As filed with the Securities and Exchange Commission on March 31, 1998
Securities Act File No. 333-
Investment Company Act File No. 811-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. 1 |_|
Post-Effective Amendment No. |_|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. |_|
(Check appropriate box or boxes)
-----------------------------
MERRILL LYNCH TECHNOLOGY
LEADERS FUND, INC.
(Exact name of registrant as specified in charter)
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Address of Principal Executive Offices)
(609) 282-2000
(Registrant's Telephone Number, including Area Code)
Arthur Zeikel
Merrill Lynch Global Growth Fund, Inc.
800 Scudders Mill Road, Plainsboro, New Jersey
Mailing Address: P.O. Box 9011, Princeton, New Jersey 08543-9011
---------------------------
Copies to:
Counsel for the Fund:
Brown & Wood LLP Philip M. Mandel, Esq.
One World Trade Center Merrill Lynch Asset Management
New York, New York 10048-0557 P.O. Box 9011
Attention: Frank P. Bruno, Esq. Princeton, New Jersey 08543-9011
----------------------------
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement
----------------------------
Title of Securities Being Registered: Shares of Common Stock,
par value $.10 per share.
-------------------------------------------------------------
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.
=============================================================================
<TABLE>
<CAPTION>
MERRILL LYNCH TECHNOLOGY LEADERS FUND, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
N-1A Item No. Location
- ------------- --------
<S> <C> <C>
PART A
Item 1. Cover Page................................................. Cover Page
Item 2. Synopsis................................................... Fee Table
Item 3. Condensed Financial Information............................ Not Applicable
Item 4. General Description of Registrant.......................... Cover Page; Risk Factors and Special
Considerations; Investment Objective and
Policies; Additional Information
Item 5. Management of the Fund..................................... Fee Table; Management of the Fund; Inside
Back Cover Page
Item 5A. Management's Discussion of Fund Performance................ Not Applicable
Item 6. Capital Stock and Other Securities......................... Cover Page; Additional Information
Item 7. Purchase of Securities Being Offered....................... Cover Page; Merrill Lynch Select Pricing4
System; Fee Table; Purchase of Shares;
Shareholder Services; Additional
Information; Inside Back Cover Page
Item 8. Redemption or Repurchase................................... Merrill Lynch Select Pricing4 System; Fee
Table; Purchase of Shares; Redemption of
Shares
Item 9. Pending Legal Proceedings.................................. Not Applicable
PART B
Item 10. Cover Page................................................. Cover Page
Item 11. Table of Contents.......................................... Back Cover Page
Item 12. General Information and History............................ General Information
Item 13. Investment Objective and Policies.......................... Investment Objective and Policies
Item 14. Management of the Fund..................................... Management of the Fund
Item 15. Control Persons and Principal Holders of Securities........ Management of the Fund; Additional
Information
Item 16. Investment Advisory and Other Services..................... Management of the Fund; Purchase of
Shares; General Information
Item 17. Brokerage Allocation and Other Practices................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities......................... General Information
Item 19. Purchase, Redemption and Pricing of Securities Being
Offered.................................................... Purchase of Shares; Redemption of Shares;
Determination of Net Asset Value;
Shareholder Services
Item 20. Tax Status................................................. Dividends, Distributions and Taxes
Item 21. Underwriters............................................... Purchase of Shares
Item 22. Calculation of Performance Data............................ Performance Data
Item 23. Financial Statements....................................... Statement of Assets and Liabilities
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
</TABLE>
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 State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 31, 1998
PROSPECTUS
- ----------
MAY __, 1998
MERRILL LYNCH TECHNOLOGY LEADERS
FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 PHONE NO. (609) 282-2800
------------------------------------
Merrill Lynch Technology Leaders 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. For more information on the
Fund's investment objective and policies, please see "Investment Objective
and Policies" on page 11.
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
$500 and the minimum subsequent purchase is $50. Merrill Lynch may charge
its customers a processing fee (presently $5.35) for confirming purchases and
repurchases. Purchases and redemptions made directly through Merrill Lynch
Financial Data Services, Inc. (the "Transfer Agent") are not subject to the
processing fee. See "Purchase of Shares" and "Redemption of Shares."
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
This Prospectus is a concise statement of information about the Fund
that is relevant to making an investment in the Fund. This Prospectus should
be retained for future reference. A statement containing additional
information about the Fund, dated May ___, 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
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 4.0% during the first year,
of original purchase price or redemption decreasing 1.0% annually to 1.0% for one
proceeds, whichever is lower) . . . . . . . None(d) 0.0% after the fourth year(e) year(f) None(d)
Exchange Fee None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
Investment Advisory Fees(g) . . . . . . . .
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) % % % %
Other % % % %
Total Other Expenses % % % %
- - - -
Total Fund Operating Expenses % % % %
= = = =
</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 22 and
"Shareholder Services--Fee-Based Programs" on page 32.
(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 24.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of
Class A shares by certain retirement plans and participants in
connection with certain fee-based programs. Class A and Class D
purchases of $1,000,000 or more may not be subject to an initial sales
charge. See "Purchase of Shares--Initial Sales Charge Alternatives--
Class A and Class D Shares" on page 22.
(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
32.
(e) The CDSC may be modified in connection with certain fee-based programs.
See "Shareholder Services--Fee-Based Programs" on page 32.
(f) The CDSC may be waived in connection with certain fee-based programs.
See "Shareholder Services--Fee-Based Programs" on page 32.
(g) See "Management of the Fund--Management and Advisory Arrangements" on
page 18.
(h) See "Purchase of Shares--Distribution Plans" on page 27.
(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 19.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
</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 Merrill Lynch Asset Management, L.P. ("MLAM" or the
"Manager") or Fund Asset Management, L.P. ("FAM"), an affiliate of MLAM.
Funds advised by MLAM or FAM that utilize the Merrill Lynch Select
Pricing/SM/ System are referred to herein as "MLAM-advised mutual funds."
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
Pricing/SM/ System, followed by a more detailed description of each class and
a discussion of the factors that investors should consider in determining the
method of purchasing shares under the Merrill Lynch Select Pricing/SM/ System
that the investor believes is the most beneficial under his or her particular
circumstances. More detailed information as to each class of shares is set
forth under "Purchase of Shares."
<TABLE>
<CAPTION>
CLASS SALES CHARGE/(1)/ ACCOUNT DISTRIBUTION CONVERSION FEATURE
MAINTENANCE FEE
FEE
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge/(2)(3)/
B CDSC for a period of four B shares convert to
years, at a rate of 4.0% during D shares automatically
the first year, decreasing 1.0% after approximately eight
annually to 0.0%/(4)/ 0.25% 0.75% 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 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 $l,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 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 the 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 Pricing/SM/ System that the investor believes is most beneficial
under his or her particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial
sales charge alternative may elect to purchase Class D shares or, if an
eligible investor, Class A shares. Investors choosing the initial sales
charge alternative who are eligible to purchase Class A shares should
purchase Class A shares rather than Class D shares because there is an
account maintenance fee imposed on Class D shares. Investors qualifying for
significantly reduced initial sales charges may find the initial sales charge
alternative particularly attractive because similar sales charge reductions
are not available with respect to the CDSCs imposed in connection with
purchases of Class B or Class C shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for an extended
period of time also may elect to purchase Class A or Class D shares, because
over time the accumulated ongoing account maintenance and distribution fees
on Class B or Class C shares may exceed the initial sales charge and, in the
case of Class D shares, the account maintenance fee. Although some investors
who previously purchased Class A shares may no longer be eligible to purchase
Class A shares of other MLAM-advised mutual funds, those previously purchased
Class A shares, together with Class B, Class C and Class D share holdings,
will count toward a right of accumulation that may qualify the investor for
reduced 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."
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 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 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 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 12.
WITHHOLDING AND OTHER TAXES
Income and capital gains on securities held by the Fund may be subject
to withholding and other taxes imposed by certain jurisdictions, which would
reduce the return to the Fund on those securities. The Fund intends, unless
ineligible, to elect to "pass-through" to the Fund's shareholders the amount
of foreign taxes paid by the Fund. The taxes passed through to shareholders
will be included in each shareholder's income and could potentially be offset
by either a deduction or a credit. Certain shareholders, including non-U.S.
shareholders, will not be entitled to the benefit of a deduction or credit
with respect to foreign taxes paid by the Fund. Non-U.S. shareholders may
nevertheless be subject to withholding tax on the foreign taxes included in
their income. Other taxes, such as transfer taxes, may be imposed on the
Fund, but would not give rise to a credit or deduction for shareholders.
FEES AND EXPENSES
The management fee (at the annual rate of 0._% 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, semi conductors, 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 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.
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 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 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.
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 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.
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 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 Funds 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 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.
For purposes of the diversification requirements set forth above with
respect to regulated investment companies, and to the extent required by the
Commission, the Fund, as non-fundamental policy, will consider securities
issued or guaranteed by the government of any one foreign country as the
obligations of a single issuer.
MANAGEMENT OF THE FUND
DIRECTORS
The Directors of the Fund consist of 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.
(To be provided by amendment)
_______________
* 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.
The Manager also offers portfolio management services to individual and
institutional accounts. As of February, 1998, the Manager and FAM had a
total of approximately $476.1 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 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 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.
_________________ is the Portfolio Manager of the Fund. ______________
has been a Vice President of the Manager since ____ and is responsible for
the day-to-day management of the Fund's investment portfolio.
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-1 of the Investment Company Act which incorporates the Code of
Ethics of the Manager (together, the "Codes"). The Codes significantly
restrict the personal investing activities of all employees of the Manager
and, as described below, impose additional, more onerous, restrictions on
fund investment personnel.
The Codes require that all employees of the Manager preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to
the proposed investment. The substantive restrictions applicable to all
employees of the Manager include a ban on acquiring any securities in a "hot"
initial public offering and a prohibition from profiting on short-term
trading in securities. In addition, no employee may purchase or sell any
security that at the time is being purchased or sold (as the case may be), or
to the knowledge of the employee is being considered for purchase or sale, by
any fund advised by the Manager. Furthermore, the Codes provide for trading
"blackout periods" which prohibit trading by investment personnel of the Fund
within periods of trading by the Fund in the same (or equivalent) security
(15 or 30 days depending upon the transaction).
TRANSFER AGENCY SERVICES
The Transfer Agent, 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.
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
------------------------------------- -----------------------
PUBLIC DOLLAR PERCENTAGE* OF DOLLAR PERCENTAGE* OF
OFFERING AMOUNT PUBLIC OFFERING AMOUNT PUBLIC OFFERING
PRICE PRICE 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 $500 and the minimum subsequent purchase is $50. Different
minimums may apply to purchases made through the Merrill Lynch Blueprint/SM/
Program. See "Purchase of Shares--Merrill Lynch Blueprint/SM/ Program" in
the Statement of Additional Information.
The Fund 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, 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>
CLASS SALES CHARGE/(1)/ ACCOUNT DISTRIBUTION CONVERSION
MAINTENANCE FEE FEATURE
FEE
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge/(2)(3)/
B CDSC for a period of four 0.25% 0.75% B shares convert to
years, at a rate of 4.0% during D shares automatically
the first year, decreasing 1.0% after approximately eight
annually to 0.0%/(4)/ 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
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.
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>
AMOUNT OF PURCHASE SALES CHARGE AS SALES CHARGE AS DISCOUNT TO
PERCENTAGE OF PERCENTAGE* OF SELECTED DEALERS
OFFERING PRICE THE NET AMOUNT AS PERCENTAGE OF
INVESTED THE OFFERING
<S> <C> <C> <C> PRICE
Less than $25,000 . . . . . . . . . . . . . . 5.25% 5.54% 5.00%
$25,000 but less than $50,000 . . . . . . . . 4.75 4.99 4.50
$50,000 but less than $100,000 . . . . . . . 4.00 4.16 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 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 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 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 AccessSM 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"
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>
YEAR SINCE CLASS B
PURCHASE CDSC AS A
PAYMENT MADE PERCENTAGE OF
------------ DOLLAR AMOUNT
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>
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 AccessSM 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.
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.
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."
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 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.
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 re-registration 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 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.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions are reinvested
automatically in full and fractional shares of the Fund, without a sales
charge, at the net asset value per share next determined after the close of
business on the NYSE on the ex-dividend date of such dividend or
distribution. A shareholder may at any time, by written notification to
Merrill Lynch if the shareholder's account is maintained with Merrill Lynch
or by written notification or by telephone (1-800-MER-FUND) to the Transfer
Agent if the shareholder's account is maintained with the Transfer Agent,
elect to have subsequent dividends or capital gains distributions, or both,
paid in cash, rather than reinvested, in which event payment will be mailed
on or about the payment date. The Fund is not responsible for any failure of
delivery to the shareholder's address of record and no interest will accrue
on amounts represented by uncashed distribution or redemption checks. Cash
payments also can be directly deposited to the shareholder's bank account.
No CDSC will be imposed upon redemption of shares issued as a result of the
automatic reinvestment of dividends or capital gains distributions.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawal payments from
his or her Investment Account in the form of payments by check or through
automatic payment by direct deposit to his or her bank account on either a
monthly or quarterly basis. A shareholder whose shares are held within a
CMA(Registered Trademark), CBA(Registered Trademark) or Retirement Account
may elect to have shares redeemed on a monthly, bimonthly, quarterly,
semiannual or annual basis through the CMA(Registered Trademark) or
CBA(Registered Trademark) 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(Registered Trademark) or CBA(Registered Trademark) accounts may arrange
to have periodic investments made in the Fund in their CMA(Registered
Trademark) or CBA(Registered Trademark) accounts or in certain related
accounts in amounts of $100 or more through the CMA(Registered Trademark) or
CBA(Registered Trademark) Automated Investment Program.
FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing alternatives
for securities transactions (each referred to in this paragraph as a
"Program"), may permit the purchase of Class A shares at net asset value.
Under specified circumstances, participants in certain Programs may deposit
other classes of shares that will be exchanged for Class A shares. Initial
or deferred sales charges otherwise due in connection with such exchanges may
be waived or modified, as may the Conversion Period applicable to the
deposited shares. Termination of participation in a Program may result in
the redemption of shares held therein or the automatic exchange
thereof to another class at net asset value, which may be shares of a money
market fund. In addition, upon termination of participation in a Program,
shares that have been held for less than specified periods within such
Program may be subject to a fee based upon the current value
of such shares. These Programs also generally prohibit such shares from
being transferred to another account at Merrill Lynch, to another
broker-dealer or to the Transfer Agent. Except in limited circumstances
(which may also involve an exchange as described above), such shares must be
redeemed and another class of shares purchased (which may involve the
imposition of initial or deferred sales charges and distribution and account
maintenance fees) in order for the investment not to be subject to Program
fees. Additional information regarding a specific Program (including charges
and limitations on transferability applicable to shares that may be held in
such Program) is available in such Program's client agreement and from the
Transfer Agent at (800) MER-FUND or (800) 637-3863.
TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as
it so qualifies, the Fund (but not its shareholders) will not be subject to
Federal income tax on the part of its net ordinary income and net realized
capital gains which it distributes to Class A, Class B, Class C and Class D
shareholders (together, the "shareholders"). The Fund intends to distribute
substantially all of such income.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains
or losses from certain transactions in warrants, futures and options)
("capital gain dividends") are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund
shares. Any loss upon the sale or exchange of Fund shares held for six
months or less will be treated as long-term capital loss to the extent of any
capital gain dividends received by the shareholder. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis
of a holder's shares and, after such adjusted tax basis is reduced to zero,
will constitute capital gains to such holder (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 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
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.
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 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 calendar 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 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 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
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.
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 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.
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 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 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 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.
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
MERRILL LYNCH TECHNOLOGY LEADERS 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 Technology Leaders 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 Technology Leaders 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.
MERRILL LYNCH TECHNOLOGY LEADERS 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.....
Dear Sir/Madam: Date of initial purchase
Although I am not obligated to do so, I intend to purchase shares of
Merrill Lynch Technology Leaders 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 Growth Fund, Inc.
Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Technology Leaders Fund, Inc. held as security.
By:........................... .........................................
Signature of Owner Signature of Co-Owner
(If registered in joint parties, both
must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name........................... (2) Name..................................
Account Number..................... Account Number............................
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
5. FOR DEALER ONLY
<S> <C>
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.
- --------------- --------------
This form when completed should be
mailed to:
Merrill Lynch Technology Leaders
Fund, Inc. ......................................
c/o Merrill Lynch Financial Data Dealer Name and Address
Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289 By....................................
Authorized Signature of Dealer
---/ / / / / / / / / /
Branch Code F/C No. ................
/ / / / / / / / / / / / / / / / F/C Last Name
Dealer's Customer Account No.
</TABLE>
MERRILL LYNCH TECHNOLOGY LEADERS FUND, INC.--AUTHORIZATION FORM (PART 2)
- -----------------------------------------------------------------------------
Note: This form is required to apply for the Systematic Withdrawal or
Automatic Investment Plans only.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. ACCOUNT REGISTRATION ----------------------------
(PLEASE PRINT) | |
----------------------------
Name of Owner.......................................... Social Security No.
First Name Initial Last Name or Taxpayer Identification No.
Address
Name of Co-Owner (if any)...............................
First Name Initial Last Name Account Number........
(if existing account)
Address.....................................
............................................
(Zip Code)
</TABLE>
- -----------------------------------------------------------------------------
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 Leaders 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.
MERRILL LYNCH TECHNOLOGY LEADERS 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 Technology Leaders 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.
<TABLE>
<CAPTION>
<S> <C>
MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AUTHORIZATION TO HONOR ACH DEBUTS DRAWN BY
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 Technology Leaders Fund, Inc. as indicated To . . . . . . . . . . . . . . . . . . . . Bank
below: (Investor's Bank)
Amount of each check or ACH debit $ . . . . . . Bank Address . . . . . . . . . . . . . . . . . .
Account Number . . . . . . . . . . . . . . . . City . . . . State. . . . . . . Zip. . . . .
As a convenience to me, I hereby request and
Please date and invest ACH debits on the 20th of authorize you to pay and charge to my account ACH
each month beginning (month) or as 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
soon thereafter as possible. debit shall be the same as if it were a check
drawn on you and signed personally by me. This
I agree that you are preparing these ACH authority is to remain in effect until revoked by
debits voluntarily at my request and that you shall me in writing. Until you receive such notice,
not be liable for any loss arising from any delay you shall be fully protected in honoring any such
in preparing or failure to prepare any such debit. debit. I further agree that if any such debit be
If I change banks or desire to terminate or suspend dishonored, whether with or without cause and
this program, I agree to notify you promptly in whether intentionally or inadvertently, you shall
writing. I hereby authorize you to take any action be under no liability.
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. Date Signature of Depositor
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 Bank Account Signature of Depositor
offset the purchase made with the dishonored debit. Number (If joint account, both
must sign)
............... ...............................
Date Signature of Depositor
</TABLE>
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
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
_________________________
_________________________
_________________________
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
_________________________
_________________________
_________________________
COUNSEL
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
<TABLE>
<CAPTION>
<S> <C>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY (LOGO)
INFORMATION OR TO MAKE ANY REPRESENTATIONS,
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, MERRILL LYNCH
IN CONNECTION WITH THE OFFER CONTAINED IN THIS TECHNOLOGY
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER LEADERS
INFORMATION OR REPRESENTATIONS MUST NOT BE FUND, INC.
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
FUND, THE MANAGER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN
ANY STATE IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
_______________
TABLE OF CONTENTS
PAGE
Fee Table . . . . . . . . . . . . . . . . . . 2
Merrill Lynch Select Pricing/SM/ System . . . 3
Risk Factors and Special Considerations . . . 7
Investment Objective and Policies . . . . . . 11
Description of Certain Investments . . . . 12
Other Investment Policies and Practices . . 14
Investment Restrictions . . . . . . . . . . 17
Management of the Fund . . . . . . . . . . . 18
Directors . . . . . . . . . . . . . . . . . 18
Management and Advisory
Arrangements . . . . . . . . . . . . . . 18
Code of Ethics . . . . . . . . . . . . . . 19
Transfer Agency Services . . . . . . . . . 19
Purchase of Shares . . . . . . . . . . . . . 19
Subscription Offering . . . . . . . . . . . 19
Continuous Offering . . . . . . . . . . . . 20
Initial Sales Charge Alternatives
--Class A and Class D Shares . . . . . . 22
Deferred Sales Charge Alternatives--
Class B and Class C Shares . . . . . . . 24
Distribution Plans . . . . . . . . . . . . 27
Limitations on the Payment of Deferred Prospectus
Sales Charges . . . . . . . . . . . . . . . .28
Redemption of Shares . . . . . . . . . . . . 28
Redemption . . . . . . . . . . . . . . . . 28 May __, 1998
Repurchase . . . . . . . . . . . . . . . . 29
Reinstatement Privilege--Class A and
Class D Shares . . . . . . . . . . . . . 29 Distributor:
Shareholder Services . . . . . . . . . . . . 30 Merrill Lynch
Investment Account . . . . . . . . . . . . 30 Funds Distributor, Inc.
Exchange Privilege . . . . . . . . . . . . 30
Automatic Reinvestment of Dividends
and Capital Gains Distributions . . . . . 31
Systematic Withdrawal Plans . . . . . . . . 32
Automatic Investment Plans . . . . . . . . 32
Fee-Based Programs . . . . . . . . . . . . 32
Taxes . . . . . . . . . . . . . . . . . . . . 32
Performance Data . . . . . . . . . . . . . . 35
Additional Information . . . . . . . . . . . 36
Dividends and Distributions . . . . . . . . 36
Determination of Net Asset Value . . . . . 36
Organization of the Fund . . . . . . . . . 37
Year 2000 Issues . . . . . . . . . . . . . 38
Shareholder Reports . . . . . . . . . . . . 38
Shareholder Inquiries . . . . . . . . . . . 38
Appendix . . . . . . . . . . . . . . . . . . 39 This Prospectus should be retained
Authorization Form . . . . . . . . . . . . . 45 for future reference.
Code #________-0398
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 31, 1998
STATEMENT OF ADDITIONAL INFORMATION
- -----------------------------------
MERRILL LYNCH TECHNOLOGY LEADERS
FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 PHONE NO. (609) 282-2800
------------------------------------------
Merrill Lynch Technology Leaders 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 Pricing/SM/ System, the Fund offers
four classes of shares each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing/SM/
System permits an investor to choose the method of purchasing shares that
the investor believes is most beneficial given the amount of the purchase,
the length of time the investor expects to hold the shares and other
relevant circumstances.
-----------------------
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated May
___, 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 , 1998.
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.
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 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 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 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 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 investment restriction (2), treat securities
issued or guaranteed by the government of any one foreign country as the
obligations of a single issuer.
As another non-fundamental policy, the Fund will not invest in
securities that are (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 cash 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 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.
(To be added by Amendment)
_______________
(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 1998, the officers and Directors of the Fund as a group
( 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 $ per year plus $ 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 $ per Committee meeting attended.
The Chairman of the Committee receives an additional fee of $ per
Committee meeting attended.
(To Be Added By Amendment)
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 % 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 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."
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 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 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 BlueprintSM Program. Class D shares of the Fund are
offered to participants in the Merrill Lynch BlueprintSM 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 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
Blueprint4 Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Employee AccessSM 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 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.
TMASM Managed Trusts. Class A shares are offered to TMASM Managed Trusts
to which Merrill Lynch Trust Company provides discretionary trustee services
at net asset value.
Acquisition of Certain Investment Companies. The public offering price
of Class D shares of the Fund may be reduced to the net asset value per
Class D share in connection with the acquisition of the assets of or merger
or consolidation with a public or private investment company. The value of
the assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible adverse tax consequences to the Fund
that might result from an acquisition of assets having net unrealized
appreciation that is disproportionately higher at the time of acquisition
than the realized or unrealized appreciation of the Fund. The issuance of
Class D shares for consideration other than cash is limited to bona fide
reorganizations, statutory mergers or other acquisitions of portfolio
securities that (i) meet the investment objective and policies of the Fund;
(ii) are acquired for investment and not for resale (subject to the
understanding that the disposition of the Fund's portfolio securities shall
at all times remain within its control); and (iii) are liquid securities, the
value of which is readily ascertainable, that are not restricted as to
transfer either by law or liquidity of market (except that the Fund may
acquire through such transactions restricted or illiquid securities to the
extent the Fund does not exceed the applicable limits on acquisition of such
securities set forth under "Investment Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due
to the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.
Employer-Sponsored Retirement or Savings Plans and Certain Other Arrangements
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based
on the number of employees or number of employees eligible to participate in
the plan, the aggregate amount invested by the plan in specified investments
and/or the services provided by Merrill Lynch to the plan. Certain other
plans may purchase Class B shares with a waiver of the contingent deferred
sales charge ("CDSC") upon redemption, based on similar criteria. Such
Class B shares will convert into Class D shares approximately ten years after
the plan purchases the first share of any MLAM-advised mutual fund. Minimum
purchase requirements may be waived or varied for such plans. Additional
information regarding purchases by employer-sponsored retirement or savings
plans and certain other arrangements is available toll-free from Merrill
Lynch Business Financial Services at (800) 237-7777.
Distribution Plans
Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under
the Investment Company Act (each a "Distribution Plan") with respect to the
account maintenance and/or distribution fees paid by the Fund to the
Distributor with respect to such classes.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act.
Among other things, each Distribution Plan provides that the Distributor
shall provide and the Directors shall review quarterly reports of the
disbursement of the account maintenance fees and/or distribution fees paid to
the Distributor. In their consideration of each Distribution Plan, the
Directors must consider all factors they deem relevant, including information
as to the benefits of the Distribution Plan to the Fund and its related class
of shareholders. Each Distribution Plan further provides that so long as the
Distribution Plan remains in effect, the selection and nomination of
Directors who are not "interested persons" of the Fund, as defined in the
Investment Company Act (the "Independent Directors"), shall be committed to
the discretion of the Independent Directors then in office. In approving
each Distribution Plan in accordance with Rule 12b-1, the Independent
Directors concluded that there is a reasonable likelihood that such
Distribution Plan will benefit the Fund and its related class of
shareholders. Each Distribution Plan can be terminated at any time, without
penalty, by the vote of a majority of the Independent Directors or by the
vote of the holders of a majority of the outstanding related class of voting
securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholders, and all material amendments are required to be
approved by the vote of Directors, including a majority of the Independent
Directors who have no direct or indirect financial interest in such
Distribution Plan, cast in person at a meeting called for that purpose. Rule
12b-1 further requires that the Fund preserve copies of each Distribution
Plan and any report made pursuant to such plan for a period of not less than
six years from the date of such Distribution Plan or such report, the first
two years in an easily accessible place.
Limitations on the Payment of Deferred Sales Charges
The maximum sales charge rule in the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD") imposes a limitation on
certain asset-based sales charges such as the distribution fee and the CDSC
borne by the Class B and Class C shares but not the account maintenance fee.
The maximum sales charge rule is applied separately to each class. As
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of
eligible gross sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to dividend
reinvestments and exchanges), plus (2) interest on the unpaid balance for the
respective class, computed separately, at the prime rate plus 1% (the unpaid
balance being the maximum amount payable minus amounts received from the
payment of the distribution fee and the CDSC). In connection with the
Class B shares, the Distributor has voluntarily agreed to waive interest
charges on the unpaid balance in excess of 0.50% of eligible gross sales.
Consequently, the maximum amount payable to the Distributor (referred to as
the "voluntary maximum") in connection with the Class B shares is 6.75% of
eligible gross sales. The Distributor retains the right to stop waiving the
interest charges at any time. To the extent payments would exceed the
voluntary maximum, the Fund will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid
to the Fund rather than to the Distributor; however, the Fund will continue
to make payments of the account maintenance fee. In certain circumstances
the amount payable pursuant to the voluntary maximum may exceed the amount
payable under the NASD formula. In such circumstances payment in excess of
the amount payable under the NASD formula will not be made.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for
certain information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect to any
such redemption may be suspended for more than seven days after the tender of
such shares only for periods during which trading on the New York Stock
Exchange (the "NYSE") is restricted as determined by the Commission or such
Exchange is closed (other than customary weekend and holiday closings), for
any period during which an emergency exists, as defined by the Commission, as
a result of which disposal of portfolio securities or determination of the
net asset value of the Fund is not reasonably practicable, and for such other
periods as the Commission may by order permit for the protection of
shareholders of the Fund.
The value of shares at the time of redemption may be more or less than
the shareholder's cost depending 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 591/2 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 BlueprintSM Program. Class B shares are offered to certain
participants in the BlueprintSM 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
BlueprintSM 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 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. Under present
conditions, it is not believed that these considerations will have any
significant effect on its portfolio strategy.
Section 11(a) of the Securities Exchange Act of 1934, as amended,
generally prohibits members of the United States national securities
exchanges from executing exchange transactions for their affiliates and
institutional accounts that they manage unless the member (i) has obtained
prior express authorization from the account to effect such transactions,
(ii) at least annually furnishes the account with the aggregate compensation
received by the member in effecting such transactions, and (iii) complies
with any rules the Commission has prescribed with respect to the requirements
of clauses (i) and (ii). To the extent Section 11(a) would apply to Merrill
Lynch acting as a broker for the Fund in any of its portfolio transactions
executed on any such securities exchange of which it is a member, appropriate
consents have been obtained from the Fund and annual statements as to
aggregate compensation will be provided to the Fund.
The Board of Directors of the Fund has considered the possibility of
seeking to recapture for the benefit of the Fund brokerage commissions and
other expenses of possible portfolio transactions by conducting portfolio
transactions through affiliated entities. For example, brokerage commissions
received by affiliated brokers could be offset against the advisory fee paid
by the Fund to the Manager. After considering all factors deemed relevant,
the Board of Directors made a determination not to seek such recapture. The
Board will reconsider this matter from time to time.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund will be determined by the
Manager once daily Monday through Friday, as of 15 minutes after the close of
business on the NYSE (generally, 4:00 p.m., New York time), on each day
during which the NYSE is open for trading. The NYSE is not open on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. Any assets or liabilities initially expressed in terms of non-U.S.
dollar currencies are translated into U.S. dollars at the prevailing market
rates as quoted by one or more banks or dealers on the day of valuation. Net
asset value is computed by dividing the value of the securities held by the
Fund plus any cash or other assets (including interest and dividends accrued
but not yet received) minus all liabilities (including accrued expenses) by
the total number of shares outstanding at such time. Expenses, including the
investment advisory fees and any account maintenance and/or distribution
fees, are accrued daily. The per share net asset value of Class B, Class C
and Class D shares generally will be lower than the per share net asset value
of Class A shares, reflecting the daily expense accruals of the account
maintenance, distribution and higher transfer agency fees applicable with
respect to Class B and Class C shares and the daily expense accruals of the
account maintenance fees applicable with respect to Class D shares; moreover,
the per share net asset value of Class B and Class C shares generally will be
lower than the per share net asset value of Class D shares, reflecting the
daily expense accruals of the distribution fees and higher transfer agency
fees applicable with respect to Class B and Class C shares of the Fund. It
is expected, however, that the per share net asset value of the four classes
will tend to converge (although not necessarily meet) immediately after the
payment of dividends or distributions, which will differ by approximately the
amount of the expense accrual differentials between the classes.
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 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.
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(Registered Trademark) or CBA(Registered Trademark) account may arrange to
have periodic investments made in the Fund in amounts of $100 or more ($1 for
retirement accounts) through the CMA(Registered Trademark) or CBA(Registered
Trademark) Automated Investment Program.
Automatic Reinvestment of Dividends and Capital Gains Distributions
Unless specific instructions to the contrary are given as to the method
of payment of dividends and capital gains distributions, dividends and
distributions will be automatically reinvested in additional shares of the
Fund. Such reinvestment will be at the net asset value of shares of the
Fund, without a sales charge, as of the close of business on the ex-dividend
date of the dividend or distribution. Shareholders may elect in writing to
receive either their dividends or capital gains distributions, or both, in
cash, in which event payment will be mailed on or about the payment date.
Cash payments also can be directly deposited to the shareholder's bank
account. 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 or 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(Registered Trademark),
CBA(Registered Trademark) or Retirement Account may elect to have shares
redeemed on a monthly, bimonthly, quarterly, semiannual or annual basis
through the CMA(Registered Trademark) or CBA(Registered Trademark) 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 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(Registered Trademark) or CBA(Registered Trademark)
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(Registered Trademark) or CBA(Registered
Trademark) 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/SM/ System, Class A shareholders may exchange Class A
shares of the Fund for Class A shares of a second MLAM-advised mutual fund if
the shareholder holds any Class A shares of the second fund in the account in
which the exchange is made at the time of the exchange or is otherwise
eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second
MLAM-advised mutual fund, but does not hold Class A shares of the second fund
in his or her account at the time of the exchange and is not otherwise
eligible to acquire Class A shares of the second fund, the shareholder will
receive Class D shares of the second fund as a result of the exchange.
Class D shares also may be exchanged for Class A shares of a second
MLAM-advised mutual fund at any time as long as, at the time of the exchange,
the shareholder holds Class A shares of the second fund in the account in
which the exchange is made or is otherwise eligible to purchase Class A
shares of the second fund. Class B, Class C and Class D shares are
exchangeable with shares of the same class of other MLAM-advised mutual
funds. For purposes of computing the CDSC that may be payable upon a
disposition of the shares acquired in the exchange, the holding period for
the previously owned shares of the Fund is "tacked" to the holding period of
the newly acquired shares of the other fund as more fully described below.
Class A, Class B, Class C and Class D shares also are exchangeable for shares
of certain MLAM-advised money market funds as follows: Class A shares may be
exchanged for shares of Merrill Lynch Ready Assets Trust, Merrill Lynch
Retirement Reserves Money Fund (available only for exchanges within certain
retirement plans), Merrill Lynch U.S.A. Government Reserves and Merrill Lynch
U.S. Treasury Money Fund; Class B, Class C and Class D shares may be
exchanged for shares of Merrill Lynch Government Fund, Merrill Lynch
Institutional Fund, Merrill Lynch Institutional Tax-Exempt Fund and Merrill
Lynch Treasury Fund. Shares with a net asset value of at least $100 are
required to qualify for the exchange privilege, and any shares utilized in an
exchange must have been held by the shareholder for 15 days. It is
contemplated that the exchange privilege may be applicable to other new
mutual funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A
or Class D shares") for Class A or Class D shares of another MLAM-advised
mutual fund ("new Class A or Class D shares") are transacted on the basis of
relative net asset value per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously
paid on the outstanding Class A or Class D shares and the sales charge
payable at the time of the exchange on the new Class A or Class D shares.
With respect to outstanding Class A or Class D shares as to which previous
exchanges have taken place, the "sales charge previously paid" shall include
the aggregate of the sales charges paid with respect to such Class A or
Class D shares in the initial purchase and any subsequent exchange. Class A
or Class D shares issued pursuant to dividend reinvestment are sold on a
no-load basis in each of the funds offering Class A or Class D shares. For
purposes of the exchange privilege, Class A and Class D shares acquired
through dividend reinvestment shall be deemed to have been sold with a sales
charge equal to the sales charge previously paid on the Class A or Class D
shares on which the dividend was paid. Based on this formula, Class A and
Class D shares of the Fund generally will be exchanged into the Class A or
Class D shares of the other funds or into shares of certain money market
funds without a sales charge.
In addition, each of the funds with Class B and Class C shares
outstanding ("outstanding Class B or Class C shares") offers to exchange its
Class B or Class C shares for Class B or Class C shares, respectively, of
another MLAM-advised mutual fund ("new Class B or Class C shares") on the
basis of relative net asset value per Class B or Class C share, without the
payment of any CDSC that might otherwise be due on redemption of the
outstanding Class B or Class C shares. Class B shareholders of the Fund
exercising the exchange privilege will continue to be subject to the Fund's
CDSC schedule if such schedule is higher than the CDSC schedule relating to
the new Class B shares acquired through use of the exchange privilege. In
addition, Class B or Class C shares of the Fund acquired through use of the
exchange privilege will be subject to the Fund's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the Class B or Class C
shares of the fund from which the exchange has been made. For purposes of
computing the sales load that may be payable on a disposition of the new
Class B or Class C shares, the holding period for the outstanding Class B or
Class C shares is "tacked" to the holding period of the new Class B or
Class C shares. For example, an investor may exchange Class B or Class C
shares of the Fund for those of Merrill Lynch Special Value Fund, Inc.
("Special Value Fund") after having held the Fund's Class B shares for two
and a half years. The 2% CDSC that generally would apply to a redemption
would not apply to the exchange. Three years later the investor may decide
to redeem the Class B shares of Special Value Fund and receive cash. There
will be no CDSC due on this redemption, since by "tacking" the two and a half
year holding period of the Fund Class B shares to the three year holding
period for the Special Value Fund Class B shares, the investor will be deemed
to have held the Special Value Fund Class B shares for more than five years.
Shareholders also may exchange shares of the Fund into shares of certain
money market funds advised by the Manager or its affiliates, but the period
of time that Class B or Class C shares are held in a money market fund will
not count towards satisfaction of the holding period requirement for purposes
of reducing the CDSC or, with respect to Class B shares, towards satisfaction
of the conversion period. However, shares of a money 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."
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. Not later than 60 days after the close of
its taxable year, the Fund will provide its shareholders with a written
notice designating the amounts of any ordinary income dividends or capital
gain dividends. It is anticipated that regulations will be promulgated under
recent legislation to require this written notice to designate the amount of
various categories of capital gain income included in capital gain dividends.
A portion of the Fund's ordinary income dividends may be eligible for the
dividends received deduction allowed to corporations under the Code, if
certain requirements are met. For this purpose, the Fund will allocate
dividends eligible for the dividends received deduction among the Class A,
Class B, Class C and Class D shareholders according to a method (which it
believes is consistent with the Commission rule permitting the issuance and
sale of multiple classes of stock) that is based on the gross income
allocable to Class A, Class B, Class C and Class D shareholders during the
taxable year, or such other method as the Internal Revenue Service may
prescribe. If the Fund pays a dividend in January that was declared in the
previous October, November or December to shareholders of record on a
specified date in one of such months, then such dividend will be treated for
tax purposes as being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident
aliens or foreign entities will be subject to a 30% U.S. withholding tax
under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the U.S.
withholding tax.
Under certain provisions of the Code, some shareholders may be subject
to a 31% withholding tax on ordinary income dividends, capital gain dividends
and redemption payments ("backup withholding"). Generally, shareholders
subject to backup withholding will be those for whom no certified taxpayer
identification number is on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing 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 to claim United States foreign tax credits with respect
to such taxes, subject to certain conditions and limitations contained in the
Code. For example, certain retirements accounts cannot claim foreign tax
credits on investments in foreign securities held in the Fund. In addition,
recent legislation permits a foreign tax credit to be claimed with respect to
withholding tax on a dividend only if the shareholder meets certain holding
period requirements. If more than 50% in value of the Fund's total assets at
the close of its taxable year consists of securities of foreign corporations,
the Fund will be eligible, and intends, to file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be required
to include their proportionate shares of such withholding taxes in their
United States income tax returns as gross income, treat such proportionate
shares as taxes paid by them, and deduct such proportionate shares in
computing their taxable incomes or, alternatively, use them as foreign tax
credits against their United States income taxes. In the case of foreign
taxes passed through by a RIC, the holding period requirements referred to
above must be met by both the shareholder and the RIC. No deductions for
foreign taxes, moreover, may be claimed by noncorporate shareholders who do
not itemize deductions. A shareholder that is a nonresident alien individual
or a foreign corporation may be subject to United States withholding tax on
the income resulting from the Fund's election described in this paragraph but
may not be able to claim a credit or deduction against such United States tax
for the foreign taxes treated as having been paid by such shareholder. The
Fund will report annually to its shareholders the amount per share of such
withholding taxes and other information needed to claim the foreign tax
credit. For this purpose, the Fund will allocate foreign source income among
the Class A, Class B, Class C and Class D shareholders according to a method
similar to that described above for the allocation of dividends eligible for
the dividends received deduction.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's
basis in the Class D shares acquired will be the same as such shareholder's
basis in the Class B shares converted, and the holding period of the acquired
Class D shares will include the holding period for the converted Class B
shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales
charge paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon the purchase of the new shares in the
absence of the exchange privilege. Instead, such sales charge will be
treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed
of. In such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the
extent the RIC does not distribute, during each calendar year, 98% of its
ordinary income, determined on a calendar year basis, and 98% of its capital
gains, determined, in general, on an October 31 year end, plus certain
undistributed amounts from previous years. While the Fund intends to
distribute its income and capital gains in the manner necessary to minimize
imposition of the 4% excise tax, there can be no assurance that sufficient
amounts of the Fund's taxable income and capital gains will be distributed to
avoid entirely the imposition of the tax. In such event, the Fund will be
liable for the tax only on the amount by which it does not meet the foregoing
distribution requirements.
The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield/high risk securities"), as described in the
Prospectus. Some of these high yield/high risk securities may be purchased
at a discount and may therefore cause the Fund to accrue and distribute
income before amounts due under the obligations are paid. In addition, a
portion of the interest payments on such high yield/high risk securities may
be treated as dividends for Federal income tax purposes; in such case, if the
issuer of such high yield/high risk securities is a domestic corporation,
dividend payments by the Fund will be eligible for the dividends received
deduction to the extent of the deemed dividend portion of such interest
payments.
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.
The Fund may make investments that produce taxable income which is not
matched by a corresponding receipt of cash or an offsetting loss deduction.
Such investments would include obligations that have original issue discount,
accrue negative amortization or are subordinated in the mortgage backed
securities structure. Such taxable income would be treated as income earned
by the Fund and would be subject to the distribution requirements of the
Code. Because such income may not be matched by a corresponding receipt of
cash by the Fund or an offsetting loss deduction, the Fund may be required to
borrow money or dispose of other securities to be able to make distributions
to shareholders. The Fund intends to make sufficient and timely
distributions to shareholders so as to qualify for the special tax treatment
afforded RICs at all times and to avoid imposition of the excise tax.
Tax Treatment of Options and Futures Transactions
The Fund may write, purchase or sell options, futures and forward
foreign exchange contracts. Options and futures contracts that are "Section
1256 contracts" will be "marked to market" for Federal income tax purposes at
the end of each taxable year, i.e., each such option or futures contract will
be treated as sold for its fair market value on the last day of the taxable
year. Unless such contract is a forward foreign exchange contract, or is a
non-equity option or a regulated futures contract for a non-U.S. currency for
which the Fund elects to have gain or loss treated as ordinary gain or loss
under Code Section 988 (as described below), gain or loss from Section 1256
contracts will be 60% long-term and 40% short-term capital gain or loss.
Application of these rules to Section 1256 contracts held by the Fund may
alter the timing and character of distributions to shareholders. The
mark-to-market rules outlined above, however, will not apply to certain
transactions entered into by the Fund solely to reduce the risk of changes in
price or interest or currency exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will
be marked to market, as described above. However, the character of gain or
loss from such a contract will generally be ordinary under Code Section 988.
The Fund may, nonetheless, elect to treat the gain or loss from certain
forward foreign exchange contracts as capital. In this case, gain or loss
realized in connection with a forward foreign exchange contract that is a
Section 1256 contract will be characterized as 60% long-term and 40%
short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and transactions in options,
futures and forward foreign exchange contracts. Under Section 1092, the Fund
may be required to postpone recognition for tax purposes of losses incurred
in certain sales of securities and certain closing transactions in options,
futures and forward foreign exchange contracts.
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.
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 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 $_____) 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.
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>
<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 $10.00 $10.00 $10.00 $10.00
divided by number of shares
outstanding)
Sales Charge (for Class A and Class D $ .55 ** ** $ .55
------ --- --- ------
Shares: 5.25% of offering price (5.54%
of net amount invested)*
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
______________________________________ 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
__________________________________________ acts as the Custodian of the
Fund's assets. Under its contract with the Fund, the Custodian is
authorized, among other things, to establish separate accounts in foreign
currencies and to cause foreign securities owned by the Fund to be held in
its offices outside of the United States and with certain foreign banks and
securities depositories. The Custodian is responsible for safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery
of securities and collecting interest and dividends on the Fund's
investments.
Transfer Agent
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246 6484, acts as the Fund's Transfer Agent. The
Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts.
See "Management of the Fund--Transfer Agency Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood LLP, One World Trade Center, New York New York 10048-0557,
is counsel for the Fund.
Reports to Shareholders
The fiscal year of the Fund ends on 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.
Security Ownership of Certain Beneficial Owners
To the knowledge of the Fund, no person owned beneficially 5% or more of
the Fund's shares on March __, 1998.
MERRILL LYNCH TECHNOLOGY LEADERS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
_____________, 1998
Assets:
Cash in Bank $100,000
Prepaid registration fees (Note 3)
Deferred organization expenses (Note 4)
--------
Total Assets
Liabilities--accrued expenses
--------
Net Assets (equivalent to $0.10 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
- ------------------- =======
Notes to Statement of Assets and Liabilities.
(1) Merrill Lynch Technology Leaders 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.
<TABLE>
<CAPTION>
TABLE OF CONTENTS (LOGO)
<S> <C> <C>
PAGE MERRILL LYNCH
Investment Objective and Policies.......... 2 TECHNOLOGY
Portfolio Strategies Involving Options, LEADERS FUND, INC.
Futures and Foreign Exchange (GRAPHIC)
Transactions.......................... 3 STATEMENT OF
Other Investment Policies and Practices.... 3 ADDITIONAL
Investment Restrictions.................... 5 INFORMATION
Management of the Fund..................... 8 ___________, 1998
Directors and Officers..................... 8 Distributor:
Compensation of Directors.................. 9 Merrill Lynch
Management and Advisory Arrangements....... 9 Funds Distributor, Inc.
Purchase of Shares......................... 11
Initial Sales Charge Alternatives--
Class A and Class D Shares............ 11
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......................... 22
Automatic Investment Plans................. 22
Automatic Reinvestment of Dividends and
Capital Gains Distributions........... 23
Systematic Withdrawal Plans................ 23
Exchange Privilege......................... 25
Dividends, Distributions and Taxes......... 27
Dividends and Distributions................ 27
Taxes...................................... 27
Tax Treatment of Options and Futures
Transactions.......................... 30
Special Rules for Certain Foreign
Currency Transactions................. 31
Performance Data........................... 32
General Information........................ 33
Description of Shares...................... 33
Computation of Offering Price Per Share.... 34
Independent Auditors....................... 34
Custodian.................................. 35
Transfer Agent............................. 35
Reports to Shareholders.................... 35
Additional Information..................... 35
Security Ownership of Certain Beneficial
Owners................................... 36
Statement of Assets and Liabilities........ 37
Code # _____-0398
</TABLE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Contained in Part B:
Independent Auditors' Report
Statement of Assets and Liabilities as of __________ __, 1998.
(b) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
1 -- Articles of Incorporation of the Registrant, dated March 24, 1998.
2 -- By-Laws of the Registrant
3 -- None.
4 -- Portions of the Articles of Incorporation and the By-Laws of the Registrant defining the
rights of holders of shares of the Registrant.(a)
5(a) -- Form of Management Agreement between the Registrant and Merrill Lynch Asset Management,
L.P. (the "Manager").(b)
(b) -- Form of Sub-Advisory Agreement between the Manager and Merrill Lynch Asset Management
U.K. Limited.(b)
6(a) -- Form of Class A Shares Distribution Agreement between the Registrant and Merrill Lynch
Funds Distributor, Inc. (the "Distributor").(b)
(b) -- Form of Class B Shares Distribution Agreement between the Registrant and the
Distributor.(b)
(c) -- Form of Class C Shares Distribution Agreement between the Registrant and the
Distributor.(b)
(d) -- Form of Class D Shares Distribution Agreement between the Registrant and the
Distributor.(b)
7 -- None.
8 Form of Custody Agreement between the Registrant and ______________________________.(b)
9(a) -- Form of Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between the Registrant and Merrill Lynch Financial Data Services, Inc. (the
"Transfer Agent").(b)
(b) -- Form of Agreement relating to use of name between the Registrant and Merrill Lynch &
Co., Inc.(b)
10 -- Opinion of Brown & Wood LLP, counsel for the Registrant.(b)
11 -- Consent of ____________________, independent auditors for the Registrant.(b)
12 -- None.
13 -- Certificate of the Manager.(b)
14 -- None.
15(a) -- Form of Class B Shares Distribution Plan and Class B Shares Distribution Plan
Sub-Agreement of the Registrant.(b)
(b) -- Form of Class C Shares Distribution Plan and Class C Shares Distribution Plan
Sub-Agreement of the Registrant.(b)
(c) -- Form of Class D Shares Distribution Plan and Class D Shares Distribution Plan
Sub-Agreement of the Registrant.(b)
16 -- None
17(a) -- Financial Data Schedule for Class A Shares.(b)
(b) Financial Data Schedule for Class B Shares.(b)
(c) Financial Data Schedule for Class C Shares.(b)
(d) Financial Data Schedule for Class D Shares.(b)
18 -- Merrill Lynch Select Pricing/SM/ System Plan Pursuant to Rule 18f-3.(c)
</TABLE>
- -----------------
(a) Reference is made to Articles IV, V (Sections 3,
5, 6 and 7), VI, VII and IX of the Registrant's
Articles of Incorporation, filed herewith as
Exhibit 1 to this Registration Statement on Form
N-1A; and to Articles II, III (Sections 1, 3, 5
and 6), VI, VII, XIII and XIV of the
Registrant's By-Laws, filed herewith as Exhibit
2 to this Registration Statement on Form N-1A.
(b) To be filed by amendment.
(c) Incorporated by reference 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).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT
Prior to the effective date of this Registration Statement, the Fund will
sell 2,500 Class A shares of its Common Stock, 2,500 Class B shares of its
Common Stock, 2,500 Class C shares of its Common Stock and 2,500 Class D
shares of its Common Stock to the Manager for an aggregate of $100,000.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF
-------------- RECORD HOLDERS
AT MARCH __, 1998
-----------------
<S> <C>
Class A shares of Common Stock, par value $0.10 per share . . . . . 0
Class B shares of Common Stock, par value $0.10 per share . . . . . 0
Class C shares of Common Stock, par value $0.10 per share . . . . . 0
Class D shares of Common Stock, par value $0.10 per share . . . . . 0
</TABLE>
_______________
* The number of holders includes holders of record
plus beneficial owners, whose shares are held of
record by Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
ITEM 27. INDEMNIFICATION
Reference is made to Article VI of Registrant's Amended and Restated
Articles of Incorporation, Article VI of Registrant's Bylaws, 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 activities as 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 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 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 28. BUSINESS AND OTHER CONNECTIONS OF MANAGER
(a) Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager") acts as
the investment adviser for the following open-end registered investment
companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc.,
Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc.,
Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc.,
Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund,
Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill Lynch Global Allocation
Fund, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement,
Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global Growth
Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch Global
Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill
Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Intermediate Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa
Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund,
Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc.,
Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc.,
Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic
Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S.A.
Government Reserves, Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch
Utility Income Fund, Inc., and Merrill Lynch Variable Series Funds, Inc. and
Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a division of MLAM);
and the following closed-end registered investment companies: Merrill Lynch
High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate
Fund, Inc. MLAM also acts as sub-adviser to Merrill Lynch World Strategy
Portfolio and Merrill Lynch Basic Value Portfolio, two investment portfolios
of EQ Advisors Trust.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Manager, acts as
the investment adviser for the following open-end registered investment
companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund,
CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury
Fund, The Corporate Fund Accumulation Program, Inc., Debt Strategies Fund,
Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value Fund,
Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill
Lynch Federal Securities Trust, Merrill Lynch Funds for Institutions Series,
Merrill Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill
Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund,
Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund,
Inc., Merrill Lynch World Income Fund, Inc. and The Municipal Fund
Accumulation Program, Inc.; and the following closed-end registered
investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III,
Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill
Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced
Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings
California Insured Fund, Inc., MuniHoldings California Insured Fund II, Inc.,
MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New York Fund, Inc.,
MuniHoldings New York Insured Fund, Inc., MuniInsured Fund, Inc., MuniVest
Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan
Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania
Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund
II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield
Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc.,
MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund,
Inc., MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania Fund,
MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High
Income Portfolio, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2646.
The address of the Manager, FAM, Princeton Services, Inc. ("Princeton
Services") and Princeton Administrators L.P. is also P.O. Box 9011,
Princeton, New Jersey 08543-9011. The address of Merrill Lynch Funds
Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton, New Jersey
08543-9081. The address of Merrill Lynch and ML & Co. is World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281. The address
of the Transfer Agent, Merrill Lynch Financial Data Services, Inc. is 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
January 1, 1996 for his, her or its own account or in the capacity of
director, officer, partner or trustee. In addition, Mr. Zeikel is
President, Mr. Richard is Treasurer and Mr. Glenn is Executive Vice
President of substantially all of the investment companies described in the
first two paragraphs of this Item 28 and Messrs. Giordano, Harvey, Kirstein
and Monagle are directors, trustees or officers of one or more of such
companies.
Officers and Partners of MLAM are set forth as follows:
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------- ----------------------------------
<S> <C> <C>
ML & Co. . . . . . . . . Limited Partner Financial Services Holding Company; Limited
Partner of FAM
Princeton Services . . . General Partner General Partner of FAM
Arthur Zeikel . . . . . . Chairman Chairman of FAM; President of the Manager and
FAM from 1977 to 1997; Chairman and Director
of Princeton Services; President of
Princeton Services from 1993 to 1997;
Executive Vice President of ML & Co.
Jeffrey M. Peek . . . . . President President of FAM; President and Director of
Princeton Services; Executive Vice President
of ML & Co.
Terry K. Glenn . . . . . Executive Vice Executive Vice President of FAM; Executive
President Vice President and Director of Princeton
Services; President and Director of MLFD;
Director of MLFDS; President of Princeton
Administrators, L.P.
Linda L. Federici . . . . Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Vincent R. Giordano . . . Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Elizabeth A. Griffin . . Senior Vice President Senior Vice President of FAM
Norman R. Harvey . . . . Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Michael J. Hennewinkel . Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Philip L. Kirstein . . . Senior Vice President, Senior Vice President, General Counsel and
General Counsel and Secretary of FAM; Senior Vice President,
Secretary General Counsel, Director and Secretary of
Princeton Services
Ronald M. Kloss . . . . . Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Debra W. Landsman Yaros . Senior Vice President Senior Vice President of FAM; Vice President
of MLFD; Senior Vice President of Princeton
Services
Stephen M.M. Miller . . . Senior Vice President Executive Vice President of Princeton
Administrators, L.P.; Senior Vice President
of Princeton Services
Joseph T. Monagle, Jr. . Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Michael L. Quinn . . . . Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services; Managing
Director and First Vice President of Merrill
Lynch from 1989 to 1995
Richard L. Reller . . . . Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services; Director of
MLFD
Gerald M. Richard . . . . Senior Vice President Senior Vice President and Treasurer of FAM:
and Treasurer Senior Vice President and Treasurer of
Princeton Services; Vice President and
Treasurer of MLFD
Gregory D. Upah . . . . . Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Ronald L. Welburn . . . . Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
</TABLE>
(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as sub-
adviser for the following registered investment companies: Corporate High Yield
Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III,
Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., Merrill Lynch Americas Income Fund Inc., Merrill Lynch Asset Builder
Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset
Income Fund, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Consults International Portfolio, Merrill
Lynch Convertible Fund, Inc., Merrill Lynch Corporate Bond Fund, Inc.,
Merrill Lynch Developing Capital Markets, Inc., Merrill Lynch Dragon Fund,
Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch EuroFund,
Merrill Lynch Fundamental Growth Fund Inc., Merrill Lynch Fund for Tomorrow,
Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond
Fund for Investment and Retirement, Merrill Lynch Global Convertible Fund,
Inc., Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global Holdings,
Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap
Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global
Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund,
Inc., Merrill Lynch International Equity Fund, Merrill Lynch Latin America
Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch
Pacific Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Real
Estate Fund, Inc., Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term
Global Income Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill
Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill
Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc.,
Merrill Lynch World Income Fund, Inc., and Worldwide DollarVest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011. The address of MLAM U.K. is Milton Gate, 1
Moor Lane, London EC2Y 9HA, England.
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since January
1, 1996, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel, Albert and Richard and
Yardley are officers of one or more of the registered investment companies
listed in the first two paragraphs of this Item 28.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
---- ------------- ----------------------------------
<S> <C> <C>
Arthur Zeikel . . . . . . Director and Chairman Chairman of the Manager and FAM; President of
the Manager and FAM from 1977 to 1997;
Chairman and Director of Princeton Services;
President of Princeton Services from 1973 to
1997; Executive Vice President of ML&Co.
Alan J. Albert . . . . . Senior Managing Vice President of the Manager
Director
Nicholas C.D. Hall . . . Director Director of Merrill Lynch Europe PLC.; General
Counsel of Merrill Lynch International
Private Banking Group
Gerald M. Richard . . . . Senior Vice President Senior Vice President and Treasurer of the
Manager and FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Carol Ann Langham . . . . Company Secretary None
Debra Anne Searle . . . . Assistant Company None
Secretary
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) MLFD acts as the principal underwriter for the Registrant. MLFD acts as
the principal underwriter for each of the open-end registered investment
companies referred to in the first two paragraphs of Item 28 except CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., MuniAssets Fund, Inc. and The Municipal Fund
Accumulation Program, Inc., and MLFD also acts as the principal underwriter
for the following closed-end registered investment companies: Merrill Lynch
High Income Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund,
Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs.
Aldrich, Breen, Crook, Fatseas, and Wasel is One Financial Center, 23/rd/
Floor, Boston, Massachusetts 02111-2646.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITION(S) AND OFFICE(S)
NAME WITH MLFD WITH REGISTRANT
---- --------------------- -------------------------
<S> <C> <C>
Terry K. Glenn . . . . . . . . . President and Director Executive Vice President
Richard L. Reller . . . . . . . . Director None
Thomas J. Verage . . . . . . . . Director None
William E. Aldrich . . . . . . . Senior Vice President None
Robert W. Crook . . . . . . . . . Senior Vice President None
Michael J. Brady . . . . . . . . Vice President None
William M. Breen . . . . . . . . Vice President None
Michael G. Clark . . . . . . . . Vice President None
James T. Fatseas . . . . . . . . Vice President None
Debra W. Landsman-Yaros . . . . . Vice President None
Michelle T. Lau . . . . . . . . . Vice President None
Gerald M. Richard . . . . . . . . Vice President and Treasurer Treasurer
Salvatore Venezia . . . . . . . . Vice President None
William Wasel . . . . . . . . . . Vice President None
Robert Harris . . . . . . . . . . Secretary None
</TABLE>
(c) . . . Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31 (a) of the Investment Company Act of 1940, as amended, (the "1940
Act"), and the rules thereunder are maintained at the offices of the
Registrant, 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and its
transfer agent, Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the caption "Management of the Fund--
Management and Advisory Arrangements" in the Prospectus constituting Part A
of the Registration Statement and under the caption "Management of the Fund--
Management and Advisory Arrangements" in the Statement of Additional
Information constituting Part B of the Registration Statement, the Registrant
is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS
(a) The Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six
months from the effective date of the Registrant's registration
statement under the 1933 Act.
(b) The Fund, if requested to do so by the holders of at least 10% of the
Fund's outstanding shares, will call a meeting of shareholders for
the purpose of voting upon the question of removal of a director
or directors and will assist communications with other shareholders
as required by Section 16(c) of the 1940 Act.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Plainsboro, and State of New Jersey, on the
30th day of March, 1998.
MERRILL LYNCH TECHNOLOGY LEADERS
FUND, INC. (Registrant)
By:/s/ Philip L. Kirstein
-------------------------------
(Philip L. Kirstein, President)
Each person whose signature appears below hereby authorizes Philip L.
Kirstein, Philip M. Mandel or Phillip Gillespie, or any of them, as
attorney-in-fact, to sign on his behalf, individually and in each capacity
stated below, any amendments to the Registration Statement (including
post-effective amendments) and to file the same, with all exhibits thereto,
with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Philip L. Kirstein President and Director (Principal March 30, 1998
- ---------------------------------- Executive Officer)
(Philip L. Kirstein)
/s/ Phillip Gillespie Treasurer (Principal Financial and March 30, 1998
- ---------------------------------- Accounting Officer)
(Phillip Gillespie)
/s/ Philip M. Mandel
- ---------------------------------- Director March 30, 1998
</TABLE>
EXHIBIT INDEX
Exhibit
Number
- ------
1 Articles of Incorporation of the Registrant, dated March 23, 1998.
2 By-Laws of the Registrant.
ARTICLES OF INCORPORATION
OF
MERRILL LYNCH TECHNOLOGY LEADERS FUND, INC.
THE UNDERSIGNED, ELIZABETH KEELEY whose post office address is One
World Trade Center, New York, New York 10048-0557, being at least eighteen
years of age, does hereby act as an incorporator, under and by virtue of the
General Laws of the State of Maryland authorizing the formation of
corporations and with the intention of forming a corporation.
ARTICLE I.
NAME
----
The name of the corporation is MERRILL LYNCH TECHNOLOGY LEADERS FUND,
INC. (the "Corporation").
ARTICLE II.
PURPOSES AND POWERS
-------------------
The purpose or purposes for which the Corporation is formed, the powers,
rights and privileges that the Corporation shall be authorized to exercise
and enjoy, and the business or objects to be transacted, carried on and
promoted by it are as follows:
(1) To conduct and carry on the business of an investment company of
the management type.
(2) To hold, invest and reinvest its assets in securities, and in
connection therewith to hold part or all of its assets in cash.
(3) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, for such purposes and for such amount or
kind of consideration now or hereafter permitted by the General Laws of the
State of Maryland and by these Articles of Incorporation, as its Board of
Directors may determine.
(4) To exchange, classify, reclassify, change the designation of,
convert, rename, redeem, purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its issued or unissued capital
stock, in any manner and to the extent now or hereafter permitted by the
General Laws of the State of Maryland and by these Articles of Incorporation.
(5) To do any and all such further acts or things and to exercise any
and all such further powers or rights as may be necessary, incidental,
relative, conducive, appropriate or desirable for the accomplishment,
carrying out or attainment of all or any of the foregoing purposes or
objects.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers,
rights or privileges so granted or conferred.
ARTICLE III.
PRINCIPAL OFFICE AND RESIDENT AGENT
-----------------------------------
The post office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated, a
corporation of this State, and the post office address of the resident agent
is 32 South Street, Baltimore, Maryland 21202.
ARTICLE IV.
CAPITAL STOCK
-------------
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is Five Hundred Million (500,000,000) shares,
of the par value of Ten Cents ($.10) per share, and of the aggregate par
value of Fifty Million Dollars ($50,000,000). The capital stock initially is
classified into four classes, consisting of One Hundred Million (100,000,000)
shares of Class A Common Stock, Two Hundred Million (200,000,000) shares of
Class B Common Stock, One Hundred Million (100,000,000) shares of Class C
Common Stock and One Hundred Million (100,000,000) shares of Class D Common
Stock.
(2) The Board of Directors may classify and reclassify any unissued
shares of capital stock into one or more additional or other classes or
series as may be established from time to time by setting or changing in any
one or more respects the designations, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of stock
and pursuant to such classification or reclassification to increase or
decrease the number of authorized shares of any existing class or series.
(3) The Board of Directors may vary among all of the holders of a
particular class or series (a) the length of time shares must be held prior
to conversion into shares of another class or series (the "Holding
Period(s)"), (b) the manner in which the time for such Holding Period(s) is
determined and (c) the class or series into which the particular class or
series is being converted; provided, however, that with respect to holders of
the Corporation's shares issued on or after the date of the Corporation's
first effective prospectus which sets forth Holding Period(s), the Holding
Periods(s), the manner in which the time for such Holding Period(s) is
determined and the class or series into which the particular class or series
is being converted shall be disclosed in the Corporation's prospectus or
statement of additional information in effect at the time such shares, which
are the subject of the conversion, were issued.
(4) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, the holders of each class or series of capital stock
shall be entitled to dividends and distributions in such amounts and at such
times as may be determined by the Board of Directors, and the dividends and
distributions paid with respect to the various classes or series of capital
stock may vary among such classes and series. Dividends on a class or series
may be declared or paid only out of the net assets of that class or series.
Expenses related to the distribution of, and other identified expenses that
should properly be allocated to, the shares of a particular class or series
of capital stock may be charged to and borne solely by such class or series
and the bearing of expenses solely by a class or series of capital stock may
be appropriately reflected (in a manner determined by the Board of Directors)
and cause differences in the net asset value attributable to, and the
dividend, redemption and liquidation rights of, the shares of each class or
series of capital stock.
(5) Unless otherwise expressly provided in the charter of the
Corporation, including those matters set forth in Article II, Section (4)
hereof and including any Articles Supplementary creating any class or series
of capital stock, on each matter submitted to a vote of stockholders, each
holder of a share of capital stock of the Corporation shall be entitled to
one vote for each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all shares of
all classes and series shall vote together as a single class; provided,
however, that (a) as to any matter with respect to which a separate vote of
any class or series is required by the Investment Company Act of 1940, as
amended, and in effect from time to time, or any rules, regulations or orders
issued thereunder, or by the Maryland General Corporation Law, such
requirement as to a separate vote by that class or series shall apply in lieu
of a general vote of all classes and series as described above, (b) in the
event that the separate vote requirements referred to in (a) above apply with
respect to one or more classes or series, then, subject to paragraph (c)
below, the shares of all other classes and series not entitled to a separate
class vote shall vote as a single class and (c) as to any matter which does
not affect the interest of a particular class or series, such class or series
shall not be entitled to any vote and only the holders of shares of the
affected classes and series, if any, shall be entitled to vote.
(6) Notwithstanding any provision of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of all
classes or series of capital stock of the Corporation (or of any class or
series entitled to vote thereon as a separate class or series) to take or
authorize any action, the Corporation is hereby authorized (subject to the
requirements of the Investment Company Act of 1940, as amended, and in effect
from time to time, and any rules, regulations and orders issued thereunder)
to take such action upon the concurrence of a majority of the votes entitled
to be cast by holders of capital stock of the Corporation (or a majority of
the votes entitled to be cast by holders of a class or series entitled to
vote thereon as a separate class or series).
(7) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders
of each class or series of capital stock of the Corporation shall be
entitled, after payment or provision for payment of the debts and other
liabilities of the Corporation, to share ratably in the remaining net assets
of the Corporation applicable to that class or series.
(8) Any fractional shares shall carry proportionately all of the rights
of a whole share, excepting any right to receive a certificate evidencing
such fractional share, but including, without limitation, the right to vote
and the right to receive dividends.
(9) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast shall constitute
a quorum at any meeting of stockholders, except with respect to any matter
which requires approval by a separate vote of one or more classes or series
of stock, in which case the presence in person or by proxy of the holders of
shares entitled to cast one-third of the votes entitled to be cast by each
class or series entitled to vote as a separate class shall constitute a
quorum.
(10) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of the charter and the By-Laws of
the Corporation. As used in the charter of the Corporation, the terms
"charter" and "Articles of Incorporation" shall mean and include the Articles
of Incorporation of the Corporation as amended, supplemented and restated
from time to time by Articles of Amendment, Articles Supplementary, Articles
of Restatement or otherwise.
ARTICLE V.
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS
-------------------------------------
The initial number of directors of the Corporation shall be three, which
number may be increased or decreased pursuant to the By-Laws of the
Corporation but shall never be less than the minimum number permitted by the
General Laws of the State of Maryland. The names of the directors who shall
act until their successors are duly elected and qualify are:
Philip L. Kirstein
Philip M. Mandel
Phillip Gillespie
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock of any
class or series, whether now or hereafter authorized, for such consideration
as the Board of Directors may deem advisable, subject to such limitations as
may be set forth in these Articles of Incorporation or in the By-Laws of the
Corporation or in the General Laws of the State of Maryland.
(3) No holder of stock of the Corporation shall, as such holder, have
any right to purchase or subscribe for any shares of the capital stock of the
Corporation or any other security of the Corporation which it may issue or
sell (whether out of the number of shares authorized by these Articles of
Incorporation, or out of any shares of the capital stock of the Corporation
acquired by it after the issue thereof, or otherwise) other than such right,
if any, as the Board of Directors, in its discretion, may determine.
(4) Each director and each officer of the Corporation shall be
indemnified and advanced expenses by the Corporation to the full extent
permitted by the General Laws of the State of Maryland, subject to the
requirements of the Investment Company Act of 1940, as amended. No amendment
of these Articles of Incorporation or repeal of any provision hereof shall
limit or eliminate the benefits provided to directors and officers under this
provision in connection with any act or omission that occurred prior to such
amendment or repeal.
(5) To the fullest extent permitted by the General Laws of the State of
Maryland, subject to the requirements of the Investment Company Act of 1940,
as amended, no director or officer of the Corporation shall be personally
liable to the Corporation or its security holders for money damages. No
amendment of these Articles of Incorporation or repeal of any provision
hereof shall limit or eliminate the benefits provided to directors and
officers under this provision in connection with any act or omission that
occurred prior to such amendment or repeal.
(6) The Board of Directors of the Corporation is vested with the sole
power, to the exclusion of the stockholders, to make, alter or repeal from
time to time any of the By-Laws of the Corporation except any particular By-
Law which is specified as not subject to alteration or repeal by the Board of
Directors, subject to the requirements of the Investment Company Act of 1940,
as amended.
(7) The Board of Directors of the Corporation from time to time may
change the Corporation's name, without the vote or consent of the
stockholders of the Corporation, in any manner and to the extent now or
hereafter permitted by the General Laws of the State of Maryland and by these
Articles of Incorporation.
ARTICLE VI.
REDEMPTION
----------
(1) Each holder of shares of capital stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part of the shares
of capital stock of the Corporation standing in the name of such holder on
the books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the
redemption price of such shares as in effect from time to time as may be
determined by the Board of Directors of the Corporation in accordance with
the provisions hereof, subject to the right of the Board of Directors of the
Corporation to suspend the right of redemption of shares of capital stock of
the Corporation or postpone the date of payment of such redemption price in
accordance with provisions of applicable law. The redemption price of shares
of capital stock of the Corporation shall be the net asset value thereof as
determined by the Board of Directors of the Corporation from time to time in
accordance with the provisions of applicable law, less such redemption fee or
liquidation fee, contingent deferred sales charge or other charge or fee
(which fees and charges may vary within and among the classes and series of
capital stock), if any, as may be approved by the Board of Directors of the
Corporation. Payment of the redemption price shall be made by the
Corporation at such time and in such manner as may be determined from time to
time by the Board of Directors of the Corporation.
(2) The Corporation shall, to the extent permitted by applicable law,
have the right at any time to redeem the shares owned by any holder of
capital stock of the Corporation (i) if the redemption is, in the opinion of
the Board of Directors, desirable in order to prevent the Corporation from
being deemed a "personal holding company" within the meaning of the Internal
Revenue Code of 1986, as amended, or (ii) if the value of the shares in the
account maintained by the Corporation or its transfer agent for any class of
stock for the stockholder is below an amount determined from time to time by
the Board of Directors (the "Minimum Account Balance") and the stockholder
has been given written notice of the redemption as required by the General
Laws of the State of Maryland and has failed to make additional purchases of
shares in an amount sufficient to bring the value in his account to at least
the Minimum Account Balance before the redemption is effected by the
Corporation.
(3) Payment of the redemption price by the Corporation may be made
either in cash or in securities or other assets at the time owned by the
Corporation or partly in cash and partly in securities or other assets at the
time owned by the Corporation.
ARTICLE VII.
DETERMINATION BINDING
---------------------
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to
the direction of the Board of Directors, as to the amount of assets,
obligations or liabilities of the Corporation, as to the amount of net income
of the Corporation from dividends and interest for any period or amounts at
any time legally available for the payment of dividends, as to the amount of
any reserves or charges set up and the propriety thereof, as to the time of
or purpose for creating reserves or as to the use, alteration or cancellation
of any reserves or charges (whether or not any obligation or liability for
which such reserves or charges shall have been created, shall have been paid
or discharged or shall be then or thereafter required to be paid or
discharged), as to the price of any security owned by the Corporation or as
to any other matters relating to the issuance, sale, redemption or other
acquisition or disposition of securities or shares of capital stock of the
Corporation, and any reasonable determination made in good faith by the Board
of Directors as to whether any transaction constitutes a purchase of
securities on "margin," a sale of securities "short," or an underwriting or
the sale of, or a participation in any underwriting or selling group in
connection with the public distribution of, any securities, shall be final
and conclusive, and shall be binding upon the Corporation and all holders of
its capital stock, past, present and future, and shares of the capital stock
of the Corporation are issued and sold on the condition and understanding,
evidenced by the purchase of shares of capital stock or acceptance of share
certificates, that any and all such determinations shall be binding as
aforesaid. No provision of these Articles of Incorporation shall be
effective to (a) require a waiver of compliance with any provision of the
Securities Act of 1933, as amended, or the Investment Company Act of 1940, as
amended, or of any valid rule, regulation or order of the Securities and
Exchange Commission thereunder or (b) protect or purport to protect any
director or officer of the Corporation against any liability to the
Corporation or its security holders to which he 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.
ARTICLE VIII.
PERPETUAL EXISTENCE
-------------------
The duration of the Corporation shall be perpetual.
ARTICLE IX.
AMENDMENT
---------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation, in any manner now or
hereafter prescribed by statute, including any amendment which alters the
contract rights, as expressly set forth in the charter, of any outstanding
stock and substantially adversely affects the stockholder's rights, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, the undersigned incorporator of Merrill Lynch
Technology Leaders Fund, Inc. hereby executes the following Articles of
Incorporation and acknowledges the same to be her act.
Dated this 23rd day of March, 1998.
/s/ ELIZABETH KEELEY
------------------------------
Elizabeth Keeley
BY-LAWS
OF
MERRILL LYNCH TECHNOLOGY LEADERS FUND, INC.
Article I
Offices
Section 1.01. Principal Office. The principal office of Merrill
---------------------------------
Lynch Technology Leaders Fund, Inc. (the "Corporation") shall be in the City
of Baltimore, State of Maryland.
Section 1.02. Principal Executive Office. The principal executive
-------------------------------------------
office of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.
Section 1.03. Other Offices. The Corporation may have such other
------------------------------
offices in such places as the Board of Directors from time to time may
determine.
Article II
Meetings of Stockholders
Section 2.01. Annual Meeting. The Corporation shall not be required
-------------------------------
to hold an annual meeting of its stockholders in any year in which the
election of directors is not required to be acted upon under the Investment
Company Act of 1940, as amended (the "Investment Company Act"). In the event
that the Corporation shall be required to hold an annual meeting of
stockholders to elect directors by the Investment Company Act, such meeting
shall be held no later than 120 days after the occurrence of the event
requiring the meeting. Any stockholders' meeting held in accordance with
this Section for all purposes shall constitute the annual meeting of
stockholders for the year in which the meeting is held.
Section 2.02. Special Meetings. Special meetings of the
---------------------------------
stockholders, unless otherwise provided by law, may be called for any purpose
or purposes by a majority of the Board of Directors, the President, or upon
the written request of the holders of at least a majority of the outstanding
shares of capital stock of the Corporation entitled to vote at such meeting
if they comply with Section 2-502(b) of the Maryland General Corporation Law.
Section 2.03. Place of Meetings. Meetings of the stockholders shall
----------------------------------
be held at such place within the United States as the Board of Directors from
time to time may determine.
Section 2.04. Notice of Meetings; Waiver of Notice. Notice of the
-----------------------------------------------------
place, date and time of the holding of each stockholders' meeting and, if
the meeting is a special meeting, the purpose or purposes of the special
meeting, shall be given personally or by mail, not less than 10 nor more
than 90 days before the date of such meeting, to each stockholder entitled to
vote at such meeting and to each other stockholder entitled to notice of the
meeting. Notice by mail shall be deemed to be duly given when deposited in the
United States mail addressed to the stockholder at his or her address as it
appears on the records of the Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who,
either before or after the meeting, shall submit a signed waiver of notice
which is filed with the records of the meeting. When a meeting is adjourned
to another time and place, unless the Board of Directors, after the
adjournment, shall fix a new record date for an adjourned meeting, or the
adjournment is for more than 120 days after the original record date, notice
of such adjourned meeting need not be given if the time and place to which
the meeting shall be adjourned were announced at the meeting at which the
adjournment is taken.
Section 2.05. Quorum. The presence in person or by proxy of the
-----------------------
holders of shares entitled to cast one-third of the votes entitled to be cast
shall constitute a quorum at any meeting of stockholders, except with respect
to any matter which requires approval by a separate vote of one or more
classes or series of stock, in which case the presence in person or by proxy
of the holders of shares entitled to cast one-third of the votes entitled to
be cast by each class or series entitled to vote as a separate class or
series shall constitute a quorum. In the absence of a quorum no business may
be transacted, except that the holders of a majority of the shares of stock
present in person or by proxy and entitled to vote may adjourn the meeting
from time to time, without notice other than announcement thereat except as
otherwise required by these By-Laws, until the holders of the requisite
amount of shares of stock shall be so present. At any such adjourned meeting
at which a quorum may be present any business may be transacted which might
have been transacted at the meeting as originally called. The absence from
any meeting, in person or by proxy, of holders of the number of shares of
stock of the Corporation in excess of a majority thereof which may be
required by the laws of the State of Maryland, the Investment Company Act, or
other applicable statute, the Articles of Incorporation, or these By-Laws,
for action upon any given matter shall not prevent action at such meeting
upon any other matter or matters which properly may come before the meeting,
if there shall be present thereat, in person or by proxy, holders of the
number of shares of stock of the Corporation required for action in respect
of such other matter or matters.
Section 2.06. Organization. At each meeting of the stockholders,
-----------------------------
the Chairman of the Board (if one has been designated by the Board), or in
his or her absence or inability to act, the President, or in the absence or
inability to act of the Chairman of the Board and the President, a Vice
President, shall act as chairman of the meeting. The Secretary, or in his or
her absence or inability to act, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep the minutes thereof.
Section 2.07. Order of Business. The order of business at all
----------------------------------
meetings of the stockholders shall be as determined by the chairman of the
meeting.
Section 2.08. Voting. Except as otherwise provided by statute or by
-----------------------
the Articles of Incorporation, each holder of record of shares of stock of
the Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his or her
name on the record of stockholders of the Corporation as of the record date
determined pursuant to Section 9 of this Article or if such record date shall
not have been so fixed, then at the later of (i) the close of business on the
day on which notice of the meeting is mailed or (ii) the thirtieth day before
the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him or her by a proxy signed
by such stockholder or his or her attorney-in-fact. No proxy shall be valid
after the expiration of eleven months from the date thereof, unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases where such proxy states that
it is irrevocable and where an irrevocable proxy is permitted by law. Except
as otherwise provided by statute, the Articles of Incorporation or these
By-Laws, any corporate action to be taken by vote of the stockholders (other
than the election of directors, which shall be by plurality vote) may be
authorized by a majority of the total votes cast at a meeting of stockholders
by the holders of shares present in person or represented by proxy and
entitled to vote on such action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute
or by these By-Laws, or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or by his or her proxy, if
there be such proxy, and shall state the number of shares voted.
Section 2.09. Fixing of Record Date. The Board of Directors may set
--------------------------------------
a record date for the purpose of determining stockholders entitled to vote at
any meeting of the stockholders. The record date, which may not be prior to
the close of business on the day the record date is fixed, shall be not more
than 90 days nor less than 10 days before the date of the meeting of the
stockholders. All persons who were holders of record of shares at such time,
and not others, shall be entitled to vote at such meeting and any adjournment
thereof.
Section 2.10. Inspectors. The Board, in advance of any meeting of
---------------------------
stockholders, may appoint one or more inspectors to act at such meeting or
any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may
appoint inspectors. Each inspector, before entering upon the discharge of
his or her duties, may be required to take and sign an oath to execute
faithfully the duties of inspector at such meeting with strict impartiality
and according to the best of his or her ability. The inspectors may be
empowered to determine the number of shares outstanding and the voting powers
of each, the number of shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising
in connection with the right to vote, count and tabulate all votes, ballots
or consents, determine the result, and do such acts as are proper to conduct
the election or vote with fairness to all stockholders. On request of the
chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall act as inspector of
an election of directors. Inspectors need not be stockholders.
Section 2.11. Consent of Stockholders in Lieu of Meeting. Except as
-----------------------------------------------------------
otherwise provided by statute or by the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which may
be taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders meetings: (i) a unanimous written consent which sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote
thereat.
Article III
Board of Directors
Section 3.01. General Powers. Except as otherwise provided in the
-------------------------------
Articles of Incorporation, the business and affairs of the Corporation shall
be managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the stockholders by law or by the
Articles of Incorporation or these By-Laws.
Section 3.02. Number of Directors. The number of directors shall be
------------------------------------
fixed from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors; provided, however, that in no
event shall the number of directors be less than the minimum permitted by the
General Law of the State of Maryland nor more than fifteen. Any vacancy
created by an increase in Directors may be filled in accordance with Section
6 of this Article III. No reduction in the number of directors shall have
the effect of removing any director from office prior to the expiration of
his or her term unless such director is specifically removed pursuant to
Section 5 of this Article III at the time of such decrease. Directors need
not be stockholders.
Section 3.03. Election and Term of Directors. Directors shall be
-----------------------------------------------
elected annually at a meeting of stockholders held for that purpose;
provided, however, that if no meeting of the stockholders of the Corporation
is required to be held in a particular year pursuant to Section 1 of Article
II of these By-Laws, directors shall be elected at the next meeting held.
The term of office of each director shall be from the time of his or her
election and qualification until the election of directors next succeeding
his or her election and until his or her successor shall have been elected
and shall have qualified, or until his or her death, or until he or she shall
have resigned or until December 31 of the year in which he or she shall have
reached 72 years of age, or until he or she shall have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
by the Charter.
Section 3.04. Resignation. A director of the Corporation may resign
----------------------------
at any time by giving written notice of his or her resignation to the Board
or the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately
upon its receipt; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 3.05. Removal of Directors. Any director of the Corporation
-------------------------------------
may be removed (with or without cause) by the stockholders by a vote of a
majority of the votes entitled to be cast for the election of directors.
Section 3.06. Vacancies. Any vacancies in the Board, whether
--------------------------
arising from death, resignation, removal, an increase in the number of
directors or any other cause, may be filled by a vote of the majority of the
Board of Directors then in office even though such majority is less than a
quorum, provided that no vacancies shall be filled by action of the remaining
directors, if after the filling of said vacancy or vacancies, less than
two-thirds of the directors then holding office shall have been elected by
the stockholders of the Corporation. In the event that at any time there is
a vacancy in any office of a director which vacancy may not be filled by the
remaining directors, a special meeting of the stockholders shall be held as
promptly as possible and in any event within 60 days, for the purpose of
filling said vacancy or vacancies.
Section 3.07. Place of Meetings. Meetings of the Board may be held
----------------------------------
at such place as the Board from time to time may determine or as shall be
specified in the notice of such meeting.
Section 3.08. Regular Meetings. Regular meetings of the Board may
---------------------------------
be held without notice at such time and place as may be determined by the
Board of Directors.
Section 3.09. Special Meetings. Special meetings of the Board may
---------------------------------
be called by two or more directors of the Corporation or by the Chairman of
the Board or the President.
Section 3.10. Telephone Meetings. Members of the Board of Directors
-----------------------------------
or of any committee thereof may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Subject
to the provisions of the Investment Company Act participation in a meeting by
these means constitutes presence in person at the meeting.
Section 3.11. Notice of Special Meetings. Notice of each special
-------------------------------------------
meeting of the Board shall be given by the Secretary as hereinafter provided,
in which notice shall be stated the time and place of the meeting. Notice of
each such meeting shall be delivered to each director, either personally or by
telephone or any standard form of telecommunication, at least 24 hours before
the time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him or her at his or her residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
Section 3.12. Waiver of Notice of Meetings. Notice of any special
---------------------------------------------
meeting need not be given to any director who, either before or after the
meeting, shall sign a written waiver of notice which is filed with the
records of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver or notice of any
meeting need not state the purposes of such meeting.
Section 3.13. Quorum and Voting. One-third, but not less than two
----------------------------------
(unless there is only one Director), of the members of the entire Board shall
be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and except as
otherwise expressly required by statute, the Articles of Incorporation, these
By-Laws, the Investment Company Act, or other applicable statute, the act of
a majority of the directors present at any meeting at which a quorum is
present shall be the act of the Board. In the absence of a quorum at any
meeting of the Board, a majority of the directors present thereat may adjourn
such meeting to another time and place until a quorum shall be present
thereat. Notice of the time and place of any such adjourned meeting shall be
given to the directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other directors. At any adjourned meeting at
which a quorum is present, any business may be transacted which might have
been transacted at the meeting as originally called.
Section 3.14. Organization. The Board, by resolution adopted by a
-----------------------------
majority of the entire Board, may designate a Chairman of the Board, who
shall preside at each meeting of the Board. In the absence or inability of
the Chairman of the Board to preside at a meeting, the President or, in his
or her absence or inability to act, another director chosen by a majority of
the directors present, shall act as chairman of the meeting and preside
thereat. The Secretary (or, in his or her absence or inability to act, any
person appointed by the Chairman) shall act as secretary of the meeting and
keep the minutes thereof.
Section 3.15. Written Consent of Directors in Lieu of a Meeting.
------------------------------------------------------------------
Subject to the provisions of the Investment Company Act, any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the
writings or writing are filed with the minutes of the proceedings of the
Board or committee.
Section 3.16. Compensation. Directors may receive compensation for
-----------------------------
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the
Board.
Section 3.17. Investment Policies. It shall be the duty of the
------------------------------------
Board of Directors to direct that the purchase, sale, retention and disposal
of portfolio securities and the other investment practices of the Corporation
at all times are consistent with the investment policies and restrictions
with respect to securities investments and otherwise of the Corporation, as
recited in the Prospectus of the Corporation included in the Registration
Statement of the Corporation, as recited in the current Prospectus and
Statement of Additional Information of the Corporation, as filed from time to
time with the Securities and Exchange Commission, and as required by the
Investment Company Act. The Board, however, may delegate the duty of
management of the assets and the administration of its day-to-day operations
to an individual or corporate management company and/or investment adviser
pursuant to a written contract or contracts which have obtained the requisite
approvals, including the requisite approvals of renewals thereof, of the
Board of Directors and/or the stockholders of the Corporation in accordance
with the provisions of the Investment Company Act.
Article IV
Committees
Section 4.01. Executive Committee. The Board, by resolution adopted
------------------------------------
by a majority of the entire board, may designate an Executive Committee
consisting of two or more of the directors of the Corporation, which
committee shall have and may exercise all of the powers and authority of the
Board with respect to all matters other than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles of
Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act, or the taking of any other action required to be taken by the
Board of Directors by the Investment Company Act;
(e) the amendment or repeal of these By-Laws or the adoption of new By-
Laws;
(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock of
the Corporation; and
(h) the approval of any merger or share exchange which does not require
stockholder approval.
The Executive Committee shall keep written minutes of its proceedings and
shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
Section 4.02. Other Committees of the Board. The Board of Directors
----------------------------------------------
from time to time, by resolution adopted by a majority of the whole Board,
may designate one or more other committees of the Board, each such committee
to consist of one or more directors and to have such powers and duties as the
Board of Directors, by resolution, may prescribe.
Section 4.03. General. One-third of the members of any committee
------------------------
shall be present in person at any meeting of such committee in order to
constitute a quorum for the transaction of business at such meeting, and the
act of a majority present shall be the act of such committee. The Board may
designate a chairman of any committee and such chairman or any two members of
any committee may fix the time and place of its meetings unless the Board
shall otherwise provide. In the absence or disqualification of any member of
any committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or she or they constitute a
quorum, unanimously may appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member.
The Board shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace
any absent or disqualified member, or to dissolve any such committee.
Nothing herein shall be deemed to prevent the Board from appointing one or
more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority or power of the Board in the management of
the business or affairs of the Corporation, except as may be prescribed by
the Board.
Article V.
Officers, Agents and Employees
Section 5.01. Number and Qualifications. The officers of the
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Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect
or appoint one or more Vice Presidents and also may appoint such other
officers, agents and employees as it may deem necessary or proper. Any two
or more offices may be held by the same person, except the offices of
President and Vice President, but no officer shall execute, acknowledge or
verify any instrument in more than one capacity. Such officers shall be
elected by the Board of Directors each year at a meeting of the Board of
Directors, each to hold office for the ensuing year and until his or her
successor shall have been duly elected and shall have qualified, or until his
or her death, or until he or she shall have resigned, or have been removed,
as hereinafter provided in these By-Laws. The Board from time to time may
elect such officers (including one or more Assistant Vice Presidents, one or
more Assistant Treasurers and one or more Assistant Secretaries) and such
agents, as may be necessary or desirable for the business of the Corporation.
The President also shall have the power to appoint such assistant officers
(including one or more Assistant Vice Presidents, one or more Assistant
Treasurers and one or more Assistant Secretaries) as may be necessary or
appropriate to facilitate the management of the Corporation's affairs.
Such officers and agents shall have such duties and shall hold their offices
for such terms as may be prescribed by the Board or by the appointing
authority.
Section 5.02. Resignations. Any officer of the Corporation may
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resign at any time by giving written notice of resignation to the Board, the
Chairman of the Board, President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall be necessary to make it effective.
Section 5.03. Removal of Officer, Agent or Employee. Any officer,
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agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate such power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Such removal shall be without prejudice to such person's
contract rights, if any, but the appointment of any person as an officer,
agent or employee of the Corporation shall not of itself create contract
rights.
Section 5.04. Vacancies. A vacancy in any office, whether arising
--------------------------
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the
manner prescribed in these By-Laws for the regular election or appointment to
such office.
Section 5.05. Compensation. The compensation of the officers of the
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Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his or her
control.
Section 5.06. Bonds or Other Security. If required by the Board,
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any officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his or her duties, in such amount
and with such surety or sureties as the Board may require.
Section 5.07. President. The President shall be the chief executive
--------------------------
officer of the Corporation. In the absence of the Chairman of the Board (or
if there be none), he or she shall preside at all meetings of the
stockholders and of the Board of Directors. He or she shall have, subject to
the control of the Board of Directors, general charge of the business and
affairs of the Corporation. He or she may employ and discharge employees
and agents of the Corporation, except such as shall be appointed by the
Board, and he or she may delegate these powers.
Section 5.08. Vice President. Each Vice President shall have such
-------------------------------
powers and perform such duties as the Board of Directors or the President
from time to time may prescribe.
Section 5.09. Treasurer. The Treasurer shall:
--------------------------
(a) have charge and custody of, and be responsible for, all of the
funds and securities of the Corporation, except those which the Corporation
has placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act
of 1934, as amended) pursuant to a written agreement designating such bank or
trust company or member of a national securities exchange as custodian of the
property of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit
of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and
(f) in general, perform all of the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him
or her by the Board or the President.
Section 5.10. Secretary. The Secretary shall:
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(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the
Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation
(unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept
and filed; and
(e) in general, perform all of the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
or her by the Board or the President.
Section 5.11. Delegation of Duties. In case of the absence of any
-------------------------------------
officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or
any of them, of such officer upon any other officer or upon any director.
Article VI.
Indemnification
Section 6.01. General Indemnification. Each officer and director of
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the Corporation shall be indemnified by the Corporation to the full extent
permitted under the Maryland General Corporation Law, except that such
indemnity shall not protect any such person against any liability to the
Corporation or any stockholder thereof to which such person would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her
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 or her office, the decision by the Corporation
to indemnify such person must be based upon the reasonable determination of
independent legal counsel or the vote of a majority of a quorum of the
directors who are neither "interested persons," as defined in Section
2(a)(19) of the Investment Company Act, nor parties to the proceeding
("non-party independent directors"), after review of the facts, that such
officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
or her office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him or her in
connection with proceedings to which he or she is a party in the manner and
to the full extent permitted under the Maryland General Corporation Law
without a preliminary determination as to his or her ultimate entitlement to
indemnification (except as set forth below); provided, however, that the
person seeking indemnification shall provide to the Corporation a written
affirmation of his or her good faith belief that the standard of conduct
necessary for indemnification by the Corporation has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person
seeking indemnification shall provide a security in form and amount
acceptable to the Corporation for his or her undertaking; (b) the Corporation
is insured against losses arising by reason of the advance; (c) a majority of
a quorum of non-party independent directors, or independent legal counsel in
a written opinion, shall determine, based on a review of facts readily
available to the Corporation at the time the advance is proposed to be made,
that there is reason to believe that the person seeking indemnification will
ultimately be found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland, from liability arising from his or her activities as
officer or director of the Corporation. The Corporation, however, may not
purchase insurance on behalf of any officer or director of the Corporation that
protects or purports to protect such person from liability to the Corporation
or to its stockholders to which such officer or director would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
The Corporation may indemnify, make advances or purchase insurance to the
extent provided in this Article VI on behalf of an employee or agent who is
not an officer or director of the Corporation.
Section 6.02. Other Rights. The indemnification provided by this
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Article VI shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may
be entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or
officer of the Corporation in his or her official capacity and as to action
by such person in another capacity while holding such office or position, and
shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such
person.
Article VII.
Capital Stock
Section 7.01. Stock Certificates. Each holder of stock of the
-----------------------------------
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing
the number of shares of stock of the Corporation owned by him or her,
provided, however, that certificates for fractional shares will not be
delivered in any case. The certificates representing shares of stock shall
be signed by or in the name of the Corporation by the Chairman, President or
a Vice President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer and sealed with the seal of the
Corporation. Any or all of the signatures or the seal on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate shall be issued, it may be issued by the Corporation with the
same effect as if such officer, transfer agent or registrar were still in
office at the date of issue.
Section 7.02. Books of Account and Record of Stockholders. There
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shall be kept at the principal executive office of the Corporation correct
and complete books and records of account of all of the business and
transactions of the Corporation.
Section 7.03. Transfers of Shares. Transfers of shares of stock of
------------------------------------
the Corporation shall be made on the stock records of the Corporation only by
the registered holder thereof, or by his or her attorney thereunto authorized
by power of attorney duly executed and filed with the Secretary or with a
transfer agent or transfer clerk, and on surrender of the certificate or
certificates, if issued, for such shares properly endorsed or accompanied by a
duly executed stock transfer power and the payment of all taxes thereon.
Except as otherwise provided by law, the Corporation shall be entitled to
recognize the exclusive right of a person in whose name any share or shares
stand on the record of stockholders as the owner of such share or shares for
all purposes, including, without limitation, the rights to receive dividends or
other distributions, and to vote as such owner, and the Corporation shall not
be bound to recognize any equitable or legal claim to or interest in any such
share or shares on the part of any other person.
Section 7.04. Regulations. The Board may make such additional rules
----------------------------
and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation. It may appoint, or authorize any officer
or officers to appoint, one or more transfer agents or one or more transfer
clerks and one or more registrars and may require all certificates for shares
of stock to bear the signature or signatures of any of them.
Section 7.05. Lost, Destroyed or Mutilated Certificates. The holder
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of any certificates representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation of
such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost or destroyed or which shall have been
mutilated, and the Board, in its discretion, may require such owner or his or
her legal representatives to give to the Corporation a bond in such sum,
limited or unlimited, and in such form and with such surety or sureties, as
the Board in its absolute discretion shall determine, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss or destruction of any such certificate, or issuance of a new
certificate. Anything herein to the contrary notwithstanding, the Board, in
its absolute discretion, may refuse to issue any such new certificate, except
pursuant to legal proceedings under the laws of the State of Maryland.
Section 7.06. Fixing of a Record Date for Dividends and
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Distributions. The Board may fix, in advance, a date not more than 90
- -------------
days preceding the date fixed for the payment of any dividend or the making
of any distribution or the allotment of rights to subscribe for securities of
the Corporation, or for the delivery of evidences of rights or evidences of
interests arising out of any change, conversion or exchange of common stock
or other securities, as the record date for the determination of the
stockholders entitled to receive any such dividend, distribution, allotment,
rights or interests, and in such case only the stockholders of record at the
time so fixed shall be entitled to receive such dividend, distribution,
allotment, rights or interests.
Section 7.07. Information to Stockholders and Others. Any
-------------------------------------------------------
stockholder of the Corporation or his or her agent may inspect and copy
during usual business hours the Corporation's By-Laws, minutes of the
proceedings of its stockholders, annual statements of its affairs, and voting
trust agreements on file at its principal office.
Article VIII.
Seal
The seal of the Corporation shall be circular in form and shall bear, in
addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner
reproduced.
Article IX.
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the 31st day of December.
Article X.
Depositories and Custodians
Section 10.01. Depositories. The funds of the Corporation shall be
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deposited with such banks or other depositories as the Board of Directors of
the Corporation from time to time may determine.
Section 10.02. Custodians. All securities and other investments
---------------------------
shall be deposited in the safekeeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safekeeping
of the securities and investments of the Corporation shall contain provisions
complying with the Investment Company Act, and the general rules and
regulations thereunder.
Article XI
Execution of Instruments
Section 11.01. Checks, Notes, Drafts, etc. Checks, notes, drafts,
-------------------------------------------
acceptances, bills of exchange and other orders or obligations for the
payment of money shall be signed by such officer or officers or person or
persons as the Board of Directors from time to time shall designate by
resolution.
Section 11.02. Sale or Transfer of Securities. Stock certificates,
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bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of
subject to any limits imposed by these By-Laws and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation or
sold, transferred or otherwise disposed of, may be transferred from the name of
the Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
Article XII
Independent Public Accountants
The firm of independent public accountants which shall sign or certify the
financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors
and, if required by the provisions of the Investment Company Act, ratified by
the stockholders.
Article XIII
Annual Statement
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the stockholders based upon each such examination shall be mailed
to each stockholder of the Corporation of record on such date with respect to
each report as may be determined by the Board, at his or her address as the
same appears on the books of the Corporation. Such annual statement shall
also be available at any annual meeting of stockholders and shall be placed
on file at the Corporation's principal office in the State of Maryland, and
if no annual meeting is held pursuant to Article II, Section 1, such annual
statement of affairs shall be placed on file at the Corporation's principal
office within 120 days after the end of the Corporation's fiscal year. Each
such report shall show the assets and liabilities of the Corporation as of
the close of the annual or quarterly period covered by the report and the
securities in which the funds of the Corporation were then invested. Such
report also shall show the Corporation's income and expenses for the period
from the end of the Corporation's preceding fiscal year to the close of the
annual or quarterly period covered by the report and any other information
required by the Investment Company Act, and shall set forth such other
matters as the Board or such firm of independent public accountants shall
determine.
Article XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors. The stockholders
shall have no power to make, amend, alter or repeal By-Laws.
