges will be assessed) or a
limited number of shares will be issued.
22
<PAGE> 23
The public offering price of the Class A and Class D shares during the
subscription offering is set forth in the table below:
<TABLE>
<CAPTION>
SUBSCRIPTION PERIOD
---------------------------------------------------------
SECURITIES DEALERS'
SALES CHARGE CONCESSION
----------------------- --------------------
PERCENTAGE* PERCENTAGE*
PUBLIC OF PUBLIC OF PUBLIC
OFFERING DOLLAR OFFERING DOLLAR OFFERING
PRICE AMOUNT PRICE AMOUNT PRICE
-------- ------ -------------- ------ -----------
<S> <C> <C> <C> <C> <C>
Less than $25,000.......................... $10.554 $.554 5.25% $.554 5.25%
$25,000 but less than $50,000.............. 10.499 .499 4.75 .499 4.75
$50,000 but less than $100,000............. 10.417 .417 4.00 .417 4.00
$100,000 but less than $250,000............ 10.309 .309 3.00 .309 3.00
$250,000 but less than $1,000,000.......... 10.204 .204 2.00 .204 2.00
$1,000,000 and over**...................... 10.000 .000 0.00 .000 0.00
</TABLE>
- ---------------
* 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. If the sales charge is waived, such purchases will be
subject to a CDSC of 1.0% if the shares are redeemed within one year after
purchase. 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 401(k) plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act.
The proceeds per share to the Fund from the sale of all Class A and Class D
shares sold during the subscription period will be $10.00.
The public offering price of the Class B and Class C shares during the
subscription offering will be $10.00 per share. However, the Class B and Class C
shares may be subject to the CDSCs described below under "Deferred Sales Charge
Alternatives -- Class B and Class C Shares" if redeemed within four years of
purchase, in the case of Class B shares, or one year of purchase, in the case of
Class C shares, and are subject to ongoing account maintenance and distribution
fees as described below.
The minimum initial purchase for Class A, Class B, Class C or Class D
shares during the subscription period is $1,000, except for retirement plans,
where the minimum initial purchase is $100.
CONTINUOUS OFFERING
Commencing immediately after completion of the subscription offering,
shares of the Fund will be offered continuously for sale by the Distributor and
other eligible securities dealers (including Merrill Lynch). During the
continuous offering, shares of the Fund may be purchased from securities dealers
or by mailing a purchase order directly to the Transfer Agent. The minimum
initial purchase during the continuous offering is $1,000 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 $250
and the minimum subsequent purchase is $50. Different
23
<PAGE> 24
minimums may apply to purchases made through the Merrill Lynch Blueprint(SM)
Program. See "Purchase of Shares -- Merrill Lynch Blueprint(SM) Program" in the
Statement of Additional Information.
The Fund will offer its shares in four classes during the continuous
offering at a public offering price equal to the next determined net asset value
per share plus sales charges imposed either at the time of purchase or on a
deferred basis depending upon the class of shares selected by the investor under
the Merrill Lynch Select Pricing(SM) System, as described below. The applicable
offering price for purchase orders is based upon the net asset value of the Fund
next determined after receipt of the purchase orders by the Distributor. As to
purchase orders received by securities dealers prior to the close of business on
the New York Stock Exchange (the "NYSE") (generally, 4:00 P.M., New York time),
which includes orders received after the determination of net asset value on the
previous day, the applicable offering price will be based on the net asset
value, as of 15 minutes after the close of business on the NYSE on the day the
order is placed with the Distributor, provided the orders are received by the
Distributor prior to 30 minutes after the close of business on the NYSE on that
day. If the purchase orders are not received prior to 30 minutes after the close
of business on the NYSE on that day, such orders shall be deemed received on the
next business day. The Fund or the Distributor may suspend the continuous
offering of the Fund's shares of any class at any time in response to conditions
in the securities markets or otherwise and may thereafter resume such offering
from time to time. Any order may be rejected by the Distributor or the Fund.
Neither the Distributor nor the dealers are permitted to withhold placing orders
to benefit themselves by a price change. Merrill Lynch may charge its customers
a processing fee (presently $5.35) to confirm a sale of shares to such
customers. Purchases made directly through the Transfer Agent are not subject to
the processing fee.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the shares and
other relevant circumstances. Shares of Class A and Class D are sold to
investors choosing the initial sales charge alternatives and shares of Class B
and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Fund with the investment
thereafter being subject to a CDSC and ongoing distribution fees. A discussion
of the factors that investors should consider in determining the method of
purchasing shares under the Merrill Lynch Select Pricing(SM) System is set forth
under "Merrill Lynch Select Pricing(SM) System."
Each Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
CDSCs, distribution fees and account maintenance fees that are imposed on Class
B and Class C shares, as well as the account maintenance fees that are imposed
on Class D shares, will be imposed directly against those classes and not
against all assets of the Fund and, accordingly, such charges will not affect
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 Fund for each class of shares will be calculated in the
same manner at the same time and will differ only to the extent that account
maintenance and distribution fees and any incremental transfer agency costs
relating to a particular class are borne exclusively by that class. Class B,
24
<PAGE> 25
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 Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
Investors are advised that only Class A and Class D shares may be available for
purchase through securities dealers, other than Merrill Lynch, which are
eligible to sell shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A Maximum 5.25% initial sales
charge(2)(3) No No No
-----------------------------------------------------------------------------------------------------------------
B CDSC for a period of four years, at
a rate of 4.0% during the first
year, decreasing 1.0% annually to B shares convert to
0.0%(4) 0.25% 0.75% D shares automatically
after approximately
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
-----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(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 and participants in connection with
certain fee-based programs. Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but, if the
initial sales charge is waived, may be subject to a 1.0% CDSC if redeemed
within one year. Such CDSC may be waived in connection with certain
fee-based programs. A 0.75% sales charge for 401(k) purchases over
$1,000,000 will apply.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and the conversion
and holding periods for certain retirement plans are modified. Also, Class B
shares of certain other MLAM-advised mutual funds into which exchanges may
be made have a ten-year conversion period. If Class B shares of the Fund are
exchanged for Class B shares of another MLAM-advised mutual fund, the
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.
25
<PAGE> 26
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible
to purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternative is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE AS DISCOUNT TO
AS PERCENTAGE PERCENTAGE* OF SELECTED DEALERS
OF OFFERING THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE PRICE INVESTED THE OFFERING PRICE
------------------ -------------- --------------- ------------------
<S> <C> <C> <C>
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 4.16 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
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may bc waived on Class A and Class D purchases of
$1,000,000 or more and on Class A share purchases by certain retirement plan
investors and participants in connection with certain fee-based programs. If
the sales charge is waived in connection with a purchase of $1,000,000 or
more, such purchases may be subject to a 1.0% CDSC if the shares are redeemed
within one year after purchase. Such CDSC may be waived in connection with
certain fee-based programs. The charge 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 million
or more of Class A or Class D shares by certain employer-sponsored retirement
or savings plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act. The
proceeds from the account maintenance fees are used to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) for providing
continuing account maintenance activities.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares of the
Fund in a shareholder account, including participants in the Merrill Lynch
Blueprint(SM) Program, are entitled to purchase additional Class A shares of the
Fund in that account. Certain employer-sponsored retirement or savings plans,
including eligible 401(k) plans, may purchase Class A shares at net asset value
provided such plans meet the required minimum number of eligible employees or
required amount of assets advised by MLAM or any of its affiliates. Class A
shares are available at net asset value to corporate warranty insurance reserve
fund programs and U.S. branches of foreign-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 are offered at net asset value to ML & Co.
and its subsidiaries and their directors and employees and to members of the
Boards of MLAM-advised investment
26
<PAGE> 27
companies, including the Fund. Certain persons who acquired shares of certain
MLAM-advised closed-end funds in their initial offerings who wish to reinvest
the net proceeds from a sale of their closed-end fund shares of common stock in
shares of the Fund also may purchase Class A shares of the Fund if certain
conditions set forth in the Statement of Additional Information are met (for
closed-end funds that commenced operations prior to October 21, 1994). In
addition, Class A shares of the Fund and certain other MLAM-advised mutual funds
are offered at net asset value to shareholders of Merrill Lynch Senior Floating
Rate Fund, Inc. and, if certain conditions set forth in the Statement of
Additional Information are met, to shareholders of Merrill Lynch Municipal
Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. who
wish to reinvest the net proceeds from a sale of certain of their shares of
common stock pursuant to a tender offer conducted by such funds in shares of the
Fund and certain other MLAM-advised mutual funds.
Reduced Initial Sales Charges. No sales charges are imposed upon Class A
and Class D shares issued as a result of the automatic reinvestment of dividends
or capital gains distributions. Class A and Class D sales charges also may be
reduced under a Right of Accumulation and a Letter of Intention. Class A shares
are offered at net asset value to certain eligible Class A investors as set
forth above under "Eligible Class A Investors." See "Shareholder Services --
Fee-Based Programs."
Provided applicable threshold requirements are met, either Class A or Class
D shares are offered at net asset value to Employee Access(SM) Accounts
available through authorized employers. Class A shares are offered at net asset
value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc., and
subject to certain conditions, Class A and Class D shares are offered at net
asset value to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch High Income Municipal Bond Fund, Inc., who wish to reinvest in
shares of the Fund the net proceeds from a sale of certain of their shares of
common stock pursuant to tender offers conducted by those funds.
Class D shares are offered at net asset value, without a sales charge, to
an investor who has a business relationship with a Merrill Lynch Financial
Consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint(SM) Program.
Additional information concerning these reduced initial sales charges is
set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES -- CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four-year CDSC,
which declines each year, while Class C shares are subject only to a one-year
1.0% CDSC. On the other hand, approximately eight years after Class B shares are
issued, such Class B shares, together with shares issued upon dividend
reinvestment with respect to those shares, are automatically converted into
Class D shares of the Fund and thereafter will be subject to lower continuing
fees. See "Conversion of Class B Shares to Class D Shares"
27
<PAGE> 28
below. Both Class B and Class C shares are subject to an account maintenance fee
of 0.25% of net assets and distribution fees of 0.75% of net assets as discussed
below under "Distribution Plans." The proceeds from the account maintenance fees
are used to compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) for providing continuing account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for selling
Class B and Class C shares from the dealers' own funds. The combination of the
CDSC and the ongoing distribution fee facilitates the ability of the Fund to
sell the Class B and Class C shares without a sales charge being deducted at the
time of purchase. Approximately eight years after issuance, Class B shares will
convert automatically into Class D shares of the Fund, which are subject to an
account maintenance fee but no distribution fee; Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange will
apply, and the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations on
the Payment of Deferred Sales Charges" below. Class B shareholders of the Fund
exercising the exchange privilege described under "Shareholder Services --
Exchange Privilege" will continue to be subject to the Fund's CDSC schedule if
such schedule is higher than the CDSC schedule relating to the Class B shares
acquired as a result of the exchange.
Contingent Deferred Sales Charges -- Class B Shares. Class B shares that
are redeemed within four years 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 charge will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
- ------------------------------------------------------------ -----------------
<S> <C>
0-1......................................................... 4.0%
1-2......................................................... 3.0
2-3......................................................... 2.0
3-4......................................................... 1.0
4 and thereafter............................................ None
</TABLE>
28
<PAGE> 29
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
applicable rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over four years or shares acquired pursuant to
reinvestment of dividends or distributions and then of shares held longest
during the four-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase. A
transfer of shares from a shareholder's account to another account will be
assumed to be made in the same order as a redemption.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share (at a cost of $1,000) and in the third year after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional shares through dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 shares (proceeds of $600), 10
shares will not be subject to the CDSC because of dividend reinvestment. With
respect to the remaining 40 shares, the CDSC is applied only to the original
cost of $10 per share and not to the increase in net asset value of $2 per
share. Therefore, $400 of the $600 redemption proceeds will be charged at a rate
of 2.0% (the applicable rate in the third year after purchase).
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following death or disability (as defined in
the Code) of a shareholder. The Class B CDSC also is waived on redemptions of
shares by certain eligible 401(a) and eligible 401(k) plans and in connection
with certain group plans placing orders through the Merrill Lynch Blueprint(SM)
Program. The CDSC is also waived for any Class B shares that are purchased by
eligible 401(a) or eligible 401(k) plans that are rolled over into a Merrill
Lynch or Merrill Lynch Trust Company custodied IRA and held in such account at
the time of redemption. The Class B CDSC also is waived for any Class B shares
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 purchased within qualifying Employee Access(SM) Accounts.
Additional information concerning the waiver of the Class B CDSC is set forth in
the Statement of Additional Information. The terms of the CDSC may be modified
in connection with certain fee-based programs. See "Shareholder
Services -- Fee-Based Programs."
Contingent Deferred Sales Charges -- Class C Shares. Class C shares that
are redeemed within one year after purchase may be subject to a 1.0% CDSC
charged as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed
on increases in net asset value above the initial purchase price. In addition,
no Class C CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions. The Class C CDSC may be waived in
connection with certain fee-based programs. See "Shareholder
Services -- Fee-Based Programs."
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
29
<PAGE> 30
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Fund. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a 10-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans that qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("Class B Retirement Plans").
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for 10 years (i.e., 10 years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of the
appropriate funds. Subsequent to such conversion, that Class B Retirement Plan
will be sold Class D shares of the appropriate funds at net asset value.
The Conversion Period also may be modified for retirement plan investors
who participate in certain fee-based programs. See "Shareholder
Services -- Fee-Based Programs."
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
"Distribution Plan") with respect to the account maintenance and/or distribution
fees paid by the Fund to the Distributor with respect to such classes. The Class
B and Class C Distribution Plans provide for the payment of account maintenance
fees and distribution fees, and the Class D Distribution Plan provides for the
payment of account maintenance fees.
30
<PAGE> 31
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Fund in that the deferred sales charges provide for the financing
of the distribution of the Fund's Class B and Class C shares.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSCs and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs
and the expenses consist of financial consultant compensation.
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with the Class B, Class C and Class D shares, and there is no
assurance that the Directors of the Fund will approve the continuance of the
Distribution Plans from year to year. However, the Distributor intends to seek
annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or distribution
of each class of shares separately. The initial sales charges, the account
maintenance fee, the distribution fee and/or the CDSCs received with respect to
one class will not be used to subsidize the sale of shares of another class.
Payments of the distribution fee on Class B shares will terminate upon
conversion of those Class B shares into Class D shares as set forth under
"Deferred Sales Charge Alternatives -- Class B and Class C Shares -- Conversion
of Class B Shares to Class D Shares."
31
<PAGE> 32
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the NASD imposes a
limitation on certain asset-based sales charges such as the distribution fee and
the CDSC borne by the Class B and Class C shares but not the account maintenance
fee. The maximum sales charge rule is applied separately to each class. As
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible
gross sales of Class B shares and Class C shares, computed separately (defined
to exclude shares issued pursuant to dividend reinvestments and exchanges) plus
(2) interest on the unpaid balance for the respective class, computed
separately, at the prime rate plus 1% (the unpaid balance being the maximum
amount payable minus amounts received from the payment of the distribution fee
and the CDSC). In connection with the Class B shares, the Distributor has
voluntarily agreed to waive interest charges on the unpaid balance in excess of
0.50% of eligible gross sales. Consequently, the maximum amount payable to the
Distributor (referred to as the "voluntary maximum") in connection with the
Class B shares is 6.75% of eligible gross sales. The Distributor retains the
right to stop waiving the interest charges at any time. To the extent payments
would exceed the voluntary maximum, the Fund will not make further payments of
the distribution fee with respect to Class B shares, and any CDSCs will be paid
to the Fund rather than to the Distributor; however, the Fund will continue to
make payments of the account maintenance fee. In certain circumstances the
amount payable pursuant to the voluntary maximum may exceed the amount payable
under the NASD formula. In such circumstances payments in excess of the amount
payable under the NASD formula will not be made.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares of the Fund on receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive on redemption all dividends
declared through the date of redemption. The value of shares at the time of
redemption may be more or less than the shareholder's cost, depending on the
market value of the securities held by the Fund at such time.
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 Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. Proper notice of redemption in the case of shares deposited
with the Transfer Agent may be accomplished by a written letter requesting
redemption. Proper notice of redemption in the case of shares for which
certificates have been issued may be accomplished by a written letter as noted
above accompanied by certificates for the shares to be redeemed. Redemption
requests should not be sent to the Fund. The redemption request requires the
signature(s) of all persons in whose name(s) the shares are registered, signed
exactly as such name(s) appear(s) on the Transfer Agent's register or on the
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 branches and certain other financial institutions) as
such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934,
as amended, the existence and validity of which
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<PAGE> 33
may be verified by the Transfer Agent through the use of industry publications.
Notarized signatures are not sufficient. In certain instances, the Transfer
Agent may require additional documents such as, but not limited to, trust
instruments, death certificates, appointments as executor or administrator, or
certificates of corporate authority. For shareholders redeeming directly with
the Transfer Agent, payments will be mailed within seven days of receipt of a
proper notice of redemption.
At various times, the Fund may be requested to redeem shares for which it
has not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that good
payment (e.g., cash, or certified check drawn on a United States bank) has been
collected for the purchase of such shares. Normally, this delay will not exceed
10 days.
REPURCHASE
The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund will normally accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request for
repurchase is received by the dealer prior to the regular close of business on
the NYSE (generally, 4:00 p.m., New York time) on the day received and is
received by the Fund from such dealer not later than 30 minutes after the close
of business on the NYSE on the same day. Dealers have the responsibility of
submitting such repurchase requests to the Fund not later than 30 minutes after
the close of business on the NYSE in order to obtain that day's closing price.
These repurchase arrangements are for the convenience of shareholders and
do not involve a charge by the Fund (other than any applicable CDSC in the case
of Class B or Class C shares). Securities firms that do not have selected dealer
agreements with the Distributor, however, may impose a charge on the shareholder
for transmitting the notice of repurchase to the Fund. Merrill Lynch may charge
its customers a processing fee (presently $5.35) to confirm a repurchase of
shares. Repurchases made directly through the Fund's Transfer Agent are not
subject to the processing fee. The Fund reserves the right to reject any order
for repurchase, which right of rejection might affect adversely shareholders
seeking redemption through the repurchase procedure. However, a shareholder
whose order for repurchase is rejected by the Fund may redeem shares as set
forth above.
Redemption payments will be made within seven days of the proper tender of
the certificates, if any, and stock power or letter requesting redemption, in
each instance with signatures guaranteed as noted above.
REINSTATEMENT PRIVILEGE -- CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
privilege to reinstate their accounts by purchasing Class A or Class D shares,
as the case may be, of the Fund at net asset value without a sales charge up to
the dollar amount redeemed. The reinstatement privilege may be exercised by
sending a notice of exercise along with a check for the amount to be reinstated
to the Transfer Agent within 30 days after the date the request for redemption
was accepted by the Transfer Agent or the Distributor. Alternatively, the
reinstatement privilege may be exercised through the investor's Merrill Lynch
Financial Consultant within 30 days after the date the request was accepted by
the Transfer Agent or the Distributor. The reinstatement will be made at the net
asset value per share next determined after the notice of reinstatement is
received and cannot exceed the amount of the redemption proceeds.
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SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in shares of the
Fund. Certain of such services are not available to investors who place orders
for the Fund through the Merrill Lynch Blueprint(SM) Program. Full details as to
each of such services, copies of the various plans described below and
instructions as to how to participate in the various plans and services, or to
change options with respect thereto, can be obtained from the Fund by calling
the telephone number on the cover page hereof or from the Distributor or Merrill
Lynch. Certain of these services are available only to U.S. investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
"Investment Account" and will receive statements, at least quarterly, from the
Transfer Agent. These quarterly statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. These
statements will also show any other activity in the account since the preceding
statement. Shareholders will receive separate transaction confirmations for each
purchase or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gains
distributions. Shareholders may make additions to their Investment Accounts at
any time by mailing a check directly to the Transfer Agent. Shareholders may
also maintain their accounts through Merrill Lynch. Upon the transfer of shares
out of a Merrill Lynch brokerage account, an Investment Account in the
transferring shareholder's name may be opened automatically at the Transfer
Agent. Shareholders considering transferring their Class A or Class D shares
from Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage 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 such shares and then must turn the certificates over to
the new firm for reregistration as described in the preceding sentence.
Shareholders considering transferring a tax-deferred retirement account such as
an individual retirement account from Merrill Lynch to another brokerage firm or
financial institution should be aware that, if the firm to which the retirement
account is to be transferred will not take delivery of shares of the Fund, a
shareholder either must redeem the shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm, or such
shareholder must continue to maintain a retirement account at Merrill Lynch for
those shares.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund each have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may
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<PAGE> 35
exercise the exchange privilege. The exchange privilege may be modified or
terminated in accordance with the rules of the Commission.
Under the Merrill Lynch Select Pricing(SM) System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
the account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second MLAM-advised
mutual fund, and the shareholder does not hold Class A shares of the second fund
in his or her account at the time of the exchange and is not otherwise eligible
to acquire Class A shares of the second fund, the shareholder will receive Class
D shares of the second fund as a result of the exchange. Class D shares also may
be exchanged for Class A shares of a second MLAM-advised mutual fund at any time
as long as, at the time of the exchange, the shareholder holds Class A shares of
the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Fund that are subject to a CDSC are exchangeable on the basis
of relative net asset value per share without the payment of any CDSC that might
otherwise be due upon redemption of the shares of the Fund. For purposes of
computing the CDSC that may be payable upon a disposition of the shares acquired
in the exchange, the holding period for the previously owned shares of the Fund
is "tacked" to the holding period for the newly acquired shares of the other
fund.
Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale of the exchanged
shares and a purchase of the acquired shares for Federal income tax purposes.
For further information, see "Shareholder Services -- Exchange Privilege" in the
Statement of Additional Information.
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AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions are reinvested automatically
in full and fractional shares of the Fund, without a sales charge, at the net
asset value per share next determined after the close of business on the NYSE on
the ex-dividend date of such dividend or distribution. A shareholder may at any
time, by written notification to Merrill Lynch if the shareholder's account is
maintained with Merrill Lynch or by written notification or by telephone
(1-800-MER-FUND) to the Transfer Agent if the shareholder's account is
maintained with the Transfer Agent, elect to have subsequent dividends or
capital gains distributions, or both, paid in cash, rather than reinvested, in
which event payment will be mailed on or about the payment date (provided that,
in the event that a payment on an account maintained at the Transfer Agent would
amount to $10.00 or less, a shareholder will not receive such payment in cash
and such payment will automatically be reinvested in additional shares). The
Fund is not responsible for any failure of delivery to the shareholder's address
of record and no interest will accrue on amounts represented by uncashed
distribution or redemption checks. Cash payments also can be directly deposited
to the shareholder's bank account. No CDSC will be imposed upon redemption of
shares issued as a result of the automatic reinvestment of dividends or capital
gains distributions.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawal payments from his
or her Investment Account in the form of payments by check or through automatic
payment by direct deposit to his or her bank account on either a monthly or
quarterly basis. 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 and Class C shares pursuant to a systemic 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 or her regular bank account. Investors who maintain CMA(R) or CBA(R)
accounts may arrange to have periodic investments made in the Fund in their
CMA(R) or CBA(R) accounts or in certain related accounts in amounts of $100 or
more through the CMA(R) or CBA(R) Automated Investment Program.
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FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing alternatives
for securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares that will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of shares
held therein or the automatic exchange thereof to another class at net asset
value, which may be shares of a money market fund. In addition, upon termination
of participation in a Program, shares that have been held for less than
specified periods within such Program may be subject to a fee based upon the
current value of such shares. These Programs also generally prohibit such shares
from being transferred to another account at Merrill Lynch, to another
broker-dealer or to the Transfer Agent. Except in limited circumstances (which
may also involve an exchange as described above), such shares must be redeemed
and another class of shares purchased (which may involve the imposition of
initial or deferred sales charges and distribution and account maintenance fees)
in order for the investment not to be subject to Program fees. Additional
information regarding a specific Program (including charges and limitations on
transferability applicable to shares that may be held in such Program) is
available in such Program's client agreement and from the Transfer Agent at
(800) MER-FUND or (800) 637-3863.
TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as it
so qualifies, the Fund (but not its shareholders) will not be subject to Federal
income tax on the part of its net ordinary income and net realized capital gains
which it distributes to Class A, Class B, Class C and Class D shareholders
(together, the "shareholders"). The Fund intends to distribute substantially all
of such income.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in warrants, futures and options) ("capital
gain dividends") are taxable to shareholders as long-term capital gains,
regardless of the length of time the shareholder has owned Fund shares. Any loss
upon the sale or exchange of Fund shares held for six months or less will be
treated as long-term capital loss to the extent of any capital gain dividends
received by the shareholder. Distributions in excess of the Fund's earnings and
profits will first reduce the adjusted tax basis of a holder's shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming the shares are held as a capital asset). Recent
legislation creates additional categories of capital gains taxable at different
rates. Generally not later than 60 days after the close of its taxable year, the
Fund will provide its shareholders with a written notice designating the amounts
of any ordinary income dividends or capital gains dividends, as well as the
amount of capital gain dividends in the different categories of capital gain
referred to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. A portion of the Fund's ordinary income dividends
may be eligible for the dividends received deduction allowed to corporations
under the Code if certain requirements are met. If the Fund pays a dividend in
January which
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was declared in the previous October, November or December to shareholders of
record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% U.S. withholding tax under existing
provisions of the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. In addition, recent legislation permits a foreign
tax credit to be claimed with respect to withholding tax on a dividend only if
the shareholder meets certain holding period requirements. If more than 50% in
value of the Fund's total assets at the close of its taxable year consists of
securities of foreign corporations, the Fund will be eligible, and intends, to
file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their proportionate shares
of such withholding taxes in their U.S. income tax returns as gross income,
treat such proportionate shares as taxes paid by them, and deduct such
proportionate shares in computing their taxable incomes or, alternatively, use
them as foreign tax credits against their U.S. income taxes. In the case of
foreign taxes passed through by a RIC, the holding period requirements referred
to above must be met by both the shareholders and the RIC. No deductions for
foreign taxes, moreover, may be claimed by noncorporate shareholders who do not
itemize deductions. A shareholder that is a nonresident alien individual or a
foreign corporation may be subject to U.S. withholding tax on the income
resulting from the Fund's election described in this paragraph but may not be
able to claim a credit or deduction against such U.S. tax for the foreign taxes
treated as having been paid by such shareholder. The Fund will report annually
to its shareholders the amount per share of such withholding taxes and other
information needed to claim the foreign tax credit.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
The Fund may invest up to 10% of its total assets in securities of other
investment companies. If the Fund purchases shares of an investment company (or
similar investment entity) organized under foreign law, the Fund will be treated
as owning shares in a passive foreign investment company ("PFIC") for U.S.
Federal income tax purposes. The Fund may be subject to U.S. Federal income tax,
and additional tax in the nature of interest (the "interest charge"), on a
portion of the distributions from such a company and on gain from the
disposition of the shares of such a company (collectively referred to as "excess
distributions"), even if such excess distributions are paid by the Fund as a
dividend to its shareholders. The Fund may be eligible to make an election with
respect to certain PFICs in which it owns shares that will allow it to avoid the
taxes on excess
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distributions. However, such election may cause the Fund to recognize income in
a particular year in excess of the distributions received from such PFICs.
Alternatively, under recent legislation, the Fund could elect to "mark to
market" at the end of each taxable year all shares that it holds in PFICs. If it
made this election, the Fund would recognize as ordinary income any increase in
the value of such shares over their adjusted basis and as ordinary loss any
decrease in such value to the extent it did not exceed prior increases included
in income. By making the mark-to-market election, the Fund could avoid
imposition of the interest charge with respect to its distributions from PFICs,
but in any particular year might be required to recognize income in excess of
the distributions it received from PFICs and its proceeds from dispositions of
PFIC stock.
Under Code Section 988, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are not
"regulated futures contracts" and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
income dividend distributions, and all or a portion of distributions made before
the losses were realized but in the same taxable year would be recharacterized
as a return of capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than such shareholder's tax basis in Fund
shares (assuming the shares were held as a capital asset).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon the purchase of the new shares in the absence
of the exchange privilege. Instead, such sales charge will be treated as an
amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code 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.
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<PAGE> 40
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
yield for various specified time periods in advertisements or information
furnished to present or prospective shareholders. Average annual total return is
computed separately for Class A, Class B, Class C and Class D shares in
accordance with formulas specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return will be computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including any CDSC that would be applicable to a
complete redemption of the investment at the end of the specified period such as
in the case of Class B and Class C shares and the maximum sales charge in the
case of Class A and Class D shares. Dividends paid by the Fund with respect to
all shares, to the extent any dividends are paid, will be calculated in the same
manner at the same time on the same day and will be in the same amount, except
that account maintenance and distribution charges and any incremental transfer
agency costs relating to each class of shares will be borne exclusively by that
class. The Fund will include performance data for all classes of shares of the
Fund in any advertisement or information including performance data of the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return and (2) the maximum applicable sales charges will not
be included with respect to annual or annualized rates of return calculations.
Aside from the impact on the performance data calculations of including or
excluding the maximum applicable sales charges, actual annual or annualized
total return data generally will be lower than average annual total return data
since the average annual rates of return reflect compounding; aggregate total
return data generally will be higher than average annual total return data since
the aggregate rates of return reflect compounding over a longer period of time.
In advertisements distributed to investors whose purchases are subject to waiver
of the CDSC in the case of Class B and Class C shares (such as investors in
certain retirement plans) or to reduced sales loads in the case of Class A and
Class D shares, the performance data may take into account the reduced, and not
the maximum, sales charge or may not take into account the CDSC and therefore
may reflect greater total return since, due to the reduced sales charges or
waiver of the CDSC, a lower amount of expenses is deducted. See "Purchase of
Shares." The Fund's total return may be expressed either as a percentage or as a
dollar amount in order to illustrate such total return on a hypothetical $1,000
investment in the Fund at the beginning of each specified period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or
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losses during the period. The value of an investment in the Fund will fluctuate
and an investor's shares, when redeemed, may be worth more or less than their
original cost.
On occasion, the Fund may compare its performance to that of the Standard &
Poor's 500 Index, The Financial Times/Standard & Poor's Actuarial World Indices,
the Morgan Stanley Capital International Indices, the Dow Jones Industrial
Average, specialized technology indices including the Merrill Lynch 100
Technology Index, or performance data published by Lipper Analytical Services,
Inc. and Morningstar Publications, Inc., Money Magazine, U.S. News & World
Report, Business Week, CDA Investment Technology, Inc., Forbes Magazine, Fortune
Magazine or other industry publications. From time to time, the Fund may include
the Fund's risk-adjusted performance ratings assigned by Morningstar
Publications, Inc. in advertisements or supplemental sales literature. As with
other performance data, performance comparisons should not be considered
representative of the Fund's relative performance for any future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute substantially all of its net
investment income, if any. Dividends from such net investment income will be
paid at least annually. All net realized capital gains, if any, will be
distributed as dividends to the Fund's shareholders annually after the close of
the Fund's fiscal year. The per share dividends on each class of shares will be
reduced as a result of any account maintenance, distribution and transfer agency
fees applicable to that class. See "Additional Information -- Determination of
Net Asset Value." Dividends and distributions will be automatically reinvested
in shares of the Fund at net asset value without a sales charge. However, a
shareholder whose account is maintained at the Transfer Agent or whose account
is maintained through Merrill Lynch may elect in writing to receive any such
dividends or distributions or both in cash. Dividends and distributions are
taxable to shareholders as discussed below whether they are reinvested in shares
of the Fund or received in cash. From time to time, the Fund may declare a
special distribution at or about the end of the calendar year in order to comply
with Federal tax requirements that certain percentages of its ordinary income
and capital gains be distributed during the year. Capital gains distributions
will be automatically reinvested in shares unless the shareholder elects to
receive such distributions in cash.
Gains or losses attributable to certain foreign currency transactions may
increase or decrease the amount of the Fund's income available for distribution
to shareholders. If such losses exceed other ordinary income during a taxable
year, (a) the Fund would not be able to make any ordinary income dividend
distributions and (b) all or a portion of distributions made before the losses
were realized but in the same taxable year would be recharacterized as returns
of capital to shareholders, rather than as ordinary income dividends, thereby
reducing each shareholder's tax basis in his or her Fund shares for Federal
income tax purposes and resulting in a capital gain for any shareholder who
received a distribution greater than the shareholder's tax basis in Fund shares
(assuming that the shares were held as a capital asset). For a detailed
discussion of the Federal tax considerations relevant to foreign currency
transactions, see "Additional Information -- Taxes."
DETERMINATION OF NET ASSET VALUE
The net asset value of shares of all classes of the Fund is determined by
the Manager once daily, 15 minutes after the close of business on the NYSE
(generally, 4:00 p.m. New York time), on each day during which the NYSE is open
for trading. Any assets or liabilities initially expressed in terms of non-U.S.
dollar
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<PAGE> 42
currencies are translated into U.S. dollars at the prevailing market rates as
quoted by one or more banks or dealers on the day of valuation. The net asset
value per share is computed by dividing the sum of the value of the securities
held by the Fund plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued expenses)
by the total number of shares outstanding at such time, rounded to the nearest
cent. Expenses, including the investment advisory fees payable to the Manager
and any account maintenance and/or distribution fees payable to the Distributor,
are accrued daily.
The per share net asset value of Class A shares generally will be higher
than the per share net asset value of shares of other classes, reflecting the
daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to the Class B and Class C shares
and the daily expense accruals of the account maintenance fees applicable with
respect to Class D shares; in addition, the per share net asset value of Class D
shares generally will be higher than the per share net asset value of Class B
and Class C shares, reflecting the daily expense accruals of the distribution
and higher transfer agency fees applicable with respect to Class B and Class C
shares. It is expected, however, that the per share net asset value of the four
classes will tend to converge (although not necessarily meet) immediately after
the payment of dividends or distributions, which will differ by approximately
the amount of the expense accrual differentials between the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price for long positions and at
the last available ask price for short positions. In cases where securities are
traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as the primary
market. Long positions in securities traded in the OTC market are valued at the
last available bid price in the OTC market prior to the time of valuation. Short
positions in securities traded in the OTC market are valued at the last
available ask price in the OTC market prior to the time of valuation. Securities
that are traded both in the OTC market and on a stock exchange are valued
according to the broadest and most representative market. When the Fund writes
an option, the amount of the premium received is recorded on the books of the
Fund as an asset and an equivalent liability. The amount of the liability is
subsequently valued to reflect the current market value of the option written,
based upon the last sale price in the case of exchange-traded options or, in the
case of options traded in the OTC market, the last asked price. Options
purchased by the Fund are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Any assets or liabilities expressed in terms of foreign
currencies are translated into U.S. dollars at the prevailing market rates as
obtained from one or more dealers. Other investments, including futures
contracts and related options, are stated at market value. Securities and assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the Board of Directors
of the Fund. Such valuations and procedures will be reviewed periodically by the
Board of Directors.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on March 24, 1998. It has
authorized capital of 500,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class C and Class D Common
Stock, each consisting of 100,000,000 shares and Class B Common Stock consisting
of 200,000,000 shares. Shares of Class A, Class B, Class C and Class D Common
Stock represent an interest in the same assets of the Fund and are identical in
all respects except that Class B, Class C and
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<PAGE> 43
Class D shares bear certain expenses related to the account maintenance
associated with such shares, and Class B and Class C shares bear certain
expenses related to distribution of such shares. Each class has exclusive voting
rights with respect to matters relating to account maintenance and distribution
expenditures, as applicable. See "Purchase of Shares." The Directors of the Fund
may classify and reclassify the shares of the Fund into additional classes of
Common Stock at a future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Fund does not intend to
hold meetings of shareholders in any year in which the Investment Company Act
does not require shareholders to act upon any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent accountants. Also, the by-laws of the Fund require that a special
meeting of shareholders be held upon the written request of at least a majority
of the outstanding shares of the Fund entitled to vote at such meeting, if they
comply with applicable Maryland law. Voting rights for Directors are not
cumulative. Shares issued are fully paid and non-assessable and have no
preemptive rights. Shares have the conversion rights described in this
Prospectus. Each share of Common Stock is entitled to participate equally in
dividends and distributions declared by the Fund and in the net assets of the
Fund upon liquidation or dissolution after satisfaction of outstanding
liabilities except, as noted above, the Class B, Class C and Class D shares bear
certain additional expenses.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). Like other investment
companies and financial and business organizations, the Fund could be adversely
affected if the computer systems used by the Manager or other Fund service
providers do not properly address this problem prior to January 1, 2000. The
Manager has established a dedicated group to analyze these issues and to
implement any systems modifications necessary to prepare for the Year 2000.
Currently, the Manager does not anticipate that the transition to the 21st
century will have any material impact on its ability to continue to service the
Fund at current levels. In addition, the Manager has sought assurances from the
Fund's other service providers that they are taking all necessary steps to
ensure that their computer systems will accurately reflect the Year 2000, and
the Manager will continue to monitor the situation. At this time, however, no
assurance can be given that the Fund's other service providers have anticipated
every step necessary to avoid any adverse effect on the Fund attributable to the
Year 2000 Problem.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
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<PAGE> 44
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch and/or mutual fund account numbers.
If you have any questions regarding this please call your Merrill Lynch
Financial Consultant or Merrill Lynch Financial Data Services, Inc. at
800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
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<PAGE> 45
APPENDIX
INVESTMENT PRACTICES INVOLVING THE USE OF OPTIONS, FUTURES
AND FOREIGN EXCHANGE
The Fund is authorized to engage in certain investment practices involving
the use of options, futures and foreign exchange, as described below. Such
instruments, which may be regarded as derivatives, are referred to collectively
herein as "Strategic Instruments."
OPTIONS ON SECURITIES AND SECURITIES INDICES
Purchasing Options. The Fund is authorized to purchase put options on
securities held in its portfolio or securities indices the performance of which
is substantially correlated with securities held in its portfolio. When the Fund
purchases a put option, in consideration for an up-front payment (the "option
premium"), the Fund acquires a right to sell to another party specified
securities owned by the Fund at a specified price (the "exercise price") on or
before a specified date (the "expiration date"), in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index declines below a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase of
a put option limits the Fund's risk of loss in the event of a decline in the
market value of the portfolio holdings underlying the put option prior to the
option's expiration date. In the event the market value of the portfolio
holdings underlying the put option increases rather than decreases, however, the
Fund will lose the option premium and will consequently realize a lower return
on the portfolio holdings than would have been realized without the purchase of
the put.
The Fund is also authorized to purchase call options on securities it
intends to purchase or securities indices the performance of which substantially
correlates with the performance of the types of securities it intends to
purchase. When the Fund purchases a call option, in consideration for the option
premium, the Fund acquires a right to purchase from another party specified
securities at the exercise price on or before the expiration date, in the case
of an option on securities, or to receive from another party a payment based on
the amount a specified securities index increases beyond a specified level on or
before the expiration date, in the case of an option on a securities index. The
purchase of a call option may protect the Fund from having to pay more for a
security as a consequence of increases in the market value for the security
during a period when the Fund is contemplating its purchase, in the case of an
option on a security, or attempting to identify specific securities in which to
invest in a market the Fund believes to be attractive, in the case of an option
on an index (an "anticipatory hedge"). In the event the Fund determines not to
purchase a security underlying a call option, however, the Fund may lose the
entire option premium.
The Fund may also purchase put or call options in connection with closing
out put or call options it has previously sold.
Writing Options. The Fund is authorized to write (i.e., sell) call options
on securities held in its portfolio or securities indices the performance of
which is substantially correlated with securities held in its portfolio. When
the Fund writes a call option, in return for an option premium, the Fund gives
another party the right to buy specified securities owned by the Fund at the
exercise price on or before the expiration date, in the case of an option on
securities, or agrees to pay to another party an amount based on any gain in a
specified securities index beyond a specified level on or before the expiration
date, in the case of an option on a securities index. The Fund may write call
options to earn income, through the receipt of option premiums. In the event the
party to which the Fund has written an option fails to exercise its rights under
the option
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<PAGE> 46
because the value of the underlying securities is less than the exercise price,
the Fund will partially offset any decline in the value of the underlying
securities through the receipt of the option premium and will realize a greater
return than would have been realized on the underlying securities alone. By
writing a call option, however, the Fund limits its ability to sell the
underlying securities, and gives up the opportunity to profit from any increase
in the value of the underlying securities beyond the exercise price, while the
option remains outstanding.
The Fund may also write put options on securities or securities indices.
When the Fund writes a put option, in return for an option premium, the Fund
gives another party the right to sell to the Fund a specified security at the
exercise price on or before the expiration date, in the case of an option on a
security, or agrees to pay to another party an amount on any decline in a
specified securities index below a specified level on or before the expiration
date, in the case of an option on a securities index. The Fund may write put
options to earn income, through the receipt of option premiums. In the event the
party to which the Fund has written an option fails to exercise its right under
the option because the value of the underlying securities is greater than the
exercise price, the Fund will profit by the amount of the option premium. By
writing a put option, however, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of the
security at the time of exercise as long as the put option is outstanding.
Accordingly, when the Fund writes a put option it is exposed to a risk of loss
in the event the value of the underlying securities falls below the exercise
price, which loss potentially may substantially exceed the amount of option
premium received by the Fund for writing the put option. The Fund will write a
put option on a security or a securities index only if the Fund is using the put
as an anticipatory hedge or is writing the put in connection with trading
strategies involving combinations of options, for example, the sale and purchase
of options with identical expiration dates on the same security or index but
different exercise prices (a technique called a "spread").
The Fund is also authorized to sell call or put options in connection with
closing out call or put options it has previously purchased.
Other than with respect to closing transactions, the Fund will only write
call or put options that are "covered." A call or put option will be considered
covered if the Fund has segregated assets with respect to such option in the
manner described in "Risk Factors in Options, Futures and Currency Instruments"
below. A call option will also be considered covered if the Fund owns the
securities it would be required to deliver upon exercise of the option (or, in
the case of an option on a securities index, securities which substantially
replicate the performance of such index) or owns a call option, warrant or
convertible instrument which is immediately exercisable for, or convertible
into, such security.
Types of Options. The Fund may engage in transactions in options on
securities or securities indices on exchanges and in the over-the-counter
("OTC") markets. In general, exchange-traded options have standardized exercise
prices and expiration dates and require the parties to post margin against their
obligations, and the performance of the parties' obligations in connection with
such options is guaranteed by the exchange or a related clearing corporation.
OTC options have more flexible terms negotiated between the buyer and the
seller, but generally do not require the parties to post margin and are subject
to greater risk of counterparty default. See "Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Strategic Investments" below.
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<PAGE> 47
FUTURES
The Fund may engage in transactions in futures, including stock index
futures contracts and financial futures contracts, and options thereon.
Financial futures contracts are standardized, exchange-traded contracts which
obligate a purchaser to take delivery, and a seller to make delivery, of a
specific amount of a commodity at a specified future date at a specified price.
Stock index futures contracts are similar to other futures contracts except that
they do not require actual delivery of securities but instead result in cash
settlement based on the difference in value of the index between the time the
contract was entered into and the time of its settlement.
No price is paid upon entering into a futures contract. Rather, upon
purchasing or selling a futures contract the Fund is required to deposit
collateral ("margin") equal to a percentage (generally less than 10%) of the
contract value. Each day thereafter until the futures position is closed, the
Fund will pay additional margin representing any loss experienced as a result of
the futures position the prior day or be entitled to a payment representing any
profit experienced as a result of the futures position the prior day.
The sale of a futures contract for hedging purposes limits the Fund's risk
of loss through a decline in the market value of portfolio holdings correlated
with the futures contract prior to the futures contract's expiration date. In
the event the market value of the portfolio holdings correlated with the futures
contract increases rather than decreases, however, the Fund will realize a loss
on the futures position and a lower return on the portfolio holdings than would
have been realized without the purchase of the futures contract.
The purchase of a futures contract as an anticipatory hedge may protect the
Fund from having to pay more for securities as a consequence of increases in the
market value for such securities during a period when the Fund was attempting to
identify specific securities in which to invest in a market the Fund believes to
be attractive. In the event that such securities decline in value or the Fund
determines not to complete an anticipatory hedge transaction in a futures
contract, however, the Fund may realize a loss relating to the futures position.
The Fund will limit transactions in futures and options on futures to the
extent necessary to prevent the Fund from being deemed a "commodity pool" under
regulations of the Commodity Futures Trading Commission.
FOREIGN EXCHANGE TRANSACTIONS
The Fund may engage in spot and forward foreign exchange transactions and
currency swaps, purchase and sell options on currencies and purchase and sell
currency futures and related options thereon (collectively, "Currency
Instruments") for the purpose of hedging against the decline in the value of
currencies in which its portfolio holdings are denominated against the United
States dollar.
Forward foreign exchange transactions are OTC contracts to purchase or sell
a specified amount of a specified currency or multinational currency unit at a
price and future date set at the time of the contract. Spot foreign exchange
transactions are similar but require current, rather than future, settlement.
The Fund will enter into foreign exchange transactions for the purpose of
hedging either a specific transaction or a portfolio position. The Fund may
enter into a foreign exchange transaction for purposes of hedging a specific
transaction by, for example, purchasing a currency needed to settle a security
transaction or selling a currency in which the Fund has received or anticipates
receiving a dividend or distribution. The Fund may enter into a foreign exchange
transaction for purposes of hedging a portfolio position by selling forward a
currency in which a portfolio position of the Fund is denominated or by
purchasing a currency in which the Fund anticipates
47
<PAGE> 48
acquiring a portfolio position in the near future. The Fund may also hedge
portfolio positions through currency swaps, which are transactions in which one
currency is simultaneously bought for a second currency on a spot basis and sold
for the second currency on a forward basis.
The Fund may also hedge against the decline in the value of a currency
against the United States dollar through use of currency futures or options
thereon. Currency futures are similar to forward foreign exchange transactions
except that futures are standardized, exchange-traded contracts. See "Futures"
above.
The Fund may also hedge against the decline in the value of a currency
against the United States dollar through the use of currency options. Currency
options are similar to options on securities, but in consideration for an option
premium the writer of a currency option is obligated to sell (in the case of a
call option) or purchase (in the case of a put option) a specified amount of a
specified currency on or before the expiration date for a specified amount of
another currency. The Fund may engage in transactions in options on currencies
either on exchanges or OTC markets. See "Types of Options" above and "Additional
Risk Factors of OTC Transactions; Limitations on the Use of OTC Strategic
Instruments" below.
When entering into a transaction in a Currency Instrument, the Fund will
not hedge a currency in excess of the aggregate market value of the securities
which it owns (including receivables for unsettled securities sales), or has
committed to or anticipates purchasing, which are denominated in such currency.
The Fund may, however, hedge a currency by entering into a transaction in a
Currency Instrument denominated in a currency other than the currency being
hedged (a "cross-hedge"). The Fund will only enter into a cross-hedge if the
Manager believes that (i) there is a demonstrably high correlation between the
currency in which the cross-hedge is denominated and the currency being hedged
and (ii) executing a cross-hedge through the currency in which the cross-hedge
is denominated will be significantly more cost-effective or provide
substantially greater liquidity than executing a similar hedging transaction by
means of the currency being hedged.
Risk Factors in Hedging Foreign Currency Risks. While the Fund's use of
Currency Instruments to effect hedging strategies is intended to reduce the
volatility of the net asset value of the Fund's shares, the net asset value of
the Fund's shares will fluctuate. Moreover, although Currency Instruments will
be used with the intention of hedging against adverse currency movements,
transactions in Currency Instruments involve the risk that anticipated currency
movements will not be accurately predicted and that the Fund's hedging
strategies will be ineffective. To the extent that the Fund hedges against
anticipated currency movements which do not occur, the Fund may realize losses,
and lower its total return, as the result of its hedging transactions.
Furthermore, the Fund will only engage in hedging activities from time to time
and may not be engaging in hedging activities when movements in currency
exchange rates occur. It may not be possible for the Fund to hedge against
currency exchange rate movements, even if correctly anticipated, in the event
that (i) the currency exchange rate movement is so generally anticipated that
the Fund is not able to enter into a hedging transaction at an effective price
or (ii) the currency exchange rate movement relates to a market with respect to
which Currency Instruments are not available (such as certain developing
markets) and it is not possible to engage in effective foreign currency hedging.
RISK FACTORS IN OPTIONS, FUTURES AND CURRENCY INSTRUMENTS
Use of Strategic Instruments for hedging purposes involves the risk of
imperfect correlation in movements in the value of the Strategic Instruments and
the value of the instruments being hedged. If the value of the Strategic
Instruments moves more or less than the value of the hedged instruments the Fund
will
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<PAGE> 49
experience a gain or loss which will not be completely offset by movements in
the value of the hedged instruments.
The Fund intends to enter transactions involving Strategic Instruments only
if there appears to be a liquid secondary market for such instruments or, in the
case of illiquid instruments traded in OTC transactions, such instruments
satisfy the criteria set forth below under "Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Strategic Instruments." However,
there can be no assurance that, at any specific time, either a liquid secondary
market will exist for a Strategic Instrument or the Fund will otherwise be able
to sell such instrument at an acceptable price. It may therefore not be possible
to close a position in a Strategic Instrument without incurring substantial
losses, if at all.
Certain transactions in Strategic Instruments (e.g., forward foreign
exchange transactions, futures transactions, sales of put options) may expose
the Fund to potential losses which exceed the amount originally invested by the
Fund in such instruments. When the Fund engages in such a transaction, the Fund
will deposit in a segregated account at its custodian liquid securities with a
value at least equal to the Fund's exposure, on a mark-to-market basis, to the
transaction (as calculated pursuant to requirements of the Commission). Such
segregation will ensure that the Fund has assets available to satisfy its
obligations with respect to the transaction, but will not limit the Fund's
exposure to loss.
ADDITIONAL RISK FACTORS OF OTC TRANSACTIONS; LIMITATIONS ON THE USE OF OTC
STRATEGIC INSTRUMENTS
Certain Strategic Instruments traded in OTC markets, including OTC options,
may be substantially less liquid than other instruments in which the Fund may
invest. The absence of liquidity may make it difficult or impossible for the
Fund to sell such instruments promptly at an acceptable price. The absence of
liquidity may also make it more difficult for the Fund to ascertain a market
value for such instruments. The Fund will therefore acquire illiquid OTC
instruments (i) if the agreement pursuant to which the instrument is purchased
contains a formula price at which the instrument may be terminated or sold or
(ii) for which the Manager anticipates the Fund can receive on each business day
at least two independent bids or offers, unless a quotation from only one dealer
is available, in which case that dealer's quotation may be used.
The staff of the Commission has taken the position that purchased OTC
options and the assets underlying written OTC options are illiquid securities.
The Fund has therefore adopted an investment policy pursuant to which it will
not purchase or sell OTC options (including OTC options on futures contracts)
if, as a result of such transactions, the sum of the market value of OTC options
currently outstanding which are held by the Fund, the market value of the
securities underlying OTC call options currently outstanding which have been
sold by the Fund and margin deposits on the Fund's outstanding OTC options
exceeds 15% of the net assets of the Fund, taken at market value, together with
all other assets of the Fund which are deemed to be illiquid or are otherwise
not readily marketable. However, if an OTC option is sold by the Fund to a
dealer in U.S. government securities recognized as a "primary dealer" by the
Federal Reserve Bank of New York and the Fund has the unconditional contractual
right to repurchase such OTC option at a predetermined price, then the Fund will
treat as illiquid such amount of the underlying securities as is equal to the
repurchase price less the amount by which the option is "in-the-money" (i.e.,
current market value of the underlying security minus the option's exercise
price).
Because Strategic Instruments traded in OTC markets are not guaranteed by
an exchange or clearing corporation and generally do not require payment of
margin, to the extent that the Fund has unrealized gains in such instruments or
has deposited collateral with its counterparty the Fund is at risk that its
counterparty
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<PAGE> 50
will become bankrupt or otherwise fail to honor its obligations. The Fund will
attempt to minimize the risk that a counterparty will become bankrupt or
otherwise fail to honor its obligations by engaging in transactions in Strategic
Instruments traded in OTC markets only with financial institutions which have
substantial capital or which have provided the Fund with a third-party guaranty
or other credit enhancement.
ADDITIONAL LIMITATIONS ON THE USE OF STRATEGIC INSTRUMENTS
The Fund may not use any Strategic Instrument to gain exposure to an asset
or class of assets that it would be prohibited from purchasing directly by its
investment restrictions.
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MERRILL LYNCH GLOBAL TECHNOLOGY FUND, INC. -- AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
[NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT(SM) PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT(SM)
PROGRAM APPLICATION BY CALLING TOLL FREE (800) 637-3766.]
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[ ] Class A shares [ ] Class B shares [ ] Class C shares [ ] Class D shares
of Merrill Lynch Global Technology Fund, Inc. and establish an Investment
Account as described in the Prospectus. In the event that I am not eligible to
purchase Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $....... payable to Merrill Lynch Financial
Data Services, Inc., as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of
paper if necessary.)
1. ................................... 4. ...................................
2. ................................... 5. ...................................
3. ................................... 6. ...................................
Name ...........................................................................
First Name Initial Last Name
Name of Co-Owner (if any) ......................................................
First Name Initial Last Name
Address ........................................................................
(Zip Code)
Occupation ........................... Name and Address of Employer .........
...................................... ......................................
Signature of Owner Signature of Co-Owner (if any)
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Ordinary Income Dividends Long-Term Capital Gains
- ------------------------------------- -------------------------------------
SELECT [ ] Reinvest SELECT [ ] Reinvest
ONE: [ ] Cash ONE: [ ] Cash
- ------------------------------------- -------------------------------------
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [ ] CHECK
OR [ ] DIRECT DEPOSIT TO BANK ACCOUNT
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Global Technology Fund, Inc. Authorization Form.
Specify type of account (check one): [ ] checking [ ] savings
Name on your Account ...........................................................
Bank Name ......................................................................
Bank Number ............................................. Account Number ......
Bank Address ...................................................................
I agree that this authorization will remain in effect until I provide written
notification to Merrill Lynch Financial Data Services, Inc. amending or
terminating this service.
Signature of Depositor .........................................................
Signature of
Depositor .............................................. Date .................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS
APPLICATION.
- --------------------------------------------------------------------------------
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MERRILL LYNCH GLOBAL TECHNOLOGY FUND, INC.--AUTHORIZATION FORM (PART
1)--(CONTINUED)
- --------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
------------------------------------------------------
------------------------------------------------------
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security Number or Taxpayer Identification Number and (2) that
I am not subject to backup withholding (as discussed in the Prospectus under
"Taxes") either because I have not been notified that I am subject thereto as a
result of a failure to report all interest or dividends, or the Internal Revenue
Service ("IRS") has notified me that I am no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
................................................................................
................................................................................
SIGNATURE OF OWNER SIGNATURE OF CO-OWNER (IF ANY)
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION -- CLASS A AND D SHARES ONLY (SEE TERMS AND CONDITIONS IN
THE STATEMENT OF ADDITIONAL INFORMATION)
............................. , 19.....
Date of initial purchase
Dear Sir/Madam:
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Global Technology Fund, Inc. or any other investment company with an
initial sales charge or deferred sales charge for which Merrill Lynch Funds
Distributor, Inc. acts as distributor over the next 13 month period which will
equal or exceed:
[ ] $25,000 [ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Global Technology
Fund, Inc. Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Global Technology Fund, Inc. held as security.
By:.............................................................................
Signature of Owner
................................................................................
Signature of Co-Owner (If registered in joint name, 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........................................................................
Account Number..................................................................
(2) Name........................................................................
Account Number..................................................................
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp
WE HEREBY AUTHORIZE MERRILL LYNCH FUNDS DISTRIBUTOR, INC. TO ACT AS OUR AGENT IN
CONNECTION WITH TRANSACTIONS UNDER THIS AUTHORIZATION FORM AND AGREE TO NOTIFY
THE DISTRIBUTOR OF ANY PURCHASES OR SALES MADE UNDER A LETTER OF INTENTION,
AUTOMATIC INVESTMENT PLAN OR SYSTEMATIC WITHDRAWAL PLAN. WE GUARANTEE THE
SHAREHOLDER'S SIGNATURE.
................................................................................
Dealer Name and Address
By .............................................................................
Authorized Signature of Dealer
[ ][ ] [ ][ ][ ][ ] .................................
Branch-Code F/C No. F/C Last Name
[ ][ ] [ ][ ][ ][ ]
Dealer's Customer A/C No.
52
<PAGE> 53
MERRILL LYNCH GLOBAL TECHNOLOGY FUND, INC. -- AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
Note: This form is required to apply for the Systematic Withdrawal or Automatic
Investment Plans only.
- --------------------------------------------------------------------------------
------------------------------
------------------------------
Social Security No.
Or Taxpayer Identification No.
1. ACCOUNT REGISTRATION
(PLEASE PRINT)
Name of Owner ..................................................................
First Name Initial Last Name
Address ........................................................................
Name of Co-Owner (if any) ......................................................
First Name Initial Last Name
Address ........................................
(Zip Code)
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 Technology Fund, Inc. at cost or current offering price.
Withdrawals to be made either (check one) [ ] Monthly on the 24th day of each
month, or [ ] Quarterly on the 24th day of March, June, September and December.
If the 24th falls on a weekend or holiday, the next succeeding business day will
be utilized. Begin systematic withdrawal on ........ 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 MY BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Specify type of account (check one): [ ] checking [ ] savings
Name on your account ...........................................................
Bank Name ......................................................................
Bank Number ................................ Account Number ....................
Bank Address ...................................................................
Signature of
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 SHALL 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.
53
<PAGE> 54
MERRILL LYNCH GLOBAL TECHNOLOGY FUND, INC. -- AUTHORIZATION FORM
(PART 2) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described below
each month to purchase: (choose one)
[ ] Class A shares [ ] Class B shares [ ] Class C shares [ ] Class D
shares
of Merrill Lynch Global Technology Fund, Inc., subject to the terms set forth
below. In the event that I am not eligible to purchase Class A shares, I
understand that Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA
SERVICES, INC.
You are hereby authorized to draw an
ACH debit each month on my bank
account for investment in Merrill
Lynch Global Technology Fund, Inc. as
indicated below:
Amount of each check or ACH debit
$.....................................
Account Number....................
Please date and invest ACH debits on
the 20th of each month beginning .....
or as soon thereafter as possible.
I agree that you are preparing these
ACH debits voluntarily at my request
and that you shall not be liable for
any loss arising from any delay in
preparing or failure to prepare any
such debit. If I change banks or
desire to terminate or suspend this
program, I agree to notify you
promptly in writing. I hereby
authorize you to take any action to
correct erroneous ACH debits of my
bank account or purchases of Fund
shares including liquidating shares of
the Fund and crediting my bank
account. I further agree that if a
debit is not honored upon
presentation, Merrill Lynch Financial
Data Services, Inc. is authorized to
discontinue immediately the Automatic
Investment Plan and to liquidate
sufficient shares held in my account
to offset the purchase made with the
dishonored debit.
................ ..................
Date Signature of Depositor
AUTHORIZATION TO HONOR ACH DEBITS
DRAWN BY MERRILL LYNCH FINANCIAL
DATA SERVICES, INC.
To
............................................ Bank
(Investor's Bank)
Bank Address..........................
City......................... State...... Zip..........
As a convenience to me, I hereby request
and authorize you to pay and charge to
my account ACH debits drawn on my
account by and payable to Merrill
Lynch Financial Data Services, Inc. I
agree that your rights in respect to
each such debit shall be the same as
if it were a check drawn on you and
signed personally by me. This
authority is to remain in effect until
revoked by me in writing. Until you
receive such notice, you shall be
fully protected in honoring any such
debit. I further agree that if any
such debit be dishonored, whether with
or without cause and whether
intentionally or inadvertently, you
shall be under no liability.
..................... ..............
Date Signature of Depositor
......................... ................
Bank Account Number Signature of Depositor
(If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
54
<PAGE> 55
MANAGER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08536-9081
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche, LLP
117 Campus Drive
Princeton, NJ 08543
COUNSEL
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
<PAGE> 56
- ------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE MANAGER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Fee Table.................................... 2
Merrill Lynch Select Pricing(SM) System...... 3
Risk Factors and Special Considerations...... 8
Investment Objective and Policies............ 12
Description of Certain Investments......... 13
Other Investment Policies and Practices.... 15
Investment Restrictions.................... 19
Management of the Fund....................... 20
Directors.................................. 20
Management and Advisory Arrangements....... 20
Code of Ethics............................. 21
Transfer Agency Services................... 22
Purchase of Shares........................... 22
Subscription Offering...................... 22
Continuous Offering........................ 23
Initial Sales Charge Alternatives -- Class
A and Class D Shares..................... 26
Deferred Sales Charge Alternatives -- Class
B and Class C Shares..................... 27
Distribution Plans......................... 30
Limitations on the Payment of Deferred
Sales Charges............................ 32
Redemption of Shares......................... 32
Redemption................................. 32
Repurchase................................. 33
Reinstatement Privilege -- Class A and
Class D Shares........................... 33
Shareholder Services......................... 34
Investment Account......................... 34
Exchange Privilege......................... 34
Automatic Reinvestment of Dividends and
Capital Gains Distributions.............. 36
Systematic Withdrawal Plans................ 36
Automatic Investment Plans................. 36
Fee-Based Programs......................... 37
Taxes........................................ 37
Performance Data............................. 40
Additional Information....................... 41
Dividends and Distributions................ 41
Determination of Net Asset Value........... 41
Organization of the Fund................... 42
Year 2000 Issues........................... 43
Shareholder Reports........................ 43
Shareholder Inquiries...................... 44
Appendix..................................... 45
Authorization Form........................... 51
Code #19027-0598
</TABLE>
YZa
MERRILL LYNCH GLOBAL
TECHNOLOGY FUND, INC.
[MLYNCH COMPASS]
PROSPECTUS
May 20, 1998
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This Prospectus should be
retained for future reference.
<PAGE> 57
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL TECHNOLOGY FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Global Technology Fund, Inc. (the "Fund") is a diversified,
open-end management investment company that seeks long-term capital appreciation
through worldwide investment in equity securities of issuers that, in the
opinion of Merrill Lynch Asset Management, L.P. (the "Manager"), derive a
substantial portion of their income from products and services in technology
related industries. The Fund will pursue this objective by investing primarily
in a global portfolio of securities of issuers that are, and are expected to
remain, leaders in their product or service niches as measured by market share
and superiority in technology. In addition, part of the Fund's portfolio will be
invested in issuers which management believes are likely to develop leadership
positions. Although the Fund will not concentrate its investments in any one
industry, it is contemplated that substantial investments will be made in
issuers engaged in such technology related industries as telecommunications
equipment, computers, semiconductors, networking, internet and on-line service
companies, office automation, server hardware producers and software companies
(e.g., design, consumer and industrial). The Fund should be considered as a
means of diversifying an investment portfolio and not itself a balanced
investment program. The Fund may employ a variety of techniques, including
derivative investments, to hedge against market and currency risk or to gain
exposure to equity markets. There can be no assurance that the Fund's investment
objective will be achieved.
Pursuant to the Merrill Lynch Select PricingSM System, the Fund offers four
classes of shares each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select PricingSM System permits an
investor to choose the method of purchasing shares that the investor believes is
most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances.
------------------------
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated May 20,
1998 (the "Prospectus"), which has been filed with the Securities and Exchange
Commission (the "Commission") and can be obtained, without charge, by calling or
by writing the Fund at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
Capitalized terms used but not defined herein have the same meanings as in the
Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
------------------------
The date of this Statement of Additional Information is May 20, 1998.
<PAGE> 58
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital
appreciation through worldwide investment in equity securities of issuers that,
in the opinion of the Manager, derive a substantial portion of their income from
technology related industries. The Fund will pursue this objective by investing
in a global portfolio of securities of issuers that are, and are expected to
remain, leaders in their product or service niches as measured by market share
and superiority in technology. In addition, part of the Fund's portfolio will be
invested in issuers which management believes are likely to develop leadership
positions. Current income from dividends and interest will not be an important
consideration in selecting portfolio securities. There can be no assurance that
the Fund's investment objective will be achieved. Reference is made to
"Investment Objective and Policies" in the Prospectus for a discussion of the
investment objective and policies of the Fund.
The securities markets of many countries at times in the past 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 Fund's portfolio as a whole. This negative correlation also may offset
unrealized gains the Fund 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 Fund generally not to engage in trading for
short-term gains, the Manager will effect portfolio transactions without regard
to holding period, if, in its judgment, such transactions are advisable in light
of a change in circumstances of a particular company or within a particular
industry or in the general market, economic or financial conditions. The
portfolio turnover rate is calculated by dividing the lesser of the Fund's
annual sales or purchases of portfolio securities (exclusive of purchases or
sales of all securities whose maturities at the time of acquisition were one
year or less) by the monthly average value of the securities in the portfolio
during the year. While the Fund anticipates that its annual portfolio turnover
rate should not exceed 100% under normal conditions, it is impossible to predict
portfolio turnover rates. Higher portfolio turnover may contribute to higher
transactional costs and negative tax consequences, such as an increase in
capital gain dividends or in ordinary income dividends of accrued market
discount. See "Dividends, Distributions and Taxes."
The Fund's ability and decisions to purchase or sell portfolio securities
may be affected by laws or regulations relating to the convertibility and
repatriation of assets. Because the shares of the Fund are redeemable on a daily
basis on each day the Fund determines its net asset value in U.S. dollars, the
Fund intends to manage its portfolio so as to give reasonable assurance that it
will be able to obtain U.S. dollars to the extent necessary to meet anticipated
redemptions. See "Redemption of Shares." Under present conditions, the Manager
does not believe that these considerations will have any significant effect on
its portfolio strategy, although there can be no assurance in this regard.
2
<PAGE> 59
PORTFOLIO STRATEGIES INVOLVING OPTIONS, FUTURES AND FOREIGN EXCHANGE
TRANSACTIONS
The Fund is authorized to engage in certain investment practices involving
the use of options, futures and foreign exchange, which may expose the Fund to
certain risks. These investment practices and the associated risks are described
in detail in the Appendix to the Prospectus.
OTHER INVESTMENT POLICIES AND PRACTICES
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase securities that it is entitled to receive on a when-issued basis, and
it may purchase or sell securities for delayed delivery. These transactions
occur when securities are purchased or sold by the Fund with payment and
delivery taking place in the future to secure what is considered an advantageous
yield and price to the Fund at the time of entering into the transaction.
Although the Fund has not established any limit on the percentage of its assets
that may be committed in connection with such transactions, the Fund will
maintain a segregated account with its custodian of cash, cash equivalents, U.S.
Government securities or other liquid securities denominated in U.S. dollars or
non-U.S. currencies in an aggregate amount equal to the amount of its commitment
in connection with such purchase transactions.
There can be no assurance that a security purchased on a when-issued basis
or purchased or sold through a forward commitment will be issued, and the value
of the security, if issued, on the delivery date may be more or less than its
purchase price. The Fund may bear the risk of a decline in the value of such
security and may not benefit from an appreciation in the value of the security
during the commitment period.
Standby Commitment Agreements. The Fund, from time to time, may enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of equity securities which may be
issued and sold to the Fund at the option of the issuer. The price of the
security is fixed at the time of the commitment. At the time of entering into
the agreement the Fund is paid a commitment fee, regardless of whether or not
the security is ultimately issued, which is typically approximately 0.50% of the
aggregate purchase price of the security that the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a price that is
considered advantageous to the Fund. The Fund will not enter into a standby
commitment with a remaining term in excess of 45 days and presently will limit
its investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale that affect their
marketability, will not exceed 15% of its net assets taken at the time of
acquisition of such a commitment. The Fund at all times will maintain a
segregated account with its custodian of cash, cash equivalents, U.S. Government
securities or other liquid securities denominated in U.S. dollars or non-U.S.
currencies in an aggregate amount equal to the purchase price of the securities
underlying a commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued, and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, the Fund
may bear the risk of a decline in the value of such security and may not benefit
from an appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
can reasonably be expected to be issued, and the value of
3
<PAGE> 60
the security thereafter will be reflected in the calculation of the Fund's net
asset value. The cost basis of the security will be adjusted by the amount of
the commitment fee. In the event the security is not issued, the commitment fee
will be recorded as income on the expiration date of the standby commitment.
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements and purchase and sale contracts may be entered into only
with financial institutions which (i) have, in the opinion of the Manager,
substantial capital relative to the Fund's exposure, or (ii) have provided the
Fund with a third-party guaranty or other credit enhancement. Under a repurchase
agreement or a purchase and sale contract, the seller agrees, upon entering into
the contract with the Fund, to repurchase the security at a mutually agreed-upon
time and price in a specified currency, thereby determining the yield during the
term of the agreement. This results in a fixed rate of return insulated from
market fluctuations during such period although it may be affected by currency
fluctuations. In the case of repurchase agreements, the price at which the
trades are conducted do not reflect accrued interest on the underlying
obligation; whereas, in the case of purchase and sale contracts, the prices take
into account accrued interest. Such agreements usually cover short periods, such
as under one week. Repurchase agreements may be construed to be collateralized
loans by the purchaser to the seller secured by the securities transferred to
the purchaser. In the case of a repurchase agreement, as a purchaser, the Fund
will require the seller to provide additional collateral if the market value of
the securities falls below the repurchase price at any time during the term of
the repurchase agreement; the Fund does not have the right to seek additional
collateral in the case of purchase and sale contracts. In the event of default
by the seller under a repurchase agreement construed to be a collateralized
loan, the underlying securities are not owned by the Fund but only constitute
collateral for the seller's obligation to pay the repurchase price. Therefore,
the Fund may suffer time delays and incur costs or possible losses in connection
with the disposition of the collateral. A purchase and sale contract differs
from a repurchase agreement in that the contract arrangements stipulate that the
securities are owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract, instead of the
contractual fixed rate, the rate of return to the Fund shall be dependent upon
intervening fluctuations of the market value of such securities and the accrued
interest on the securities. In such event, the Fund would have rights against
the seller for breach of contract with respect to any losses arising from market
fluctuations following the failure of the seller to perform. While the substance
of purchase and sale contracts is similar to repurchase agreements, because of
the different treatment with respect to accrued interest and additional
collateral, management believes that purchase and sale contracts are not
repurchase agreements as such term is understood in the banking and brokerage
community. The Fund may not invest more than 15% of its net assets in repurchase
agreements or purchase and sale contracts maturing in more than seven days
together with all other illiquid investments.
Lending of Portfolio Securities. Subject to the investment restrictions
set forth in the Prospectus and herein, the Fund may, from time to time, lend
securities from its portfolio to approved borrowers and receive therefor
collateral in cash or securities issued or guaranteed by the United States
Government. Such collateral will be maintained at all times in an amount equal
to at least 100% of the current market value of the loaned securities. The
purpose of such loans is to permit the borrower to use such securities for
delivery to purchasers when such borrower has sold short. If cash collateral is
received by the Fund, it is invested in short-term money market securities, and
a portion of the yield received in respect of such investment is retained by the
Fund. Alternatively, if securities are delivered to the Fund as collateral, the
Fund and the borrower negotiate a rate for the loaned premium to be received by
the Fund for lending its portfolio securities. In either event, the total yield
on the Fund's portfolio is increased by loans of its portfolio securities. The
Fund will have the
4
<PAGE> 61
right to regain record ownership of loaned securities to exercise beneficial
rights such as voting rights, subscription rights and rights to dividends,
interest or other distributions. Such loans are terminable at any time, and the
borrower, after notice, will be required to return borrowed securities within
five business days. The Fund may pay reasonable finder's, administrative and
custodial fees in connection with such loans. With respect to the lending of
portfolio securities, there is the risk of failure by the borrower to return the
securities involved in such transactions.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the Prospectus, the
Fund has adopted a number of fundamental and non-fundamental restrictions and
policies relating to the investment of its assets and its activities. The
fundamental policies set forth below may not be changed without the approval of
the holders of a majority of the Fund's outstanding voting securities (which for
this purpose and under the Investment Company Act of 1940, as amended (the
"Investment Company Act") means the lesser of (i) 67% of the Fund's shares
represented at a meeting at which more than 50% of the outstanding shares of the
Fund are represented or (ii) more than 50% of the Fund's outstanding shares).
The Fund may not:
1. Make any investment inconsistent with the Fund's classification as
a diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value at the
time of each investment, in the securities of issuers in any particular
industry (excluding the U.S. Government and its agencies and
instrumentalities).
3. Make investments for the purpose of exercising control or
management. Investments by the Fund in wholly-owned investment entities
created under the laws of certain countries will not be deemed to be the
making of investments for the purpose of exercising control or management.
4. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies that
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 and repurchase agreements and purchase and
sale contracts or any similar instruments shall not be deemed to be the
making of a loan, and except further that the Fund may lend its portfolio
securities, provided that the lending of portfolio securities may be made
only in accordance with applicable law and the guidelines set forth in the
Fund's Prospectus and this Statement of Additional Information, as they may
be amended from time to time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that the Fund (i) 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) may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities and (iv) may purchase securities on
margin to the extent permitted by applicable law. The Fund may not pledge
its assets other than to secure such borrowings or, to the extent permitted
by the Fund's investment policies
5
<PAGE> 62
as set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
8. Underwrite securities of other issuers, except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act"), in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
Under the non-fundamental investment restrictions, which may be changed by
the Board of Directors without shareholder approval, the Fund may not:
a. Purchase securities of other investment companies except to the
extent permitted by applicable law. Applicable law currently allows the
Fund to purchase the securities of other investment companies if
immediately thereafter, not more than (i) 3% of the total outstanding
voting stock of such company is owned by the Fund; (ii) 5% of the Fund's
total assets, taken at market value, would be invested in any one such
company; (iii) 10% of the Fund's total assets, taken at market value, would
be invested in such securities; and (iv) the Fund, together with other
investment companies having the same investment adviser and companies
controlled by such companies, owns not more than 10% of the total
outstanding stock of any one closed-end investment company. Investments by
the Fund in wholly-owned investment entities created under the laws of
certain countries will not be deemed an investment in other investment
companies. As a matter of policy, however, the Fund will not purchase
shares of any registered open-end investment company or registered unit
investment trust in reliance on Section 12(d)(1)(F) or (G) (the "fund of
funds" provisions) of the Investment Company Act, at any time its shares
are owned by another investment company that is part of the same group of
investment companies as the Fund.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales "against the box."
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its net assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund
has otherwise determined to be liquid pursuant to applicable law.
Securities purchased in accordance with Rule 144A under the Securities Act
and determined to be liquid by the Board of Directors are not subject to
the limitations set forth in this investment restriction.
d. Notwithstanding fundamental investment restriction (7) above,
borrow money or pledge its assets, except that the Fund (a) may borrow from
a bank as a temporary measure for extraordinary or emergency purposes or to
meet redemptions in amounts not exceeding 33 1/3% (taken at market value)
of its total assets and pledge its assets to secure such borrowings, (b)
may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (c) may purchase
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securities on margin to the extent permitted by applicable law. However, at
the present time, applicable law prohibits the Fund from purchasing
securities on margin. The deposit or payment by the Fund of initial or
variation margin in connection with financial futures contracts or options
transactions is not considered to be the purchase of a security on margin.
The purchase of securities while borrowings are outstanding will have the
effect of leveraging the Fund. Such leveraging or borrowing increases the
Fund's exposure to capital risk, and borrowed funds are subject to interest
costs which will reduce net income. The Fund will not purchase securities
while borrowings exceed 5% of its total assets.
Portfolio securities of the Fund generally may not be purchased from, sold
or loaned to the Manager or its affiliates or any of their directors, officers
or employees, acting as principal, unless pursuant to a rule or exemptive order
under the Investment Company Act.
The staff of the Commission has taken the position that purchased
over-the-counter ("OTC") options and the assets used as cover for written OTC
options are illiquid securities. Therefore, the Fund has adopted an investment
policy pursuant to which it will not purchase or sell OTC options if, as a
result of any such transaction, the sum of the market value of OTC options
currently outstanding that are held by the Fund, the market value of the
underlying securities covered by OTC call options currently outstanding that
were sold by the Fund and margin deposits on the Fund's existing OTC options on
financial futures contracts exceeds 15% of the net assets of the Fund, taken at
market value, together with all other assets of the Fund that are illiquid or
are not otherwise readily marketable. However, if the OTC option is sold by the
Fund to a primary U.S. Government securities dealer recognized by the Federal
Reserve Bank of New York and if the Fund has the unconditional contractual right
to repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities as is equal
to the repurchase price less the amount by which the option is "in-the-money"
(i.e., current market value of the underlying securities minus the option's
strike price). The repurchase price with the primary dealers is typically a
formula price which is generally based on a multiple of the premium received for
the option, plus the amount by which the option is "in-the-money." This policy
as to OTC options is not a fundamental policy of the Fund and may be amended by
the Board of Directors of the Fund without the approval of the Fund's
shareholders. However, the Fund will not change or modify this policy prior to
the change or modification by the Commission staff of its position.
In addition, as a non-fundamental policy which may be changed by the Board
of Directors and to the extent required by the Commission or its staff, the Fund
will, for purposes of fundamental investment restrictions (1) and (2), treat
securities issued or guaranteed by the government of any one foreign country as
the obligations of a single issuer.
As another non-fundamental policy, the Fund will not invest in securities
that are (a) subject to material legal restrictions on repatriation of assets or
(b) cannot be readily resold because of legal or contractual restrictions or
which are not otherwise readily marketable, including repurchase agreements and
purchase and sale contracts maturing in more than seven days, if, regarding all
such securities, more than 15% of its net assets, taken at market value would be
invested in such securities.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Fund, the Fund is prohibited from
engaging in certain transactions involving such firm or its affiliates except
for brokerage transactions permitted under the Investment Company Act involving
only usual and customary commissions or transactions permitted pursuant to an
exemptive order under the Investment
7
<PAGE> 64
Company Act. See "Portfolio Transactions and Brokerage." Without such an
exemptive order, the Fund is prohibited from engaging in portfolio transactions
with Merrill Lynch or its affiliates acting as principal.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
Information about the Directors, executive officers and portfolio manager
of the Fund, including their ages and their principal occupations for at least
the last five years, is set forth below. Unless otherwise noted, the address of
the portfolio manager and each executive officer and Director is P.O. Box 9011,
Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (65) -- President and Director(1)(2) -- Chairman of the
Manager and of Fund Asset Management, L.P. ("FAM") (which terms as used herein
include their corporate predecessors) since 1997; President of the Manager and
FAM from 1977 to 1997; Chairman of Princeton Services, Inc. ("Princeton
Services") since 1997 and Director thereof since 1993; President of Princeton
Services from 1993 to 1997; Executive Vice President of Merrill Lynch & Co.,
Inc. ("ML & Co.") since 1990.
DONALD CECIL (71) -- Director(2) -- 1114 Avenue of the Americas, New York,
New York, 10036. Special Limited Partner of Cumberland Partners (an investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
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, 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).
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 Manager 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.
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<PAGE> 65
NORMAN R. HARVEY (64) -- Senior Vice President(1)(2) -- Senior Vice
President of the Manager and FAM since 1982; Senior Vice President of Princeton
Services since 1993.
PAUL GERARD MEEKS (35) -- Senior Vice President and Portfolio
Manager(1) -- Portfolio Manager of the Manager since May 1998; various positions
with Jurika & Voyles, L.P. from 1994 to 1998 including technology analyst (1994
to 1998), director of research (1995 to 1998), principal (1996 to 1998) and
portfolio manager of the Jurika & Voyles Mini-Cap Fund (1997 to 1998); various
positions with Strong/Corneliuson Capital Management, Inc., from 1992 to 1994
including equity analyst and marketer.
DONALD C. BURKE (37) -- Vice President(1)(2) -- First Vice President of the
Manager since 1997; Vice President of the Manager from 1990 to 1997; Director of
Taxation of the Manager since 1990.
GERALD M. RICHARD (48) -- Treasurer(1)(2) -- Senior Vice President and
Treasurer of the Manager and FAM since 1984; Senior Vice President and Treasurer
of Princeton Services since 1993; Vice President of the Distributor since 1981
and Treasurer thereof since 1984.
PHILIP M. MANDEL (50) -- Secretary(1)(2) -- First Vice President of the
Manager since 1997; Vice President and Assistant General Counsel of Merrill
Lynch from 1989 to 1997.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a trustee, director or officer of one or more
additional investment companies for which the Manager or FAM acts as
investment adviser or manager.
At May 18, 1998, the officers and Directors of the Fund as a group (12
persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At such date, Mr. Zeikel, a Director and officer of the Fund, and the
other officers of the Fund, owned less than 1% of the outstanding shares of
common stock of ML & Co.
COMPENSATION OF DIRECTORS
The Fund pays each Director who is not affiliated with the Manager (each a
"non-affiliated Director") a fee of $3,500 per year plus $500 per Board meeting
attended, together with such Director's actual out-of-pocket expenses relating
to attendance at meetings. The Fund also compensates members of its Audit and
Nominating Committee (the "Committee"), which consists of all the non-affiliated
Directors, at a rate of $500 per Committee meeting attended. The Chairman of the
Committee receives an additional fee of $250 per Committee meeting attended.
The following table sets forth the estimated compensation to be paid by the
Fund to the non-affiliated Directors projected through the Fund's first full
fiscal year, assuming the Board and Committee each held four meetings and all
Directors attended each meeting, and for the calendar year ended December 31,
1997, the
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<PAGE> 66
aggregate compensation paid by all registered investment companies advised by
the Manager and its affiliate, FAM ("MLAM/FAM Advised Funds") to the
non-affiliated Directors.
<TABLE>
<CAPTION>
PENSION OR AGGREGATE COMPENSATION
RETIREMENT FROM FUND AND OTHER
BENEFITS ACCRUED AS MLAM/FAM ADVISED
COMPENSATION PART OF FUND FUNDS PAID TO
NAME OF DIRECTOR FROM FUND EXPENSES DIRECTORS(1)
---------------- ------------ ------------------- ----------------------
<S> <C> <C> <C>
Donald Cecil............. $8,500 None $280,250
Edward H. Meyer.......... $7,500 None $222,100
Charles C. Reilly........ $7,500 None $313,000
Richard R. West.......... $7,500 None $299,000
Edward D. Zinbarg........ $7,500 None $133,500
</TABLE>
- ---------------
(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).
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund -- Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.
Securities may be held by, or be appropriate investments for, the Fund as
well as other funds or investment advisory clients for which the Manager or its
affiliates act as an adviser. Because of different objectives or other factors,
a particular security may be bought for one or more clients when one or more
clients are selling the same security. If purchases or sales of securities by
the Manager for the Fund or other funds for which it acts as investment adviser
or for its advisory clients arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all. To the extent
that transactions on behalf of more than one client of the Manager or its
affiliates during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
The Fund has entered into a management agreement with the Manager (the
"Management Agreement"). As discussed in the Prospectus, the Manager receives
for its services to the Fund monthly compensation at the annual rate of 1.0% of
the average daily net assets of the Fund.
As described in the Prospectus, the Manager has also entered into a
sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited ("MLAM
U.K.") pursuant to which MLAM U.K. provides investment advisory services to the
Manager with respect to the Fund.
The Management Agreement obligates the Manager to provide investment
advisory services and to pay all compensation of and furnish office space for
officers and employees of the Fund connected with investment and economic
research, trading and investment management of the Fund, as well as the fees of
all Directors of the Fund who are affiliated persons of the Manager. The Fund
pays all other expenses incurred in the operation of the Fund, including, among
other things, taxes, expenses for legal and auditing services, costs of printing
proxies, stock certificates, shareholder reports and prospectuses and statements
of additional
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<PAGE> 67
information (except to the extent paid by the Distributor), charges of the
custodian, any sub-custodian and transfer agent, expenses of redemption of
shares, Commission fees, expenses of registering the shares under Federal, state
or foreign laws, fees and expenses of non-affiliated Directors, accounting and
pricing costs (including the daily calculation of net asset value), insurance,
interest, brokerage costs, litigation and other extraordinary or nonrecurring
expenses, and other expenses properly payable by the Fund. Accounting services
are provided to the Fund by the Manager, and the Fund reimburses the Manager for
its costs in connection with such services on a semi-annual basis. The
Distributor will pay certain promotional expenses of the Fund incurred in
connection with the offering of shares of the Fund. Certain expenses will be
financed by the Fund pursuant to distribution plans in compliance with Rule
12b-1 under the Investment Company Act. See "Purchase of Shares -- Distribution
Plans."
The Manager is a limited partnership, the partners of which are ML & Co.
and Princeton Services. ML & Co. and Princeton Services are "controlling
persons" of the Manager as defined under the Investment Company Act because of
their ownership of its voting securities or their power to exercise a
controlling influence over its management or policies. Similarly, the following
entities may be considered "controlling persons" of MLAM U.K.: Merrill Lynch
Europe Limited (MLAM U.K.'s parent), a subsidiary of ML International Holdings,
a subsidiary of Merrill Lynch International, Inc., a subsidiary of ML & Co.
Duration and Termination. Unless earlier terminated as described herein,
the Management Agreement will continue in effect for a period of two years from
the date of execution and will remain in effect from year to year thereafter if
approved annually (a) by the Board of Directors or by a majority of the
outstanding shares of the Fund and (b) by a majority of the Directors who are
not parties to such contract or "interested persons" (as defined in the
Investment Company Act) of any such party. Such contracts are not assignable and
may be terminated without penalty on 60 days' written notice at the option of
either party thereto or by the vote of the shareholders of the Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System; shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives, and shares of Class B and Class C are
sold to investors choosing the deferred sales charge alternatives. Each Class A,
Class B, Class C and Class D share of the Fund represents an identical interest
in the investment portfolio of the Fund and has the same rights except that
Class B, Class C and Class D shares bear the expenses of the ongoing account
maintenance 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."
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<PAGE> 68
The Merrill Lynch Select Pricing(SM) System is used by more than 50
registered investment companies advised by the Manager or its affiliate, FAM.
Funds advised by the Manager or FAM that use the Merrill Lynch Select
Pricing(SM) System are referred to herein as "MLAM-advised mutual funds."
The Fund has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Fund (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the offering
of each class of shares of the Fund. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and
prospective investors. The Distributor also pays for other supplementary sales
literature and advertising costs. The Distribution Agreements are subject to the
same renewal requirements and termination provisions as the Management Agreement
described under "Management of the Fund -- Management and Advisory
Arrangements."
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund, refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts by an individual, his or her spouse and their children under
the age of 21 years purchasing shares for his, her or their own account and
single purchases by a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases by
any such company that has not been in existence for at least six months or that
has no purpose other than the purchase of shares of the Fund or shares of other
registered investment companies at a discount; provided, however, that it shall
not include purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients 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 Fund 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 above quantity discounts only if the Fund and the Distributor are able
to realize economies of scale in sales effort and sales related expense by means
of the company, employer or plan making the Fund's Prospectus available to
individual investors or employees and forwarding investments by such persons to
the Fund and by any such employer or plan bearing the expense of any payroll
deduction plan.
Closed-End Fund Investment Option. Class A shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class A shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Manager or FAM
who purchased such closed-end fund shares prior to October 21, 1994 (the date
the Merrill Lynch Select Pricing(SM) System commenced operations) and wish to
reinvest the net proceeds of a sale of their closed-end fund shares of common
stock in Eligible Class A shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased such shares
on or after October 21, 1994 and wish to reinvest the net proceeds from a sale
of their closed-end fund shares are offered Class A shares (if eligible to buy
Class A shares) or Class D shares of the Fund and other MLAM-advised mutual
funds ("Eligible Class D shares"), if the following conditions are met. First,
the sale
12
<PAGE> 69
of closed-end fund shares must be made through Merrill Lynch and the net
proceeds therefrom must be reinvested immediately in Eligible Class A or Class D
shares. Second, the closed-end fund shares must either have been acquired in the
initial public offering or be shares representing dividends from shares of
common stock acquired in such offering. Third, the closed-end fund shares must
have been continuously maintained in a Merrill Lynch securities account. Fourth,
there must be a minimum purchase of $250 to be eligible for the investment
option.
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Fund, except that shareholders already
owning Class A shares of the Fund will be eligible to purchase additional Class
A shares pursuant to this option, if such additional Class A shares will be held
in the same account as the existing Class A shares and other requirements
pertaining to the reinvestment privilege are met. In order to exercise this
investment option, a shareholder of one of the above-referenced continuously
offered closed-end funds (an "eligible fund") must sell his or her shares of
common stock of the eligible fund (the "eligible shares") back to the eligible
fund in connection with a tender offer conducted by the eligible fund and
reinvest the proceeds immediately in the designated class of shares of the Fund.
This investment option is available only with respect to eligible shares as to
which no Early Withdrawal Charge or CDSC (each as defined in the eligible fund's
prospectus) is applicable. Purchase orders from eligible fund shareholders
wishing to exercise this investment option will be accepted only on the day that
the related tender offer terminates and will be effected at the net asset value
of the designated class of the Fund on such day.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Fund and of other MLAM-advised mutual funds. For any such right
of accumulation to be made available, the Distributor must be provided at the
time of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing, or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of the Fund or of
any other MLAM-advised mutual funds made within a 13-month period starting with
the first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at Merrill Lynch Financial Data Services, Inc., the
Fund's transfer agent (the "Transfer Agent"). The Letter of Intention is not
available to employee benefit plans for which Merrill Lynch provides plan
participant recordkeeping services. The Letter of Intention is not a binding
obligation to purchase any amount of Class A
13
<PAGE> 70
or Class D shares but its execution will result in the purchaser paying a lower
sales charge at the appropriate quantity purchase level. A purchase not
originally made pursuant to a Letter of Intention may be included under a
subsequent Letter of Intention executed within 90 days of such purchase if the
Distributor is informed in writing of this intent within such 90-day period. The
value of Class A and Class D shares of the Fund and of other MLAM-advised mutual
funds presently held, at cost or maximum offering price (whichever is higher),
on the date of the first purchase under the Letter of Intention, may be included
as a credit toward the completion of such Letter, but the reduced sales charge
applicable to the amount covered by such Letter will be applied only to new
purchases. If the total amount of shares purchased does not equal the amount
stated in the Letter of Intention (minimum of $25,000), the investor will be
notified and must pay, within 20 days of the expiration of such Letter, the
difference between the sales charge on the Class A or Class D shares purchased
at the reduced rate and the sales charge applicable to the sales actually
purchased through the Letter. Class A or Class D shares equal to five percent of
the intended amount will be held in escrow during the 13-month period (while
remaining registered in the name of the purchaser) for this purpose. The first
purchase under the Letter of Intention must be at least five percent of the
dollar amount of such Letter. If a purchase during the term of such Letter
otherwise would be subject to a further reduced sales charge based on the right
of accumulation, the purchaser will be entitled on that purchase and subsequent
purchases to the reduced percentage sales charge which would be applicable to a
single purchase equal to the total dollar value of the Class A or Class D shares
then being purchased under such Letter, but there will be no retroactive
reduction of the sales charges on any previous purchase. The value of any shares
redeemed or otherwise disposed of by the purchaser prior to termination or
completion of the Letter of Intention will be deducted from the total purchases
made under such Letter. An exchange from a MLAM-advised money market fund into
the Fund that creates a sales charge will count toward completing a new or
existing Letter of Intention from the Fund.
Merrill Lynch Blueprint(SM) Program. Class D shares of the Fund are
offered to participants in the Merrill Lynch Blueprint(SM) Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares of
the Fund may purchase additional Class A shares of the Fund through Blueprint.
Blueprint is directed to small investors, group Individual Retirement Accounts
("IRAs") and participants in certain affinity groups such as credit unions,
trade associations and benefit plans. Investors placing orders to purchase Class
A or Class D shares of the Fund through Blueprint will acquire the Class A or
Class D shares at net asset value plus a sales charge calculated in accordance
with the Blueprint sales charge schedule (i.e., up to $5,000 at 3.50% and
$5,000.01 or more at the standard sales charge rates disclosed in the
Prospectus). In addition, Class A and Class D shares of the Fund are being
offered at net asset value plus a sales charge of .50% for corporate or group
IRA programs placing orders to purchase their Class A or Class D shares through
Blueprint. Services available to Class A and Class D investors through
Blueprint, including exchange privileges, may differ from those available to
other investors in Class A or Class D shares.
Class A and Class D shares are offered at net asset value to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from Employer Sponsored Retirement or Savings Plans
(as defined below) whose trustee and/or plan sponsor has entered into the
Merrill Lynch Directed IRA Rollover Program Service Agreement.
Orders for purchases and redemptions of Class A or Class D shares of the
Fund may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days
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<PAGE> 71
following the day such orders are placed. The minimum initial purchase price is
$100, with a $50 minimum for subsequent purchases through Blueprint. There are
no minimum initial or subsequent purchase requirements for participants who are
part of an automatic investment plan. Additional information concerning
purchases through Blueprint, including any annual fees and transaction charges,
is available from Merrill Lynch, Pierce, Fenner & Smith Incorporated, The
Blueprint(SM) Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Employee Access(SM) Accounts. Provided applicable threshold requirements
are met, either Class A or Class D shares are offered at net asset value to
Employee Access(SM) Accounts available through authorized employers. The initial
minimum for such accounts is $500, except that the initial minimum for shares
purchased for such accounts pursuant to the Automatic Investment Program is $50.
Purchase Privilege of Certain Persons. Directors of the Fund, directors
and trustees of other MLAM-advised mutual funds, ML & Co. and its subsidiaries
(the term "subsidiaries," when used herein with respect to ML & Co., includes
the Manager, FAM and certain other entities directly or indirectly wholly owned
and controlled by ML & Co.) and their directors and employees, and any trust,
pension, profit-sharing or other benefit plan for such persons, may purchase
Class A shares of the Fund at net asset value.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis; and second, the investor also must establish that such redemption had
been made within 60 days prior to the investment in the Fund, and the proceeds
from the redemption had been maintained in the interim in cash or a money market
fund.
Class D shares of the Fund are also offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and the shares of
such other fund were subject to a sales charge either at the time of purchase or
on a deferred basis; and second, such purchase of Class D shares must be made
within 90 days after such notice.
Class D shares of the Fund are also offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: first, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Fund with proceeds from the redemption of shares
of such other mutual fund and that such shares have been outstanding for a
period of no less than six months; and second, such purchase of Class D shares
must be made within 60 days after the redemption and the proceeds from the
redemption must be maintained in the interim in cash or a money market fund.
TMA(SM) Managed Trusts. Class A shares are offered to TMA(SM) Managed
Trusts to which Merrill Lynch Trust Company provides discretionary trustee
services at net asset value.
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Acquisition of Certain Investment Companies. The public offering price of
Class D shares of the Fund may be reduced to the net asset value per Class D
share in connection with the acquisition of the assets of or merger or
consolidation with a public or private investment company. The value of the
assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible adverse tax consequences to the Fund that
might result from an acquisition of assets having net unrealized appreciation
that is disproportionately higher at the time of acquisition than the realized
or unrealized appreciation of the Fund. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities that (i) meet the
investment objective and policies of the Fund; (ii) are acquired for investment
and not for resale (subject to the understanding that the disposition of the
Fund's portfolio securities shall at all times remain within its control); and
(iii) are liquid securities, the value of which is readily ascertainable, that
are not restricted as to transfer either by law or liquidity of market (except
that the Fund may acquire through such transactions restricted or illiquid
securities to the extent the Fund does not exceed the applicable limits on
acquisition of such securities set forth under "Investment Objective and
Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based on
the number of employees or number of employees eligible to participate in the
plan, the aggregate amount invested by the plan in specified investments and/or
the services provided by Merrill Lynch to the plan. Certain other plans may
purchase Class B shares with a waiver of the contingent deferred sales charge
("CDSC") upon redemption, based on similar criteria. Such Class B shares will
convert into Class D shares approximately ten years after the plan purchases the
first share of any MLAM-advised mutual fund. Minimum purchase requirements may
be waived or varied for such plans. Additional information regarding purchases
by employer-sponsored retirement or savings plans and certain other arrangements
is available toll-free from Merrill Lynch Business Financial Services at (800)
237-7777.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares -- Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Fund to the Distributor with
respect to such classes.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Directors shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each Distribution Plan, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Fund and its related class of shareholders. Each
Distribution Plan further provides that so long as the Distribution Plan remains
in effect, the selection and nomination of Directors who are not "interested
persons" of the Fund, as defined in the Investment Company Act (the "Independent
Directors"),
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shall be committed to the discretion of the Independent Directors then in
office. In approving each Distribution Plan in accordance with Rule 12b-1, the
Independent Directors concluded that there is a reasonable likelihood that such
Distribution Plan will benefit the Fund and its related class of shareholders.
Each Distribution Plan can be terminated at any time, without penalty, by the
vote of a majority of the Independent Directors or by the vote of the holders of
a majority of the outstanding related class of voting securities of the Fund. A
Distribution Plan cannot be amended to increase materially the amount to be
spent by the Fund without the approval of the related class of shareholders, and
all material amendments are required to be approved by the vote of Directors,
including a majority of the Independent Directors who have no direct or indirect
financial interest in such Distribution Plan, cast in person at a meeting called
for that purpose. Rule 12b-1 further requires that the Fund preserve copies of
each Distribution Plan and any report made pursuant to such plan for a period of
not less than six years from the date of such Distribution Plan or such report,
the first two years in an easily accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD") imposes a limitation on
certain asset-based sales charges such as the distribution fee and the CDSC
borne by the Class B and Class C shares but not the account maintenance fee. The
maximum sales charge rule is applied separately to each class. As applicable to
the Fund, the maximum sales charge rule limits the aggregate of distribution fee
payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of
Class B shares and Class C shares, computed separately (defined to exclude
shares issued pursuant to dividend reinvestments and exchanges), plus (2)
interest on the unpaid balance for the respective class, computed separately, at
the prime rate plus 1% (the unpaid balance being the maximum amount payable
minus amounts received from the payment of the distribution fee and the CDSC).
In connection with the Class B shares, the Distributor has voluntarily agreed to
waive interest charges on the unpaid balance in excess of 0.50% of eligible
gross sales. Consequently, the maximum amount payable to the Distributor
(referred to as the "voluntary maximum") in connection with the Class B shares
is 6.75% of eligible gross sales. The Distributor retains the right to stop
waiving the interest charges at any time. To the extent payments would exceed
the voluntary maximum, the Fund will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid to
the Fund rather than to the Distributor; however, the Fund will continue to make
payments of the account maintenance fee. In certain circumstances the amount
payable pursuant to the voluntary maximum may exceed the amount payable under
the NASD formula. In such circumstances payment in excess of the amount payable
under the NASD formula will not be made.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days after the tender of such
shares only for periods during which trading on the New York Stock Exchange (the
"NYSE") is restricted as determined by the Commission or such Exchange is closed
(other than customary weekend and holiday closings), for any period during which
an emergency exists, as defined by the Commission, as a result of which disposal
of portfolio securities or determination of
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<PAGE> 74
the net asset value of the Fund is not reasonably practicable, and for such
other periods as the Commission may by order permit for the protection of
shareholders of the Fund.
The value of shares at the time of redemption may be more or less than the
shareholder's cost depending in part on the market value of the securities held
by the Fund 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 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.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to certain
participants in the Blueprint(SM) Program. Blueprint is directed to small
investors, group IRAs and participants in certain affinity groups such as trade
associations and credit unions. Class B shares of the Fund are offered through
Blueprint only to members of certain affinity groups. The CDSC is waived in
connection with purchase orders placed through Blueprint. Services, including
the exchange privilege, available to Class B investors through Blueprint,
however, may differ from those available to other Class B investors. Orders for
purchases and redemptions of Class B shares of the Fund will be grouped for
execution purposes which, in some circumstances, may involve the execution of
such orders two business days following the day such orders are placed. The
minimum initial purchase price is $100, with a $50 minimum for subsequent
purchases through Blueprint. There is no minimum initial or subsequent purchase
requirement for investors who are part of a Blueprint automatic investment plan.
Additional information concerning these Blueprint programs, including any annual
fees or transaction charges, is available from Merrill Lynch, Pierce, Fenner &
Smith Incorporated, The Blueprint(SM)Program, P.O. Box 30441, New Brunswick, New
Jersey 08989-0441.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Fund, the
Manager is primarily responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage. The Fund has no obligation to deal
with any broker or group of brokers in execution of transactions in portfolio
securities and does not use any particular broker or dealer. In executing
transactions with brokers and dealers, the Manager seeks to obtain the best net
results for the Fund, taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm involved and the firm's risk in
positioning a block of securities. While the Manager generally seeks reasonably
competitive commission rates, the Fund does not necessarily pay the lowest
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commission or spread available. In addition, consistent with the Conduct Rules
of the NASD and policies established by the Board of Directors of the Fund, the
Manager may consider sales of shares of the Fund as a factor in the selection of
brokers or dealers to execute portfolio transactions for the Fund; however,
whether or not a particular broker or dealer sells shares of the Fund neither
qualifies nor disqualifies such broker or dealer to execute transactions for the
Fund.
Subject to obtaining the best price and execution, brokers who provide
supplemental investment research services to the Manager may receive orders for
transactions by the Fund. Such supplemental research services ordinarily consist
of assessments and analyses of the business or prospects of a company, industry
or economic sector. Information so received will be in addition to and not in
lieu of the services required to be performed by the Manager under the
Management Agreement, and the expenses of the Manager will not necessarily be
reduced as a result of the receipt of such supplemental information. If in the
judgment of the Manager the Fund will benefit from supplemental research
services, the Manager is authorized to pay brokerage commissions to a broker
furnishing such services that are in excess of commissions that another broker
may have charged for effecting the same transaction. Certain supplemental
research services may primarily benefit one or more other investment companies
or other accounts for which the Manager exercises investment discretion.
Conversely, the Fund may be the primary beneficiary of the supplemental research
services received as a result of portfolio transactions effected for such other
accounts or investment companies.
The Fund may invest in certain securities traded in the OTC market and
intends to deal directly with the dealers who make a market in the securities
involved, except in those circumstances in which better prices and execution are
available elsewhere. Under the Investment Company Act, persons affiliated with
the Fund and persons who are affiliated with such affiliated persons are
prohibited from dealing with the Fund as principal in the purchase and sale of
securities unless a permissive order allowing such transactions is obtained from
the Commission. Since transactions in the OTC market usually involve
transactions with dealers acting as principal for their own accounts, the Fund
will not deal with affiliated persons, including Merrill Lynch and its
affiliates, in connection with such transactions. However, an affiliated person
of the Fund may serve as its broker in OTC transactions conducted on an agency
basis provided that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable transactions.
In addition, the Fund may not purchase securities during the existence of any
underwriting syndicate for such securities of which Merrill Lynch is a member or
in a private placement in which Merrill Lynch serves as placement agent except
pursuant to procedures approved by the Board of Directors of the Fund that
either comply with Rules adopted by the Commission or with interpretations of
the Commission staff. See "Investment Objective and Policies -- Investment
Restrictions."
Foreign equity securities may be held by the Fund in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or other securities convertible into foreign equity
securities. ADRs, EDRs and GDRs may be listed on stock exchanges, or traded in
OTC markets in the United States or Europe, as the case may be. ADRs, like other
securities traded in the United States, will be subject to negotiated commission
rates. The Fund's ability and decisions to purchase or sell portfolio securities
of foreign issuers may be affected by laws or regulations relating to the
convertibility and repatriation of assets. Because the shares of the Fund are
redeemable on a daily basis in United States dollars, the Fund intends to manage
its portfolio so as to give reasonable assurance that it will be able to obtain
United States dollars to the extent necessary to meet anticipated redemptions.
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Under present conditions, it is not believed that these considerations will have
any significant effect on its portfolio strategy.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the United States national securities exchanges from
executing exchange transactions for their affiliates and institutional accounts
that they manage unless the member (i) has obtained prior express authorization
from the account to effect such transactions, (ii) at least annually furnishes
the account with the aggregate compensation received by the member in effecting
such transactions, and (iii) complies with any rules the Commission has
prescribed with respect to the requirements of clauses (i) and (ii). To the
extent Section 11(a) would apply to Merrill Lynch acting as a broker for the
Fund in any of its portfolio transactions executed on any such securities
exchange of which it is a member, appropriate consents have been obtained from
the Fund and annual statements as to aggregate compensation will be provided to
the Fund.
The Board of Directors of the Fund has considered the possibility of
seeking to recapture for the benefit of the Fund brokerage commissions and other
expenses of possible portfolio transactions by conducting portfolio transactions
through affiliated entities. For example, brokerage commissions received by
affiliated brokers could be offset against the advisory fee paid by the Fund to
the Manager. After considering all factors deemed relevant, the Board of
Directors made a determination not to seek such recapture. The Board will
reconsider this matter from time to time.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund will be determined by the
Manager once daily Monday through Friday, as of 15 minutes after the close of
business on the NYSE (generally, 4:00 p.m., New York time), on each day during
which the NYSE is open for trading. The NYSE is not open on New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation. Net asset value is computed by
dividing the value of the securities held by the Fund plus any cash or other
assets (including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time. Expenses, including the management fee and any account
maintenance and/or distribution fees, are accrued daily. The per share net asset
value of Class B, Class C and Class D shares generally will be lower than the
per share net asset value of Class A shares, reflecting the daily expense
accruals of the account maintenance, distribution and higher transfer agency
fees applicable with respect to Class B and Class C shares and the daily expense
accruals of the account maintenance fees applicable with respect to Class D
shares; moreover, the per share net asset value of Class B and Class C shares
generally will be lower than the per share net asset value of Class D shares,
reflecting the daily expense accruals of the distribution fees and higher
transfer agency fees applicable with respect to Class B and Class C shares of
the Fund. It is expected, however, that the per share net asset value of the
four classes will tend to converge (although not necessarily meet) immediately
after the payment of dividends or distributions, which will differ by
approximately the amount of the expense accrual differentials between the
classes.
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
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the day the securities are being valued or, lacking any sales, at the last
available bid price for long positions and the last available ask price for
short positions. In cases where securities are traded on more than one exchange,
the securities are valued on the exchange designated by or under the authority
of the Board of Directors as the primary market. Long positions in securities
traded in the OTC market are valued at the last available bid price in the OTC
market prior to the time of valuation. Short positions in securities traded in
the OTC market are valued at the last available ask price in the OTC market
prior to the time of valuation. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market. When the Fund writes an option, the amount of the premium
received is recorded on the books of the Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to reflect the
current market value of the option written, based upon the last sale price in
the case of exchange-traded options or, in the case of options traded in the OTC
market, the last asked price. Options purchased by the Fund are valued at the
last sale price in the case of exchange-traded options or, in the case of
options traded in the OTC market, the last bid price. Other investments,
including financial futures contracts and related options, are valued at market
value. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Fund. Such valuations and procedures
will be reviewed periodically by the Board of Directors.
Generally, trading in foreign securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day at
various times prior to the close of business on the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that will not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities will be valued at their fair value as
determined in good faith by the Directors.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in its shares. Full details as to each of such
services and copies of the various plans described below can be obtained from
the Fund, the Distributor or Merrill Lynch. Certain of these services are
available only to U.S. investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. The statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and capital gain distributions. The statements also will show any other activity
in the account since the preceding statement. Shareholders will receive separate
transaction confirmations for each purchase or sale transaction other than
automatic investment purchases, the reinvestment of ordinary income dividends
and long-term capital gain distributions. A shareholder may make additions to
his or her Investment Account at any time by mailing a check directly to the
Fund's Transfer Agent.
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Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by
shareholders directly from the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the Fund, a shareholder either must redeem
the Class A or Class D shares so that the cash proceeds can be transferred to
the account at the new firm or such shareholder must continue to maintain an
Investment Account at the Transfer Agent for those Class A or Class D shares.
Shareholders interested in transferring their Class B or Class C shares from
Merrill Lynch and who do not wish to have an Investment Account maintained for
such shares at the Transfer Agent may request their new brokerage firm to
maintain such shares in an account registered in the name of the brokerage firm
for the benefit of the shareholder. If the new brokerage firm is willing to
accommodate the shareholder in this manner, the shareholder must request that he
or she be issued certificates for the shares and then must turn the certificates
over to the new firm for re-registration as described in the preceding sentence.
Shareholders considering transferring a tax-deferred retirement account such as
an IRA from Merrill Lynch to another brokerage firm or financial institution
should be aware that, if the firm to which the retirement account is to be
transferred will not take delivery of shares of the Fund, a shareholder must
either redeem the shares (paying any applicable CDSC) so that the cash proceeds
can be transferred to the account at the new firm, or such shareholder must
continue to maintain a retirement account at Merrill Lynch for those shares. A
shareholder may make additions to his or her Investment Account at any time by
mailing a check directly to the Transfer Agent.
AUTOMATIC INVESTMENT PLANS
A U.S. shareholder may make additions to an Investment Account at any time
by purchasing Class A shares (if an eligible Class A investor as described in
the Prospectus) or Class B, Class C or Class D shares at the applicable public
offering price either through the shareholder's securities dealer, or by mail
directly to the Transfer Agent, acting as agent for such securities dealer.
Voluntary accumulation also can be made through a service known as the Fund's
Automatic Investment Plan whereby the Fund is authorized through pre-authorized
checks or automated clearing house debits of $50 or more to charge the regular
bank account of the shareholder on a regular basis to provide systematic
additions to the Investment Account of such shareholder. An investor whose
shares of the Fund are held within a CMA(R) or CBA(R) account may arrange to
have periodic investments made in the Fund in amounts of $100 or more ($1 for
retirement accounts) through the CMA(R) or CBA(R) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will be automatically reinvested in additional shares of the Fund.
Such reinvestment will be at the net asset value of shares of the Fund, without
a sales charge, as of the close of business on the ex-dividend date of the
dividend or distribution. Shareholders may elect in writing to receive either
their dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed on or about the payment date. Cash payments also can be
directly deposited to the shareholder's bank
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account. The Fund is not responsible for any failure of delivery to the
shareholder's address of record and no interest will accrue on amounts
represented by uncashed distribution or redemption checks.
Shareholders, at any time, may notify Merrill Lynch in writing if the
shareholder's account is maintained with Merrill Lynch, or notify the Transfer
Agent in writing or by telephone (1-800-MER-FUND) if the shareholder's account
is maintained with the Transfer Agent that they no longer wish to have their
dividends and/or capital gains distributions reinvested in shares of the Fund or
vice versa and, commencing ten days after the receipt by the Transfer Agent of
such notice, those instructions will be effected. The Fund is not responsible
for any failure of delivery to the shareholder's address of record and no
interest shall accrue on amounts represented by uncashed distribution or
redemption checks.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to make systematic withdrawals from an Investment
Account of Class A, Class B, Class C or Class D shares in the form of payments
by check or through automatic payment by direct deposit to such shareholder's
bank account on either a monthly or quarterly basis as provided below. Quarterly
withdrawals are available for shareholders who have acquired shares of the Fund
having a value, based on cost or the current offering price, of $5,000 or more,
and monthly withdrawals are available for shareholders with shares having a
value of $10,000 or more.
At the time of each withdrawal payment, sufficient shares are redeemed from
those on deposit in the shareholder's account to provide the withdrawal payment
specified by the shareholder. The shareholder may specify the dollar amount and
class of shares to be redeemed. Redemptions will be made at net asset value as
determined as of 15 minutes after the close of business on the NYSE (generally,
4:00 p.m., New York time) on the 24th day of each month or the 24th day of the
last month of each quarter, whichever is applicable. If the NYSE is not open for
business on such date, the shares will be redeemed at the close of business on
the following business day. The check for the withdrawal payment will be mailed,
or the direct deposit for the withdrawal payment will be made, on the next
business day following redemption. When a shareholder is making systematic
withdrawals, dividends on all shares in the Investment Account are reinvested
automatically in shares of the Fund. A shareholder's Systematic Withdrawal Plan
may be terminated at any time, without charge or penalty, by the shareholder,
the Fund, the Transfer Agent or the Distributor.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholder's original investment may be reduced
correspondingly. Purchases of additional shares concurrent with withdrawals are
ordinarily disadvantageous to the shareholder because of sales charges and tax
liabilities. The Fund will not knowingly accept purchase orders for shares of
the Fund from investors who maintain a Systematic Withdrawal Plan unless such
purchase is equal to at least one year's scheduled withdrawals or $1,200,
whichever is greater. Periodic investments may not be made into an Investment
Account in which the shareholder has elected to make systematic withdrawals.
A shareholder whose shares are held within a CMA(R), CBA(R) or Retirement
Account may elect to have shares redeemed on a monthly, bimonthly, quarterly,
semiannual or annual basis through the CMA(R) or CBA(R) Systematic Redemption
Program. The minimum fixed dollar amount redeemable is $50. The proceeds of
systematic redemptions will be posted to a 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
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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
may select the month in which the shares are to be redeemed and may designate
whether the redemption is to be made on the first, second, third or fourth
Monday of the month. If the Monday selected is not a business day, the
redemption will be processed at net asset value on the next business day. The
CMA(R) or CBA(R) Systematic Redemption Program is not available if Fund shares
are being purchased within the account pursuant to the Automatic Investment
Program. For more information on the CMA(R) or CBA(R) Systematic Redemption
Program, eligible shareholders should contact their Merrill Lynch Financial
Consultant.
With respect to redemptions of Class B and Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares that
can be redeemed from an account annually shall not exceed 10% of the value of
shares of such class in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that otherwise might be due on
such redemption of Class B or Class C shares will be waived. Shares redeemed
pursuant to a systematic withdrawal plan will be redeemed in the same order as
Class B or Class C shares are otherwise redeemed. See "Purchase of
Shares -- Deferred Sales Charge Alternatives -- Class B and Class C
Shares -- Contingent Deferred Sales Charges -- Class B Shares" and
"-- Contingent Deferred Sales Charges -- Class C Shares" in the Prospectus.
Where the systematic withdrawal plan is applied to Class B shares, upon
conversion of the last Class B shares in an account to Class D shares, the
systematic withdrawal plan will automatically be applied thereafter to Class D
Shares. See "Purchase of Shares -- Deferred Sales Charge Alternatives -- Class B
and Class C Shares -- Conversion of Class B Shares to Class D Shares" in the
Prospectus; if an investor wishes to change the 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 Fund have an exchange
privilege with certain other MLAM-advised mutual funds. Under the Merrill Lynch
Select Pricing(TM) System, Class A shareholders may exchange Class A shares of
the Fund for Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second fund in the account in which
the exchange is made at the time of the exchange or is otherwise eligible to
purchase Class A shares of the second fund. If the Class A shareholder wants to
exchange Class A shares for shares of a second MLAM-advised mutual fund, but
does not hold Class A shares of the second fund in his or her account at the
time of the exchange and is not otherwise eligible to acquire Class A shares of
the second fund, the shareholder will receive Class D shares of the second fund
as a result of the exchange. Class D shares also may be exchanged for Class A
shares of a second MLAM-advised mutual fund at any time as long as, at the time
of the exchange, the shareholder holds Class A shares of the second fund in the
account in which the exchange is made or is otherwise eligible to purchase Class
A shares of the second fund. Class B, Class C and Class D shares are
exchangeable with shares of the same class of other MLAM-advised mutual funds.
For purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period for the previously owned
shares of the Fund is "tacked" to the holding period of the newly acquired
shares of the other fund as more fully described below. Class A, Class B, Class
C and Class D shares also are exchangeable for shares of certain MLAM-advised
money market funds as follows: Class A shares may be exchanged for shares of
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Reserves Money Fund
(available only for exchanges
24
<PAGE> 81
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 15 days. It is contemplated that the
exchange privilege may be applicable to other new mutual funds whose shares may
be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charges paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A and Class D shares of the Fund generally will be
exchanged into the Class A or Class D shares of the other funds or into shares
of certain money market funds without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, of another
MLAM-advised mutual fund ("new Class B or Class C shares") on the basis of
relative net asset value per Class B or Class C share, without the payment of
any CDSC that might otherwise be due on redemption of the outstanding Class B or
Class C shares. Class B shareholders of the Fund exercising the exchange
privilege will continue to be subject to the Fund's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the new Class B shares
acquired through use of the exchange privilege. In addition, Class B or Class C
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B or Class C shares of the fund from which the
exchange has been made. For purposes of computing the sales load that may be
payable on a disposition of the new Class B or Class C shares, the holding
period for the outstanding Class B or Class C shares is "tacked" to the holding
period of the new Class B or Class C shares. For example, an investor may
exchange Class B or Class C shares of the Fund for those of Merrill Lynch
Special Value Fund, Inc. ("Special Value Fund") after having held the Fund's
Class B shares for two and a half years. The 2% CDSC that generally would apply
to a redemption would not apply to the exchange. Three years later the investor
may decide to redeem the Class B shares of Special Value Fund and receive cash.
There will be no CDSC due on this redemption, since by "tacking" the two and a
half year holding period of the Fund Class B shares to the three year holding
period for the Special Value Fund Class B shares, the investor will be deemed to
have held the Special Value Fund Class B shares for more than five years.
Shareholders also may exchange shares of the Fund into shares of certain
money market funds advised by the Manager or its affiliates, but the period of
time that Class B or Class C shares are held in a money market
25
<PAGE> 82
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
which were acquired as a result of an exchange for Class B or Class C shares of
the Fund may, in turn, be exchanged back into Class B or Class C shares,
respectively, of any fund offering such shares, in which event the holding
period for Class B or Class C shares of the newly acquired fund will be
aggregated with previous holding periods for purposes of reducing the CDSC.
Thus, for example, an investor may exchange Class B shares of the Fund for
shares of Merrill Lynch Institutional Fund ("Institutional Fund") after having
held the Fund Class B shares for two and a half years and three years later
decide to redeem the shares of Institutional Fund for cash. At the time of this
redemption, the 2% CDSC that would have been due had the Class B shares of the
Fund been redeemed for cash rather than exchanged for shares of Institutional
Fund will be payable. If, instead of such redemption the shareholder exchanged
such shares for Class B shares of a fund which the shareholder continued to hold
for an additional two and a half years, any subsequent redemption would not
incur a CDSC.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, a shareholder should contact his or her
Merrill Lynch Financial Consultant, who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of other MLAM-advised mutual funds
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The Fund reserves
the right to require a properly completed Exchange Application. This exchange
privilege may be modified or terminated in accordance with the rules of the
Commission. The Fund reserves the right to limit the number of times an investor
may exercise the exchange privilege. Certain funds may suspend the offering of
their shares to the general public at any time and thereafter may resume such
offering from time to time. The exchange privilege is available only to U.S.
shareholders in states where the exchange legally may be made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all its net investment income,
if any. Dividends from such net investment income will be paid at least
annually. All net realized capital gains, if any, will be distributed to the
Fund's shareholders at least annually. From time to time, the Fund may declare a
special distribution at or about the end of the calendar year in order to comply
with Federal tax requirements that certain percentages of its ordinary income
and capital gains be distributed during the year. If in any fiscal year, the
Fund has net income from certain foreign currency transactions, such income will
be distributed at least annually.
See "Shareholder Services -- Automatic Reinvestment of Dividends and
Capital Gains Distributions" for information concerning the manner in which
dividends and distributions may be reinvested automatically in shares of the
Fund. A shareholder whose account is maintained at the Transfer Agent or whose
account is maintained through Merrill Lynch may elect in writing to receive any
such dividends or distributions, or both, in cash. Dividends and distributions
are taxable to shareholders, as discussed below, whether they are reinvested in
shares of the Fund or received in cash. The per share dividends on each class of
shares will be reduced as a result of any account maintenance, distribution and
transfer agency fees applicable with respect to such class of shares. See
"Determination of Net Asset Value."
26
<PAGE> 83
TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as it
so qualifies, the Fund (but not its shareholders) will not be subject to Federal
income tax on the part of its net ordinary income and net realized capital gains
that it distributes to Class A, Class B, Class C and Class D shareholders
(together, the "shareholders"). The Fund intends to distribute substantially all
of such income.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in warrants, futures and options) ("capital
gain dividends") are taxable to shareholders as long-term capital gains,
regardless of the length of time the shareholder has owned Fund shares. Any loss
upon the sale or exchange of Fund shares held for six months or less will be
treated as long-term capital loss to the extent of any capital gain dividend
received by the shareholder. Distributions in excess of the Fund's earnings and
profits will first reduce the adjusted tax basis of a holder's shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming the shares are held as a capital asset). Recent
legislation creates additional categories of capital gains taxable at different
rates. Generally not later than 60 days after the close of its taxable year, the
Fund will provide its shareholders with a written notice designating the amounts
of any ordinary income dividends or capital gains dividends, as well as the
amount of capital gain dividends in the different categories of capital gain
referred to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. A portion of the Fund's ordinary income dividends
may be eligible for the dividends received deduction allowed to corporations
under the Code, if certain requirements are met. For this purpose, the Fund will
allocate dividends eligible for the dividends received deduction among the Class
A, Class B, Class C and Class D shareholders according to a method (which it
believes is consistent with the Commission rule permitting the issuance and sale
of multiple classes of stock) that is based on the gross income allocable to
Class A, Class B, Class C and Class D shareholders during the taxable year, or
such other method as the Internal Revenue Service may prescribe. If the Fund
pays a dividend in January that was declared in the previous October, November
or December to shareholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by the Fund
and received by its shareholders on December 31 of the year in which such
dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% U.S. withholding tax under existing
provisions of the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect
27
<PAGE> 84
number. When establishing an account, an investor must certify under penalty of
perjury that such number is correct and that such investor is not otherwise
subject to backup withholding.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Shareholders
may be able to claim United States foreign tax credits with respect to such
taxes, subject to certain conditions and limitations contained in the Code. For
example, certain retirement accounts cannot claim foreign tax credits on
investments in foreign securities held in the Fund. In addition, recent
legislation permits a foreign tax credit to be claimed with respect to
withholding tax on a dividend only if the shareholder meets certain holding
period requirements. If more than 50% in value of the Fund's total assets at the
close of its taxable year consists of securities of foreign corporations, the
Fund will be eligible, and intends, to file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be required to
include their proportionate shares of such withholding taxes in their United
States income tax returns as gross income, treat such proportionate shares as
taxes paid by them, and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against their
United States income taxes. In the case of foreign taxes passed through by a
RIC, the holding period requirements referred to above must be met by both the
shareholder and the RIC. No deductions for foreign taxes, moreover, may be
claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign corporation may
be subject to United States withholding tax on the income resulting from the
Fund's election described in this paragraph but may not be able to claim a
credit or deduction against such United States tax for the foreign taxes treated
as having been paid by such shareholder. The Fund will report annually to its
shareholders the amount per share of such withholding taxes and other
information needed to claim the foreign tax credit. For this purpose, the Fund
will allocate foreign source income among the Class A, Class B, Class C and
Class D shareholders according to a method similar to that described above for
the allocation of dividends eligible for the dividends received deduction.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon the purchase of the new shares in the absence
of the exchange privilege. Instead, such sales charge will be treated as an
amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income and
capital gains in the manner necessary to
28
<PAGE> 85
minimize imposition of the 4% excise tax, there can be no assurance that
sufficient amounts of the Fund's taxable income and capital gains will be
distributed to avoid entirely the imposition of the tax. In such event, the Fund
will be liable for the tax only on the amount by which it does not meet the
foregoing distribution requirements.
The Fund may invest up to 10% of its total assets in securities of other
investment companies. If the Fund purchases shares of an investment company (or
similar investment entity) organized under foreign law, the Fund will be treated
as owning shares in a passive foreign investment company ("PFIC") for U.S.
Federal income tax purposes. The Fund may be subject to U.S. Federal income tax,
and an additional tax in the nature of interest (the "interest charge"), on a
portion of the distributions from such a company and on gain from the
disposition of the shares of such a company (collectively referred to as "excess
distributions"), even if such excess distributions are paid by the Fund as a
dividend to its shareholders. The Fund may be eligible to make an election with
respect to certain PFICs in which it owns shares that will allow it to avoid the
taxes on excess distributions. However, such election may cause the Fund to
recognize income in a particular year in excess of the distributions received
from such PFICs. Alternatively, under recent legislation, the Fund could elect
to "mark to market" at the end of each taxable year all shares that it holds in
PFICs. If it made this election, the Fund would recognize as ordinary income any
increase in the value of such shares over their adjusted basis and as ordinary
loss any decrease in such value to the extent it did not exceed prior increases
included in income. By making the mark-to-market election, the Fund could avoid
imposition of the interest charge with respect to its distributions from PFICs,
but in any particular year might be required to recognize income in excess of
the distributions it received from PFICs and its proceeds from dispositions of
PFIC stock.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year. Unless
such contract is a forward foreign exchange contract, or is a non-equity option
or a regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code Section
988 (as described below), gain or loss from Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss. Application of these rules to
Section 1256 contracts held by the Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above, however,
will not apply to certain transactions entered into by the Fund solely to reduce
the risk of changes in price or interest or currency exchange rates with respect
to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The Fund
may, nonetheless, elect to treat the gain or loss from certain forward foreign
exchange contracts as capital. In this case, gain or loss realized in connection
with a forward foreign exchange contract that is a Section 1256 contract will be
characterized as 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's swaps, sales of securities and transactions in options,
futures and forward foreign exchange contracts. Under Section 1092, the Fund may
be required to postpone recognition for tax purposes of losses incurred in
certain
29
<PAGE> 86
swaps, 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 stocks, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, futures, or forward
foreign exchange contracts will be valued for purposes of the RIC
diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the Fund may elect
capital gain or loss treatment for such transactions. Regulated futures
contracts, as described above, will be taxed under Code Section 1256 unless
application of Section 988 is elected by the Fund. In general, however, Code
Section 988 gains or losses will increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders as
ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary income dividend distributions, and all or a portion of
distributions made before the losses were realized but in the same taxable year
would be recharacterized as a return of capital to shareholders, thereby
reducing the basis of each shareholder's Fund shares and resulting in a capital
gain for any shareholder who received a distribution greater than such
shareholder's basis in Fund shares (assuming the shares were held as a capital
asset). These rules and the mark-to-market rules described above, however, will
not apply to certain transactions entered into by the Fund solely to reduce the
risk of currency fluctuations with respect to its investments.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
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<PAGE> 87
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective shareholders. Total return figures are based on the Fund's
historical performance and are not intended to indicate future performance.
Average annual total return is determined separately for Class A, Class B, Class
C and Class D shares in accordance with formulas specified by the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends are reinvested
and taking into account all applicable recurring and nonrecurring expenses,
including the maximum sales charge in the case of Class A and Class D shares and
the CDSC that would be applicable to a complete redemption of the investment at
the end of the specified period in the case of Class B and Class C shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods.
Such data will be computed as described above, except that (i) as required by
the periods of the quotations, actual annual, annualized or aggregate data,
rather than average annual data, may be quoted and (ii) the maximum applicable
sales charges will not be included with respect to annual or annualized rates of
return calculations. Aside from the impact on the performance data calculations
of including or excluding the maximum applicable sales charges, actual annual or
annualized total return data generally will be lower than average annual total
return data since the average rates of return reflect compounding of return;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over a
longer period of time.
In order to reflect the reduced sales charges in the case of Class A or
Class D shares or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares," respectively, the total return data quoted by the
Fund in advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charge or may not take into account the CDSC
and therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of sales charges, a lower amount of expenses is deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on March 24, 1998. It has an
authorized capital of 500,000,000 shares of Common Stock, par value $.10 per
share, divided into four classes designated Class A, Class C and Class D Common
Stock, each consisting of 100,000,000 shares and Class B Common Stock consisting
of 200,000,000 shares. Shares of Class A, Class B, Class C and Class D Common
Stock represent an interest in the same assets of the Fund and are identical in
all respects except that the Class B, Class C and Class D shares bear certain
expenses related to the account maintenance and/or distribution of such shares
and have exclusive voting rights with respect to matters relating to such
expenditures. The Fund may issue
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<PAGE> 88
additional classes or shares if the Board of Directors deems such issuance to be
in the best interests of the Fund. Upon liquidation of the Fund, shareholders of
each class are entitled to share pro rata in the net assets of the Fund
available for distribution to shareholders, except for any expenses which may be
attributable only to one class. Shares have no preemptive or conversion rights.
The rights of redemption and exchange are described elsewhere herein and in the
Prospectus. Shares are fully paid and nonassessable by the Fund.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in the election of Directors and any
other matter submitted to a shareholder vote. The Fund does not intend to hold
annual meetings of shareholders in any year in which the Investment Company Act
does not require shareholders to act upon any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent accountants. Also, the by-laws of the Fund require that a special
meeting of shareholders be held upon the written request of at least a majority
of the outstanding shares of the Fund entitled to vote at such meeting, if they
comply with applicable Maryland law. Voting rights for Directors are not
cumulative. Shares issued are fully paid and non-assessable and have no
preemptive rights. Redemption and conversion rights are discussed elsewhere
herein and in the Prospectus. Each share of Class B, Class C and Class D Common
Stock is entitled to participate equally in dividends and distributions declared
by the Fund and in the net assets of the Fund upon liquidation or dissolution
after satisfaction of outstanding liabilities. Stock certificates will be issued
by the Transfer Agent only on specific request. Certificates for fractional
shares are not issued in any case.
The Manager provided the initial capital for the Fund by purchasing 10,000
shares of common stock of the Fund for $100,000. Such shares were acquired for
investment and can only be disposed of by redemption. The organizational
expenses of the Fund (estimated at approximately $159,000) will be paid by the
Fund and will be amortized over a period not exceeding five years. The proceeds
realized by the Manager upon the redemption of any of the shares initially
purchased by it will be reduced by the proportional amount of the unamortized
organizational expenses which the number of such initial shares being redeemed
bears to the number of shares initially purchased. As of the date of this
Statement of Additional Information, the Manager owned 100% of the outstanding
shares of Common Stock of the Fund. The Manager may be deemed to control the
Fund until such time as it owns less than 25% of the outstanding shares of the
Fund.
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<PAGE> 89
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of the Fund based on the projected value of the
Fund's estimated net assets and projected number of shares outstanding on the
date its shares first are offered for sale to public investors is as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Assets........................................ $25,000 $25,000 $25,000 $25,000
======= ======= ======= =======
Number of Shares Outstanding...................... 2,500 2,500 2,500 2,500
======= ======= ======= =======
Net Asset Value Per Share (net assets divided by
number of shares outstanding)................... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Sales Charge (for Class A and Class D Shares:
5.25% of offering price (5.54% of net amount
invested))*..................................... .55 ** ** .55
------- ------- ------- -------
Offering Price.................................... $ 10.55 $ 10.00 $ 10.00 $ 10.55
======= ======= ======= =======
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B and Class C shares are not subject to an initial sales charge but may
be subject to a CDSC on redemption. See "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares" in the Prospectus and
"Redemption of Shares -- Deferred Sales Charges -- Class B and Class C
Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to approval by the Independent Directors of the
Fund. The independent auditors are responsible for auditing the annual financial
statements of the Fund.
CUSTODIAN
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, acts as the Custodian of the Fund's assets. Under its contract with the
Fund, the Custodian is authorized, among other things, to establish separate
accounts in foreign currencies and to cause foreign securities owned by the Fund
to be held in its offices outside of the United States and with certain foreign
banks and securities depositories. The Custodian is responsible for safeguarding
and controlling the Fund's cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on the Fund's
investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Fund's Transfer Agent. The
Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts. See
"Management of the Fund -- Transfer Agency Services" in the Prospectus.
33
<PAGE> 90
LEGAL COUNSEL
Brown & Wood LLP, One World Trade Center, New York New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on March 31 of each year. The Fund sends
to its shareholders at least semi-annually reports showing the Fund's portfolio
and other information. An annual report, containing financial statements audited
by independent auditors, is sent to shareholders each year. After the end of
each year, shareholders will receive Federal income tax information regarding
dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act and the Investment
Company Act, to which reference is hereby made.
------------------------------
Under a separate agreement, ML & Co. has granted the Fund the right to use
the "Merrill Lynch" name and has reserved the right to withdraw its consent to
the use of such name by the Fund at any time or to grant the use of such name to
any other company, and the Fund has granted ML & Co., under certain conditions,
the use of any other name it might assume in the future, with respect to any
corporation organized by ML & Co.
34
<PAGE> 91
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
Merrill Lynch Global Technology Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Global Technology Fund, Inc, as of May 18, 1998. This financial statement
is the responsibility of the Fund's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in all
material respects, the financial position of Merrill Lynch Global Technology
Fund, Inc. as of May 18, 1998 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 18, 1998
35
<PAGE> 92
MERRILL LYNCH GLOBAL TECHNOLOGY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MAY 18, 1998
<TABLE>
<S> <C>
Assets:
Cash in Bank.............................................. $100,000
Prepaid registration fees (Note 3)........................ 124,040
Deferred organization expenses (Note 4)................... 159,000
--------
Total Assets................................................ 383,040
Liabilities -- accrued expenses............................. 283,040
--------
Net Assets (equivalent to $10.00 per share on 2,500 Class A
shares of Common Stock (par value $0.10), 2,500 Class B
shares of Common Stock (par value $0.10), 2,500 Class C
shares of Common Stock (par value $0.10) and 2,500 Class D
shares of Common Stock (par value $0.10) outstanding with
500,000,000 shares authorized) (Note 1)................... $100,000
========
</TABLE>
- ---------------
Notes to Statement of Assets and Liabilities.
(1) Merrill Lynch Global Technology Fund, Inc. (the "Fund") was organized as a
Maryland corporation on March 24, 1998. The Fund is registered under the
Investment Company Act of 1940 as an open-end management investment company.
To date, the Fund has not had any transactions other than those relating to
organizational matters and the sale of 2,500 Class A shares, 2,500 Class B
shares, 2,500 Class C shares and 2,500 Class D shares of Common Stock to
Merrill Lynch Asset Management, L.P. (the "Manager").
(2) The Fund has entered into a management agreement (the "Management
Agreement") with the Manager, and distribution agreements (the "Distribution
Agreements") with Merrill Lynch Funds Distributor, Inc. (the "Distributor").
(See "Management of the Fund -- Management and Advisory Arrangements" in the
Statement of Additional Information.) Certain officers and/or directors of
the Fund are officers and/or directors of the Manager and the Distributor.
(3) Prepaid registration fees are charged to income as the related shares are
issued.
(4) Deferred organization expenses will be amortized over a period from the date
the Fund commences operations not exceeding five years. In the event that
the Manager (or any subsequent holder) redeems any of its original shares
prior to the end of the five-year period, the proceeds of the redemption
payable in respect of such shares shall be reduced by the pro rata share
(based on the proportionate share of the original shares redeemed to the
total number of original shares outstanding at the time of redemption) of
the unamortized deferred organization expenses as of the date of such
redemption. In the event that the Fund is liquidated prior to the end of the
five-year period, the Manager (or any subsequent holder) shall bear the
unamortized deferred organization expenses.
36
<PAGE> 93
(This page intentionally left blank)
37
<PAGE> 94
(This page intentionally left blank)
38
<PAGE> 95
- ------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Objective and Policies....... 2
Portfolio Strategies Involving
Options, Futures and Foreign
Exchange Transactions............... 3
Other Investment Policies and
Practices........................... 3
Investment Restrictions............... 5
Management of the Fund.................. 8
Directors and Officers................ 8
Compensation of Directors............. 9
Management and Advisory Arrangements.. 10
Purchase of Shares...................... 11
Initial Sales Charge Alternatives --
Class A and Class D Shares.......... 12
Reduced Initial Sales Charges......... 13
Employer-Sponsored Retirement or
Savings Plans and Certain Other
Arrangements........................ 16
Distribution Plans.................... 16
Limitations on the Payment of Deferred
Sales Charges....................... 17
Redemption of Shares.................... 17
Deferred Sales Charges -- Class B and
Class C Shares...................... 18
Portfolio Transactions And Brokerage.... 18
Determination Of Net Asset Value........ 20
Shareholder Services.................. 21
Investment Account.................... 21
Automatic Investment Plans............ 22
Automatic Reinvestment of Dividends
and Capital Gains Distributions..... 22
Systematic Withdrawal Plans........... 23
Exchange Privilege.................... 24
Dividends, Distributions and Taxes...... 26
Dividends and Distributions........... 26
Taxes................................. 27
Tax Treatment of Options and Futures
Transactions........................ 29
Special Rules for Certain Foreign
Currency Transactions............... 30
Performance Data........................ 31
General Information..................... 31
Description of Shares................. 31
Computation of Offering Price Per
Share............................... 33
Independent Auditors.................. 33
Custodian............................. 33
Transfer Agent........................ 34
Legal Counsel......................... 34
Reports to Shareholders............... 34
Additional Information................ 34
Independent Auditors' Report............ 35
Statement Of Assets and Liabilities..... 36
Code #19028-0598
</TABLE>
YZa
MERRILL LYNCH GLOBAL
TECHNOLOGY FUND, INC.
[MLYNCH COMPASS]
STATEMENT OF
ADDITIONAL
INFORMATION
May 20, 1998
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE> 1
EXHIBIT 17(c)
PROSPECTUS
June 30, 1998
Merrill Lynch Technology Fund, Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011 - Phone No. (609) 282-2800
----------------
Merrill Lynch Technology Fund, Inc. (the "Company") is a non-diversified,
open-end investment company that seeks long-term capital appreciation through
worldwide investment in equity securities of companies that, in the opinion of
management, derive or are expected to derive a substantial portion of their
sales from products and services in technology. While the Company will not
concentrate its investments in any one industry, it is contemplated that
substantial investments will be made in companies involved in such technology
related areas as communications, computers (including software and hardware),
electronics, and factory and office automation. The Company will pursue its
investment objective by investing in a global portfolio of securities of
companies in various stages of development. It is presently contemplated that
the Company's assets will be primarily invested in the United States, Japan and
in Western Europe. However, at times the Company may invest substantially all
of its assets in the United States. For more information on the Fund's
investment objective 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 4.
----------------
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 $250 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 June 30, 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 Company. 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
<PAGE> 2
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Company follows:
<TABLE>
<CAPTION>
Class A(a)
----------
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering
price) .................................. 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments ........................... None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower) ........... None(d)
Exchange Fee .............................. None
Annual Company Operating Expenses (as
a percentage of average net assets)
Investment Advisory Fees(g) ............... 1.00%
12b-1 Fees(h):
Account Maintenance Fees ................ None
Distribution Fees ....................... None
Other Expenses:
Shareholder Servicing Costs (i) ......... .21%
Other ................................... .06%
-------
Total Other Expenses ................... .27%
-------
Total Company Operating Expenses .......... 1.27%
=======
</TABLE>
<TABLE>
<CAPTION>
Class B(b) Class C Class D
-------------------------------- ----------------------- ---------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering
price) .................................. None None 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments ........................... None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower) ........... 4.0% during the first year, 1.0% for one year (f) None(d)
decreasing 1.0% annually
thereafter to 0.0% after the
fourth year(e)
Exchange Fee .............................. None None None
Annual Company Operating Expenses (as
a percentage of average net assets)
Investment Advisory Fees(g) ............... 1.00% 1.00% 1.00%
12b-1 Fees(h):
Account Maintenance Fees ................ 0.25% 0.25% 0.25%
Distribution Fees ....................... 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) ......... .25% .27% .21%
Other ................................... .06% .06% .06%
---- ---- --------
Total Other Expenses ................... .31% .33% .27%
---- ---- --------
Total Company Operating Expenses .......... 2.31% 2.33% 1.52%
==== ==== ========
</TABLE>
- --------
(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 24 and "Shareholder
Services -- Fee-Based Programs" -- page 35.
(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 25.
(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 may not be subject to an initial sales charge. See
"Purchase of Shares -- Initial Sales Charge Alternatives -- Class A and
Class D Shares" -- page 24.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more which
are not subject to an initial sales charge may instead be subject to a
CDSC of 1.0% of amounts redeemed within the first year after purchase.
Such CDSC may be waived in connection with certain fee-based programs. A
0.75% sales charge for 401(k) purchases over $1,000,000 will apply. See
"Shareholder Services -- Fee-Based Programs" on page 35.
(e) The CDSC may be modified in connection with certain fee-based programs. See
"Shareholder Services -- Fee-Based Programs" on page 35.
(f) The CDSC may be waived in connection with certain fee-based programs. See
"Shareholder Services -- Fee-Based Programs" on page 35.
(g) See "Management of the Company -- Advisory and Management Arrangements" --
page 20.
(h) See "Purchase of Shares -- Distribution Plans" page 29.
(i) See "Management of the Company -- Transfer Agency Services" -- page 21.
2
<PAGE> 3
EXAMPLE:
<TABLE>
<CAPTION>
Cumulative Expenses Paid
for the Period of:
--------------------------------------------
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
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 ........................................................... $ 65 $ 91 $ 119 $ 198
Class B ........................................................... $ 63 $ 92 $ 124 $ 246*
Class C ........................................................... $ 34 $ 73 $ 125 $ 267
Class D ........................................................... $ 67 $ 98 $ 131 $ 224
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period: .........
Class A ........................................................... $ 65 $ 91 $ 119 $ 198
Class B ........................................................... $ 23 $ 72 $ 124 $ 246*
Class C ........................................................... $ 24 $ 73 $ 125 $ 267
Class D ........................................................... $ 67 $ 98 $ 131 $ 224
</TABLE>
- --------
* 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 Transfer Agent are not subject to the processing fee. See
"Purchase of Shares" and "Redemption of Shares."
3
<PAGE> 4
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 the "Investment Adviser") or its affiliate, Fund Asset
Management, L.P. ("FAM"). Funds advised by MLAM or FAM which 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 will be calculated in the same manner at the same time and will differ
only to the extent that account maintenance and distribution fees and any
incremental transfer agency costs relating to a particular class are borne
exclusively by that class. Each class has different exchange privileges. See
"Shareholder Services -- Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the 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 most beneficial under his or her particular circumstances. More
detailed information as to each class of shares is set forth under "Purchase of
Shares."
4
<PAGE> 5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Account
Maintenance Distribution
Class Sales Charge(1) Fee Fee Conversion Feature
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial No No No
sales charge(2)(3)
- ------------------------------------------------------------------------------------------------------
B CDSC for a period of four years, 0.25% 0.75% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0%(4) eight years(5)
- ------------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(6) 0.25% 0.75% No
- ------------------------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales charge(3)
- ------------------------------------------------------------------------------------------------------
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs are imposed if the redemption occurs within
the applicable CDSC time period. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the shares
being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares -- Initial
Sales Charge Alternatives -- Class A and Class D Shares -- Eligible Class A
Investors."
(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 who currently own Class A shares of the Company in a
shareholder account are entitled to purchase additional Class A shares
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 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 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. A 0.75% sales charge for 401(k)
purchases over $1,000,000 will apply. Sales charges also are 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."
5
<PAGE> 6
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 as well as a CDSC if they are redeemed
within four years of purchase. Such CDSC may be modified in connection
with certain fee-based programs. Approximately eight years after
issuance, Class B shares will convert automatically into Class D shares
of the 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 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 is modified
as described under "Purchase of Shares -- Deferred Sales Charge
Alternatives -- Class B and Class C Shares -- Conversion of Class B
Shares to Class D Shares."
Class C: Class C shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25% and
an ongoing distribution fee of 0.75% of the Company's average net assets
attributable to Class C shares. Class C shares are also subject to a
1.0% CDSC if they are redeemed within one year after 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 shares), 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 purchases may be subject to a 1.0% CDSC if the
shares are redeemed within one year after purchase. Such CDSC may be
waived in connection with certain fee-based programs. The schedule of
initial sales charges and reductions for Class D shares is the same as
the schedule for Class A shares, except that there is no waiver for
purchases 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."
6
<PAGE> 7
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing(SM) System that the investor believes is most beneficial under his or
her particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative
particularly attractive because similar sales charge reductions are not
available with respect to the CDSCs imposed in connection with purchases of
Class B or Class C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or
Class C shares may exceed the initial sales charge and, in the case of Class D
shares, the account maintenance fee. Although some investors 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 forego the Class B conversion
feature, making their investment subject to account maintenance and
distribution fees for an indefinite period of time. In addition, while both
Class B and Class C distribution fees are subject to the limitations on
asset-based sales charges imposed by the NASD, the Class B distribution fees
are further limited under a voluntary waiver of asset-based sales charges. See
"Purchase of Shares -- Limitations on the Payment of Deferred Sales Charges."
7
<PAGE> 8
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 March 31, 1998, 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 financial statements.
<TABLE>
<CAPTION>
Class A++
-----------------------------------------------------------------------------------
For the Year Ended March 31,
-----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ... $ 5.07 $ 4.82 $ 4.89 $ 5.17 $ 5.08
------------- ------------- ------------- ------------- -------------
Investment income (loss) -- net ....... (.04) (.03) (.03) .05 (.01)
Realized and unrealized gain on
investments and foreign currency
transactions -- net ................... .46 .72 .28 .11 1.51
------------- ------------- ------------- ------------- -------------
Total from investment operations ....... .42 .69 .25 .16 1.50
------------- ------------- ------------- ------------- -------------
Less dividends and distributions:
Investment income -- net .............. -- -- -- (.02) --
In excess of investment income -- net . -- -- -- (.01) --
Realized gain on investments -- net ... (1.06) (.44) (.17) (.05) (1.41)
In excess of realized gain on
investments -- net .................... (.16) -- (.15) (.36) --
------------- ------------- ------------- ------------- -------------
Total dividends and distributions ...... (1.22) (.44) (.32) (.44) (1.41)
------------- ------------- ------------- ------------- -------------
Net asset value, end of period ......... $ 4.27 $ 5.07 $ 4.82 $ 4.89 $ 5.17
============= ============= ============= ============= =============
Total Investment Return:**
Based on net asset value per share ..... 3.96% 14.60% 5.15% 2.86% 35.68%
============= ============= ============= ============= =============
Ratios to Average Net Assets:
Expenses ............................... 1.27% 1.30% 1.31% 1.33% 1.35%
============= ============= ============= ============= =============
Investment income (loss) -- net ........ (.82)% (.63)% (.62)% .87% (.11)%
============= ============= ============= ============= =============
Supplemental Data:
Net assets, end of period (in thousands) $ 211,443 $ 222,118 $ 246,909 $ 254,188 $ 174,809
============= ============= ============= ============= =============
Portfolio turnover ..................... 206.40% 176.51% 108.36% 175.57% 350.64%
============= ============= ============= ============= =============
Average Commission Rate Paid## ......... $ .0538 $ .0604 $ .0366 -- --
============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Class A++
--------------
For the Period
April 27, 1992+
to March 31,
1993
--------------
<S> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ... $ 3.83
-----------
Investment income (loss) -- net ....... --
Realized and unrealized gain on
investments and foreign currency
transactions -- net ................... 1.59
-----------
Total from investment operations ....... 1.59
-----------
Less dividends and distributions:
Investment income -- net .............. --
In excess of investment income -- net . --
Realized gain on investments -- net ... (.34)
In excess of realized gain on
investments -- net .................... --
-----------
Total dividends and distributions ...... (.34)
-----------
Net asset value, end of period ......... $ 5.08
===========
Total Investment Return:**
Based on net asset value per share ..... 42.09%#
===========
Ratios to Average Net Assets:
Expenses ............................... 1.59%*
===========
Investment income (loss) -- net ........ .04%*
===========
Supplemental Data:
Net assets, end of period (in thousands) $ 100,830
===========
Portfolio turnover ..................... 482.79%
===========
Average Commission Rate Paid## ......... --
===========
</TABLE>
<TABLE>
<CAPTION>
Class B++
-------------------------------------------------------------------
For the Year Ended March 31,
-------------------------------------------------------------------
1998 1997 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ... $ 4.89 $ 4.66 $ 4.78 $ 5.08
------------- ------------- ------------- -------------
Investment income (loss) -- net ....... (.09) (.08) (.09) (.01)
Realized and unrealized gain on
investments and foreign currency
transactions -- net ................... .46 .69 .29 .11
------------- ------------- ------------- -------------
Total from investment operations ....... .37 .61 .20 .10
------------- ------------- ------------- -------------
Less dividends and distributions:
Investment income -- net .............. -- -- -- --+++
In excess of investment income -- net . -- -- -- --+++
Realized gain on investments -- net ... (1.05) (.38) (.17) (.05)
In excess of realized gain on
investments -- net .................... (.15) -- (.15) (.35)
------------- ------------- ------------- -------------
Total dividends and distributions ...... (1.20) (.38) (.32) (.40)
------------- ------------- ------------- -------------
Net asset value, end of period ......... $ 4.06 $ 4.89 $ 4.66 $ 4.78
============= ============= ============= =============
Total Investment Return:**
Based on net asset value per share ..... 3.09% 13.20% 4.21% 1.78%
============= ============= ============= =============
Ratios to Average Net Assets:
Expenses ............................... 2.31% 2.35% 2.34% 2.38%
============= ============= ============= =============
Investment income (loss) -- net ........ (1.85)% (1.66)% (1.65)% (.10)%
============= ============= ============= =============
Supplemental Data:
Net assets, end of period (in thousands) $ 285,193 $ 375,630 $ 553,819 $ 614,935
============= ============= ============= =============
Portfolio turnover ..................... 206.40% 176.51% 108.36% 175.57%
============= ============= ============= =============
Average Commission Rate Paid## ......... $ .0538 $ .0604 $ .0366 --
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Class B++
--------------------------------
For the Year For the Period
Ended March 31, April 27, 1992+
--------------- to March 31,
1994 1993
----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ... $ 5.03 $ 3.83
----------- -----------
Investment income (loss) -- net ....... (.05) (.04)
Realized and unrealized gain on
investments and foreign currency
transactions -- net ................... 1.48 1.58
----------- -----------
Total from investment operations ....... 1.43 1.54
----------- -----------
Less dividends and distributions:
Investment income -- net .............. -- --
In excess of investment income -- net . -- --
Realized gain on investments -- net ... (1.38) (.34)
In excess of realized gain on
investments -- net .................... -- --
----------- -----------
Total dividends and distributions ...... (1.38) (.34)
----------- -----------
Net asset value, end of period ......... $ 5.08 $ 5.03
=========== ===========
Total Investment Return:**
Based on net asset value per share ..... 34.22% 40.77%#
=========== ===========
Ratios to Average Net Assets:
Expenses ............................... 2.36% 2.53%*
=========== ===========
Investment income (loss) -- net ........ (1.08)% .93%*
=========== ===========
Supplemental Data:
Net assets, end of period (in thousands) $ 224,330 $ 57,592
=========== ===========
Portfolio turnover ..................... 350.64% 482.79%
=========== ===========
Average Commission Rate Paid## ......... -- --
=========== ===========
</TABLE>
- -------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding.
+++ 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.
8
<PAGE> 9
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
Class C++
------------------------------------------------------------------
For the Year Ended
March 31, For the Period
---------------------------------------------- October 21, 1994+
to March 31,
1998 1997 1996 1995
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset
Value:
Per Share Operating Performance:
Net asset value, beginning of
period ........................... $ 4.87 $ 4.64 $ 4.76 $ 5.75
------------ ------------ ------------ ------------
Investment loss -- net ............ (.09) (.08) (.09) --
Realized and unrealized gain (loss)
on investments and foreign
currency transactions -- net ..... .45 .68 .29 (.62)
------------ ------------ ------------ ------------
Total from investment operations ... .36 .60 .20 (.62)
------------ ------------ ------------ ------------
Less dividends and distributions:
Investment income -- net .......... -- -- -- (.02)
In excess of investment
income -- net .................... -- -- -- (.01)
Realized gain on
investments -- net ............... (1.05) (.37) (.17) (.04)
In excess of realized gain on
investments -- net ............... (.15) -- (.15) (.30)
------------ ------------ ------------ ------------
Total dividends and distributions .. (1.20) (.37) (.32) (.37)
------------ ------------ ------------ ------------
Net asset value, end of period ..... $ 4.03 $ 4.87 $ 4.64 $ 4.76
============ ============ ============ ============
Total Investment Return:**
Based on net asset value per
share ............................ 2.87% 13.19% 4.22% (11.11)%#
============ ============ ============ ============
Ratios to Average Net Assets:
Expenses ........................... 2.33% 2.37% 2.36% 2.59%*
============ ============ ============ ============
Investment loss -- net ............. (1.87)% (1.68)% (1.69)% (.02)%*
============ ============ ============ ============
Supplemental Data:
Net assets, end of period (in
thousands) ........................ $ 15,424 $ 19,015 $ 31,090 $ 23,259
============ ============ ============ ============
Portfolio turnover ................. 206.40% 176.51% 108.36% 175.57%
============ ============ ============ ============
Average Commission Rate Paid## ..... $ .0538 $ .0604 $ .0366 --
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Class D++
------------------------------------------------------------------
For the Year Ended For the Period
March 31, October 21, 1994+
------------------------------------------- to March 31,
1998 1997 1996 1995
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset
Value:
Per Share Operating Performance:
Net asset value, beginning of
period ........................... $ 5.05 $ 4.81 $ 4.89 $ 5.88
------------ ------------ ------------ ------------
Investment loss -- net ............ (.05) (.04) (.05) (.02)
Realized and unrealized gain (loss)
on investments and foreign
currency transactions -- net ..... .46 .71 .29 (.60)
------------ ------------ ------------ ------------
Total from investment operations ... .41 .67 .24 (.62)
------------ ------------ ------------ ------------
Less dividends and distributions:
Investment income -- net .......... -- -- -- (.02)
In excess of investment
income -- net .................... -- -- -- (.01)
Realized gain on
investments -- net ............... (1.05) (.43) (.17) (.04)
In excess of realized gain on
investments -- net ............... (.16) -- (.15) (.30)
------------ ------------ ------------ ------------
Total dividends and distributions .. (1.21) (.43) (.32) (.37)
------------ ------------ ------------ ------------
Net asset value, end of period ..... $ 4.25 $ 5.05 $ 4.81 $ 4.89
============ ============ ============ ============
Total Investment Return:**
Based on net asset value per
share ............................ 3.90% 14.09% 4.94% (10.76)%#
============ ============ ============ ============
Ratios to Average Net Assets:
Expenses ........................... 1.52% 1.55% 1.56% 1.80%*
============ ============ ============ ============
Investment loss -- net ............. (1.07)% (.88)% (.89)% (.81)%*
============ ============ ============ ============
Supplemental Data:
Net assets, end of period (in
thousands) ........................ $ 34,712 $ 35,372 $ 43,858 $ 32,646
============ ============ ============ ============
Portfolio turnover ................. 206.40% 176.51% 108.36% 175.57%
============ ============ ============ ============
Average Commission Rate Paid## ..... $ .0538 $ .0604 $ .0366 --
============ ============ ============ ============
</TABLE>
- -------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding.
# 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.
9
<PAGE> 10
RISK FACTORS AND SPECIAL CONSIDERATIONS
International Investments. Investments on an international basis involve
certain risks not typically involved in domestic investments, including
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 may invest heavily in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates may 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 those currencies and the Company's yield on
such assets. The rates of exchange between the dollar and other currencies are
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 which could affect investments in those countries.
There may be less publicly available information about foreign companies than
about U.S. companies, 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 trading 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 in settlement could result in temporary periods when assets of the
Company are uninvested and no return is earned thereon. The 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 the 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.
Investments in Technology. Technology oriented investment companies such
as the Company, as with other sector funds, may be subject to rapidly changing
asset inflows and outflows. Moreover, the Company's investments in securities
of technology related companies present certain risks that may not exist to the
same degree as in other types of investments. Technology stocks, in general,
tend to be relatively volatile as compared to other types of investments. Any
such volatility will be reflected in changes in the Company's net asset value.
While volatility may create investment opportunities, it does entail risk. In
addition, since the Company is a non-diversified investment company, it may at
times concentrate its investments in a limited number of companies, primarily
in
10
<PAGE> 11
the semiconductor, communications and software industries, which may also
increase risk. See "Investment Objective and Policies" below.
While the Company will invest in the securities of entities in several
different industries considered by management of the Company to be technology
related, many of those entities share common characteristics which may affect
an investment in the Company. For example, industries throughout the technology
field include many smaller and less seasoned companies. These types of
companies may present greater opportunities for capital appreciation, but may
also involve greater risks. Such companies may have limited product lines,
markets, or financial resources, or may depend on a limited management group.
In addition, the securities of smaller companies may be subject to more
volatile market movements than the securities of larger, more established
companies. The companies in which the Company invests are also strongly
affected by worldwide scientific or technological developments, and their
products may rapidly fall into obsolescence. Certain of such companies also
offer products or services that are subject to governmental regulation and may,
therefore, be affected adversely by governmental policies.
Other Considerations. 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 advisory fees, are higher. Other special considerations are that the
Company may invest up to 15% of its total assets in illiquid securities
(including venture capital investments), that certain foreign investments may
be subject to foreign withholding taxes, and that the Company may invest more
than 5% of its assets in securities issued or guaranteed by certain foreign
governments. The suitability for any particular investor of a purchase of
shares of the Company will depend upon, among other things, such investor's
investment objectives and such investor's ability to accept the risks of
investing in such industries and markets including the risk of loss of
principal.
The Company may borrow up to 33 1/3% of its total assets (including the
amount borrowed), taken at market value, but only from banks as a temporary
measure for extraordinary or emergency purposes, including to meet redemptions
(so as not to force the Company to liquidate securities at a disadvantageous
time) or to settle securities transactions. The Company will not purchase
securities at any time when borrowings exceed 5% of its total assets, except
(a) to honor prior commitments or (b) to exercise subscription rights when
outstanding borrowings have been obtained exclusively for settlements of other
securities transactions. The purchase of securities while borrowings are
outstanding will have the effect of leveraging the Company. Such leveraging
increases the Company's exposure to capital risk, and borrowed funds are
subject to interest costs that will reduce net income.
11
<PAGE> 12
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek long-term capital
appreciation through worldwide investment in equity securities of companies
that, in the opinion of management, derive or are expected to derive a
substantial portion of their sales from products and services in technology.
The Company will pursue this objective by investing in a global portfolio of
securities of companies in various stages of development. The Company may,
however, for defensive purposes, invest in non-convertible fixed income
securities, including money market securities. Current income from dividends
and interest will not be an important consideration in selecting portfolio
securities. There can be no assurance that the investment objective of the
Company will be realized. The investment objective of the Company described in
the first sentence of 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 investment objective of the Company is based upon the belief that
advances in technology are providing companies throughout the world with
opportunities to develop innovative products and services and that investment
in such companies offers significant long-term growth possibilities. While the
Company will seek investments that have a technological orientation, it will
maintain a flexible approach as to the types of industries in which it will
invest, and it will not invest more than 25% of its total assets in any one
industry. Thus, the Company will invest in companies offering products and
services within the various industries in such areas as computers (including
software and hardware), communications, consumer electronics, electronic
components and instruments, factory automation, office automation, and in other
companies substantially involved in the more general field of technology. The
Company also expects to make investments in energy conservation and
development, new materials, specialty chemicals, aerospace and military
technology. The Company may invest up to 15% of its total assets (together with
all other illiquid investments) in venture capital investments in new and early
stage companies whose securities are illiquid. The Company will not, however,
invest in securities of issuers having a record, together with predecessors, of
less than three years of continuous operation if more than 5% of the Company's
total assets, taken at market value, would be invested in such securities.
The Company will invest in an international portfolio of securities of
companies located throughout the world. While there are no prescribed limits on
geographic asset distribution, based upon the public market values in the world
equity markets and anticipated technological innovations, it is presently
contemplated that a majority of the Company's assets will be invested at all
times in the securities of issuers domiciled in the United States, Japan and
Western Europe. Western European countries include, among others, the United
Kingdom, Germany, The Netherlands, Switzerland, Sweden, France, Italy, Belgium,
Norway, Denmark, Finland, Portugal, Austria and Spain. 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 a result,
when the Investment Adviser believes it is in the best interests of the
shareholders of the Company, the Company may have few or no investments outside
the United States.
The Company's current investment strategy differs from that of many other
mutual funds. In managing the Company's portfolio, the Investment Adviser
attempts to generate positive returns for shareholders instead of outperforming
a particular stock market index. In seeking to optimize returns the Investment
Adviser may concentrate investments in a limited number of companies or
industries. There is no assurance that the Investment Adviser will be able to
generate positive returns for the Company, especially in light of the
inherently volatile nature of the stock sector in which its assets are
invested. While volatility may create investment opportunities, it does entail
risk and may result in a high rate of portfolio turnover. See "Other Investment
Practices -- Portfolio Turnover" below.
12
<PAGE> 13
Investment emphasis will be on equities, primarily common stocks and, to a
lesser extent, securities convertible into common stocks and rights to
subscribe for common stock. The Company anticipates that under normal
conditions at least 65% of its total assets will be invested in technology
companies. 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 other types of securities, the issuers of which may
not be involved in technology, including non-convertible preferred stocks and
investment grade debt securities and government and money market securities, in
such proportions as, in the opinion of the Investment Adviser, prevailing
market or economic conditions warrant. Because of the inherently volatile
nature of stocks in the technology sector, the Investment Adviser may be more
likely to sell particular stocks and hold a large cash position than would the
manager of a mutual fund that invests in stocks of companies in a variety of
other industries.
The Company also may invest in securities subject to repurchase agreements
with banks or securities firms if the underlying securities are those which
otherwise qualify for investment by the Company and if, as a result thereof,
not more than 15% of its total assets would be invested in illiquid securities,
including repurchase agreements maturing in more than seven days. 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 invest in unsponsored ADRs. The issuers of
unsponsored ADRs are not obligated to disclose material information in the
United States, and therefore, there may not be a correlation between such
information and the market value of such ADRs.
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 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 net asset value of the Company's shares will 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 its 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. 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 described below.
Set forth below is a description of the hedging instruments that the
Company may utilize with respect to investment, interest rate and currency
risks.
Writing Covered Call Options. The Company is authorized to purchase and
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
13
<PAGE> 14
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.
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 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 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 or other financial 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 security for a set price on a future date. Unlike
most other futures contracts, a stock index futures contract does not require
actual delivery of securities but results in cash settlement based upon the
difference in value of the index between the time the contract was entered into
and the time of its settlement. The Company may effect transactions in stock
index futures contracts in connection with the equity securities in which it
invests and in financial futures contracts in connection with the debt
securities in which it invests. Transactions by the 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 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 any particular 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
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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 is also authorized to purchase and write call and put options
on futures contracts (including financial futures) 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.
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 securities which it has
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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. 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 and multinational currency units as a hedge against
possible variations in the foreign exchange rates 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
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 attempt to hedge all of
its foreign portfolio positions. If 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.
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 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 policy pursuant to
which it will not purchase or sell OTC options (including OTC options on
futures contracts) if, as a result of such transaction, the sum of the market
value of OTC options currently outstanding which are held by the 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
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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 security minus the option's strike price). The repurchase price with
the primary dealers is typically a formula price which is generally based on a
multiple of the premium received for the option, plus the amount by which the
option is "in-the-money". This policy as to OTC options is not a fundamental
policy of the 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.
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 the 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 predict correctly 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.
There can be no assurance that a liquid secondary market for options or
futures traded on an exchange or in the OTC 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 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.
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Other Investment Practices
Non-Diversified Status. The Company is classified as non-diversified
within the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), which means that the Company is not limited by such
Act in the proportion of its assets that it may invest in the securities of a
single issuer. The Company's investments will be limited, however, in order to
qualify for the special tax treatment afforded a regulated investment company
("RIC") under the Internal Revenue Code of 1986, as amended (the "Code"). See
"Additional Information -- Taxes." To qualify, the Company must comply with
certain requirements, including limiting its investments so that at the close
of each quarter of the taxable year (i) not more than 25% of the market value
of the Company's total assets will be invested in the securities of a single
issuer, and (ii) with respect to 50% of the market value of its total assets,
not more than 5% of the market value of its total assets will be invested in
the securities of a single issuer, and the Company will not own more than 10%
of the outstanding voting securities of a single issuer. Foreign government
securities (unlike U.S. Government securities) are not exempt from the
diversification requirements of the Code and are considered obligations of a
single issuer. A fund that elects to be classified as "diversified" under the
Investment Company Act must satisfy the foregoing 5% and 10% requirements with
respect to 75% of its total assets. To the extent that the Company assumes
large positions in the securities of a small number of issuers, the Company's
net asset value may fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial condition or in the market's
assessment of the issuers, and the Company may be more susceptible to any
single economic, political or regulatory occurrence than a diversified company.
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 execution of transactions in portfolio
securities. 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.
Portfolio Turnover. The Company may dispose of securities without regard
to the time they have been held when such actions, for defensive or other
reasons, appear advisable to the Investment Adviser. The Company may experience
a high rate of portfolio turnover due, in large measure, to the traditional
volatility of technology stocks, which as a whole is considerably greater than
that of stocks generally. (The portfolio turnover rate is calculated by
dividing the lesser of the Company's purchases or sales of portfolio securities
(exclusive of purchases or sales of U.S. Government securities and of all other
securities whose maturities at the time of acquisition are one year or less)
for the particular fiscal period or year by the monthly average of the value of
the portfolio securities owned by the Company during the particular fiscal
year.) High portfolio turnover involves certain tax consequences and
correspondingly greater transaction costs in the form of dealer spreads and
brokerage commissions, which are borne directly by the Company. As a result of
its investment policies, the Company may, in any given year, realize a larger
percentage of short-term capital gains (generally, gains on securities held for
not more than one year) than long-term capital gains.
Lending of Portfolio Securities. The Company may from time to time lend
securities from its portfolio, with a value not exceeding 10% 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
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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.
Investment Restrictions
The Company has adopted the following restrictions and policies relating
to the investment of its assets and its activities, which are fundamental
policies and may not be changed without the approval of the holders of a
majority of the 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 or instrumentalities). Investment restrictions and policies that are
non-fundamental policies may be changed by the Board of Directors without
shareholder approval. As a non-fundamental policy, the Company may not borrow
money or pledge its assets, except that the Company (a) may borrow from a bank
as a temporary measure for extraordinary or emergency purposes or to meet
redemptions in amounts not exceeding 33 1/3% (taken at market value) of its
total assets and pledge its assets to secure such borrowings, (b) may obtain
such short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and (c) may purchase securities on margin to the
extent permitted by applicable law. (However, at the present time, applicable
law prohibits the Company from purchasing securities on margin.) (The deposit
or payment by the Company of initial or variation margin in connection with
futures contracts or options transactions is not considered to be the purchase
of a security on margin). The purchase of securities while borrowings are
outstanding will have the effect of leveraging the Company. Such leveraging or
borrowing increases the Company's exposure to capital risk, and borrowed funds
are subject to interest costs which will reduce net income.
As a non-fundamental policy, the Company will not invest in securities
which cannot be readily resold because of legal or contractual restrictions or
that cannot otherwise be marketed, redeemed or put to the issuer or a third
party, including repurchase agreements maturing in more than seven days, if,
regarding all such securities, more than 15% of its total assets taken at
market value would be invested in such securities. 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 continuously
determines, based on the trading markets for the specific Rule 144A security,
that it is liquid. The Board of Directors may adopt guidelines and delegate to
the 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.
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The Directors of the Company are:
ARTHUR ZEIKEL* -- Chairman of the Investment Adviser and its affiliate,
FAM; Chairman and Director of Princeton Services, Inc. ("Princeton Services");
and Executive Vice President of ML & Co.
DONALD CECIL -- Special Limited Partner of Cumberland Partners (an
investment partnership).
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.
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.
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* Interested person, as defined in the Investment Company Act, of the Company.
Advisory and Management Arrangements
MLAM acts as the investment adviser. The Investment Adviser is owned and
controlled by ML & Co., a financial services holding company and the parent of
Merrill Lynch. The Asset Management Group of ML & Co. (which includes the
Investment Adviser), acts as the investment adviser to more than 100 registered
investment companies and offers portfolio management services to individuals
and institutions. As of May, 1998, the Asset Management Group had a total of
approximately $485 billion in investment company and other portfolio assets
under management. This amount includes assets managed for certain affiliates of
the Investment Adviser.
The Investment Adviser receives compensation at the annual rate of 1.0% of
the average daily net assets of the Company. For the fiscal year ended March
31, 1998, the fee paid by the Company to the Investment Adviser was $6,780,768
(based on average net assets of approximately $678.1 million). This fee is
higher than those of many other mutual funds but the Company believes it is
justified by the specialized investment focus of the Company.
The Company has entered into an investment advisory agreement with the
Investment Adviser (the "Investment Advisory Agreement"). The Investment
Advisory Agreement provides that, subject to the direction of the Directors,
the Investment Adviser is responsible for the actual management of the
Company's portfolio and constantly reviews the Company's holdings in light of
its own research analysis and that from other relevant sources. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser. The Investment Adviser performs certain of
the other administrative services and provides all the office space, equipment
and necessary personnel for management of the Company.
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. For the
fiscal year ended March 31, 1998, the Investment Adviser paid MLAM U.K. no fee
pursuant to the Sub-Advisory Agreement. MLAM U.K. has offices at Milton Gate,
1 Moor Lane, London EC2Y 9HA, England.
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James K. Renck, First Vice President of the Company, is the Company's
Portfolio Manager. Mr. Renck has been a Vice President and Portfolio Manager of
the Investment Adviser and its predecessors since 1986. Mr. Renck has been
primarily responsible for the day-to-day management of the Company's investment
portfolio since its inception.
The Company pays certain expenses incurred in its operations, including,
among other things, taxes, expenses for legal and auditing services, costs of
printing proxies, stock certificates, 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 March 31, 1998, the Company
reimbursed the Investment Adviser $83,246 for accounting services. For the same
period, the ratio of total expenses to average net assets was 1.27% for Class A
shares, 2.31% for Class B shares, 2.33% for Class C shares and 1.52% for Class
D shares.
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 which is 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 an annual fee of up to $11.00 per Class
A or Class D account and up to $14.00 per Class B or Class C account and is
entitled to reimbursement for certain transaction charges and out-of-pocket
expenses incurred by the Transfer Agent under the Transfer Agency Agreement.
Additionally, a $.20 monthly closed account charge will be assessed on all
accounts 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 fee 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 on a record keeping system,
provided the record keeping system is maintained by a subsidiary of ML & Co.
For the fiscal year ended March 31, 1998, the Company paid the Transfer Agent
$1,572,787 pursuant to the Transfer Agency Agreement.
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PURCHASE OF SHARES
The Distributor, an affiliate of both 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
$250 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 investors 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 order 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, 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 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 4.
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 do not affect the net
asset value of any other class or have any impact on investors choosing another
sales charge option.
22
<PAGE> 23
Dividends paid by the Company for each class of shares are calculated in the
same manner at the same time and 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.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System.
<TABLE>
<CAPTION>
Account
Maintenance Distribution
Class Sales Charge(1) Fee Fee Conversion Feature
----- --------------- --- --- ------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2)(3)
B CDSC for a period of four years, 0.25% 0.75% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0%(4) eight years(5)
C 1.0% CDSC for one year(6) 0.25% 0.75% No
D Maximum 5.25% initial sales 0.25% No No
charge(3)
</TABLE>
- --------
(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 the redemption or the cost of the shares
being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge Alternatives
-- Class A and Class D Shares -- Eligible Class A Investors."
(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans and participants in connection with
certain fee-based programs. Certain 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 price for dividend reinvestment shares, certain retirement
plans and certain fee-based programs may be 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.
23
<PAGE> 24
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.
<TABLE>
<CAPTION>
Sales Load Discount to
Sales Load as as Percentage* Selected Dealers
Percentage of of the Net as Percentage of
Amount of Purchase Offering Price Amount Invested the Offering Price
- ------------------------------------------- ---------------- ----------------- -------------------
<S> <C> <C> <C>
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
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on certain Class A and Class D
purchases of $1,000,000 or more, and on Class A purchases by certain
retirement plans 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 March
31, 1998, the Company sold 14,964,900 Class A shares for aggregate net proceeds
of $71,410,844. The gross sales charges for the sale of Class A shares of the
Company for that year were $25,038, of which $2,414 and $22,624 were received by
the Distributor and Merrill Lynch, respectively. During such period, the
Distributor received CDSCs of $34,938 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 March 31, 1998, the Company sold 4,505,104
Class D shares for aggregate net proceeds of $21,202,799. The gross sales
charges for the sale of Class D shares of the Company for that year were
$77,886, of which $5,656 and $72,230 were received by the Distributor and
Merrill Lynch, respectively. During such period, the Distributor received no
CDSCs with respect to redemptions within one year after purchase of Class D
shares purchased subject to a front-end sales charge waiver.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares of the
Company in a shareholder account, including participants in the Merrill Lynch
BlueprintSM 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
24
<PAGE> 25
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 are offered at net
asset value to ML & Co. and its subsidiaries and their directors and employees
and to members of the Boards of MLAM-advised investment companies, including the
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 Class D sales charges also
may be reduced under a Right of Accumulation and a Letter of Intention. Class A
shares are offered at net asset value to certain eligible Class A investors as
set forth above under "Eligible Class A Investors." See "Shareholder Services --
Fee-Based Programs."
Provided applicable threshold requirements are met, either Class A or Class
D shares are offered at net asset value to Employee Access(SM) Accounts
available through authorized employers. Class A shares are offered at net asset
value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. and,
subject to certain conditions, Class A and Class D shares are offered at net
asset value to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch High Income Municipal Bond Fund, Inc. who wish to reinvest in
shares of the 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 without sales charge to an
investor who has a business relationship with a Merrill Lynch Financial
Consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies. Class D
shares are offered with reduced sales charges and, in certain circumstances, at
net asset value, to participants in the Merrill Lynch Blueprint(SM) Program.
Additional information concerning these reduced initial sales charges is
set forth in the Statement of Additional Information.
Deferred Sales Charge Alternatives -- Class B and Class C Shares
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time
25
<PAGE> 26
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. The proceeds from the account maintenance fees are used to
compensate Merrill Lynch for providing continuing account maintenance
activities. 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.
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.
26
<PAGE> 27
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
Class B CDSC
as a Percentage
Year Since Purchase of Dollar Amount
Payment Made Subject to Charge
- ----------------------------- ------------------
<S> <C>
0-1 ...................... 4.00%
1-2 ...................... 3.00
2-3 ...................... 2.00
3-4 ...................... 1.00
4 and thereafter ......... 0.00
</TABLE>
For the fiscal year ended March 31, 1998, the Distributor received CDSCs of
$972,010 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 purchases 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 the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase for shares purchased after
October 21, 1994).
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. 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 account at the time of redemption. The Class B CDSC is also waived for any
Class B shares purchased within qualifying Employee Access(SM) Accounts. The
Class B CDSC also is waived for any Class B shares which are purchased by a
Merrill Lynch rollover IRA that was funded by a rollover from a terminated
401(k) plan managed by the MLAM Private Portfolio Group and held in such account
at the time of redemption. 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
27
<PAGE> 28
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 CDSC may be waived in connection with certain
fee-based programs. See "Shareholder Services -- Fee-Based Programs." For the
fiscal year ended March 31, 1998, the Distributor received CDSCs of $9,956 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 the 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 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
28
<PAGE> 29
to such conversion, that Class B Retirement Plan will be sold Class D shares of
the appropriate funds at net asset value per share.
The Conversion Period also may be modified for retirement plan investors
which 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 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 March 31, 1998, the Company paid the Distributor
$3,750,829 pursuant to the Class B Distribution Plan (based on average daily net
assets subject to such Class B Distribution Plan of approximately $375.1
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 March 31, 1998, the Company paid the
Distributor $196,363 pursuant to the Class C Distribution Plan (based on average
daily net assets subject to such Class C Distribution Plan of approximately
$19.6 million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class C shares. For the fiscal year ended March 31, 1998, the Company paid the
Distributor $101,081 pursuant to the Class D Distribution Plan (based on average
daily net assets subject to such Class D Distribution Plan of approximately
$40.4 million) all of which was paid to Merrill Lynch for providing account
maintenance activities in connection with Class D shares.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred, and accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with
29
<PAGE> 30
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, 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, 1997, the fully allocated accrual expenses for Class B
shares for the period since April 27, 1992 (commencement of operations) exceeded
fully allocated accrual revenues for such period by approximately $4,172,000
(1.43% of Class B net assets at that date). As of March 31, 1998, for Class B
shares, direct cash revenues for the period since April 27, 1992 (commencement
of operations) exceeded direct cash expenses by $17,046,613 (5.98% of Class B
net assets at that date). As of December 31, 1997, the fully allocated accrual
expenses for Class C shares for the period since October 21, 1994 (commencement
of operations) exceeded fully allocated accrual revenues for such period by
approximately $443,000 (2.82% of Class C net assets at that date). As of March
31, 1998, for Class C shares, direct cash revenues for the period since October
21, 1994 (commencement of operations) exceeded direct cash expenses by $579,614
(3.76% 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 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 fees 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,
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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 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 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 certificate, as the case may be. The signatures on the notice
must be guaranteed by an "eligible guarantor institution" (including, for
example, Merrill Lynch branch offices and certain other financial institutions)
as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended, the existence and validity of which may be verified by the
Transfer Agent through the use of industry publications. Notarized signatures
are not sufficient. In certain instances, the Transfer Agent may require
additional documents, such as, but not limited to, trust instruments, death
certificates, appointments as executor or administrator, or certificates of
corporate authority. For shareholders redeeming directly with the Transfer
Agent, payment will be mailed within seven days of receipt of a proper notice of
redemption.
At various times the 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. Normally, this delay 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 (generally, 4:00 p.m., New York time) on the day received and such
request is received by the Company from such dealer not later than 30 minutes
after the close of business on the NYSE on the same day. Dealers have the
responsibility of submitting such repurchase
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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.
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
described below that are 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, 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.
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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 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 such shares and then must turn the certificates over to
a 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 Systematic Redemption Program,
subject to certain conditions. With respect to redemptions of Class B and Class
C shares pursuant to a systematic withdrawal plan, the maximum number of Class B
and 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 prearranged charges of $50 or more
to his or her regular bank account. Investors who maintain CMA(R) or CBA(R)
accounts may arrange to have periodic investments made in the 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.
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Automatic Reinvestment of Dividends and Capital Gains 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 payable 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 (provided
that, in the event that a payment on an account maintained at the Transfer Agent
would amount to $10.00 or less, a shareholder will not receive such payment in
cash and such payment will automatically be reinvested in additional shares).
Cash payments can also be directly deposited to the shareholder's bank account.
No CDSC will be imposed on redemption of shares issued as a result of the
automatic reinvestment of dividends or capital gains distributions. 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
distribution or redemption checks.
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 his or her 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
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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.
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
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
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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 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 also may quote total return and aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that (1) the rates of return
calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return, and (2) the maximum applicable sales
charges will not be included with respect to annual or annualized rates of
return calculations. Aside from the impact on the performance data calculations
of including or excluding the maximum applicable sales charges, actual annual or
annualized total return data generally will be lower than average annual total
return data since the average annual rates of return reflect compounding;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over longer
periods of time. In advertisements distributed to investors whose purchases are
subject to reduced sales charges in the case of Class A and Class D shares or
waiver of the CDSC in the case of Class B and 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 Composite Stock Price Index, the Dow Jones Industrial Average, or
performance data published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business Week, CDA
Investment Technology, Inc., Forbes Magazine, Fortune Magazine or other industry
publications. In addition, from time to time the Company may include the
Company's risk-adjusted performance ratings assigned by Morningstar
Publications, Inc. in advertising or supplemental sales literature. As with
other performance data, performance comparisons should not be considered
indicative of the Company's relative performance for any future period.
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 long- or short-term 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 any account maintenance, distribution and transfer agency fees applicable to
that class. See "Additional Information -- Determination of Net Asset Value."
Dividends and distributions will be 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
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Lynch may elect in writing to receive any such dividends or distributions, or
both, in cash (provided that, in the event that a payment on an account
maintained at the Transfer Agent would amount to $10.00 or less, a shareholder
will not receive such payment in cash and such payment will automatically be
reinvested in additional shares). 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 foreign currency gains or losses from
certain forward contracts 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
distributions made before the losses were realized but in the same taxable year
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
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."
Taxes
The Company intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under 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. 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
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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, 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 necessary to claim the foreign tax credit.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the 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 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.
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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.
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 for 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 or
on such other day that there is sufficient trading in portfolio securities that
the net asset value of the Company's shares may be materially affected. 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 market values 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 fees 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
generally will 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 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.
39
<PAGE> 40
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
which 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. Other investments, including futures contracts and related
options, are stated at market value. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors of the Company.
Organization of the Company
The Company was incorporated in connection with a reorganization (the
"Reorganization") of Sci/Tech Holdings, Inc. ("Sci/Tech"), a Merrill
Lynch-sponsored diversified, open-end investment company. Sci/Tech invested
primarily in the equity securities of companies engaged in science and
technology. Pursuant to the Reorganization, which occurred on April 27, 1992,
Sci/Tech transferred all of its technology oriented securities and certain other
assets (net of liabilities) to the Company in exchange for all of the stock of
the Company (other than seed capital), which Sci/Tech then distributed pro rata
to its stockholders. Thus, the Company's initial portfolio of technology
oriented securities consisted of securities received from Sci/Tech. Sci/Tech
retained its healthcare related investments, changed its name, and now operates
as Merrill Lynch Healthcare Fund, Inc.
The Company was incorporated under Maryland law on August 27, 1991. At the
date of this Prospectus, the Company has an authorized capital of 800,000,000
shares of Common Stock, par value $0.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D Common Stock. Class A and Class
C each consists of 100,000,000 shares and Class B and Class D each consists of
300,000,000 shares. Shares of Class A, Class B, Class C and Class D Common Stock
represent interests in the same assets of the 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 account maintenance and distribution expenditures, as applicable. See
"Purchase of Shares." The Company has received an order from the Commission
permitting the issuance and sale of multiple classes of Common Stock. The
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 full share held and
fractional votes for fractional shares held and will vote on the election of
Directors and any other matters submitted to a shareholder vote. The Company
does not intend to hold meetings of shareholders in any year in which the
Investment Company Act does not require shareholders to act on any of the
following matters: (i) election of Directors; (ii) approval of an investment
advisory agreement; (iii) approval of a distribution agreement; and (iv)
ratification of selection of independent
40
<PAGE> 41
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, except that, 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, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this,
please call your Merrill Lynch Financial Consultant or 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.
Year 2000 Issues
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). Like other investment
companies and financial and business organizations, the Company could be
adversely affected if the computer systems used by the Investment Adviser or
other Company service providers do not properly address this problem prior to
January 1, 2000. The Investment Adviser has established a dedicated group to
analyze these issues and to implement any systems modifications necessary to
prepare for the Year 2000. Currently, the Investment Adviser does not anticipate
that the transition to the 21st century will have any material impact on its
ability to continue to service the Company at current levels. In addition, the
Investment Adviser has sought assurances from the Company's other service
providers that they are taking all necessary steps to ensure that their computer
systems will accurately reflect the Year 2000, and the Investment Adviser will
continue to monitor the situation. At this time, however, no assurance can be
given that the Company's other service providers have anticipated every step
necessary to avoid any adverse effect on the Company attributable to the Year
2000 Problem.
41
<PAGE> 42
[This page intentionally left blank.]
42
<PAGE> 43
MERRILL LYNCH TECHNOLOGY FUND, INC. -- AUTHORIZATION FORM (PART 1)
Note: This form may not be used for purchases through the Merrill Lynch
Blueprint(SM) Program. You may request a Merrill Lynch Blueprint(SM)
Program application by calling (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 Technology Fund, Inc., and establish an Investment Account as
described in the Prospectus. In the event that I am not eligible to purchase
Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $................... payable to Merrill Lynch
Financial Data Services, Inc. as an initial investment (minimum $1,000).
I understand that this purchase will be executed at the applicable
offering price next to be determined after this Application is received
by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the Right of Accumulation as outlined in the Statement of
Additional Information: Please list all funds. (Use a separate sheet of paper
if necessary.)
1.
2.
3.
4.
5.
6.
Name .....................................................................
First Name Initial Last Name
Name of Co-Owner (if any) ...............................................
First Name Initial Last Name
Address................................................................ ..
(Zip Code)
Date................................................................... ..
Occupation............................................................. ..
Signature of Owner
Name and Address of Employer..............................................
Signature of Co-Owner (if any)
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
==============================================================================
2. Dividend and Capital Gain Distribution Options
Ordinary Income Dividends
Select [ ] Reinvest
One: [ ] Cash
Long-Term Capital Gains
Select [ ] Reinvest
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 Technology Fund, Inc. Authorization Form.
Specify type of account (check one): [ ] checking [ ] savings
Name on your account......................................................
Bank Name.................................................................
Bank Number...............................................................
Account Number ...........................................................
Bank Address..............................................................
I agree that this authorization will remain in effect until I provide written
notification to Merrill Lynch Financial Data Services, Inc. amending or
terminating this service.
Signature of Depositor....................................................
Signature of Depositor..............................Date..................
(If joint account, both must sign)
Note: If direct deposit to bank account is selected, your blank, unsigned check
marked "VOID" or a deposit slip from your savings account should accompany this
application.
43
<PAGE> 44
MERRILL LYNCH TECHNOLOGY FUND, 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 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 Class D shares only (See terms and
conditions in the Statement of Additional Information)
................................, 19............
Dear Sir/Madam: Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of
Merrill Lynch Technology Fund, Inc. or any other investment company with an
initial sales charge or deferred sales charge for which Merrill Lynch Funds
Distributor, Inc. acts as distributor over the next 13 month period which will
equal or exceed:
[ ] $25,000 [ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $1,000,000 Each
purchase will be made at the then reduced offering price applicable to the
amount checked above, as described in the Fund's 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 Technology Fund, 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 Technology Fund, Inc.
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent
in connection with transactions under this authorization form and agree to
notify the Distributor of any purchases or sales made under a Letter of
Intention, Automatic Investment Plan or Systematic Withdrawal Plan. We
guarantee the shareholder's signature.
Dealer Name and Address
By:.......................................................................
Authorized Signature of Dealer
- ------------ ----------------
- ------------ ---------------- .......................
Branch Code F/C No. F/C Last Name
- ------------ ---------------------
- ------------ ---------------------
Dealer's Customer A/C No.
44
<PAGE> 45
MERRILL LYNCH TECHNOLOGY FUND, INC. -- AUTHORIZATION FORM (PART 2)
Note: This form is required to apply for the Systematic Withdrawal or Automatic
Investment Plans only.
============================================================================
1. Account Registration
Name of Owner.............................................................
Name of Co-Owner (if any).................................................
Address...................................................................
.........................................................................
[ ]
Social Security No.
or Taxpayer Identification Number
Account Number............................................................
(if existing account)
2. Systematic Withdrawal Plan (See terms and conditions in the Statement of
Additional Information)
Minimum Requirements: $10,000 for monthly disbursements, $5,000 for quarterly,
of [ ] Class A, [ ] Class B*, [ ] Class C* or [ ] Class D shares in Merrill
Lynch Technology Fund, Inc., at cost or current offering price. Withdrawals to
be made either (check one) [ ] Monthly on the 24th day of each month, or [ ]
Quarterly on the 24th day of March, June, September and December. If the 24th
falls on a weekend or holiday, the next succeeding business day will be
utilized. Begin systematic withdrawal in (month) or as soon as possible
thereafter.
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 my bank account and (if
necessary) debit entries and adjustments for any credit entries made to my
account. I agree that this authorization will remain in effect until I provide
written notification to Merrill Lynch Financial Data Services, Inc. amending or
terminating this service.
Specify type of account (check one): [ ] checking [ ] savings
Name on your Account......................................................
Bank Name.................................................................
Bank Number...............................................................
Account Number............................................................
Bank Address..............................................................
.........................................Date .....................
Signature of Depositor....................................................
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.
45
<PAGE> 46
MERRILL LYNCH TECHNOLOGY FUND, INC. -- AUTHORIZATION FORM (PART 2) --
(Continued)
3. Application for Automatic Investment Plan
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account described below
each month to purchase: (choose one) [ ] Class A shares [ ] Class B shares [ ]
Class C shares [ ] Class D shares of Merrill Lynch Technology Fund, Inc.,
subject to the terms set forth below. In the event that I am not eligible to
purchase Class A shares, I understand that Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw checks or an ACH debit each month on my bank
account for investment in Merrill Lynch Technology Fund, Inc. as indicated
below:
Amount of each 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 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 returned 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.
46
<PAGE> 47
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
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
Counsel
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
No person has been authorized to give any information or to make any
representations, other than those 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.
----------------------------
<PAGE> 48
TABLE OF CONTENTS
Page
-----
Fee Table ........................................ 2
Merrill Lynch Select Pricing(SM) System ............ 4
Financial Highlights ............................. 8
Risk Factors and Special Considerations .......... 10
Investment Objective and Policies ................ 12
Hedging Techniques ............................ 13
Other Investment Practices .................... 18
Investment Restrictions ....................... 19
Management of the Company ........................ 19
Board of Directors ............................ 19
Advisory and Management Arrangements .......... 20
Code of Ethics ................................ 21
Transfer Agency Services ...................... 21
Purchase of Shares ............................... 22
Initial Sales Charge Alternatives -- Class A
and Class D Shares ......................... 24
Deferred Sales Charge Alternatives --
Class B and Class C Shares ................. 25
Distribution Plans ............................ 29
Limitations on the Payment of Deferred Sales
Charges .................................... 30
Redemption of Shares ............................. 31
Redemption .................................... 31
Repurchase .................................... 31
Reinstatement Privilege -- Class A and
Class D Shares ............................. 32
Shareholder Services ............................. 32
Investment Account ............................ 32
Systematic Withdrawal Plans ................... 33
Automatic Investment Plans .................... 33
Automatic Reinvestment of Dividends and
Capital Gains Distributions ................ 34
Exchange Privilege ............................ 34
Fee-Based Programs ............................ 35
Performance Data ................................. 35
Additional Information ........................... 36
Dividends and Distributions ................... 36
Taxes ......................................... 37
Determination of Net Asset Value .............. 39
Organization of the Company ................... 40
Shareholder Reports ........................... 41
Shareholder Inquiries ......................... 41
Year 2000 Issues .............................. 41
Authorization Form ............................... 43
Code #16089-0698
[MERRILL LYNCH LOGO APPEARS HERE]
Merrill Lynch
Technology Fund, Inc.
Prospectus
June 30, 1998
Distributor:
<PAGE> 49
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference
STATEMENT OF ADDITIONAL INFORMATION
Merrill Lynch Technology Fund, Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011 - Phone No. (609) 282-2800
----------------
Merrill Lynch Technology Fund, Inc. (the "Company") is a non-diversified,
open-end investment company that seeks long-term capital appreciation through
worldwide investment in equity securities of companies that, in the opinion of
management, derive or are expected to derive a substantial portion of their
sales from products and services in technology. While the Company will not
concentrate its investments in any one industry, it is contemplated that
substantial investments will be made in companies involved in such
technology-related areas as communications, computers (including software and
hardware), electronics, and factory and office automation. The Company will
pursue its investment objective by investing in a global portfolio of securities
of companies in various stages of development. It is presently contemplated that
the Company's assets will be invested primarily in the United States, Japan and
Western Europe. However, at times the Company may invest substantially all of
its assets in the United States.
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.
----------------
The Statement of Additional Information of the Company is not a prospectus
and should be read in conjunction with the Prospectus of the Company, dated June
30, 1998 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission (the "Commission") and can be obtained, without charge, by
calling or by writing the 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 June 30, 1998.
<PAGE> 50
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek long-term capital
appreciation through worldwide investment in equity securities of companies
that, in the opinion of management, derive or are expected to derive a
substantial portion of their sales from products and services in technology.
Reference is made to "Investment Objective and Policies" in the Prospectus for a
discussion of the investment objective and policies of the Company.
Technology
The Company will invest in companies offering products and services in
such areas as computers (including software and hardware), communications,
consumer electronics, electronic components and instruments, factory automation,
office automation and other companies substantially involved in the field of
technology. The Company also expects to make investments in energy conservation
and development, new materials, specialty chemicals, aerospace and military
technology. While rapid changes in technology present attractive opportunities
for investment in companies in such fields, such companies may face special
risks that their products or services may not prove to be commercially
successful or may be rendered obsolete by further scientific and technological
developments. The value of the Company's investment in a company whose products
are not commercially successful or are rendered obsolete may decrease
substantially. See "Risk Factors and Special Considerations" in the Prospectus.
Investors in the Company will receive the benefit of the specialized research
and analysis of Merrill Lynch Asset Management, L.P. (the "Investment Adviser").
International Diversification
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.
Types of Portfolio Companies
The Company will attempt to maximize opportunity and reduce risk by
investing in a portfolio of companies in different stages of development.
Portfolio companies will range from large, well-established companies to
medium-sized companies and smaller, less seasoned companies in an earlier stage
of development.
Investments in larger companies present certain advantages attributable
to their greater financial resources: more extensive research and development,
manufacturing, marketing and service capabilities; more stability; and greater
depth of management and technical personnel. Investments in smaller, less
seasoned companies may present greater opportunities for growth but also involve
greater risks than customarily are associated with more established companies.
The securities of smaller companies may be subject to more abrupt or erratic
market movements than larger, more established companies. These companies may
have limited product lines, markets or financial resources, or they may be
dependent upon a limited management group. Their securities may be traded only
in the over-the-counter ("OTC") market or on a regional securities exchange and
may not be traded every day or in the volume typical of trading on a national
securities exchange. As a result, the disposition by
2
<PAGE> 51
the Company of portfolio securities to meet redemptions or otherwise may require
the Company to sell these securities at a discount from market prices or during
periods when such disposition is not desirable or to make many small sales over
a lengthy period of time.
The Company may invest up to 15% of its total assets (together with all
other illiquid investments) in illiquid venture capital investments in new and
early-stage companies whose securities are not publicly traded. Venture capital
investments may present significant opportunities for capital appreciation but
involve a high degree of business and financial risk that can result in
substantial losses and should be considered as speculative investments. The
Company's venture capital investments may include limited partnership interests.
The disposition of U.S. venture capital investments normally will be restricted
under Federal securities laws. Generally, restricted securities may be sold only
in privately negotiated transactions or in public offerings registered under the
Securities Act of 1933, as amended (the "Securities Act"). The Company also may
be subject to restrictions contained in the securities laws of other countries
in disposing of portfolio securities. As a result, the Company may be unable to
dispose of such investments at times when such disposition ordinarily would be
deemed appropriate due to investment or liquidity considerations. Alternatively,
the Company may be forced to dispose of such investments at less than their fair
market value. Where registration is required, the Company may be obligated to
pay part or all of the expenses of such registration. Market quotations may not
be readily available for such securities, and for purposes of determining the
offering and redemption prices of Company shares, these investments will be
valued at fair value. See "Determination of Net Asset Value."
Other Factors
The Company may invest in securities subject to repurchase agreements
with banks or securities firms, which are instruments under which the purchaser
(i.e., the Company) acquires a debt security, and the seller agrees, at the time
of sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the purchaser's holding period. The
underlying securities are limited to those which otherwise qualify for
investment by the Company. In the event of default by the seller under a
repurchase agreement, the Company may suffer time delays and incur costs or
losses in connection with the disposition of the underlying securities. The
Company will not enter into a repurchase agreement if, as a result thereof, more
than 15% of its total assets would be subject to repurchase agreements maturing
in more than seven days.
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 globally, typically by banking
institutions, and 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. The Company may invest in unsponsored ADRs. The issuers of unsponsored
ADRs are not obligated to disclose material information in the U.S., and
therefore, there may not be a correlation between such information and the
market value of such ADRs.
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, the Company's
portfolio turnover may be higher than that of other investment companies;
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however, it is extremely difficult to predict portfolio turnover rates with any
degree of accuracy. For the fiscal years ended March 31, 1997 and 1998, the
Company's portfolio turnover rate was 176.51% and 206.40%, respectively. The
high rate of portfolio turnover is in large measure a function of the
traditional volatility of technology stocks, which as a whole is considerably
greater than that of stocks generally. See "Investment Objective and Policies --
Other Investment Practices -- Portfolio Turnover" in the Prospectus.
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 forward 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 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 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 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. The writer of a covered call option has no control over when he or she
may be required to sell his or her securities since he or she may be assigned an
exercise notice at any time prior to the termination of his or her 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 equity 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
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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 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 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% and 15% of the value of the
futures contract, must be deposited with the broker. This amount is known as
"initial" margin and represents a "good faith" deposit assuring the performance
of both the purchaser and seller under the futures contract. Subsequent payments
to and from the broker, called "variation margin", are required to be made on a
daily basis as the price of the futures contract fluctuates, making the long and
short positions in the futures contract more or less valuable, a process known
as "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 or 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 which will not be completely offset by movements in the prices of the
subject of the hedge. The successful use of options and futures also depends on
the Investment Adviser's ability to predict correctly price movements in the
market involved in a particular options or futures transaction.
Prior to exercise or expiration, an exchange-traded 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 if there
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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. 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 futures contracts it holds. The inability to
close options and futures positions also could have an adverse impact on the
Company's ability to effectively hedge its portfolio. 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 effectively.
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,
European 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 foreign
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, European 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 the Company enters into a
position hedging transaction, its custodian will place cash or liquid debt
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 transaction only to
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the extent, if any, deemed appropriate by the Investment Adviser of the Company.
The Company will not enter into a position hedging commitment if, as a result
thereof, the Company would have more than 15% of the value of its assets
committed to such contracts. 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. It is possible
that, under certain circumstances, the Company may have to limit its currency
transactions to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"); in this regard, the Company
presently intends to limit its gross income from currency hedging transactions
to less than 10% of its gross income in any taxable year until such time as the
Company determines that such income need not be subject to this restriction. 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 a 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.
Other Investment Policies and Practices
Non-Diversified Status. The Company is classified as non-diversified
within the meaning of the Investment Company Act, which means that the Company
is not limited by such Act in the proportion of its assets that it may invest in
securities of a single issuer. The Company's investments will be limited,
however, in order to qualify for the special tax treatment afforded regulated
investment companies under the Code. See "Dividends, Distributions and Taxes."
To qualify, the Company will comply with certain requirements, including
limiting its investments so that at the close of each quarter of the taxable
year (i) not more than 25% of the market value of the Company's total assets
will be invested in the securities of a single issuer, and (ii) with respect to
50% of the market value of its total assets, not more than 5% of the market
value of its total assets will be invested in the securities of a single issuer,
and the Company will not own more than 10% of the outstanding voting securities
of a single issuer. A fund which elects to be classified as "diversified" under
the Investment Company Act must satisfy the foregoing 5% and 10% requirements
with respect to 75% of its total assets. To the extent that the Company assumes
large positions in the securities of a small number of issuers, the Company's
net asset
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value may fluctuate to a greater extent than that of a diversified company as a
result of changes in the financial condition or in the market's assessment of
the issuers, and the Company may be more susceptible to any single economic,
political or regulatory occurrence than a diversified company.
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. Invest more than 25% of its assets, taken at market value,
in the securities of issuers in any particular industry (excluding the
U.S. Government and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control or
management.
3. 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.
4. Make loans to other persons, except that the acquisition of
bonds, debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers acceptances, repurchase agreements or
any similar instruments shall not be deemed to be the making of a loan
and except further that the Company may lend its portfolio securities,
provided that the lending of portfolio securities may be made only in
accordance with applicable law and the guidelines set forth in the
Company's Prospectus and Statement of Additional Information, as they
may be amended from time to time.
5. Issue senior securities to the extent such issuance would
violate applicable law.
6. Borrow money, except that (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, to the extent permitted by applicable law, 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.
7. Underwrite securities of other issuers except insofar as
the Company technically may be deemed an underwriter under the
Securities Act in selling portfolio securities.
8. 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
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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 (a "Rule 144A security") and determined to be
liquid by the Company's Board of Directors are not subject to the
limitations set forth in this investment restriction.
d. Notwithstanding fundamental investment restriction (6)
above, borrow money or pledge its assets, except that the Company (a)
may borrow from a bank as a temporary measure for extraordinary or
emergency purposes or to meet redemptions in amounts not exceeding
33 1/3% (taken at market value) of its total assets and pledge its
assets to secure such borrowings, (b) may obtain such short-term credit
as may be necessary for the clearance of purchases and sales of
portfolio securities and (c) may purchase securities on margin to the
extent permitted by applicable law. However, at the present time,
applicable law prohibits the Company from purchasing securities on
margin. The deposit or payment by the Company of initial or variation
margin in connection with financial futures contracts or options
transactions is not considered to be the purchase of a security on
margin. The purchase of securities while borrowings are outstanding
will have the effect of leveraging the Company. Such leveraging or
borrowing increases the Company's exposure to capital risk, and
borrowed funds are subject to interest costs which will reduce net
income. The Company will not purchase securities while borrowings
exceed 5% of its total assets.
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 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 exceed 10% of the net 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., current market
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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 Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") 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." Without such
an exemptive order, the Company would be prohibited from engaging in
portfolio transactions with Merrill Lynch or any of its affiliates
acting as principal and from purchasing securities in public offerings
which are not registered under the Securities Act in which such firm or
any of its affiliates participate as an underwriter or dealer.
The investment restrictions set forth in the Prospectus
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 as required by 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 in the
Prospectus 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.
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 each executive officer, Director and the portfolio manager is P.O.
Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (66) -- 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 and Director thereof since
1993; President of Princeton Services from 1993 to 1997; Executive Vice
President of Merrill Lynch & Co., Inc. ("ML & Co.") since 1990.
DONALD CECIL (71) -- Director(2) -- 1114 Avenue of the Americas, New
York, New York 10036. Special Limited Partner of Cumberland Partners (an
investment partnership) since 1982; Member of Institute of Chartered Financial
Analysts; Member and Chairman of Westchester County (N.Y.) Board of
Transportation.
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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 (67) -- Director(2) -- 9 Hampton Harbor Road, Hampton
Bays, New York 11946. Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior
Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business 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 89411.
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).
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.
JAMES K. RENCK (41) -- Senior Vice President and Portfolio Manager(1)
- --First Vice President of the Investment Adviser since 1997 and Portfolio
Manager thereof since 1986; Vice President of the Investment Adviser from 1986
to 1997.
DONALD C. BURKE (38) -- Vice President(1)(2) -- First Vice President of
the Investment Adviser since 1997 and Director of Taxation thereof since 1990;
Vice President of the Investment Adviser from 1990 to 1997.
GERALD M. RICHARD (49) -- 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 (51) -- Secretary(1)(2) -- First Vice President of the
Investment Adviser since 1997; Vice President and 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 its affiliate, FAM, acts as investment adviser.
At June 1, 1998, the Directors and officers 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.
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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 the non-affiliated Directors, at a rate of $500 per Committee meeting
attended. The Chairman of the Committee receives an additional fee of $250 per
Committee meeting attended. For the fiscal year ended March 31, 1998, fees and
expenses paid to non-affiliated Directors aggregated $38,000.
The following table sets forth the compensation earned by the
non-affiliated Directors from the Company for the fiscal year ended March 31,
1998 and the aggregate compensation paid to the non-affiliated Directors from
all registered investment companies advised by the Investment Adviser and its
affiliate FAM ("MLAM/FAM Advised Funds") for the calendar year ended December
31, 1997.
<TABLE>
<CAPTION>
Aggregate
Pension or Compensation from
Retirement Company and Other
Benefits Accrued MLAM/FAM-Advised
Compensation as Part of Funds Paid to
Name of Director from Company Company's Expenses Directors(1)
- --------------------------- -------------- -------------------- ------------------
<S> <C> <C> <C>
Donald Cecil .............. $8,500 None $275,850
Edward H. Meyer ........... $6,000 None $222,100
Charles C. Reilly ......... $7,500 None $313,000
Richard R. West ........... $7,500 None $299,000
Edward D. Zinbarg ......... $7,500 None $133,500
</TABLE>
- --------
(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 (50 registered investment companies
consisting of 63 portfolios); Mr. West (51 registered investment
companies consisting of 73 portfolios) and Mr. Zinbarg (18 registered
investment companies consisting of 18 portfolios).
Management and Advisory 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 also may 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. Securities may be held
by, or be appropriate investments for, the Company as well as other clients of
the Investment Adviser or its affiliates. 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 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. As discussed in the Prospectus the Company will pay the
Investment Adviser a fee for its services at the annual rate of 1.0%
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of the Company's average daily net assets. For the fiscal years ended March 31,
1996, 1997 and 1998, the fees paid by the Company to the Investment Adviser
aggregated $10,196,193, $7,927,513 and $6,780,768, 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, shareholders' 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 March 31, 1996, 1997 and 1998, the amount of such reimbursement was
$198,451, $107,801 and $83,246, respectively. As required by the Company's
distribution agreements, its underwriters will pay 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 has also entered
into a sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K.") pursuant to which MLAM U.K. provides investment advisory services
to the Investment Adviser with respect to the Company.
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 PLC (MLAM U.K.'s parent), a subsidiary of Merrill Lynch
International Holdings, Inc., 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 the shareholders of the
Company.
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,
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<PAGE> 62
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 the Investment Adviser or FAM which 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 above.
Initial Sales Charge Alternatives -- Class A and Class D Shares
The Company sells its Class A and Class D shares through the
Distributor and Merrill Lynch, as dealers. The gross sales charges for the sale
of Class A shares of the Company for the fiscal year ended March 31, 1996 were
$90,039, of which $83,635 was received by Merrill Lynch and $6,404 was received
by the Distributor. The gross sales charges for the sale of Class A shares of
the Company for the fiscal year ended March 31, 1997 were $25,335, of which
$22,657 was received by Merrill Lynch and $2,678 was received by the
Distributor. The gross sales charges for the sale of Class A shares for the
fiscal year ended March 31, 1998 were $25,038, of which $2,414 was received by
the Distributor and $22,624 was received by Merrill Lynch. For the fiscal year
ended March 31, 1998 the Distributor received CDSCs of $34,938 with respect to
redemptions within one year after purchase of Class A shares purchased subject
to a front-end sales charge waiver. For the fiscal years ended March 31, 1996
and 1997 the Distributor received no CDSCs with respect to redemptions within
one year after purchase of Class A shares purchased subject to a front-end sales
charge waiver. The gross sales charges for the sale of Class D shares of the
Company for the fiscal year ended March 31, 1996 were $380,496, of which
$357,623 was received by Merrill Lynch and $22,873 was received by the
Distributor. The gross sales charges for the sale of Class D shares of the
Company for the fiscal year ended March 31, 1997 were $90,872, of which $85,752
was received by Merrill Lynch and $5,120 was received by the Distributor. The
gross sales charges for the sale of Class D shares for the fiscal year ended
March 31, 1998 were $77,886, of which $5,656 was received by the Distributor and
$72,230 was received by Merrill Lynch. During such periods, the Distributor
received no CDSCs, with respect to redemptions within one year after purchase of
Class D shares purchased subject to a front-end sales charge waiver.
The term "purchase" as used in the Prospectus and this Statement of
Additional Information refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his or her spouse and their children under
the age of 21 years purchasing shares for his, her or their own account and
single purchases by a trustee or other fiduciary purchasing shares
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<PAGE> 63
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. The term "purchaser" 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 MLAM 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 buy 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 the 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 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
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<PAGE> 64
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 on such
day.
Reduced Initial Sales Charges -- Class A and Class D Shares
Right of Accumulation. The 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 a purchase
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 thirteen-month period starting
with the first purchase pursuant to a Letter of Intention in the form provided
in the Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the 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, but its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter executed within
90 days of such purchase if the Distributor is informed in writing of this
intent within such 90-day period. The value of Class A and Class D shares of the
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
purchased does not equal the amount stated in the Letter of Intention (minimum
of $25,000), the investor will be notified and must pay, within 20 days of the
expiration of such Letter, the difference between the sales charge on the Class
A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to at least five percent of the intended amount will be held in
escrow during the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If a purchase
during the term of such Letter 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 further reduced percentage
sales charge that would be applicable to a single purchase equal to the total
dollar value of the 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
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<PAGE> 65
Company may purchase additional Class A shares of the Company 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 A or Class D shares of the Company
through Blueprint will acquire the Class A or Class D shares at net asset value
plus a sales charge calculated in accordance with the Blueprint sales charge
schedule (i.e., up to $300 at 4.25%, $300.01 up to $5,000 at 3.25% plus $3, and
$5,000.01 or more at the standard sales charge rates disclosed in the
Prospectus). In addition, Class A or 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 A or Class D shares through
Blueprint. Services, including the exchange privilege, available to Class A and
Class D investors through Blueprint, however, may differ from those available to
other Class A or Class D share investors.
Class A and Class D shares are offered at net asset value to
participants in Blueprint 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 has entered into a Merrill Lynch
Directed IRA Rollover Program Service Agreement.
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
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 BlueprintSM Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
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 AccessSM 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 a
sales charge, to an investor who has a business relationship with a Financial
Consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the 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.
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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 such fund was
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 will be 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 the other mutual fund and that such shares have been outstanding
for a period of no less than six months; and second, such purchase of Class D
shares must be made within 60 days after the redemption and the proceeds from
the redemption must be maintained in the interim in cash or a money market fund.
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 in appropriate cases be adjusted 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.
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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 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 to 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
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 shareholders, 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 called 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
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may exceed the amount payable under the NASD formula. In such circumstances
payment in excess of the amount payable under the NASD formula will not be made.
The following table sets forth comparative information as of March 31,
1998 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 March 31, 1998
(in thousands)
Annual Distribution
<TABLE>
<CAPTION>
Allowable Allowable Amounts Fee at
Aggregate Interest on Maximum Previously Aggregate Current
Eligible Gross Sales Unpaid Amount Paid to Unpaid Net Asset
Sales(1) Charges Balance(2) Payable Distributor(3) Balance Level(4)
---------------- ----------- ------------- --------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class B Shares, for the
period April 27, 1992
(commencement of
operations) to March 31,
1998:
Under NASD Rule As
Adopted .................. $762,310 $47,644 $11,863 $59,507 $24,038 $35,469 $2,139
Under Distributor's
Voluntary Waiver ......... $762,310 $47,644 $ 3,812 $51,456 $24,038 $27,418 $2,139
Class C Shares, for the
period October 21, 1994
(commencement of
operations) to March 31,
1998:
Under NASD Rule As
Adopted .................. $ 56,889 $ 3,556 $ 860 $ 4,416 $ 727 $ 3,689 $ 116
</TABLE>
- --------
(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 1.00% 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 (with
respect to Class B and Class C shares) or, the voluntary maximum (with
respect to Class B shares).
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 NYSE is restricted, as determined by the Commission,
or the NYSE is closed (other than customary weekend and holiday closings) for
any period during
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<PAGE> 69
which an emergency exists, as defined by the Commission, as a result of which
disposal of portfolio securities or determination of the net asset value of the
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 March 31, 1996, 1997 and 1998 the
Distributor received CDSCs of $2,839,725, $2,461,601 and $972,010, respectively,
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. For the fiscal years ended March
31, 1996, 1997 and 1998, the Distributor received CDSCs of $54,329, $21,205 and
$9,956, respectively, with respect 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 price is $100, with a $50 minimum for
subsequent purchases through Blueprint. There is no minimum initial or
subsequent purchase requirement for investors who are part of the Blueprint
automatic investment plan. Additional information concerning these Blueprint
programs, including any annual fees or transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint(SM) Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to "Investment Objective and Policies -- Other
Investment Practices" in the Prospectus.
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. In executing such transactions, the
Investment
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<PAGE> 70
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. 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 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 U.S. 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 securities convertible into foreign equity securities. ADRs,
EDRs and GDRs may be listed on stock exchanges or traded in over-the-counter
markets in the United States or Europe, as the case may be. ADRs, like other
securities traded in the U.S., as well as GDRs traded in the United States, 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 listed or over-the-counter transactions conducted on an agency basis provided
that, among other things, the fee or commission received by such affiliated
broker is reasonable and fair compared to the fee or commission received by
non-affiliated brokers in connection with comparable transactions. See
"Investment Objective and Policies -- Investment Restrictions."
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.
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<PAGE> 71
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.
For the fiscal year ended March 31, 1996, the Company paid total
brokerage commissions of $1,031,569, of which $10,605 or 1.03% was paid to
Merrill Lynch for effecting 0.40% of the aggregate dollar amount of transactions
on which the Company paid brokerage commissions. For the fiscal years ended
March 31, 1997 and 1998, the Company paid total brokerage commissions of
$1,212,425 and $2,244,796, respectively, none of which was paid to Merrill
Lynch.
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, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or dealers
on the day of valuation.
Net asset value is computed by dividing the value of the securities
held by the 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 the
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 the Class B and Class C shares and the daily expense accruals of
the account maintenance fees applicable with respect to the Class D shares;
moreover, the per share net asset value of the Class B and Class C shares
generally will be lower than the per share net asset value of the Class D shares
reflecting the daily expense accruals of the distribution fees and higher
transfer agency fees applicable with respect to the 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 between 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
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<PAGE> 72
are valued at the last available ask price in the OTC market prior to the time
of valuation. Portfolio securities which 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. Other investments, including futures
contracts and related options, are stated at market value. Securities and assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the Board of Directors
of the Company. Such valuation and procedures will be reviewed periodically by
the Board of Directors.
Securities and assets for which market quotations are not readily
available (including venture capital investments, which are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by or under the direction of the Board of Directors of the Company. Such
valuations and procedures will be reviewed periodically by the Board of
Directors. The fair market value for venture capital investments for which no
market exists cannot be precisely determined. There is a range of values which
is reasonable for such investments at any particular time. In the early stages
of development, venture capital investments will typically be valued based upon
their original cost to the Company (the "cost method"). The cost method will be
utilized until significant developments affecting the portfolio company provide
a basis for use of an appraisal valuation (the "appraisal method"). The
appraisal method will be based upon such factors affecting the portfolio company
as earnings and net worth, the market prices for similar securities of
comparable companies and an assessment of the company's future prospects. In the
case of unsuccessful operations, the appraisal may be based upon liquidation
value. Valuations based on the appraisal method are necessarily subjective. The
Company will also use third party transactions (actual or proposed) in the
portfolio company's securities as the basis of valuation (the "private market
method"). The private market method will only be used with respect to actual
transactions or actual firm offers by sophisticated, independent investors.
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 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 which 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.
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, copies of the various plans described below and instructions
as to how to participate in the various services or plans, or how to change
options with respect thereto, can be obtained from the Company, the Distributor
or Merrill Lynch.
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<PAGE> 73
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, 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 Company's 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 Company's 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 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 directly to the transfer agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Automatic Investment Plan whereby the Company is authorized through
preauthorized checks or automated clearing house debits of $50 or more to charge
the regular bank account of the shareholder on a regular basis to provide
systematic additions to the Investment Account of such shareholder. An investor
whose shares of the Company are held within a CMA(R) or CBA(R) account may
arrange to have periodic investments made in the Company in amounts of $100 or
more ($1 for retirement accounts) through the CMA(R) or CBA(R) Automated
Investment Program.
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<PAGE> 74
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 the shares of the
Company as of the close of business on the NYSE on the ex-dividend date of the
dividend or distribution. Shareholders may elect to receive their income
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
distribution or redemption checks.
Shareholders may, at any time, notify Merrill Lynch in writing, if the
shareholder's account is maintained with Merrill Lynch, or notify the Transfer
Agent in writing or by telephone (1-800-MER-FUND), if the shareholder's account
is maintained with 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 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 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 the 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 reinvested automatically in shares of the Company. A
shareholder's Systematic Withdrawal Plan may be terminated at any time, without
charge or penalty, by the shareholder, the Company, the Transfer Agent or the
Distributor.
Withdrawal payments should not be considered as dividends, yield or
income. Each withdrawal is a taxable event. If periodic withdrawals continuously
exceed reinvested dividends, the shareholder's original investment may be
correspondingly reduced. Purchase 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 within a CMA(R),
CBA(R) or Retirement Account may elect to have shares redeemed on a monthly,
bimonthly, quarterly, semiannual or annual basis through the CMA(R) or CBA(R)
Systematic Redemption Program. The minimum fixed dollar amount redeemable is
$50. The proceeds of systematic redemptions will be posted to the shareholder's
account three business days after the date the shares
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<PAGE> 75
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 may select the month in which the shares are to be
redeemed and may designate whether the redemption is to be made on the first,
second, third or fourth Monday of the month. If the Monday selected is not a
business day, the redemption will be processed at net asset value on the next
business day. The CMA(R) or CBA(R) Systematic Redemption Program is not
available if 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 redemption of Class B and
Class C shares pursuant to a systematic withdrawal plan, the maximum number of
Class B or Class C shares that can be redeemed from an account annually shall
not exceed 10% of the value of shares of such class in that account at the time
the election to join the systematic withdrawal plan was made. Any CDSC that
otherwise might be due on such redemption of Class B or Class C shares will be
waived. Shares redeemed pursuant to a systematic withdrawal plan will be
redeemed in the same order as Class B or Class C shares are otherwise redeemed.
See "Purchase of Shares -- Deferred Sales Charge Alternatives -- Class B and
Class C Shares -- Contingent Deferred Sales Charges -- Class B Shares" and " --
Contingent Deferred Sales Charges -- Class C Shares" in the Prospectus. Where
the systematic withdrawal plan is applied to Class B shares, upon conversion of
the last Class B shares in an account to Class D shares, the systematic
withdrawal plan will automatically be applied thereafter to Class D shares. See
"Purchase of Shares -- Deferred Sales Charge Alternatives -- Class B and Class C
Shares -- Conversion of Class B Shares to Class D Shares" in the Prospectus; if
an investor wishes to change the 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 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 the shares of the same class of other
MLAM-advised mutual funds. For purposes of computing the CDSC that may be
payable upon a disposition of the shares acquired in the exchange, the holding
period for the previously owned shares of the 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 are also 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
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<PAGE> 76
value of at least $100 are required to qualify for the exchange privilege, and
any shares utilized in an exchange must have been held by the shareholder for 15
days. It is contemplated that the exchange privilege may be applicable to other
new mutual funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class
A or Class D shares") for Class A or Class D shares of another MLAM-advised
mutual fund ("new Class A or Class D shares") are transacted on the basis of
relative net asset value per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the outstanding Class A or Class D shares and the sales charge payable at the
time of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charges paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A and Class D shares of the 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, of
another MLAM-advised mutual fund ("new Class B or Class C shares") on the basis
of relative net asset value per Class B or Class C share, without the payment of
any CDSC that might otherwise be due on redemption of the outstanding 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, 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 of 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 that 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
28
<PAGE> 77
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 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 Commission. The Company 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Company intends to continue to qualify for the special tax
treatment afforded regulated investment companies ("RICs") under 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
29
<PAGE> 78
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 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.
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.
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 necessary 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.
30
<PAGE> 79
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 the purchase of the new shares in the absence
of the exchange privilege. Instead, such sales charge will be treated as an
amount paid for the new shares.
A loss realized on a sale or exchange of shares of the 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 a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the 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.
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 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 be
qualifying income for purposes of determining whether the Company qualifies as a
RIC. It is currently unclear, however,
31
<PAGE> 80
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 foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the 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 Code 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
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
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 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
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<PAGE> 81
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 charge 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.
Set forth in the tables below is total return information for the Class A,
Class B, Class C and Class D shares of the Company for the periods indicated.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
Expressed
as a Redeemable Expressed Redeemable
percentage value of a as a value of a
based on a hypothetical percentage hypothetical
hypothetical $1,000 based on a $1,000
$1,000 investment at hypothetical investment at
investment the end of $1,000 the end of
Period the period investment the period
Average Annual Total Return
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
One Year Ended March 31, 1998 ........................ (1.50)% $ 985.00 (0.06)% $ 999.40
Five Years Ended March 31, 1998 ...................... 10.62% $ 1,656.50 10.68% $1,661.10
Inception (April 27, 1992) to March 31, 1998 ......... 15.54% $ 2,353.60 15.41% $2,338.40
Annual Total Return
(excluding maximum applicable sales charges)
Year Ended March 31,
1998 ................................................. 3.96% $ 1,039.60 3.09% $1,030.90
1997 ................................................. 14.60% $ 1,146.00 13.20% $1,132.00
1996 ................................................. 5.15% $ 1,051.50 4.21% $1,042.10
1995 ................................................. 2.86% $ 1,028.60 1.78% $1,017.80
1994 ................................................. 35.68% $ 1,356.80 34.22% $1,342.20
Inception (April 27, 1992) to March 31, 1993 ......... 42.09% $ 1,420.90 40.77% $1,407.70
Aggregate Total Return
(including maximum applicable sales charges)
Inception (April 27, 1992) to March 31, 1998 ......... 135.36% $ 2,353.60 133.84% $2,338.40
</TABLE>
33
<PAGE> 82
<TABLE>
<CAPTION>
Class C Shares Class D Shares
Expressed Redeemable Expressed Redeemable
as a value of a as a value of a
percentage hypothetical percentage hypothetical
based on a $1,000 based on a $1,000
hypothetical investment at hypothetical investment at
$1,000 the end of $1,000 the end of
Period investment the period investment the period
Average Annual Total Return
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
One Year Ended March 31, 1998 .......................... 2.08% $ 1,020.80 (1.55)% $ 984.50
Inception (October 21, 1994) to March 31, 1998 ......... 2.22% $ 1,078.60 1.48% $ 1,051.90
Annual Total Return
(excluding maximum applicable sales charges)
Year Ended March 31,
1998 ................................................... 2.87% $ 1,028.70 3.90% $ 1,039.00
1997 ................................................... 13.19% $ 1,131.90 14.09% $ 1,140.90
1996 ................................................... 4.22% $ 1,042.20 4.94% $ 1,049.40
Inception (October 21, 1994) to March 31, 1995 ......... (11.11)% $ 888.90 (10.76)% $ 892.40
Aggregate Total Return
(including maximum applicable sales charges)
Inception (October 21, 1994) to March 31, 1998 ......... 7.86% $ 1,078.60 5.19% $ 1,051.90
</TABLE>
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 sales charges, a lower amount of expenses may be
deducted.
GENERAL INFORMATION
Description of Shares
The Company was incorporated in connection with a reorganization (the
"Reorganization") of Sci/Tech Holdings, Inc. ("Sci/Tech"), a Merrill
Lynch-sponsored diversified, open-end investment company. Sci/Tech previously
invested primarily in the equity securities of companies engaged in science and
technology. In connection with such Reorganization, which occurred on April 27,
1992, Sci/Tech transferred to the Company all of its technology oriented
securities and certain other assets (net of liabilities) in exchange for all of
the stock of the Company (other than seed capital), which Sci/Tech then
distributed pro rata to its stockholders.
The Company was incorporated under Maryland law on August 27, 1991. At the
date of this Statement of Additional Information, it has an authorized capital
of 800,000,000 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. Class A and Class C each consists of 100,000,000 shares and Class B and
Class D each consists of 300,000,000 shares. Shares of Class A, Class B, Class C
and Class D Common Stock represent an interest in the same assets of the Company
and are identical in all respects except that the Class B, Class C and Class D
shares bear certain expenses related to the account maintenance and/or
distribution of such shares and have exclusive voting rights with respect to
matters relating to such 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.
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<PAGE> 83
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
10% of the outstanding shares of the Company. Voting rights for Directors are
not cumulative. Shares issued are fully paid and nonassessable 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 Investment Adviser provided the initial capital for the Company by
purchasing 10,000 shares for $100,000. Such shares were acquired for investment
and can only be disposed of by redemption. The proceeds realized by the
Investment Adviser upon the redemption of any of the shares initially purchased
by it will be reduced by the proportionate amount of the unamortized
organizational expenses which the number of shares redeemed bears to the number
of shares initially purchased.
Computation of Offering Price Per Share
An illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of the Company based on the current sales charge
and the value of the Company's net assets on March 31, 1998, and its shares
outstanding on that date is set forth below:
<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Net Assets .......................................................... $ 211,443,249 $ 285,193,129
=============== ===============
Number of Shares Outstanding ........................................ 49,513,970 70,288,173
=============== ===============
Net Asset Value Per Share (net assets divided by number of shares
outstanding) ....................................................... $ 4.27 $ 4.06
Sales Charge (for Class A and Class D shares: 5.25% of offering price
(5.54% of net asset value))* ....................................... .24 **
--------------- ---------------
Offering Price ...................................................... $ 4.51 $ 4.06
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
Class C Class D
------- -------
<S> <C> <C>
Net Assets .......................................................... $ 15,423,918 $ 34,711,823
============= ==============
Number of Shares Outstanding ........................................ 3,827,577 8,172,613
============= ==============
Net Asset Value Per Share (net assets divided by number of shares
outstanding) ....................................................... $ 4.03 $ 4.25
Sales Charge (for Class A and Class D shares: 5.25% of offering price
(5.54% of net asset value))* ....................................... ** .24
------------- --------------
Offering Price ...................................................... $ 4.03 $ 4.49
============= ==============
</TABLE>
- --------
* 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.
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<PAGE> 84
Custodian
The Chase Manhattan Bank, 4 Chase MetroTech Center, 18th Floor, Global
Securities Services, 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 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 March 31 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 Securities and Exchange
Commission, Washington, D.C., under the Securities Act and the Investment
Company Act, to which reference is hereby made.
Categories in the Schedule of Investments contained in the financial
statements herein have been adopted by the Investment Adviser and are deemed
appropriate with respect to a specialized sector fund such as the Company.
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 Merrill Lynch, under
certain conditions, the use of any other name it might assume in the future,
with respect to any corporation organized by Merrill Lynch.
Security Ownership of Certain Beneficial Owners
On June 1, 1998, Merrill Lynch Trust Company owned an aggregate of
approximately 8.4% of the outstanding shares of the Company on behalf of certain
employee retirement or savings plan accounts for which Merrill Lynch Trust
Company acts as trustee. The address of Merrill Lynch Trust Company is P.O. Box
30532, New Brunswick, New Jersey 08989.
36
<PAGE> 85
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Technology Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Technology Fund, Inc. as of March
31, 1998, 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 March
31, 1998 by correspondence with the custodian. 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
Technology Fund, Inc. as of March 31, 1998, 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
May 6, 1998
37
<PAGE> 86
Merrill Lynch Technology Fund, Inc., March 31, 1998
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Value Percent of
COUNTRY Industries Held Stocks Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Singapore Microcomputer Peripherals 6,654,650 +Creative Technology Ltd.++ $ 90,407,914 $148,897,794 27.2%
---------------------------------------------------------------------------------------------------------------------
Total Investments in Singapore 90,407,914 148,897,794 27.2
====================================================================================================================================
United States Application Specific 1,315,000 +C-Cube Microsystems, Inc. 42,748,640 24,409,688 4.5
Integrated Circuits
---------------------------------------------------------------------------------------------------------------------
Communications 280,000 +Ascend Communications, Inc. 9,837,500 10,605,000 1.9
Equipment 209,600 Lucent Technologies Inc. 18,844,925 26,802,600 4.9
------------ ------------ -----
28,682,425 37,407,600 6.8
---------------------------------------------------------------------------------------------------------------------
Communications-- 30,000 +Applied Micro Circuits Corporation 575,625 675,000 0.1
Integrated Circuits 210,000 +Level One Communications, Inc. 5,596,880 4,908,750 0.9
409,200 +PMC-Sierra, Inc. 14,062,576 15,549,600 2.9
207,500 +Vitesse Semiconductor Corporation 9,395,187 9,752,500 1.8
------------ ------------ -----
29,630,268 30,885,850 5.7
---------------------------------------------------------------------------------------------------------------------
Enterprise Software 375,000 Computer Associates International, Inc. 19,991,330 21,656,250 4.0
---------------------------------------------------------------------------------------------------------------------
Internet Services 33,300 +At Home Corporation (Series A) 874,125 1,119,713 0.2
---------------------------------------------------------------------------------------------------------------------
Internetworking 392,000 +Cisco Systems, Inc. 22,467,136 26,803,000 4.9
---------------------------------------------------------------------------------------------------------------------
Semiconductor Capital 150,000 +Ade Corporation 4,633,000 2,531,250 0.5
Equipment
---------------------------------------------------------------------------------------------------------------------
Semiconductors--Analog 357,100 Linear Technology Corporation 21,445,185 24,617,581 4.5
675,000 +Maxim Integrated Products, Inc. 23,776,250 24,553,125 4.5
------------ ------------ -----
45,221,435 49,170,706 9.0
---------------------------------------------------------------------------------------------------------------------
Semiconductors--Logic 50,000 +3Dfx Interactive, Inc. 1,187,500 1,406,250 0.2
610,000 +Altera Corporation 25,315,003 22,989,375 4.2
550,000 +Xilinx, Inc. 23,272,620 20,590,625 3.8
------------ ------------ -----
49,775,123 44,986,250 8.2
---------------------------------------------------------------------------------------------------------------------
Semiconductors--Memory 2,595,000 +Micron Technology, Inc. 82,658,345 75,417,187 13.8
465,000 Texas Instruments, Inc. 21,735,359 25,168,125 4.6
------------ ------------ -----
104,393,704 100,585,312 18.4
--------------------------------------------------------------------------------------------------------------------
Semiconductors-- 2,008,500 +Integrated Device Technology, Inc. 22,738,166 28,244,531 5.1
Microprocessors 240,000 Intel Corporation 19,015,892 18,720,000 3.4
------------ ------------ -----
41,754,058 46,964,531 8.5
---------------------------------------------------------------------------------------------------------------------
Total Investments in the United States 390,171,244 386,520,150 70.7
====================================================================================================================================
Total Investments $480,579,158 535,417,944 97.9
============
Other Assets Less Liabilities 11,354,175 2.1
------------ -----
Net Assets $546,772,119 100.0%
============ =====
====================================================================================================================================
</TABLE>
38
<PAGE> 87
+ Non-income producing security.
++ Investments in companies 5% or more of whose outstanding securities are
held by the Company (such companies are defined as 'Affiliated
Companies' in Section 2(a)(3) of the Investment Company Act 1940) are
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Net Share Net Dividend
Industry Affiliate Activity Cost Income
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Microcomputer Creative
Peripherals Technology Ltd. (2,179,200) $(32,548,752) +++
- -------------------------------------------------------------------------------
</TABLE>
+++ Non-income producing security.
See Notes to Financial Statements.
39
<PAGE> 88
Merrill Lynch Technology Fund, Inc., March 31, 1998
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of March 31, 1998
===============================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$480,579,158)(Note 1a) $535,417,944
Receivables:
Securities sold ............................................. $ 16,733,543
Capital shares sold ......................................... 678,581 17,412,124
------------
Prepaid registration fees and other assets (Note 1f) .......... 17,757
------------
Total assets .................................................. 552,847,825
------------
===============================================================================================================
Liabilities: Payables:
Capital shares redeemed ..................................... 3,547,727
Investment adviser (Note 2) ................................. 500,268
Distributor (Note 2) ........................................ 284,548 4,332,543
------------
Accrued expenses and other liabilities ........................ 1,743,163
------------
Total liabilities ............................................. 6,075,706
------------
===============================================================================================================
Net Assets: Net assets .................................................... $546,772,119
============
===============================================================================================================
Net Assets Class A Shares of Common Stock, $0.10 par value,
Consist of: 100,000,000 shares authorized ................................ $ 4,951,397
Class B Shares of Common Stock, $0.10 par value,
300,000,000 shares authorized ................................ 7,028,817
Class C Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized ................................ 382,758
Class D Shares of Common Stock, $0.10 par value,
300,000,000 shares authorized ................................ 817,261
Paid-in capital in excess of par .............................. 655,692,127
Accumulated realized capital losses on investments
and foreign currency transactions--net (Note 5) .............. (157,919,136)
Accumulated distributions in excess of realized capital
gains on investments--net (Note 1g) .......................... (19,019,891)
Unrealized appreciation on investments--net ................... 54,838,786
------------
Net assets .................................................... $546,772,119
============
===============================================================================================================
Net Asset Class A--Based on net assets of $211,443,249 and
Value: 49,513,970 shares outstanding ................................ $ 4.27
============
Class B--Based on net assets of $285,193,129 and
70,288,173 shares outstanding ................................ $ 4.06
============
Class C--Based on net assets of $15,423,918 and
3,827,577 shares outstanding ................................. $ 4.03
============
Class D--Based on net assets of $34,711,823 and
8,172,613 shares outstanding ................................. $ 4.25
============
===============================================================================================================
</TABLE>
See Notes to Financial Statements.
40
<PAGE> 89
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended March 31, 1998
===============================================================================================================
<S> <C> <C>
Investment Interest and discount earned ............................ $ 2,891,038
Income Dividends ............................................... 205,703
------------
(Notes 1d & 1e): Total income ............................................ 3,096,741
------------
===============================================================================================================
Expenses: Investment advisory fees (Note 2) ....................... 6,780,768
Account maintenance and distribution fees--Class B (Note 2) 3,750,829
Transfer agent fees--Class B (Note 2) ................... 927,183
Transfer agent fees--Class A (Note 2) ................... 508,214
Account maintenance and distribution fees--Class C (Note 2) 196,363
Account maintenance fees--Class D (Note 2) .............. 101,081
Printing and shareholder reports ........................ 92,858
Registration fees (Note 1f) ............................. 85,447
Transfer agent fees--Class D (Note 2) ................... 84,415
Accounting services (Note 2) ............................ 83,246
Professional fees ....................................... 54,553
Transfer agent fees--Class C (Note 2) ................... 52,975
Custodian fees .......................................... 39,846
Directors' fees and expenses ............................ 38,000
Other ................................................... 12,383
------------
Total expenses .......................................... 12,808,161
------------
Investment loss--net .................................... (9,711,420)
------------
===============================================================================================================
Realized & Realized loss from:
Unrealized Gain Investments--net ...................................... $(157,919,261)
(Loss) on Foreign currency transactions--net .................... (5) (157,919,266)
Investments & -------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions -- Net Investments--net ...................................... 201,840,091
(Notes 1b, 1c, Foreign currency transactions--net .................... 5 201,840,096
1e & 3): ------------- ------------
Net Increase in Net Assets Resulting from Operations .... $ 34,209,410
============
===============================================================================================================
</TABLE>
See Notes to Financial Statements.
41
<PAGE> 90
Merrill Lynch Technology Fund, Inc., March 31, 1998
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended March 31,
---------------------------------
Increase (Decrease) in Net Assets: 1998 1997
=======================================================================================================================
<S> <C> <C> <C>
Operations: Investment loss--net .................................... $ (9,711,420) $ (10,367,268)
Realized gain (loss) on investments and foreign
currency transactions--net ............................. (157,919,266) 235,762,290
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net ..... 201,840,096 (118,985,280)
------------- -------------
Net increase in net assets resulting from operations .... 34,209,410 106,409,742
------------- -------------
=======================================================================================================================
Distributions to Realized gain on investments--net:
Shareholders Class A ............................................... (44,407,215) (19,050,400)
(Note 1g): Class B ............................................... (72,911,047) (32,293,067)
Class C ............................................... (3,812,765) (1,699,433)
Class D ............................................... (7,217,791) (3,052,919)
In excess of realized gain on investments--net:
Class A ............................................... (6,580,664) --
Class B ............................................... (10,804,619) --
Class C ............................................... (565,010) --
Class D ............................................... (1,069,598) --
------------- -------------
Net decrease in net assets resulting from distributions
to shareholders ........................................ (147,368,709) (56,095,819)
------------- -------------
=======================================================================================================================
Capital Share Net increase (decrease) in net assets derived from
Transactions capital share transactions ............................. 7,796,208 (273,854,666)
(Note 4): ------------- -------------
=======================================================================================================================
Net Assets: Total decrease in net assets ............................ (105,363,091) (223,540,743)
Beginning of year ....................................... 652,135,210 875,675,953
------------- -------------
End of year ............................................. $ 546,772,119 $ 652,135,210
============= =============
=======================================================================================================================
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived Class A*
from information provided in the financial statements. -------------------------------------------------------------
For the Year Ended March 31,
-------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ............. $ 5.07 $ 4.82 $ 4.89 $ 5.17 $ 5.08
Operating --------- --------- --------- --------- ---------
Performance: Investment income (loss)--net .................. (.04) (.03) (.03) .05 (.01)
Realized and unrealized gain on investments
and foreign currency transactions--net ........ .46 .72 .28 .11 1.51
--------- --------- --------- --------- ---------
Total from investment operations ............... .42 .69 .25 .16 1.50
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net ....................... -- -- -- (.02) --
In excess of investment income--net .......... -- -- -- (.01) --
Realized gain on investments--net ............ (1.06) (.44) (.17) (.05) (1.41)
</TABLE>
42
<PAGE> 91
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
In excess of realized gain on investments--net (.16) -- (.15) (.36) --
--------- --------- --------- --------- ---------
Total dividends and distributions .............. (1.22) (.44) (.32) (.44) (1.41)
--------- --------- --------- --------- ---------
Net asset value, end of year ................... $ 4.27 $ 5.07 $ 4.82 $ 4.89 $ 5.17
========= ========= ========= ========= =========
===================================================================================================================================
Total Investment Based on net asset value per share ............. 3.96% 14.60% 5.15% 2.86% 35.68%
Return:** ========= ========= ========= ========= =========
===================================================================================================================================
Ratios to Average Expenses ....................................... 1.27% 1.30% 1.31% 1.33% 1.35%
Net Assets: ========= ========= ========= ========= =========
Investment income (loss)--net .................. (.82%) (.63%) (.62%) .87% (.11%)
========= ========= ========= ========= =========
===================================================================================================================================
Supplemental Net assets, end of year (in thousands) ......... $ 211,443 $ 222,118 $ 246,909 $ 254,188 $ 174,809
Data: ========= ========= ========= ========= =========
Portfolio turnover ............................. 206.40% 176.51% 108.36% 175.57% 350.64%
========= ========= ========= ========= =========
Average commission rate paid++ ................. $ .0538 $ .0604 $ .0366 -- --
========= ========= ========= ========= =========
===================================================================================================================================
The following per share data and ratios have been derived Class B*
from information provided in the financial statements. ------------------------------------------------------------
For the Year Ended March 31,
------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
==================================================================================================================================
Per Share Net asset value, beginning of year ............. $ 4.89 $ 4.66 $ 4.78 $ 5.08 $ 5.03
Operating --------- --------- --------- --------- ---------
Performance: Investment loss--net ........................... (.09) (.08) (.09) (.01) (.05)
Realized and unrealized gain on investments
and foreign currency transactions--net ........ .46 .69 .29 .11 1.48
--------- --------- --------- --------- ---------
Total from investment operations ............... .37 .61 .20 .10 1.43
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net ....................... -- -- -- --+ --
In excess of investment income--net .......... -- -- -- --+ --
Realized gain on investments--net ............ (1.05) (.38) (.17) (.05) (1.38)
In excess of realized gain on investments--net (.15) -- (.15) (.35) --
--------- --------- --------- --------- ---------
Total dividends and distributions .............. (1.20) (.38) (.32) (.40) (1.38)
--------- --------- --------- --------- ---------
Net asset value, end of year ................... $ 4.06 $ 4.89 $ 4.66 $ 4.78 $ 5.08
========= ========= ========= ========= =========
==================================================================================================================================
Total Investment Based on net asset value per share ............. 3.09% 13.20% 4.21% 1.78% 34.22%
Return:** ========= ========= ========= ========= =========
==================================================================================================================================
Ratios to Average Expenses ....................................... 2.31% 2.35% 2.34% 2.38% 2.36%
Net Assets: ========= ========= ========= ========= =========
Investment loss--net ........................... (1.85%) (1.66%) (1.65%) (.10%) (1.08%)
========= ========= ========= ========= =========
==================================================================================================================================
Supplemental Net assets, end of year (in thousands) ......... $ 285,193 $ 375,630 $ 553,819 $ 614,935 $ 224,330
Data: ========= ========= ========= ========= =========
Portfolio turnover ............................. 206.40% 176.51% 108.36% 175.57% 350.64%
========= ========= ========= ========= =========
Average commission rate paid++ ................. $ .0538 $ .0604 $ .0366 -- --
========= ========= ========= ========= =========
==================================================================================================================================
</TABLE>
* Based on average shares outstanding.
** Total investment returns exclude the effects of sales loads.
+ Amount is less than $.01 per share.
++ For fiscal years beginning on or after September 1, 1995, the Fund 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.
43
<PAGE> 92
Merrill Lynch Technology Fund, Inc., March 31, 1998
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
The following per share data and ratios Class C** Class D**
have been derived from information provided ----------------------------------------- ----------------------------------------
in the financial statements. For the For the
Period Period
For the Year Oct. 21, For the Year Oct. 21,
Ended March 31, 1994+ to Ended March 31, 1994+ to
----------------------------- March 31, ---------------------------- March 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1998 1997 1996 1995
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period ... $ 4.87 $ 4.64 $ 4.76 $ 5.75 $ 5.05 $ 4.81 $ 4.89 $ 5.88
------- ------- ------- ------- ------- ------- ------- -------
Investment loss--net ................... (.09) (.08) (.09) -- (.05) (.04) (.05) (.02)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ...................... .45 .68 .29 (.62) .46 .71 .29 (.60)
------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations ....... .36 .60 .20 (.62) .41 .67 .24 (.62)
------- ------- ------- ------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net ............... -- -- -- (.02) -- -- -- (.02)
In excess of investment income--net .. -- -- -- (.01) -- -- -- (.01)
Realized gain on investments--net .... (1.05) (.37) (.17) (.04) (1.05) (.43) (.17) (.04)
In excess of realized gain on
investments--net ..................... (.15) -- (.15) (.30) (.16) -- (.15) (.30)
------- ------- ------- ------- ------- ------- ------- -------
Total dividends and distributions ...... (1.20) (.37) (.32) (.37) (1.21) (.43) (.32) (.37)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period ......... $ 4.03 $ 4.87 $ 4.64 $ 4.76 $ 4.25 $ 5.05 $ 4.81 $ 4.89
======= ======= ======= ======= ======= ======= ======= =======
===================================================================================================================================
Total Investment Return:***
Based on net asset value per share ..... 2.87% 13.19% 4.22% (11.11%)++ 3.90% 14.09% 4.94% (10.76%)++
======= ======= ======= ======= ======= ======= ======= =======
===================================================================================================================================
Ratios to Average Net Assets:
Expenses ............................... 2.33% 2.37% 2.36% 2.59%* 1.52% 1.55% 1.56% 1.80%*
======= ======= ======= ======= ======= ======= ======= =======
Investment loss--net ................... (1.87%) (1.68%) (1.69%) (.02%)* (1.07%) (.88%) (.89%) (.81%)*
======= ======= ======= ======= ======= ======= ======= =======
===================================================================================================================================
Supplemental Data:
Net assets, end of period (in thousands) $15,424 $19,015 $31,090 $23,259 $34,712 $35,372 $43,858 $32,646
======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover ..................... 206.40% 176.51% 108.36% 175.57% 206.40% 176.51% 108.36% 175.57%
======= ======= ======= ======= ======= ======= ======= =======
Average commission rate paid++ ......... $ .0538 $ .0604 $ .0366 -- $ .0538 $ .0604 $ .0366 --
======= ======= ======= ======= ======= ======= ======= =======
===================================================================================================================================
</TABLE>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ For fiscal years beginning on or after September 1, 1995, the Fund 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.
++ Aggregate total investment return.
See Notes to Financial Statements.
44
<PAGE> 93
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Technology Fund, Inc. (the "Company") is registered under the
Investment Company Act of 1940 as a non-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 quotations are not readily 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) 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.
- - Financial futures contracts--The Company may purchase or sell financial
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.
- - Options--The Company is authorized to write and purchase covered call options
and purchase put options. When the Company writes an option, an amount equal
to the premium received by the Com pany 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
45
<PAGE> 94
Merrill Lynch Technology Fund, Inc., March 31, 1998
NOTES TO FINANCIAL STATEMENTS (continued)
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.
(c) 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.
(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 (including
amortization of discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(g) Dividends and distributions to shareholders--Dividends and distributions
paid by the Company are recorded on the ex-dividend dates. Distributions in
excess of realized capital gains 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 $5 have been reclassified between accumulated net
realized capital losses and accumulated net investment loss, differences of $125
have been reclassified between paid-in capital in excess of par and accumulated
net realized capital losses and differences of $9,711,425 have been reclassified
between paid-in capital in excess of par and accumulated net investment loss.
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.
MLAM is responsible for the management of the Company's portfolio and provides
the administrative services necessary for the operation of the Company. 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.
46
<PAGE> 95
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 an ongoing account maintenance fee and distribution fee. The fees
are accrued daily and paid monthly at annual rates based upon the average daily
net assets of the shares as follows:
<TABLE>
- ----------------------------------------------------------------
<CAPTION>
Account Distribution
Maintenance Fee Fee
<S> <C> <C>
- ----------------------------------------------------------------
Class B ...................... 0.25% 0.75%
Class C ...................... 0.25% 0.75%
Class D ...................... 0.25% --
- ----------------------------------------------------------------
</TABLE>
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 March 31, 1998, 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:
<TABLE>
- ----------------------------------------------------------
<CAPTION>
MLFD MLPF&S
<S> <C> <C>
- ----------------------------------------------------------
Class A ...................... $2,414 $22,624
Class D ...................... $5,656 $72,230
- ----------------------------------------------------------
</TABLE>
For the year ended March 31, 1998, MLPF&S received contingent deferred sales
charges of $1,101,032 and $9,956 relating to transactions in Class B and Class C
Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $34,938 relating to transactions subject to front-end sales charge
waivers in Class A Shares.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned subsidiary
of ML & Co., is 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 March 31, 1998 were $1,294,882,244 and $1,453,703,449, respectively.
Net realized losses for the year ended March 31, 1998 and net unrealized gains
as of March 31, 1998 were as follows:
<TABLE>
- ----------------------------------------------------------------
<CAPTION>
Realized Unrealized
Losses Gains
<S> <C> <C>
- ----------------------------------------------------------------
Long-term investments ......... $(157,913,815) $54,838,786
Short-term investments ........ (5,446) --
Foreign currency transactions . (5) --
------------- -----------
Total ......................... $(157,919,266) $54,838,786
============= ===========
- ----------------------------------------------------------------
</TABLE>
As of March 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $54,260,837, of which $87,934,342 related to appreciated
securities and $33,673,505 related to depreciated securities. The aggregate cost
of investments at March 31, 1998 for Federal income tax purposes was
$481,157,107.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was $7,796,208 and $(273,854,666) for the years ended March 31, 1998 and March
31, 1997, respectively.
Transactions in capital shares for each class were as follows:
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Class A Shares for the Year Dollar
Ended March 31, 1998 Shares Amount
<S> <C> <C>
- --------------------------------------------------------------------------------
Shares sold .............................. 14,964,900 $ 71,410,844
Shares issued to shareholders
in reinvestment of distributions ......... 8,838,083 45,869,650
----------- -------------
Total issued ............................. 23,802,983 117,280,494
Shares redeemed .......................... (18,121,971) (89,086,567)
----------- -------------
Net increase ............................. 5,681,012 $ 28,193,927
=========== =============
- --------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 96
Merrill Lynch Technology Fund, Inc., March 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Class A Shares for the Year Dollar
Ended March 31, 1997 Shares Amount
<S> <C> <C>
- --------------------------------------------------------------------------------
Shares sold .............................. 12,264,759 $ 62,702,121
Shares issued to shareholders
in reinvestment of distributions ......... 3,468,111 17,167,147
----------- -------------
Total issued ............................. 15,732,870 79,869,268
Shares redeemed .......................... (23,090,217) (118,937,167)
----------- -------------
Net decrease ............................. (7,357,347) $ (39,067,899)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended March 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 19,604,583 $ 91,957,240
Shares issued to shareholders
in reinvestment of distributions ......... 14,953,197 74,317,386
----------- -------------
Total issued ............................. 34,557,780 166,274,626
Shares redeemed .......................... (40,126,849) (188,834,322)
Automatic conversion of shares ........... (898,029) (4,025,429)
----------- -------------
Net decrease ............................. (6,467,098) $ (26,585,125)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended March 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 18,468,222 $ 90,190,537
Shares issued to shareholders
in reinvestment of distributions ......... 6,005,201 28,824,967
----------- -------------
Total issued ............................. 24,473,423 119,015,504
Automatic conversion of shares ........... (505,918) (2,524,115)
Shares redeemed .......................... (66,039,743) (326,159,610)
----------- -------------
Net decrease ............................. (42,072,238) $(209,668,221)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended March 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 2,933,295 $ 13,806,155
Shares issued to shareholders
in reinvestment of distributions ......... 764,385 3,776,060
----------- -------------
Total issued ............................. 3,697,680 17,582,215
Shares redeemed .......................... (3,776,280) (17,726,568)
----------- -------------
Net decrease ............................. (78,600) $ (144,353)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended March 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 1,668,621 $ 8,095,294
Shares issued to shareholders
in reinvestment of distributions ......... 310,392 1,480,569
----------- -------------
Total issued ............................. 1,979,013 9,575,863
Shares redeemed .......................... (4,779,670) (23,555,658)
----------- -------------
Net decrease ............................. (2,800,657) $ (13,979,795)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended March 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 4,505,104 $ 21,202,799
Automatic conversion of shares ........... 861,473 4,025,429
Shares issued to shareholders
in reinvestment of distributions ......... 1,452,639 7,510,141
----------- -------------
Total issued ............................. 6,819,216 32,738,369
Shares redeemed .......................... (5,645,964) (26,406,610)
----------- -------------
Net increase ............................. 1,173,252 $ 6,331,759
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended March 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 3,867,166 $ 19,608,228
Automatic conversion of shares ........... 491,920 2,524,115
Shares issued to shareholders
in reinvestment of distributions ......... 548,896 2,711,548
----------- -------------
Total issued ............................. 4,907,982 24,843,891
Shares redeemed .......................... (7,026,818) (35,982,642)
----------- -------------
Net decrease ............................. (2,118,836) $ (11,138,751)
=========== =============
- --------------------------------------------------------------------------------
</TABLE>
5. Capital Loss Carryforward:
At March 31, 1998, the Fund had a net capital loss carryforward of approximately
$60,435,000, all of which expires in 2006. This amount will be available to
offset like amounts of any future taxable gains.
48
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<PAGE> 99
TABLE OF CONTENTS
Page
-----
Investment Objective and Policies ................... 2
Technology ....................................... 2
International Diversification .................... 2
Types of Portfolio Companies ..................... 2
Other Factors .................................... 3
Hedging Techniques ............................... 4
Other Investment Policies and Practices .......... 7
Investment Restrictions .......................... 8
Management of the Company ........................... 10
Directors and Officers ........................... 10
Compensation of Directors ........................ 12
Management and Advisory Arrangements ............. 12
Purchase of Shares .................................. 13
Initial Sales Charge Alternatives --
Class A and Class D Shares .................... 14
Reduced Initial Sales Charges --
Class A and Class D Shares .................... 16
Employer-Sponsored Retirement or Savings
Plans and Certain Other Arrangements .......... 18
Distribution Plans ............................... 19
Limitation on the Payment of Deferred Sales
Charges ....................................... 19
Redemption of Shares ................................ 20
Deferred Sales Charges --
Class B and Class C Shares .................... 21
Portfolio Transactions and Brokerage ................ 21
Determination of Net Asset Value .................... 23
Shareholder Services ................................ 24
Investment Account ............................... 25
Automatic Investment Plans ....................... 25
Automatic Reinvestment of Dividends and
Capital Gains Distributions ................... 26
Systematic Withdrawal Plans ...................... 26
Exchange Privilege ............................... 27
Dividends, Distributions and Taxes .................. 29
Tax Treatment of Options, Futures and Forward
Exchange Transactions ......................... 31
Special Rules for Certain Foreign Currency
Transactions .................................. 31
Performance Data .................................... 32
General Information ................................. 34
Description of Shares ............................ 34
Computation of Offering Price Per Share .......... 35
Independent Auditors ............................. 35
Custodian ........................................ 36
Transfer Agent ................................... 36
Legal Counsel .................................... 36
Reports to Shareholders .......................... 36
Additional Information ........................... 36
Security Ownership of Certain Beneficial
Owners ........................................ 36
Independent Auditors' Report ........................ 37
Financial Statements ................................ 38
Code #16090-0698
<PAGE> 100
[MERRILL LYNCH LOGO APPEARS HERE]
MERRILL LYNCH
Merrill Lynch
Technology Fund, Inc.
Statement of
Additional
Information
June 30, 1998
Distributor:
Merrill Lynch
Funds Distributor, Inc.
