<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 27, 1995
SECURITIES ACT FILE NO. 2-49007
INVESTMENT COMPANY ACT FILE NO. 811-2405
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/PRE-EFFECTIVE AMENDMENT NO.
/ /POST-EFFECTIVE AMENDMENT NO. 32
/X/AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/AMENDMENT NO. 21
/X/(CHECK APPROPRIATE BOX OR BOXES)
------------------------
MERRILL LYNCH CAPITAL FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH CAPITAL FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MARK B. GOLDFUS, ESQ. COUNSEL FOR THE COMPANY:
MERRILL LYNCH ASSET BROWN & WOOD
MANAGEMENT ONE WORLD TRADE CENTER
P.O. BOX 9011 NEW YORK, N.Y. 10048-0557
PRINCETON, NEW JERSEY 08543-9011 ATTENTION: THOMAS R. SMITH, JR.
</TABLE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
/X/ IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)
/ / ON (DATE) PURSUANT TO PARAGRAPH (B)
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)
/ / ON (DATE) PURSUANT TO PARAGRAPH (A)(1)
/ / 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)
/ / ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
------------------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF COMMON
STOCK UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE
REGISTRANT'S MOST RECENT FISCAL YEAR WAS FILED ON MAY 25, 1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH CAPITAL FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
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.......... Financial Highlights
Item 4. General Description of Registrant........ Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund................... Fee Table; Management of the Fund;
Portfolio Transactions and Brokerage;
Inside Back Cover Page
Item 5A. Management's Discussion of Fund
Performance............................. Not Applicable
Item 6. Capital Stock and Other Securities....... Cover Page; Purchase of Shares;
Redemption of Shares; Shareholder
Services; Additional Information
Item 7. Purchase of Securities Being Offered..... Cover Page; Fee Table; Merrill Lynch
Select PricingSM System; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase................. Fee Table; Merrill Lynch Select
PricingSM System; 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.......... Not Applicable
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; General
Information-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. 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..................... Financial Statements
PART C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE> 3
PROSPECTUS
JULY 27, 1995
MERRILL LYNCH CAPITAL FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011--PHONE NO. (609) 282-2800
Merrill Lynch Capital Fund, Inc. (the "Fund") seeks to achieve the highest
total investment return consistent with prudent risk through a fully managed
investment policy utilizing equity, debt (including money market) and
convertible securities. This permits management of the Fund to vary investment
policy based on its evaluation of changes in economic and market trends. Total
investment return is the aggregate of income and capital value changes.
Consistent with this policy, the Fund's portfolio may, at any given time, be
invested substantially in equity securities, corporate bonds or money market
securities. It is the expectation of management that, over longer periods, a
major portion of the Fund's portfolio will consist of equity securities of
larger market capitalization, quality companies. Since January 1, 1974, the
portion of the Fund's portfolio invested in equity securities has ranged from
approximately 43% to 98% with the balance being invested in corporate bonds and
money market securities. On March 31, 1995, approximately 60% of the Fund's
portfolio was invested in equity securities. 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 10.
------------------------
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the
investor believes is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other relevant
circumstances. See "Merrill Lynch Select Pricing(SM) System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9011, Princeton, New Jersey 08543-9011 [(609)
282-2800], or from other securities dealers which have entered into dealer
agreements with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000 and the
minimum subsequent purchase is $50, except that for retirement plans the minimum
initial purchase is $100 and the minimum subsequent purchase is $1. Merrill
Lynch may charge its customers a processing fee (presently $4.85) for confirming
purchases and repurchases. Purchases and redemptions directly through the Fund's
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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
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 July 27, 1995 (the "Statement of Additional Information"),
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. The Statement of Additional Information is
hereby incorporated by reference into this Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE> 4
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows.
<TABLE>
<CAPTION>
CLASS A(A) CLASS B(B) CLASS C CLASS D
---------- ----------------------- ------------ ----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)...... 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments............................ None None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)............ None(d) 4.0% during the first 1.0% for one None(d)
year, decreasing 1.0% year
annually thereafter to
0.0% after the fourth
year
Exchange Fee............................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS) (E):
Investment Advisory Fees(f)................ 0.40% 0.40% 0.40% 0.40%
12b-1 Fees(g):
Account Maintenance Fees................. None 0.25% 0.25% 0.25%
Distribution Fees........................ None 0.75% 0.75% None
(Class B shares
convert to Class D
shares automatically
after approximately
eight years and cease
being subject to
distribution fees)
Other Expenses:
Custodial Fees........................ 0.01% 0.01% 0.01% 0.01%
Shareholder Servicing Costs(h)........ 0.13% 0.15% 0.15% 0.13%
Other................................. 0.03% 0.03% 0.03% 0.03%
-------- -------- -------- --------
Total Other Expenses.............. 0.17% 0.19% 0.19% 0.17%
-------- -------- -------- --------
Total Fund Operating Expenses.............. 0.57% 1.59% 1.59% 0.82%
======== ======== ======== ========
</TABLE>
- ---------------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and certain investment
programs. See "Purchase of Shares--Initial Sales Charge Alternatives--Class
A and Class D Shares"--page 17.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Purchase of Shares--Deferred Sales Charge
Alternatives--Class B and Class C Shares"--page 19.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. Class A or Class D purchases of $1,000,000 or more may not be
subject to an initial sales charge. See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares"--page 17.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more which
may not be subject to an initial sales charge will instead be subject to a
CDSC of 1.0% of amounts redeemed within the first year after purchase.
(e) Information for Class A and Class B shares is stated for the fiscal year
ended March 31, 1995. Information under "Other Expenses" for Class C and
Class D shares is estimated for the fiscal year ending March 31, 1996.
(f) See "Management of the Fund--Management and Advisory Arrangements"--page 14.
(g) See "Purchase of Shares--Distribution Plans"--page 23.
(h) See "Management of the Fund--Transfer Agency Services"--page 15.
2
<PAGE> 5
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID
FOR THE PERIOD OF:
----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment including the maximum $52.50 initial sales charge
(Class A and Class D shares only) and assuming (1) the Total
Fund Operating Expenses for each class set forth above; (2) a
5% annual return throughout the periods and (3) redemption at
the end of the period:
Class A..................................................... $ 58 $70 $83 $120
Class B..................................................... $ 56 $70 $87 $169*
Class C..................................................... $ 26 $50 $87 $189
Class D..................................................... $ 60 $77 $96 $149
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A..................................................... $ 58 $70 $83 $120
Class B..................................................... $ 16 $50 $87 $169*
Class C..................................................... $ 16 $50 $87 $189
Class D..................................................... $ 60 $77 $96 $149
</TABLE>
- ---------------
* Assumes conversion to Class D shares approximately eight years after purchase.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Commission regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE
EXAMPLE. Class B and Class C shareholders who hold their shares for an extended
period of time may pay more in Rule 12b-1 distribution fees than the economic
equivalent of the maximum front-end sales charges permitted under the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. (the
"NASD"). Merrill Lynch may charge its customers a processing fee (presently
$4.85) for confirming purchases and redemptions. Purchases and redemptions
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 PRICINGSM SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
PricingSM 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 PricingSM System is used by more than 60
mutual funds advised by Merrill Lynch Asset Management, L.P. ("MLAM" or the
"Investment Adviser") or Fund Asset Management, L.P. ("FAM"), an affiliate of
MLAM. Funds advised by MLAM or FAM which use the Merrill Lynch Select PricingSM
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
3
<PAGE> 6
of the ongoing distribution fees and the additional incremental transfer agency
costs resulting from the deferred sales charge arrangements. The deferred sales
charges 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 the Class D
shares, are imposed directly against those classes and not against all assets of
the Fund and accordingly, such charges do not affect the net asset value of any
other class or have any impact on investors choosing another sales charge
option. Dividends paid by the Fund for each class of shares are calculated in
the same manner at the same time and will differ only to the extent that account
maintenance and distribution fees and any incremental transfer agency costs
relating to a particular class are borne exclusively by that class. Each class
has different exchange privileges. See "Shareholder Services--Exchange
Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select PricingSM System that the investor
believes is 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>
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
-----------------------------------------------------------------------------------------------
A Maximum 5.25% initial sales
charge(2)(3) No No No
-----------------------------------------------------------------------------------------------
B CDSC for a period of up to 4
years, at a rate of 4.0%
during the first year,
decreasing 1.0% annually to B shares convert to
0.0% 0.25% 0.75% D shares automatically
after approximately
eight years(4)
-----------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
-----------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales
charge(3) 0.25% No No
-----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs 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 in connection with certain investment
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, will be subject to a 1.0% CDSC for one year. See "Class A" and
"Class D" below.
4
<PAGE> 7
(4) 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.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares of the Fund are offered to a limited group of investors and also
will be issued upon reinvestment of dividends on outstanding Class A
shares of the Fund. Investors that 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 investment
programs. In addition, Class A shares will be offered to Merrill Lynch
& Co., Inc. ("ML & Co.") and its subsidiaries (the term "subsidiaries",
when used herein with respect to ML & Co., includes the Investment
Adviser, FAM and certain other entities directly or indirectly
wholly-owned and controlled by ML & Co.) and their directors and
officers, and to members of the Boards of MLAM-advised mutual funds.
The maximum initial sales charge is 5.25% which is reduced for
purchases of $25,000 and over, and waived for purchases by certain
retirement plans in connection with certain investment 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 will be
subject to a 1.0% CDSC if the shares are redeemed within one year after
purchase. Sales charges also are 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 the Class B shares, and a CDSC if they are redeemed
within four years 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. Automatic conversion of Class B shares into Class D shares
will occur at least once each month on the basis of the relative net
asset values of the shares of the two classes on the conversion date,
without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not be deemed a
purchase or sale of the shares for Federal income tax purposes. Shares
purchased through reinvestment of dividends on Class B shares also will
convert automatically to Class D shares. The conversion period for
dividend reinvestment shares and the conversion and holding periods for
certain retirement plans are modified as described under "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares".
Class C: Class C shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25%, and an
ongoing distribution fee of 0.75%, of the Fund's average net assets
attributable to Class C shares. Class C shares are also subject to a
CDSC if they
5
<PAGE> 8
are redeemed within one year of purchase. Although Class C shares are
subject to a 1.0% CDSC for only one year (as compared to four years for
Class B), Class C shares have no conversion feature and, accordingly, an
investor that 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. 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 will be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. 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 in connection with certain investment programs. Class
D shares also will be issued upon conversion of Class B shares as
described above under "Class B". See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares".
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
PricingSM System that the investor believes is most beneficial under his
particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative particularly
attractive because similar sales charge reductions are not available with
respect to the deferred sales charges imposed in connection with purchases of
Class B or Class C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or
Class C shares may exceed the initial sales charge and, in the case of Class D
shares, the account maintenance fee. Although some investors that previously
purchased Class A shares may no longer be eligible to purchase Class A shares of
other MLAM-advised mutual funds, those previously purchased Class A shares,
together with Class B, Class C and Class D share holdings, will count toward a
right of accumulation which may qualify the investor for reduced initial sales
charges on new initial sales charge purchases. In addition, the ongoing Class B
and Class C account maintenance and distribution fees will cause Class B and
Class C shares to have higher expense ratios, pay lower dividends and have lower
total returns than the initial sales charge shares. The ongoing Class D account
maintenance fees will cause Class D shares to have a higher expense ratio, pay
lower dividends and have a lower 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
6
<PAGE> 9
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 of 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 of their assets invested initially and they are
uncertain as to the length of time they intend to hold their assets in
MLAM-advised mutual funds. Although Class C shareholders are subject to a
shorter CDSC period at a lower rate, they forgo the Class B conversion feature,
making their investment subject to account maintenance and distribution fees for
an indefinite period of time. In addition, while both Class B and Class C
distribution fees are subject to the limitations on asset-based sales charges
imposed by the NASD, the Class B distribution fees are further limited under a
voluntary waiver of asset-based sales charges. See "Purchase of
Shares--Limitations on the Payment of Deferred Sales Charges".
7
<PAGE> 10
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in connection
with the annual audits of the financial statements of the Fund by Deloitte &
Touche LLP, independent auditors. Financial statements for the year ended March
31, 1995 and the independent auditors' report thereon are included in the
Statement of Additional Information. The following per share data and ratios
have been derived from information provided in the Fund's audited financial
statements. Financial highlights are not presented for Class B shares for the
period April 1, 1985 to October 20, 1988 since no shares of that class were
publicly issued prior to October 20, 1988, and financial information is
presented for Class C and Class D shares only for the period October 21, 1994
(commencement of operations) to March 31, 1995. Further information about the
performance of the Fund is contained in the Fund's most recent annual report to
shareholders which may be obtained, without charge, by calling or by writing the
Fund at the telephone number or address on the front cover of this Prospectus.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------------------
FOR THE YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year..... $ 27.46 $ 27.89 $ 26.90 $ 25.38 $ 23.65 $ 22.33 $ 21.32
---------- ---------- ---------- ---------- ---------- -------- --------
Investment income--net................. 1.01 .97 .87 1.02 1.17 1.11 1.07
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net..................... 1.77 .50 1.99 2.12 2.24 2.03 1.69
---------- ---------- ---------- ---------- ---------- -------- --------
Total from investment operations....... 2.78 1.47 2.86 3.14 3.41 3.14 2.76
---------- ---------- ---------- ---------- ---------- -------- --------
Less dividends and distributions:
Investment income--net................ (.94) (.95) (.87) (1.02) (1.14) (1.10) (.73)
Realized gain on investments--net..... (1.56) (.95) (1.00) (.60) (.54) (.72) (1.02)
---------- ---------- ---------- ---------- ---------- -------- --------
Total dividends and distributions...... (2.50) (1.90) (1.87) (1.62) (1.68) (1.82) (1.75)
---------- ---------- ---------- ---------- ---------- -------- --------
Net asset value, end of year........... $ 27.74 $ 27.46 $ 27.89 $ 26.90 $ 25.38 $ 23.65 $ 22.33
========== ========== ========== ========== ========== ======== ========
TOTAL INVESTMENT RETURN:*
Based on net asset value per share..... 10.95% 5.39% 11.33% 12.96% 15.17% 14.04% 13.42%
========== ========== ========== ========== ========== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses............................... .57% .53% .55% .56% .58% .60% .64%
========== ========== ========== ========== ========== ======== ========
Investment income--net................. 3.81% 3.52% 3.56% 4.21% 5.13% 4.80% 4.79%
========== ========== ========== ========== ========== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)............................ $2,507,767 $2,237,492 $2,056,023 $1,533,530 $1,083,741 $866,924 $678,958
========== ========== ========== ========== ========== ======== ========
Portfolio turnover..................... 89% 86% 55% 59% 86% 85% 63%
========== ========== ========== ========== ========== ======== ========
<CAPTION>
1988 1987 1986
-------- -------- --------
<S> <C<C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year..... $ 27.97 $ 26.19 $ 21.30
-------- -------- --------
Investment income--net................. .91 .88 .84
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net..................... (1.58) 3.44 6.31
-------- -------- --------
Total from investment operations....... (.67) 4.32 7.15
-------- -------- --------
Less dividends and distributions:
Investment income--net................ (.22) (.44) (.66)
Realized gain on investments--net..... (5.76) (2.10) (1.60)
-------- -------- --------
Total dividends and distributions...... (5.98) (2.54) (2.26)
-------- -------- --------
Net asset value, end of year........... $ 21.32 $ 27.97 $ 26.19
======== ======== ========
TOTAL INVESTMENT RETURN:*
Based on net asset value per share..... (1.69%) 18.44% 36.77%
======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses............................... .60% .62% .64%
======== ======== ========
Investment income--net................. 3.57% 3.52% 3.81%
======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)............................ $657,682 $700,643 $528,738
======== ======== ========
Portfolio turnover..................... 85% 109% 87%
======== ======== ========
</TABLE>
- ---------------
* Total investment returns exclude the effects of sales loads.
8
<PAGE> 11
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------------------------
FOR THE YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989+
---------- ---------- ---------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 27.04 $ 27.49 $ 26.58 $ 25.14 $ 23.46 $ 22.27 $ 22.64
---------- ---------- ---------- ---------- -------- -------- -------
Investment income--net........................ .74 .70 .65 .80 .96 .91 .22
Realized and unrealized gain on investments
and foreign currency transactions--net....... 1.72 .48 1.89 2.05 2.19 1.96 .72
---------- ---------- ---------- ---------- -------- -------- -------
Total from investment operations.............. 2.46 1.18 2.54 2.85 3.15 2.87 .94
---------- ---------- ---------- ---------- -------- -------- -------
Less dividends and distributions:
Investment income--net....................... (.66) (.68) (.63) (.81) (.93) (.96) (.54)
Realized gain on investments--net............ (1.56) (.95) (1.00) (.60) (.54) (.72) (.77)
---------- ---------- ---------- ---------- -------- -------- -------
Total dividends and distributions............. (2.22) (1.63) (1.63) (1.41) (1.47) (1.68) (1.31)
---------- ---------- ---------- ---------- -------- -------- -------
Net asset value, end of period................ $ 27.28 $ 27.04 $ 27.49 $ 26.58 $ 25.14 $ 23.46 $ 22.27
========== ========== ========== ========== ======== ======== =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............ 9.81% 4.36% 10.16% 11.81% 14.03% 12.84% 4.42%#
========== ========== ========== ========== ======== ======== =======
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding distribution and/or
account maintenance fees..................... .59% .55% .56% .58% .60% .62% .70%*
========== ========== ========== ========== ======== ======== =======
Expenses...................................... 1.59% 1.55% 1.56% 1.58% 1.60% 1.62% 1.70%*
========== ========== ========== ========== ======== ======== =======
Investment income--net........................ 2.79% 2.50% 2.53% 3.14% 4.11% 3.72% 4.43%*
========== ========== ========== ========== ======== ======== =======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...... $3,664,250 $3,079,332 $2,694,774 $1,582,065 $620,842 $365,773 $32,254
========== ========== ========== ========== ======== ======== =======
Portfolio turnover............................ 89% 86% 55% 59% 86% 85% 63%
========== ========== ========== ========== ======== ======== =======
<CAPTION>
CLASS C CLASS D
------- --------
FOR THE PERIOD
OCTOBER 21, 1994++
TO MARCH 31,
----------------------
1995 1995
------- --------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $26.81 $ 27.27
------- --------
Investment income--net........................ .49 .48
Realized and unrealized gain on investments
and foreign currency transactions--net....... 1.03 1.15
------- --------
Total from investment operations.............. 1.52 1.63
------- --------
Less dividends and distributions:
Investment income--net....................... (.43 ) (.45 )
Realized gain on investments--net............ (.73 ) (.73 )
------- --------
Total dividends and distributions............. (1.16 ) (1.18 )
------- --------
Net asset value, end of period................ $27.17 $ 27.72
========= =========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............ 6.07% # 6.42% #
========= =========
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding distribution and/or
account maintenance fees..................... .64% * .62% *
========= =========
Expenses...................................... 1.64% * .87% *
========= =========
Investment income--net........................ 3.22% * 3.94% *
========= =========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...... $46,902 $171,201
========= =========
Portfolio turnover............................ 89% 89%
========= =========
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Class B shares commenced operations on October 21, 1988.
++ Commencement of operations.
# Aggregate total investment return.
9
<PAGE> 12
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to achieve the highest total investment
return consistent with prudent risk. To do this, management of the Fund shifts
the emphasis among equity, debt (including money market) and convertible
securities. This flexible, total investment return approach is called a "fully
managed" investment policy. It distinguishes the Fund from other investment
companies which often seek either capital growth or current income. Of course,
there is no assurance that the Fund will attain this objective.
The Fund's investment philosophy is based on the belief that, as in the
past, the structure of the United States' economy and other economies and their
securities markets will undergo continuous change. Thus, the fully managed
approach puts maximum emphasis on flexibility.
The two principal features of the Fund's management approach are
flexibility and concentration in "quality" companies.
Flexibility. The Fund's fully managed investment approach makes use of
equity, debt (including money market) and convertible securities. Freedom to
move among these different types of securities as prevailing trends change is
the keystone of the Fund's investment policy.
Concentration in "Quality" Companies. The earnings of quality companies
generally tend to grow consistently. Their internal strengths--good financial
resources, a strong balance sheet, satisfactory rate of return on capital, a
good industry position and superior management skills--give the Fund confidence
that these companies consistently will achieve at high levels. The Fund
considers quality companies to be those which conform most closely to these
characteristics. Most of the Fund's equity portfolio is in the common stocks of
these quality companies.
Sometimes, to reduce risk and to achieve the highest total investment
return, the Fund may invest in other securities:
-- Non-convertible, long-term debt securities, including "deep discount"
corporate debt securities, mortgage-backed securities issued or guaranteed by
governmental entities or private issuers, and debt securities issued or
guaranteed by governments, their agencies and instrumentalities. Such debt
securities generally will be "investment grade". However, the Fund has
established no rating criteria for the debt securities in which it may invest,
and the Fund may invest in securities which are rated below "investment grade".
See "Investment Objective and Policies" and Appendix A in the Statement of
Additional Information for a discussion of the risks involved in investing in
securities which are rated below "investment grade."
-- Convertible securities, i.e., fixed income issues which give the owner
the option of a later exchange for common stock. Convertible securities entitle
the holder to receive interest payments paid on corporate debt securities or the
dividend preference on a preferred stock until such time as the convertible
security matures or is redeemed or until the holder elects to exercise the
conversion privilege. The value of convertible securities is influenced by both
the yield of nonconvertible securities of comparable issuers and by the value of
the underlying common stock. The value of a convertible security viewed without
regard to its conversion feature (i.e., strictly on the basis of its yield) is
sometimes referred to as its "investment value." To the extent interest rates
change, the investment value of the convertible security typically will
fluctuate. However, at the same time, the value of the convertible security will
be influenced by its "conversion value," which is the market value of the
underlying common stock that would be obtained if the convertible security were
converted. Conversion value fluctuates directly with the price of the underlying
common stock. If, because of a low price for the common stock, the conversion
value is substantially below the investment value of the convertible security,
the price of the convertible security will be governed principally by its
investment value.
10
<PAGE> 13
-- Cash or money-market securities to produce interest income during
periods of defensive investment.
The Investment Adviser expects that over longer periods a larger portion of
the Fund's portfolio will consist of equity securities. However, the flexible
fully managed investment approach enables the Fund to switch its emphasis to
debt and convertible securities if, in the opinion of the Investment Adviser,
prevailing market or economic conditions warrant. The Investment Adviser will
determine the emphasis among equity and debt securities, including convertible
securities, based on its evaluation as to the types of securities presently
providing the opportunity for the highest total investment return consistent
with prudent risk. On March 31, 1995, approximately 60% of the Fund's portfolio
was invested in equity securities.
The Fund may invest in the securities of smaller or emerging growth
companies. The securities of smaller or emerging growth companies may be subject
to more abrupt or erratic market movements than larger, more established
companies or the market average in general. These companies may have limited
product lines, markets or financial resources, or they may be dependent on a
limited management group.
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. However, the Fund will not invest more than
15% of its total assets in illiquid investments, which includes securities for
which there is no readily available market, securities subject to contractual
restrictions on resale, certain investments in asset-backed and
receivable-backed securities and restricted securities, unless the Fund's Board
of Directors continuously determines, based on the trading markets for the
specific restricted security, that it is liquid. The Board of Directors may
adopt guidelines and delegate to the Investment Adviser the daily function of
determining and monitoring liquidity of restricted securities. The Board of
Directors, however, will retain sufficient oversight and be ultimately
responsible for the determinations.
The Board of Directors carefully monitors the Fund's investments in these
securities purchased pursuant to Rule 144A, focusing on such factors, among
others, as valuation, liquidity and availability of information. These
investments in securities purchased pursuant to Rule 144A could have the effect
of increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
The Fund may invest up to 25% of its total assets in securities of foreign
issuers. Investments in securities of foreign issuers involve certain risks,
including fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. In addition, foreign companies are not
subject to accounting, auditing and financial reporting standards and
requirements comparable to those of U.S. companies. The foreign markets also
have different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to the Fund
due to subsequent declines in 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. To the extent such investments are subject to
withholding or other taxes or to regulations relating to repatriation of assets,
the Fund's distributable income will be reduced. The prices of securities in
different countries may be subject to different economic, financial, political
and social factors.
11
<PAGE> 14
Among the risks to which an investment in the Fund is subject are interest
rate risk and credit risk. Interest rate risk is the risk that the portion of
the Fund's net asset value attributable to the Fund's fixed-income securities
may fall when interest rates rise and rise when interest rates fall. In general,
fixed-income securities with longer maturities will be subject to greater
volatility resulting from interest rate fluctuations than will fixed-income
securities with shorter maturities. Credit risk is the risk that an issuer of
fixed-income securities that the Fund owns will not make timely payments of
interest or repayments of principal from the issuer. Credit risk is greater in
lower-rated securities.
Investment Restrictions. The Fund's investment activities are subject to
further restrictions that are described in the Statement of Additional
Information. Investment restrictions and policies which 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 of 1940, as amended (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 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.
As a non-fundamental policy, the Fund will not invest in securities which
cannot readily be 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 total assets (or 10% of its total assets
as presently required by certain state laws) 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 Investment Adviser the daily
function of determining and monitoring liquidity of restricted securities. The
Board has determined that securities which are freely tradeable in their primary
market offshore should be deemed liquid. The Board, however, will retain
sufficient oversight and be ultimately responsible for the determinations.
12
<PAGE> 15
Lending of Portfolio Securities. The Fund from time to time lends
securities (but no more than 20% of its total assets) from its portfolio to
approved borrowers and receives therefor collateral in cash or securities issued
or guaranteed by the United States Government which are maintained at all times
in an amount equal to at least 100% of the current market value of the loaned
securities. During the period of the loan, the Fund receives the income on both
the loaned securities and the collateral, and thereby increases its yield.
Writing of Covered Call Options. The Fund may from time to time write
(i.e., sell) covered call options on its portfolio securities and enter into
closing purchase transactions with respect to certain of such options. A call
option is considered covered where the writer of the option owns the underlying
securities. By writing a covered call option, the Fund, in return for the
premium income realized from the sale of the option, may give up the opportunity
to profit from a price increase in the underlying security above the option
exercise price. In addition, the Fund will not be able to sell the underlying
security until the option expires, is exercised or the Fund effects a closing
purchase transaction. A closing purchase transaction cancels out the Fund's
position as the writer of an option by means of an offsetting purchase of an
identical option prior to the expiration of the option it has written. If an
option expires unexercised, the writer realizes a gain in the amount of the
premium. Such a gain, of course, may be offset by a decline in the market price
of the underlying security during the option period. The Fund may not write
covered call options on underlying securities exceeding 15% of the value of its
total assets.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of six individuals, five of
whom are not "interested persons" of the Fund, as defined in the Investment
Company Act. The Directors of the Fund are responsible for the overall
supervision of the operations of the Fund and perform the various duties imposed
on the directors of investment companies by the Investment Company Act.
The Directors of the Fund are:
ARTHUR ZEIKEL*--President of the Investment Adviser and FAM; President and
Director of Princeton Services, Inc. ("Princeton Services"); Executive Vice
President of ML & Co. and Merrill Lynch; and Director of the Distributor.
DONALD CECIL--Special Limited Partner of Cumberland Partners (an investment
partnership).
M. COLYER CRUM--James R. Williston Professor of Investment Management,
Harvard Business School.
EDWARD H. MEYER--Chairman of the Board of Directors, President and Chief
Executive Officer of Grey Advertising Inc.
JACK B. SUNDERLAND--President and Director of American Independent Oil
Company, Inc. (an energy company).
J. THOMAS TOUCHTON--Managing Partner of The Witt-Touchton Company (a
private investment partnership).
- ------------
*Interested person, as defined by the Investment Company Act, of the Fund.
13
<PAGE> 16
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Investment Adviser, which is owned and controlled by ML & Co., a
financial services holding company, acts as the investment adviser for the Fund
and provides the Fund with management and investment advisory services. The
Investment Adviser or its affiliate, FAM, acts as the investment adviser for
more than 130 registered investment companies. The Investment Adviser also
provides investment advisory services to individual and institutional accounts.
As of June 30, 1995, the Investment Adviser and FAM had a total of approximately
$180.4 billion in investment company and other portfolio assets under
management, including accounts of certain affiliates of the Investment Adviser.
Achieving the Fund's investment objective depends on informed decisions to
buy, sell or hold particular securities. Subject to the direction of the Board
of Directors, the Fund's Investment Adviser has created a comprehensive
management system that sets objectives and establishes a framework for the
selection of particular securities and the distribution of assets. The system
appraises economic and other forces affecting securities markets and industries,
and assesses short- and long-term prospects. The Investment Adviser regularly
reviews the research and analysis of other brokerage firms with which the Fund
does business.
The Fund pays the Investment Adviser a monthly fee based on the average
daily value of the Fund's net assets at the annual rates of: 0.50% of that
portion of average daily net assets not exceeding $250 million; 0.45% of that
portion of average daily net assets exceeding $250 million but not exceeding
$300 million; 0.425% of that portion of average daily net assets exceeding $300
million but not exceeding $400 million; and 0.40% of that portion of average
daily net assets exceeding $400 million. For the fiscal year ended March 31,
1995, the Investment Adviser earned a fee of $23,221,209 (based upon average net
assets of approximately $5.8 billion) and the effective fee rate was 0.40%.
The Investment Adviser is responsible for placing the Fund's brokerage
business and for negotiating prices, commissions and the charges for other
services. The Investment Adviser is not restricted in its choice of brokers or
dealers. It seeks the most favorable rates and services from any number of
brokers and dealers, including Merrill Lynch. See "Portfolio Transactions and
Brokerage".
The Fund pays certain expenses incurred in the operation of the Fund
including, among others, taxes, expenses for legal and auditing services, costs
of printing proxies and stock certificates, charges of the custodian and
transfer agent, expenses of redemption, brokerage costs, Securities and Exchange
Commission fees, all expenses of shareholders' and Directors' meetings and
certain of the expenses of printing prospectuses, statements of additional
information and reports to shareholders. For the fiscal year ended March 31,
1995, for Class A shares, the ratio of total expenses to average net assets was
0.57% and for Class B shares, the ratio of total expenses to average net assets
was 1.59%; for the period October 21, 1994 (commencement of operations) to March
31, 1995, for Class C shares, the ratio of total expenses to average net assets
was 1.64% (annualized) and for Class D shares, the ratio of total expenses to
average net assets was 0.87% (annualized).
Ernest S. Watts is the Vice President and Portfolio Manager of the Fund.
Mr. Watts has been a Portfolio Manager and a Vice President of the Investment
Adviser since 1983.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics pursuant to
Rule 17j-1 under the Investment Company Act which incorporates the Code of
Ethics of the Investment Adviser (together, the
14
<PAGE> 17
"Codes"). The Codes significantly restrict the personal investing activities of
all employees of the Investment Adviser and, as described below; impose
additional, more onerous, restrictions on Fund investment personnel.
The Codes require that all employees of the Investment Adviser preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Investment Adviser include a ban on acquiring any securities in a "hot" initial
public offering and a prohibition from profiting on short-term trading in
securities. In addition, no employee may purchase or sell any security which at
the time is being purchased or sold (as the case may be), or to the knowledge of
the employee is being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for trading "blackout
periods" which prohibit trading by investment personnel of the 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
Merrill Lynch Financial Data Services, Inc. (formerly called Financial Data
Services, Inc.) (the "Transfer Agent"), which is a wholly-owned 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 $11.00 per Class A or Class
D shareholder account and $14.00 per Class B or Class C shareholder account and
the Transfer Agent is entitled to reimbursement from the Fund for out-of-pocket
expenses incurred by the Transfer Agent under the Transfer Agency Agreement. For
the fiscal year ended March 31, 1995, the Fund paid the Transfer Agent
$8,317,906 pursuant to the Transfer Agency Agreement. At June 30, 1995 the Fund
had 186,712 Class A shareholder accounts, 312,964 Class B shareholder accounts,
10,627 Class C shareholder accounts and 233,421 Class D shareholder accounts. At
this level of accounts, the annual fee payable to the Transfer Agent would
aggregate approximately $9,151,737 plus out-of-pocket expenses.
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
the Investment Adviser, FAM and Merrill Lynch, acts as the Distributor of shares
of the Fund. Shares of the Fund are offered continuously for sale by the
Distributor and other eligible securities dealers (including Merrill Lynch).
Shares of the Fund may be purchased from securities dealers or by mailing a
purchase order directly to the Transfer Agent. The minimum initial purchase is
$1,000, and the minimum subsequent purchase is $50, except that for retirement
plans, the minimum initial purchase is $100, and the minimum subsequent purchase
is $1.
The Fund offers its shares in four classes at a public offering price equal
to the next determined net asset value per share plus sales charges imposed
either at the time of purchase or on a deferred basis depending upon the class
of shares selected by the investor under the Merrill Lynch Select PricingSM
System, as described below. The applicable offering price for purchase orders is
based on the net asset value of the Fund next determined after receipt of the
purchase order by the Distributor. As to purchase orders received by securities
dealers prior to the close of business on the New York Stock Exchange
(generally, 4:00 P.M., New York time) which includes orders received after the
close of business on the previous day, the applicable
15
<PAGE> 18
offering price will be based on the net asset value determined as of 15 minutes
after the close of business on the New York Stock Exchange on the day the orders
are placed with the Distributor, provided the orders are received by the
Distributor prior to 30 minutes after the close of business on the New York
Stock Exchange, on that day. If the purchase orders are not received by the
Distributor prior to 30 minutes after the close of business on the New York
Stock Exchange, 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 $4.85) to confirm a sale of shares to such customers.
Purchases directly through the Transfer Agent are not subject to the processing
fee.
The Fund issues four classes of shares under the Merrill Lynch Select
PricingSM 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 PricingSM System is set forth under "Merrill Lynch
Select PricingSM System" on page 3.
Each Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges 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 do 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 are
calculated in the same manner at the same time and differ only to the extent
that account maintenance and distribution fees and any incremental transfer
agency costs relating to a particular class are borne exclusively by that class.
Class B, Class C and Class D shares each have exclusive voting rights with
respect to the Rule 12b-1 distribution plan adopted with respect to such class
pursuant to which account maintenance and/or distribution fees are paid. 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 deferred sales charges with respect to Class B and Class C shares in that
the sales charges 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
16
<PAGE> 19
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 PricingSM System.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
------------------------------------------------------------------------------------------------
A Maximum 5.25% initial sales
charge(2)(3) No No No
------------------------------------------------------------------------------------------------
B CDSC for a period of up to 4
years, at a rate of 4.0%
during the first year,
decreasing 1.0% annually to B shares convert to
0.0% 0.25% 0.75% D shares automatically
after approximately
eight years(4)
------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales
charge(3) 0.25% No No
------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs may be imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
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, will be subject to a 1.0% CDSC for one year.
(4) 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.
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.
17
<PAGE> 20
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
SALES LOAD AS SALES LOAD AS DISCOUNT TO
PERCENTAGE OF PERCENTAGE* OF SELECTED DEALERS
OFFERING THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE PRICE INVESTED THE OFFERING PRICE
- ------------------------------------------------- ------------- -------------- ------------------
<S> <C> <C> <C>
Less than $25,000................................ 5.25% 5.54% 5.00%
$25,000 but less than $50,000.................... 4.75 4.99 4.50
$50,000 but less than $100,000................... 4.00 4.17 3.75
$100,000 but less than $250,000.................. 3.00 3.09 2.75
$250,000 but less than $1,000,000................ 2.00 2.04 1.80
$1,000,000 and over**............................ 0.00 0.00 0.00
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more, and on Class A share purchases by certain retirement plan
investors in connection with certain investment programs, made on or after
October 21, 1994. If the sales charge is waived in connection with a purchase
of $1,000,000 or more, such purchases will be subject to a CDSC of 1.0% if
the shares are redeemed within one year after purchase. Class A purchases
made prior to October 21, 1994 may be subject to a CDSC if the shares are
redeemed within one year of purchase at the following rates: 1.00% on
purchases of $1,000,000 to $2,500,000; 0.60% on purchases of $2,500,001 to
$3,500,000; 0.40% on purchases of $3,500,001 to $5,000,000; and 0.25% on
purchases of more than $5,000,000, in lieu of paying an initial sales charge.
The charge will be assessed on an amount equal to the lesser of the proceeds
of redemption or the cost of the shares being redeemed. A sales charge of
0.75% will be charged on purchases of $1 million or more of Class A or Class
D shares by certain 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. During
the fiscal year ended March 31, 1995, the Fund sold 17,286,503 Class A shares
for aggregate net proceeds of $471,481,609. The gross sales charges for the sale
of Class A shares of the Fund for that year were $2,938,902, of which $168,068
and $2,770,834 were received by the Distributor and Merrill Lynch, respectively.
For the fiscal year ended March 31, 1995, the Distributor received CDSCs
totalling $6,329 with respect to redemption within one year after purchase of
Class A shares purchased subject to front-end sales charge waivers. During the
fiscal period October 21, 1994 (commencement of operations for Class D shares)
to March 31, 1995, the Fund sold 2,621,771 Class D shares for aggregate net
proceeds of $69,784,869. The gross sales charges for the sale of Class D shares
of the Fund for that period were $922,072, of which $50,600 and $871,472 were
received by the Distributor and Merrill Lynch, respectively. During such period,
the Distributor did not receive CDSCs with respect to redemption within one year
after purchase of Class D shares purchased subject to front-end sales charge
waivers.
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
BlueprintSM 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 of the Fund 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
18
<PAGE> 21
warranty insurance reserve fund programs provided that the program 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 TMASM Managed Trusts to which Merrill Lynch Trust
Company provides discretionary trustee services and certain purchases made in
connection with the Merrill Lynch Mutual Fund Adviser program. 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 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). For example, 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. who wish
to reinvest the net proceeds from a sale of certain of their shares of common
stock of Merrill Lynch Senior Floating Rate Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges also
may be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A
investors as set forth above under "Eligible Class A Investors".
Class D shares are offered at net asset value without sales charge to an
investor who has a business relationship with a Merrill Lynch financial
consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
BlueprintSM 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,
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 a distribution fee of
0.75% of net assets as discussed below under "Distribution Plans". The proceeds
from the account maintenance fees are used to compensate Merrill Lynch for
providing account maintenance activities.
19
<PAGE> 22
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 dealer's 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. The proceeds from the ongoing
account maintenance fee are used to compensate Merrill Lynch for providing
continuing account maintenance activities. 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 which are
redeemed within four years of purchase may be subject to a CDSC at the rates set
forth below charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE
OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT MADE CHARGE
------------------------------------------------------------- ----------------
<S> <C>
0-1.................................................... 4.00%
1-2.................................................... 3.00
2-3.................................................... 2.00
3-4.................................................... 1.00
4 and thereafter....................................... 0.00
</TABLE>
For the fiscal year ended March 31, 1995, the Distributor received CDSCs of
$3,965,708 with respect to redemptions of Class B shares, all of which were paid
to Merrill Lynch.
20
<PAGE> 23
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over four years or shares acquired pursuant to reinvestment
of dividends or distributions and then of shares held longest during the
four-year period. The charge will not be applied to dollar amounts representing
an increase in the net asset value since the time of purchase. A transfer of
shares from a shareholder's account to another account will be assumed to be
made in the same order as a redemption.
To provide an example, assume an investor purchases 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in the net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of
2.0% (the applicable rate in the third year after purchase) for shares purchased
on or after October 21, 1994.
In the event that Class B shares are exchanged by certain retirement plans
for Class A shares in connection with a transfer to the Merrill Lynch Mutual
Fund Adviser ("MFA") program, the time period that such Class A shares are held
in the MFA program will be included in determining the holding period of Class B
shares reacquired upon termination of participation in the MFA program (see
"Shareholder Services -- Exchange Privilege").
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of a shareholder. The
Class B CDSC also is waived on redemptions of shares by certain eligible 401(a)
and eligible 401(k) plans and in connection with certain group plans placing
orders through the Merrill Lynch BlueprintSM Program. The CDSC also is waived
for any Class B shares which are purchased by eligible 401(k) or eligible 401(a)
plans which are rolled over into a Merrill Lynch or Merrill Lynch Trust Company
custodied IRA and held in such account at the time of redemption. The Class B
CDSC also is waived for any Class B shares which are purchased by a Merrill
Lynch rollover IRA that was funded by a rollover from a terminated 401(k) plan
managed by the MLAM Private Portfolio Group and held in such account at the time
of redemption. Additional information concerning the waiver of the Class B CDSC
is set forth in the Statement of Additional Information.
Contingent Deferred Sales Charges--Class C Shares. Class C shares which 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.
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
21
<PAGE> 24
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.
During the period October 21, 1994 (commencement of operations of Class C
shares) to March 31, 1995, the Fund sold 1,868,357 Class C shares for aggregate
net proceeds of $49,114,822. During that period, the Distributor received CDSCs
of $4,929 with respect to redemptions of Class C shares, all of which were paid
to Merrill Lynch.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Fund, Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
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 ten-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("Class B Retirement Plans").
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of
22
<PAGE> 25
the appropriate funds. Subsequent to such conversion, that Class B Retirement
Plan will be sold Class D shares of the appropriate fund at net asset value per
share.
The Conversion Period also is modified for retirement plan investors which
participate in the MFA program. While participating in the MFA program, such
investors will hold Class A shares. If these Class A shares were acquired
through exchange of Class B shares (see "Shareholder Services -- Exchange
Privilege"), then the holding period for such Class A shares will be "tacked" to
the holding period of the Class B shares originally held for purposes of
calculating the Conversion Period on Class B shares acquired upon termination of
participation in the MFA program.
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 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.
Prior to July 6, 1993, the Fund paid the Distributor an ongoing
distribution fee, accrued daily and paid monthly, at the annual rate of 1.0% of
average daily net assets of the Class B shares of the Fund under a distribution
plan previously adopted by the Fund (the "Prior Plan") to compensate the
Distributor and Merrill Lynch for providing account maintenance and
distribution-related activities and services to Class B shareholders. The fee
rate payable and the services provided under the Prior Plan are identical to the
aggregate fee rate payable and the services provided under the Class B
Distribution Plan, the difference being that the account maintenance and
distribution services have been unbundled.
For the fiscal year ended March 31, 1995, the Fund paid the Distributor
$33,248,620 pursuant to the Class B Distribution Plan (based on average net
assets subject to the Class B Distribution Plan of
23
<PAGE> 26
approximately $3.3 billion), all of which was paid to Merrill Lynch for
providing account maintenance and distribution-related activities and services
in connection with Class B shares. For the fiscal period October 21, 1994
(commencement of operations for Class C shares) to March 31, 1995, the Fund paid
the Distributor $88,100 pursuant to the Class C Distribution Plan (based on
average net assets subject to the Class C Distribution Plan of approximately $20
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class C shares. For the fiscal period October 21, 1994 (commencement of
operations for Class D shares) to March 31, 1995, the Fund paid the Distributor
$110,555 pursuant to the Class D Distribution Plan (based on average net assets
subject to the Class D Distribution Plan of approximately $100.3 million), all
of which was paid to Merrill Lynch for providing account maintenance services in
connection with Class D shares. At June 30, 1995, the net assets of the Fund
subject to the Class B Distribution Plan aggregated approximately $4.1 billion.
At this asset level, the annual fee payable pursuant to the Class B Distribution
Plan would aggregate approximately $40.9 million. At June 30, 1995, the net
assets of the Fund subject to the Class C Distribution Plan aggregated
approximately $89.9 million. At this asset level, the annual fee payable
pursuant to the Class C Distribution Plan would aggregate approximately
$899,383. At June 30, 1995, the net assets of the Fund subject to the Class D
Distribution Plan aggregated approximately $271.2 million. At this asset level,
the annual fee payable pursuant to the Class D Distribution Plan would aggregate
approximately $678,018.
The payments under the Distribution Plans are based upon a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred, and accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSCs and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs
and the expenses consist of financial consultant compensation.
At December 31, 1994, for Class B shares, the fully allocated accrual
expenses incurred by the Distributor and Merrill Lynch exceeded fully allocated
accrual revenues for such period by approximately $28,021,000 (0.86% of Class B
net assets at that date). As of December 31, 1994, for Class B shares, direct
cash revenues for the period since commencement of the offering of Class B
shares exceeded direct cash expenses by $50,923,539 (1.56% of Class B net assets
at that date). As of March 31, 1995, direct cash revenues for the period since
the commencement of the offering of Class B shares exceeded direct cash expenses
by $57,505,534 (1.57% of Class B net assets at that date). Similar fully
allocated accrual data is not yet available with respect to Class C shares which
the Fund commenced offering to the public on October 21, 1994. As of December
31, 1994, for Class C shares, direct cash expenses for the period since
commencement of the offering of Class C shares exceeded direct cash revenues by
$79,667 (0.52% of Class C net assets at that date).
24
<PAGE> 27
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the NASD
imposes a limitation on certain asset-based sales charges such as the Fund's
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 in connection with the Class B
shares, and any CDSCs will be paid to the Fund rather than to the Distributor;
however, the Fund will continue to make payments of the account maintenance fee.
In certain circumstances the amount payable pursuant to the voluntary maximum
may exceed the amount payable under the NASD formula. In such circumstances,
payment in excess of the amount payable under the NASD formula will not be made.
------------------------
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Directors of the 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".
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 which may be applicable, there will be no charge
for redemptions if the redemption request is sent directly to the Transfer
Agent. Shareholders liquidating their holdings will receive upon redemption all
dividends reinvested through the date of redemption. The value of shares at the
time of redemption may be more or less than the shareholder's cost, depending on
the market value of the securities held by the Fund at such time.
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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. The notice in either event
requires the signatures of all persons in whose names the shares are registered,
signed exactly as their names appear on the Transfer Agent's register or on the
certificate, as the case may be. The signature(s) on the redemption request must
be guaranteed by an "eligible guarantor institution" (including, for example,
Merrill Lynch branch offices and certain other financial institutions) as such
is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, the existence and validity of which may be verified by the Transfer
Agent through the use of industry publications. Notarized signatures are not
sufficient. In certain instances, the Transfer Agent may require additional
documents, such as, but not limited to, trust instruments, death certificates,
appointments as executor or administrator, or certificates of corporate
authority. For shareholders redeeming directly with the Transfer Agent, payment
will be mailed within seven days of receipt of a proper notice of redemption.
At various times the 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 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 normally will accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request for
repurchase is received by the dealer prior to the close of business on the New
York Stock Exchange (generally, 4:00 P.M., New York time) on the day received,
and such request is received by the Fund from such dealer not later than 30
minutes after the close of business on the New York Stock Exchange on the same
day. Dealers have the responsibility to submit such repurchase requests to the
Fund not later than 30 minutes after the close of business on the New York Stock
Exchange in order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any applicable
CDSC). Securities firms which do not have selected dealer agreements with the
Distributor, however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Merrill Lynch may charge its
customers a processing fee (presently $4.85) to confirm a repurchase of shares
to such customers. Redemptions directly through the 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 adversely affect shareholders
seeking redemption through the repurchase procedure. A shareholder whose order
for repurchase is rejected by the Fund, however, may redeem shares as set forth
above.
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For a shareholder redeeming through his or her listed securities dealer
other than Merrill Lynch, payment for fractional shares will be made by the
Transfer Agent directly to the shareholder and payment for full shares will be
made by the securities dealer. A shareholder redeeming through Merrill Lynch
will receive payment for both full and fractional shares through Merrill Lynch.
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
one-time 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. 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. The reinstatement privilege is a one-time privilege and
may be exercised by the Class A or Class D shareholder only the first time such
shareholder makes a redemption.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
designed to facilitate investment in shares of the Fund. Full details as to each
of such services, copies of the various plans described below and instructions
as to how to participate in the various services or plans, or how to change
options with respect thereto, can be obtained from the Fund, by calling the
telephone number on the cover page hereof or from the Distributor or Merrill
Lynch. Certain of these services are only available to U.S. investors. Included
in the Fund's shareholder services are the following:
Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive statements, at least
quarterly, from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
statements also will show any other activity in the account since the previous
statement. Shareholders will receive separate 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 Account at any time by
mailing a check directly to the Transfer Agent. Shareholders also may maintain
their accounts through Merrill Lynch. Upon the transfer of shares out of a
Merrill Lynch brokerage account, an Investment Account in the transferring
shareholder's name may be opened automatically, without charge, at the Transfer
Agent. Shareholders considering transferring their Class A or Class D shares
from Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account
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<PAGE> 30
maintained for such shares at the Transfer Agent may request their new brokerage
firm to maintain such shares in an account registered in the name of the
brokerage firm for the benefit of the shareholder at the Transfer Agent. If the
new brokerage firm is willing to accommodate the shareholder in this manner, the
shareholder must request that he or she be issued certificates for his or her
shares and then must turn the certificates over to the new firm for
re-registration as described in the preceding sentence. Shareholders considering
transferring a tax-deferred retirement account such as an 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. Shareholders of each class of shares of the Fund 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 PricingSM 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
his or her account in which the exchange is made at the time of the exchange or
is otherwise eligible to purchase Class A shares of the second fund. If the
Class A shareholder wants to exchange Class A shares for shares of a second
MLAM-advised mutual fund, and the shareholder does not hold Class A shares of
the second fund in his or her account at the time of the exchange and is not
otherwise eligible to acquire Class A shares of the second fund, the shareholder
will receive Class D shares of the second fund as a result of the exchange.
Class D shares also may be exchanged for Class A shares of a second MLAM-advised
mutual fund at any time as long as, at the time of the exchange, the shareholder
holds Class A shares of the second fund in the account in which the exchange is
made or is otherwise eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Fund which 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 of 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
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<PAGE> 31
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 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.
The exchange privilege is modified with respect to certain retirement plans
which participate in the MFA program. Such retirement plans may exchange Class
B, Class C or Class D shares that have been held for at least one year for Class
A shares of the same fund on the basis of relative net asset values in
connection with the commencement of participation in the MFA program, i.e., no
CDSC will apply. The one-year holding period does not apply to shares reacquired
through reinvestment of dividends. Upon termination of participation in the MFA
program, Class A shares will be re-exchanged for the class of shares originally
held. For purposes of computing any CDSC that may be payable upon redemption of
Class B or Class C shares so reacquired, or the Conversion Period for Class B
shares so reacquired, the holding period for the Class A shares will be "tacked"
to the holding period for the Class B or Class C shares originally held. The
Fund's exchange privilege also is modified with respect to purchases of Class A
and Class D shares by non-retirement plan investors under the MFA program.
First, the initial allocation of assets is made under the MFA program. Then, any
subsequent exchange under the program of Class A or Class D shares of a
MLAM-advised mutual fund for Class A or Class D shares of the Fund will be made
solely on the basis of the relative net asset values of the shares being
exchanged. Therefore, there will not be a charge for any difference between the
sales charge previously paid on the shares of the other MLAM-advised mutual fund
and the sales charge payable on the shares of the Fund being acquired in the
exchange under the MFA program.
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 sales charge, at the net asset value
per share next determined on the ex-dividend date of such dividend or
distribution. A shareholder may at any time, by written notification or by
telephone (1-800-MER-FUND) to the Transfer Agent, elect to have subsequent
dividends or both dividends and capital gains distributions paid in cash rather
than reinvested, in which event payment will be mailed on or about the payment
date. Cash payments can also be made directly to the shareholder's bank account.
A shareholder whose account is maintained through Merrill Lynch may at any time,
by written notification to Merrill Lynch, elect to have both dividends and
capital gains distributions paid in cash rather than reinvested. No CDSC will be
imposed on redemption of shares issued as a result of the automatic reinvestment
of dividends or capital gains distributions.
Systematic Withdrawal Plans. A Class A or Class D shareholder may elect to
receive systematic withdrawal payments from his Investment Account in the form
of payments by check or through automatic payment by direct deposit to the
investor's bank account on either a monthly or quarterly basis. A Class A or
Class D shareholder whose shares are held within a CMA(R), CBA(R) or Retirement
Account may elect to have
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<PAGE> 32
shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual basis
through the Systematic Redemption Program, subject to certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C
and Class D shares may be made to an investor's Investment Account by
prearranged charges of $50 or more to his or her regular bank account. Investors
who maintain CMA(R) or CBA(R) accounts may arrange to have periodic investments
made in the Fund in their CMA(R) or CBA(R) accounts or in certain related
accounts in amounts of $100 or more ($1 for retirement plans) through the
CMA(R)/CBA(R) Automated Investment Program.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Adviser is responsible for making the Fund's portfolio
decisions, placing the Fund's brokerage business, evaluating the reasonableness
of brokerage commissions and negotiating the amount of any commissions paid,
subject to policies established by the Fund's Board of Directors and officers.
The Fund has no obligation to deal with any broker or group of brokers in the
execution of transactions in portfolio securities. Orders for transactions in
portfolio securities are placed for the Fund with a number of brokers and
dealers, including Merrill Lynch. In placing orders, it is the policy of the
Fund to obtain the most favorable net results, taking into account various
factors, including price, commission, if any, size of the transaction and
difficulty of execution. Where practicable, the Investment Adviser surveys a
number of brokers and dealers in connection with proposed portfolio transactions
and selects the broker or dealer which offers the Fund best price and execution
or other services which are of benefit to the Fund. Merrill Lynch has advised
the Fund that, in transactions with Merrill Lynch, the Fund receives a
commission rate at least as favorable as the rate Merrill Lynch charges its
other customers in similar transactions.
The Fund does not use any particular broker or dealer, and brokers who
provide supplemental investment research to the Investment Adviser 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
Investment Adviser under the Investment Advisory Agreement. If in the judgment
of the Investment Adviser the Fund will be benefited by supplemental research
services, the Investment Adviser is authorized to pay brokerage commissions to a
broker furnishing such services which are in excess of commissions which another
broker may have charged for effecting the same transaction. The expenses of the
Investment Adviser will not necessarily be reduced as a result of the receipt of
such supplemental information. The Investment Adviser may use such information
in servicing its other accounts.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with a
formula specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value
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<PAGE> 33
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
fees, 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 directed to investors whose purchases are subject to reduced
sales charges in the case of Class A and Class D shares or waiver of the CDSC in
the case of Class B and Class C shares (such as investors in certain retirement
plans), performance data may take into account the reduced, and not the maximum,
sales charge or may not take into account the CDSC and therefore may reflect
greater total return since, due to the reduced sales charges or waiver of the
CDSC, a lower amount of expenses may be deducted. See "Purchase of Shares". The
Fund's total return may be expressed either as a percentage or as a dollar
amount in order to illustrate the effect of such total return on a hypothetical
$1,000 investment in the 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 Composite Stock Price Index, the Dow Jones Industrial Average, or
performance data published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business Week, CDA
Investment Technology, Inc., Forbes Magazine and Fortune Magazine or other
industry publications. As with other performance data, performance comparisons
should not be considered indicative of the Fund's relative performance for any
future period. In addition, from time to time the Fund may include its risk-
adjusted performance ratings assigned by Morningstar Publications, Inc. in
advertising or supplemental sales literature.
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ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all of its net investment income,
if any. Dividends from such net investment income are paid semi-annually. All
net realized long- or short-term capital gains, if any, will be distributed to
the Fund's shareholders at least annually. Premiums from expired call options
written by the Fund and net gains from closing purchase transactions are treated
as short-term capital gains for Federal income tax purposes. The per share
dividends and distributions on each class of shares will be reduced as a result
of any account maintenance, distribution and transfer agency fees applicable
with respect to that class. See "Determination of Net Asset Value" below.
Dividends and distributions may be reinvested automatically in shares of the
Fund at the net asset value without sales charge. Shareholders 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 a Federal income tax requirement that
certain percentages of its ordinary income and capital gains be distributed
during the calendar year.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily, 15 minutes after the close of business on the New York Stock
Exchange (generally, 4:00 p.m., New York time), on each day during which the New
York Stock Exchange 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 adding the
total value of all securities held by the Fund plus cash, interest and dividends
accrued minus liabilities, including accrued expenses, and this amount is
divided by the total number of shares outstanding at such time, rounded to the
nearest cent. Expenses, including the investment advisory fees payable to the
Investment Adviser and any account maintenance and/or distribution fees payable
to the Distributor, are accrued daily. The Fund employs Merrill Lynch Securities
Pricing Service ("MLSPS"), an affiliate of the Investment Adviser, to provide
certain securities prices for the Fund. During the fiscal year ended March 31,
1995, the Fund paid $5,580 to MLSPS for such service. The per share net asset
value of Class A shares generally will be higher than the per share net asset
value of the shares of the other classes, reflecting the daily expense accruals
of the account maintenance, distribution and higher transfer agency fees
applicable with respect to Class B and Class C shares and the daily expense
accruals of the account maintenance fees applicable with respect to Class D
shares; moreover, the per share net asset value of Class D shares generally will
be higher than the per share net asset value of Class B and Class C shares,
reflecting the daily expense accruals of the distribution and higher transfer
agency fees applicable with respect to Class B and Class C shares. It is
expected, however, that the per share net asset value of the classes will tend
to converge (although not necessarily meet) immediately after the payment of
dividends or distributions which will differ by approximately the amount of the
expense accrual differentials between the classes.
Portfolio securities which 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. 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
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<PAGE> 35
Directors as the primary market. Securities traded in the over-the-counter
market are valued at the last available bid price in the over-the-counter market
prior to the time of valuation. 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 over-the-counter market, the last asked price. Options purchased by the
Fund are valued at their last sale price in the case of exchange-traded options
or, in the case of options traded in the over-the-counter market, the last bid
price. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith under the
direction of the Board of Directors of the Fund.
When the Fund sells an option, an amount equal to the premium received by
the Fund is included in the Fund's Statement of Assets and Liabilities as a
deferred credit. The amount of such liability subsequently will be
marked-to-market to reflect the current market value of the option written. If
current market value exceeds the premium received, there is an unrealized loss;
conversely, if the premium exceeds current market value, there is an unrealized
gain. The current market value of a traded option is the last sale price or, in
the absence of a sale, the last offering price. If an option expires on its
stipulated expiration date or if the Fund enters into a closing purchase
transaction, the Fund will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option will be extinguished. If an option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security and the proceeds of sale are increased by the premium originally
received.
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If 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 and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as "ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in 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. 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).
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. 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
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<PAGE> 36
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 by the Fund to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% United States
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
United States 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 United States may reduce or eliminate such taxes.
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.
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 generally will 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 any 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 the 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.
34
<PAGE> 37
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 or administrative action either
prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
ORGANIZATION OF THE FUND
The Fund, a diversified, open-end investment company, was organized in
Maryland on July 29, 1987 and is a successor to a Delaware corporation that was
organized under the name Lionel D. Edie Capital Fund, Inc. in September 1973 and
changed its name to Merrill Lynch Capital Fund, Inc. in June 1976. It has an
authorized capital of 1,000,000,000 shares of Common Stock, par value $.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock. Class A and Class B each consists of 300,000,000 shares and
Class C and Class D each consists of 200,000,000 shares. Shares of Class A,
Class B, Class C and Class D Common Stock represent interests in the same assets
of the Fund and are identical in all respects except that 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 the distribution of such shares. Each class has exclusive voting
rights with respect to matters relating to account maintenance and distribution
expenditures, as applicable. See "Purchase of Shares". The Fund has received an
order from the Commission permitting the issuance and sale of multiple classes
of Common Stock. 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 on any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent auditors. Voting rights for Directors are not cumulative. Shares
issued are fully paid and non-assessable and have no preemptive rights. Shares
have the conversion rights described in the 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 on 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.
35
<PAGE> 38
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts, the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this
please call your Merrill Lynch financial consultant or Merrill Lynch Financial
Data Services, Inc. at 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.
36
<PAGE> 39
MERRILL LYNCH CAPITAL FUND, INC. -- AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINTSM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINTSM PROGRAM
APPLICATION BY CALLING (800) 637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C
shares / / Class D shares
of Merrill Lynch Capital 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.........................................................................
...................................................................... Date...
(Zip Code)
<TABLE>
<S> <C>
Occupation .........................................
...................................................
Signature of Owner
<CAPTION>
Occupation ......................................... Name and Address of Employer.................................................
<S> <C>
.............................................................................
.............................................................................
................................................... .............................................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
(In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
<TABLE>
<S> <C> <C>
Ordinary Income Dividends Long-Term Capital Gains
--------------------------------- ---------------------------------
SELECT / / Reinvest SELECT / / Reinvest
ONE: / / Cash ONE: / / Cash
--------------------------------- ---------------------------------
</TABLE>
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 Capital 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.
A-1
<PAGE> 40
MERRILL LYNCH CAPITAL FUND, INC. -- AUTHORIZATION FORM (PART 1) -- (CONTINUED)
- --------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINTSM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINTSM PROGRAM
APPLICATION BY CALLING (800) 637-3766.
- --------------------------------------------------------------------------------
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 under "Additional
Information--Taxes") either because I have not been notified that I am subject
thereto as a result of a failure to report all interest or dividends, or the
Internal Revenue Service ("IRS") has notified me that I am no longer subject
thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDER-REPORTING AND
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
<TABLE>
<S> <C>
............................................................. ............................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION -- CLASS A AND D SHARES ONLY (See terms and conditions in
the Statement of Additional Information)
<TABLE>
<S> <C>
......................,
19 . . . .
Dear Sir/Madam: Date of initial purchase
</TABLE>
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Capital 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 Capital 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 Capital Fund, Inc. held as security.
<TABLE>
<S> <C>
By:.............................................................. ...............................................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both must sign)
</TABLE>
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
<TABLE>
<S> <C>
(1) Name ................................................... (2) Name....................................................
Account Number ............................................ Account Number..............................................
</TABLE>
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
- --- Branch Office, Address, Stamp
- ---
- -
- -
- -
- -
- ---
- ---
This form when completed should be mailed to:
Merrill Lynch Capital Fund, Inc.
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the Distributor of any purchases made under a Letter of Intention or Systematic
Withdrawal Plan. We guarantee the Shareholder's signature.
...............................................................
Dealer Name and Address
By .............................................................................
Authorized Signature of Dealer
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------- ------------
..............................
- --------- ------------
Branch-Code F/C No. F/C Last Name
- --------- ---------------
- --------- ---------------
Dealer's Customer A/C No.
</TABLE>
A-2
<PAGE> 41
MERRILL LYNCH CAPITAL FUND, INC. -- AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL PLAN OR THE
AUTOMATIC INVESTMENT PLAN ONLY.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
(PLEASE PRINT) ------------------------------------
Name................................................................................
------------------------------------
Social Security No.
First Name Initial Last Name or Taxpayer Identification No.
Name of Co-Owner (if any)...........................................................
First Name Initial Last Name
Address.............................................................................
.................................................................................... Account Number...........................
(Zip Code) (if existing account)
<CAPTION>
(PLEASE PRINT)
<S> <C> <C> <C>
Name................................................................................
First Name Initial Last Name
Name of Co-Owner (if any)...........................................................
First Name Initial Last Name
Address.............................................................................
....................................................................................
(Zip Code)
</TABLE>
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN -- CLASS A AND D SHARES ONLY (See terms and
conditions in the Statement of Additional Information)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of / / Class A or / / Class D shares in Merrill Lynch Capital 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
withdrawals on or as soon as possible thereafter.
(month)
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): / / $
or / / % of the current value of / / Class A or / / Class D shares in the
account.
SPECIFY WITHDRAWAL METHOD: / / check or / / direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a) I hereby authorize payment by check
/ / as indicated in Item 1.
/ / to the order of..........................................................
Mail to (check one)
/ / the address indicated in Item 1.
/ / Name (please print)......................................................
Address.........................................................................
...........................................................................
Signature of Owner
..............................................................................
Date............................................................................
Signature of Co-Owner (if any)..................................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Specify type of account (check one): / / checking / / savings
Name on your Account............................................................
Bank Name.......................................................................
Bank Number .............................................................
Account Number..................................................................
Bank Address....................................................................
......................................................................
Signature of Depositor
..............................................................................
Date............................................................................
Signature of Depositor..........................................................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHALL ACCOMPANY THIS APPLICATION.
A-3
<PAGE> 42
MERRILL LYNCH CAPITAL 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 Capital Fund, Inc. subject to the terms set forth below. In the
event that I am not eligible to purchase Class A shares, I understand that Class
D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Capital Fund, Inc., as indicated below:
Amount of each ACH debit $...................................................
Account No...................................................................
Please date and invest ACH debits on the 20th of each month
beginning or as soon as possible thereafter.
(month)
I agree that you are drawing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such debit. If I change banks or desire to terminate or
suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroneous ACH debits of my bank
account or purchases of fund shares including liquidating shares of the Fund and
crediting my bank account. I further agree that if a debit is not honored upon
presentation, Merrill Lynch Financial Data Services, Inc. is authorized to
discontinue immediately the Automatic Investment Plan and to liquidate
sufficient shares held in my account to offset the purchase made with the
dishonored debit.
................. .......................................
Date Signature of Depositor
.......................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS DRAWN
BY MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
To..........................................................................Bank
(Investor's Bank)
Bank Address....................................................................
City .......... State .......... Zip............................................
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc., I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
................. .......................................
Date Signature of Depositor
................. .......................................
Bank Account Signature of Depositor
Number (If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
A-4
<PAGE> 43
[This page is intentionally left blank.]
<PAGE> 44
[This page is intentionally left blank.]
<PAGE> 45
INVESTMENT ADVISER
Merrill Lynch Asset Management, L.P.
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 9011
Princeton, New Jersey 08543-9011
CUSTODIAN
The Bank of New York
90 Washington Street, 12th Floor
New York, New York 10286
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE> 46
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE INVESTMENT ADVISER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table............................ 2
Merrill Lynch Select PricingSM
System............................. 3
Financial Highlights................. 8
Investment Objective and Policies.... 10
Management of the Fund............... 13
Board of Directors................. 13
Management and Advisory
Arrangements.................... 14
Code of Ethics..................... 14
Transfer Agency Services........... 15
Purchase of Shares................... 15
Initial Sales Charge Alternatives--
Class A and Class D Shares...... 17
Deferred Sales Charge
Alternatives--
Class B and Class C Shares...... 19
Distribution Plans................. 23
Limitations on the Payment of
Deferred Sales Charges.......... 25
Redemption of Shares................. 25
Redemption......................... 26
Repurchase......................... 26
Reinstatement Privilege--Class A
and Class D Shares.............. 27
Shareholder Services................. 27
Portfolio Transactions and
Brokerage.......................... 30
Performance Data..................... 30
Additional Information............... 32
Dividends and Distributions........ 32
Determination of Net Asset Value... 32
Taxes.............................. 33
Organization of the Fund........... 35
Shareholder Reports................ 36
Shareholder Inquiries.............. 36
Authorization Form................... A-1
Code #10044-0795
</TABLE>
(LOGO)
Merrill Lynch
Capital Fund, Inc.
PROSPECTUS
July 27, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE> 47
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH CAPITAL FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
-------------------------
Merrill Lynch Capital Fund, Inc. (the "Fund") seeks to achieve the highest
total investment return consistent with prudent risk through a fully managed
investment policy utilizing equity, debt (including money market) and
convertible securities. This permits management of the Fund to vary investment
policy based on its evaluation of changes in economic and market trends. Total
investment return is the aggregate of income and capital value changes.
Consistent with this policy, the Fund's portfolio may, at any given time, be
invested substantially in equity securities, corporate bonds or money market
securities. It is the expectation of management that, over longer periods, a
larger portion of the Fund's portfolio will consist of equity securities of
larger market capitalization, quality companies. Since January 1, 1974, the
portion of the Fund's portfolio invested in equity securities has ranged from
approximately 43% to 98%, with the balance being invested in corporate bonds and
money market securities. On March 31, 1995, approximately 60% of the Fund's
portfolio was invested in equity securities.
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 July
27, 1995 (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.
-------------------------
INVESTMENT ADVISER:
MERRILL LYNCH ASSET MANAGEMENT
DISTRIBUTOR:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
-------------------------
The date of this Statement of Additional Information is July 27, 1995.
<PAGE> 48
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to achieve the highest total
investment return consistent with prudent risk through a fully managed
investment policy utilizing equity, debt (including money market) and
convertible securities. Reference is made to "Investment Objective and Policies"
in the Prospectus for a discussion of the investment objective and policies of
the Fund.
Portfolio Turnover. The rate of portfolio turnover is not a limiting factor
and, given the Fund's investment policies, it is anticipated that there may be
periods when high portfolio turnover will exist. The use of covered call options
at times when the underlying securities are appreciating in value may result in
higher portfolio turnover. The Fund pays brokerage commissions in connection
with writing call options and effecting closing purchase transactions, as well
as in connection with purchases and sales of portfolio securities. Although the
Fund anticipates that its annual portfolio turnover rate should not exceed 100%,
the turnover rate may vary greatly from year to year or during periods within a
year. A high rate of portfolio turnover results in correspondingly greater
brokerage commission expenses. 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 with maturities at
the time of acquisition of one year or less) by the monthly average value of the
securities in the portfolio during the year. The portfolio turnover rate for
each of the years ended March 31, 1993, 1994 and 1995 was 55%, 86% and 89%,
respectively.
Investment Restrictions. In addition to the investment policies and
restrictions set forth in the Prospectus, the Fund has adopted a number of
fundamental and non-fundamental investment policies and restrictions. The
fundamental policies and restrictions set forth below may not be changed without
the approval of the holders of a majority of the Fund's outstanding voting
shares, which for this purpose means the lesser of (a) 67% of the shares
represented at a meeting where more than 50% of the outstanding shares are
represented or (b) more than 50% of the outstanding shares. Unless otherwise
provided, all references to the assets of the Fund below are in terms of current
market value. The Fund may not:
1. Make any investment inconsistent with the Fund's classification as
a diversified company under the Investment Company Act of 1940, as amended
(the "Investment Company Act").
2. Invest more than 25% of its total assets, taken at market value, in
the securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
3. Make investments for the purpose of exercising control or
management.
4. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the 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
Statement of Additional Information, as they may be amended from time to
time.
2
<PAGE> 49
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act") in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
Under the non-fundamental investment restrictions, the Fund may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales "against the box".
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund
has otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws of any
state in which the Fund's shares are registered or qualified for sale
require a lower limitation, the Fund will observe such limitation. As of
the date hereof, therefore, the Fund will not invest more than 10% of its
total assets in securities which are subject to this investment restriction
(c). Securities purchased in accordance with Rule 144A under the Securities
Act (each, a "Rule 144A security") and determined to be liquid by the Board
of Directors are not subject to the limitations set forth in this
investment restriction (c). Notwithstanding the fact that the Board may
determine that a Rule 144A security is liquid and not subject to
limitations set forth in this investment restriction (c), the State of Ohio
does not recognize Rule 144A securities as securities that are free of
restrictions as to resale. To the extent required by Ohio law, the Fund
will not invest more than 50% of its total assets in securities of issuers
that are restricted as to disposition, including Rule 144A securities, or
in securities of issuers described in (e) below.
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<PAGE> 50
d. Invest in warrants if, at the time of acquisition, its investments
in warrants, valued at the lower of cost or market value, would exceed 5%
of the Fund's net assets; included within such limitation, but not to
exceed 2% of the Fund's net assets, are warrants which are not listed on
the New York Stock Exchange or American Stock Exchange or a major foreign
exchange. For purposes of this restriction, warrants acquired by the Fund
in units or attached to securities may be deemed to be without value.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Fund's total assets would be invested in such securities.
This restriction shall not apply to mortgage-backed securities,
asset-backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
f. Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, the officers and general
partner of Merrill Lynch Asset Management, L.P., the investment adviser for
the Fund (the "Investment Adviser"), the directors of such general partner
or the officers and directors of any subsidiary thereof each owning
beneficially more than one-half of one percent of the securities of such
issuer own in the aggregate more than 5% of the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs,
except that the Fund may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Fund's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
i. Notwithstanding fundamental investment restriction (7) above,
borrow amounts in excess of 5% of its total assets, taken at acquisition or
market value, whichever is lower and then only from banks as a temporary
measure for extraordinary or emergency purposes.
------------------------
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 Merrill Lynch except pursuant to a
permissive order or otherwise in compliance with the provisions of the
Investment Company Act and the rules and regulations thereunder. Included among
such restricted transactions are purchases from or sales to Merrill Lynch of
securities in transactions in which it acts as principal and purchases of
securities from underwriting syndicates of which Merrill Lynch is a member. See
"Portfolio Transactions and Brokerage".
Lending of Portfolio Securities. Subject to investment restriction (5)
above, the Fund from time to time lends securities from its portfolio to
approved borrowers and receives therefor collateral in cash or securities issued
or guaranteed by the U.S. Government which are 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; and if securities are delivered to the Fund as collateral,
the Fund and the borrower negotiate a rate for the loan 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
4
<PAGE> 51
loans are terminable at any time. The Fund may pay reasonable finder's
administrative and custodian fees in connection with such loans.
Writing of Covered Call Options. The Fund may from time to time write,
i.e., sell, covered call options on its portfolio securities and enter into
closing purchase transactions with respect to certain of such options. A call
option is considered covered where the writer of the option owns the underlying
securities. By writing a covered call option, the Fund, in return for the
premium income realized from the sale of the option, may give up the opportunity
to profit from a price increase in the underlying security above the option
exercise price. In addition, the Fund will not be able to sell the underlying
security until the option expires, is exercised or the Fund effects a closing
purchase transaction as described below. A closing purchase transaction cancels
out the Fund's position as the writer of an option by means of an offsetting
purchase of an identical option prior to the expiration of the option it has
written. If the option expires unexercised, the Fund realizes a gain in the
amount of the premium received for the option which may be offset by a decline
in the market price of the underlying security during the option period. The
Fund may not write covered options on underlying securities exceeding 15% of the
value of its total assets.
All options referred to herein and in the Fund's Prospectus are options
issued by The Options Clearing Corporation (the "Clearing Corporation") which
are currently traded on the Chicago Board Options Exchange, the American Stock
Exchange, the Philadelphia Stock Exchange, the Pacific Stock Exchange or the New
York Stock Exchange. A call option gives the purchaser of an option the right to
buy, and obligates the writer (seller) to sell, the underlying security at the
exercise price during the option period. The option period normally ranges from
three to nine months from the date the option is written. For writing an option,
the Fund receives a premium, which is the price of such an option on the
exchange on which it is traded. The exercise price of the option may be below,
equal to or above the current market value of the underlying security at the
time the option is written.
The writer may terminate its obligation prior to the expiration date of the
option by executing a closing purchase transaction which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option previously written.
Such a purchase does not result in ownership of an option. A closing purchase
transaction ordinarily will be effected to realize a profit on an outstanding
call option, to prevent an underlying security from being called, to permit the
sale of the underlying security or to permit the writing of a new call option
containing different terms on such underlying security. The cost of such a
liquidation purchase plus transaction costs may be greater than the premium
received on the original option, in which case the Fund will have incurred a
loss in the transaction. An option may be closed out only on an exchange which
provides a secondary market for an option of the same series and there is no
assurance that a secondary market will exist for any particular option. A
covered option writer unable to effect a closing purchase transaction will not
be able to sell the underlying security until the option expires or the
underlying security is delivered upon exercise, with the result that the writer
will be subject to the risk of market decline in the underlying security during
such period. The Fund will write an option on a particular security only if
management believes that a secondary market will exist on an exchange for
options of the same series which will permit the Fund to make a closing purchase
transaction in order to close out its position.
Due to the relatively short time that exchanges have been dealing with
options, options involve risks of possible unforeseen events which can be
disruptive to the option markets or could result in the institution of certain
procedures including restriction of certain types of orders.
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<PAGE> 52
No Rating Criteria for Debt Securities. The Fund has not established any
rating criteria for the debt securities in which it may invest and such
securities may not be rated at all for creditworthiness. The Fund is authorized
to invest a portion of its debt portfolio in fixed-income securities which are
rated below "investment grade" by a nationally recognized statistical rating
organization. Securities rated below "investment grade" by nationally recognized
statistical rating organizations, e.g., below BBB by Standard & Poor's Ratings
Group and below Baa by Moody's Investors Service, Inc., and unrated securities
of comparable quality in the judgment of the Investment Adviser (such lower
rated and unrated securities are sometimes referred to as "high yield/high risk
securities" or "junk bonds") are speculative with respect to the capacity to pay
interest and repay principal in accordance with the terms of the security and
generally involve substantial risk such as a greater volatility of price than
securities in higher rating categories. See Appendix A to this Statement of
Additional Information -- "Ratings of Debt Securities and Preferred Stock" on
page 45.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Director is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (62)--President and Director(1)(2)--President of the
Investment Adviser (which term as used herein includes the Investment Adviser's
corporate predecessors) since 1977; President of Fund Asset Management L.P.
("FAM") (which term, as used herein, includes FAM's corporate predecessors)
since 1977; President and Director of Princeton Services, Inc. ("Princeton
Services") since 1993; Executive Vice President of Merrill Lynch & Co., Inc.
("ML & Co.") since 1990; Executive Vice President of Merrill Lynch since 1990
and Senior Vice President thereof from 1985 to 1990; Director of Merrill Lynch
Funds Distributor, Inc. (the "Distributor").
DONALD CECIL (68)--Director(2)--1114 Avenue of the Americas, New York, New
York 10036. Special Limited Partner of Cumberland Partners (an investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman, Westchester County (N.Y.) Board of Transportation.
M. COLYER CRUM (62)--Director(2)--Soldiers Field Road, Boston,
Massachusetts 02163. James R. Williston Professor of Investment Management,
Harvard Business School, since 1971; Director of Cambridge Bancorp, Copley
Properties, Inc. and Sun Life Assurance Company of Canada.
EDWARD H. MEYER (68)--Director(2)--777 Third Avenue, New York, New York
10017. President of Grey Advertising Inc. since 1968, Chief Executive Officer
since 1970 and Chairman of the Board of Directors since 1972; Director of The
May Department Stores Company, Bowne & Co., Inc. (financial printers), Harman
International Industries, Inc. and Ethan Allen Interiors, Inc.
JACK B. SUNDERLAND (66)--Director(2)--P.O. Box 1177, Scarsdale, New York
10583. President and Director of American Independent Oil Company, Inc. (an
energy company) since 1987; Chairman of Murexco Petroleum, Inc. (an energy
company) from 1981 to 1988; Member of Council on Foreign Relations
6
<PAGE> 53
since 1971; President, Director and Chief Executive Officer of Coroil, Inc. (an
energy company) from 1979 to 1985.
J. THOMAS TOUCHTON (56)--Director(2)--Suite 3405, One Tampa City Center,
Tampa, Florida 33602. Managing Partner of The Witt-Touchton Company and its
predecessor The Witt Co. (a private investment partnership) since 1972; Trustee
Emeritus of Washington and Lee University; Director of TECO Energy, Inc. (an
electric utility holding company).
TERRY K. GLENN (54)--Executive Vice President(1)(2)--Executive Vice
President of the Investment Adviser and FAM since 1983; Executive Vice President
and Director of Princeton Services since 1993; President of the Distributor
since 1986 and Director thereof since 1991; and President of Princeton
Administrators, L.P. since 1988.
NORMAN R. HARVEY (61)--Senior Vice President(1)(2)--Senior Vice President
of the Investment Adviser and FAM since 1982; Senior Vice President of Princeton
Services since 1993.
DONALD C. BURKE (35)--Vice President(1)(2)--Vice President and Director of
Taxation of the Investment Adviser since 1990; employee of Deloitte & Touche LLP
from 1982 to 1990.
ERNEST S. WATTS (62)--Vice President(1)--Vice President of the Investment
Adviser since 1983.
GERALD M. RICHARD (46)--Treasurer(1)(2)--Senior Vice President and
Treasurer of the Investment Adviser and FAM since 1984; Senior Vice President
and Treasurer of Princeton Services since 1993; Vice President of the
Distributor since 1981 and Treasurer of the Distributor since 1984.
MARK B. GOLDFUS (48)--Secretary(1)(2)--Vice President of the Investment
Adviser and FAM since 1985.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a director or officer of certain other
investment companies for which the Investment Adviser or FAM acts as
investment adviser.
At June 30, 1995, the Directors and officers of the Fund as a group (12
persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At that date, Mr. Zeikel, an officer and Director of the Fund, and the
other officers of the Fund, owned less than 1% of the outstanding Common Stock
of ML & Co.
COMPENSATION OF DIRECTORS
The Investment Adviser pays all compensation of officers and employees of
the Fund and all Directors of the Fund who are affiliated persons of ML & Co. or
any of its subsidiaries. Each unaffiliated Director is paid an annual fee of
$3,500 by the Fund for serving as a Director plus a fee of $500 for each meeting
of the Board which he or she attends. The Fund also pays each member of the
Audit Committee of the Board of Directors, which consists of all the
unaffiliated Directors, an annual fee of $2,500. The Chairman of the Audit
Committee receives an additional $1,000 annually. The Fund reimburses each
unaffiliated Director for his or her out-of-pocket expenses relating to
attendance at Board and Committee meetings. Fees and expenses paid to the
Directors aggregated $40,890 for the fiscal year ended March 31, 1995.
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<PAGE> 54
The following table sets forth for the fiscal year ended March 31, 1995
compensation paid by the Fund to the non-interested Directors and for the
calendar year ended December 31, 1994, the aggregate compensation paid by all
investment companies (including the Fund) advised by the Investment Adviser and
its affiliate, FAM ("MLAM/FAM-Advised Funds") to the non-interested Directors:
<TABLE>
<CAPTION>
AGGREGATE
PENSION OR COMPENSATION
RETIREMENT FROM FUND AND
BENEFIT ACCRUED MLAM/FAM-ADVISED
COMPENSATION AS PART OF FUND FUNDS PAID TO
DIRECTOR FROM THE FUND EXPENSE TRUSTEE/DIRECTOR(1)
- ------------------------------------------------ ------------- --------------- ----------------
<S> <C> <C> <C>
Donald Cecil.................................... $ 9,000 None $276,350
M. Colyer Crum.................................. $ 8,000 None $126,600
Edward H. Meyer................................. $ 8,000 None $251,600
Jack B. Sunderland.............................. $ 8,000 None $134,600
J. Thomas Touchton.............................. $ 8,000 None $134,600
</TABLE>
- ---------------
(1) In addition to the Fund, the Directors serve on the boards of other
MLAM/FAM-Advised Funds as follows: Donald Cecil (34 funds), M. Colyer Crum
(17 funds), Edward H. Meyer (34 funds), Jack B. Sunderland (18 funds) and J.
Thomas Touchton (18 funds).
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.
Pursuant to the investment advisory agreement with the Investment Adviser
(the "Investment Advisory Agreement"), the Fund pays the Investment Adviser a
monthly fee based on the average daily value of the Fund's net assets at the
annual rates of: 0.50% of that portion of the average daily net assets not
exceeding $250 million; 0.45% of that portion of the average daily net assets
exceeding $250 million but not exceeding $300 million; 0.425% of that portion of
the average daily net assets exceeding $300 million but not exceeding $400
million; and 0.40% of that portion of the average daily net assets exceeding
$400 million. For the fiscal years ended March 31, 1993, 1994 and 1995, the
advisory fees paid by the Fund to the Investment Adviser totaled $15,856,994,
$20,844,212 and $23,221,209, respectively.
California imposes limitations on the expenses of the Fund. These expense
limitations require that the Investment Adviser reimburse the Fund in an amount
necessary to prevent the aggregate ordinary operating expenses (excluding taxes,
brokerage fees and commissions, distribution fees and extraordinary charges such
as litigation costs) from exceeding in any fiscal year 2.5% of the Fund's first
$30 million of average daily net assets, 2.0% of the next $70 million of average
daily net assets and 1.5% of the remaining average daily net assets. The
Investment Adviser's obligation to reimburse the Fund is limited to the amount
of the investment advisory fee. No fee payment will be made to the Investment
Adviser during any fiscal year which will cause such expenses to exceed the most
restrictive expense limitation at the time of such payment. The Fund was not
required to be reimbursed by the Investment Adviser pursuant to such operating
expense limitations during the last three fiscal years ended March 31, 1995.
The responsibility for making decisions to buy, sell or hold a particular
security rests with the Investment Adviser, subject to review by the Board of
Directors. The Investment Adviser supplies the portfolio managers for the Fund
who consider analyses from various sources, make the necessary investment
decisions and place
8
<PAGE> 55
transactions accordingly. The Investment Adviser also is obligated to perform
certain administrative and management services for the Fund and is required to
provide all the office space, facilities, equipment and personnel necessary to
perform its duties under the Investment Advisory Agreement.
Securities held by the Fund also may be held by or be appropriate
investments for other funds for which the Investment Adviser or FAM acts as an
adviser or by investment advisory clients of the Investment Adviser. Because of
different investment 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 for the Fund or other funds for
which the Investment Adviser or FAM acts as investment adviser or for their
advisory clients arise for consideration at or about the same time, transactions
in such securities will be made, insofar as feasible, for the respective funds
and clients in a manner deemed equitable to all. To the extent that transactions
on behalf of more than one client of the Investment Adviser or FAM 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 Investment Adviser provides the investment advisory services and pays
all of the officers and employees of the Fund, as well as all fees for Directors
of the Fund who are connected with the Investment Adviser, the Distributor,
Merrill Lynch or ML & Co. The Investment Adviser also provides all office space,
facilities, equipment and necessary personnel for portfolio management of the
Fund. The Investment Adviser bears the expense of calculating the Fund's net
asset value.
The Fund pays all other expenses incurred, except for some expenses
incurred by the Distributor, in the operation of the Fund including, among
others, taxes, expenses for legal and auditing services, costs of printing
proxies and stock certificates, charges of the custodian and transfer agent,
expenses of redemption, brokerage costs, Commission fees and all expenses of
shareholders' and Directors' meetings and certain of the expenses of printing
prospectuses, statements of additional information and reports to shareholders.
Accounting services are provided for the Fund by the Investment Adviser. The
Distributor will pay the promotional expenses incurred in connection with the
offering of shares of the Fund. See "Purchase of Shares--Distribution Plans".
The Investment Adviser is a limited partnership, the partners of which are
ML & Co. and Princeton Services. ML & Co. and Princeton Services are
"controlling persons" of the Investment Adviser as defined under the Investment
Company Act because of their ownership of its voting securities or its power to
exercise a controlling influence over its management or policies.
Duration and Termination. Unless earlier terminated as described herein,
the Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Board of Directors or a majority of the voting
securities and (b) by a majority of Directors who are neither parties to such
contract nor interested persons (as defined in the Investment Company Act) of
any such party. Such contract is not assignable and may be terminated without
penalty on 60 days' written notice at the option of either party thereto or by
the vote of the shareholders of the Fund.
9
<PAGE> 56
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
PricingSM 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 pursuant to which the account maintenance and/or distribution
fees are paid. Each class has different exchange privileges. See "Shareholder
Services--Exchange Privilege".
The Merrill Lynch Select PricingSM System is used by more than 60 mutual
funds advised by the Investment Adviser or its affiliate, FAM. Funds advised by
the Investment Adviser or FAM which use the Merrill Lynch Select PricingSM
System are referred herein as "MLAM-advised mutual funds".
The Fund has entered into four 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, the statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and investors.
The Distributor also pays for other supplementary sales literature and
advertising costs. The Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Investment Advisory Agreement
described above.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
For the fiscal years ended March 31, 1993, 1994 and 1995 approximately
$7,736,868, $4,670,795 and $2,938,902, respectively, was received by the
Distributor as sales charges on Class A shares sold, of which approximately
$7,324,107, $4,404,438 and $2,770,834, respectively, was paid to Merrill Lynch
as a selected dealer of such shares. For the period October 21, 1994
(commencement of operations) to March 31, 1995, approximately $922,072 was
received by the Distributor as sales charges on Class D shares sold, of which
approximately $871,472 was paid to Merrill Lynch as a selected dealer of such
shares. For information as to brokerage commissions received by Merrill Lynch,
see "Portfolio Transactions and Brokerage".
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 spouse and their children under the
age of 21 years purchasing shares for his or their own account and to 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 which has not been in existence for at least six months or
which has no
10
<PAGE> 57
purchase 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.
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 any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Fund's 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; however,
its execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A or 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 does not equal the amount stated in the Letter of Intention
(minimum of $25,000), the investor will be notified and must pay, within 20 days
of the expiration of such Letter, the difference between the sales charge on the
Class A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to five percent of the intended amount will be held in escrow
during the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If a purchase
during the term of such Letter would otherwise be subject to a further reduced
sales charge based on the right of accumulation, the purchaser will be entitled
on that purchase and subsequent purchases to the further reduced percentage
sales charge, 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
11
<PAGE> 58
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. The Blueprint
program is directed to small investors, group IRAs and participants in certain
affinity groups such as credit unions and trade associations. 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
$300 at 4.25%, from $300.01 to $5,000 at 3.25% plus $3.00 and $5,000.01 or more
at the standard sales charge rates disclosed in the Prospectus). In addition,
Class A and Class D shares of the Fund are being offered at net asset value plus
a sales charge of 1/2 of 1% for corporate or group IRA programs placing orders
to purchase their Class A or Class D shares through Blueprint. Services,
including the exchange privilege, available to Class A and Class D investors
through Blueprint, however, may differ from those available to other 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 (the "IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from Employer Sponsored Retirement and Savings Plans
(as defined below) whose Trustee and/or Plan Sponsor has entered into a Merrill
Lynch Directed IRA Rollover Program Service Agreement.
Orders for purchases and redemptions of Class A or Class D shares of the
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 BlueprintSM Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMASM Managed Trusts. Class A shares are offered at net asset value to
TMASM Managed Trusts to which Merrill Lynch Trust Company provides discretionary
trustee services.
Employer Sponsored Retirement or Savings Plans. Class A and Class D shares
are offered at net asset value to employer sponsored retirement or savings
plans, such as tax qualified retirement plans within the meaning of Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), deferred
compensation plans within the meaning of Sections 403(b) and 457 of the Code,
other deferred compensation arrangements, Voluntary Employee Benefits
Association ("VEBA") plans, and non-qualified After-Tax Savings and Investment
programs maintained on the Merrill Lynch Group Employee Services system (herein
referred to as "Employer Sponsored Retirement or Savings Plan(s)"), provided the
Employer Sponsored Retirement or Savings Plan has accumulated $20 million or
more in MLAM-advised mutual funds (in the case of Class A shares) or $5 million
or more in MLAM-advised mutual funds (in the case of Class D shares). Class D
shares may be offered at net asset value to new Employer Sponsored Retirement or
Savings Plans, provided the plan has $3 million or more initially invested in
MLAM-advised mutual funds. Assets of
12
<PAGE> 59
Employer Sponsored Retirement or Savings Plans sponsored by the same sponsor or
an affiliated sponsor may be aggregated. Class A shares and Class D shares also
are offered at net asset value to Employer Sponsored Retirement or Savings Plans
that have at least 1,000 employees eligible to participate in the plan (in the
case of Class A shares) or between 500 and 999 employees eligible to participate
in the plan (in the case of Class D shares). Employees eligible to participate
in Employer Sponsored Retirement or Savings Plans of the same sponsoring
employer or its affiliates may be aggregated. Tax qualified retirement plans
within the meaning of Section 401(a) of the Code meeting any of the foregoing
requirements, and which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a wide
range of investments including individual corporate equities and other
securities in addition to mutual fund shares) by Blueprint, are offered Class A
or Class D shares at a price equal to net asset value per share plus a reduced
sales charge of 0.50%. Any Employer Sponsored Retirement or Savings Plan which
does not meet the above-described qualifications to purchase Class A or Class D
shares at net asset value has the option of (i) purchasing Class A shares at the
sales charge schedule and possible CDSC schedule disclosed in the Prospectus if
it is otherwise eligible to purchase Class A shares, (ii) purchasing Class D
shares at the initial sales charge and possible CDSC schedule disclosed in the
Prospectus, (iii) if the Employer Sponsored Retirement or Savings Plan meets the
specified requirements, purchasing Class B shares with a waiver of the CDSC upon
redemption, or if the Employer Sponsored Retirement or Savings Plan does not
qualify to purchase Class B shares with a waiver of the CDSC upon redemption,
purchasing Class C shares at the CDSC schedule disclosed in the Prospectus. The
minimum initial and subsequent purchase requirements are waived in connection
with all the above-referenced Employer Sponsored Retirement or Savings Plans.
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 Investment
Adviser or FAM who purchased such closed-end fund shares prior to October 21,
1994 (the date the Merrill Lynch Select PricingSM System commenced operations)
and wish to reinvest the net proceeds from a sale of their closed-end fund
shares of common stock in Eligible Class A or Class D 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 the closed-end fund shares must be made
through Merrill Lynch and the net proceeds therefrom must be immediately
reinvested in Eligible Class A 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. Class A shares of the Fund are
offered at net asset value to shareholders of Merrill Lynch Senior Floating Rate
Fund, Inc. ("Senior Floating Rate Fund") who wish to reinvest the net proceeds
from a sale of certain of their shares of common stock of Senior Floating Rate
Fund in shares of the Fund. In order to exercise this investment option, Senior
Floating Rate Fund shareholders must sell their Senior Floating Rate Fund shares
to the Senior Floating Rate Fund in connection with a tender offer conducted by
the Senior Floating Rate Fund and reinvest the proceeds immediately in the Fund.
This investment option is available only with respect to the proceeds of Senior
Floating Rate Fund shares as to which no Early Withdrawal Charge (as defined in
the Senior Floating Rate Fund prospectus) is applicable. Purchase orders from
Senior Floating Rate Fund shareholders wishing to exercise this investment
option will
13
<PAGE> 60
be accepted only on the day that the related Senior Floating Rate Fund tender
offer terminates and will be effected at the net asset value of the Fund at such
day.
Purchase Privileges of Certain Persons. Directors of the Fund, members of
the Boards of other MLAM-advised investment companies, directors and employees
of ML & Co. and its subsidiaries (the term "subsidiaries", when used herein with
respect to ML & Co., includes the Investment Adviser, FAM and certain other
entities directly or indirectly wholly-owned and controlled by ML & Co.), 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 also are offered at net asset value, without
sales charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that he
or she 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
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 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 such shares of
other mutual funds and that such shares have been outstanding for a period of no
less than six months; and second, such purchase of Class D shares must be made
within 60 days after the redemption and the proceeds from the redemption must be
maintained in the interim in cash or a money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a personal holding company or 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 which
might result from an acquisition of assets having net unrealized appreciation
which 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 which (i) meet the
investment objectives and policies of the Fund; (ii) are acquired for investment
and not for resale (subject to
14
<PAGE> 61
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, which 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.
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 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 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 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 Rules of Fair Practice 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
15
<PAGE> 62
issued pursuant to dividend reinvestments and exchanges), plus (2) interest on
the unpaid balance for the respective class, computed separately, at the prime
rate plus 1% (the unpaid balance being the maximum amount payable minus amounts
received from the payment of the distribution fee and the CDSC). In connection
with the Class B shares, the Distributor has voluntarily agreed to waive
interest charges on the unpaid balance in excess of 0.50% of eligible gross
sales. Consequently, the maximum amount payable to the Distributor (referred to
as the "voluntary maximum") in connection with the Class B shares is 6.75% of
eligible gross sales. The Distributor retains the right to stop waiving the
interest charges at any time. To the extent payments would exceed the voluntary
maximum, the Fund will not make further payments of the distribution fee with
respect to Class B shares, and any CDSCs will be paid to the Fund rather than to
the Distributor; however, the Fund will continue to make payments of the account
maintenance fee. In certain circumstances the amount payable pursuant to the
voluntary maximum may exceed the amount payable under the NASD formula. In such
circumstances payment in excess of the amount payable under the NASD formula
will not be made.
The following table sets forth comparative information as of March 31, 1995
with respect to the Class B and Class C shares of the Fund, indicating the
maximum allowable payments that can be made under the NASD maximum sales charge
rule and the Distributor's voluntary maximum for the period October 21, 1988
(commencement of operations) to March 31, 1995, with respect to Class B shares,
and under the NASD maximum sales charge rule for the period October 21, 1994
(commencement of operations) to March 31, 1995, with respect to Class C shares.
DATA CALCULATED AS OF MARCH 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
ANNUAL
DISTRIBUTION
ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
CLASS B SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
- ------------------------ ----------- ---------- ---------- ---------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Under NASD Rule as
Adopted............... $ 3,521,825 $ 220,114 $ 36,292 $ 256,406 $ 89,605 $ 166,801 $ 27,482
Under Distributor's
Voluntary Waiver...... $ 3,521,825 $ 220,114 $ 17,609 $ 237,723 $ 89,605 $ 148,118 $ 27,482
CLASS C
Under NASD Rule as
Adopted............... $ 44,535 $ 2,783 $ 49 $ 2,832 $ 71 $ 2,761 $ 352
</TABLE>
- ---------------
(1) Purchase price of all eligible Class B shares sold since October 21, 1988
(commencement of operations) and all eligible Class C shares sold since
October 21, 1994 (commencement of operations) other than shares acquired
through dividend reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0% as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made with respect to Class B shares prior to July
6, 1993 under the distribution plan in effect at that time, at a 1.0% rate,
0.75% of average daily net assets has been treated as a distribution fee and
0.25% of average daily net assets has been deemed to have been a service fee
and not subject to the NASD maximum sales charge rule. See "Purchase of
Shares -- Distribution Plans" in the Prospectus.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the NASD maximum or, with respect to the Class B shares,
the voluntary maximum.
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<PAGE> 63
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 only for any period during which trading on the New
York Stock Exchange 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.
DEFERRED SALES CHARGE--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 are subject to a CDSC under most circumstances, the charge is
waived on redemptions of Class B shares in connection with certain post-
retirement withdrawals from an Individual Retirement Account ("IRA") or other
retirement plan or on redemptions of Class B shares following the death or
disability of a Class B shareholder. Redemptions for which the waiver applies
are: (a) any partial or complete redemption in connection with a distribution
following retirement under a tax-deferred retirement plan or attaining age
59 1/2 in the case of an IRA or other retirement plan, or part of a series of
equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) or any redemption resulting from the tax-free return of an
excess contribution to an IRA; or (b) any partial or complete redemption
following the death or disability (as defined in the Code) of a Class B
shareholder (including one who owns the Class B shares as joint tenant with his
or her spouse), provided the redemption is requested within one year of the
death or initial determination of disability. For the fiscal years ended March
31, 1993, 1994 and 1995, the Distributor received CDSCs of $2,982,510,
$3,578,730 and $3,965,708, respectively, with respect to redemptions of Class B
shares, all of which was paid to Merrill Lynch. For the fiscal period October
21, 1994 (commencement of operations) to March 31, 1995, the Distributor
received CDSCs of $4,929 with respect to redemptions of Class C shares, all of
which was paid to Merrill Lynch.
Merrill Lynch BlueprintSM Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations and
credit unions. Class B shares of the Fund are offered through Blueprint only to
members of certain affinity groups. The CDSC is waived in connection with
purchase orders placed through Blueprint by members of such affinity groups.
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.
17
<PAGE> 64
Retirement Plans. Any Retirement Plan which does not meet the
qualifications to purchase Class A or Class D shares at net asset value has the
option of purchasing Class A or Class D shares at the sales charge schedule
disclosed in the Prospectus, or if the Retirement Plan meets the following
requirements, then it may purchase Class B shares with a waiver of the CDSC upon
redemption. The CDSC is waived for any Eligible 401(k) Plan redeeming Class B
shares. "Eligible 401(k) Plan" is defined as a retirement plan qualified under
Section 401(k) of the Code with a salary reduction feature offering a menu of
investments to plan participants. The CDSC is also waived for redemptions from a
401(a) plan qualified under the Code, provided, however, that each such plan has
the same or an affiliated sponsoring employer as an Eligible 401(k) Plan
purchasing Class B shares of MLAM-advised mutual funds ("Eligible 401(a) Plan").
Other tax qualified retirement plans within the meaning of Sections 401(a) and
403(b) of the Code which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a menu of
investments) by independent administration firms contracted through Merrill
Lynch also may purchase Class B shares with a waiver of the CDSC. The CDSC also
is waived for any Class B shares which are purchased by an Eligible 401(k) Plan
or Eligible 401(a) Plan and are rolled over into a Merrill Lynch or Merrill
Lynch Trust Company custodied IRA and held in such account at the time of
redemption. The Class B CDSC also is waived for any Class B shares which are
purchased by a Merrill Lynch rollover IRA that was funded by a rollover from a
terminated 401(k) plan managed by the MLAM Private Portfolio Group and held in
such account at the time of redemption. The minimum initial and subsequent
purchase requirements are waived in connection with all the above-referenced
Retirement Plans.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the policies established by the Board of Directors of the Fund,
the Investment Adviser is responsible for making the Fund's portfolio decisions
and placing the Fund's brokerage business, evaluating the reasonableness of
brokerage commissions and negotiating the amount of any commissions paid. The
Fund has no obligation to deal with any broker or group of brokers in the
execution of transactions in portfolio securities. Orders for transactions in
portfolio securities are placed for the Fund with a number of brokers and
dealers, including Merrill Lynch. In placing orders, it is the policy of the
Fund to obtain the most favorable net results, taking into account various
factors, including price, commissions, if any, size of the transaction, and
difficulty of execution. Where practicable, the Investment Adviser surveys a
number of brokers and dealers in connection with proposed portfolio transactions
and selects the broker or dealer which offers the Fund the best price and
execution or other services which are of benefit to the Fund. Merrill Lynch has
advised the Fund that, in transactions with Merrill Lynch, the Fund receives a
commission rate at least as favorable as the rate Merrill Lynch charges its
other customers in similar transactions. In addition, consistent with the Rules
of Fair Practice of the NASD and policies established by the Directors of the
Fund, the Investment Adviser 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.
For the fiscal year ended March 31, 1993, the Fund paid brokerage
commissions of $6,085,929 of which $360,476, or 5.9% was paid to Merrill Lynch
for effecting 5.8% of the aggregate dollar amount of transactions in which the
Fund paid brokerage commissions. For the fiscal year ended March 31, 1994, the
Fund paid brokerage commissions of $8,838,842 of which $255,039, or 2.9% was
paid to Merrill Lynch for effecting 2.9% of the aggregate dollar amount of
transactions in which the Fund paid brokerage commissions. For the fiscal year
ended March 31, 1995, the Fund paid brokerage commissions of $9,238,987 of which
$315,095, or 3.4%,
18
<PAGE> 65
was paid to Merrill Lynch for effecting 2.9% of the aggregate dollar amount of
transactions in which the Fund paid brokerage commissions.
The Fund does not use any particular broker or dealer, and brokers who
provide supplemental investment research to the Investment Adviser (including
Merrill Lynch) 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 Investment Adviser under the Investment Advisory Agreement.
If in the judgment of the Investment Adviser the Fund will be benefitted by
supplemental research services, the Investment Adviser is authorized to pay
brokerage commissions to a broker furnishing such services which are in excess
of commissions which another broker may have charged for effecting the same
transaction. The expenses of the Investment Adviser will not necessarily be
reduced as a result of the receipt of such supplemental information, and the
Investment Adviser may use such information in servicing its other accounts.
The Fund invests in securities traded in the over-the-counter market and,
where possible, deals 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 are prohibited from dealing with the Fund as principal
in the purchase and sale of securities. Since transactions in the
over-the-counter market usually involve transactions with dealers acting as
principal for their own accounts, affiliated persons of the Fund, including
Merrill Lynch, will not serve as the Fund's dealer in such transactions. See
"Investment Objective and Policies--Investment Restrictions". However,
affiliated persons of the Fund may serve as its broker in over-the-counter
transactions conducted on an agency basis.
The Board of Directors of the Fund has considered the possibilities of
seeking to recapture for the benefit of the Fund brokerage commissions, dealer
spreads and other expenses of possible portfolio transactions, such as
underwriting commissions and tender offer solicitation fees, by conducting such
portfolio transactions through affiliated entities, including Merrill Lynch. For
example, brokerage commissions received by Merrill Lynch could be offset against
the advisory fee payable by the Fund to the Investment Adviser. After
considering all factors deemed relevant, the Board made a determination not to
seek such recapture. The Board will reconsider this matter from time to time.
The Investment Adviser has arranged for the Fund's custodian to receive any
tender offer solicitation fees on behalf of the Fund payable with respect to
portfolio securities of the Fund.
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
which they manage, unless the member (i) has obtained prior express
authorization from the account to effect such transactions, (ii) at least
annually furnishes the account with a statement of 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
the floor of 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.
19
<PAGE> 66
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is computed
once daily, Monday through Friday, as of 15 minutes after the close of business
on the New York Stock Exchange (generally, 4:00 P.M., New York time), on each
day during which the New York Stock Exchange is open for trading. The New York
Stock Exchange is not open on New Year's 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. The Fund also
will determine its net asset value on any day in which there is sufficient
trading in its portfolio securities that the net asset value might be materially
affected, but only if on any such day the Fund is required to sell or redeem
shares. 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 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 which 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. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the over-the-counter market are valued
at the last available bid price in the over-the-counter market prior to the time
of valuation. When the Fund writes a call 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
over-the-counter market, the last asked price. Options purchased by the Fund are
valued at their last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last bid price.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith under the direction of the
Board of Directors of the Fund.
Option Accounting Principles. When the Fund sells an option, an amount
equal to the premium received by the Fund is included in the Fund's Statement of
Assets and Liabilities as a deferred credit. The amount of such liability will
be subsequently marked-to-market to reflect the current market value of the
option written. If current market value exceeds the premium received there is an
unrealized loss; conversely, if the premium exceeds current market value there
is an unrealized gain. The current market value of a traded
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option is the last sale price or, in the absence of a sale, the last offering
price. If an option expires on its stipulated expiration date or if the Fund
enters into a closing purchase transaction, the Fund will realize a gain (or
loss if the cost of a closing purchase transaction exceeds the premium received
when the option was sold) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option will be
extinguished. If an option is exercised, the Fund will realize a gain or loss
from the sale of the underlying security and the proceeds of sale are increased
by the premium originally received.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services summarized 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.
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 gains distributions. The statements also will show any other
activity in the account since the previous statement. Shareholders also will
receive separate 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. A shareholder may make additions to
his or her Investment Account at any time by mailing a check directly to the
Transfer Agent.
Share certificates are issued only for full shares and only on the specific
request of the shareholder. Issuance of certificates representing all or only
part of the full shares in an Investment Account may be requested by a
shareholder directly from the Transfer Agent.
Shareholders considering transferring their Class A shares 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 his or
her shares, and then must turn the certificates over to the new firm for
re-registration as described in the preceding sentence. Shareholders considering
transferring a tax-deferred retirement account such as an 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 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.
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AUTOMATIC INVESTMENT PLANS
A 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 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. For investors who buy shares of the
Fund through Blueprint, no minimum charge to the investor's bank account is
required. Investors who maintain CMA(R) or CBA(R) accounts may arrange to have
periodic investments made in the Fund in their CMA(R) or CBA(R) accounts or in
certain related accounts in amounts of $100 or more ($1 for retirement accounts)
through the CMA(R) or CBA(R) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically in additional shares of the Fund. Such reinvestment
will be at the net asset value of shares of the Fund 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 ordinary income dividends or capital gains
distributions, or both, in cash, in which event payment will be mailed or direct
deposited on or about the payment date.
Shareholders may, at any time, notify the Transfer Agent in writing or by
telephone (1-800-MER-FUND) 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 receipt by the Transfer Agent of such
notice, those instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
Class A or Class D 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 Class A or Class D shares with a value of $10,000 or more.
At the time of each withdrawal payment, sufficient Class A or Class D
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 either a dollar amount or a percentage of the value of his or her Class
A or Class D shares. Redemptions will be made at net asset value as determined
as of 15 minutes after the close of business on the New York Stock Exchange
(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 New York
Stock Exchange is not open for business on such date, the Class A or Class D
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 and
distributions on all Class A or Class D shares in the Investment
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<PAGE> 69
Account are reinvested automatically in Class A or Class D shares, respectively.
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 Class A or Class D
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 Class A or Class D 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 Class A or Class D shareholder whose shares are held within a CMA(R),
CBA(R) or Retirement Account may elect to have shares redeemed on a monthly,
bimonthly, quarterly, semiannual or annual basis through the CMA(R)/CBA(R)
Systematic Redemption Program. The minimum fixed dollar amount redeemable is
$25. The proceeds of systematic redemptions will be posted to a shareholder's
account five business days after the date the shares are redeemed. Monthly
systematic redemptions will be made at net asset value on the first Monday of
each month, bimonthly systematic redemptions will be made at net asset value on
the first Monday of every other month, and quarterly, semiannual or annual
redemptions are made at net asset value on the first Monday of months selected
at the shareholder's option. If the first Monday of the month is a holiday, the
redemption will be processed at net asset value on the next business day. The
CMA(R)/CBA(R) Systematic Redemption Program is not available if Fund shares are
being purchased within the account pursuant to the Automatic Investment Program.
For more information on the CMA(R)/CBA(R) Systematic Redemption Program,
eligible shareholders should contact their Merrill Lynch financial consultant.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Fund and in certain of the other mutual funds sponsored by Merrill Lynch as well
as in other securities. Merrill Lynch charges an initial establishment fee and
an annual custodial fee for each account. Information with respect to these
plans is available on request from Merrill Lynch. The minimum initial purchase
to establish any such plan is $100 and the minimum subsequent purchase is $1.
Capital gains and ordinary income received in each of the plans referred to
above are exempt from Federal taxation until distributed from the plans.
Investors considering participation in any such plan should review specific tax
laws relating thereto and should consult their attorneys or tax advisers with
respect to the establishment and maintenance of any such plan.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds listed below. Under the Merrill
Lynch Select PricingSM 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 his 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 the
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<PAGE> 70
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. 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 specifically designated below
as available for exchange by holders of Class A, Class B, Class C or Class D
shares. Shares with a net asset value of at least $100 are required to qualify
for the exchange privilege, and any shares utilized in an exchange must have
been held by the shareholder for at least 15 days. It is contemplated that the
exchange privilege may be applicable to other new mutual funds whose shares may
be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charge paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A or 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 and Class D shares on which the dividend was paid. Based on this
formula, Class A or Class D shares generally may be exchanged into the Class A
or Class D shares of the other funds or into shares of the Class A and Class D
money market funds with a reduced or without a sales charge.
In addition, each of the funds with Class B or Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, of another
MLAM-advised mutual fund ("new Class B or Class C shares") on the basis of
relative net asset value per Class B or Class C share, without the payment of
any CDSC that might otherwise be due on redemption of the outstanding shares.
Class B shareholders of the 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 shares of the Fund acquired through use
of the exchange privilege will be subject to that Fund's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the Class B shares of the
fund from which the exchange has been made. For purposes of computing the sales
charge that may be payable on a disposition of the new Class B or Class C
shares, the holding period for the outstanding Class B or Class C shares is
"tacked" to the holding period of the new Class B or Class C shares. For
example, an investor may exchange Class B shares of the Fund for those of
Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having held
the Fund Class B shares for two and a half years. The 2% CDSC that generally
would apply to a
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<PAGE> 71
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 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 new Class B shares for more than five years.
The exchange privilege is modified with respect to certain retirement plans
which participate in the Merrill Lynch Mutual Fund Adviser ("MFA") program. Such
retirement plans may exchange Class B, Class C or Class D shares that have been
held for at least one year for Class A shares of the same fund on the basis of
relative net asset values in connection with the commencement of participation
in the MFA program, i.e., no CDSC will apply. The one-year holding period does
not apply to shares acquired through reinvestment of dividends. Upon termination
of participation in the MFA program, Class A shares will be re-exchanged for the
class of shares originally held. For purposes of computing any CDSC that may be
payable upon redemption of Class B or Class C shares so reacquired, or the
Conversion Period for Class B shares so reacquired, the holding period for the
Class A shares will be "tacked" to the holding period for the Class B or Class C
shares originally held.
Shareholders also may exchange shares of the Fund into shares of a money
market fund advised by the Investment Adviser or its affiliates, but the period
of time that Class B or Class C shares are held in a money market fund will not
count towards satisfaction of the holding period requirement for purposes of
reducing the CDSC, or with respect to the 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 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 continues to hold for an additional two and a half years,
any subsequent redemption will not incur a CDSC.
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds Issuing Class A, Class B, Class C and Class D Shares:
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC........ High current income consistent with a policy of
limiting the degree of fluctuation in net asset
value of fund shares resulting from movements
in interest rates, through investment primarily
in a portfolio of adjustable rate securities,
consisting principally of mortgage-backed and
asset-backed securities.
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MERRILL LYNCH AMERICAS INCOME
FUND, INC................... A high level of current income, consistent with
prudent investment risk, by investing primarily
in debt securities denominated in a currency of
a country located in the Western Hemisphere
(i.e., North and South America and the
surrounding waters).
MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL BOND
FUND........................ A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
Arizona income taxes as is consistent with
prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade Arizona
Municipal Bonds.
MERRILL LYNCH ARIZONA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Arizona income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH ARKANSAS
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Arkansas income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH ASSET GROWTH
FUND, INC. ................. High total investment return, consistent with
prudent risk, from investment in United States
and foreign equity, debt and money market
securities the combination of which will be
varied both with respect to types of securities
and markets in response to changing market and
economic trends.
MERRILL LYNCH ASSET INCOME
FUND, INC. ................. A high level of current income through
investment primarily in United States fixed
income securities.
MERRILL LYNCH BALANCED FUND
FOR INVESTMENT AND
RETIREMENT, INC............. As high a level of total investment return as
is consistent with a reasonable risk through
investment in common stocks and other types of
securities, including fixed income securities
and convertible securities.
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MERRILL LYNCH BASIC VALUE
FUND, INC................... Capital appreciation and, secondarily, income
through investment in securities, primarily
equities, that are undervalued and therefore
represent basic investment value.
MERRILL LYNCH CALIFORNIA
INSURED MUNICIPAL BOND
FUND........................ A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and California
income taxes as is consistent with prudent
investment management through investment in a
portfolio primarily of insured California
Municipal Bonds.
MERRILL LYNCH CALIFORNIA
LIMITED MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
California income taxes as is consistent with
prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade California
Municipal Bonds.
MERRILL LYNCH CALIFORNIA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and California
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH COLORADO
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Colorado income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH CONNECTICUT
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Connecticut
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH CORPORATE BOND
FUND, INC................... Current income from three separate diversified
portfolios of fixed income securities.
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MERRILL LYNCH DEVELOPING
CAPITAL MARKETS FUND,
INC. ....................... Long-term capital appreciation through
investment in securities, principally equities,
of issuers in countries having smaller capital
markets.
MERRILL LYNCH DRAGON
FUND, INC................... Capital appreciation primarily through
investment in equity and debt securities of
issuers domiciled in developing countries
located in Asia and the Pacific Basin.
MERRILL LYNCH EUROFUND........ Capital appreciation primarily through
investment in equity securities of corporations
domiciled in Europe.
MERRILL LYNCH FEDERAL
SECURITIES TRUST............ High current return through investments in U.S.
Government and Government agency securities,
including GNMA mortgage-backed certificates and
other mortgage-backed Government securities.
MERRILL LYNCH FLORIDA LIMITED
MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal
income taxes as is consistent with prudent
investment management while serving to offer
shareholders the opportunity to own securities
exempt from Florida intangible personal
property taxes through investment in a
portfolio primarily of intermediate-term
investment grade Florida Municipal Bonds.
MERRILL LYNCH FLORIDA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal income taxes as is
consistent with prudent investment management
while seeking to offer shareholders the
opportunity to own securities exempt from
Florida intangible personal property taxes.
MERRILL LYNCH FUND FOR
TOMORROW, INC. ............. Long-term growth through investment in a
portfolio of good quality securities, primarily
common stock, potentially positioned to benefit
from demographic and cultural changes as they
affect consumer markets.
MERRILL LYNCH FUNDAMENTAL
GROWTH FUND, INC. .......... Long-term growth of capital through investment
in a diversified portfolio of equity securities
placing particular emphasis on
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companies that have exhibited an above-average
growth rate in earnings.
MERRILL LYNCH FUNDAMENTAL
VALUE PORTFOLIO
(available only for
exchanges
by certain individual
retirement
accounts for which Merrill
Lynch
acts as custodian).......... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide capital appreciation and income
by investing in securities, with at least 65%
of the portfolio's assets being invested in
equities.
MERRILL LYNCH GLOBAL
ALLOCATION FUND, INC........ High total return, consistent with prudent
risk, through a fully managed investment policy
utilizing United States and foreign equity,
debt and money market securities, the
combination of which will be varied from time
to time both with respect to the types of
securities and markets in response to changing
market and economic trends.
MERRILL LYNCH GLOBAL BOND FUND
FOR INVESTMENT AND
RETIREMENT.................. High total investment return from investment in
a global portfolio of debt instruments
denominated in various currencies and
multinational currency units.
MERRILL LYNCH GLOBAL
CONVERTIBLE FUND, INC....... High total return from investment primarily in
an internationally diversified portfolio of
convertible debt securities, convertible
preferred stock and "synthetic" convertible
securities consisting of a combination of debt
securities or preferred stock and warrants or
options.
MERRILL LYNCH GLOBAL
HOLDINGS, INC. (residents of
Arizona must meet investor
suitability standards)...... The highest total investment return consistent
with prudent risk through worldwide investment
in an internationally diversified portfolio of
securities.
MERRILL LYNCH GLOBAL
OPPORTUNITY PORTFOLIO
(available only for
exchanges
by certain individual
retirement
accounts for which Merrill
Lynch
acts as custodian).......... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a high total investment return
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through an investment policy utilizing United
States and foreign equity, debt and money
market securities, the combination of which
will vary depending upon changing market and
economic trends.
MERRILL LYNCH GLOBAL
RESOURCES TRUST............. Long-term growth and protection of capital from
investment in securities of domestic and
foreign companies that possess substantial
natural resource assets.
MERRILL LYNCH GLOBAL SMALLCAP
FUND, INC................... Long-term growth of capital by investing
primarily in equity securities of companies
with relatively small market capitalizations
located in various foreign countries and in the
United States.
MERRILL LYNCH GLOBAL UTILITY
FUND, INC................... Capital appreciation and current income through
investment of at least 65% of its total assets
in equity and debt securities issued by
domestic and foreign companies primarily
engaged in the ownership or operation of
facilities used to generate, transmit or
distribute electricity, telecommunications, gas
or water.
MERRILL LYNCH GROWTH FUND FOR
INVESTMENT AND RETIREMENT... Growth of capital and, secondarily, income from
investment in a diversified portfolio of equity
securities placing a principal emphasis on
those securities which management of the fund
believes to be undervalued.
MERRILL LYNCH HEALTHCARE FUND,
INC. (residents of Wisconsin
must meet investor
suitability standards)...... Capital appreciation through worldwide
investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in healthcare.
MERRILL LYNCH INTERNATIONAL
EQUITY FUND................. Capital appreciation and, secondarily, income
by investing in a diversified portfolio of
equity securities of issuers located in
countries other than the United States.
MERRILL LYNCH LATIN AMERICA
FUND, INC................... Capital appreciation by investing primarily in
Latin American equity and debt securities.
MERRILL LYNCH MARYLAND
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income
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exempt from Federal and Maryland income taxes
as is consistent with prudent investment
management.
MERRILL LYNCH MASSACHUSETTS
LIMITED MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
Massachusetts income taxes as is consistent
with prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade
Massachusetts Municipal Bonds.
MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Massachusetts
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH MICHIGAN LIMITED
MATURITY MUNICIPAL BOND
FUND........................ A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
Michigan income taxes as is consistent with
prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade Michigan
Municipal Bonds.
MERRILL LYNCH MICHIGAN
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Michigan
personal income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MINNESOTA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Minnesota
personal income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MUNICIPAL BOND
FUND, INC................... Tax-exempt income from three separate
diversified portfolios of municipal bonds.
MERRILL LYNCH MUNICIPAL
INTERMEDIATE TERM FUND...... Currently the only portfolio of Merrill Lynch
Municipal Series Trust, a series fund, whose
objective is to provide as high a level as
possible of income exempt from Federal income
taxes by investing
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in investment grade obligations with a dollar
weighted average maturity of five to twelve
years.
MERRILL LYNCH NEW JERSEY
LIMITED MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
New Jersey income taxes as is consistent with
prudent investment management through a
portfolio primarily of intermediate-term
investment grade New Jersey Municipal Bonds.
MERRILL LYNCH NEW JERSEY
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and New Jersey
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH NEW MEXICO
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and New Mexico
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH NEW YORK LIMITED
MATURITY MUNICIPAL BOND
FUND........................ A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal, New
York State and New York City income taxes as is
consistent with prudent investment management
through investment in a portfolio primarily of
intermediate-term investment grade New York
Municipal Bonds.
MERRILL LYNCH NEW YORK
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal, New York State and
New York City income taxes as is consistent
with prudent investment management.
MERRILL LYNCH NORTH CAROLINA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and North Carolina
income taxes as is consistent with prudent
investment management.
32
<PAGE> 79
MERRILL LYNCH OHIO MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Ohio income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH OREGON MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Oregon income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH PACIFIC
FUND, INC................... Capital appreciation by investing in equity
securities of corporations domiciled in Far
Eastern and Western Pacific countries,
including Japan, Australia, Hong Kong and
Singapore.
MERRILL LYNCH PENNSYLVANIA
LIMITED MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
Pennsylvania income taxes as is consistent with
prudent investment management through
investment in a portfolio of intermediate-term
investment grade Pennsylvania Municipal Bonds.
MERRILL LYNCH PENNSYLVANIA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Pennsylvania
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH PHOENIX
FUND, INC................... Long-term growth of capital by investing in
equity and fixed-income securities, including
tax-exempt securities, of issuers in weak
financial condition or experiencing poor
operating results believed to be undervalued
relative to the current or prospective
condition of such issuer.
MERRILL LYNCH QUALITY
BOND PORTFOLIO
(available only for
exchanges
by certain individual
retirement
accounts for which Merrill
Lynch
acts as custodian).......... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a high level of current income
through investment in a diversified portfolio
of debt obligations,
33
<PAGE> 80
such as corporate bonds and notes, convertible
securities, preferred stocks and governmental
obligations.
MERRILL LYNCH SHORT-TERM
GLOBAL INCOME FUND, INC..... As high a level of current income as is
consistent with prudent investment management
from a global portfolio of high quality debt
securities denominated in various currencies
and multinational currency units and having
remaining maturities not exceeding three years.
MERRILL LYNCH SPECIAL VALUE
FUND, INC................... Long-term growth of capital from investments in
securities, primarily common stock, of
relatively small companies believed to have
special investment value and emerging growth
companies regardless of size.
MERRILL LYNCH STRATEGIC
DIVIDEND FUND............... Long-term total return from investment in
dividend-paying common stocks which yield more
than Standard & Poor's 500 Composite Stock
Price Index.
MERRILL LYNCH TECHNOLOGY FUND,
INC......................... Capital appreciation through worldwide
investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in technology.
MERRILL LYNCH TEXAS MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal income taxes as is
consistent with prudent investment management
by investing primarily in a portfolio of
long-term, investment grade obligations issued
by the State of Texas, its political
subdivisions, agencies and instrumentalities.
MERRILL LYNCH U.S. GOVERNMENT
SECURITIES PORTFOLIO
(available only for
exchanges
by certain individual
retirement
accounts for which Merrill
Lynch
acts as custodian).......... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a high current return through
investments in U.S. Government and government
agency securities, including GNMA
mortgage-backed certificates and other
mortgage-backed government securities.
34
<PAGE> 81
MERRILL LYNCH UTILITY INCOME
FUND, INC................... High current income through investment in
equity and debt securities issued by companies
which are primarily engaged in the ownership or
operation of facilities used to generate,
transmit or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH WORLD INCOME
FUND, INC................... High current income by investing in a global
portfolio of fixed-income securities
denominated in various currencies, including
multinational currencies.
Class A Share Money Market Funds:
MERRILL LYNCH READY ASSETS
TRUST....................... Preservation of capital, liquidity and the
highest possible current income consistent with
the foregoing objectives from the short-term
money market securities in which the Trust
invests.
MERRILL LYNCH RETIREMENT
RESERVES MONEY FUND
(available only if the
exchange occurs within
certain retirement plans)... Currently the only portfolio of Merrill Lynch
Retirement Series Trust, a series fund, whose
objectives are to provide current income,
preservation of capital and liquidity available
from investing in a diversified portfolio of
short-term money market securities.
MERRILL LYNCH U.S.A.
GOVERNMENT RESERVES......... Preservation of capital, current income and
liquidity available from investing in direct
obligations of the U.S. Government and
repurchase agreements relating to such
securities.
MERRILL LYNCH U.S. TREASURY
MONEY FUND.................. Preservation of capital, liquidity and current
income through investment exclusively in a
diversified portfolio of short-term marketable
securities which are direct obligations of the
U.S. Treasury.
Class B, Class C and Class D Share Money Market Funds:
MERRILL LYNCH GOVERNMENT
FUND........................ A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in securities issued
or guaranteed by the U.S. Government, its
agencies and instrumentalities and in
repurchase agreements secured by such
obligations.
35
<PAGE> 82
MERRILL LYNCH INSTITUTIONAL
FUND........................ A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide maximum current income
consistent with liquidity and the maintenance
of a high quality portfolio of money market
securities.
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND............. A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income exempt
from Federal income taxes, preservation of
capital and liquidity available from investing
in a diversified portfolio of short-term, high
quality municipal bonds.
MERRILL LYNCH TREASURY FUND... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in direct obligations
of the U.S. Treasury and up to 10% of its total
assets in repurchase agreements secured by such
obligations.
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, shareholders should contact their
Merrill Lynch financial consultant, who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of the other funds described above
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 at any time 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
continuous offering of their shares at any time and thereafter may resume such
offering from time to time. The exchange privilege is available only to U.S.
shareholders in states where the exchange legally may be made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all its net investment income, if any.
Dividends from such net investment income will be paid semi-annually. All net
realized long- or short-term capital gains, if any, will be distributed to the
Fund's shareholders 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. Shareholders 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
and distributions on Class B and Class C shares will be lower than the per share
dividends and distributions on Class A and Class D shares as a result of the
account maintenance, distribution and higher transfer agency fees applicable
with respect to the Class B and Class C shares; similarly, the per share
36
<PAGE> 83
dividends and distributions on Class D shares will be lower than the per share
dividends and distributions on Class A shares as a result of the account
maintenance fees applicable with respect to the Class D shares. See
"Determination of Net Asset Value".
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If 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, and distributions of
the Fund's net realized short-term gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in 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, however, 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).
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. 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's exemptive order 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 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 by the Fund to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% United States
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
United States 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 United States may reduce or eliminate such taxes.
37
<PAGE> 84
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.
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 of the converted Class B shares.
If a shareholder exercises the 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 the sales charge
paid to the Fund on the exchanged shares reduces any sales charge such
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 avoid 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.
TAX TREATMENT OF OPTIONS TRANSACTIONS
The Fund may write covered call options on its portfolio securities and
enter into closing purchase transactions with respect to certain of such
options. In general, unless an election is available to the Fund or an exception
applies, such options 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 contract will be treated as sold for its fair
market value on the last day of the taxable year, and any gain or loss
attributable to Section 1256 contracts will be 60% long-term and 40% short-term
capital gain or loss. 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.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Fund's transactions in option contracts. Under Section 1092, the
Fund may be required to postpone recognition for tax purposes of losses incurred
in certain closing transactions in options.
38
<PAGE> 85
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income be derived from gains from the sale or other disposition
of securities held for less than three months. Accordingly, the Fund may be
restricted in effecting closing transactions within three months after entering
into an option contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the 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, foreign currency
futures and 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 currency other than the taxpayer's functional currency (i.e., unless
certain special rules apply, currencies other than the United States 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. 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 any distributions
made before the losses were realized but in the same taxable year generally
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 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 United States Government obligations. State
law varies as to whether dividend income attributable to United States
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.
39
<PAGE> 86
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 formula specified by the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and
(2) the maximum applicable sales charges will not be included with respect to
annual or annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum applicable
sales charge, actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates of return
reflect compounding of return; aggregate total return data generally will be
higher than average annual total return data since the aggregate rates of return
reflect compounding over a longer period of time.
Set forth below is total return information for the Class A, Class B, Class
C and Class D shares of the Fund for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS D SHARES
-------------------------- ------------------------- ------------------------- -------------------------
REDEEMABLE REDEEMABLE REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A VALUE OF A VALUE OF A
EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL
A PERCENTAGE $1,000 A PERCENTAGE $1,000 A PERCENTAGE $1,000 A PERCENTAGE $1,000
BASED ON A INVESTMENT BASED ON A INVESTMENT BASED ON A INVESTMENT BASED ON A INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
$1,000 OF THE $1,000 OF THE $1,000 OF THE $1,000 OF THE
PERIOD INVESTMENT PERIOD INVESTMENT PERIOD INVESTMENT PERIOD INVESTMENT PERIOD
- ---------------------------------- ----------- ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(including maximum applicable sales charges)
One Year Ended
March 31, 1995...... 5.12% $ 1,051.20 5.81% $1,058.10
Five Years Ended
March 31, 1995...... 9.92% $ 1,604.70 9.99% $1,609.60
Ten Years Ended
March 31, 1995...... 12.70% $ 3,305.00
Inception
(October 21, 1988)
to March 31, 1995*... 10.44% $1,896.50
Inception
(October 21, 1994)
to March 31, 1995**... 11.86% $ 1,050.70 1.90% $1,008.30
(Table continued on the following page)
</TABLE>
40
<PAGE> 87
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS D SHARES
-------------------------- ------------------------- ------------------------- -------------------------
REDEEMABLE REDEEMABLE REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A VALUE OF A VALUE OF A
EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL
A PERCENTAGE $1,000 A PERCENTAGE $1,000 A PERCENTAGE $1,000 A PERCENTAGE $1,000
BASED ON A INVESTMENT BASED ON A INVESTMENT BASED ON A INVESTMENT BASED ON A INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
$1,000 OF THE $1,000 OF THE $1,000 OF THE $1,000 OF THE
PERIOD INVESTMENT PERIOD INVESTMENT PERIOD INVESTMENT PERIOD INVESTMENT PERIOD
- ---------------------------------- ----------- ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL TOTAL RETURN
(excluding maximum applicable sales charges)
Year Ended March 31,
1995................ 10.95% $ 1,109.50 9.81% $1,098.10
1994................ 5.39% $ 1,053.90 4.36% $1,043.60
1993................ 11.33% $ 1,113.30 10.16% $1,101.60
1992................ 12.96% $ 1,129.60 11.81% $1,118.10
1991................ 15.17% $ 1,151.70 14.03% $1,140.30
1990................ 14.04% $ 1,140.40 12.84% $1,128.40
1989................ 13.42% $ 1,134.20
1988................ (1.69)% $ 983.10
1987................ 18.44% $ 1,184.40
1986................ 36.77% $ 1,367.70
1985................ 23.16% $ 1,231.60
1984................ 11.81% $ 1,118.10
1983................ 31.97% $ 1,319.70
1982................ (2.59)% $ 974.10
1981................ 45.55% $ 1,455.50
1980................ 9.69% $ 1,096.90
1979................ 24.89% $ 1,248.90
1978................ 0.72% $ 1,007.20
1977................ (9.47)% $ 905.30
1976................ 19.93% $ 1,199.30
1975................ (2.42)% $ 975.80
Inception
(November 8, 1973)
to March 31, 1974... (4.60)% $ 954.00
Inception
(October 21, 1988)
to March 31,
1989*............... 4.42% $1,044.20
Inception
(October 21, 1994)
to March 31, 1995**... 6.07% $ 1,060.70 6.42% $1,064.20
AGGREGATE TOTAL RETURN
(including maximum applicable sales charges)
Inception
(November 8, 1973)
to March 31, 1995... 1,087.77% $11,877.70
Inception
(October 21, 1988)
to March 31,
1995*............... 89.65% $1,896.50
Inception
(October 21, 1994)
to March 31, 1995**... 5.07% $ 1,050.70 0.83% $1,008.30
</TABLE>
- ---------------
*Information as to Class B shares is presented only for the period October 21,
1988 to March 31, 1995. Prior to October 21, 1988, no Class B shares were
publicly issued.
**Information as to Class C and Class D shares is presented only for the period
October 21, 1994 to March 31, 1995. Prior to October 21, 1994, no Class C or
Class D shares were publicly issued.
41
<PAGE> 88
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
charge or the waiver of sales charges, a lower amount of expenses may be
deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was organized as a Maryland corporation on July 29, 1987 and is
the successor to a fund that was organized in Delaware under the name Lionel D.
Edie Capital Fund, Inc. in September 1973, and changed its name to Merrill Lynch
Capital Fund, Inc. in June 1976. The authorized capital stock of the Fund
consists of 1,000,000,000 shares of Common Stock, par value $.10 per share,
divided into four classes, designated Class A, Class B, Class C and Class D
Common Stock. Class A and Class B each consists of 300,000,000 shares and Class
C and Class D each consists 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 account maintenance and/or distribution expenditures.
The Fund has received an order from the Commission permitting the issuance and
sale of multiple classes of Common Stock. The Board of 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 on any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent auditors. Pursuant to an undertaking to certain state securities
commissions, the Fund will call a meeting of shareholders for any purpose on the
written request of the holders of at least 10% of the outstanding shares of the
Fund. Voting rights for Directors are not cumulative. Shares issued are fully
paid and non-assessable and have no preemptive rights. Redemption and conversion
rights are discussed elsewhere herein and in the Prospectus. Each share is
entitled to participate equally in dividends and distributions declared by the
Fund and in the net assets of the Fund on 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.
42
<PAGE> 89
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of the Fund, based on the value of the Fund's net
assets and number of shares outstanding as of March 31, 1995, is set forth
below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
-------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Net Assets............................ $2,507,766,853 $3,664,249,823 $46,902,309 $171,200,948
============= ============= ========== ===========
Number of Shares Outstanding.......... 90,406,424 134,328,178 1,726,200 6,175,669
============= ============= ========== ===========
Net Asset Value per Share (net assets
divided by number of shares
outstanding)........................ $27.74 $27.28 $27.17 $27.72
Sales Charge for Class A and Class D
Shares: 5.25% of offering price
(5.54% of net amount invested*)..... 1.54 ** ** 1.54
------ ------ ------ ------
Offering Price........................ $29.28 $27.28 $27.17 $29.26
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
- ---------------
*Rounded to the nearest one-hundredth percent; assumes the 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 upon redemption. See "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares" in the Prospectus and
"Redemption of Shares--Deferred Sales Charges--Class B and Class C Shares"
herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to ratification by the independent Directors of
the Fund. The independent auditors are responsible for auditing the annual
financial statements of the Fund.
CUSTODIAN
The Bank of New York, 90 Washington Street, 12th Floor, New York, New York
10286, acts as custodian of the Fund's assets. 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"). The Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening, maintenance and servicing of
shareholder accounts.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
43
<PAGE> 90
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 of the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Commission, Washington,
D.C., under the Securities Act and the Investment Company Act, to which
reference is hereby made.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on June 30, 1995.
44
<PAGE> 91
APPENDIX A
RATINGS OF DEBT SECURITIES AND PREFERRED STOCK
DESCRIPTION OF CORPORATE DEBT RATINGS OF MOODY'S INVESTORS SERVICE, INC.
("MOODY'S")
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risk appear
somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
Baa Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal repayments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investments. Assurance of interest and principal repayments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
45
<PAGE> 92
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representations as to whether such commercial paper is by any other definition
"commercial paper" or is exempt from registration under the Securities Act of
1933, as amended.
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers.
Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of short-term promissory obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of short-term promissory obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its Commercial Paper obligations
are supported by the credit of another entity or entities, in assigning ratings
to such issuers, Moody's evaluates the financial strength of the affiliated
corporations, commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating assessment. Moody's
makes no representation and gives no opinion on the legal validity or
enforceability of any support arrangement.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
Because of the fundamental differences between preferred stocks and bonds,
a variation of the bond rating symbols is being used in the quality ranking of
preferred stocks. The symbols presented below are designed to avoid comparison
with bond quality in absolute terms. It should always be borne in mind that
preferred stock occupies a junior position to bonds within a particular capital
structure and that these securities are rated within the universe of preferred
stocks.
46
<PAGE> 93
Preferred stock rating symbols and their definitions are as follows:
"aaa" An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
"aa" An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance the earnings and
asset protection will remain relatively well maintained in the
foreseeable future.
"a" An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
"baa" An issue which is rated "baa" is considered to be a medium grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be questionable
over any great length of time.
"ba" An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
"b" An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
"caa" An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
"ca" An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
"c" This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
DESCRIPTION OF CORPORATE DEBT RATINGS OF STANDARD & POOR'S RATINGS GROUP
("STANDARD & POOR'S")
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
47
<PAGE> 94
The ratings are based, in varying degrees, on the following considerations:
(1) likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than for debt in higher rated
categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
BB Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest payments and
principal repayments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BBB-
rating.
B Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category
is also used for debt subordinated to senior debt that is assigned an
actual or implied BB or BB- rating.
CCC Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The CCC
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
CI The rating CI is reserved for income bonds on which no interest is being
paid.
48
<PAGE> 95
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal repayments are not made on the date due
even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace period.
The D rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
PLUS (+) OR MINUS (-):
The ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
c The letter c indicates that the holder's option to tender the security
for purchase may be canceled under certain prestated conditions
enumerated in the tender option documents.
L The letter L indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is
federally insured and interest is adequately collateralized. In the case
of certificates of deposit, the letter L indicates that the deposit,
combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the
federal insurance limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by a successor
insured institution, upon maturity.
p The letter p indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by
the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and
timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment
on the likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment with respect to
such likelihood and risk.
* Continuance of the rating is contingent upon Standard & Poor's receipt of
an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
N.R. Not rated.
Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ("AAA", "AA", "A", "BBB", commonly known as "Investment Grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
49
<PAGE> 96
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal repayments are not made on the date
due, even if the applicable grace period has not expired, unless Standard
& Poor's believes that such payments will be made during such grace
period.
A commercial paper rating is not a recommendation to purchase, sell, or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor. The ratings are based on current
information furnished to Standard & Poor's by the issuer or obtained by Standard
& Poor's from other sources it considers reliable. Standard & Poor's does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS
A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the debt rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
The preferred stock ratings are based on the following considerations:
I. Likelihood of payment capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking
fund requirements in accordance with the terms of the obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA This is the highest rating that may be assigned by Standard & Poor's to a
preferred stock issue and indicates an extremely strong capacity to pay
the preferred stock obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA".
50
<PAGE> 97
A An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
"A" category.
BB
B
CCC Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay
preferred stock obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest degree of speculation. While such
issues will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
NR
Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not
rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-):
To provide more detailed indications of preferred stock quality, the
ratings from "AA" to "CCC" may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to Standard & Poor's
by the issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
51
<PAGE> 98
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Capital Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Capital Fund, Inc. as of March 31,
1995, the related statements of operations for the year then ended and changes
in net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at March
31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Capital Fund, Inc. as of March 31, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 5, 1995
52
<PAGE> 99
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Aerospace 95,000 The Boeing Co. $ 4,182,040 $ 5,118,125 0.1%
500,000 E-Systems, Inc. 20,529,589 22,687,500 0.4
400,000 Lockheed Corp. 17,783,366 21,150,000 0.3
1,370,000 Rockwell International Corporation 49,126,026 53,430,000 0.8
110,000 Thiokol Corporation 2,670,202 3,121,250 0.1
-------------- -------------- ------
94,291,223 105,506,875 1.7
Automobile 800,000 Echlin Inc. 23,083,465 30,800,000 0.5
Equipment
Automotive 575,000 Ford Motor Company 14,936,737 15,525,000 0.2
Banking 700,000 Banco Bilboa Vizcaya (ADR)* 17,128,729 17,675,000 0.3
425,000 BancOne Corp. 11,754,992 12,112,500 0.2
1,593,000 Bancorp Hawaii, Inc. 45,961,032 45,201,375 0.7
3,540,000 Chemical Banking Corp. 131,045,003 133,635,000 2.1
155,000 First Union Corp. 6,685,000 6,723,125 0.1
600,000 National Australian Bank Ltd. 4,808,234 5,061,658 0.1
2,995,000 NationsBank Corp. 143,971,834 151,996,250 2.4
3,314,000 SouthTrust Corp. 52,776,401 69,179,750 1.1
1,530,000 ++++Union Planters Corp. 18,715,616 35,381,250 0.5
-------------- -------------- ------
432,846,841 476,965,908 7.5
Beverages 3,100,000 Cadbury Schweppes PLC 21,320,768 22,240,001 0.3
Building & 3,973,000 Kumagai Gumi Co., Ltd. (Ordinary) 2,854,985 2,954,763 0.0
Construction
Capital Goods 683,000 GATX Capital Corp. 23,355,006 30,564,250 0.5
Chemicals 900,000 Albemarle Corp. 13,100,366 11,475,000 0.2
690,000 du Pont (E.I.) de Nemours & Co. 35,108,540 41,745,000 0.7
920,000 Engelhard Corp. 22,757,034 27,255,000 0.4
180,000 Goodrich (B.F.) Co. 7,885,348 7,987,500 0.1
1,457,000 Grace (W.R.) & Co. 57,783,068 77,585,250 1.2
1,050,000 Imperial Chemical Industries PLC (ADR)* 49,729,518 49,350,000 0.8
600,000 Union Carbide Corp. 16,269,758 18,375,000 0.3
-------------- -------------- ------
202,633,632 233,772,750 3.7
Conglomerates 120,000 AlliedSignal, Inc. 4,296,015 4,710,000 0.1
Diversified 161,000 Corning Inc. 4,912,759 5,796,000 0.1
Companies 113,000 Dial Corp. 2,309,624 2,867,375 0.0
9,250,000 Hillsdown Holdings PLC 21,555,611 27,405,623 0.4
98,000 ITT Corp. 7,833,524 10,057,250 0.2
600,000 Tenneco, Inc. 23,717,598 28,275,000 0.4
1,100,000 United Technologies Corp. 63,816,513 76,037,500 1.2
990,000 Worldtex Inc. (b) 4,808,753 3,960,000 0.1
-------------- -------------- ------
128,954,382 154,398,748 2.4
Electrical Equipment 765,000 General Electric Co. 37,039,957 41,405,625 0.6
923,000 Philips Electronics N.V. (ADR)* 14,596,805 31,497,375 0.5
-------------- -------------- ------
51,636,762 72,903,000 1.1
Electronics 230,000 General Motors Corp. (Class H) 7,952,318 9,487,500 0.1
</TABLE>
53
<PAGE> 100
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Financial Services 560,000 Dean Witter, Discover & Co. $ 18,513,096 $ 22,820,000 0.4%
330,000 Federal National Mortgage Association 23,903,393 26,853,750 0.4
200,000 Household International, Inc. 7,121,885 8,700,000 0.1
-------------- -------------- ------
49,538,374 58,373,750 0.9
Food Distribution 13,346,000 Dairy Farm International Holdings Ltd.
(Ordinary) 19,067,425 17,089,232 0.2
200,000 Fleming Cos., Inc. 5,623,541 4,525,000 0.1
-------------- -------------- ------
24,690,966 21,614,232 0.3
Foods 380,000 Universal Foods Corp. 12,340,680 12,920,000 0.2
Home Builders 270,000 ++++Oriole Homes Corp. 2,499,746 1,991,250 0.0
Hospital Management 3,100,000 National Medical Enterprises, Inc. (b) 39,572,413 49,212,500 0.8
Household Products 725,000 Premark International, Inc. 29,305,099 31,990,625 0.5
Insurance 206,000 Aetna Life & Casualty Co. 10,112,034 11,742,000 0.2
1,900,000 Allstate Corporation 47,445,671 54,625,000 0.9
530,000 American General Corporation 14,546,495 17,092,500 0.3
860,000 American International Group, Inc. 74,625,000 89,655,000 1.4
199,000 American Premier Underwriters, Inc. 5,369,665 4,800,875 0.1
1,320,000 EXEL Ltd. (ADR)* 53,556,226 58,245,000 0.9
1,450,000 ++++Fremont General Corp. (b) 30,727,920 28,456,250 0.4
202,000 Integon Corp. 2,488,257 2,626,000 0.0
114,000 Ohio Casualty Corp. 3,287,364 3,819,000 0.1
421,000 Provident Life & Accident Insurance Co. 11,373,807 9,525,125 0.1
800,000 Safeco Corp. 41,891,912 43,600,000 0.7
62,000 TIG Holdings, Inc. 1,253,058 1,395,000 0.0
1,579,000 Travelers Inc. 34,484,362 60,988,875 0.9
120,000 USLIFE Corporation 3,922,295 4,575,000 0.1
-------------- -------------- ------
335,084,066 391,145,625 6.1
Lodging/Hotels 240,000 Carnival Corp. (Class A) 5,170,816 5,610,000 0.1
Manufactured Housing 500,000 Fleetwood Enterprises, Inc. 10,300,013 11,812,500 0.2
Metals & Basic 272,000 Cameco Corp. 5,259,688 7,660,944 0.1
Materials 67,000 Harsco Corp. 2,898,057 2,948,000 0.0
732,000 Magma Copper Co. (b) 12,208,350 12,718,500 0.2
1,260,000 Newmont Mining Corp. 49,767,818 53,865,000 0.9
-------------- -------------- ------
70,133,913 77,192,444 1.2
Natural Gas 1,322,000 Coastal Corp. 36,224,932 38,007,500 0.6
Suppliers 290,000 MAPCO, Inc. 15,203,489 16,167,500 0.3
700,000 MetroGas S.A. (ADR)* (b) 9,064,313 6,562,500 0.1
395,000 ONEOK Inc. 7,694,035 7,455,625 0.1
3,655,000 TransCanada Pipelines, Ltd. (ADR)* 53,909,854 47,058,125 0.7
3,628,000 Williams Companies, Inc. 95,404,110 111,107,500 1.7
-------------- -------------- ------
217,500,733 226,358,750 3.5
Office Equipment 1,143,000 ++++Wallace Computer Services, Inc. 27,348,699 36,718,875 0.6
Oil & Gas Producers 665,000 Repsol S.A. (ADR)* 18,547,170 18,872,332 0.3
7,700,000 Yacimientos Petroliferos Fiscales S.A.
(Sponsored) (ADR)* 161,797,410 146,300,000 2.3
-------------- -------------- ------
180,344,580 165,172,332 2.6
</TABLE>
54
<PAGE> 101
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Oil--Integrated 260,000 Exxon Corp. $ 16,829,862 $ 17,355,000 0.3%
80,000 Mobil Corp. 6,393,048 7,410,000 0.1
2,248,000 Occidental Petroleum Corp. 45,824,709 49,175,000 0.8
119,000 Texaco Inc. 7,820,140 7,913,500 0.1
1,941,000 TOTAL S.A. (ADR)* 51,197,859 58,230,000 0.9
708,000 USX-Marathon Group, Inc. 12,245,355 12,390,000 0.2
-------------- -------------- ------
140,310,973 152,473,500 2.4
Paper 1,875,000 Federal Paper Board Co., Inc. 50,262,052 53,437,500 0.9
275,000 Kimberly-Clark Corp. 14,081,476 14,300,000 0.2
1,016,000 Temple-Inland, Inc. 48,823,404 45,593,000 0.7
-------------- -------------- ------
113,166,932 113,330,500 1.8
Pharmaceuticals 485,000 Block Drug, Inc. (Class A) 14,594,736 16,975,000 0.3
430,000 Glaxo Holdings PLC (ADR)* 8,283,275 9,836,250 0.1
1,490,000 Mallinckrodt Group Inc. 47,176,242 50,287,500 0.8
1,475,000 Merck & Co., Inc. 45,473,895 62,871,875 1.0
601,000 Pfizer, Inc. 47,570,024 51,535,750 0.8
10,000 Roche Holdings AG 50,843,567 57,621,145 0.9
800,000 Warner-Lambert Co. 54,736,215 62,600,000 1.0
-------------- -------------- ------
268,677,954 311,727,520 4.9
Photography 200,000 Eastman Kodak Co. 8,509,497 10,625,000 0.2
400,000 Polaroid Corp. 12,752,887 13,900,000 0.2
-------------- -------------- ------
21,262,384 24,525,000 0.4
Plastic Recycling 1,110,000 Wellman Inc. 23,898,457 28,027,500 0.4
Printing & 365,000 American Greetings Corp. 10,118,477 10,858,750 0.2
Publishing 14,402,000 Oriental Press Holdings (Ordinary) 9,181,713 6,147,138 0.1
-------------- -------------- ------
19,300,190 17,005,888 0.3
Railroads 2,110,000 Canadian Pacific Ltd. 33,271,322 31,650,000 0.5
600,000 Conrail, Inc. 31,315,863 33,675,000 0.5
150,000 Norfolk Southern Corp. 9,102,606 10,031,250 0.2
-------------- -------------- ------
73,689,791 75,356,250 1.2
Real Estate 1,100,000 RFS Hotel Investors, Inc. 17,119,211 15,537,500 0.3
Investment Trusts 795,000 Walden Residential Properties, Inc. 15,343,555 15,005,625 0.2
-------------- -------------- ------
32,462,766 30,543,125 0.5
Restaurants 177,000 Luby's Cafeterias, Inc. 4,091,252 3,761,250 0.1
Retail Trade 676,000 Fingerhut Companies, Inc. 12,524,247 8,027,500 0.1
107,000 Penney (J.C.) Company, Inc. 5,561,718 4,801,625 0.1
2,000,000 Sears, Roebuck & Co. 72,080,256 106,750,000 1.7
200,000 Tandy Corp. 8,880,724 9,550,000 0.1
1,000,000 Wal-Mart Stores, Inc. 24,232,700 25,500,000 0.4
-------------- -------------- ------
123,279,645 154,629,125 2.4
Savings & Loan 610,000 Ahmanson (H.F.) & Co. 10,410,632 10,980,000 0.2
Associations
Services 1,670,000 ++++PHH Corp. 62,537,753 63,460,000 1.0
365,000 Rollins, Inc. 9,108,996 10,037,500 0.2
-------------- -------------- ------
71,646,749 73,497,500 1.2
</TABLE>
55
<PAGE> 102
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Steel 445,000 Birmingham Steel Corp. $ 10,175,161 $ 9,011,250 0.2%
1,059,000 ++++Cleveland Cliffs, Inc. 36,464,349 40,771,500 0.6
-------------- -------------- ------
46,639,510 49,782,750 0.8
Telecommunications 2,189,000 GTE Corp. 68,550,750 72,784,250 1.1
Textiles 251,000 Delta Woodside Industries, Inc. 2,910,188 2,102,125 0.0
Tires & Rubber 3,713,000 The Goodyear Tire & Rubber Co. 141,384,746 136,452,750 2.1
Utilities--Electric, 305,552 American Water Works Co., Inc. 6,874,996 8,861,008 0.1
Gas & Water 31,000 Cascade Natural Gas Corp. 428,110 430,125 0.0
226,000 Central Hudson Gas & Electric Corp. 5,885,720 5,932,500 0.1
100,000 Entergy Corp 2,106,000 2,087,500 0.0
1,100,000 Illinova Corp. (a) 22,841,253 25,025,000 0.4
300,000 PacifiCorp 5,263,244 5,812,500 0.1
1,800,000 Pinnacle West Capital Corp. 35,431,138 37,575,000 0.6
139,000 Texas Utilities Company 4,378,172 4,413,250 0.1
1,700,000 Unicom Corp. 37,990,541 40,375,000 0.6
219,000 Western Resources, Inc. 6,293,169 6,843,750 0.1
-------------- -------------- ------
127,492,343 137,355,633 2.1
Total Common Stocks 3,301,167,494 3,644,276,344 57.0
Convertible Preferred Stock
Pharmaceuticals 140,000 Liposome Co., Inc. 2,453,465 3,482,500 0.0
Total Convertible Preferred Stock 2,453,465 3,482,500 0.0
Face
Amount Corporate Bonds
Aerospace McDonnell Douglas Finance Corp.:
$ 10,000,000 6.38% due 1/15/1996 9,989,900 9,932,900 0.2
15,000,000 5.61% due 2/25/1997 15,000,000 14,518,350 0.2
-------------- -------------- ------
24,989,900 24,451,250 0.4
Automotive Ford Motor Co.:
10,000,000 7.20% due 6/18/1997 10,000,000 9,970,200 0.1
20,000,000 5.625% due 12/15/1998 19,369,800 18,790,400 0.3
-------------- -------------- ------
29,369,800 28,760,600 0.4
Banking 20,000,000 Banco Rio de la Plata, 8.75% due 12/15/2003 20,060,800 11,800,000 0.2
10,000,000 Bank of Boston Corp., 6.625% due 12/01/2005 8,621,750 8,890,900 0.1
Bankers Trust Company:
25,000,000 4.70% due 7/01/1996 24,551,500 24,322,250 0.4
10,000,000 7.50% due 1/15/2002 9,688,700 9,640,500 0.2
The Chase Manhattan Corp.:
10,000,000 7.50% due 12/01/1997 10,165,600 9,982,800 0.2
20,000,000 7.75% due 11/01/1999 20,190,800 19,945,000 0.3
10,000,000 6.75% due 8/15/2008 8,517,400 8,772,500 0.1
First Chicago Corp.:
10,000,000 6.875% due 6/15/2003 8,952,700 9,302,100 0.1
20,000,000 6.375% due 1/30/2009 16,758,800 16,750,800 0.3
5,000,000 First Security Corp., 5.71% due 2/09/1999 5,000,000 4,683,700 0.1
15,000,000 First USA Bank, Wilmington, 5.75% due 1/15/1999 15,005,550 13,920,000 0.2
13,000,000 Great Western Financial Corp., 6.125%
due 6/15/1998 12,244,010 12,521,210 0.2
10,000,000 Margaretten Financial Corp., 6.75%
due 6/15/2000 9,621,060 9,565,800 0.1
</TABLE>
56
<PAGE> 103
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Value Percent of
Industries Amount Corporate Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Banking NationsBank Corp.:
(concluded) $ 10,500,000 5.70% due 9/11/2000 $ 9,545,865 $ 9,624,720 0.1%
20,000,000 6.50% due 8/15/2003 17,358,050 18,097,400 0.3
5,000,000 8.57% due 11/15/2024 5,011,800 5,222,550 0.1
-------------- -------------- ------
201,294,385 193,042,230 3.0
Broadcasting & 30,000,000 News America Holdings, Inc., 7.50%
Publishing due 3/01/2000 29,179,330 29,333,100 0.5
Capital Goods GATX Capital Corp.:
30,000,000 5.45% due 3/18/1996 30,000,000 29,549,700 0.5
15,000,000 5.48% due 3/22/1996 15,000,000 14,776,050 0.2
10,000,000 8.20% due 5/05/1997 10,000,000 10,116,900 0.1
10,000,000 General American Transport Corp., 8.625%
due 12/01/2004 9,936,900 10,357,200 0.2
-------------- -------------- ------
64,936,900 64,799,850 1.0
Chemicals Grace (W.R.) & Co.:
10,000,000 6.85% due 6/23/1997 9,903,700 9,849,000 0.2
20,000,000 7.40% due 2/01/2000 19,663,100 19,537,600 0.3
10,000,000 8% due 8/15/2004 9,530,100 9,830,500 0.1
-------------- -------------- ------
39,096,900 39,217,100 0.6
Diversified ITT Corp.:
Companies 20,000,000 5.50% due 3/24/1997 20,000,000 19,351,400 0.3
10,000,000 7.25% due 5/15/1997 10,080,100 9,940,600 0.2
5,000,000 8.125% due 11/15/1998 5,065,810 5,082,550 0.1
14,000,000 Tenneco, Inc., 7.875% due 10/01/2002 13,612,800 13,903,960 0.2
-------------- -------------- ------
48,758,710 48,278,510 0.8
Electronics 10,000,000 Philips Electronics N.V., 8.375% due 9/15/2006 10,039,100 10,223,300 0.2
Finance 5,000,000 Caterpillar Financial Services Corp., 5.35%
due 11/10/1998 4,924,800 4,643,400 0.1
22,000,000 Chrysler Finance Corp., 6.50% due 6/15/1998 22,107,192 21,328,120 0.3
40,000,000 ++GTE Finance Corp., 5.81% due 12/15/1997 40,000,000 38,200,000 0.6
8,000,000 General Electric Capital Corp., 5.13%
due 4/01/2004 8,000,000 8,056,000 0.1
General Motors Acceptance Corp.:
8,000,000 5.20% due 12/13/1996 7,680,000 7,742,000 0.1
22,000,000 6.70% due 4/15/1997 21,755,440 21,686,280 0.3
25,000,000 7% due 8/19/1997 24,898,750 24,719,250 0.4
10,000,000 8.25% due 1/23/1998 9,977,100 10,161,800 0.2
15,000,000 5.95% due 1/11/1999 13,783,650 14,142,150 0.2
25,000,000 5.875% due 1/12/1999 25,044,500 23,506,000 0.4
45,000,000 5.625% due 2/01/1999 43,885,925 41,851,800 0.7
10,000,000 7.15% due 4/30/1999 9,884,400 9,786,500 0.1
21,000,000 7.375% due due 6/22/2000 20,693,890 20,578,740 0.3
10,000,000 Greyhound Financial Corp., 6.75% due 3/25/1999 9,694,200 9,684,400 0.1
Household Finance Corp.:
10,000,000 6.70% due 8/08/1997 9,999,800 9,868,100 0.2
20,000,000 7.125% due 4/30/1999 19,142,400 19,675,600 0.3
10,000,000 7.45% due 4/01/2000 9,958,700 9,907,400 0.2
International Lease Finance Corp.:
25,000,000 5.98% due 11/16/1998 24,975,500 23,691,250 0.4
22,500,000 6.05% due 4/30/1999 22,368,375 21,202,875 0.3
5,000,000 7.10% due 6/15/1999 4,930,900 4,886,850 0.1
10,000,000 8.15% due 10/01/2004 9,691,300 10,027,400 0.2
-------------- -------------- ------
363,396,822 355,345,915 5.6
</TABLE>
57
<PAGE> 104
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Value Percent of
Industries Amount Corporate Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Financial Services Dean Witter, Discover & Co.:
$ 10,000,000 6% due 3/01/1998 $ 9,808,950 $ 9,613,300 0.2%
6,000,000 6.75% due 10/15/2013 5,011,560 5,051,940 0.1
15,000,000 Morgan Stanley Group, Inc., 7.875%
due 12/15/1998 14,940,900 15,070,800 0.2
Smith Barney Shearson Holdings, Inc.:
20,000,000 6% due 3/15/1997 19,897,700 19,475,400 0.3
15,000,000 7.98% due 3/01/2000 15,017,850 15,057,300 0.2
-------------- -------------- ------
64,676,960 64,268,740 1.0
Food & Tobacco 10,000,000 RJR Nabisco Holding Corp., 8.30% due 4/15/1999 9,897,500 10,050,000 0.2
Foreign 10,000,000 Hellenic Republic (Greece), 9.75% due 11/28/1999 10,020,300 10,336,800 0.2
Government Republic of Argentina:
Obligations 29,000,000 10.95% due 11/01/1999 24,392,500 25,592,500 0.4
14,000,000 8.375% due 12/20/2003 8,715,000 9,170,000 0.1
-------------- -------------- ------
43,127,800 45,099,300 0.7
Hospital Columbia-HCA Healthcare Corp.:
Management 20,000,000 6.125% due 12/15/2000 18,456,800 18,340,600 0.3
20,000,000 8.70% due 2/10/2010 19,921,500 20,702,600 0.3
10,000,000 National Medical Enterprises, Inc., 9.625%
due 9/01/2002 10,000,000 10,225,000 0.2
-------------- -------------- ------
48,378,300 49,268,200 0.8
Industrial 9,775,000 Crane Co., 7.25% due 6/15/1999 9,619,840 9,550,859 0.1
Insurance 10,000,000 NAC Re Corp., 8% due 6/15/1999 10,189,300 9,990,900 0.1
20,000,000 Travelers Inc., 6.125% due 6/15/2000 18,772,550 18,606,400 0.3
-------------- -------------- ------
28,961,850 28,597,300 0.4
Machinery 10,000,000 Black & Decker Corp., 6.625% due 11/15/2000 9,343,100 9,254,200 0.1
10,000,000 Harris Corp., 10.375% due 12/01/2018 10,541,400 10,976,900 0.2
10,000,000 TRINOVA Corp., 7.95% due 5/01/1997 9,975,000 9,935,400 0.2
-------------- -------------- ------
29,859,500 30,166,500 0.5
Manufactured 3,000,000 Oakwood Homes Corp., 9.125% due 6/01/2007 3,000,000 3,007,500 0.0
Housing
Natural Gas Coastal Corp.:
Suppliers 13,000,000 8.75% due 5/15/1999 13,055,960 13,229,190 0.2
30,000,000 8.125% due 9/15/2002 29,984,410 29,876,700 0.5
10,000,000 Williams Companies, Inc., 8.875% due 9/15/2012 10,172,200 10,261,700 0.1
-------------- -------------- ------
53,212,570 53,367,590 0.8
Oil--Integrated Occidental Petroleum Corp.:
15,100,000 5.85% due 11/09/1998 14,057,259 14,207,741 0.2
12,000,000 5.90% due 11/09/1998 11,343,120 11,311,320 0.2
-------------- -------------- ------
25,400,379 25,519,061 0.4
Oil--International 5,000,000 Union Texas Petroleum Holdings, Inc., 8.375%
due 3/15/2005 5,008,250 5,000,000 0.1
Pharmaceutical 5,750,000 Cardinal Distribution, Inc., 8% due 3/01/1997 5,750,000 5,791,228 0.1
Distribution
</TABLE>
58
<PAGE> 105
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Value Percent of
Industries Amount Corporate Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Railroads $ 3,000,000 Burlington Northern, Inc., 7.40% due 5/15/1999 $ 2,993,580 $ 2,974,230 0.0%
Services 17,725,000 ADT Operations, 8.25% due 8/01/2000 17,873,500 17,237,563 0.3
Steel 20,000,000 USX Corp., 6.375% due 7/15/1998 19,894,000 19,197,400 0.3
Telecommunications 20,000,000 AT&T Capital Corp., 7.66% due 1/30/1997 20,000,000 20,178,000 0.3
10,000,000 Allnet Communications Services, Inc., 9%
due 5/15/2003 9,746,250 9,600,000 0.2
10,000,000 Bell Atlantic Financial Services, Inc., 5.47%
due 4/27/1998 10,031,400 9,508,900 0.1
-------------- -------------- ------
39,777,650 39,286,900 0.6
Utilities--Electric Commonwealth Edison Co.:
10,000,000 6% due 3/15/1998 10,157,200 9,521,700 0.2
25,000,000 6.40% due 10/15/2005 21,178,955 21,543,500 0.3
5,000,000 Long Island Lighting Co., 7.625% due 4/15/1998 4,986,210 4,961,750 0.1
15,000,000 PECO Energy Co., 7.50% due 1/15/1999 15,111,500 14,886,000 0.2
Texas Utilities Co.:
5,000,000 7.125% due 6/01/1997 4,987,500 4,970,650 0.1
9,500,000 5.75% due 7/01/1998 9,297,135 9,008,375 0.1
United Illuminating Co.:
5,000,000 7.375% due 1/15/1998 5,003,125 4,933,800 0.1
5,000,000 6.20% due 1/15/1999 4,693,050 4,702,500 0.1
-------------- -------------- ------
75,414,675 74,528,275 1.2
Total Corporate Bonds 1,293,908,201 1,276,362,501 20.0
Collateralized Mortgage Obligations
Federal Home Loan Mortgage Corp.:
20,000,000 5.80% due 4/15/2006 18,615,625 18,381,200 0.3
17,879,976 6% due 4/15/2006 17,467,200 17,181,539 0.3
Federal National Mortgage Association:
20,000,000 5.10% due 3/25/2002 19,256,250 19,037,400 0.3
20,000,000 5% due 3/25/2012 19,425,000 18,893,600 0.3
10,000,000 5% due 4/25/2014 9,756,250 9,462,500 0.1
29,402,892 6.999% due 10/25/2022 25,326,303 25,928,528 0.4
19,439,157 Prudential Home Mortgage Security Co.,
5.25% due 12/25/2000 18,606,918 18,467,199 0.3
Total Collateralized Mortgage Obligations 128,453,546 127,351,966 2.0
US Government Obligations
US Treasury Notes:
10,000,000 6.875% due 8/31/1999 9,951,562 9,923,000 0.2
236,000,000 6.375% due 8/15/2002 222,402,854 224,974,080 3.5
475,000,000 7.25% due 5/15/2016 448,562,150 459,263,250 7.2
400,000,000 7.50% due 11/15/2016 382,711,719 396,936,000 6.2
Total US Government Obligations 1,063,628,285 1,091,096,330 17.1
</TABLE>
59
<PAGE> 106
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Amount Short-Term Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Commercial Paper** $202,366,000 General Electric Capital Corp.,
6.25% due 4/03/1995 $ 202,295,734 $ 202,295,734 3.2%
Total Short-Term Investments 202,295,734 202,295,734 3.2
Total Investments $5,991,906,725 6,344,865,375 99.3
==============
Other Assets Less Liabilities 45,254,558 0.7
-------------- ------
Net Assets $6,390,119,933 100.0%
============== ======
<FN>
*American Depositary Receipt (ADR).
**Commercial Paper is traded on a
discount basis; the interest rate shown
is the discount rate paid at the time
of purchase by the Fund.
(a)Name changed from Illinois Power Co.
(b)Non-income producing security.
++Restricted security as to resale. The value of the Fund's investments in the restricted security was
approximately $38,200,000, representing 0.6% of net assets.
<CAPTION>
Acquisition Value
Issue Date Cost (Note 1a)
<S> <C> <C>
GTE Finance Corp., 5.81% due 12/15/1997 5/25/1993 $40,000,000 $38,200,000
Total $40,000,000 $38,200,000
=========== ===========
++++Investments in companies 5% or more of whose outstanding securities are held by the Fund (such
companies are defined as "Affiliated Companies" in section 2(a)(3) of the Investment Company Act of
1940) are as follows:
<CAPTION>
Net Share Net Dividend
Industry Affiliate Activity Cost Income
<S> <S> <C> <C>
Banking Union Planters Corp. 128,000 $3,758,652 $1,303,200
Home Builders Oriole Homes Corp. -- -- 108,000
Insurance Fremont General Corp. 262,000 6,181,523 --
Office Equipment Wallace Computer Services, Inc. (7,000) 75,649 793,102
Services PHH Corp. -- -- 2,104,200
Steel Cleveland Cliffs, Inc. (3,000) (111,680) 1,325,900
See Notes to Financial Statements.
</TABLE>
60
<PAGE> 107
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets and Liabilities as of March 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$5,991,906,725) (Note 1a) $6,344,865,375
Receivables:
Securities sold $ 70,189,239
Interest 51,868,769
Capital shares sold 32,656,354
Dividends 10,991,721 165,706,083
--------------
Prepaid registration fees and other assets (Note 1f) 66,763
--------------
Total assets 6,510,638,221
--------------
Liabilities: Payables:
Securities purchased 74,693,709
Capital shares redeemed 21,297,144
Distributor (Note 2) 3,099,130
Investment adviser (Note 2) 2,142,361 101,232,344
--------------
Accrued expenses and other liabilities 19,285,944
--------------
Total liabilities 120,518,288
--------------
Net Assets: Net assets $6,390,119,933
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 300,000,000 shares
Consist of: authorized $ 9,040,642
Class B Shares of Common Stock, $0.10 par value, 300,000,000 shares
authorized 13,432,818
Class C Shares of Common Stock, $0.10 par value, 200,000,000 shares
authorized 172,620
Class D Shares of Common Stock, $0.10 par value, 200,000,000 shares
authorized 617,567
Paid-in capital in excess of par 5,886,600,213
Undistributed investment income--net 61,422,496
Undistributed realized capital gains on investments and foreign
currency transactions--net 65,876,859
Unrealized appreciation on investments and foreign currency
transactions--net 352,956,718
--------------
Net assets $6,390,119,933
==============
Net Asset Value: Class A--Based on net assets of $2,507,766,853 and 90,406,424 shares
outstanding $ 27.74
==============
Class B--Based on net assets of $3,664,249,823 and 134,328,178 shares
outstanding $ 27.28
==============
Class C--Based on net assets of $46,902,309 and 1,726,200 shares
outstanding $ 27.17
==============
Class D--Based on net assets of $171,200,948 and 6,175,669 shares
outstanding $ 27.72
==============
See Notes to Financial Statements.
</TABLE>
61
<PAGE> 108
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statement of Operations for the Year Ended March 31, 1995
<S> <S> <C> <C>
Investment Interest and discount earned $ 142,744,258
Income Dividends (net of $1,800,077 foreign withholding tax) 108,179,348
(Notes 1d & 1e): Other 272,288
--------------
Total income 251,195,894
--------------
Expenses: Distribution fees--Class B (Note 2) 33,250,376
Investment advisory fees (Note 2) 23,221,209
Transfer agent fees--Class B (Note 2) 5,124,732
Transfer agent fees--Class A (Note 2) 3,099,547
Printing and shareholder reports 574,959
Custodian fees 499,949
Registration fees (Note 1f) 406,040
Professional fees 127,195
Account maintenance fees--Class D (Note 2) 110,571
Distribution fees--Class C (Note 2) 88,111
Transfer agent fees--Class D (Note 2) 75,967
Directors' fees and expenses 40,890
Transfer agent fees--Class C (Note 2) 17,660
Pricing fees 7,109
Other 38,471
--------------
Total expenses 66,682,786
--------------
Investment income--net 184,513,108
--------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net $ 240,271,642
(Loss) on Foreign currency transactions--net (10,591,681) 229,679,961
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 156,164,666
(Notes 1b, 1c, Foreign currency transactions--net 16,947 156,181,613
1e & 3): -------------- --------------
Net realized and unrealized gain on investments and foreign
currency transactions 385,861,574
--------------
Net Increase in Net Assets Resulting from Operations $ 570,374,682
==============
See Notes to Financial Statements.
</TABLE>
62
<PAGE> 109
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 184,513,108 $ 150,688,436
Realized gain on investments and foreign currency
transactions--net 229,679,961 277,803,155
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net 156,181,613 (196,672,342)
-------------- --------------
Net increase in net assets resulting from operations 570,374,682 231,819,249
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (79,657,527) (72,525,266)
Shareholders Class B (80,336,105) (71,778,790)
(Note 1g): Class C (186,349) --
Class D (1,531,830) --
Realized gain on investments--net:
Class A (132,046,243) (72,489,831)
Class B (188,065,461) (100,419,177)
Class C (321,434) --
Class D (2,472,719) --
-------------- --------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (484,617,668) (317,213,064)
-------------- --------------
Capital Share Net increase in net assets derived from capital share transactions 987,538,601 651,421,432
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase in net assets 1,073,295,615 566,027,617
Beginning of year 5,316,824,318 4,750,796,701
-------------- --------------
End of year* $6,390,119,933 $5,316,824,318
============== ==============
<FN>
*Undistributed investment income--net $ 61,422,496 $ 38,621,199
============== ==============
See Notes to Financial Statements.
</TABLE>
63
<PAGE> 110
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 27.46 $ 27.89 $ 26.90 $ 25.38 $ 23.65
Operating ----------- ----------- ----------- ----------- -----------
Performance: Investment income--net 1.01 .97 .87 1.02 1.17
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.77 .50 1.99 2.12 2.24
----------- ----------- ----------- ----------- -----------
Total from investment operations 2.78 1.47 2.86 3.14 3.41
----------- ----------- ----------- ----------- -----------
Less dividends and distributions:
Investment income--net (.94) (.95) (.87) (1.02) (1.14)
Realized gain on investments--net (1.56) (.95) (1.00) (.60) (.54)
----------- ----------- ----------- ----------- -----------
Total dividends and distributions (2.50) (1.90) (1.87) (1.62) (1.68)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 27.74 $ 27.46 $ 27.89 $ 26.90 $ 25.38
=========== =========== =========== =========== ===========
Total Investment Based on net asset value per share 10.95% 5.39% 11.33% 12.96% 15.17%
Return:* =========== =========== =========== =========== ===========
Ratios to Expenses .57% .53% .55% .56% .58%
Average =========== =========== =========== =========== ===========
Net Assets: Investment income--net 3.81% 3.52% 3.56% 4.21% 5.13%
=========== =========== =========== =========== ===========
Supplemental Net assets, end of year (in thousands) $ 2,507,767 $ 2,237,492 $ 2,056,023 $ 1,533,530 $ 1,083,741
Data: =========== =========== =========== =========== ===========
Portfolio turnover 89% 86% 55% 59% 86%
=========== =========== =========== =========== ===========
<FN>
*Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
64
<PAGE> 111
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 27.04 $ 27.49 $ 26.58 $ 25.14 $ 23.46
Operating ----------- ----------- ----------- ----------- -----------
Performance: Investment income--net .74 .70 .65 .80 .96
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.72 .48 1.89 2.05 2.19
----------- ----------- ----------- ----------- -----------
Total from investment operations 2.46 1.18 2.54 2.85 3.15
----------- ----------- ----------- ----------- -----------
Less dividends and distributions:
Investment income--net (.66) (.68) (.63) (.81) (.93)
Realized gain on investments--net (1.56) (.95) (1.00) (.60) (.54)
----------- ----------- ----------- ----------- -----------
Total dividends and distributions (2.22) (1.63) (1.63) (1.41) (1.47)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 27.28 $ 27.04 $ 27.49 $ 26.58 $ 25.14
=========== =========== =========== =========== ===========
Total Investment Based on net asset value per share 9.81% 4.36% 10.16% 11.81% 14.03%
Return:* =========== =========== =========== =========== ===========
Ratios to Expenses, excluding distribution fees .59% .55% .56% .58% .60%
Average =========== =========== =========== =========== ===========
Net Assets: Expenses 1.59% 1.55% 1.56% 1.58% 1.60%
=========== =========== =========== =========== ===========
Investment income--net 2.79% 2.50% 2.53% 3.14% 4.11%
=========== =========== =========== =========== ===========
Supplemental Net assets, end of year (in thousands) $ 3,664,250 $ 3,079,332 $ 2,694,774 $ 1,582,065 $ 620,842
Data: =========== =========== =========== =========== ===========
Portfolio turnover 89% 86% 55% 59% 86%
=========== =========== =========== =========== ===========
<FN>
*Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
65
<PAGE> 112
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++ to
March 31, 1995
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 26.81 $ 27.27
Operating -------- -------
Performance: Investment income--net .49 .48
Realized and unrealized gain on investments and foreign currency
transactions--net 1.03 1.15
-------- -------
Total from investment operations 1.52 1.63
-------- -------
Less dividends and distributions:
Investment income--net (.43) (.45)
Realized gain on investments--net (.73) (.73)
-------- -------
Total dividends and distributions (1.16) (1.18)
Net asset value, end of period $ 27.17 $ 27.72
======== ========
Total Investment Based on net asset value per share 6.07%+++ 6.42%+++
Return:** ======== ========
Ratios to Average Expenses, excluding account maintenance and distribution fees .64%* .62%*
Net Assets: ======== ========
Expenses 1.64%* .87%*
======== ========
Investment income--net 3.22%* 3.94%*
======== ========
Supplemental Net assets, end of period (in thousands) $ 46,902 $171,201
Data: ======== ========
Portfolio turnover 89% 89%
======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
66
<PAGE> 113
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Capital Fund, Inc. (the "Fund") is regis-
tered under the Investment Company Act of 1940 as a
diversified, open-end management investment company.
The Fund offers four classes of shares under the Merrill
Lynch Select Pricing SM System. Shares of Class A and
Class D are sold with a front-end sales charge. Shares of
Class B and Class C may be subject to a contingent
deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C
and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and
Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive
voting rights with respect to matters relating to its
account maintenance and distribution expenditures.
The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which
are traded on stock exchanges are valued at the last
sale price on exchanges on which such securities are
traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the
last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid
price prior to the time of valuation. In cases where
securities are traded on more than one exchange, the
securities are valued on the exchange designated by or
under the authority of the Board of Directors as the
primary market. Securities which are traded both in the
over-the-counter market and on a stock exchange are
valued according to the broadest and most representa-
tive market. Options written are valued at the last sale
price in the case of exchange-traded options or, in the
case of options traded in the over-the-counter market,
the last asked price. Short-term securities are valued
at amortized cost, which approximates market value.
Other investments are stated at market value. Securities
and assets for which market value quotations are not
available are valued at their fair value as determined in
good faith by or under the direction of the Fund's Board
of Directors.
(b) Derivative financial instruments--The Fund may
engage in various portfolio strategies to seek to increase
its return by hedging its portfolio against adverse move-
ments in the equity, debt and currency markets. Losses
may arise due to changes in the value of the contract or
if the counterparty does not perform under the contract.
*Options--The Fund is authorized to write covered call
options. When the Fund sells an option, an amount
equal to the premium received by the Fund is reflected
as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the
current market value of the option written. When a
security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added
to (or deducted from) the basis of the security acquired
or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund
enters into a closing transaction), the Fund realizes a
gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid
or received). Written and purchased options are
non-income producing investments.
(c) Foreign currency transactions--Transactions denom-
inated in foreign currencies are recorded at the exchange
rate prevailing when recognized. Assets and liabilities
denominated in foreign currencies are valued at the
exchange rate at the end of the period. Foreign currency
transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unreal-
ized gains or losses from investments include the effects
of foreign exchange rates on investments.
(d) Income taxes--It is the Fund's policy to comply
with the requirements of the Internal Revenue Code
applicable to regulated investment companies and
to distribute all of its taxable income to its share-
holders. Therefore, no Federal income tax provision is
required. Under the applicable foreign tax law, a with-
holding tax may be imposed on interest, dividends, and
capital gains at various rates.
(e) Security transactions and investment income--
Security transactions are recorded on the dates the
transactions are entered into (the trade dates). Divi-
dend income is recorded on the ex-dividend date, except
that if the ex-dividend date has passed, certain dividends
from foreign securities are recorded as soon as the
Fund is informed of the ex-dividend date. Interest
income (including amortization of discount) is recognized
on the accrual basis. Realized gains and losses on
security transactions are determined on the identified
cost basis.
(f) Prepaid registration fees--Prepaid registration fees
are charged to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and
distributions paid by the Fund are recorded on the
ex-dividend dates.
67
<PAGE> 114
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory
Agreement with Merrill Lynch Asset Management, L.P.
("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned sub-
sidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which
is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with
Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
MLAM is responsible for the management of the Fund's
portfolio and provides the necessary personnel, facili-
ties, equipment and certain other services necessary to
the operations of the Fund. For such services, the Fund
pays a monthly fee based upon the average daily value of
the Fund's net assets at the following annual rates:
0.50% of the Fund's average daily net assets not
exceeding $250 million; 0.45% of average daily net assets
in excess of $250 million but not exceeding $300 million;
0.425% of average daily net assets in excess of $300
million but not exceeding $400 million; and 0.40% of
average daily net assets in excess of $400 million. The
Investment Advisory Agreement obligates MLAM to
reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage
fees and commissions, and extraordinary items) exceed
2.5% of the Fund's first $30 million of average daily net
assets, 2.0% of the Fund's next $70 million of average
daily net assets, and 1.5% of the average daily net assets
in excess thereof. No fee payment will be made to the
Investment Adviser during any fiscal year which will
cause such expenses to exceed the most restrictive
expense limitation at the time of such payment.
Pursuant to the distribution plans (the "Distribution
Plans") adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the
Fund pays the Distributor ongoing account maintenance
and distribution fees. The fees are accrued daily and
paid monthly at annual rates based upon the average
daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor,
Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"),
a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The
ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account mainte-
nance services to Class B, Class C and Class D share-
holders. The ongoing distribution fee compensates
the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and
Class C shareholders.
For the year ended March 31, 1995, MLFD earned
underwriting discounts and MLPF&S earned dealer
concessions on sales of the Fund's Class A and Class D
Shares as follows:
MLFD MLPF&S
Class A $168,068 $2,770,834
Class D $ 50,600 $ 871,472
For the year ended March 31, 1995, MLPF&S received
contingent deferred sales charges of $3,965,708 and
$4,929 relating to transactions in Class B and Class C
Shares, respectively.
In addition, MLPF&S received $315,095 in commissions
on the execution of portfolio security transactions for
the Fund for the year ended March 31, 1995.
Financial Data Services, Inc. ("FDS"), a wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM
at cost.
Certain officers and/or directors of the Fund are officers
and/or directors of MLAM, PSI, MLPF&S, FDS, MLFD,
and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-
term securities, for the year ended March 31, 1995
were $5,599,721,276 and $5,009,815,623, respectively.
Net realized and unrealized gains (losses) as of
March 31, 1995 were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $240,112,182 $352,958,650
Short-term investments (15,073) --
Paydowns 174,533 --
Foreign currency
transactions (10,591,681) (1,932)
------------ ------------
Total $229,679,961 $352,956,718
============ ============
As of March 31, 1995, net unrealized appreciation for
Federal income tax purposes aggregated $349,542,219
of which $440,544,225 related to appreciated securities
68
<PAGE> 115
and $91,002,006 related to depreciated securities. At
March 31, 1995, the aggregate cost of investments for
Federal income tax purposes was $5,995,323,156.
4. Capital Share Transactions:
Net increase in net assets derived from capital share
transactions was $987,538,601 and $651,421,432 for the
years ended March 31, 1995 and 1994, respectively.
Transactions in capital shares for each class were as
follows:
Class A Shares for the Year Dollar
Ended March 31, 1995 Shares Amount
Shares sold 17,286,503 $471,481,609
Shares issued to shareholders
in reinvestment of dividends &
distributions 7,424,496 192,734,824
------------ ------------
Total issued 24,710,999 664,216,433
Shares redeemed (15,776,697) (427,291,645)
------------ ------------
Net increase 8,934,302 $236,924,788
============ ============
Class A Shares for the Year Dollar
Ended March 31, 1994 Shares Amount
Shares sold 18,233,680 $513,827,652
Shares issued to shareholders
in reinvestment of dividends &
distributions 4,757,359 130,645,330
------------ ------------
Total issued 22,991,039 644,472,982
Shares redeemed (15,246,391) (429,372,888)
------------ ------------
Net increase 7,744,648 $215,100,094
============ ============
Class B Shares for the Year Dollar
Ended March 31, 1995 Shares Amount
Shares sold 35,795,347 $958,699,323
Shares issued to shareholders
in reinvestment of dividends &
distributions 9,333,565 239,011,925
------------ ------------
Total issued 45,128,912 1,197,711,248
Shares redeemed (20,872,708) (557,090,978)
Automatic conversion
of shares (3,804,492) (100,075,150)
------------ ------------
Net increase 20,451,712 $540,545,120
============ ============
Class B Shares for the Year Dollar
Ended March 31, 1994 Shares Amount
Shares sold 29,452,988 $816,967,279
Shares issued to shareholders
in reinvestment of dividends &
distributions 5,685,835 154,225,540
------------ ------------
Total issued 35,138,823 971,192,819
Shares redeemed (19,273,929) (534,871,481)
------------ ------------
Net increase 15,864,894 $436,321,338
============ ============
Class C Shares for the
Period October 21, 1994++ to Dollar
March 31, 1995 Shares Amount
Shares sold 1,868,357 $ 49,114,822
Shares issued to shareholders
in reinvestment of dividends &
distributions 18,191 452,606
------------ ------------
Total issued 1,886,548 49,567,428
Shares redeemed (160,348) (4,186,298)
------------ ------------
Net increase 1,726,200 $ 45,381,130
============ ============
[FN]
++Commencement of Operations.
Class D Shares for the
Period October 21, 1994++ to Dollar
March 31, 1995 Shares Amount
Shares sold 2,621,771 $ 69,784,869
Shares issued to shareholders
in reinvestment of dividends &
distributions 140,100 3,548,731
Automatic conversion
of shares 3,740,107 100,075,150
------------ ------------
Total issued 6,501,978 173,408,750
Shares redeemed (326,309) (8,721,187)
------------ ------------
Net increase 6,175,669 $164,687,563
============ ============
[FN]
++Commencement of Operations.
5. Commitments:
At March 31, 1995, the Fund had entered into forward
exchange contracts under which it had agreed to buy
and sell various foreign currencies with values of
$2,838,892 and $165,434, respectively.
69
<PAGE> 116
[This page is intentionally left blank.]
<PAGE> 117
[This page is intentionally left blank.]
<PAGE> 118
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and
Policies......................... 2
Management of the Fund............. 6
Directors and Officers........... 6
Compensation of Directors........ 7
Management and Advisory
Arrangements.................. 8
Purchase of Shares................. 10
Initial Sales Charge Alternatives
--
Class A and Class D Shares.... 10
Reduced Initial Sales Charges.... 11
Distribution Plans............... 15
Limitations on the Payment of
Deferred Sales Charges........ 15
Redemption of Shares............... 17
Deferred Sales Charge --
Class B and Class C Shares.... 17
Portfolio Transactions and
Brokerage........................ 18
Determination of Net Asset Value... 20
Shareholder Services............... 21
Investment Account............... 21
Automatic Investment Plans....... 22
Automatic Reinvestment of
Dividends and Capital Gains
Distributions................. 22
Systematic Withdrawal Plans --
Class A and Class D Shares.... 22
Retirement Plans................. 23
Exchange Privilege............... 23
Dividends, Distributions and
Taxes............................ 36
Dividends and Distributions...... 36
Taxes............................ 37
Tax Treatment of Options
Transactions.................. 38
Special Rules for Certain Foreign
Currency Transactions......... 39
Performance Data................... 40
General Information................ 42
Description of Shares............ 42
Computation of Offering Price
per Share..................... 43
Independent Auditors............. 43
Custodian........................ 43
Transfer Agent................... 43
Legal Counsel.................... 43
Reports to Shareholders.......... 44
Additional Information........... 44
Appendix A......................... 45
Independent Auditors' Report....... 52
Financial Statements............... 53
Code #10257-0795
</TABLE>
(LOGO)
Merrill Lynch
Capital Fund, Inc.
STATEMENT OF
ADDITIONAL
INFORMATION
July 27, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE> 119
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR submission file due to ASCII-incompatibility and
cross-references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<PAGE> 120
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<S> <C>
(a) FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for each of the periods in the ten-year period ended
March 31, 1995.
Contained in Part B:
Schedule of Investments, as of March 31, 1995.
Statement of Assets and Liabilities, as of March 31, 1995.
Statement of Operations for the year ended March 31, 1995.
Statements of Changes in Net Assets for the years ended March 31, 1995 and
1994.
Financial Highlights for each of the periods in the five-year period ended
March 31, 1995.
(b) EXHIBITS:
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <C> <S>
1(a) -- Articles of Incorporation of Registrant.(a).
(b) -- Articles of Amendment, dated October 3, 1988, to Articles of Incorporation
of Registrant.(a).
(c) -- Articles of Merger between Merrill Lynch Capital Fund, Inc. and Merrill
Lynch New Capital Fund, Inc.(a).
(d) -- Articles of Amendment, dated May 27, 1988, to Articles of Incorporation of
Registrant.(a).
(e) -- Articles of Amendment, dated October 17, 1994, to Articles of
Incorporation of Registrant.
(f) -- Articles Supplementary, dated October 17, 1994, to Articles of
Incorporation of Registrant.
(g) -- Articles Supplementary, dated March 17, 1995, to Articles of Incorporation
of Registrant.
2 -- By-Laws of Registrant.(c).
3 -- None.
4(a) -- Portions of the Articles of Incorporation and By-Laws of Registrant
defining the rights of holders of shares of common stock of
Registrant.(b).
5(a) -- Investment Advisory Agreement between Registrant and Merrill Lynch Asset
Management, L.P.(a).
(b) -- Supplement to Investment Advisory Agreement with Merrill Lynch Asset
Management, L.P.(c).
6(a) -- Form of Revised Class A Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Form of Selected Dealers
Agreement).(d).
(b) -- Class B Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(a).
(c) -- Letter Agreement between the Fund and Merrill Lynch Funds Distributor,
Inc., dated September 15, 1993, in connection with the Merrill Lynch
Mutual Fund Adviser program.(c).
(d) -- Form of Class C Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (including Form of Selected Dealers
Agreement).(d).
(e) -- Form of Class D Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (including Form of Selected Dealers
Agreement).(d).
7 -- None.
8(a) -- Custody Agreement between Registrant and The Bank of New York.(a).
(b) -- Amendment to Custody Agreement between Registrant and The Bank of New
York.(a)
9(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between Registrant and Merrill Lynch Financial Data
Services, Inc.(a).
(b) -- Agreement and Plan of Reorganization between Merrill Lynch Capital Fund,
Inc. and Merrill Lynch New Capital Fund, Inc.(a).
10 -- None.
</TABLE>
C-1
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <C> <S>
11 -- Consent of Deloitte & Touche LLP, independent auditors for Registrant.
12 -- None.
13 -- None.
14 -- None.
15(a) -- Amended and Restated Class B Distribution Plan of Registrant.(a).
(b) -- Form of Class C Distribution Plan of Registrant and Class C Distribution
Plan Sub-Agreement.(d).
(c) -- Form of Class D Distribution Plan of Registrant and Class D Distribution
Plan Sub-Agreement.(d).
16(a) -- Schedule for computation of each performance quotation provided in the
Registration Statement in response to item 22 relating to Class A
shares.(a).
(b) -- Schedule for computation of each performance quotation provided in the
Registration Statement in response to item 22 relating to Class B
shares.(a).
(c) -- Schedule for computation of each performance quotation provided in the
Registration Statement in response to item 22 relating to Class C shares.
(d) -- Schedule for computation of each performance quotation provided in the
Registration Statement in response to item 22 relating to Class D shares.
17(a) -- Financial Data Schedule for Class A shares.
(b) -- Financial Data Schedule for Class B shares.
(c) -- Financial Data Schedule for Class C shares.
(d) -- Financial Data Schedule for Class D shares.
</TABLE>
- -------------------------
<TABLE>
<S> <C>
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval ("EDGAR")
phase-in requirements.
(b) Reference is made to Article IV, Article V (Sections 3, 5, 6 and 7) and Articles VI, VII
and IX of the Registrant's Articles of Incorporation, filed as Exhibit 1 to this
Post-Effective Amendment No. 32 to the Registration Statement and to Article II, Article
III (Sections 1, 3, 5 and 6) and Articles VI, VII, XIII and XIV of the Registrant's
By-Laws, filed as Exhibit 2 to Post-Effective Amendment No. 30 to the Registration
Statement.
(c) Previously filed as an exhibit to Post-Effective Amendment No. 30 to the Registration
Statement.
(d) Previously filed as an exhibit to Post-Effective Amendment No. 31 to the Registration
Statement.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by or under common control with any person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AT
TITLE OF CLASS JUNE 30, 1995
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Class A Common Stock, par value $0.10 per share............................. 9,896
Class B Common Stock, par value $0.10 per share............................. 12,508
Class C Common Stock, par value $0.10 per share............................. 139
Class D Common Stock, par value $0.10 per share............................. 353
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Class A, Class B, Class C and Class D
Shares Distribution Agreements.
C-2
<PAGE> 122
Insofar as the conditional advancing of indemnification monies for actions
based on the Investment Company Act of 1940, as amended (the "1940 Act") may be
concerned, Article VI of the Registrants'
By-Laws provides that such payments will be made only on the following
conditions: (i) advances may be made only on receipt of a written affirmation of
such person's good faith belief that the standard of conduct necessary for
indemnification has been met and a written undertaking to repay any such advance
if it is ultimately determined that the standard of conduct has not been met and
(ii) (a) such promise must be secured by a security for the undertaking, in form
and amount acceptable to the Registrant, (b) the Registrant is insured against
losses arising by reason of the advance, or (c) a majority of a quorum of the
Registrant's disinterested, non-party Directors, or an independent legal counsel
in a written opinion, shall determine, based upon a review of readily available
facts, that at the time the advance is proposed to be made, there is reason to
believe that the person seeking indemnification will ultimately be found to be
entitled to indemnification.
In Section 9 of the Class A, Class B, Class C and Class D Shares
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, as
amended (the "1933 Act" ), against certain types of civil liabilities arising in
connection with the Registration Statement or the 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 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,
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 INVESTMENT ADVISER.
Merrill Lynch Asset Management, L.P. (the "Investment Adviser") acts as
investment adviser for the following open-end 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 Balanced Fund
for Investment and Retirement, Inc., Merrill Lynch Capital 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 Holdings, Inc., Merrill
Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for Investment and
Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Institutional
Intermediate 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 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. Treasury
Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility
Income Fund, Inc. and Merrill Lynch Variable Series Funds, Inc.; and for the
following closed-end investment companies; Convertible Holdings, Inc., Merrill
Lynch High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating
Rate Fund, Inc.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Investment
Adviser, acts as an investment adviser for the following open-end 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., Financial Institutions Series Trust,
Merrill
C-3
<PAGE> 123
Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust,
Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Multi-State Limited Maturity 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 for the following
closed-end investment companies: Apex Municipal Fund, Inc., Corporate High Yield
Fund, Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc.,
Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc.,
MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest
Fund, Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc.,
MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey
Fund, Inc., MuniVest New York Insured 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 Insured Fund II, 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 New York Insured
Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc.,
MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High
Income Portfolio II, Inc., Senior Strategic Income Fund, Inc., Taurus
MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings, Inc. and Worldwide
DollarVest, 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 Institutional Intermediate Fund is One
Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of
the Investment Adviser and FAM is also P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281. The address of
the Fund's transfer agent, Merrill Lynch Financial Data Services, Inc. (the
"Transfer Agent") is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
C-4
<PAGE> 124
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person has been engaged since March
31, 1993 for his or 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 all or substantially
all of the investment companies described in the preceding paragraphs and
Messrs. Giordano, Harvey, Kirstein and Monagle are directors, trustees or
officers of one or more such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITIONS WITH PROFESSION, VOCATION
NAME INVESTMENT ADVISER OR EMPLOYMENT
- ------------------------------ ------------------------ -------------------------------------
<S> <C> <C>
ML & Co. ..................... Limited Partner Financial Services Holding Company;
Limited Partner of FAM
Princeton Services, Inc.
("Princeton Services")...... General Partner General Partner of FAM
Arthur Zeikel................. President President of FAM; President and
Director of Princeton Services;
Director of Merrill Lynch Funds
Distributor, Inc. ("MLFD"); Executive
Vice President of ML & Co.; Executive
Vice President of Merrill Lynch
Terry K. Glenn................ Executive Vice President Executive Vice President and Director
of FAM; Executive Vice President and
Director of Princeton Services;
President and Director of MLFD;
Director of the Transfer Agent;
President of Princeton
Administrators, L.P.
Vincent R. Giordano........... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Elizabeth 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
N. John Hewitt................ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Philip L. Kirstein............ Senior Vice President, Senior Vice President, General
General Counsel and Counsel and Secretary of FAM; Senior
Secretary Vice President, General Counsel,
Director and Secretary of Princeton
Services; Director of MLFD
Ronald M. Kloss............... Senior Vice President Senior Vice President and Controller
and Controller of FAM; Senior Vice President and
Controller of Princeton Services
Stephen M.M. Miller........... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.
Joseph T. Monagle, Jr......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Richard L. Reller............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Gerald M. Richard............. Senior Vice President Senior Vice President and Treasurer
and Treasurer of FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Ronald L. Welburn............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Anthony Wiseman............... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
</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 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, Convertible Holdings, Inc., The Corporate
Fund
C-5
<PAGE> 125
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 investment companies: Merrill Lynch High Income
Municipal Bond 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,
Brady, Breen, Crook, Fatseas, Graczyk and Wasel is One Financial Center, 15th
Floor, Boston, Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH MLFD WITH REGISTRANT
- ------------------------------ ------------------------------------- ------------------------
<S> <C> <C>
Terry K. Glenn................ President and Director Executive Vice President
Arthur Zeikel................. Director President and Director
Philip L. Kirstein............ Director None
William E. Aldrich............ Senior Vice President None
</TABLE>
<TABLE>
<S> <C> <C>
Robert W. Crook............... Senior Vice President None
Kevin P. Boman................ Vice President None
Michael J. Brady.............. Vice President None
William M. Breen.............. Vice President None
Vice President and Assistant
Sharon Creveling.............. Treasurer None
Mark A. DeSario............... Vice President None
James T. Fatseas.............. Vice President None
Stanley Graczyk............... Vice President None
Michelle T. Lau............... Vice President None
Gerald M. Richard............. Vice President and Treasurer Treasurer
Debra W. Landsman-Yaros....... Vice President None
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 1940 Act and the Rules thereunder are maintained at the
offices of the Registrant, 800 Scudders Mill Road, Plainsboro, New Jersey 08536
and the Transfer Agent, 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 "Management of the Fund--Management
and Advisory Arrangements" in the Statement of Additional Information
constituting Part B of the Registration Statement, Registrant is not a party to
any management-related service contracts.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-6
<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the 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 26th day of July, 1995.
Merrill Lynch Capital Fund, Inc.
(Registrant)
By /s/ GERALD M. RICHARD
(Gerald M. Richard, Treasurer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- ----------------
<C> <S> <C>
ARTHUR ZEIKEL* President and Director
- --------------------------------------------- (Principal Executive
(Arthur Zeikel) Officer)
GERALD M. RICHARD* Treasurer (Principal
- --------------------------------------------- Financial and Accounting
(Gerald M. Richard) Officer)
DONALD CECIL*
- --------------------------------------------- Director
(Donald Cecil)
M. COLYER CRUM*
- --------------------------------------------- Director
(M. Colyer Crum)
EDWARD H. MEYER*
- --------------------------------------------- Director
(Edward H. Meyer)
JACK B. SUNDERLAND*
- --------------------------------------------- Director
(Jack B. Sunderland)
J. THOMAS TOUCHTON*
- --------------------------------------------- Director
(J. Thomas Touchton)
*By /s/ GERALD M. RICHARD July 26, 1995
- ---------------------------------------------
(Gerald M. Richard, Attorney-in-Fact)
</TABLE>
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<PAGE> 127
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------
<S> <C> <C>
1 (a) -- Articles of Incorporation of Registrant.(a)
(b) -- Articles of Amendment, dated October 3, 1988, to Articles of
Incorporation of Registrant.(a)
(c) -- Articles of Merger between Merrill Lynch Capital Fund, Inc. and
Merrill Lynch New Capital Fund, Inc.(a)
(d) -- Articles of Amendment, dated May 27, 1988, to Articles of
Incorporation of Registrant.(a)
(e) -- Articles of Amendment, dated October 17, 1994, to Articles of
Incorporation of Registrant.
(f) -- Articles Supplementary, dated October 17, 1994, to Articles of
Incorporation of Registrant.
(g) -- Articles Supplementary, dated March 17, 1995, to Articles of
Incorporation of Registrant.
5 (a) -- Investment Advisory Agreement between Registrant and Merrill Lynch
Asset Management, L.P.(a)
6 (b) -- Class B Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(a)
8 (a) -- Custody Agreement between Registrant and The Bank of New York.(a)
(b) -- Amendment to Custody Agreement between Registrant and The Bank of New
York.(a)
9 (a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between Registrant and Merrill Lynch Financial Data
Services, Inc.(a)
(b) -- Agreement and Plan of Reorganization between Merrill Lynch Capital
Fund, Inc. and Merrill Lynch New Capital Fund, Inc.(a)
11 -- Consent of Deloitte & Touche LLP, independent auditors for Registrant.
15 (a) -- Amended and Restated Class B Distribution Plan of Registrant.(a)
16 (a) -- Schedule for computation of each performance quotation provided in the
Registration Statement in response to item 22 relating to Class A
shares.(a)
(b) -- Schedule for computation of each performance quotation provided in the
Registration Statement in response to item 22 relating to Class B
shares.(a)
(c) -- Schedule for computation of each performance quotation provided in the
Registration Statement in response to item 22 relating to Class C
shares.
(d) -- Schedule for computation of each performance quotation provided in the
Registration Statement in response to item 22 relating to Class D
shares.
17 (a) -- Financial Data Schedule for Class A shares.
(b) -- Financial Data Schedule for Class B shares.
(c) -- Financial Data Schedule for Class C shares.
(d) -- Financial Data Schedule for Class D shares.
</TABLE>
- ---------------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") phase-in requirements.
C-8
<PAGE> 1
EX-99.1(a)
ARTICLES OF INCORPORATION
OF
MERRILL LYNCH NEW CAPITAL FUND, INC.
STATED DEPARTMENT OF ASSESSMENTS
AND TAXATION
APPROVED FOR RECORD 7/29/87 AT 10:49 PM
ARTICLE I
THE UNDERSIGNED, Lawrence H. Kaplan, whose post-office
address is One World Trade Center, New York, New York 10048,
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 II
NAME
The name of the Corporation is
MERRILL LYNCH NEW CAPITAL FUND, INC.
ARTICLE III
PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed
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.
<PAGE> 2
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; provided, however, that the value of the consideration
per share to be received by the Corporation upon the sale or
other disposition of any shares of its capital stock shall not be
less than the net asset value per share of such capital stock
outstanding at the time of such event.
4. To 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
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 desir-
able 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
2
<PAGE> 3
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 IV
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 V
CAPITAL STOCK
1. The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is Two
Hundred Million (200,000,000) shares of the par value of Ten
Cents ($.10) per share and an aggregate par value of Twenty
Million Dollars ($20,000,000), divided into two classes of Common
Stock, each of which consists of One Hundred Million
(100,000,000) shares which are hereby designated as Class A and
Class B Common Stock, as follows:
3.
<PAGE> 4
(a) The holders of each share of capital stock of the
Corporation shall be entitled to one vote for each full share,
and a fractional vote for each fractional share of stock,
irrespective of the class then standing in his name on the books
of the Corporation. On any matter submitted to a vote of
stockholders, all shares of the Corporation then issued and
outstanding and entitled to vote shall be voted in the aggregate
and not by class, except that when the matter does not affect any
interest of a particular class, then only stockholders of the
affected class shall be entitled to vote thereon.
(b) Each class of capital stock of the Corporation shall
represent interests in the Corporation and have identical voting,
dividend, liquidation and other rights, except that:
(i) Expenses related to the distribution of the shares
of a class of capital stock may be borne solely by such class and
a class may have exclusive voting rights with respect to matters
relating to the expenses being borne solely by such class; and
(ii) The bearing of expenses solely by a class of
capital stock shall be appropriately reflected (in the manner
determined by the Board of Directors) in the net asset value,
dividends and liquidation rights of the shares of such class.
2. Any fractional share shall carry proportionately all the
rights of a whole share, excepting any right to receive a certif-
icate evidencing such fractional share, but including, without
limitation, the right to vote and the right to receive
dividends.
4.
<PAGE> 5
3. All persons who shall acquire capital stock in the
Corporation shall acquire the same subject to the provisions of
these Articles of incorporation and the By-Laws of the
Corporation.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE COR-
PORATION AND OF THE DIRECTORS AND
STOCKHOLDERS
1. The number of directors of the Corporation shall be
three (3), which number may be increased pursuant to the By-Laws
of the Corporation, but shall never be less than three (3). The
names of the directors who shall act until the first annual
meeting or until their successors are duly elected and qualify
are:
Mark B. Goldfus
Barbara Fraser
Susan Baker
2. The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of shares
of capital stock, 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.
5 .
<PAGE> 6
3. No holder of capital 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 by the Corporation to the full extent permitted by
the General Laws of the State of Maryland, subject to the re-
quirements of the Investment Company Act of 1940, as amended.
5. The Board of Directors of the Corporation may 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.
ARTICLE VII
REDEMPTION
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
6.
<PAGE> 7
subject to redemption by the Corporation, at the redemption price
of such shares as in effect from time to time as may-be deter-
mined 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 Corpor-
ation from time to time in accordance with the provisions of
applicable law, less such redemption fee or other charge, if any,
as may be fixed by resolution of the Board of Directors of the
Corporation. Payment of the redemption price shall be made in
cash 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.
ARTICLE VIII
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 Direc-
tors, as to the amount of assets, obligations or liabilities of
the Corporation, as to the amount of net income of the Corpor-
ation from dividends and interest for any period or amounts at
7.
<PAGE> 8
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 re-
serves 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 Corpor-
ation 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 of 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 Incor-
ration 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
8.
<PAGE> 9
rule, regulation or order of the Securities and Exchange Commis-
sion thereunder or (b) protect or purport to protect any director
or officer of the Corporation against any liability to the Cor-
poration or its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negli-
gence or reckless disregard of the duties involved in the conduct
of his office.
ARTICLE IX
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
ARTICLE X
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 stockholders'
rights, and all rights conferred upon stockholders herein are
granted subject to this reservation.
9.
<PAGE> 10
IN WITNESS WHEREOF, the undersigned incorporator of Merrill
Lynch New Capital Fund, Inc. hereby executes the foregoing
Articles of Incorporation and acknowledges the same to be his act
and further acknowledges that, to the best of his knowledge, the
matters and facts set forth therein are true in all material
respects under the penalties of perjury.
Dated the 28th day of July 1987.
/S/ LAWRENCE H. KAPLAN
10 .
<PAGE> 1
Ex-99. 1 (b)
MERRILL LYNCH NEW CAPITAL FUND, INC.
ARTICLES OF AMENDMENT
MERRILL LYNCH NEW CAPITAL FUND, INC., a Maryland
corporation, having its principal office c/o The Corporation
Trust Incorporated, 32 South Street, Baltimore, Maryland 21202
(hereinafter called the "Corporation"), hereby certifies to the
State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by
adding to the Articles of Incorporation thereof the following:
ARTICLES VIII
MAJORITY VOTES OF STOCKHOLDERS
Notwithstanding any provision of the Maryland
General Corporation Law requiring a greater proportion
than a majority of the votes of all classes of capital
stock of the Corporation (or of any class entitled to
vote thereof as a separate class) to take or authorize
any action, the Corporation is hereby authorized
(subject to the requirements of the Investment Company
Act of 1940, as amended, 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 aggregate number of shares of capital
stock of the Corporation entitled to vote thereof (or a
majority of the aggregate number of shares of a class
entitled to vote thereof as a separate class).
SECOND: The amendment set forth herein does not increase
the authorized stock of the Corporation.
<PAGE> 2
THIRD: The foregoing amendment to the charter of the
Corporation has been approved by a majority of the entire Board
of Directors and no stock entitled to be voted on the matter was
outstanding at the time of approval.
IN WITNESS WHEREOF, Merrill Lynch New Capital Fund, Inc. has
caused these articles to be signed in its name and on its behalf
by its President and attested by its Secretary on May 27,
1988.
MERRILL LYNCH NEW CAPITAL FUND, INC.
By:
ATTEST: /s/ Arthur Zeikel
by: /s/ Mark B. Goldfus, Secretary
THE UNDERSIGNED, President of MERRILL LYNCH NEW
CAPITAL FUND, INC., who executed on behalf of said Corporation
the forgoing Articles of Amendment, of which this certificate is
made apart, hereby acknowledges, in the name and on behalf of
said Corporation, the foregoing Articles of Amendment to be the
corporate act of said Corporation and further certifies that, to
the best of his knowledge, information and belief, the matters
and facts set forth therein with respect to the approvals thereof
are true in all material respects, under the penalty of perjury.
/s/ Arthur Zeikel
2.
<PAGE> 1
7/29/88 AT 10:32
ARTICLES OF MERGER EX-99. 1 (c)
BETWEEN
MERRILL LYNCH NEW CAPITAL FUND, INC.
(a Maryland Corporation)
AND
MERRILL LYNCH CAPITAL FUND, INC.
(a Delaware Corporation)
MERRILL LYNCH NEW CAPITAL FUND, INC., a corporation duly
organized and existing under the laws of the State of Maryland
(the "New Fund") and MERRILL LYNCH CAPITAL FUND, INC., a
corporation duly organized and existing under the laws of the
State of Delaware (the "Fund"), do hereby certify that:
FIRST: The New Fund and the Fund agree to merge.
SECOND: The name and place of incorporation of each party
to these Articles are MERRILL LYNCH NEW CAPITAL FUND, INC., a
Maryland corporation, and MERRILL LYNCH CAPITAL FUND, INC., a
Delaware corporation. The New Fund shall survive the merger and
shall change its name to the name "MERRILL LYNCH CAPITAL FUND,
INC." as a corporation of the State of Maryland.
THIRD: The Fund was incorporated under the general laws of
the State of Delaware in September 1973 under the name Lionel D.
Edie Capital Fund, Inc. and changed its name to Merrill Lynch
Capital Fund, Inc. in June 1976. The Fund is not registered or
qualified to do business in Maryland.
FOURTH: The New Fund has its principal office in Baltimore
City. The Fund has no office in the State of Maryland and owns
no interest in land in the State of Maryland.
FIFTH: The terms and conditions of the transaction set
forth in these Articles were advised, authorized, and approved by
each corporation party to the Articles in the manner and by the
vote required by its Charter and the laws of the state of its
incorporation. The manner of approval was as follows:
(a) The Boards of Directors of the Fund and the New
Fund at meetings held on August 4, 1987, adopted resolutions
which declared that the proposed merger was advisable on
-1-
<PAGE> 2
substantially the terms and conditions set forth or referred to
in the resolutions and directed that the proposed merger be
submitted for consideration by stockholders.
(b) Notice which stated that the purpose of the
meeting was to act on the proposed merger was given by the Fund
as required by law.
(c) The merger was approved by the stockholders of the
Fund at the annual meeting of stockholders held December 23, 1987
by the affirmative vote of a majority of all the votes entitled
to be cast on the matter.
(d) The merger wag approved by the sole stockholder of
the New Fund by a written consent dated as of July 29, 1988
signed by the sole stockholder of the New Fund.
SIXTH: No amendment to the Charter of the New Fund is
to be effected as a part of the merger except as follows:
(a) Article II of the New Fund's Articles of
Incorporation hereby is amended to read as follows:
ARTICLE II
NAME
The name of the Corporation is
MERRILL LYNCH CAPITAL FUND, INC.
(b) Article VIII of the New Fund's Articles of
Incorporation hereby is amended to read as follows:
ARTICLES VIII
MAJORITY VOTES OF STOCKHOLDERS
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, 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
aggregate number of shares of capital stock of the
2.
<PAGE> 3
Corporation entitled to vote thereon (or a majority of
the aggregate number of shares of a class or series
entitled to vote thereon as a separate class or
series).
SEVENTH: The total number of shares of stock of all
classes which the New Fund has authority to issue is 200,000,000
shares of Common Stock (par value $0.10 per share), divided into
two classes, designated Class A and Class B Common Stock, each of
which consists of 100,000,000 shares. At this time, only shares
of Class A Common Stock will be issued. The aggregate par value
of all the shares of stock of the New Fund is $20,000,000. The
total number of shares of stock of all classes which the Fund has
authority to issue is 100,000,000 shares of Common Stock (par
value $1.00 per share). The aggregate par value of all the
shares of stock of all classes of the Fund is $100,000,000.
EIGHTH: The merger does not increase the authorized
stock of the New Fund.
NINTH: The manner and basis of converting or
exchanging issued stock of the merging corporations into
different stock of a corporation, for other consideration and the
treatment of any issued stock of the merging corporations not to
be converted or exchanged are as follows:
(a) Each issued and outstanding share of Common
Stock of the Fund on the effective date of the merger, shall upon
effectiveness and without further act, be converted into and
become one share of Class A Common Stock of the New Fund.
(b) As soon as practicable following the
effective date of the merger, each holder of issued and
outstanding shares of Common Stock of the Fund shall be entitled
to surrender the certificates representing the shares of Common
Stock of the Fund held by such holder immediately prior to
effectiveness of the merger, and, upon such surrender, shall be
entitled to receive in exchange therefor a certificate or
certificates representing the number of shares of Class A Common
Stock of the New Fund deliverable in respect thereof.
(c) Each issued and outstanding share of Class A
Common Stock of the New Fund on the effective date of the merger,
shall, upon effectiveness and without further action, be
cancelled.
TENTH: The merger shall become effective on July 29,
1988.
3.
<PAGE> 4
IN WITNESS WHEREOF, MERRILL LYNCH NEW CAPITAL FUND, INC. and
MERRILL LYNCH CAPITAL FUND, INC. have caused these presents to be
signed in their respective names and on their respective behalves
by their respective presidents and witnessed by their respective
secretaries on July 27, 1988.
WITNESS: MERRILL LYNCH NEW CAPITAL FUND, INC.
(a Maryland corporation)
By
Mark B. Goldfus, Secretary President /s/: Arthur Zeikel
WITNESS: MERRILL LYNCH CAPITAL FUND, INC.
(a Delaware orporation)
By
Secretary : /s/ Mark B. Goldfus President: /s/ Arthur Zeikel
THE UNDERSIGNED, President of MERRILL LYNCH NEW CAPITAL
FUND, INC., who executed on behalf of the Corporation the
foregoing Articles of Merger of which this certificate is made a
part, hereby acknowledges in the name and on behalf of said
Corporation the foregoing Articles of Merger to be the corporate
act of said Corporation and hereby certifies that to the best of
his knowledge, information and belief the matters and facts set
forth therein with respect to the authorization and approval
thereof are true in all material respects under the penalties of
perjury.
President: /s/ Arthur Zeikel
4.
<PAGE> 5
THE UNDERSIGNED, President of MERRILL LYNCH CAPITAL FUND,
INC., who executed on behalf of the Corporation the foregoing
Articles of Merger of which this certificate is made a part,
hereby acknowledges in the name and on behalf of said corporation
the foregoing Articles of Merger to be the corporate act of said
Corporation and hereby certifies that to the best of his
knowledge, information and belief the matters and facts set forth
therein with respect to the authorization and approval thereof
are true in all material respects under the penalties of perjury.
President : /s/ Arthur Zeikel
<PAGE> 1
EX-99. 1 (d)
MERRILL LYNCH CAPITAL FUND, INC.
Articles of Amendment
MERRILL LYNCH CAPITAL FUND, INC., a Maryland
corporation having its principal office c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202
(hereinafter called the "Corporation"), hereby certifies to the
State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby
amended by amending ARTICLE V thereof in its entirety to read as
follows:
Capital Stock
1. The total number of shares of capital stock which
the Corporation shall have authority to issue is One Hundred
Million (100,000,000) shares of the par value of Ten Cents
($0.10) per share and of the aggregate par value of Ten
Million Dollars ($10,000,000). The capital stock initially
is classified into two classes, consisting of Fifty Million
(50,000,000) shares of Class A Common Stock and Fifty
Million (50,000,000) shares of Class B 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, conversion or other rights,
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; provided, however, that no such
classification or reclassification shall result in the
creation of a class or series of capital stock having a
preference as to dividends or distributions or a preference
in the event of any liquidation, dissolution or winding up
of the Corporation.
3. 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
<PAGE> 2
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. 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.
4. 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 one or more affected classes and series shall be
entitled to vote.
5. 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 all classes and series of capital stock of the
Corporation shall be entitled, after payment or provision
2.
<PAGE> 3
for payment of the debts and other liabilities of the
Corporation, to share ratably in the remaining net assets of
the Corporation.
6. Any fractional shares shall carry proportionately
all 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.
7. All persons who shall acquire stock in the
Corporation shall acquire the same subject to the provisions
of the charter and By-Laws of the Corporation. All shares
of Common Stock of the Corporation issued on or before
OCT 3, 1988 shall without further act be considered
Class A Common Stock. 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.
SECOND: The foregoing amendment does not increase the
authorized capital stock of the Corporation.
THIRD: The foregoing amendment to the charter of the
Corporation has been advised by the Board of Directors and
approved by the stockholders of the Corporation.
3.
<PAGE> 4
IN WITNESS WHEREOF, Merrill Lynch Capital Fund, Inc. has
caused these Articles of Amendment to be signed in its name and
on its behalf by its President and attested by its Secretary on
October 3,1988.
ATTEST: MERRILL LYNCH CAPITAL FUND,
INC.
By
/s/ Mark B. Goldfus Secretary /s/ Arthurr Zeikel President
THE UNDERSIGNED, President of Merrill Lynch Capital Fund,
Inc., who executed on behalf of said Corporation the foregoing
Articles of Amendment, of which this certificate is made a part,
hereby acknowledges, in the name and on behalf of said
Corporation, the foregoing Articles of Amendment to be the
corporate act of said Corporation, and further certifies that, to
the best of his knowledge, information and belief, the matters
and facts set forth therein with respect to the approval thereof
are true in all material respects, under the penalties of
perjury.
/s/ Arthur Zeikel, President
4.
<PAGE> 1
Ex-99. 1 (e)
MERRILL LYNCH CAPITAL FUND, INC.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
MERRILL LYNCH CAPITAL FUND, INC., a Maryland corporation
having its principal Maryland office c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202
(hereinafter called the "Corporation"), hereby certifies to the
State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended
by adding the following provision at the end of Article V:
(8) The Board of Directors may classify and reclassify any
issued 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; provided, however, that any such classification or
reclassification shall not substantially adversely affect the
rights of holders of such issued shares. The Board's authority
pursuant to this paragraph shall include, but not be limited to,
the power to vary among all the holders of a particular class or
series (a) the length of time shares must be held prior to
reclassification to 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 reclassified;
provided, however, that, subject to the first sentence of this
section, 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 "First Holding
Period Prospectus"), the Holding Period(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
reclassified 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 reclassification, were
issued; and provided, further, that, subject to the first
sentence of this section, with respect to holders of the
Corporation's Class B shares issued prior to the date of the
Corporation's First Holding Period Prospectus, the Holding Period
<PAGE> 2
shall be ten (10) years for retirement plan (as recognized by the
Internal Revenue Code of 1986, as amended from time to time)
holders of issued Class B shares purchased without a contingent
deferred sales charge (a "CDSC-Waived Retirement Plan") and shall
be the Holding Period set forth in the Corporation's First
Holding Period Prospectus, for all other holders of issued Class
B shares; Class B shares held by a CDSC-Waived Retirement Plan
shall be reclassified to Class D shares in the month following
the month in which the first Class B share of any mutual fund
advised by Merrill Lynch Asset Management, L.P., Fund Asset
Management, L.P., or their affiliates or successors, held by such
CDSC-Waived Retirement Plan has been held for the ten (10) year
Holding Period established by the Corporation's Board of
Directors for such CDSC-Waived Retirement Plan Class B
shareholder; and the Class B shares of every shareholder other
than CDSC-Waived Retirement Plans shall be reclassified to Class
D shares in the month following the month in which such shares
have been held for the Holding Period established by the
Corporation's Board of Directors for shareholders other than
CDSC-Waived Retirement Plans in the Corporation's First Holding
Period Prospectus.
SECOND: The foregoing Articles of Amendment have been
effected in the manner and by the vote required by the
Corporation's charter and the laws of the State of Maryland.
Pursuant to Section 2-604 of the Maryland Corporations and
Associations Code, the amendment was advised by the Board of
Directors of the Corporation and approved by the stockholders.
THIRD: Except as amended hereby, the Corporation's charter
shall remain in full force and effect.
FOURTH: The authorized capital stock of the Corporation has
not been increased by these Articles of Amendment.
FIFTH: These Articles of Amendment shall be effective at
the very beginning of the day on October 21, 1994.
The President acknowledges these Articles of Amendment to be
the corporate act of the Corporation and states that to the best
of his knowledge, information and belief, the matters set forth
in these Articles of Amendment with respect to the authorization
and approval of the amendment of the Corporation's charter are
true in all material respects, and that this statement is made
under the penalties for perjury.
2
<PAGE> 3
IN WITNESS WHEREOF, MERRILL LYNCH CAPITAL FUND, INC. has
caused these Articles of Amendment to be signed in its name and
on its behalf by its President, a duly authorized officer of the
Corporation, and attested by its Secretary as of the 17th day of
October, 1994.
MERRILL LYNCH CAPITAL FUND, INC.
/s/: Arthur Zeikel
President
Attest
/s/ :Mark B. Goldfus, Secretary
3
<PAGE> 1
Ex-99. 1 (f)
MERRILL LYNCH CAPITAL FUND, INC.
ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION
INCREASING THE AUTHORIZED CAPITAL STOCK OF THE
CORPORATION AND CREATING TWO ADDITIONAL CLASSES
OF COMMON STOCK
MERRILL LYNCH CAPITAL FUND, INC., a Maryland corporation
having its principal Maryland office c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202
(hereinafter called the "Corporation"), hereby certifies to the
State Department of Assessments and Taxation, that:
FIRST: The Corporation is registered as an open-end company
under the Investment Company Act of 1940, as amended, with
authority to issue FOUR HUNDRED MILLION (400,000,000) shares of
capital stock. The Corporation has two classes of capital stock
consisting of TWO HUNDRED MILLION (200,000,000) shares of Class A
Common Stock and TWO HUNDRED MILLION (200,000,000) shares of
Class B Common Stock. All shares of all classes and series of
the Corporation's capital stock have a par value of Ten Cents
($.10) per share and an aggregate par value of FORTY MILLION
Dollars ($40,000,000).
SECOND: The Board of Directors of the Corporation, acting
in accordance with Section 2-105(c) of the Maryland Corporations
and Associations Code, hereby increases the total number of
authorized shares of Class B Common Stock of the Corporation by
FOUR HUNDRED MILLION (400,000,000) shares.
THIRD: After this increase in the number of authorized
shares of capital stock of the Corporation, the Corporation will
have authority to issue EIGHT HUNDRED MILLION (800,000,000)
shares of capital stock and the capital stock will consist of TWO
HUNDRED MILLION (200,000,000) shares of Class A Common Stock and
SIX HUNDRED MILLION (600,000,000) shares of Class B Common Stock.
FOURTH: After this increase in the number of authorized
shares of capital stock of the Corporation, all shares of all
classes and series of the Corporation's capital stock will have a
par value of Ten Cents ($.10) per share and an aggregate par
value of EIGHTY MILLION Dollars ($80,000,000).
FIFTH: Pursuant to authority expressly vested in the Board
of Directors of the Corporation by its charter, the Board of
Directors has reclassified TWO HUNDRED MILLION (200,000,000)
authorized and unissued shares of the Class B Common Stock of the
Corporation as Class C Common Stock of par value of Ten Cents
($.10) per share and of the aggregate par value of TWENTY MILLION
Dollars ($20,000,000).
<PAGE> 2
SIXTH: The preferences, designations, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of Class C
Common Stock are as follows:
The Class C Common Stock of the Corporation shall represent
the same interest in the Corporation and have identical
preferences, designations, conversion or other rights, voting
powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Class
B Common Stock as of the date of these Articles Supplementary,
except as otherwise set forth in the Corporation's charter and
further except that:
(i) Expenses related to the distribution of the Class C
Common Stock shall be borne solely by such class and such class
shall have exclusive voting rights with respect to matters
relating to the expenses being borne solely by such class;
(ii) Such distribution expenses borne solely by Class C
Common Stock shall be appropriately reflected (in the manner
determined by the Board of Directors) in the net asset value,
dividends, distribution and liquidation rights of the shares of
such class; and
(iii) Class C Common Stock shall not be reclassified into
Class D shares.
SEVENTH: Pursuant to authority expressly vested in the
Board of Directors of the Corporation by its charter, the Board
of Directors has reclassified TWO HUNDRED MILLION (200,000,000)
authorized and unissued shares of the Class B Common Stock of the
Corporation as Class D Common Stock of par value of Ten Cents
($.10) per share and of the aggregate par value of TWENTY MILLION
Dollars ($20,000,000).
EIGHTH: The preferences, designations, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of Class D
Common Stock are as follows:
The Class D Common Stock of the Corporation shall represent
the same interest in the Corporation and have identical
preferences, designations, conversion or other rights, voting
powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Class
B Common Stock as of the date of these Articles Supplementary,
except as otherwise set forth in the Corporation's charter and
further except that:
2
<PAGE> 3
(i) Expenses related to the distribution of the Class D
Common Stock shall be borne solely by such class and such class
shall have exclusive voting rights with respect to matters
relating to the expenses being borne solely by such class; and
(ii) Such distribution expenses borne solely by Class D
Common Stock shall be appropriately reflected (in the manner
determined by the Board of Directors) in the net asset value,
dividends, distribution and liquidation rights of the shares of
such class.
3
<PAGE> 4
IN WITNESS WHEREOF, MERRILL LYNCH CAPITAL FUND, INC. has
caused these Articles Supplementary to be signed in its name and
on its behalf by its President and attested by its Secretary on
October 17 th, 1994.
MERRILL LYNCH CAPITAL
By
/s/ Arthur Zeikel
President
Attest:
/s/ Mark B. Goldfus, Secretary
THE URDERSIGNED, President of MERRILL LYNCH CAPITAL FUND,
INC., who ecuted on behalf of said Corporation the foregoing
Articles Supplementary, of which this certificate is made a part,
hereby acknowledges, in the name and on behalf of said
Corporation, the foregoing Articles Supplementary to be the
corporate act of said Corporation and further certifies that, to
the best of his knowledge, information and belief,, the matters
and facts set forth therein with respect to the authorization and
approval thereof are true in all material respects, and that this
statement is made under the penalties for perjury.
/s/Arthur Zeikel
President
<PAGE> 1
Ex-99. 1 (g)
MERRILL LYNCH CAPITAL FUND, INC
ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION
INCREASING THE AUTHORIZED CAPITAL STOCK OF THE
CORPORATION 3/28/95 10: 25 AM
MERRILL LYNCH CAPITAL FUND, INC., a Maryland corporation
having its principal Maryland office c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202
(hereinafter called the "Corporation"), hereby certifies to the
State Department of Assessments and Taxation, that:
FIRST: The Corporation is registered as an open-end company
under the Investment Company Act of 1940, as amended, with
authority to issue EIGHT HUNDRED MILLION (800,000,000) shares of
capital stock. The Corporation has four classes of capital stock
consisting of TWO HUNDRED MILLION (200,000,000) shares of Class A
Common Stock, TWO HUNDRED MILLION (200,000,000) shares of Class B
Common Stock, TWO HUNDRED MILLION (200,000,000) shares of Class C
Common Stock and TWO HUNDRED MILLION (200,000,000) shares of
Class D Common Stock. All shares of all classes and series of
the Corporation's capital stock have a par value of Ten Cents
($.10) per share and an aggregate par value of EIGHTY MILLION
Dollars ($80,000,000).
SECOND: The Board of Directors of the Corporation, acting
in accordance with Section 2-105(c) of the Maryland Corporations
and Associations Code, hereby increases the total number of
authorized shares of Class A Common Stock of the Corporation by
ONE HUNDRED MILLION (100,000,000) shares and increases the total
number of authorized shares of Class B Common Stock of the
Corporation by ONE HUNDRED MILLION (100,000,000) shares.
THIRD: After this increase in the number of authorized
shares of capital stock of the Corporation, the Corporation will
have authority to issue ONE BILLION (1,000,000,000) shares of
capital stock and the capital stock will consist of THREE HUNDRED
MILLION (300,000,000) shares of Class A Common Stock, THREE
HUNDRED MILLION (300,000,000) shares of Class B Common Stock, TWO
HUNDRED MILLION (200,000,000) shares of Class C Common Stock and
TWO HUNDRED MILLION (200,000,000) shares of Class D Common Stock.
7
FOURTH: After this increase in the number of authorized
shares of capital stock of the Corporation, all shares of all
classes and series of the Corporation's capital stock will have a
par value of Ten Cents ($.10) per share and an aggregate par
value of ONE HUNDRED MILLION Dollars ($100,000,000).
STATE of Maryland
I hereby certify that this is a true and complete copy of the
pate document on file in this office DATE; 3-25-95
BY: /S/ Jacqueline C. James
This stamp replaces our pervios certification system. Effective 10/84
<PAGE> 2
IN WITNESS WHEREOF, MERRILL LYNCH CAPITAL FUND, INC. has
caused these Articles Supplementary to be signed in its name and
on its behalf by a duly authorized officer and attested by its
Secretary on March 17, 1995.
MERRILL LYNCH CAPITAL FUND, INC.
by: /s/ Terry K. Glenn
Executive Vice President
Attest:
/s/ Mark B. Goldfus Secretary
THE UNDERSIGNED officer of MERRILL LYNCH CAPITAL FUND, INC.,
who executed on behalf of said Corporation the foregoing Articles
Supplementary, of which this certificate is made a part, hereby
acknowledgeds, in the name and on behalf of said Corporation, the
foregoing Articles Supplementary to be the corporate act of said
Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set
forth therein with respect to the authorization and approval
thereof are true in all material respects, and that this
statement is made under the penalties for perjury.
Name: Terry K. Glenn
Title executive Vice President
2
<PAGE> 1
Ex-99. 5 (a)
INVESTMENT ADVISTORY AGREEMENT
AGREEMENT made this 16th day of June, 1976, by, and
between MERRILL LYNCH CAPITAL FUID, INC., a Delaware corpor-
ation (the "Fund"), and MERRILL LYNCH ASSET MANAGEMENT, INC.,
a Delaware corporation (the "Advisor");
W I T N E S S E T H:
WHEREAS the Fund is engaged in business as a diver-
sified open-end management investment company and is regis-
tered as such under the Investment Company Act of 1940, as
amended;
WHEREAS the Advisor is engaged principally in
rendering advisory services and is registered as such under
the Investment Advisers Act of 1940; and
WHEREAS the Fund desires to retain the Advisor to
render investment supervisory and corporate administrative
services to the Fund in the manner and on the terms herein-
after set forth,
NOW, THEREFORE, in consideration of the premises and
the covenants hereinafter contained, the Fund and the Advisor
hereby agree as follows:
<PAGE> 2
1. The Fund hereby employs the Advisor to act as
the investment advisor to and manager of the Fund and to
manage the investment and reinvestment of the assets of the
Fund and to administer its affairs, subject to the supervision
of the Board of Directors of the Fund, for the period and on
the terms and conditions set forth in this Agreement. The
Advisor hereby, accepts such employment and agrees during such
period, at its own expense, to render the services and to
assume the obligations herein set forth for the compensation
provided for herein. The Advisor shall for all purposes
herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or other-
wise be deemed an agent of the Fund.
2. The Advisor shall regularly provide the Fund
with investment research, advice and supervision and shall
continuously furnish the Fund with an investment program for
the assets of the Fund consistent with the principles set
forth in the Certificate of incorporation, By-laws, Regis-
tration Statement and Prospectus of the Fund and the require-
ments of the Investment Company Act of 1940, as amended.
-2-
<PAGE> 3
3. (a) The Advisor, at it own expense, shall fur-
nish to the Fund office space and all necessary office faci-
lities, equipment and personnel for managing the affairs and
investments and keeping the books of the Fund. The Advisor
assumes and shall pay or reimburse the Fund for the compen-
sation of all officers and employees of the Fund and of all
directors of the Fund who are interested persons (as defined
in the Investment Company Act of 1940, as amended) of the
Advisor. Except as otherwise expressly provided above, the
Fund assumes and shall pay all expenses of the Fund, in-
cluding, without limitation: (1) the charges and expenses of
any custodian or depositary appointed by the Fund for
safekeeping of its cash, securities and other property, (2)
the charges and expenses of auditors, (3) the charges and
penses of any transfer agents and registrars appointed by the
Fund, (4) the compensation of all directors who are not inter-
ested persons of the Advisor, (5) brokers' commissions and
issue and transfer taxes chargeable to the Fund in connection
with securities transactions to which the Fund is a party, (6)
interest charges, (7) all taxes and corporate fees payable by
the Fund to Federal, state or other governmental agencies, (8)
the cost of stock, certificates representing shares of the
Fund, (9) expenses in connection with the repurchase and re-
demption of shares of the Fund, (10) all expenses of share-
holders' and directors' meetings and of preparing and printing
reports to shareholders and (11) charges and expenses of legal
counsel for the Fund.
-37
<PAGE> 4
(b) The services of Advisor to the Fund here-
under are not to be deemed exclusive, and the Advisor shall be
free to render similar services to others so long as its ser-
vices hereunder are not impaired thereby.
4.(a) As full compensation for the services and
facilities provided by the Advisor hereunder, the Fund shall
pay to the Advisor at the end of each calendar month a fee
based upon the average daily value of the net assets of the
Fund, computed as of the time of close of trading on the New
York Stock Exchange on each day on whick such Exchange is open
for trading during such month, as determined and computed in
accordance with the answer to Item 30(a) to the form N-8B-1 of
the Fund on file with the Securities and Exchange Commission
at the following annual rates: 0.50% of that portion of
total net assests of the Fund not exceeding $500,000,000; 0.45%
of that portion of the total net assets of the Fund in excess
of $500,000,000 but not exceeding $750,000,000; and 0.40% of
that portion of the total net assets of the Fund in excess of
$750,000,000. During any period when the determination of
asset value is suspended by the Board of Directors of the
Fund, the asset value of a share as of the last business day
prior to such suspension shall for this purpose be deemed to
be the asset value. at the close of each succeeding business
day until it is again determined.
-4-
<PAGE> 5
(b) In the event the total ordinary operating ex-
penses of the Fund in any fiscal year, inclusive of the fee
Paid to the Advisor pursuant to the preceding paragraph but
excluding taxes and governmental fees, interest paid and bro-
kerage commissions paid and expenses of extraordinary items
such as litigation, shall exceed an amount equal to 1-1/2% of
the first $30,000,000 of net assets of the Fund and 1% of the
average month-end total net assets of the Fund, based upon
computations of net asset value of the Fund made monthly, the
Advisor shall pay on behalf of the Fund, or reimburse the Fund
for, any amount by which such total experses exceed such
amount. Whenever the expenses of the Fund exceed a pro rata
portion of the annual cxpense limitation herein provided for,
the estimated amount of reimbursement under such expense li-
mitation shall be applied as an offset against the monthly
pavment of the investment advisory fee due to the Advisor.
5. The Advisor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund
in connection with any investment policy or the purchase, sale
or redemption of any securities on the recommendation of -the
Advisor. Nothing herein contained shall be construed to pro-
tect the Advisor against any liability to the Fund or its
security holders to which the Advisor shall otherwise be sub-
ject by reason of willful misfeasance, bad faith, gross negli-
gence in the performance of its duties on behalf of the Fund,
reckless disregard of the Advisor's obligations and duties
-5-
<PAGE> 6
under this Agreement or tho violation, or any applicable law.
6. Unless sooner terminated as provided in Section
7, this Agreement shall continue in effect from the date here-
of until June 15, 1978, and from year to year thereafter if
such continuance is specifically, approved at least annually by
the Board of Directors of the Fund or by vote of a majority of
the outstanding voting securities of the Fund and, provided
that in either event such continuance is also approved by the
vote, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of the directors of the
Fund who are not parties to this Agreement or "interested per-
sons" (a) defined in the Investment Company Act of 1940, as
amended) of any such party.
7.(a) This Agreement may be terminated at any time
without payment of any penalty by the Fund (i) on sixty days
written notice to the Advisor, (ii) by vote of the Board of
Directors of the Fund or (iii) by vote of a majority of the
outstanding voting securities of the Fund, or by the Advisor
on sixty days written notice to the Fund.
(b) This Agreement will automatically terminate in
the event of its assignment (as defined in the Investment
Company Act of 1940, as amended).
8. This Agreement may be amended at any time by
mutual consent of the parties, provided that such consent on
the part of the Fund shall have been approved by vote of a
-6-
<PAGE> 7
majority of the outstanding Voting securities of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement on the day and year first above written.
MERRILL LYNCH CAPITAL FUND, INC.
By: /S/
President
(Corporate Seal]
ATTEST:
Secretary : /S/
MERRILL LYNCH ASSET MANAGEMENT INC.
By /s/
Vice President
[Corporate Seal]
ATTEST:
Secretary: /s/
<PAGE> 1
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
WITH
MERRILL LYNCH ASSET MANAGEMENT
As of January 1, 1994 Merrill Lynch Investment Management, Inc. d/b/a
Merrill Lynch Asset Management was reorganized as a limited partnership,
formally known as Merrill Lynch Asset Management, L.P. and continuing to do
business under the name Merrill Lynch Asset Management("MLAM"), The general
partner of MLAM is Princeton Services, Inc. and the limited partners are
Merrill Lynch Investment Management, Inc. and Merrill Lynch & Co., Inc.
Pursuant to Rule 202(a)(1)-l under the Investment Adviser, Act of 1940 and Rule
2a-6 under the Investment Company Act of 1940 such reorganization did not
constitute an assignment of this investment advisory agreement since it did not
involve a change of control or management of the investment adviser. Pursuant
to the requirements of Section 205 of the Investment Advisers Act of 1940,
however, Merrill Lynch Asset Management hereby supplements this investment
advisory agreement by undertaking to advise you of any change in the membership
of the partnership within a reasonable time after any such changae cours.
By /s/ ARTHUR ZEIKEL
Dated: January 3, 1994
<PAGE> 1
Ex-99. 6 (b)
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 3rd day of October, 1988, between
MERRILL LYNCH CAPITAL FUND, INC., a Maryland corporation (the
"Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware
corporation (the "Distributor").
W I T N E S S E T H:
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended to date (the "Investment Company Act"),
as an open-end investment company and it is affirmatively in the
interest of the Fund to offer its shares for sale continuously;
and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either direct-
ly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
of the Class B shares of common stock of the Fund (the "Class B
Shares") in order to promote the growth of the Fund and
facilitate the distribution of its Class B shares.
NOW, THEREFORE, the parties agree as follows:
<PAGE> 2
Section 1. Appointment of the Distributor. The Fund
hereby appoints the Distributor as the principal underwriter and
distributor of the Fund to sell Class B shares to the public and
hereby agrees during the term of this Agreement to sell Class B
shares of the Fund to the Distributor upon the terms and condi-
tions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as
principal underwriter and distributor, except that:
(a) The Fund may, upon written notice to the Distributor,
from time to time designate other principal underwriters and
distributors of its Class B shares with respect to areas other
than the United States as to which the Distributor may have
expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor
under this Agreement to sell Class B shares in the areas so
designated shall terminate, but this Agreement shall remain
otherwise in full effect until terminated in accordance with the
other provisions hereof.
(b) The exclusive rights granted to the Distributor to
purchase Class B shares from the Fund shall not apply to shares
of the Fund issued in connection with the merger or consolidation
of any other investment company or personal holding company with
2.
<PAGE> 3
the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any
such company by the Fund.
(c) such exclusive rights also shall not apply to Class B
shares issued by the Fund pursuant to reinvestment of dividends
or capital gains distributions.
(d) Such exclusive rights also shall not apply to Class B
shares issued by the Fund pursuant to any reinstatement privilege
afforded redeeming shareholders.
Section 3. Purchase of Shares from the Fund.
(a) The Fund will commence an offering of its Class B
shares and thereafter the Distributor shall have the right to buy
from the Fund the Class B shares needed, but not more than the
Class B shares needed (except for clerical errors in
transmission) to fill unconditional orders for Class B shares of
the Fund placed with the Distributor by investors or securities
dealers. The price which the Distributor shall pay for the Class
B shares so purchased from the Fund shall be the net asset value,
determined as set forth in Section 3(c) hereof.
(b) The Class B shares are to be resold by the Distributor
to investors at net asset value, as set forth in Section 3(c)
hereof, or to securities dealers having agreements with the
Distributor upon the terms and conditions set forth in Section 7
hereof.
3.
<PAGE> 4
(c) The net asset value of Class B shares of the Fund
shall be determined by the Fund or any agent of the Fund in
accordance with the method set forth in the prospectus and
statement of additional information of the Fund and guidelines
established by the Board of Directors.
(d) The Fund shall have the right to suspend the sale of
its Class B shares at times when redemption is suspended pursuant
to the conditions set forth in Section 4(b) hereof. The Fund
shall also have the right to suspend the sale of its Class B
shares if trading on the New York Stock Exchange shall have been
suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some
other event, which, in the judgment of the Fund, makes it
impracticable or inadvisable to sell the Class B shares.
(e) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class B shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund
will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class B shares. The Fund
(or its agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts or
certificates for such Class B shares pursuant to the instructions
of the Distributor. Payment shall be made to the Fund in New
4.
<PAGE> 5
York Clearing House funds. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the
Fund (or its agent).
Section 4. Repurchase or Redemption of Shares by the Fund.
(a) Any of the outstanding Class B shares may be tendered
for redemption at any time, and the Fund agrees to repurchase or
redeem the Class B shares so tendered in accordance with its
obligations as set forth in Article VII of its Articles of
Incorporation, as amended from time to time, and in accordance
with the applicable provisions set forth in the prospectus and
statement of additional information of the Fund. The price to be
paid to redeem or repurchase the Class B shares shall be equal to
the net asset value calculated in accordance with the provisions
of Section 3(c) hereof, less the redemption fee or other charge,
if any, set forth in the prospectus and statement of additional
information of the Fund. All payments by the Fund hereunder
shall be made in the manner set forth below.
The Fund shall pay the total amount of the redemption price
as defined in the above paragraph pursuant to the instructions of
the Distributor on or before the seventh business day subsequent
to its having received the notice of redemption in proper form.
The proceeds of any redemption of Class B shares shall be paid by
the Fund as follows: (i) any applicable contingent deferred
sales charge shall be paid to the Distributor and (ii) the
5.
<PAGE> 6
balance shall be paid to or for the account of the shareholder,
in each case in accordance with the applicable provisions of the
prospectus and statement of additional information.
(b) Redemption of Class B shares or payment may be
suspended at times when the New York Stock Exchange is closed,
when trading on said Exchange is closed, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange
Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of
all information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class B shares of the Fund, and this shall
include, upon request by the Distributor, one certified copy of
all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the
Distributor such number of copies of its prospectus and statement
of additional information as the Distributor shall reasonably
request.
6.
<PAGE> 7
(b) The Fund shall take, from time to time, but subject to
the necessary approval of the shareholders, all necessary action
to fix the number of authorized Class B shares and such steps as
may be necessary to register the same under the Securities Act of
1933, as amended (the "Securities Act"), to the end that there
will be available for sale such number of Class B shares as the
Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its Class
B shares for sale under the securities laws of such states as the
Distributor and the Fund may approve. Any such qualification may
be withheld, terminated or withdrawn by the Fund at any time in
its discretion. As provided in Section 8(c) hereof, the expense
of qualification and maintenance of qualification shall be borne
by the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports
of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and
effort to effect sales of Class B shares of the Fund, but shall
not be obligated to sell any specific number of Class B shares.
The services of the Distributor to the Fund hereunder are not to
7.
<PAGE> 8
be deemed exclusive and nothing herein contained shall prevent
the Distributor from entering into like arrangements with other
investment companies so long as the performance of its
obligations hereunder is not impaired thereby.
(b) In selling the Class B shares of the Fund, the
Distributor shall use its best efforts in all respects duly to
conform with the requirements of all Federal and state laws
relating to the sale of such securities. Neither the Distributor
nor any selected dealer nor any other person is authorized by the
Fund to give any information or to make any representations,
other than those contained in the registration statement or
related prospectus and statement of additional information and
any sales literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of
sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales,
and the cancellation of unsettled transactions, as may be neces-
sary to comply with the requirements of the National Association
of Securities Dealers, Inc. (the "NASD"), as such requirements
may from time to time exist.
8.
<PAGE> 9
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice
("selected dealers") for the sale of Class B shares; provided,
that the Fund shall approve the forms of agreements with dealers.
Shares sold to selected dealers shall be for resale by such
dealers only at net asset value determined as set forth in
Section 3(c) hereof. The initial form of agreement with selected
dealers to be used in the offering of the Class B shares is
attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer
and sell Class B shares only to such selected dealers as are
members in good standing of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the
Fund, including fees and disbursements of its counsel and audi-
tors, in connection with the preparation and filing of any re-
quired registration statements and/or prospectuses and statements
of additional information under the Investment Company Act, the
Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy mate-
rials to shareholders (including but not limited to the expense
of setting in type any such registration statements, prospec-
tuses, statements of additional information, annual or interim
reports or proxy materials).
9.
<PAGE> 10
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses
associated with payments of sales commissions to financial con-
sultants. In addition, after the prospectuses, statements of
additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs
and expenses of printing and distributing any copies thereof
which are to be used in connection with the offering of Class B
shares to selected dealers or investors pursuant to this
Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by
the Distributor or furnished by it for use by selected dealers in
connection with the offering of the Class B shares for sale to
the public and any expenses of advertising incurred by the
Distributor in connection with such offering. It is understood
and agreed that, so long as the Fund's Distribution Plan pursuant
to Rule 12b-1 under the Investment Company Act remains in effect,
any expenses incurred by the Distributor hereunder may be paid
from amounts recovered by it from the Fund under such Plan.
(c) The Fund shall bear the cost and expenses of qualifi-
cation of the Class B shares for sale pursuant to this Agreement,
and, if necessary or advisable in connection therewith, of
qualifying the Fund as a broker or dealer, in such states of the
United States or other jurisdictions as shall be selected by the
Fund and the Distributor pursuant to Section 5(c) hereof and the
10.
<PAGE> 11
cost and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distri-
butor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith) arising by reason of any
person acquiring any Class B shares, which may be based upon the
Securities Act, or on any other statute or at common law, on the
ground that the registration statement or related prospectus and
statement of additional information, as from time to time amended
and supplemented, or an annual or interim report to shareholders
of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading,
unless such statement or omission was made in reliance upon, and
in conformity with, information furnished to the Fund in connec-
tion therewith by or on behalf of the Distributor; provided,
however, that in no case (i) is the indemnity of the Fund in
favor of the Distributor and any such controlling persons to be
deemed to protect such Distributor or any such controlling per-
sons thereof against any liability to the Fund or its security
11.
<PAGE> 12
holders to which the Distributor or any such controlling persons
would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or
by reason of the reckless disregard of their obligations and
duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with
respect to any claim made against the Distributor or any such
controlling persons, unless the Distributor or such controlling
persons, as the case may be, shall have notified the Fund in
writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall
have been served upon the Distributor or such controlling persons
(or after the Distributor or such controlling persons shall have
received notice of such service on any designated agent), but
failure to notify the Fund of any such claim shall not relieve it
from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled
to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any
such liability, but if the Fund elects to assume the defense,
such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or
persons, defendant or defendants in the suit. In the event the
Fund elects to assume the defense of any such suit and retain
12.
<PAGE> 13
such counsel, the Distributor or such controlling person or
persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them, but, in
case the Fund does not elect to assume the defense of any such
suit, it will reimburse the Distributor or such controlling
person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them.
The Fund shall promptly notify the Distributor of the commence-
ment of any litigation or proceedings against it or any of its
officers or Directors in connection with the issuance or sale of
any of the Class B shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Directors and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage or expense described in the foregoing indemnity contained
in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on
behalf of the Distributor for use in connection with the regis-
tration statement or related prospectus and statement of addi-
tional information, as from time to time amended, or the annual
or interim reports to shareholders. In case any action shall be
brought against the Fund or any person so indemnified, in respect
of which indemnity may be sought against the Distributor, the
Distributor shall have the rights and duties given to the Fund,
13.
<PAGE> 14
and the Fund and each person so indemnified shall have the rights
and duties given to the Distributor by the provisions of sub-
section (a) of this Section 9.
Section 10. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above
written and shall remain in force until September 30, 1990 and
thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Directors, or by the vote
of a majority of the outstanding Class B voting securities of the
Fund, and (ii) by the vote of a majority of those Directors who
are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of
voting on such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Directors or by vote of a majority
of the outstanding Class B voting securities of the Fund, or by
the Distributor, on sixty days' written notice to the other
party. This Agreement shall automatically terminate in the event
of its assignment.
The terms "vote of a majority of the outstanding voting
securities", "assignment", "affiliated person" and "interested
person", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
14.
<PAGE> 15
Section 11. Amendments of this Agreement. This Agreement
may be amended by the parties only if such amendment is specifi-
cally approved by (i) the Directors, or by the vote of a majority
of outstanding Class B voting securities of the Fund, and (ii) by
the vote of a majority of those Directors of the Fund who are not
parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on
such approval.
Section 12. Governing Law. The provisions of this Agree-
ment shall be construed and interpreted in accordance with the
laws of the State of New York as at the time in effect and the
applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any
of the provisions herein, conflict with the applicable provisions
of the Investment Company Act, the latter shall control.
15.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MERRILL LYNCH CAPITAL FUND, INC.
By /S/ Norman R. Harvey
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ Terry K. Glenn
16.
<PAGE> 17
EXHIBIT A
MERRILL LYNCH CAPITAL FUND, INC.
CLASS B SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Merrill Lynch Capital Fund, Inc., a
Maryland corporation (the "Fund"), pursuant to which it acts as
the distributor for the sale of Class B shares of common stock,
par value $0.10 per share, of the Fund (the "Class B Shares"),
and as such has the right to distribute Class B shares of the
Fund for resale. The Fund is an open-end investment company
registered under the Investment Company Act of 1940, as amended,
and its Class B shares being offered to the public are registered
under the Securities Act of 1933, as amended. You have received
a copy of the Distribution Agreement between ourself and the Fund
and reference is made herein to certain provisions of such
Distribution Agreement. The terms "Prospectus" and "Statement of
Additional Information" as used herein refer to the prospectus
and statement of additional information, respectively, on file
with the Securities and Exchange Commission which is part of the
most recent effective registration statement pursuant to the
Securities Act of 1933, as amended. As principal, we offer to
sell to you, as a member of the Selected Dealers Group, Class B
shares of the Fund upon the following terms and conditions:
1. In all sales of these Class B shares to the public you
shall act as dealer for your own account, and in no transaction
shall you have any authority to act as agent for the Fund, for us
or for any other member of the Selected Dealers Group.
2. Orders received from you will be accepted through us
only at the public offering price applicable to each order, as
set forth in the current Prospectus and Statement of Additional
Information of the Fund. The procedure relating to the handling
of orders shall be subject to Section 4 hereof and instructions
which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor
or the Fund in the sole discretion of either. The minimum ini-
tial and subsequent purchase requirements are as set forth in the
current Prospectus and Statement of Additional Information of the
Fund.
<PAGE> 18
3. You shall not place orders for any of the Class B
shares unless you have already received purchase orders for such
Class B shares at the applicable public offering prices and
subject to the terms hereof and of the Distribution Agreement.
You agree that you will not offer or sell any of the Class B
shares except under circumstances that will result in compliance
with the applicable Federal and state securities laws and that in
connection with sales and offers to sell Class B shares you will
furnish to each person to whom any such sale or offer is made a
copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will
not furnish to any person any information relating to the Class B
shares of the Fund, which is inconsistent in any respect with the
information contained in the Prospectus and Statement of
Additional Information (as then amended or supplemented) or cause
any advertisement to be published in any newspaper or posted in
any public place without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to
place orders directly with the Fund for Class B shares of the
Fund to be resold by us to you subject to the applicable terms
and conditions governing the placement of orders by us set forth
in Section 3 of the Distribution Agreement, and (ii) to tender
Class B shares directly to the Fund or its agent for redemption
subject to the applicable terms and conditions set forth in
Section 4 of the Distribution Agreement.
5. You shall not withhold placing orders received from
your customers so as to profit yourself as a result of such
withholding: e.g., by a change in the "net asset value" from
that used in determining the offering price to your customers.
6. No person is authorized to make any representations
concerning Class B shares of the Fund except those contained in
the current Prospectus and Statement of Additional Information of
the Fund and in such printed information subsequently issued by
us or the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing Class B
shares through us you shall rely solely on the representations
contained in the Prospectus and Statement of Additional
Information and supplemental information above mentioned. Any
printed information which we furnish you other than the Fund's
Prospectus, Statement of Additional Information, periodic reports
and proxy solicitation material are our sole responsibility and
not the responsibility of the Fund, and you agree that the Fund
shall have no liability or responsibility to you in these
respects unless expressly assumed in connection therewith.
2.
<PAGE> 19
7. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if
requested, the Statement of Additional Information at or prior to
the time of offering or sale and you agree thereafter to deliver
to such purchasers copies of the annual and interim reports and
proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional
copies of the Prospectus and Statement of Additional Information,
annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon re-
quest.
8. We reserve the right in our discretion, without notice,
to suspend sales or withdraw the offering of Class B shares
entirely. Each party hereto has the right to cancel this
Agreement upon notice to the other party.
9. We shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the
continuous offering. We shall be under no liability to you
except for lack of good faith and for obligations expressly
assumed by us herein. Nothing contained in this paragraph is
intended to operate as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of
compliance with any provision of the Securities Act of 1933, as
amended, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
10. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any
sales in the United States, we both hereby agree to abide by the
Rules of Fair Practice of such Association.
11. Upon application to us, we will inform you as to the
states in which we believe the Class B shares have been qualified
for sale under, or are exempt from the requirements of, the
respective securities laws of such states, but we assume no
responsibility or obligation as to your right to sell Class B
shares in any jurisdiction. We will file with the Department of
State in New York a Further State Notice with respect to the
Class B shares, if necessary.
12. All communications to us should be sent to the address
below. Any notice to you shall be duly given if mailed or tele-
graphed to you at the address specified by you below.
3.
<PAGE> 20
13. Your first order placed pursuant to this Agreement for
the purchase of Class B shares of the Fund will represent your
acceptance of this Agreement.
MERRILL LYNCH DISTRIBUTOR, INC.
By /S/ TERRY K. GLENN
Please return one signed co
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: __________________________________
By: _________________________________________
Address: ____________________________________
_____________________________________________
Date: _______________________________________
4.
<PAGE> 1
EX-99.8
AMENDMENT dated Dec 23, 1975 to CUSTODY
AGREEMENT, between LIONEL D. EDIE CAPITAL FUND INC. a
corporation organized and existing under the laws of the
State of Delaware, having its principal office and place
of business at 530 Fifth Avenue, New York, (hereinafter
called the "Fund"), and THE BANK OF NEW YORK, a corporation
organized and existing under the laws of the State of New
York, having its principal office and place of business at
48 Wall Street, Now York, New York 10015 (hereinafter called
the "Custodian"
WHEREAS the Fund an the Custodian entered into a
Custody Agreement (the "Agreement") dated as of October 15,
1973 to provide for the safekeeping and custody of the assets
Of the Fund;
WHEREAS the Fund and the Custodian desire to amend;
the Agreement to permit the Fund to use indirectly through the
Custodian the services of The Depository Trust Company, a
central depository created for the settlement of security
transactions;
WHEREAS Paragraph 8 of Article IX of the Agreement
permits the Agreement to be amended,
NOW, THEREFORE, for and in consideration of the
mutual promises hereinafter set forth the Fund and the
Custodian hereby amend the Agreement in part as follows:
1. Paragraph 4, 5 and 6 of Article II of the Agree-
ment are amended to read as follows:
4. All securities held for the Fund, which are issued
or issuable only in bearer form, shall be held by the Custodian
in that form, all other securities held for the Fund may be regis-
tered in the name of the Fund, in the name of any duly appoin-
ted and registered nominee of the Custodian, as the Custodian
may from time to determine, or in the name of The Depository
Trust Company, or its successor or successors, or its nominee
or nominee ("DTC") as the Fund may authorize the Custodian pro-
vided that the deposit and registration of such securities with DTC
<PAGE> 2
will be reflected in the statements received by the Pond
from the Custodian. The Fund reserves the right to instruct
the Custodian as to the method of registration and safekeeping
of the securities of the Fund. The Fund agrees to furnish
to the Custodian appropriate instruments to enable the Custo-
dian to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee or in the name
of DFC any securities which it may hold for the account of the
Fund and which may from time to time be registered in the name
of the Fund. The Custodian shall hold all such securities which
are not held by DTC in a separate account, in the name of the
Fund physically segregated at all times, from those of any
other person or persons.
5. Unless otherwise instructed to the contrary by
a certificate signed in the name of the Fund by any two officers,
the Custodian by itself or through the use of DTC shall, with
respect to all securities held for the Fund directly or through
the use of DTC:
(a) Collect all income due or payable.
(b) Present for payment and Collect the
amount payable upon all securities which say mature or be
called, redeemed, or retired, or otherwise become payable
(c) Surrender securities in temporary form
for definitive securities;
(d) Execute, as custodian any necessary
declarations or certificates of ownership under the Federal
Income tax laws or the laws or regulations of any other tax-
ing authority now or hereafter in effect.
(e) Hold directly or through DTC for the
account of the Fund all stock dividends, rights and similar
securities issued with respect to any securities held by it
hereunder.
6. Upon receipt of a certificate signed in
the name of the Fund by any two officers, and not otherwise,
the Custodian shall:
(a) Execute and deliver or cause to be
<PAGE> 3
executed and delivered to such persons as may be designated in
such certificate, proxies, consent, authorizations, and any
other instruments whereby the authority of the Fund as owner of
any securities may be exercised;
(b) Deliver or cause to be delivered any securi-
ties held for the Fund in exchange for other securities or cash
issued or Paid in connection with the liquidation, reorganiza-
tion, refinancing, merger, consolidation or recapitalization of
any corporation, or the exercise of any conversion privilege;
(c) Deliver or cause to be delivered any securi-
ties held for the Fund to any protective committee, reorganiza-
tion committee or other person in connection with the reorganiza-
tion, refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, and receive and hold under the
terms of this Agreement, such certificates of deposit, interim
receipts or other instruments or documents as may be issued to it
to evidence such delivery;
(d) Make or cause to be made such transfers or
exchanges of the assets of the Fund, and take such other steps,
as shall be stated in said certificate to be for the purpose of
effectuating any duly authorized plan of liquidation, reorganiza-
tion, merger, consolidation or recapitalization of the Fund.
2. Paragraphs 1 and 2 of Article III of the Agreement
are amended to read as follows:
1. Promptly after each purchase of securities by
the Fund, the Fund shall deliver to the Custodian a certificate
signed in the name of the Fund by any two officers specifying
with respect to each such purchase: (a) the name of the issuer
and the title of the securities, (b) the number of shares or the
principal amount purchased, and accrued interest, if any;(c)
the date or purchase and settlement, (d) the purchase price per
unit, (e) the total amount payable upon such purchase, and (f) the
name of the person from whom or the broker through whom the pur-
chase was made. The Custodian shall receive or cause to be re-
ceived all securities purchased by or for the Fund from the persons
through or from. whom the same were purchased, and upon receipt there-
of shall pay directly or through DTC, as the case may be, out of the
moneys held for the account of the Fund, the total amount payable
upon such purchase as set forth in such certificate provided that
the same conform to the total amount Payable shown on such certi-
ficate. The Fund reserves the right to direct the Custodian in
writing to accept delivery of all or any part of securities pur-
chased, exclusively from the persons through or from whom the same
<PAGE> 4
were purchased and not through the use of any central clearing
agency for the settlement of securities transactions such as
agency
DTC.
2. Promptly after each sale of securities by
the Fund, the Fund shall deliver to the Custodian a certifi-
cate signed in name of the Fund by any two officers specify-
ing with respect to each such sale (a) the name of the issuer
and the title of the security, (b) the number of shares or prin-
cipal amount sold, and accrued interest, if any (c) the date of
sale, (d) the sale price per unit, (e) the total amount payable
to the Fund upon such sale and (f) the name of the broker through
whom or the person to whom the sale was made. The Custodian shall
deliver or cause to be delivered by or through DTC, as the case
may be, the securities thus designated to the broker or other
person named in such certificate upon receipt of the total amount
payable to the Fund upon such sale provided that the same conforms
to the total amount payable to the Fund shown in such certificate
with respect to such sale. The Custodian may accept payment
in such form as small be satisfactory to it, and may deliver securities
and arrange for payment, in accordance with the customs prevailing
among dealers in securities, including but not limited to, settle-
ments in accordance with the DTC system. The Fund reserves the
right to direct the Custodian to accept Payment for all
or any part of time securities sold exclusively from the person to
whom or through whom the securities were sold, and not through the
use of any central clearing agency for the settlement of securities
transactions, such as DTC.
3. Paragraph 1 of Article VII of the Agreement
is amended to read as follows:
"1. Neither the Custodian nor its nominee
shall be liable for any loss or damage including counsel fees, re-
sulting from its or DTC's action or omission to act or otherwise,
except for any such loss or damage arising out of its or DTC's
negligence or willful misconduct. The Custodian may, with respect
to questions of law, apply for and obtain the advice and opinion
of counsel to the Fund or of its own counsel, at the expense of
the Fund, and shall be fully protected with respect to anything
done or omitted by it in good faith in conformity with such advice
or opinion."
4. Paragraph 6 of Article VII is amended to
read as follows:
"6. The Custodian may appoint one or
more banking institutions as Depositary or Depositaries or as
Sub-Custodian or Sub-Custodians of securities and moneys at any
time owned by the Fund, upon terms and conditions approved in
<PAGE> 5
writing on behalf of the Fund by any two officers thereof. Such
appointment may include, but is not limited to, the deposit of
all or any portion of the securities of the Fund with DTC."
5. Paragraph 2 of Article VIII of the Agree-
ment is amended to read as follows:
"2. Upon the date set forth in such
notice this Agreement shall terminate, and the Custodian shall
upon receipt of a notice of acceptance by the successor custodian
on that date deliver or cause to be delivered directly or through
DTC to the successor custodian all securities and moneys then own-
ed by the Fund and held by it as custodian, after deducting all
fees, expenses and other amounts for the payment or reimbursement
of which it shall then be entitled."
IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be executed by their respective coroor-
ate officers, thereunto duly authorized and their respective cor-
porate seals to be hereunto affixed, as of the day and year first
above written.
LIONEL D. EDIE CAPITAL FUND, INC.
ATTEST /S/
BY /s/
THE BANK OF NEW YORK
ATTEST:/s/
BY /s/
Assistant Secretary Senior Vice President
<PAGE> 1
Ex-99 .9 (a)
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the 5th day of October, 1987
by and between Merrill Lynch Capital Fund, Inc. (the "Fund") and
Merrill Lynch Financial Data Service, Inc. ("MLFDS"), a New
Jersey corporation.
WITNESSETH:
WHEREAS, the Fund wishes to appoint MLFDS to be the
Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent upon, and subject to, the terms and provisions
of this Agreement, and MLFDS is desirous of accepting such
appointment upon, and subject to, such terms and provisions:
NOW THEREFORE, in consideration of mutual covenants
contained in this Agreement, the Fund and MLFDS agree as
follows:
1. Appointment of MLFDS as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent.
(a) The Fund hereby appoints MLFDS to act as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent
for the Fund upon, and subject to, the terms and provisions of
this Agreement.
(b) MLFDS hereby accepts the appointment as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for
the Fund, and agrees to act as such upon, and subject to, the
terms and provisions of this Agreement.
2. Definitions.
(a) In this Agreement:
(I) The term "Act" means the Investment Company Act of
1940 as amended from time to time and any rule or regulation
thereunder;
(II) The term "Account" means any account of a
Shareholder, or, if the shares are held in an account in the
name of MLPF&S for benefit of an identified customer, such
account, including a Plan Account, any account under a plan (by
whatever name referred to in the Prospectus) pursuant to the
Self-Employed Individuals Retirement Act of 1962 ("Keogh Act
Plan") and any plan (by whatever name referred to in the
Prospectus) in conjunction with section 401 of the Internal
Revenue Code ("Corporation Master Plan");
<PAGE> 2
The term "application" means an application made
by a Shareholder or prospective Shareholder respecting the
opening of the Account;
(IV) The term "MLFD" means Merrill Lynch Funds
Distributor, Inc., a Delaware corporation;
(V) The term "MLPF&S" means Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a Delaware corporation;
(VI) The term "Officer's Instruction" means an
instruction in writing given on behalf of the Fund to MLFDS, and
signed on behalf of the Fund by the President, and Vice
President, the Secretary or the Treasurer of the Fund;
(VII) The term "Prospectus" means the Prospectus and the
Statement of Additional Information of the Fund as from time to
time in effect;
(VIII) The term "Shares" means shares of stock or
beneficial interest, as the case may be, of the Fund,
irrespective of class or series;
(IX) The term "Shareholder" means the holder of record
of Shares:
(X) The term "Plan Account" means an account opened by
a Shareholder or prospective Shareholder in respect to an open
account, monthly payment or withdrawal plan (in each case by
whatever name referred to in the Prospectus), and may also
include an account relating to any other Plan if and when
provision is made for such plan in the Prospectus.
3. Duties of MLFDS as Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent.
(a) Subject to the succeeding provisions of the
Agreement, MLFDS hereby agrees to perform the following
functions as Transfer Agent, Dividend Disbursing Agent, and
Shareholder Servicing Agent for the Fund;
(I) Issuing, transferring and redeeming Shares;
(II) opening, maintaining, servicing and closing
Accounts;
-2-
<PAGE> 3
(III) Acting as agent for the Fund Shareholders and/or
customers of MLPF&S in connection with Plan Accounts, upon the
terms and subject to the conditions contained in the Prospectus
and application relating to the specific Plan Account;
(IV) Acting as agent of the Fund an/or MLPF&S,
maintaining such records as may permit the imposition of such
contingent deferred sales charges as may be described in the
Prospectus, including such reports as may be reasonably
requested by the Fund with respect to such Shares as may be
subject to a contingent deferred sales charge;
(V) Upon the redemption of Shares subject to such a
contingent deferred sales charge, calculating and deducting from
the redemption proceeds thereof the amount of such charge in the
manner set forth in the Prospectus. MLFDS shall pay, on behalf
of MLFD, to MLPF&S such deducted contingent deferred sales
charges imposed upon all Shares maintained in the name of
MLPF&S, or maintained in the name of an account identified as a
customer account of MLPF&S. Sales charges imposed upon any
other Shares shall be paid by MLFDS to MLFD.
(VI) Exchanging the investment of an investor into, or
from the shares of other open-end investment companies or other
series portfolios of the Fund, if any, if and to the extent
permitted by the Prospectus at the direction of such investor.
(VII) Processing redemptions;
(VIII) Examining and approving legal transfers;
(IX) Replacing lost, stolen or destroyed certificates
representing Shares, in accordance with, and subject to,
procedures and conditions adopted by the Fund;
(X) Furnishing such confirmations of transactions
relating to their Shares as required by applicable law;
(Xi) Acting as agent for the Fund and/or MLPF&S,
furnishing such appropriate periodic statements relating to
Accounts, together with additional enclosures, including
appropriate income tax information and income tax forms duly
completed, as required by applicable law.
(XII) Acting as agent for the Fund and/or MLPF&S,
mailing annual, semi-annual and quarterly reports prepared by or
on behalf of the Fund, and mailing new Prospectuses upon their
issue to Shareholders as required by applicable law;
(XIII) Furnishing such periodic statements of
transactions effected by MLFDS, reconciliations, balances and
summaries as the Fund may reasonably request;
-3-
<PAGE> 4
(XIV) Maintaining such books and records relating to
transactions effected by MLFDS as are required by the Act, or by
any other applicable provision of law, rule or regulation, to be
maintained by the Fund or its transfer agent with respect to
such transactions, and preserving, or causing to be preserved
any such books and records for such periods as may be required
by any such law, rule or regulation and as may be agreed upon
from time to time between MLFDS and the Fund. In addition,
MLFDS agrees to maintain and preserve master files and
historical computer tapes on a daily basis in multiple separate
locations a sufficient distance apart to insure preservation of
at least one copy of such information;
(XV) Withholding taxes on non-resident alien Accounts,
preparing and filing U.S. Treasury Department Form 1099 and
other appropriate forms as required by applicable law with
respect to dividends and distributions; and
(XVI) Reinvesting dividends for full and fractional
shares and disbursing cash dividends, as applicable.
(b) MLFDS agrees to act as proxy agent in connection
with the holding of annual, if any, and special meeting of
Shareholders, mailing such notices, proxies and proxy statements
in connection with the holding of such meetings as may be
required by applicable law, receiving and tabulating votes cast
by proxy communicating to the Fund the results of such
tabulation accompanied by appropriate certifications, and
preparing and furnishing to the Fund certified lists of
Shareholders as of such date, in such form and containing such
information as may be required by the Fund.
(c) MLFDS agrees to deal with, and answer in a timely
manner, all correspondence and inquires relating to the
functions of MLFDS under this Agreement with respect to
Accounts.
(d) MLFDS agrees to furnish to the Fund such
information and at such intervals as is necessary for the Fund
to comply with the registration and/or the reporting
requirements (including applicable escheat laws) of the
Securities and Exchange Commission, Blue Sky authorities or
other governmental authorities.
-4-
<PAGE> 5
(e) MLFDS agrees to provide to the Fund such
information as may reasonably be required to enable the Fund to
reconcile the number of outstanding Shares between MLFDS's
records and the account books of the Fund.
(f) Notwithstanding anything in the foregoing
provisions of this paragraph, MLFDS agrees to perform its
functions thereunder subject to such 'modification (whether in
respect of particular cases or in any particular class of cases)
as may from time to time be contained in an officer's
Instruction.
4. Compensation.
The charges for services described in this Agreement,
including "out-of-pocket" expenses, will be set forth in the
Schedule of Fees attached hereto.
5. Right of Inspection.
MLFDS agrees that it will in a timely manner make
available to, and permit, any officer, accountant, attorney or
authorized agent of the Fund to examine and make transcripts and
copies (including photocopies and computer or other electronical
information storage media and print-outs) of any and all of its
books and records which relate to any transaction or function
performed by MLFDS or pursuant to this Agreement.
6. Confidential Relationship.
MLFDS agrees that it will, on behalf of itself and its
officers and employees, treat all transactions contemplated by
this Agreement, and all information germane thereto, as
confidential and not to be disclosed to any person (other than
the Shareholder concerned, or the Fund, or as may be disclosed
in the examination of any books or records by any person
lawfully entitled to examine the same) except as may be
authorized by the Fund by way of an Officer's Instruction.
7. Indemnification.
The Fund shall indemnify and hold MLFDS harmless from
any loss, costs, damage and reasonable expenses, including
reasonable attorney's fees (provided that such attorney is
appointed with the Fund's consent, which consent shall not be
unreasonably withheld), incurred by it resulting from any claim,
demand, action, or suit in connection with the performance of
its duties hereunder,
-5-
<PAGE> 6
provided that this indemnification shall not apply to actions or
omissions of MLFDS in cases of willful misconduct, failure to
act in good faith or negligence by MLFDS, it's officers,
employees or agents, and further provided, that prior to
confessing any claim against it which may be subject to this
indemnification, MLFDS shall give the Fund reasonable
opportunity to defend against said claim in its own name or in
the name of MLFDS. An action taken by MLFDS upon any Officer's
Instruction reasonably believed by it to have been properly
executed shall not constitute willful misconduct, failure to act
in good faith or negligence under this Agreement.
8. Regarding MLFDS.
(a) MLFDS hereby agrees to hire, purchase, develop and
maintain such dedicated personnel, facilities, equipment,
software, resources and capabilities as may be reasonably
determined by the Fund to be necessary for the satisfactory
performance of the duties and responsibilities of MLFDS. MLFDS
warrants and represents that its officers and supervisory
personnel charged with carrying out its functions as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent
for the Fund possess the special skill and technical knowledge
appropriate for that purpose. MLFDS shall at all time exercise
due care and diligence in the performance of its functions as
Transfer Agent, Dividend Disbursing Agent, and Shareholder
Servicing Agent for the Fund. MLFDS agrees that, in determining
whether it has exercised due care and diligence, its conduct
shall be measured by the standard applicable to persons
possessing such special skill and technical knowledge.
(b) MLFDS warrants and represents that is duly authorized
and permitted to act as Transfer Agent, Dividend Disbursing
Agent, and Shareholder Servicing Agent under all applicable laws
and that it will immediately notify the Fund of any revocation
of such authority or permission or of the commencement of any
proceeding or other action which may lead to such revocation.
9. Termination.
(a) This Agreement shall become effective as of the date
first above written and shall thereafter continue from year to
year. This Agreement may be terminated by the Fund or MLFDS
(without penalty to the Fund or MLFDS) provided that the
terminating party gives the other party written notice of such
termination at least sixty (60) days in advance, except that the
Fund may terminate this Agreement immediately upon written
notice to MLFDS if the authority or permission of MLFDS to act
as Transfer Agent, Dividend Disbursing Agent, and Shareholder
Servicing Agent has been revoked or if any proceeding or other
action which the Fund reasonably believes will lead to such
revocation has been commenced.
-6-
<PAGE> 7
(b) Upon termination of this Agreement, MLFDS shall deliver
all unissued and cancelled stock certificates representing
Shares remaining in its possession, and all Shareholder records,
books, stock ledgers, instruments and other documents (including
computerized or other electronically stored information) made or
accumulated in the performance of its duties as Transfer Agent,
Disbursing Agent, and Shareholder Servicing Agent for the Fund
along with a certified locator document clearly indicating the
complete contents therein, to such successor as may be specified
in a notice of termination or Officer's Instruction; and the
Fund assumes all responsibility for failure thereafter to
produce any paper, record or documents so delivered and
identified in the locator document, if and when required to be
produced.
10. Amendment.
Except to the extent that the performance by MLFDS or
its functions under this Agreement may from time to time be
modified by an Officer's Instruction, this Agreement may be
amended or modified only by further written Agreement between
the parties.
11. Governing Law.
This agreement shall be governed by the laws of the
State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective duly authorized
officers and their respective corporate seals hereunto duly
affixed and attested, as of the day and year and above written.
MERRILL LYNCH CAPITAL FUND, INC.
BY: /S/ GERALD M. RICHARD (Attest)
Title:tresurer Title:secretary /s/ Mark B. Goldfus
MERRILL LYNCH FINANCIAL DATA SERVICE, INC.
By:
Title:president /s/ ROBERT C. DOAN
(Attest)
Title: manager /s/ Patrick M. Cassidy
-7-
<PAGE> 8
Schedule of Fees
The Fund will pay to FDS an annual fee of $11.00 per Class A
and Class D Shareholder Account and $14.00 per Class B and Class
C Shareholder Account in addition to reimbursement for the out-
of-pocket expenses incurred by FDS pursuant to this Agreement.
BWNY/55740.1/40500/05353/1937May 10, 1995 9
<PAGE> 1
Ex-99.9(b)
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZAION made this 29th day of July 1988
by and between MERRILL LYNCH CAPITAL FUND, INC., a Delaware corporation (the
"Fund"), and MERRILL LYNCH NEW CAPITAL FUND, INC., a Maryland corporation (the
"New Fund").
SECTION 1. Plan of Reorganization.
(a) At the closing provided for in Section 2 hereof (the "Closing"), the
Fund will be merged into the New Fund and an open account on the share records
of the New Fund shall be established in the name of each stockholder of the
Fund representing a number of full and fractional shares of common stock of the
New Fund, par value $0.10 per share (the "New Fund Shares"), equal to the
number of shares of the Fund owned of record by the stockholder at the Closing
Date. Certificates representing New Fund Shares will be issued by the New
Fund's transfer agent (the "Transfer Agent") upon surrender of Fund
certificates to the Transfer Agent.
(b) As promptly as practicable after the completion of the actions set
forth in paragraph (a) of this Section 1, the New Fund will change its name to
Merrill Lynch Capital Fund, Inc.
SECTION 2. Closing and Closing Date. The Closing shall occur at 3 P M.
on July 29,1988 or at such later time and date as the parties may mutually
agree (the "Closing Date").
SECTION 3. Conditions Precedent. The obligations of the Fund and the New
Fund to effect the transactions contemplated hereunder shall be subject to the
satisfaction of each of the following conditions:
(a) All filings shall have been made with, and all authority and orders
shall have been received from, the Securities and Exchange Commission (the
-SEC") and state securities commissions as may be necessary in the opinion
of Brown & Wood, counsel to the Fund, to permit the parties to carry out the
transactions contemplated by this Agreement.
(b) Each party shall have received an opinion of Brown & Wood to the
effect that for Federal income tax purposes: (i) no gain or loss will be
recognized by the Fund upon the merger of the Fund into the New Fund; (ii)
the tax basis of the assets of the Fund in the hands of the New Fund will be
the same as the tax basis of such assets in the hands of the Fund
immediately prior to the merger, (iii) the holding period of the assets of
the Fund in the hands of the New Fund will include the period during which
such assets were held by the Fund; (iv) no gain or loss will be recognized
by the New Fund upon the receipt of the assets of the Fund; (v) the basis of
the New Fund Shares received by Fund stockholders will be the same as the
basis of the shares of the Fund; and (vi) the holding period of New Fund
Shares received by the stockholders of the Fund will include the holding
period of the shares of the Fund, provided that the shares of the Fund were
held as capital assets; and as to such other matters as it may reasonably
request.
(c) This Agreement and the reorganization contemplated hereby shall
have been adopted and approved by the affirmative vote of the holders of at
least a majority of the outstanding shares, of common stock, par value $1.00
per share, of the Fund entitled to vote thereon.
<PAGE> 2
(d) The Directors of the Fund shall be elected as Directors of the New
Fund by the stockholders of the New Fund.
(e) The New Fund shall have entered into a Management Agreement with
Merrill Lynch Asset Management, Inc., a Distribution Agreement with Merrill
Lynch Funds Distributor, Inc., a Custody Agreement with The Bank of New York
and a Transfer Agency Agreement with First Jersey National Bank, such
contracts to be in each case substantially identical in form and substance
to those respective contracts in effect at the Closing Date between the Fund
and said other parties, and such contracts shall have been approved by the
Directors of the New Fund and, to the extent required by law, by the
Directors of the New Fund who are not "interested persons" of the New Fund
as defined in the Investment Company Act of 1940 and by the stockholders of
the New Fund.
(f) The Directors of the New Fund who are not "interested persons" of
the New Fund as defined in the Investment Company Act of 1940 shall have
selected as auditors for the New Fund such auditors as shall have been
selected and ratified for the Fund, and such selection shall have been
ratified by the stockholders of the New Fund.
At any time prior to the Closing, any of the foregoing conditions may be
waived by the Directors of the Fund and the Directors of the New Fund,
if, in their judgment, such waiver will not have a material adverse effect on
the interests of the stockholders of the Fund.
SECTION 4. Amendment. This Agreement may be amended at any time by
action of the Directors of the Fund and the Directors of the New Fund,
notwithstanding approval thereof by the stockholders of the Fund, provided that
no amendment shall have a material adverse effect on the interests of the
stockholders of the Fund.
SECTION 5. Termination. The Directors of the Fund and the Directors of
the New Fund may terminate this Agreement and abandon the
reorganization contemplated hereby, notwithstanding approval thereof by the
stockholders of the Fund at any time prior to the Closing, if circumstances
should develop that, in their judgment, make proceeding with this Agreement
inadvisable.
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to
be executed and delivered by their duly authorized officers as of the
day and year first written above.
MERRILL LYNCH CAPITAL FUND, INC.
By: /S/ ARTHUR ZEIKEL
MERRILL LYNCH CAPITAL FUND, INC.
By: /S/ ARTHUR ZEIKEL
<PAGE> 1
Ex-99.15(a)
AMENDED AND RESTATED
CLASS B DISTRIBUTION PLAN
OF
MERRILL LYNCH CAPITAL FUND, INC.
.PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the 3rd day of October, 1988
and amended and restated as of the 12th day of October, 1992, by
and between Merrill Lynch Capital Fund, Inc., a Maryland
corporation (the "Fund"), and Merrill Lynch Funds Distributor,
Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H
WHEREAS, the Fund intends to engage in business as an
open-end investment company registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act");
and
WHEREAS, MLFD is a securities firm engaged in the business
of selling shares of investment companies either directly to
purchasers or through other securities dealers; and
WHEREAS, the Fund proposes to enter into a Class B Shares
Distribution Agreement with MLFD, pursuant to which MLFD will act
as the exclusive distributor and representative of the Fund in
the offer and sale of Class B shares of common stock, par value
$0.10 per share (the "Class B shares"), of the Fund to the
public; and
WHEREAS, the Fund has entered into a Class B Distribution
Plan (the "Prior Plan") pursuant to Rule 12b-1 under the
Investment Company Act; and
WHEREAS, the Fund desires to adopt this Amended and Restated
Class B Shares Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act, pursuant to which the
Fund will pay an account maintenance fee and a distribution fee
to MLFD with respect to the Fund's Class B Shares; and
WHEREAS, the Directors of the Fund have determined that
there is a reasonable likelihood that adoption of this Class B
Shares Distribution Plan will benefit the Fund and its share-
holders.
<PAGE> 2
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby
agrees to the terms of, the Plan in accordance with Rule 12b-1
under the Investment Company Act on the following terms and
conditions:
1. The Fund shall pay MLFD an account maintenance fee under
the Plan at the end of each month at the annual rate of 0.25% of
average daily net assets of the Fund relating to Class B shares
to compensate MLFD and securities firms with which MLFD enters
into related agreements ("Sub-Agreements") pursuant to Paragraph
3 hereof for account maintenance activities with respect to Class
B shareholders of the Fund.
2. The Fund shall pay MLFD a distribution fee under the
Plan at the end of each month at the annual rate of 0.75% of
average daily net assets of the Fund relating to Class B shares
to compensate MLFD and securities firms with which MLFD enters
into related agreements ("Sub-Agreements") pursuant to Paragraph
3 hereof for providing sales and promotional activities and
services. Such activities and services will relate to the sale,
promotion and marketing of the Class B shares of the Fund. Such
expenditures may consist of sales commissions to financial
consultants for selling Class B shares of the Fund, compensation,
sales incentives and payments to sales and marketing personnel,
and the payment of expenses incurred in its sales and promotional
activities, including advertising expenditures related to the
Fund and the costs of preparing and distributing promotional
materials. The distribution fee may also be used to pay the
financing costs of carrying the unreimbursed expenditures
described in this Paragraph 2. Payment of the distribution fee
described in this Paragraph 2 shall be subject to any limitation
set forth in any applicable regulation of the National
Association of Securities Dealers, Inc.
3. The Fund hereby authorizes MLFD to enter into
Sub-Agreements with certain securities firms ("Securities
Firms"), including Merrill Lynch, Pierce, Fenner & Smith
Incorporated, to provide compensation to such Securities Firms
for activities and services of the type referred to in Paragraphs
1 and 2 hereof. MLFD may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and
services. Such Sub-Agreement shall provide that the Securities
Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting require-
ments set forth in Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of
Directors, and the Directors shall review, at least quarterly, a
written report complying with the requirements of Rule 12b-1
2
<PAGE> 3
regarding the disbursement of the account maintenance fee and the
distribution fee during such period.
5. The Prior Plan has been approved by a vote of at least a
majority, as defined in the Investment Company Act, of the
outstanding Class B voting securities of the Fund. The Plan has
not been submitted to the Class B shareholders because the
amendments do not materially increase the rate of payments by the
Fund provided for in the Prior Plan.
6. The Plan shall not take effect until it has been
approved, together with any related agreements, by votes of a
majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the
Fund, as defined in the Investment Company Act, and have no
direct or indirect financial interest in the operation of the
Plan or any agreements related to it (the "Rule 12b-1 Direc-
tors"), cast in person at a meeting or meetings called for the
purpose of voting on the Plan and such related agreements.
7. The Plan shall continue in effect for so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in Paragraph 6.
8. The Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of
the outstanding Class B voting securities of the Fund.
9. The Plan may not be amended to increase materially the
rate of payments provided for herein unless such amendment is
approved by at least a majority, as defined in the Investment
Company Act, of the outstanding Class B voting securities of the
Fund, and by the Directors of the Fund in the manner provided for
in Paragraph 6 hereof, and no material amendment to the Plan
shall be made unless approved in the manner provided for approval
and annual renewal in Paragraph 6 hereof.
10. While the Plan is in effect, the selection and nomina-
tion of Directors who are not interested persons, as defined in
the Investment Company Act, of the Fund shall be committed to the
discretion of the Directors who are not interested persons.
3
<PAGE> 4
11. The Fund shall preserve copies of the Plan and any
related agreements and all reports made pursuant to Paragraph 4
hereof, for a period of not less than six years from the date of
the Plan, or the agreements or such report, as the case may be,
the first two years in an easily accessible place.
IN WITNESS WHEREOF, the parties hereto have executed the
Plan as of the date first above written.
MERRILL LYNCH CAPITAL FUND, INC.
BY /S/ GERALD M.RICHARD
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /S/ MICHELLE LAU
4
<PAGE> 5
CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the 12th day of October, 1992 by and
between Merrill Lynch Funds Distributor, Inc. ("MLFD") , and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware
corporation (the "Securities Firm").
W I T N E S S E T H
WHEREAS, MLFD has entered into an agreement with Merrill
Lynch Capital Fund, Inc., a Maryland corporation (the "Fund"),
pursuant to which it acts as the exclusive distributor for the
sale of Class B shares of common stock, par value $0.10 per share
(the "Class B shares"), of the Fund; and
WHEREAS, MLFD and Fund have entered into an Amended and
Restated Class B Shares Distribution Plan (the "Plan") pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the
"Act") pursuant to which MLFD receives an account maintenance fee
from the Fund at the annual rate of 0.25% of average daily net
assets of the Fund relating to Class B shares for account
maintenance services related to the Class B shares of the Fund
and a distribution fee from the Fund at the annual rate of 0.75%
of average daily net assets of the Fund relating to Class B
shares for providing sales and promotional activities and
services related to the distribution of Class B shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain
account maintenance activities and sales and promotional
activities and services for the Fund's Class B shareholders and
the Securities Firm is willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance
activities with respect to the Class B shares of the Fund of the
types referred to in Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional
activities and services with respect to the sale of the Class B
shares of the Fund, and incur distribution expenditures of the
types referred to in paragraph 2 of the Plan.
3. As compensation for its activities and services
performed under this Sub-Agreement, MLFD shall pay the Securities
Firm an account maintenance fee and a distribution fee at the end
of each calendar month in an amount agreed upon by the parties
hereto.
<PAGE> 6
4. The Securities Firm shall provide MLFD, at least
quarterly, such information as reasonably requested by MLFD to
enable MLFD to comply with the reporting requirements of Rule
12b-1 regarding the disbursement of the fee during such period
referred to in Paragraph 4 of the Plan.
5. This Sub-Agreement shall not take effect until it has
been approved by votes of a majority of both (a) the Directors of
the Fund and (b) those Directors of the Fund who are not "in-
terested persons" of the Fund, as defined in the Act, and have no
direct or indirect financial interest in the operation of the
Plan or any agreements related to the Plan or this Sub-Agreement
(the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on this Agreement.
6. This Sub-Agreement shall continue in effect for as long
as such continuance is specifically approved at least annually in
the manner provided for approval of the Plan in Paragraph 6.
7. This Sub-Agreement shall automatically terminate in the
event of its assignment or in the event of the termination of the
Plan or any amendment to the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /S/ MICHELLE LAU
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /S/ ARTHUR ZEIKEL
2
<PAGE> 1
Exhibit 16(A)
CAPITAL FUND
TOTAL RETURN
<TABLE>
<CAPTION>
Annual
Total
1 YEAR 5 YEAR 10 YEAR Return
<S> <C> <C> <C> <C>
Initial Investment $1,000.00 $1,000.00 $1,000.00 $1,000.00
Divided by
Maximum Offering Price 29.91 20.31 13.26
Divided by list Asset value 29.97
Equals Shares Purchased 33.434 49.237 75.415 35.753
Plus Shares Acquired Through
Dividend Reinvestment 9.68 46.936 171.115 10.359
Equals Shares Hold
at 03/31/88 43.114 96.173 246.530 46.112
Multiplied by Net Asset
Value at 03/31/88 21.32 21.32 21.32 21.32
Equals Ending Redeemable
Value of a $1,000
Investment (ERV) 03/31/88 $919.19 2,050.40 5,256.02 983.10
Divided by $1,000 (p) .91919 2.0504 5.2560 .9831
Subtract 1 (.0808) 1.0504 4.2560 (.0169)
Expressed as a percentage
equals the Aggregate Total
Return for the Period (8.08)% 105.04% 425.60% 1.69%
Expressed as a percentage
equals the Annual
Total Return (T) l.69%
ERV divided by P .91919 1.0504 4.2560
Raise to the power of 1 5 1/10
Equals .91919 1.1544 1.1805
Subtract I (.0808) .1544 .1805
Expressed as a percentage
equals the Average
Annualized Total Return (8.08%) 15.44% 18.05%
</TABLE>
*Does not include sales charge for the period.
meh/buxton/forms/tot.return
<PAGE> 1
Merrill Lynch Capital Fund, Inc.
Class B
Total Return
Exhibit 16 (b)
<TABLE>
<CAPTION>
Period from
10/21/88 Annual
(inception) Total
to 03/31/89 Return*
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 22.64 22.64
Equals Shares Purchased 44.17 44.17
Plus Shares Acquired through
Dividend Reinvestment 2.72 2.72
Equals Shares Held
at 03/31/89 46.89 46.89
Multiplied by Net Asset
Value at 03/31/89 22.27 22.27
Equals Ending Value before
deduction for contingent
deferred sales charge 1,044.15 1,044.20
Less deferred sales charge (39.45) 0.00
Equals Ending Redeemable
Value of a $1,000
Investment (ERV) $1,004.70 $1,044.20
Divided by $1,000 (P) 1.0047 1.0442
Subtract 1 0.0047 0.0442
Expressed as a percentage
equals the Aggregate Total
Return for the Period (T) 0.47%
Expressed as a percentage
equals the Aggregate Total
Return for the Period 4.42%
ERV divided by P 1.0047
Raise to the power of 1/.4411
Equals 1.0107
Subtract 1 0.0107
Expressed as a percentage
equals the Average
Annualized Total Return
1.08%
</TABLE>
*Does not include sales charge for the period.
<PAGE> 1
CUSTODY AGREEMENT, made this 15th day of October , 1973,
between Lionel D. Edie Capital Fund Inc., a corporation organized and existing
under the laws of the State of Delaware having its principal office and place
of business at 530 Fifth Avenue, New York, N.Y. (hereinafter called the
"Fund"), and THE BANK OF NEW YORK, a corporation organized and existing under
the laws of the State of New York, having its principal office and place of
business at 48 Wall Street, New York 10015 (hereinafter called the
"Custodian"),
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth the
Fund and the Custodian agree as follows:
I.
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian
of all of the securities and moneys at any time owned by the Fund during the
period of this Agreement.
2. The Custodian hereby accepts appointment as such custodian and agrees
to perform the duties thereof as hereinafter set forth.
II.
CUSTODY OF CASH AND SECURITIES
1. The Fund will deliver or cause to be delivered to the Custodian all
securities and all moneys owned by it, including cash received for the
issuance of its shares, at any time during the period of this Agreement. The
Custodian will not be responsible for such securities and such moneys until
actually received by it.
2. The Custodian shall credit to a separate account in the name of the
Fund all moneys received by it for the account of the Fund, and shall disburse
the same only:
(a) In payment for securities purchased, as provided in Article III
hereof;
(b) In payment of dividends or distributions as provided in Article
IV hereof, or;
(c) In payment of original issue or other taxes, as provided in
Article V hereof, or;
(d) In payment for capital stock of the Fund redeemed by it, as
provided in Article V hereof, or;
<PAGE> 2
(e) Pursuant to certificates, notices or written instructions of
the Fund, signed in its name by any two officers (as defined in Article IX)
setting forth the name and address of the person to whom payment is to be
made, the amount to be paid, and the corporate purpose for which payment is to
be made, or;
(f) In payment of the fees and in reimbursement of the expenses and
liabilities of the Custodian, as provided in Article VII hereof.
3. The Custodian shall notify the Fund promptly after the close of
business on each day with a statement summarizing all transactions and entries
for the account of the Fund during said day; and it shall, at least monthly
and from time to time, render a detailed statement of the securities and
moneys held for the Fund under this Agreement.
4. All securities held for the Fund, which are issued or issuable only
in bearer form, shall be held by the Custodian in that form; all other
securities held for the Fund may be registered in the name of the Fund, or in
the name of any duly appointed and registered nominee of the Custodian, as the
Custodian may from time to time determine. The Fund agrees to furnish to the
Custodian appropriate instruments to enable the Custodian to hold or deliver
in proper form for transfer, or to register in the name of its registered
nominee, any securities which it may hold for the account of the Fund and
which may from time to time be registered in the name of the Fund. The
Custodian shall hold all such securities in a separate account, in the name of
the Fund physically segregated at all times, from those of any other person or
persons.
5. Unless otherwise instructed to the contrary by a certificate signed
in the name of the Fund by any two officers, the Custodian shall, with respect
to all securities held for the Fund:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed, or retired, or otherwise
become payable;
(c) Surrender securities in temporary form for definitive
securities;
(d) Execute, as custodian, any necessary declarations or
certificates of ownership under the Federal income tax laws or the laws or
regulations of any other taxing authority now or hereafter in effect.
<PAGE> 3
(e) Hold for the account of the Fund all stock dividends, rights
and similar securities issued with respect to any securities held by it
hereunder.
6. Upon receipt of a certificate signed in the name of the Fund by any
two officers, and not otherwise, the Custodian shall:
(a) Execute and deliver to such persons as may be designated in
such certificate, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may
be exercised;
(b) Deliver any securities held for the Fund in exchange for other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(c) Deliver any securities held for the Fund to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale
of assets of any corporation, and receive and hold under the terms of this
Agreement, such certificates of deposit, interim receipts or other instruments
or documents as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Fund, and
take such other steps, as shall be stated in said certificate to be for the
purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Fund.
III.
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
1. Promptly after each purchase of securities by the Fund, the Fund
shall deliver to the Custodian a certificate signed in the name of the Fund by
any two officers specifying with respect to each such purchase: (a) the name
of the issuer and the title of the securities, (b) the number of shares or the
principal amount purchased, and accrued interest, if any, (c) the date of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase, (f) the name of the person from whom or the broker
through whom the purchase was made. The Custodian shall receive all
securities purchased by or for the Fund from the persons through or from whom
the same were purchased, and upon receipt thereof shall pay, out of the moneys
held for the account of the Fund, the total amount payable upon such purchase
as set forth in such certificate provided that the
3
<PAGE> 4
same conforms to the total amount payable shown on such certificate.
2. Promptly after each sale of securities by the Fund, the Fund shall
deliver to the Custodian a certificate signed in the name of the Fund by any
two officers specifying with respect to each such sale (a) the name of the
issuer and the title of the security, (b) the number of shares or principal
amount sold, and accrued interest, if any, (c) the date of sale, (d) the sale
price per unit, (e) the total amount payable to the Fund upon such sale, and
(f) the name of the broker through whom or the person to whom the sale was
made. The Custodian shall deliver the securities thus designated to the
broker or other person named in such certificate upon receipt of the total
amount payable to the Fund upon such sale provided that the same conforms to
the total amount payable to the Fund shown in such certificate with respect to
such sale. The Custodian may accept payment in such form as shall be
satisfactory to it, and may deliver securities and arrange for payment, in
accordance with the customs prevailing among dealers in securities.
IV.
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. Upon the declaration of any dividend, or distribution by the Board of
Directors of the Fund, the Fund shall furnish to the Custodian a copy of a
resolution of its Board of Directors, certified by the Secretary or any
Assistant Secretary, setting forth the date of the declaration of such
dividend or distribution, the date of payment thereof, the record date as of
which stockholders entitled to payment shall be determined, and the amount
payable per share to the stockholders of record as of that date and the total
amount payable to the Transfer Agent on the payment date.
2. Upon the payment date specified in such resolution, the Custodian
shall pay out of the moneys held for the account of the Fund the total amount
payable as set forth in such resolution to the Transfer Agent for the Fund.
V.
SALE AND REDEMPTION OF CAPITAL STOCK OF THE FUND
1. Whenever the Fund shall sell any shares of its capital stock, it
shall cause to be delivered to the Custodian a certificate signed on behalf of
the Fund by any two officers, duly specifying;
(a) The number of shares sold, trade date, and price;
4
<PAGE> 5
(b) The amount of money to be received by the Custodian for the
sale of such shares.
2. Upon receipt of such money from the Transfer Agent the Custodian
shall credit such money to the account of the Fund.
3. Upon the issuance of any of the capital stock of the Fund in
accordance with the foregoing provisions of this article, the Custodian shall
pay, out of the money held for the account of the Fund, all original issue or
other taxes required to be paid by the Fund in connection with such issuance
upon the receipt of a notice signed by any two officers, specifying the amount
to be paid.
4. Whenever the Fund shall hereafter redeem any shares of its capital
stock, it shall furnish to the Custodian a certificate signed in the name of
the Fund by any two officers, specifying:
(a) The number of shares of capital stock redeemed;
(b) The amount to be paid for the shares redeemed.
5. Upon receipt from the Transfer Agent of an advice setting forth the
number of shares received by the Transfer Agent for redemption and that such
shares are valid and in good form for redemption the Custodian shall make
payment to the Transfer Agent out of the moneys held for the account of the
Fund, of the total amount specified in the certificate issued pursuant to the
foregoing paragraph 4 of this article.
VI.
OVERDRAFTS OR INDEBTEDNESS
If the Custodian should in its sole discretion advance funds on behalf of
the Fund which results in an overdraft because the moneys held by the
Custodian for the account of the Fund shall be insufficient to pay the total
amount payable upon the purchase of securities as set forth in a certificate
issued pursuant to Article III, or which results in an overdraft for some
other reason or if the Fund is for any other reason indebted to the Custodian,
such overdraft or indebtedness shall be deemed to be a loan made by the
Custodian to the Fund payable on demand and shall bear interest from the date
incurred at a rate per annum (based on a 360-day year for the actual number of
days involved) equal to 1/2% over Custodian prime commercial lending rate in
effect from time to time, such rate to be adjusted on the effective date of
any change in such prime commercial lending rate but in no event to be less
than 6% per annum. In addition thereto the Fund hereby agrees that the
Custodian shall have a continuing lien and security interest in and to any
property at
5
<PAGE> 6
any time held by it for the benefit of the Fund and in any other personal
property belonging to the Fund or in which the Fund may have an interest which
is then in the Custodian's possession or control or in possession or control
of any third party acting in the Custodian's behalf. The Fund authorizes the
custodian, in its sole discretion, at any time to charge any such overdraft or
indebtedness together with interest due thereon against any balance of account
standing to the Fund's credit on the Custodian books.
VII.
CONCERNING THE CUSTODIAN
1. Neither the Custodian nor its nominee shall be liable for any loss or
damage including counsel fees, resulting from its action or omission to act or
otherwise, except for any such loss or damage arising of its own gross
negligence or willful misconduct. The Custodian may, with respect to
questions of law, apply for and obtain the advice and opinion of counsel to
the Fund or of its own counsel at the expense of the Fund, and shall be fully
protected with respect to anything done or omitted by it in good faith in
conformity with such advice or opinion.
2. Without limiting the generality of the foregoing, the Custodian shall
be under no duty or obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any securities purchased by or for
the Fund, the legality of the purchase thereof, or the propriety of the amount
paid therefor;
(b) The legality of the sale of any securities by or for the Fund,
or the propriety of the amount for which the same are sold;
(c) The legality of the issue or sale of any shares of the capital
stock of the Fund, or the sufficiency of the amount to be received therefor;
(d) The legality of the redemption of any shares of capital stock
of the Fund, or the propriety of the amount to be paid therefor;
(e) The legality of the declaration of any dividend by the Fund, or
the legality of the issue of any shares of the Fund's capital stock in payment
of any stock dividend.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money represented by any check, draft, or other instrument
for the payment of money received by it on be-
6
<PAGE> 7
half of the Fund, until the Custodian actually receives such money.
4. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
the Transfer Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this agreement.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount, if the securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by
a certificate signed in the name of the Fund by any two officers, and (ii) it
shall be assured to its satisfaction of reimbursement of its costs and
expenses in connection with any such action.
6. The Custodian may appoint one or more banking institutions as
Depositary or Depositaries or as Sub-Custodian or Sub-Custodians of securities
and moneys at any time owned by the Fund, upon terms and conditions approved
in writing on behalf of the Fund by any two officers thereof.
7. The Custodian shall not be under any duty or obligation to ascertain
whether any securities at any time delivered to or held by it for the account
of the Fund are such as may properly be held by the Fund under the provisions
of its Articles of Incorporation.
8. The Custodian shall be entitled to receive and the Fund agrees to pay
to the Custodian, such compensation as may be agreed upon from time to time
between the Custodian and the Fund. The Custodian may charge such
compensation and any expense incurred by the Custodian in the performance of
its duties pursuant to such agreement against any money held by it for the
account of the Fund. The Custodian shall also be entitled to charge against
any money held by it for the account of the Fund the amount of any loss,
damage, liability or expense including counsel fees, for which it shall be
entitled to reimbursement under the provisions of this Agreement.
9. The Custodian shall be entitled to rely upon any certificate, notice,
or other instrument in writing received by the Custodian and believed by the
Custodian to be genuine.
7
<PAGE> 8
VIII.
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such
termination, which shall be not less than 90 days after the date of giving of
such notice. In the event such notice is given by the Fund, it shall be
accompanied by a copy of a resolution of the Board of Directors of the Fund,
certified by the Secretary or any Assistant Secretary, electing to terminate
this Agreement and designating a successor custodian or custodians, each of
which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. In the event such notice is
given by the Custodian, the Fund shall, on or before the termination date,
deliver to the Custodian a copy of resolution of its Board of Directors,
certified by the Secretary or any Assistant Secretary, designating a successor
custodian or custodians. In the absence of such designation by the Fund, the
Custodian may designate a successor custodian which shall be a bank or trust
company having not less than $2,000,000 aggregate capital, surplus, and
undivided profits. If the Fund fails to designate a successor Custodian and
if the Custodian is unable to find a successor Custodian, the Fund shall upon
the date specified in the notice of termination of this Agreement and upon the
delivery by the custodian of all securities and moneys then owned by the Fund
be deemed to be its own custodian and the Custodian shall thereby be relieved
of all duties and responsibilities pursuant to this Agreement.
2. Upon the date set forth in such notice this Agreement shall
terminate, and the Custodian shall upon receipt of a notice of acceptance by
the successor custodian on that date deliver directly to the successor
custodian all securities and moneys then owned by the Fund and held by it as
custodian, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled.
IX.
MISCELLANEOUS
1. The term "certificate" shall mean any notice, instruction or other
instrument in writing, authorized or required by this agreement to be given to
the Custodian signed by two officers on behalf of the Fund.
2. The term "officers" shall be deemed to include the President, any
Vice President, the Secretary, the Treasurer, the Comptroller, any Assistant
Comptroller, any Assistant Secretary, any Assistant Treasurer, or any other
person or persons duly
8
<PAGE> 9
authorized by the Board of Directors to execute any certificate, instruction,
notice or other instrument on behalf of the Fund.
3. Annexed hereto as Appendix A, is a certificate signed by two of the
present officers of the Fund under its corporate seal, setting forth the names
and the signatures of the present officers of the Fund. The Fund agrees to
furnish to the Custodian a new certificate in similar form in the event any
such present officer ceases to be an officer of the Fund, or in the event that
other or additional officers are elected or appointed. Until such new
certificate shall be received, the Custodian shall be fully protected in
acting under the provisions of this Agreement upon the signatures of the
present officers as set forth in said annexed certificate or upon the
signatures of the present officers as set forth in a subsequently issued
certificate.
4. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its office at 48
Wall Street, New York, New York 10015, or at such other place as the Custodian
may from time to time designate in writing.
5. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Fund and mailed or delivered to it at its office at 530 Fifth
Avenue, New York, New York, or at such other place as the Fund may from time
to time designate in writing.
6. This Agreement may not be amended or modified in any manner except by
a written agreement executed by both parties with the same formality as this
Agreement, and authorized and approved by a resolution of the Board of
Directors of the Fund.
7. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of its Board of Directors.
8. This Agreement shall be construed in accordance with the laws of the
State of New York.
9. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective corporate officers, thereunto duly authorized
and their respective corporate seals to be hereunto affixed, as of the day and
year first above written.
By /s/ Charles Schneider
-----------------------
Charles Schneider
Treasurer and Assistant
Secretary
Attest:
/s/ Denis J. Dooley, II
- -----------------------
Denis J. Dooley, II
Secretary
THE BANK OF NEW YORK
By /s/ Gilbert N. Losurdo
-----------------------
Gilbert N. Losurdo
Trust Officer
Attest:
/s/ John Lavelle
- ------------------------
J. J. LAVELLE
ASST. TRUST OFFICER
10
<PAGE> 11
APPENDIX A
I, Ralph D. Creasman, President and I, Denis J. Dooley, II, Secretary of
a Delaware corporation (the "Fund"), do hereby certify that:
The following individuals serve in the following positions with the
Fund and each individual has been duly elected or appointed to each such
position and qualified therefor in conformity with the Fund's Articles of
Incorporation and By-Laws, and the signatures set forth opposite their
respective names are their true and correct signatures:
<TABLE>
<CAPTION>
Name Position Signature
<S> <C> <C>
Ralph D. Creasman President /s/ Ralph D. Creasman
------------------------
Paul T. Summer Vice President /s/ Paul T. Summer
------------------------
Richard P. Carney Vice President Richard P. Carney
------------------------
Charles H Schneider Treasurer and
Assistant
Secretary /s/ Charles H. Schneider
------------------------
Denis J. Dooley, II Secretary /s/ Denis J. Dooley, II
------------------------
/s/ Ralph D. Creasman
-----------------------
Ralph D. Creasman
/s/ Denis J. Dooley, II
-----------------------
Denis J. Dooley, II
</TABLE>
11
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Capital Fund, Inc.:
We consent to the use in Post-Effective Amendment No. 32 to Registration
Statement No. 2-49007 of our report dated May 5, 1995 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
Deloitte & Touche LLP
Princeton, New Jersey
July 27, 1995
<PAGE> 1
EXHIBIT 16(C)
CAPITAL FUND -- CLASS C
10/21/94 -- 03/31/95
<TABLE>
<CAPTION>
SINCE SINCE
INCEPTION INCEPTION
AVERAGE ANNUAL TOTAL
TOTAL RETURN RETURN*
-------------- ---------
<S> <C> <C>
Initial Investment................................................... $1,000.00 $1,000.00
Divided by Net Asset Value........................................... 26.81 26.81
------------ ---------
Equals Shares Purchased.............................................. 37.300 37.300
Plus Shares Acquired through Dividend Reinvestment................... 1.739 1.739
------------ ---------
Equals Shares Held at 3/31/95........................................ 39.038 39.038
Multiplied by Net Asset Value at 3/31/95............................. 27.17 27.17
------------ ---------
Equals Ending Value before deduction for contingent deferred sales
charge............................................................. 1,060.67 1,060.67
Less deferred sales charge........................................... (10.00) 0.00
------------ ---------
Equals Ending Redeemable Value at $1,000 Investment (ERV) at
3/31/95............................................................ 1,050.67 1,060.67
------------ ---------
Divided by $1,000 (P)................................................ 1.0507 1.0607
Subtract 1........................................................... 0.0507 0.0607
Expressed as a percentage equals the Aggregate Total Return for
the Period (T)..................................................... 5.07%
===========
Expressed as a percentage equals the Aggregate Total Return for the
Period
ERV divided by P..................................................... 1.0507
Raise to the power of................................................ 2.2671
Equals............................................................... 1.1186
Subtract 1........................................................... 0.1186
Expressed as a percentage equals the Average Annualized Total
Return............................................................. 11.86%
===========
</TABLE>
*Does not include sales charge for the period.
3
<PAGE> 1
EXHIBIT 16(D)
CAPITAL FUND -- CLASS D
10/21/94 -- 03/31/95
<TABLE>
<CAPTION>
SINCE SINCE
INCEPTION INCEPTION
AVERAGE ANNUAL TOTAL
TOTAL RETURN RETURN*
-------------- ---------
<S> <C> <C>
Initial Investment................................................... $ 1,000.00 $1,000.00
Divided by Initial Maximum Offering Price............................ 28.78
------------
Divided by Net Asset Value........................................... 27.27
---------
Equals Shares Purchased.............................................. 34.745 36.670
Plus Shares Acquired through Dividend Reinvestment................... 1.631 1.721
------------ ---------
Equals Shares Held at 3/31/95........................................ 36.376 38.392
Multiplied by Net Asset Value at 3/31/95............................. 27.72 27.72
------------ ---------
Equals Ending Redeemable Value at $1,000 Investment (ERV) at
3/31/95............................................................ 1,008.34 1,064.22
Divided by $1,000 (P)................................................ 1,0083 1.0642
Subtract 1........................................................... 0.0083 0.0642
Expressed as a percentage equals the Aggregate Total Return for
the Period (T)..................................................... 0.83%
===========
Expressed as a percentage equals the Aggregate Total Return for the
Period............................................................. 6.42%
========
ERV divided by P..................................................... 1.0083
Raise to the power of................................................ 2.2671
Equals............................................................... 1.0190
Subtract 1........................................................... 0.0190
Expressed as a percentage equals the Average Annualized Total
Return............................................................. 1.90%
===========
</TABLE>
*Does not include sales charge for the period.
4
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000110055
<NAME> MERRILL LYNCH CAPITAL FUND, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 5991906725
<INVESTMENTS-AT-VALUE> 6544866375
<RECEIVABLES> 165706083
<ASSETS-OTHER> 66763
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6510638221
<PAYABLE-FOR-SECURITIES> 74693709
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45824579
<TOTAL-LIABILITIES> 120518288
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5909863860
<SHARES-COMMON-STOCK> 90406424
<SHARES-COMMON-PRIOR> 81472122
<ACCUMULATED-NII-CURRENT> 61422496
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65876859
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 352956718
<NET-ASSETS> 2507766853
<DIVIDEND-INCOME> 108179348
<INTEREST-INCOME> 142744258
<OTHER-INCOME> 272288
<EXPENSES-NET> 66682786
<NET-INVESTMENT-INCOME> 184513108
<REALIZED-GAINS-CURRENT> 229679961
<APPREC-INCREASE-CURRENT> 156181613
<NET-CHANGE-FROM-OPS> 570374682
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 79657527
<DISTRIBUTIONS-OF-GAINS> 132046243
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17286503
<NUMBER-OF-SHARES-REDEEMED> 15776697
<SHARES-REINVESTED> 7424496
<NET-CHANGE-IN-ASSETS> 1073255615
<ACCUMULATED-NII-PRIOR> 38621199
<ACCUMULATED-GAINS-PRIOR> 159102750
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23221209
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 66682786
<AVERAGE-NET-ASSETS> 2352405341
<PER-SHARE-NAV-BEGIN> 27.46
<PER-SHARE-NII> 1.01
<PER-SHARE-GAIN-APPREC> 1.77
<PER-SHARE-DIVIDEND> .94
<PER-SHARE-DISTRIBUTIONS> 1.56
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.74
<EXPENSE-RATIO> .57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000110055
<NAME> MERRILL LYNCH CAPITAL FUND, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 5991906725
<INVESTMENTS-AT-VALUE> 6344865375
<RECEIVABLES> 165706083
<ASSETS-OTHER> 66763
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6510638221
<PAYABLE-FOR-SECURITIES> 74693709
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45824579
<TOTAL-LIABILITIES> 120518288
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5909863860
<SHARES-COMMON-STOCK> 134328178
<SHARES-COMMON-PRIOR> 113676466
<ACCUMULATED-NII-CURRENT> 61422496
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65876859
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 352956718
<NET-ASSETS> 3664249823
<DIVIDEND-INCOME> 108179348
<INTEREST-INCOME> 142744258
<OTHER-INCOME> 272288
<EXPENSES-NET> 66682786
<NET-INVESTMENT-INCOME> 184513108
<REALIZED-GAINS-CURRENT> 229679961
<APPREC-INCREASE-CURRENT> 156181613
<NET-CHANGE-FROM-OPS> 570374682
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 80336105
<DISTRIBUTIONS-OF-GAINS> 168065461
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35795347
<NUMBER-OF-SHARES-REDEEMED> 24677200
<SHARES-REINVESTED> 9333565
<NET-CHANGE-IN-ASSETS> 1073295615
<ACCUMULATED-NII-PRIOR> 38621199
<ACCUMULATED-GAINS-PRIOR> 159102750
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23221209
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 66682786
<AVERAGE-NET-ASSETS> 3324561950
<PER-SHARE-NAV-BEGIN> 27.04
<PER-SHARE-NII> .74
<PER-SHARE-GAIN-APPREC> 1.72
<PER-SHARE-DIVIDEND> .66
<PER-SHARE-DISTRIBUTIONS> 1.56
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.28
<EXPENSE-RATIO> 1.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000110055
<NAME> MERRILL LYNCH CAPITAL FUND, INC.
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> OCT-21-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 5991906725
<INVESTMENTS-AT-VALUE> 6344865375
<RECEIVABLES> 165706083
<ASSETS-OTHER> 66763
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6510638221
<PAYABLE-FOR-SECURITIES> 74693709
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45824579
<TOTAL-LIABILITIES> 120518288
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5909863860
<SHARES-COMMON-STOCK> 1726200
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 61422496
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65876859
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 352956718
<NET-ASSETS> 46902309
<DIVIDEND-INCOME> 108179348
<INTEREST-INCOME> 142744258
<OTHER-INCOME> 272288
<EXPENSES-NET> 66682786
<NET-INVESTMENT-INCOME> 184513108
<REALIZED-GAINS-CURRENT> 229679961
<APPREC-INCREASE-CURRENT> 156181613
<NET-CHANGE-FROM-OPS> 570374682
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 186349
<DISTRIBUTIONS-OF-GAINS> 321434
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1868357
<NUMBER-OF-SHARES-REDEEMED> 160348
<SHARES-REINVESTED> 18191
<NET-CHANGE-IN-ASSETS> 1073295615
<ACCUMULATED-NII-PRIOR> 38621199
<ACCUMULATED-GAINS-PRIOR> 159102750
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23221209
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 66682786
<AVERAGE-NET-ASSETS> 19972930
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