<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 26, 1995
SECURITIES ACT FILE NO. 2-58521
INVESTMENT COMPANY ACT FILE NO. 811-2739
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 24
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
[X]
AMENDMENT NO. 21
(Check appropriate box or boxes)
----------------
MERRILL LYNCH BASIC VALUE FUND, INC.
(Exact Name of Registrant as Specified in Charter)
800 SCUDDERS MILL ROAD 08536
PLAINSBORO, NEW JERSEY (Zip Code)
(Address of Principal Executive
Offices)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH BASIC VALUE 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:
COUNSEL FOR THE FUND: PHILIP L. KIRSTEIN MARK B. GOLDFUS, ESQ.
BROWN & WOOD MERRILL LYNCH ASSET MANAGEMENT FUND ASSET MANAGEMENT
ONE WORLD TRADE CENTER P.O. BOX 9011 P.O. BOX 9011
PRINCETON, NEW JERSEY
NEW YORK, NEW YORK 10048- 08543-9011
0557
PRINCETON, NEW JERSEY 08543-9011
ATTENTION: THOMAS R.
SMITH, JR.
----------------
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 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 AUGUST 22, 1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH BASIC VALUE FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
-------- --------
<C> <S> <C>
PART A
Item 1. Cover Page................ Cover Page
Item 2. Synopsis.................. Fee Table
Condensed Financial
Item 3. Information.............. Financial Highlights
Item 4. General Description of Investment Objective and Policies;
Registrant............... 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 Cover Page; Purchase of Shares;
Securities............... Redemption of Shares; Shareholder
Services; Additional Information
Item 7. Purchase of Securities Cover Page; Fee Table; Merrill Lynch
Being Offered............ 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
General Information and
Item 12. History.................. Not Applicable
Investment Objective and
Item 13. Policies................. Investment Objective and Policies
Item 14. Management of the Fund.... Management of the Fund
Item 15. Control Persons and
Principal Holders of Management of the Fund; General
Securities............... Information--Additional Information
Item 16. Investment Advisory and Management of the Fund; Purchase of
Other Services........... Shares; General Information
Brokerage Allocation and
Item 17. Other Practices.......... Portfolio Transactions and Brokerage
Capital Stock and Other
Item 18. Securities............... General Information
Item 19. Purchase, Redemption and
Pricing of Securities Purchase of Shares; Redemption of
Being Offered............ Shares; Determination of Net Asset
Value; Shareholder Services
Item 20. Tax Status................ Dividends, Distributions and Taxes
Item 21. Underwriters.............. Purchase of Shares
Calculation of Performance
Item 22. Data..................... Performance Data
Item 23. Financial Statements...... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
OCTOBER 26, 1995
MERRILL LYNCH BASIC VALUE FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
Merrill Lynch Basic Value Fund, Inc. (the "Fund") is a diversified, open-end
investment company seeking capital appreciation and, secondarily, income by
investing in securities, primarily equities, that management of the Fund
believes are undervalued and therefore represent basic investment value. The
Fund seeks special opportunities in securities that are selling at a discount
either from book value or historical price-earnings ratios, or seem capable of
recovering from temporarily out of favor considerations. Particular emphasis is
placed on securities which provide an above-average dividend return and sell at
a below-average price-earnings ratio. 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 System permits an
investor to choose the method of purchasing shares that the investor believes
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select Pricing(SM) System" on page 4.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 [(609)
282-2800], or from 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 October 26, 1995 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange 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.
----------------
FUND ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE>
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 Im-
posed on Pur-
chases (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 None(d) 1.0% for one year None(d)
original pur-
chase price 4.0% during the first
or redemption year, decreasing 1.0%
proceeds, annually thereafter
whichever is to 0.0% after the
lower)....... 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)..... 0.15% 0.17% 0.17% 0.15%
Other......... 0.03% 0.03% 0.03% 0.03%
----- ----- ----- -----
Total Other 0.19% 0.21% 0.21% 0.19%
Expenses.... ----- ----- ----- -----
Total Fund
Operating 0.59% 1.61% 1.61% 0.84%
Expenses..... ===== ===== ===== =====
</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 June 30, 1995. Information under "Other Expenses" for Class C and
Class D shares is estimated for the fiscal year ending June 30, 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>
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 $84 $122
Class B........................... $56 $71 $88 $171*
Class C........................... $26 $51 $88 $191
Class D........................... $61 $78 $97 $151
An investor would pay the following
expenses on the same $1,000 invest-
ment assuming no redemption at the
end of the period:
Class A........................... $58 $70 $84 $122
Class B........................... $16 $51 $88 $171*
Class C........................... $16 $51 $88 $191
Class D........................... $61 $78 $97 $151
</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
Securities and Exchange Commission ("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. ("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".
3
<PAGE>
MERRILL LYNCH SELECT PRICING (SM) SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D
are sold to investors choosing the initial sales charge alternatives, and
shares of Class B and Class C are sold to investors choosing the deferred
sales charge alternatives. The Merrill Lynch Select Pricing (SM) System is used
by more than 60 mutual funds advised by Merrill Lynch Asset Management, L.P.
("MLAM") or Fund Asset Management, L.P. ("FAM" or the "Investment Adviser"),
an affiliate of MLAM. Funds advised by MLAM or FAM which use the Merrill Lynch
Select Pricing (SM) System are referred to herein as "MLAM-advised mutual
funds".
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
The 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 Pricing (SM) System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing (SM) System that the investor
believes is most beneficial under his or her particular circumstances. More
detailed information as to each class of shares is set forth under "Purchase
of Shares".
4
<PAGE>
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(/1/) FEE FEE CONVERSION FEATURE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial No No No
sales charge(/2/)(/3/)
- ------------------------------------------------------------------------------------------
B CDSC for a period of up to 4 years, 0.25% 0.75% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0% eight years(/4/)
- ------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- ------------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales charge(/3/)
</TABLE>
- -------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs are imposed if the redemption occurs within
the applicable CDSC time period. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the shares
being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors".
(3) Reduced for purchases of $25,000 or more and waived for purchases of Class
A shares by certain retirement plans 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) 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 on to 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 MLAM, FAM and certain other
entities directly or indirectly wholly-owned and controlled by ML & Co.)
and their directors and employees, and to members of the Boards of MLAM-
advised mutual funds. The maximum initial sales charge 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".
5
<PAGE>
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 on to 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 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
Pricing(SM) System that the investor believes is most beneficial under his or
her particular circumstances.
6
<PAGE>
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 total return than
Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the
benefit of putting all of the investor's dollars to work from the time the
investment is made. The deferred sales charge alternatives may be particularly
appealing to investors who do not qualify for a reduction in initial sales
charges. Both Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing account
maintenance and distribution fees potentially may be offset to the extent any
return is realized on the additional funds initially invested in Class B or
Class C shares. In addition, Class B shares will be converted into Class D
shares of the Fund after a conversion period of approximately eight years, and
thereafter investors will be subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all 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>
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 June
30, 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 information is not presented for Class B shares for the
period July 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 June 30, 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 JUNE 30,
-----------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DE-
CREASE) IN NET
ASSET VALUE:
PER SHARE OPER-
ATING PERFOR-
MANCE:
Net asset value,
beginning of
year............ $ 23.17 $ 23.31 $ 20.57 $ 18.90 $ 19.32 $ 20.03 $ 18.60
---------- ---------- ---------- ---------- ---------- ---------- ----------
Investment in-
come--net....... .74 .62 .71 .70 .87 .95 .85
Realized and
unrealized gain
(loss) on in-
vestments and
foreign currency
transactions--
net............. 4.01 .67 3.03 2.02 (.02) (.56) 1.99
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from in-
vestment opera-
tions........... 4.75 1.29 3.74 2.72 .85 .39 2.84
---------- ---------- ---------- ---------- ---------- ---------- ----------
Less dividends
and distribu-
tions:
Investment in-
come--net....... (.69) (.70) (.64) (.76) (.97) (.87) (.75)
Realized gain on
investments--
net............. (.79) (.73) (.36) (.29) (.30) (.23) (.66)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total dividends
and distribu-
tions........... (1.48) (1.43) (1.00) (1.05) (1.27) (1.10) (1.41)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net asset value,
end of year..... $ 26.44 $ 23.17 $ 23.31 $ 20.57 $ 18.90 $ 19.32 $ 20.03
========== ========== ========== ========== ========== ========== ==========
TOTAL INVESTMENT
RETURN:**
Based on net as-
set value per
share........... 21.67% 5.68% 19.03% 15.08% 5.39% 1.77% 16.29%
========== ========== ========== ========== ========== ========== ==========
RATIOS TO AVER-
AGE NET ASSETS:
Expenses........ .59% .53% .54% .58% .59% .57% .58%
========== ========== ========== ========== ========== ========== ==========
Investment in-
come--net....... 3.19% 2.76% 3.48% 3.52% 4.76% 5.05% 4.82%
========== ========== ========== ========== ========== ========== ==========
SUPPLEMENTAL DA-
TA:
Net assets, end
of year (in
thousands)...... $2,834,652 $2,272,983 $2,023,078 $1,670,430 $1,490,657 $1,556,257 $1,373,408
========== ========== ========== ========== ========== ========== ==========
Portfolio turn-
over............ 11.69% 21.79% 20.85% 21.24% 20.11% 4.88% 13.44%
========== ========== ========== ========== ========== ========== ==========
</TABLE>
- ----
**Total investment returns exclude the effects of sales loads.
<TABLE>
<CAPTION>
CLASS A
-------------------------------
FOR THE YEAR ENDED JUNE 30,
-------------------------------
1988 1987 1986
---------- ---------- --------
<S> <C> <C> <C>
INCREASE (DE-
CREASE) IN NET
ASSET VALUE:
PER SHARE OPER-
ATING PERFOR-
MANCE:
Net asset value,
beginning of
year............ $ 20.26 $ 18.07 $ 15.65
---------- ---------- --------
Investment in-
come--net....... .74 .65 .62
Realized and
unrealized gain
(loss) on in-
vestments and
foreign currency
transactions--
net............. (.44) 3.04 3.41
---------- ---------- --------
Total from in-
vestment opera-
tions........... .30 3.69 4.03
---------- ---------- --------
Less dividends
and distribu-
tions:
Investment in-
come--net....... (.62) (.64) (.59)
Realized gain on
investments--
net............. (1.34) (.86) (1.02)
---------- ---------- --------
Total dividends
and distribu-
tions........... (1.96) (1.50) (1.61)
---------- ---------- --------
Net asset value,
end of year..... $ 18.60 $ 20.26 $ 18.07
========== ========== ========
TOTAL INVESTMENT
RETURN:**
Based on net as-
set value per
share........... 1.90% 22.37% 28.59%
========== ========== ========
RATIOS TO AVER-
AGE NET ASSETS:
Expenses........ .58% .59% .61%
========== ========== ========
Investment in-
come--net....... 4.06% 3.82% 4.39%
========== ========== ========
SUPPLEMENTAL DA-
TA:
Net assets, end
of year (in
thousands)...... $1,079,262 $1,158,997 $823,664
========== ========== ========
Portfolio turn-
over............ 20.42% 23.34% 23.28%
========== ========== ========
</TABLE>
- ----
**Total investment returns exclude the effects of sales loads.
8
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS D
---------------------------------------------------------------------------- --------- ---------
FOR THE PERIOD
OCTOBER 21, 1994++
FOR THE YEAR ENDED JUNE 30, TO JUNE 30,
---------------------------------------------------------------------------- --------------------
1995 1994 1993 1992 1991 1990 1989+ 1995 1995
---------- ---------- ---------- ---------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING PER-
FORMANCE:
Net asset value, begin-
ning of period......... $ 22.87 $ 23.04 $ 20.35 $ 18.71 $ 19.12 $ 19.92 $ 18.78 $ 22.92 $ 23.19
---------- ---------- ---------- ---------- -------- -------- -------- -------- ---------
Investment income--net.. .53 .42 .53 .50 .66 .78 .55 .44 .50
Realized and unrealized
gain (loss) on invest-
ments and foreign cur-
rency transactions--
net.................... 3.93 .62 2.96 2.00 .01 (.59) 1.30 3.05 3.17
---------- ---------- ---------- ---------- -------- -------- -------- -------- ---------
Total from investment
operations............. 4.46 1.04 3.49 2.50 .67 .19 1.85 3.49 3.67
---------- ---------- ---------- ---------- -------- -------- -------- -------- ---------
Less dividends and dis-
tributions:
Investment income--net.. (.46) (.48) (.44) (.57) (.78) (.76) (.36) (.33) (.35)
Realized gain on invest-
ments--net............. (.79) (.73) (.36) (.29) (.30) (.23) (.35) (.10) (.10)
---------- ---------- ---------- ---------- -------- -------- -------- -------- ---------
Total dividends and dis-
tributions............. (1.25) (1.21) (.80) (.86) (1.08) (.99) (.71) (.43) (.45)
---------- ---------- ---------- ---------- -------- -------- -------- -------- ---------
Net asset value, end of
period................. $26.08 $ 22.87 $ 23.04 $ 20.35 $ 18.71 $ 19.12 $ 19.92 $ 25.98 $ 26.41
========== ========== ========== ========== ======== ======== ======== ======== =========
TOTAL INVESTMENT RE-
TURN:**
Based on net asset value
per share.............. 20.45% 4.61% 17.81% 13.90% 4.33% .73% 10.27%# 15.59%# 16.23%#
========== ========== ========== ========== ======== ======== ======== ======== =========
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding ac-
count maintenance and
distribution fees...... .61% .55% .56% .60% .61% .60% .62%* .66%* .62%*
========== ========== ========== ========== ======== ======== ======== ======== =========
Expenses................ 1.61% 1.55% 1.56% 1.60% 1.61% 1.60% 1.62%* 1.66%* .87%*
========== ========== ========== ========== ======== ======== ======== ======== =========
Investment income--net.. 2.16% 1.75% 2.47% 2.50% 3.73% 4.03% 4.43%* 2.09%* 2.88%*
========== ========== ========== ========== ======== ======== ======== ======== =========
SUPPLEMENTAL DATA:
Net assets, end of pe-
riod (in thousands).... $2,464,248 $1,744,704 $1,383,935 $1,064,354 $874,318 $922,126 $468,537 $ 74,334 $203,033
========== ========== ========== ========== ======== ======== ======== ======== =========
Portfolio turnover...... 11.69% 21.79% 20.85% 21.24% 20.11% 4.88% 13.44% 11.69% 11.69%
========== ========== ========== ========== ======== ======== ======== ======== =========
</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>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek capital appreciation and,
secondarily, income by investing in securities, primarily equities, that
management of the Fund believes are undervalued and therefore represent basic
investment value. The Fund seeks special opportunities in securities that are
selling at a discount, either from book value or historical price-earnings
ratios, or seem capable of recovering from temporarily out of favor
considerations. Particular emphasis is placed on securities which provide an
above-average dividend return and sell at a below-average price-earnings ratio.
There can be no assurance that the objective of the Fund will be realized. The
investment objective of the Fund is a fundamental policy of the Fund and may
not be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the Investment Company Act of
1940, as amended (the "Investment Company Act").
The investment policy of the Fund is based on the belief that the pricing
mechanism of the securities market lacks total efficiency and has a tendency to
inflate prices of securities in favorable market climates and depress prices of
securities in unfavorable climates. Based on this premise, management believes
that favorable changes in market prices are more likely to begin when
securities are out of favor, earnings are depressed, price-earnings ratios are
relatively low, investment expectations are limited, and there is no real
general interest in the particular security or industry involved. On the other
hand, management believes that negative developments are more likely to occur
when investment expectations are generally high, stock prices are advancing or
have advanced rapidly, price-earnings ratios have been inflated, and the
industry or issue continues to gain new investment acceptance on an accelerated
basis. In other words, management believes that market prices of securities
with relative high price-earnings ratios are more susceptible to unexpected
adverse developments while securities with relatively low price-earnings ratios
are more favorably positioned to benefit from favorable, but generally
unanticipated events. This investment policy departs from traditional
philosophy. Management of the Fund believes that the market risk involved in
this policy is moderated somewhat by an emphasis on securities with above-
average dividend returns.
The current institutionally-dominated market tends to ignore, to some extent,
the numerous secondary issues whose market capitalizations are below those of
the relatively few larger size growth companies. It is expected that the Fund's
portfolio generally will have significant representation in this secondary
segment of the market.
The Investment Adviser is responsible for the management of the Fund's
portfolio and makes portfolio decisions based on its own research information
supplemented by research information provided by other sources. The basic
orientation of the Fund's investment policies is such that at times a large
portion of its common stock holdings may carry less than favorable research
ratings from research analysts. The Investment Adviser makes extensive use of
investment research information provided by unaffiliated brokers and dealers
and of the securities research, economic research and computer applications
facilities provided by Merrill Lynch, as described below:
Securities Research. Merrill Lynch's securities research division, the
largest in the industry, employs approximately 150 professionals responsible
for fundamental and technical securities analysis. The fundamental research
staff consists of approximately 136 professionals who follow approximately
1,500 companies. The types of securities in which the Fund will invest often
receive limited research coverage and therefore the Fund will benefit from its
access to Merrill Lynch's extensive research resources. Merrill Lynch
continually analyzes the changing patterns of market forces and trends in the
overall market, groups of securities and individual securities and carefully
monitors indicators of investor psychology.
10
<PAGE>
Economic Research. The economic research facilities of Merrill Lynch conduct
detailed analyses of overall economic conditions, both nationally and
internationally. Merrill Lynch economists work closely with analysts of the
Investment Adviser in the continuous analysis of factors affecting the
securities markets, industry performance and short-term and long-term market
risks.
Computer Applications. The computer applications facilities of Merrill Lynch
provide, among other things, proprietary computer screening programs used to
identify securities on the basis of various characteristics, which may include
dividend return, price-earnings ratios, price trends and other factors deemed
significant in analyzing a particular segment of the securities markets.
Investment emphasis is on equities, primarily common stock and, to a lesser
extent, securities convertible into common stocks. The Fund also may invest in
preferred stocks and non-convertible debt securities and utilize covered call
options with respect to portfolio securities as described below and in the
Statement of Additional Information. It reserves the right as a defensive
measure to hold other types of securities, including Government and money
market securities, repurchase agreements or cash, in such proportions as, in
the opinion of management, prevailing market or economic conditions warrant.
The Fund may invest up to 25% of its total assets, taken at market value at the
time of acquisition, in the 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 United States companies. The foreign markets also have different clearance
and settlement procedures, and in certain markets there have been times when
settlements have failed to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays or
problems with settlement could affect the liquidity of the Fund's portfolio and
adversely affect the Fund's performance. 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.
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.
11
<PAGE>
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 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). In addition, as a fundamental restriction the
Fund may not borrow money or pledge its assets, 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.
(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.) Notwithstanding the above-referenced fundamental restrictions on
borrowing money, as a non-fundamental restriction the Fund may not borrow
amounts in excess of 5% of its total assets, taken at market value, and then
only from banks as a temporary measure for extraordinary or emergency purposes.
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.
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 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.
Investment in Foreign Issuers. It is anticipated that in the immediate
future, the Fund will invest not more than 25% of its total assets in the
securities of foreign issuers. Nevertheless, investors should note that
investment in securities of foreign issuers involves risks not typically
involved in domestic investment, including fluctuations in foreign exchange
rates, future political and economic development and the possible imposition of
exchange controls or other foreign or U.S. governmental laws or restrictions
applicable to such investments.
12
<PAGE>
Lending of Portfolio Securities. The Fund may from time to time lend
securities (but not in excess of 20% of its total assets) from its portfolio to
brokers, dealers and financial institutions and receive collateral in cash or
securities issued or guaranteed by the United States Government which will be
maintained at all times in amounts equal to at least 100% of the current market
value of the loaned securities. Such cash collateral will be invested in short-
term securities, which will increase the current income of the Fund.
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. In return for the premium income realized from the sale of covered
call options, the Fund will give up the opportunity to profit from a price
increase in the underlying security above the option exercise price and it will
not be able to sell the underlying security until the option expires or 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 options on underlying
securities exceeding 15% of its total assets, taken at market value.
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 MLAM; President and
Director of Princeton Services, Inc. ("Princeton Services"); Executive Vice
President of ML & Co. and Merrill Lynch; 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 in the Investment Company Act, of the Fund.
13
<PAGE>
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 to the Fund
and provides the Fund with management and investment advisory services. The
Investment Adviser or MLAM acts as the investment adviser to more than 125
registered investment companies. MLAM also provides investment advisory
services to individual and institutional accounts. As of September 30, 1995,
the Investment Adviser and MLAM had a total of approximately $189.4 billion in
investment company and other portfolio assets under management, including
accounts of certain affiliates of MLAM.
The investment advisory agreement with the Investment Adviser (the
"Investment Advisory Agreement") provides that, subject to the direction of the
Board of Directors of the Fund, the Investment Adviser is responsible for the
actual management of the Fund's portfolio and for the review of the Fund's
holdings in light of its own research analysis and analyses from other relevant
sources. 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 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.
The Investment Adviser has access to the total securities research, economic
research and computer applications facilities of Merrill Lynch and makes
extensive use of those facilities as described under "Investment Objective and
Policies".
The Fund pays the Investment Adviser a monthly fee based on the average daily
value of the Fund's net assets: 0.60% of that portion of average daily net
assets not exceeding $100 million; 0.50% of that portion of average daily net
assets exceeding $100 million but not exceeding $200 million; and 0.40% of that
portion of average daily net assets exceeding $200 million. For the fiscal year
ended June 30, 1995, the Investment Adviser earned a fee of $18,443,250 (based
on average net assets of approximately $4.6 billion) and the effective rate was
approximately 0.40%.
The Investment Advisory Agreement obligates the Fund to pay certain expenses
incurred in its operations including, among other things, the investment
advisory fee, legal and audit fees, unaffiliated Directors' fees and expenses,
custodian and transfer agency fees, accounting costs, the costs of issuing and
redeeming shares and certain of the costs of printing proxies, shareholder
reports, prospectuses and statements of additional information. Accounting
services are provided for the Fund by the Investment Adviser and the Fund
reimburses the Investment Adviser for its costs in connection with such
services. For the fiscal year ended June 30, 1995, the Fund paid the Investment
Adviser $259,783 for such accounting services. For the year ended June 30,
1995, the ratio of total expenses to average net assets was 0.59% for the Class
A shares and 1.61% for the Class B shares; for the period October 21, 1994
(commencement of operations) to June 30, 1995, the annualized ratio of total
expenses to average net assets was 1.66% for Class C shares and 0.87% for Class
D shares.
14
<PAGE>
Paul M. Hoffmann is a Vice President and Portfolio Manager for the Fund. Mr.
Hoffmann has been a Portfolio Manager and a Vice President of MLAM since 1976.
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 "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 known as 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 June 30, 1995, the total
fee paid by the Fund to the Transfer Agent pursuant to the Transfer Agency
Agreement was $7,232,252. At September 30, 1995, the Fund had 209,767 Class A
shareholder accounts, 208,553 Class B shareholder accounts, 12,514 Class C
shareholder accounts and 24,093 Class D shareholder accounts. At this level of
accounts, the annual fee payable to the Transfer Agent would aggregate
approximately $5,667,398 plus out-of-pocket expenses.
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
the Investment Adviser, MLAM and Merrill Lynch, acts as the Distributor of the
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
15
<PAGE>
Agent. The minimum initial purchase is $1,000, and the minimum subsequent
purchase is $50, except 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 Pricing
System, as described below. The applicable offering price for purchase orders
is based upon the net asset value of the Fund next determined after receipt of
the purchase orders by the Distributor. As to purchase orders received by
securities dealers prior to the close of business on the New York Stock
Exchange (generally, 4:00 P.M., New York time), which includes orders received
after the close of business on the previous day, the applicable offering price
will be based on the net asset value determined as of 15 minutes after the
close of business on the 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 on that day, such orders shall be deemed received on the next
business day. The Fund or the Distributor may suspend the continuous offering
of the Fund's shares of any class at any time in response to conditions in the
securities markets or otherwise and may thereafter resume such offering from
time to time. Any order may be rejected by the Distributor or the Fund.
Neither the Distributor nor the dealers are permitted to withhold placing
orders to benefit themselves by a price change. Merrill Lynch may charge its
customers a processing fee (presently $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
Pricing (SM) System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Fund with the
investment thereafter being subject to a contingent deferred sales charge and
ongoing distribution fees. A discussion of the factors that investors should
consider in determining the method of purchasing shares under the Merrill
Lynch Select Pricing System is set forth under "Merrill Lynch Select Pricing(SM)
System" on page 3.
Each Class A, Class B, Class C and Class D share of the 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,
16
<PAGE>
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 selling different classes of shares. Investors are advised
that only Class A and Class D shares may be available for purchase through
securities dealers, other than Merrill Lynch, which are eligible to sell
shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing System.
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(/1/) FEE FEE CONVERSION FEATURE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(/2/)(/3/)
- ------------------------------------------------------------------------------------------
B CDSC for a period of up to 4 years, 0.25% 0.75% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0% eight years(/4/)
- ------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- ------------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales charge(/3/)
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs 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 on to 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>
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 SALES LOAD DISCOUNT TO
AS PERCENTAGE AS PERCENTAGE* SELECTED DEALERS
OF OFFERING OF THE NET AS PERCENTAGE OF THE
AMOUNT OF PURCHASE PRICE AMOUNT INVESTED 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 share
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 share 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
of 1933, as amended (the "Securities Act"). During the fiscal year ended June
30, 1995, the Fund sold 19,425,436 Class A shares for aggregate net proceeds
of $466,205,455. The gross sales charges for the sale of Class A shares of the
Fund for that year were $1,586,058, of which $86,913 and $1,499,145 were
received by the Distributor and Merrill Lynch, respectively. For the fiscal
year ended June 30, 1995, the Distributor received CDSCs of approximately
$13,592, all of which were paid to Merrill Lynch, 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) to June 30, 1995, the Fund sold 3,673,107 Class D
shares for aggregate net proceeds of $88,800,325. The gross sales charges for
the sale of Class D shares of the Fund for the period were $1,239,289, of
which $73,637 and $1,165,652 were received by the Distributor and Merrill
Lynch, respectively. During such period, the Distributor received CDSCs of
approximately $18 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
Blueprint(SM)
18
<PAGE>
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
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 will be offered at net asset value to ML & Co. and its
subsidiaries and their directors and employees and to members of the Boards of
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 or Class D 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 A and Class D shares are offered at net asset value to certain employer
sponsored retirement or savings plans and to Employee Access AccountsSM
available through employers which provide such plans.
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.
19
<PAGE>
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 ongoing account maintenance fees are used to compensate Merrill Lynch
for providing continuing account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for
selling Class B and Class C shares from the 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 on to the holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C shares
is limited by the NASD asset-based sales charge rule. See "Limitations on the
Payment of Deferred Sales Charges" below. Class B shareholders of the Fund
exercising the exchange privilege described under "Shareholder Services--
Exchange Privilege" will continue to be subject to the Fund's CDSC schedule if
such schedule is higher than the CDSC schedule relating to the Class B shares
acquired as a result of the exchange.
Contingent Deferred Sales Charges--Class B Shares. Class B shares 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.
20
<PAGE>
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 PAYMENT MADE SUBJECT TO CHARGE
-------------------------------- -----------------
<S> <C>
0-1...................................................... 4.00%
1-2...................................................... 3.00
2-3...................................................... 2.00
3-4...................................................... 1.00
4 and thereafter......................................... 0.00
</TABLE>
During the fiscal year ended June 30, 1995, the Fund sold 34,461,582 Class B
shares for aggregate net proceeds of $815,962,756. For the fiscal year ended
June 30, 1995, the Distributor received CDSCs of $1,951,585 with respect to
redemptions of Class B shares, all of which were paid to Merrill Lynch.
In determining whether a CDSC is applicable to a redemption, the calculation
will be determined in the manner that results in the lowest possible rate
being charged. Therefore, it will be assumed that the redemption is first of
shares held for over four years or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the four-
year period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of
shares from a shareholder's account to another account will be assumed to be
made in the same order as a redemption.
To provide an example, assume an investor purchases 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net
asset value per share is $12 and, during such time, the investor has acquired
10 additional shares through dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 shares (proceeds of $600), 10
shares will not be subject to the CDSC because of dividend reinvestment. With
respect to the remaining 40 shares, the CDSC is applied only to the original
cost of $10 per share and not to the increase in net asset value of $2 per
share. Therefore, $400 of the $600 redemption proceeds will be charged at a
rate of 2.0% (the applicable rate in the third year after purchase) for shares
purchased 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 Blueprint (SM) 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 and for any Class B shares that were acquired and held at the time
of
21
<PAGE>
the redemption in an Employee Access Account SM available through employers
providing eligible 401(k) plans. 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 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) to June 30,
1995, the Fund sold 3,236,903 Class C shares for aggregate net proceeds of
$77,339,209. During that period, the Distributor received CDSCs of $13,126
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
22
<PAGE>
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 on
to the holding period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares ("Class B Retirement
Plans"). When the first share of any MLAM-advised mutual fund purchased by a
Class B Retirement Plan has been held for ten years (i.e., ten years from the
date the relationship between MLAM-advised mutual funds and the Class B
Retirement Plan was established), all Class B shares of all MLAM-advised mutual
funds held in that Class B Retirement Plan will be converted into Class D
shares of the appropriate Funds. Subsequent to such conversion, that Class B
Retirement Plan will be sold Class D shares of the appropriate funds at net
asset value per share.
The Conversion Period also is modified for retirement plan investors who
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 participations 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
23
<PAGE>
shareholder and distribution services, and bearing certain distribution-related
expenses of the Fund, including payments to financial consultants for selling
Class B and Class C shares of the Fund. The Distribution Plans relating to
Class B and Class C shares are designed to permit an investor to purchase Class
B and Class C shares through dealers without the assessment of an initial sales
charge and at the same time permit the dealer to compensate its financial
consultants in connection with the sale of the Class B and Class C shares. In
this regard, the purpose and function of the ongoing distribution fees and the
CDSC are the same as those of the initial sales charge with respect to the
Class A and Class D shares of the Fund in that the deferred sales charges
provide for the financing of the distribution of the Fund's Class B and Class C
shares.
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 June 30, 1995, the Fund paid the Distributor
$19,879,726 pursuant to the Class B Distribution Plan (based on average net
assets subject to the Class B Distribution Plan of approximately $2.0 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 June 30, 1995, the Fund paid the Distributor $211,321 pursuant to
the Class C Distribution Plan (based on average net assets subject to the Class
C Distribution Plan of approximately $30.6 million), all of which was paid to
Merrill Lynch for providing account maintenance and distribution-related
activities and services in connection with Class C shares. For the fiscal
period October 21, 1994 (commencement of operations for Class D shares) to June
30, 1995, the Fund paid the Distributor $186,902 pursuant to the Class D
Distribution Plan (based on average net assets subject to the Class D
Distribution Plan of approximately $108.3 million), all of which was paid to
Merrill Lynch for providing account maintenance services in connection with
Class D shares. At September 30, 1995, the net assets of the Fund subject to
the Class B Distribution Plan aggregated approximately $2.7 billion. At this
asset level, the annual fee payable pursuant to the Class B Distribution Plan
would aggregate approximately $26.8 billion. At September 30, 1995, the net
assets of the Fund subject to the Class C Distribution Plan aggregated
approximately $102.5 million. At this asset level, the annual fee payable
pursuant to the Class C Distribution Plan would aggregate approximately $1.0
million. At September 30, 1995, the net assets of the Fund subject to the Class
D Distribution Plan aggregated approximately $269.6 million. At this asset
level, the annual fee payable pursuant to the Class D Distribution Plan would
aggregate approximately $673,881.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred, and accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated
24
<PAGE>
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 $7,910,000 (0.44% of Class B
net assets at that date). As of June 30, 1995, direct cash revenues for the
period since commencement of the offering of Class B shares exceeded direct
cash expenses by $48,450,219 (1.97% 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 June 30, 1995 direct cash expenses for the period since commencement of
the offering of Class C shares exceeded direct cash revenues by $120,815 (0.16%
of Class C net assets at that date).
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".
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
distribution fee and the CDSC borne by the Class B and Class C shares but not
the account maintenance fee. The maximum sales charge rule is applied
separately to each class. As applicable to the Fund, the maximum sales charge
rule limits the aggregate of distribution fee payments and CDSCs payable by the
Fund to (1) 6.25% of eligible gross sales of Class B shares and Class C shares,
computed separately (defined to exclude shares issued pursuant to dividend
reinvestments and exchanges), plus (2) interest on the unpaid balance for the
respective class, computed separately, at the prime rate plus 1% (the unpaid
balance being the maximum amount payable minus amounts received from the
payment of the distribution fee and the CDSC). In connection with the Class B
shares, the Distributor has voluntarily agreed to waive interest charges on the
unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the
maximum amount payable to the Distributor (referred to as the "voluntary
maximum") in connection with the Class B shares is 6.75% of eligible gross
sales. The Distributor retains the right to stop waiving the interest charges
at any time. To the extent payments would exceed the voluntary maximum, the
Fund will not make further payments of the distribution fee with respect to
Class B shares, and any CDSCs will be paid to the Fund rather than to the
Distributor; however, the Fund will continue to make payments of the account
maintenance fee. In certain circumstances the amount payable pursuant to the
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voluntary maximum may exceed the amount payable under the NASD formula. In such
circumstances payment in excess of the amount payable under the NASD formula
will not be made.
REDEMPTION OF SHARES
The 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 redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will receive upon
redemption all dividends reinvested through the date of redemption. The value
of shares at the time of redemption may be more or less than the shareholder's
cost, depending on the market value of the securities held by the Fund at such
time.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by tendering
the shares directly to the Transfer Agent, Merrill Lynch Financial Data
Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption
requests delivered other than by mail should be delivered to Merrill Lynch
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484. Proper notice of redemption in the case of shares deposited with
the Transfer Agent may be accomplished by a written letter requesting
redemption. Proper notice of redemption in the case of shares for which
certificates have been issued may be accomplished by a written letter as noted
above accompanied by certificates for the shares to be redeemed. 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
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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.
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 available only 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. These
statements will also show any other activity in the account since the preceding
statement. Shareholders will receive separate transaction confirmations for
each purchase or sale transaction other than automatic investment purchases and
the reinvestment of ordinary income dividends and long-term capital gain
distributions. Shareholders may make
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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 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.
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 Pricing (SM) System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-
advised mutual fund if the shareholder holds any Class A shares of the second
fund in 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.
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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 any CDSC imposed on such shares, if any,
and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale of the exchanged
shares and a purchase of the acquired shares for Federal income tax purposes.
For further information, see "Shareholder Services--Exchange Privilege" in the
Statement of Additional Information.
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 MFA 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.
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Automatic Reinvestment of Dividends and Capital Gains Distributions. All
dividends and capital gains distributions are reinvested automatically in full
and fractional shares of the Fund, without 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 directly deposited to the shareholder's bank
account. No CDSC will be imposed on redemption of shares issued as a result of
the automatic reinvestment of dividends or capital gains distributions.
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 his 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 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 or
Class D shares may be made to an investor's Investment Account by pre-arranged
charges of $50 or more to his or her regular bank account. Investors who
maintain CMA(R) or CBA(R) accounts may arrange to have periodic investments
made in the Fund in their CMA(R) or CBA(R) accounts or in certain related
accounts in amounts of $100 or more ($1 for retirement plans) through the
CMA(R)/CBA(R) Automated Investment Program.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is responsible for the Fund's portfolio decisions and the
placing of the Fund's portfolio transactions. With respect to such
transactions, the Investment Adviser seeks to obtain the best net results for
the Fund, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution
and operational facilities of the firm involved and the firm's risk in
positioning a block of securities. While the Investment Adviser generally seeks
reasonably competitive commission rates, the Fund will not necessarily be
paying the lowest commission or spread available.
The Fund has no obligation to deal with any broker or dealer in the execution
of its portfolio transactions. The Fund pays brokerage fees to Merrill Lynch in
connection with portfolio transactions executed by Merrill Lynch. Brokers and
dealers, including Merrill Lynch, who provide supplemental investment research
to the Investment Adviser may receive orders for transactions by the Fund.
Information so received is in addition to and not in lieu of the services
required to be performed by the Investment Adviser under the Investment
Advisory Agreement, and the expenses of the Investment Adviser will not
necessarily be reduced as a result of the receipt of such supplemental
information. Supplemental investment research received by the Investment
Adviser also may be used in connection with other investment advisory accounts
of the Investment Adviser and its affiliates. Whether or not a particular
broker-dealer sells shares of the Fund neither qualifies nor disqualifies such
broker-dealer to execute transactions for the Fund.
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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 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 and distribution charges and any incremental transfer agency
costs relating to each class of shares will be borne exclusively by that class.
The Fund will include performance data for all classes of shares of the Fund in
any advertisement or information including performance data of the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return
calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return and (2) the maximum applicable sales
charges will not be included with respect to annual or annualized rates of
return calculations. Aside from the impact on the performance data calculations
of including or excluding the maximum applicable sales charges, actual annual
or annualized total return data generally will be lower than average 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 waiver of the CDSC in the case of Class B and Class C shares
(such as investors in certain retirement plans) or to reduced sales charges in
the case of Class A and Class D shares, 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,
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<PAGE>
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.
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, are 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 to that class. See "Additional Information--Determination of Net
Asset Value" below. Dividends and distributions may be reinvested
automatically in shares of the Fund, at 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 described 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
dividing the sum of the value of the securities held by the Fund plus any cash
or other assets (including interest and dividends accrued but not yet
received) minus all liabilities (including accrued expenses) by the total
number of shares outstanding at such time, rounded to the nearest cent.
Expenses, including the investment advisory fees payable to the Investment
Adviser and any account maintenance and/or distribution fees payable to the
Distributor, are accrued daily. The Fund employs Merrill Lynch Securities
Pricing (SM) Service ("MLSPS"), an affiliate of the Investment Adviser, to
provide certain securities prices for the Fund. During the fiscal year ended
June 30, 1995, the Fund did not pay MLSPS a fee 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 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
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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 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 its last
sale price. Options purchased by the Fund are valued at their last sale 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.
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. 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. 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.
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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 will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, the Fund would not be able to make any
ordinary income dividend distributions, and 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
such 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 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.
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The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs which
are derived from interest on 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.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on March 22, 1977. It has an
authorized capital of 1,000,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and
Class D Common Stock. Class A and Class 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 this Prospectus. Each share of Common
Stock is entitled to participate equally in dividends and distributions
declared by the Fund and in the net assets of the Fund 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.
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
35
<PAGE>
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>
MERRILL LYNCH BASIC VALUE FUND, INC. -- AUTHORIZATION FORM (PART 1)
- -------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASE THROUGH THE MERRILL LYNCH
BLUEPRINT(SM) PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT(SM)
PROGRAM APPLICATION BY CALLING (800) 637-3766.
- -------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class
C shares [_] Class D shares
of Merrill Lynch Basic Value 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)
Occupation........................... Name and Address of Employer ........
.....................................
.....................................
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
(In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- -------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Long-Term Capital
Ordinary Income Dividends Gains
[_] Reinvest
SELECT ONE:
[_] Cash
SELECT ONE:
[_] Reinvest
[_] Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [_] Check
or [_] Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by
direct deposit to my bank account and, if necessary, debit entries and
adjustments for any credit entries made to my account in accordance with the
terms I have selected on the Merrill Lynch Basic Value 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.
37
<PAGE>
MERRILL LYNCH BASIC VALUE FUND, INC. -- AUTHORIZATION FORM (PART 1) --
(CONTINUED)
- -------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security Number or Taxpayer Identification Number and (2)
that I am not subject to backup withholding (as discussed under "Additional
Information--Taxes") either because I have not been notified that I am subject
thereto as a result of a failure to report all interest or dividends, or the
Internal Revenue Service ("IRS") has notified me that I am no longer subject
thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDER-REPORTING AND
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS
BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS
CERTIFICATION TO OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
- -------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND D SHARES ONLY (SEE TERMS AND CONDITIONS IN
THE STATEMENT OF ADDITIONAL INFORMATION)
..................., 19......
Dear Sir/Madam: Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Basic Value 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 Basic Value 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 Basic Value Fund, Inc. held as security.
By: ................................. .....................................
Signature of Owner Signature of Co-Owner
(If registered in joint names,
both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name............................. (2) Name.............................
Account Number.......................
Account Number.......................
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp 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
- - -
This form when completed, should By: .................................
be mailed to: Authorized Signature of Dealer
Merrill Lynch Basic Value Fund, Inc.
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289 [_][_][_] [_][_][_][_] ..............
Jacksonville, FL 32232-5289 Branch Code F/C No. F/C Last Name
[_][_][_] [_][_][_][_][_]
Dealer's Customer A/C No.
38
<PAGE>
MERRILL LYNCH BASIC VALUE 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
(Please Print)
Name........................................... Social Security No. or
First Name Initial Last Name Taxpayer Identification
Number
Name of Co-Owner (if any)......................
First Name Initial Last Name
Address........................................ Account Number ..............
(if existing account)
...............................................
(Zip Code)
- -------------------------------------------------------------------------------
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 Basic Value Fund, Inc.
at cost or current offering price. Withdrawals to be made either (check one)
[_] Monthly on the 24th day of each month, or [_] Quarterly on the 24th day of
March, June, September and December. If the 24th falls on a weekend or
holiday, the next succeeding business day will be utilized. Begin systematic
withdrawal on or as soon as possible thereafter.
(month)
SPECIFY 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 SHOULD ACCOMPANY THIS APPLICATION.
39
<PAGE>
MERRILL LYNCH BASIC VALUE 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 Basic Value 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.
AUTHORIZATION TO HONOR ACH DEBITS
MERRILL LYNCH FINANCIAL DATA
SERVICES, INC.
You are hereby authorized to draw an DRAWN BY MERRILL LYNCH FINANCIAL
ACH debit each month on my bank DATA SERVICES, INC.
account for investment in Merrill
Lynch Basic Value Fund, Inc., as
indicated below:
To...............................Bank
(Investor's Bank)
Bank Address.........................
City....... State........ Zip.......
Amount of each ACH debit $........
Account No. ...................... 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.
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
............ .....................
Bank Signature of Depositor
Account (If joint account,
Number both must sign)
............ .....................
Date Signature of
Depositor
......................
Signature of Depositor
(If joint account,
both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
40
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
INVESTMENT ADVISER
Fund Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
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>
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 Pricing(SM) System.................................... 4
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............................................................ 15
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....................................................... 26
Redemption................................................................ 26
Repurchase................................................................ 26
Reinstatement Privilege--Class A and
Class D Shares........................................................... 27
Shareholder Services....................................................... 27
Investment Account........................................................ 27
Exchange Privilege........................................................ 28
Automatic Reinvestment of Dividends and Capital Gains Distributions....... 30
Systematic Withdrawal Plans............................................... 30
Automatic Investment Plans................................................ 30
Portfolio Transactions and Brokerage....................................... 30
Performance Data........................................................... 31
Additional Information..................................................... 32
Dividends and Distributions............................................... 32
Determination of Net Asset Value.......................................... 32
Taxes..................................................................... 33
Organization of the Fund.................................................. 35
Shareholder Reports....................................................... 35
Shareholder Inquiries..................................................... 36
Authorization Form......................................................... 37
</TABLE>
Code #10042-1095
LOGO MERRILL LYNCH
Merrill Lynch Basic Value Fund
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
[ART]
PROSPECTUS
October 26, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH BASIC VALUE FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Basic Value Fund, Inc. (the "Fund") is a diversified, open-end
investment company seeking capital appreciation and, secondarily, income by
investing in securities, primarily equities, that management of the Fund
believes are undervalued and therefore represent basic investment value. The
Fund seeks special opportunities in securities that are selling at a discount,
either from book value or historical price-earnings ratios, or seem capable of
recovering from temporarily out of favor considerations. Particular emphasis is
placed on securities which provide an above-average dividend return and sell at
a below-average price-earnings ratio.
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 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 October
26, 1995 (the "Prospectus"), which has been filed with the Securities and
Exchange 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.
----------------
FUND ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
----------------
The date of this Statement of Additional Information is October 26, 1995.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek capital appreciation and,
secondarily, income by investing in securities, primarily equities, that
management of the Fund believes are undervalued and therefore represent basic
investment value. Reference is made to "Investment Objective and Policies" in
the Prospectus for a discussion of the investment objective and policies of the
Fund.
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
use of covered call options is not a primary investment technique of the Fund
and such options normally will be written on underlying securities as to which
management does not anticipate significant short-term capital appreciation. In
its use of options, the Fund's investment adviser has access to personnel of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") with
extensive experience in options research and strategy. The Fund may not write
covered options on underlying securities exceeding 15% 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, American Stock
Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange or New York Stock
Exchange. An option gives the purchaser of the 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 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 his 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 the 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 upon the original option, in which event 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 liquid secondary market on an exchange will exist
for any particular option. A covered option writer unable to effect a closing
purchase transaction will not be
2
<PAGE>
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 liquid 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.
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
rates 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 rates of portfolio turnover for the years ended June 30, 1995, 1994 and
1993 were 11.69%, 21.79% and 20.85%, respectively.
Investment Restrictions. In addition to the investment 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 securities (which for
this purpose 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). 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 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,
3
<PAGE>
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.
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 Fund's 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
4
<PAGE>
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.
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
Fund Asset Management, L.P., the investment adviser of 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 market value, and
then only from banks as a temporary measure for extraordinary or emergency
purposes.
Lending of Portfolio Securities. Subject to investment restriction (5) above,
the Fund may from time to time lend securities from its portfolio to brokers,
dealers and financial institutions and receive collateral in cash or securities
issued or guaranteed by the United States Government which will be maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities. Such cash collateral will be invested in short-term
securities, which will increase the current income of the Fund. Such loans will
be terminable at any time. 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. The Fund may pay reasonable fees to persons unaffiliated with
the Fund for services in arranging such loans.
Investment in Foreign Issuers. 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
5
<PAGE>
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 the
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.
----------------
Because of the affiliation of 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.
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 (63)--President and Director(1)(2)--President of the Investment
Adviser (which term as used herein includes its corporate predecessors) since
1977; President of MLAM (which term as used herein includes its 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 of Westchester County (N.Y.) Board of Transportation.
M. Colyer Crum (63)--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 (67)--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 since 1971;
President, Director and Chief Executive Officer of Coroil, Inc. (an energy
company) from 1979 to 1985.
6
<PAGE>
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 (55)--Executive Vice President(1)(2)--Executive Vice
President of the Investment Adviser and MLAM since 1983; Executive Vice
President and Director of Princeton Services since 1993; President of the
Distributor since 1986 and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
Norman R. Harvey (62)--Senior Vice President(1)(2)--Senior Vice President of
the Investment Adviser and MLAM since 1982; Senior Vice President of Princeton
Services since 1993.
Paul M. Hoffmann (65)--Vice President(1)--Vice President of MLAM since 1976.
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.
Gerald M. Richard (46)--Treasurer(1)(2)--Senior Vice President and Treasurer
of the Investment Adviser and MLAM since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993; Treasurer of the Distributor since
1984 and Vice President of the Distributor since 1981.
Mark B. Goldfus (49)--Secretary(1)(2)--Vice President of MLAM and the
Investment Adviser 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 MLAM acts as
investment adviser.
At September 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
Pursuant to the terms of the Fund's investment advisory agreement with the
Investment Adviser (the "Investment Advisory Agreement"), the Investment
Adviser pays all compensation of officers and employees of the Fund as well as
the fees of all Directors of the Fund who are affiliated persons of ML & Co.
or 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 attended. The Fund also pays each member of the Audit
Committee of the Board of Directors, which consists of all of 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
$40,855 for the year ended June 30, 1995.
7
<PAGE>
The following table sets forth for the fiscal year ended June 30, 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, MLAM ("MLAM/FAM-Advised Funds") to the non-interested
Directors:
<TABLE>
<CAPTION>
AGGREGATE
PENSION OR COMPENSATION
RETIREMENT FROM FUND AND
BENEFITS ACCRUED MLAM/FAM-ADVISED
COMPENSATION AS PART OF FUNDS PAID TO
DIRECTOR FROM THE FUND FUND EXPENSE TRUSTEE/DIRECTOR(1)
- -------- ------------- ---------------- -------------------
<S> <C> <C> <C>
Donald Cecil................. $9,000 None $276,350
M. Colver Crum............... $8,000 None $126,600
Edward H. Meyer.............. $7,500 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 (48 funds), M. Colver 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.
The Investment Advisory Agreement provides that, subject to the direction of
the Board of Directors of the Fund, the Investment Adviser is responsible for
the actual management of the Fund's portfolio and for the review of the Fund's
holdings in light of its own research analysis and analyses from other
relevant sources. 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 transactions accordingly. The Investment
Adviser also is obligated to perform certain administrative and management
services for the Fund and is required to provide all of 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 MLAM acts as
an adviser or by investment advisory clients of MLAM. 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 MLAM 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 MLAM 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.
8
<PAGE>
As compensation for its services to the Fund the Investment Adviser receives
from the Fund at the end of each month a fee based on the average daily value
of the Fund's net assets at the annual rates of: 0.60% of the portion of
average net assets not exceeding $100 million; 0.50% of the portion of average
net assets exceeding $100 million but not exceeding $200 million; and 0.40% of
the portion of average net assets exceeding $200 million. For the fiscal year
ended June 30, 1995, 1994 and 1993, the advisory fees paid by the Fund to the
Investment Adviser totalled $18,443,250, $15,452,148 and $12,004,310,
respectively.
The State of California imposes limitations on the expenses of the Fund. At
the date of this Statement of Additional Information, these annual expense
limitations require that the Investment Adviser reimburse the Fund in any
amount necessary to prevent the Fund's aggregate ordinary operating expenses
(excluding interest, 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
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 Investment Adviser was not required to reimburse
the Fund pursuant to the applicable expense limitation provisions during the
fiscal years ended June 30, 1995, 1994 or 1993.
The Investment Advisory Agreement obligates the Investment Adviser to provide
investment advisory services and to pay all compensation of and furnish office
space for officers and employees of the Fund connected with investment and
economic research, trading and investment management of the Fund, as well as
the fees of all Directors of the Fund who are affiliated persons of ML & Co. or
any of its affiliates. The Fund pays all other expenses incurred in the
operation of the Fund, including, among other things, taxes; expenses for legal
and auditing services; costs of printing proxies, stock certificates,
shareholder reports, prospectuses and statements of additional information
(except to the extent paid by the Distributor); charges of the custodian and
the transfer agent; expenses of redemption of shares; Securities and Exchange
Commission fees; expenses of registering the shares under Federal and state
securities laws; fees and expenses of unaffiliated Directors; accounting and
pricing costs (including the daily calculations of net asset value); insurance;
interest; brokerage costs; litigation and other extraordinary or non-recurring
expenses; and other expenses properly payable by the Fund. Accounting services
are provided for the Fund by the Investment Adviser and the Fund reimburses the
Investment Adviser for its costs in connection with such services. As required
by the Distribution Agreements, the Distributor will pay certain of the
expenses of the Fund incurred in connection with the offering of its shares,
including the expenses of printing the prospectuses and statements of
additional information used in connection with the continuous offering of
shares by 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 of the Fund or by a majority of
the outstanding shares of the Fund and (b) by a majority of the Directors who
are
9
<PAGE>
not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contract is not assignable and
may be terminated without penalty on 60 days' written notice at the option of
either party or by the vote of the shareholders of the Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing SM System: shares of Class A and Class D are sold to investors
choosing the initial sales charge alternatives, and shares of Class B and
Class C are sold to investors choosing the deferred sales charge alternatives.
Each Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
Class B, Class C and Class D shares each have exclusive voting rights with
respect to the Rule 12b-1 distribution plan adopted with respect to such class
pursuant to which account maintenance and/or distribution fees are paid. Each
class has different exchange privileges. See "Shareholder Services--Exchange
Privilege".
The Merrill Lynch Select Pricing SM System is used by more than 60 mutual
funds advised by MLAM or its affiliate, the Investment Adviser. Funds advised
by MLAM or the Investment Adviser which use the Merrill Lynch Select
Pricing SM System are referred to 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,
statements of additional information and periodic reports have been prepared,
set in type and mailed to shareholders, the Distributor pays for the printing
and distribution of copies thereof used in connection with the offering to
dealers and investors. The Distributor also pays for other supplementary sales
literature and advertising costs. The Distribution Agreements are subject to
the same renewal requirements and termination provisions as the Investment
Advisory Agreement described above.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
The gross sales charges for the sale of Class A shares for the year ended
June 30, 1995 were $1,586,058, of which the Distributor received $86,913 and
Merrill Lynch received $1,499,145 as a selected dealer of such shares. The
gross sales charges for the sale of Class A shares for the year ended June 30,
1994 were $3,755,873, of which the Distributor received $216,293 and Merrill
Lynch received $3,539,580 as a selected dealer of such shares. The gross sales
charges for the sale of Class A shares for the year ended June 30, 1993 were
approximately $2,799,895, of which the Distributor received approximately
$149,552 and Merrill Lynch received $2,650,343 as a selected dealer of such
shares. For the period October 21, 1994 (commencement of operations) to June
30, 1995, the gross sales charges for the sale of Class D shares were
$1,239,289, of which
10
<PAGE>
the Distributor received $73,637 and Merrill Lynch received $1,165,652 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 a "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 purpose other than the purchase of shares of the Fund or shares of
other registered investment companies at a discount; provided, however, that it
shall not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit cardholders of
a company, policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
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 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 record keeping services. The Letter of Intention is not a
binding obligation to purchase any amount of Class A or Class D shares;
however, its execution will result in the purchaser paying a lower sales charge
at the appropriate quantity purchase level. A purchase not originally made
pursuant to a Letter of Intention may be included under a subsequent Letter of
Intention executed within 90 days of such purchase if the Distributor is
informed in writing of this intent within such 90-day period. The value of
Class A and Class D shares of the Fund and of other MLAM-advised mutual funds
presently held, at cost or maximum offering price (whichever is higher), on the
date of the first purchase under the Letter of Intention, may be included as a
credit toward the completion of such Letter, but the reduced sales charge
applicable to the amount covered by such Letter will be applied only to new
purchases. If the total amount of shares does
11
<PAGE>
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 for accumulation, the purchaser will be entitled on that purchase
and subsequent purchases to that 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 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, trade associations and benefit plans.
Investors placing orders to purchase Class A or Class D shares of the Fund
through Blueprint will acquire the Class A or Class D shares at net asset value
plus a sales charge calculated in accordance with the Blueprint sales charge
schedule (i.e., up to $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 or 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.
Employee Access AccountsSM. Class A or Class D shares are offered at net
asset value to Employee Access Accounts available through employers that
provide employer sponsored retirement or savings plans
12
<PAGE>
that are eligible to purchase such shares at net asset value. The initial
minimum for such accounts is $500, except that the initial minimum for shares
purchased for such accounts pursuant to the Automatic Investment Program is
$50.
TMASM Managed Trusts. Class A shares are offered to TMASM Managed Trusts to
which Merrill Lynch Trust Company provides discretionary trustee services at
net asset value.
Employer Sponsored Retirement and 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 Code, deferred compensation plans within the meaning of Section
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 Plans", provided the 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 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 initial sales charge 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.
Purchase Privilege 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 MLAM, 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 will be 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
13
<PAGE>
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 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.
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.
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 MLAM or the
Investment Adviser who purchased such closed-end fund shares prior to October
21, 1994 (the date the Merrill Lynch Select Pricing SM System commenced
operations) and wish to reinvest the net proceeds from a sale of their closed-
end fund shares of common stock in Eligible Class A 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
14
<PAGE>
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 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.
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 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 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/or distribution fees are subject
to the provisions of Rule 12b-1 under the Investment Company Act. Among other
things, each Distribution Plan provides that the Distributor shall provide and
the Directors shall review quarterly reports of the disbursement of the account
maintenance fees and/or distribution fees paid to the Distributor. In their
consideration of each Distribution Plan, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Fund and its related class of shareholders. Each
Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Fund, as defined in the Investment Company Act (the
"Independent Directors"), shall be committed to the discretion of the
Independent Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the Independent Directors concluded that there is a
reasonable likelihood that such Distribution Plan will benefit the Fund and its
related class of shareholders. Each Distribution Plan can be terminated at any
time, without penalty, by the vote of a majority of the Independent Directors
or by the vote of the holders of a majority of the outstanding related class of
voting securities of the Fund. A Distribution Plan cannot be amended to
increase materially the amount to be spent by the Fund without the approval of
the related class of shareholders, and all material amendments are
15
<PAGE>
required to be approved by the vote of the Directors, including a majority of
the Independent Directors who have no direct or indirect financial interest in
such Distribution Plan, cast in person at a meeting called for that purpose.
Rule 12b-1 further requires that the 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. ("NASD") imposes a limitation on
certain asset-based sales charges such as the distribution fee and the CDSC
borne by the Class B and Class C shares but not the account maintenance fee.
The maximum sales charge rule is applied separately to each class. As
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of
eligible gross sales of Class B shares and Class C shares, computed separately
(defined to exclude shares issued pursuant to dividend reinvestments and
exchanges), plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Fund will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSCs will be paid to the Fund rather than to the Distributor; however,
the Fund will continue to make payments of the account maintenance fee. In
certain circumstances the amount payable pursuant to the voluntary maximum may
exceed the amount payable under the NASD formula. In such circumstances payment
in excess of the amount payable under the NASD formula will not be made.
16
<PAGE>
The following table sets forth comparative information as of June 30, 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 with respect to (i) Class B shares, the Distributor's
voluntary maximum for the period October 21, 1988 (commencement of operations)
to June 30, 1995 and (ii) Class C Shares, the Distributor's voluntary maximum
for the period October 21, 1994 (commencement of operations) to June 30, 1995,
with respect to Class C shares.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF JUNE 30, 1995
(IN THOUSANDS)
-----------------------------------------------------------------------------------
ANNUAL
DISTRIBUTION
ALLOWABLE AMOUNTS FEE AT
AGGREGATE INTEREST ON MAXIMUM PREVIOUSLY AGGREGATE CURRENT
ELIGIBLE GROSS SALES UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
-------------- --------- ----------- -------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B
Under NASD Rule as
Adopted................ $2,352,927 $147,058 $33,328 $180,386 $67,976 $112,410 $18,482
Under Distributor's
Voluntary Waiver....... $2,352,927 $158,823 $11,765 $170,588 $67,976 $102,612 $18,482
CLASS C
Under NASD Rule as
Adopted................ $ 67,946 $ 4,247 $ 115 $ 4,362 $ 172 $ 4,190 $ 558
</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.
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.
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<PAGE>
DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares", while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived on redemptions of Class B shares in 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
June 30, 1995, 1994 and 1993, the Distributor received CDSCs of $1,951,585,
$1,189,344 and $1,529,410, 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 June 30, 1995, the Distributor
received CDSCs of $13,126 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.
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 Section
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
18
<PAGE>
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. The CDSC is also waived for any Class B shares that were acquired and
held at the time of the redemption in an Employee Access Account SM available
through employers that provide Eligible 401(k) Plans. The initial minimum for
such accounts is $500, except that the initial minimum for shares purchased
for such accounts pursuant to the Automatic Investment Program is $50.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is responsible for the Fund's portfolio decisions and
placing the Fund's portfolio transactions. With respect to such transactions,
the Investment Adviser seeks to obtain the best net results for the Fund
taking into account such factors as price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of execution and
operational facilities of the firm involved and the firm's risk in positioning
a block of securities. While the Investment Adviser generally seeks reasonably
competitive commission rates, the Fund will not necessarily be paying the
lowest commission or spread available. Transactions with respect to the
securities of small and emerging growth companies in which the Fund may invest
may involve specialized services on the part of the broker or dealer and
thereby entail higher commissions or spreads than would be the case with
transactions involving more widely traded securities of more established
companies. The Fund has no obligation to deal with any broker in the execution
of transactions for its portfolio securities. 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 June 30, 1995, the Fund paid total brokerage
commissions of $2,515,001 of which $81,150 or 3.23% was paid to Merrill Lynch
for effecting 3.44% of the aggregate dollar amount of transactions in which
the Fund paid brokerage commissions. For the fiscal year ended June 30, 1994,
the Fund paid total brokerage commissions of $2,617,266 of which $109,200 or
4.17% was paid to Merrill Lynch for effecting 4.42% of the aggregate dollar
amount of transactions in which the Fund paid brokerage commissions. For the
fiscal year ended June 30, 1993, the Fund paid total brokerage commissions of
$2,113,701 of which $71,016 or 3.36% was paid to Merrill Lynch for effecting
3.96% of the aggregate dollar amount of transactions in which the Fund paid
brokerage commissions.
The Fund has been informed by Merrill Lynch that it will in no way, at any
time, attempt to influence or control the placing by the Investment Adviser or
by the Fund of orders for brokerage transactions. Brokers and dealers,
including Merrill Lynch, who provide supplemental investment research (such as
securities and economic research and market forecasts) to the Investment
Adviser may receive orders for transactions by the Fund. Information so
received is in addition to and not in lieu of the services required to be
performed by the Investment Adviser under the Investment Advisory Agreement
with the Fund, and the expenses of the Investment Adviser will not necessarily
be reduced as a result of the receipt of such supplemental information.
Supplemental investment research received by the Investment Adviser may also
be used in connection with
19
<PAGE>
other investment advisory accounts of the Investment Adviser and its
affiliates. Whether or not a particular broker-dealer sells shares of the Fund
neither qualifies nor disqualifies such broker-dealer to execute transactions
for the Fund.
The Fund also may invest in securities traded in the over-the-counter market.
Transactions in the over-the-counter market generally are principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to the over-the-counter
transactions the Fund, where possible, will deal directly with the dealers who
make a market in the securities involved except in those circumstances where
better prices and execution are available elsewhere. Under the Investment
Company Act, persons affiliated with the Fund are prohibited from dealing with
the Fund as a principal in the purchase and sale of securities unless a
permissive order allowing such transactions is obtained from the Commission.
Since transactions in the over-the-counter market usually involve transactions
with dealers acting as principal for their own account, affiliated persons of
the Fund, including Merrill Lynch, may not serve as the Fund's dealer in
connection with such transactions. See "Investment Objective and Policies--
Current Investment Restrictions". However, an affiliated person of the Fund may
serve as its broker in the 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 U.S. 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 setting forth the aggregate compensation received by
the member in effecting such transactions, and (iii) complies with any rules
the Securities and Exchange Commission has prescribed with respect to the
requirements of clauses (i) and (ii). To the extent Section 11(a) would apply
to Merrill Lynch acting as a broker for the Fund in any of its portfolio
transactions executed on any such securities exchange of which it is a member,
appropriate consents have been obtained from the Fund and annual statements as
to aggregate compensation will be provided to the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
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,
20
<PAGE>
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 affected materially, 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 the Class B, Class C and Class D shares generally
will be lower than the per share net asset value of the Class A shares
reflecting the daily expense accruals of the account maintenance, distribution
and higher transfer agency fees applicable with respect to the Class B and
Class C shares and the daily expense accruals of the account maintenance fees
applicable with respect to the Class D shares; moreover the per share net asset
value of the Class B and Class C shares generally will be lower than the per
share net asset value of Class D shares reflecting the daily expense accruals
of the distribution fees and higher transfer agency fees applicable with
respect to the Class B and Class C shares of the 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 differential 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 its last
sale price. Options purchased by the Fund are valued at their last sale 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 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.
21
<PAGE>
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. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and capital gain distributions. These 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 gain distributions. A shareholder may make
additions to his or her Investment Account at any time by mailing a check
directly to the Transfer Agent.
Share certificates are issued only for full shares and only upon the specific
request of the shareholder who has an Investment Account. 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.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer, or by mail directly to the transfer agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Automatic Investment Plan whereby the Fund is authorized through
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<PAGE>
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 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 in the form of payments by check or through
automatic payment by direct deposit to such shareholder's bank account on
either a monthly or quarterly basis as provided below. Quarterly withdrawals
are available for shareholders who have acquired 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 such 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 City 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
of the withdrawal payment will be made, on the next business day following
redemption. When a shareholder is making systematic withdrawals, dividends and
distributions on all Class A or Class D shares in the Investment Account are
reinvested automatically in Class A or Class D shares of the Fund,
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
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<PAGE>
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 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 plan.
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 Pricing 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
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
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<PAGE>
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 and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was
paid. Based on this formula, Class A and Class D shares of the Fund generally
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 and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, of another MLAM-
advised mutual fund ("new Class B or Class C shares") on the basis of relative
net asset value per Class B or Class C share, without the payment of any CDSC
that might otherwise be due on redemption of the outstanding shares. Class B
shareholders of the 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 the 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" on 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 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
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<PAGE>
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 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 continued 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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<PAGE>
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 shareholders with 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
shareholders with 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
shareholders with 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, A high level of current income through
Inc. ............................. 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 stock and other types of
securities, including fixed income
securities and convertible securities.
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<PAGE>
Merrill Lynch California Insured
Municipal Bond Fund...............
A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide
shareholders with 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 shareholders with 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
shareholders with as high a level of
income exempt from Federal and
California income taxes as is consistent
with prudent investment management.
Merrill Lynch Capital Fund, Inc. .. The highest total investment return
consistent with prudent risk through a
fully managed investment policy
utilizing equity, debt and convertible
securities.
Merrill Lynch Colorado Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide
shareholders with 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
shareholders with as high a level of
income exempt from Federal and
Connecticut income taxes as is
consistent with prudent investment
management.
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<PAGE>
Merrill Lynch Corporate Bond
Fund, Inc. .......................
Current income from three separate
diversified portfolios of fixed income
securities.
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.
Capital appreciation primarily through
Merrill Lynch EuroFund........ 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 shareholders with 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
shareholders with 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.
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<PAGE>
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 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 A portfolio of Merrill Lynch Asset
Merrill Lynch acts as custodian) Builder Program, Inc., a series fund,
whose objective is to provide
shareholders with 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 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.
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<PAGE>
Merrill Lynch Global Opportunity
Portfolio..... (available only for
exchanges by certain individual A portfolio of Merrill Lynch Asset
retirement accounts for which Builder Program, Inc., a series fund,
Merrill Lynch acts as custodian) whose objective is to provide
shareholders with a high total
investment return 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
foreign and domestic 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.
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<PAGE>
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
shareholders with as high a level of
income 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 shareholders with 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
shareholders with 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,
Inc. .............................
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide shareholders with 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
shareholders with as high a level of
income exempt from Federal and Michigan
income taxes as is consistent with
prudent investment management.
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<PAGE>
Merrill Lynch Minnesota Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide
shareholders with 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
shareholders with as high a level as
possible of income exempt from Federal
income taxes by investing 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 shareholders with 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
shareholders with 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
shareholders with as high a level of
income exempt from Federal and New
Mexico income taxes as is consistent
with prudent investment management.
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<PAGE>
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 shareholders with 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
shareholders with 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
shareholders with as high a level of
income exempt from Federal and North
Carolina income taxes as is consistent
with prudent investment management.
Merrill Lynch Ohio Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide
shareholders with 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
shareholders with 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.
34
<PAGE>
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 shareholders with 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
shareholders with 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
issues 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 A portfolio of Merrill Lynch Asset
Portfolio..... (available only for Builder Program, Inc., a series fund,
exchanges by certain individual whose objective is to provide
retirement accounts for which shareholders with a high level of
Merrill Lynch acts as custodian) current income through investment in a
diversified portfolio of debt
obligations, 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 stocks, of relatively small
companies believed to have special
investment value and emerging growth
companies regardless of size.
35
<PAGE>
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, Capital appreciation through worldwide
Inc. ............................. 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
shareholders with 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 A portfolio of Merrill Lynch Asset
for which Merrill Lynch acts as Builder Program, Inc., a series fund,
custodian) whose objective is to provide
shareholders with 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.
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.
36
<PAGE>
Merrill Lynch Retirement Reserves
Money Fund (available only for
exchanges within certain
retirement plans).................
Currently the only portfolio of Merrill
Lynch Retirement Series Trust, a series
fund, whose objectives are to provide
shareholders with 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
shareholders with 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.
Merrill Lynch Institutional Fund...
A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide
shareholders with 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
shareholders with 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.
37
<PAGE>
Merrill Lynch Treasury Fund........
A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide
shareholders with 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 in accordance with the rules of the
Securities and Exchange Commission. The Fund reserves the right to limit the
number of times an investor may exercise the exchange privilege. Certain funds
may suspend the continuous offering of their shares at any time and thereafter
may resume such offering from time to time. The exchange privilege is available
only to U.S. shareholders in states where the exchange legally may be made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all of its net investment income, if
any. Dividends from such investment income are paid semiannually. All net
realized long- or short-term capital gains, if any, are 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. 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 described below, whether they are invested 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 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,
38
<PAGE>
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. 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 Securities and Exchange 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 that was
declared in the previous October, November or December to shareholders of
record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid 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
39
<PAGE>
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 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
reduces any sales charge the shareholder would have owed upon the purchase of
the new shares in the absence of the exchange privilege. Instead, such sales
charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income
and capital gains in the manner necessary to 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 options with respect to the securities that it
holds in its portfolio 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 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. Application of these rules to Section 1256
contracts held by the Fund may alter the timing and character of distributions
to shareholders. The mark-to-market rules outlined above, however, will not
apply to certain transactions entered into by the Fund solely to reduce the
risk of changes in price or interest 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.
40
<PAGE>
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 U.S. dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the Fund may elect
capital gain or loss treatment for such transactions. 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 would be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Fund shares and resulting in a capital gain for any
shareholder who received a distribution greater than such shareholder's basis
in Fund shares (assuming the shares were held as a capital asset). These rules
and the mark-to-market rules described above, however, will not apply to
certain transactions entered into by the Fund solely to reduce the risk of
currency fluctuations with respect to its investments.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs which
are derived from interest on 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.
41
<PAGE>
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 a formula specified by the
Securities and Exchange 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 since the aggregate
rates of return reflect compounding over a longer period of time.
42
<PAGE>
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
EXPRESSED AS VALUE OF A EXPRESSED AS VALUE OF A EXPRESSED AS VALUE OF A EXPRESSED AS VALUE OF A
A PERCENTAGE HYPOTHETICAL A PERCENTAGE HYPOTHETICAL A PERCENTAGE HYPOTHETICAL A PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT
$1,000 AT THE END OF $1,000 AT THE END OF $1,000 AT THE END OF $1,000 AT THE END OF
PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD
------ ------------ ------------- ------------ ------------- ------------ ------------- ------------ -------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Year Ended
June 30, 1995... 15.28% $ 1,152.80 16.45% $1,164.50
Five Years Ended
June 30, 1995... 11.96% $ 1,758.80 12.02% $1,763.80
Ten Years Ended
June 30, 1995... 12.81% $ 3,337.50
Inception
(October 21,
1988) to June
30, 1995........ 10.58% $1,960.30
Inception
(October 21,
1994) to June
30, 1995........ 21.80% $1,145.90 14.99% $1,101.30
<CAPTION>
YEAR ENDED JUNE
30,
- ---------------
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995............ 21.67% $ 1,216.70 20.45% $1,204.50
1994............ 5.68% $ 1,056.80 4.61% $1,046.10
1993............ 19.03% $ 1,190.30 17.81% $1,178.10
1992............ 15.08% $ 1,150.80 13.90% $1,139.00
1991............ 5.39% $ 1,053.90 4.33% $1,043.30
1990............ 1.77% $ 1,017.70 0.73% $1,007.30
1989............ 16.29% $ 1,162.90
1988............ 1.90% $ 1,019.00
1987............ 22.37% $ 1,223.70
1986............ 28.59% $ 1,285.90
1985............ 35.35% $ 1,353.50
1984............ (0.18%) $ 998.20
1983............ 67.64% $ 1,676.40
1982............ (12.09%) $ 879.10
1981............ 29.28% $ 1,292.80
1980............ 15.98% $ 1,159.80
1979............ 15.62% $ 1,156.20
1978............ 10.48% $ 1,104.80
Inception
(October 21,
1988) to June
30, 1989........ 10.33% $1,103.30
Inception
(October 21,
1994) to June
30, 1995** ..... 15.59% $1,155.90 16.23% $1,162.30
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception (July
1, 1977) to June
30, 1995........ 1,172.66% $12,726.60
Inception
(October 21,
1988) to June
30, 1995........ 96.03% $1,960.30
Inception
(October 21,
1994) to June
30, 1995** ..... 14.59% $1,145.90 10.13% $1,101.30
</TABLE>
- ----
* Information as to Class B shares is presented only for the period October
21, 1988 to June 30, 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 June 30, 1995. Prior to October 21, 1994, no
Class C or Class D shares were publicly issued.
43
<PAGE>
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 incorporated under Maryland law on March 22, 1977. It has an
authorized capital of 1,000,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and
Class D Common Stock. Class A and Class B each consists of 300,000,000 shares
of Common Stock and Class C and Class D each consists of 200,000,000 shares of
Common Stock. 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 Securities and Exchange Commission (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. Generally, under Maryland law, a meeting of shareholders
may be called for any purpose on the written request of the holders of at least
25% of the outstanding shares of the Fund. Also, the by-laws of the Fund
require that a special meeting of shareholders be held on the written request
of at least 10% of the outstanding shares of the Fund entitled to vote at the
meeting. 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
are issued by the transfer agent only on specific request. Certificates for
fractional shares are not issued in any case.
44
<PAGE>
COMPUTATION OF OFFERING PRICE PER SHARE
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 June 30, 1995, is set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
-------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Net Assets.............. $2,834,652,321 $2,464,247,794 $74,333,991 $203,032,993
============== ============== =========== ============
Number of Shares
Outstanding............ 107,197,900 94,482,533 2,860,765 7,687,830
============== ============== =========== ============
Net Asset Value Per
Share (net assets
divided by number of
shares outstanding).... $ 26.44 $ 26.08 $ 25.98 $ 26.41
Sales Charge (for Class
A and Class D shares:
5.25% of offering price
(5.54% of net asset
value per share))*..... 1.46 ** ** 1.46
============== ============== =========== ============
Offering Price.......... $ 27.90 $ 26.08 $ 25.98 $ 27.87
============== ============== =========== ============
</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 shareholders 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 32246-4484, 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. See "Management of the Fund--Transfer Agency Services" in
the Prospectus.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
45
<PAGE>
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on June 30 of each year. The Fund will send
to its shareholders at least semiannually 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 of 1933 and the Investment Company Act to which
reference is hereby made.
To the knowledge of the Fund, only one person or entity owned beneficially 5%
or more of the Fund's shares on October 1, 1995. At October 1, 1995, the Cira
Omnibus Account (an account composed of investments for Merrill Lynch employee
retirement plans and 401(k) contributions), 400 Atrium Drive, 4th Floor,
Somerset, New Jersey 08873, owned 11,783,637, or approximately 5.3%, of the
Fund's outstanding shares.
46
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Basic Value Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Basic Value Fund, Inc. as of June
30, 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 June
30, 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 Basic
Value Fund, Inc. as of June 30, 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
July 31, 1995
47
<PAGE>
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Value Percent of
Industry Held Stocks Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C>
Discount from Book Value
Metals/Non-Ferrous 1,600,000 ASARCO Inc. $ 40,877,630 $ 48,800,000 0.9%
Insurance 260,000 American National Insurance Co. 9,749,442 15,665,000 0.3
Utilities--Electric 1,800,000 Entergy Corp. 38,211,274 43,425,000 0.8
Telecommunications 1,400,000 Telefonica de Espana, S.A. (ADR)* 42,507,830 54,250,000 0.9
-------------- -------------- ------
131,346,176 162,140,000 2.9
Below-Average Price/Earnings Ratio
Savings & Loans 1,850,000 Ahmanson (H.F.) & Co. 32,200,305 40,700,000 0.7
Insurance 600,000 The Allstate Corp. 16,316,532 17,775,000 0.3
Insurance 2,000,000 American General Corp. 35,557,769 67,500,000 1.2
Steel 2,600,000 ++Bethlehem Steel Corp. 38,429,300 42,250,000 0.8
Oil--International 721,886 The British Petroleum Co. PLC (ADR)* 34,636,351 61,811,488 1.1
Banking 900,000 The Chase Manhattan Corp. 20,213,162 42,300,000 0.8
Banking 2,820,272 Citicorp 77,865,009 163,223,242 2.9
Restaurants 1,800,000 Darden Restaurants, Inc. (a) 18,379,741 19,575,000 0.4
Financial Services 700,000 Dean Witter, Discover & Co. 18,012,707 32,900,000 0.6
Farm & Construction
Equipment 1,800,000 Deere & Co. 104,592,849 154,125,000 2.8
Information Processing 2,500,000 ++Digital Equipment Corp. 92,004,575 101,875,000 1.8
Capital Goods 935,000 Eaton Corp. 47,051,835 54,346,875 1.0
Retail 2,200,000 ++Federated Department Stores, Inc. 40,739,118 56,650,000 1.0
Banking 1,150,000 First Interstate Bancorp 53,035,168 92,287,500 1.7
Automotive 3,400,000 Ford Motor Co. 78,787,662 101,150,000 1.8
Automotive 2,665,000 General Motors Corp. 115,740,442 124,921,875 2.2
Conglomerates 1,000,000 ITT Corp. 46,914,030 117,500,000 2.1
Machinery 850,000 Ingersoll-Rand Co. 19,212,954 32,512,500 0.6
Information Processing 1,600,000 International Business Machines Corp. 106,346,141 153,600,000 2.8
Paper & Forest Products 1,550,000 International Paper Co. 96,729,382 132,912,500 2.4
Semiconductors 1,000,000 ++National Semiconductor Corp. 15,890,266 27,750,000 0.5
Banking 1,600,000 NationsBank Corp. 66,516,217 85,800,000 1.5
Banking 2,350,000 Norwest Corp. 34,446,022 67,562,500 1.2
Insurance 1,400,000 PartnerRe Holdings Ltd. 29,498,937 36,400,000 0.7
Electrical Equipment 2,400,000 Philips Electronics N.V. 42,421,261 102,600,000 1.8
Retail 3,100,000 Sears, Roebuck & Co. 114,099,842 185,612,500 3.3
Financial Services 800,000 Student Loan Marketing
Association 29,398,674 37,500,000 0.7
Information Processing 2,800,000 Tandem Computers 35,850,031 45,150,000 0.8
Insurance 1,700,000 Travelers Inc. 65,450,616 74,375,000 1.3
Steel 1,700,000 USX--US Steel Group 50,833,396 58,437,500 1.0
Chemicals 1,700,000 Union Carbide Corp. 34,816,186 56,737,500 1.0
Information Processing 4,800,000 ++Unisys Corp. 54,275,118 52,200,000 0.9
Aerospace & Defense 450,000 United Technologies Corp. 22,695,049 35,156,250 0.6
Savings & Loans 1,400,000 Washington Mutual Savings Bank 23,454,491 32,725,000 0.6
-------------- -------------- ------
1,712,411,138 2,507,922,230 44.9
Above-Average Yield
Insurance 800,000 Aetna Life & Casualty Co. 35,195,218 50,300,000 0.9
Oil--Domestic 550,000 Atlantic Richfield Co. 54,813,351 60,362,500 1.1
Real Estate Investment
Trust 700,000 Avalon Properties, Inc. 14,548,710 13,912,500 0.2
Telecommunications 1,250,000 Bell Atlantic Corp. 57,059,580 70,000,000 1.3
Pharmaceutical 1,150,000 Bristol-Myers Squibb Co. 65,372,906 78,343,750 1.4
Oil--International 1,500,000 Chevron Corp. 47,205,854 69,937,500 1.2
Utilities--Electric 1,000,000 CINergy Corp. 24,141,035 26,250,000 0.5
Banking 425,708 Citicorp (Pfd. P) 6,279,193 8,620,587 0.1
</TABLE>
48
<PAGE>
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Value Percent of
Industry Held Stocks Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C>
Above-Average Yield (concluded)
Utilities--Electric 1,250,000 Consolidated Edison Co. of
New York, Inc. $ 28,416,439 $ 36,875,000 0.7%
Utilities--Electric 637,500 DPL Inc. 6,204,369 14,104,687 0.2
Oil--International 1,250,000 Exxon Corp. 66,924,505 88,281,250 1.6
Telecommunications 2,900,000 GTE Corp. 90,725,125 98,962,500 1.8
Foods/Food Processing 1,200,000 General Mills, Inc. 54,577,127 61,650,000 1.1
Chemicals 400,000 Imperial Chemical Industries
PLC (ADR)* 25,771,805 19,500,000 0.3
Real Estate Investment
Trust 440,000 Irvine Apartment Communities, Inc. 7,758,147 7,590,000 0.1
Real Estate Investment
Trust 820,000 Liberty Property Trust 16,510,230 16,092,500 0.3
Real Estate Investment
Trust 500,000 The Mills Corp. 11,734,125 9,937,500 0.2
Oil--International 1,500,000 Mobil Corp. 78,457,147 144,000,000 2.6
Utilities--Electric 1,100,000 NIPSCO Industries, Inc. 23,590,152 37,400,000 0.7
Oil--Domestic 2,500,000 Occidental Petroleum Corp. 52,012,324 57,187,500 1.0
Utilities--Electric 1,200,000 PECO Energy Co. 28,784,191 33,150,000 0.6
Tobacco 1,620,000 Philip Morris Cos. Inc. 89,036,004 120,487,500 2.2
Utilities--Electric 1,200,000 Public Service Enterprise Group
Inc. 31,930,695 33,300,000 0.6
Oil--International 1,200,000 Royal Dutch Petroleum Co. (ADR)* 76,689,823 146,250,000 2.6
Real Estate Investment
Trust 1,550,000 Simon Property Group, Inc. 34,819,560 38,943,750 0.7
Real Estate Investment
Trust 500,000 Summit Properties Inc. 9,602,500 8,625,000 0.2
Oil--International 1,250,000 Texaco Inc. 70,092,871 82,031,250 1.5
Utilities--Electric 1,100,000 Texas Utilities Co. 36,860,685 37,812,500 0.7
Telecommunications 1,350,000 U.S. West, Inc. 43,842,140 56,193,750 1.0
Pharmaceuticals 440,000 Zeneca Group PLC (ADR)* 12,980,000 22,550,000 0.4
-------------- -------------- ------
1,201,935,811 1,548,651,524 27.8
Special Situations
Information Processing 1,000,000 ++Ceridian Corp. 16,072,735 36,875,000 0.7
Information Processing 1,570,000 Data General Corp. 21,268,247 15,111,250 0.3
Oil Services & Equipment 2,500,000 Dresser Industries, Inc. 50,259,610 55,625,000 1.0
Chemicals 1,500,000 Hercules Inc. 19,235,727 73,125,000 1.3
Retail 1,980,500 Kmart Corp. 38,751,187 28,964,812 0.5
Retail Apparel 3,225,000 The Limited, Inc. 59,866,357 70,950,000 1.3
Pharmaceutical 2,000,000 Merck & Co., Inc. 63,465,897 98,000,000 1.7
-------------- -------------- ------
268,919,760 378,651,062 6.8
Total Stocks 3,314,612,885 4,597,364,816 82.4
Face
Amount Issue
Short-Term Securities
Commercial Paper** $50,000,000 ABN AMRO North America Finance,
Inc., 5.90% due 7/06/1995 49,950,833 49,950,833 0.9
50,000,000 ANZ (Delaware), Inc., 5.92%
due 7/20/1995 49,835,556 49,835,556 0.9
Ciesco L.P.:
50,000,000 5.90% due 7/07/1995 49,942,639 49,942,639 0.9
50,000,000 5.85% due 7/14/1995 49,886,250 49,886,250 0.9
50,000,000 5.94% due 7/27/1995 49,777,250 49,777,250 0.9
50,000,000 Daimler-Benz AG, 5.92% due
7/18/1995 49,852,000 49,852,000 0.9
du Pont (E.I.) de Nemours & Co.:
50,000,000 5.90% due 7/10/1995 49,918,056 49,918,056 0.9
50,000,000 5.88% due 8/08/1995 49,681,500 49,681,500 0.9
</TABLE>
49
<PAGE>
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Face Value Percent of
Amount Issue Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C>
Short-Term Securities (concluded)
Commercial Paper** $86,520,000 General Electric Capital Corp.,
(concluded) 6.20% due 7/03/1995 $ 86,475,298 $ 86,475,298 1.5%
50,000,000 IBM Credit Corp., 5.90% due
7/12/1995 49,901,667 49,901,667 0.9
Matterhorn Capital Corp.:
49,988,000 5.92% due 7/11/1995 49,897,577 49,897,577 0.9
50,000,000 5.93% due 7/12/1995 49,901,167 49,901,167 0.9
50,000,000 National Australia Funding
(Delaware), Inc., 5.91% due
7/17/1995 49,860,458 49,860,458 0.9
Siemens Corporation AG:
30,000,000 5.93% due 7/24/1995 29,881,400 29,881,400 0.5
50,000,000 5.89% due 8/07/1995 49,689,139 49,689,139 0.9
-------------- -------------- ------
764,450,790 764,450,790 13.7
US Government & Agency 50,000,000 Federal Farm Credit Bank, 5.81%
Obligations** due 8/01/1995 49,741,778 49,741,778 0.9
Federal Home Loan Mortgage
Corporation:
50,000,000 5.80% due 8/02/1995 49,734,167 49,734,167 0.9
50,000,000 5.82% due 8/04/1995 49,717,083 49,717,083 0.9
50,000,000 Federal National Mortgage
Association, 5.84% due
8/16/1995 49,618,778 49,618,778 0.9
-------------- -------------- ------
198,811,806 198,811,806 3.6
Total Short-Term Securities 963,262,596 963,262,596 17.3
Total Investments $4,277,875,481 5,560,627,412 99.7
==============
Other Assets Less Liabilities 15,639,687 0.3
-------------- ------
Net Assets $5,576,267,099 100.0%
============== ======
<FN>
*American Depositary Receipt (ADR).
**Commercial Paper and certain US Government & Agency Obligations
are traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
(a)Received as a spin-off from General Mills, Inc.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
50
<PAGE>
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Statement of Assets and Liabilities as of June 30, 1995
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$4,277,875,481)
(Note 1a) $5,560,627,412
Cash 6,397,771
Receivables:
Capital shares sold $ 19,239,361
Dividends 8,285,070
Securities sold 2,681,411 30,205,842
--------------
Prepaid registration fees and other assets (Note 1d) 147,939
--------------
Total assets 5,597,378,964
--------------
Liabilities: Payables:
Capital shares redeemed 8,932,304
Securities purchased 7,164,999
Distributor (Note 2) 2,097,255
Investment adviser (Note 2) 1,835,128 20,029,686
--------------
Accrued expenses and other liabilities 1,082,179
--------------
Total liabilities 21,111,865
--------------
Net Assets: Net assets $5,576,267,099
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 300,000,000
Consist of: shares authorized $ 10,719,790
Class B Shares of Common Stock, $0.10 par value, 300,000,000
shares authorized 9,448,253
Class C Shares of Common Stock, $0.10 par value, 200,000,000
shares authorized 286,077
Class D Shares of Common Stock, $0.10 par value, 200,000,000
shares authorized 768,783
Paid-in capital in excess of par 4,160,099,946
Undistributed investment income--net 63,306,430
Undistributed realized capital gains on investments--net 48,885,889
Unrealized appreciation on investments--net 1,282,751,931
--------------
Net assets $5,576,267,099
==============
Net Asset Value: Class A--Based on net assets of $2,834,652,321 and 107,197,900
shares outstanding $ 26.44
==============
Class B--Based on net assets of $2,464,247,794 and 94,482,533
shares outstanding $ 26.08
==============
Class C--Based on net assets of $74,333,991 and 2,860,765
shares outstanding $ 25.98
==============
Class D--Based on net assets of $203,032,993 and 7,687,830
shares outstanding $ 26.41
==============
See Notes to Financial Statements.
</TABLE>
51
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Statement of Operations for the Year Ended June 30, 1995
<S> <C> <C> <C>
Investment Dividends (net of $1,750,213 foreign withholding tax) $ 126,654,908
Income Interest and discount earned 44,476,505
(Notes 1b & 1c): --------------
Total income 171,131,413
--------------
Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 19,879,726
Investment advisory fees (Note 2) 18,443,250
Transfer agent fees--Class A (Note 2) 3,613,058
Transfer agent fees--Class B (Note 2) 3,444,155
Printing and shareholder reports 503,104
Registration fees (Note 1d) 390,649
Accounting services (Note 2) 259,783
Account maintenance and distribution fees--Class C (Note 2) 211,321
Account maintenance fees--Class D (Note 2) 186,902
Custodian fees 164,456
Transfer agent fees--Class D (Note 2) 130,968
Professional fees 116,136
Transfer agent fees--Class C (Note 2) 44,071
Directors' fees and expenses 40,855
Pricing fees 309
Other 66,224
--------------
Total expenses 47,494,967
--------------
Investment income--net 123,636,446
--------------
Realized & Realized gain on investments--net 66,820,215
Unrealized Gain on Change in unrealized appreciation on investments--net 718,977,808
Investments--Net --------------
(Notes 1c & 3): Net Increase in Net Assets Resulting from Operations $ 909,434,469
==============
See Notes to Financial Statements.
</TABLE>
52
<PAGE>
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended June 30,
Increase (Decrease) in Net Assets: 1995 1994
<S> <C> <C> <C>
Operations: Investment income--net $ 123,636,446 $ 88,423,093
Realized gain on investments and foreign currency
transactions--net 66,820,215 163,320,957
Change in unrealized appreciation on investments and foreign
currency transactions--net 718,977,808 (76,944,519)
-------------- --------------
Net increase in net assets resulting from operations 909,434,469 174,799,531
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (68,596,425) (62,663,619)
Shareholders Class B (36,272,122) (30,680,760)
(Note 1g): Class C (125,803) --
Class D (1,039,403) --
Realized gain on investments--net:
Class A (77,560,878) (64,558,638)
Class B (61,276,834) (45,745,511)
Class C (37,759) --
Class D (291,335) --
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (245,200,559) (203,648,528)
-------------- --------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 894,346,339 639,523,156
(Note 4): -------------- --------------
Net Assets: Total increase in net assets 1,558,580,249 610,674,159
Beginning of year 4,017,686,850 3,407,012,691
-------------- --------------
End of year* $5,576,267,099 $4,017,686,850
============== ==============
<FN>
*Undistributed investment income--net $ 63,306,430 $ 45,703,737
============== ==============
See Notes to Financial Statements.
</TABLE>
53
<PAGE>
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 23.17 $ 23.31 $ 20.57 $ 18.90 $ 19.32
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .74 .62 .71 .70 .87
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net 4.01 .67 3.03 2.02 (.02)
---------- ---------- ---------- ---------- ----------
Total from investment operations 4.75 1.29 3.74 2.72 .85
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.69) (.70) (.64) (.76) (.97)
Realized gain on investments--net (.79) (.73) (.36) (.29) (.30)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (1.48) (1.43) (1.00) (1.05) (1.27)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 26.44 $ 23.17 $ 23.31 $ 20.57 $ 18.90
========== ========== ========== ========== ==========
Total Investment Based on net asset value per
Return:* share 21.67% 5.68% 19.03% 15.08% 5.39%
========== ========== ========== ========== ==========
Ratios to Average Expenses .59% .53% .54% .58% .59%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net 3.19% 2.76% 3.48% 3.52% 4.76%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in
Data: thousands) $2,834,652 $2,272,983 $2,023,078 $1,670,430 $1,490,657
========== ========== ========== ========== ==========
Portfolio turnover 11.69% 21.79% 20.85% 21.24% 20.11%
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
54
<PAGE>
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 22.87 $ 23.04 $ 20.35 $ 18.71 $ 19.12
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .53 .42 .53 .50 .66
Realized and unrealized gain on
investments and foreign currency
transactions--net 3.93 .62 2.96 2.00 .01
---------- ---------- ---------- ---------- ----------
Total from investment operations 4.46 1.04 3.49 2.50 .67
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.46) (.48) (.44) (.57) (.78)
Realized gain on investments--net (.79) (.73) (.36) (.29) (.30)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (1.25) (1.21) (.80) (.86) (1.08)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 26.08 $ 22.87 $ 23.04 $ 20.35 $ 18.71
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 20.45% 4.61% 17.81% 13.90% 4.33%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses, excluding account
Net Assets: maintenance and distribution fees .61% .55% .56% .60% .61%
========== ========== ========== ========== ==========
Expenses 1.61% 1.55% 1.56% 1.60% 1.61%
========== ========== ========== ========== ==========
Investment income--net 2.16% 1.75% 2.47% 2.50% 3.73%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in
Data: thousands) $2,464,248 $1,744,704 $1,383,935 $1,064,354 $ 874,318
========== ========== ========== ========== ==========
Portfolio turnover 11.69% 21.79% 20.85% 21.24% 20.11%
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
55
<PAGE>
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period Oct. 21, 1994++
to June 30, 1995
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 22.92 $ 23.19
Operating -------------- --------------
Performance: Investment income--net .44 .50
Realized and unrealized gain on investments--net 3.05 3.17
-------------- --------------
Total from investment operations 3.49 3.67
-------------- --------------
Less dividends and distributions:
Investment income--net (.33) (.35)
Realized gain on investments--net (.10) (.10)
-------------- --------------
Total dividends and distributions (.43) (.45)
-------------- --------------
Net asset value, end of period $ 25.98 $ 26.41
============== ==============
Total Investment Based on net asset value per share 15.59%+++ 16.23%+++
Return:** ============== ==============
Ratios to Average Expenses, excluding account maintenance and distribution fees .66%* .62%*
Net Assets: ============== ==============
Expenses 1.66%* .87%*
============== ==============
Investment income--net 2.09%* 2.88%*
============== ==============
Supplemental Net assets, end of period (in thousands) $ 74,334 $ 203,033
Data: ============== ==============
Portfolio turnover 11.69% 11.69%
============== ==============
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
56
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Basic Value Fund, Inc. (the "Fund") is registered
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 the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. Securities traded in the NASDAQ National
Market System are valued at the last sale price on the day the
securities are being valued, or lacking any sales, at the closing
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 Board of Directors as the primary market. Securities which
are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most
representative market. Options written are valued at the last sale
price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter market, the last bid price.
Short-term securities are valued at amortized cost, which
approximates market value. Other investments, including futures
contracts and related options, are stated at market value.
Securities and assets for which market value quotations are not
available are valued at their fair value as determined in good faith
by or under the direction of the Fund's Board of Directors.
(b) 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 substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be withheld on interest, dividends, and capital
gains at various rates.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend 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.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity 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 writes 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.
Written options are non-income producing investments
(f) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into
57
<PAGE>
US dollars. Realized and unrealized gains or losses from investments
include the effects of foreign exchange rates on investments.
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary 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.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, 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 daily net assets at the following annual rates:
0.60% of the Fund's average daily net assets not exceeding $100
million; 0.50% of the Fund's average daily net assets in excess $100
million but not exceeding $200 million; and 0.40% of average daily
net assets in excess of $200 million. The Investment Advisory
Agreement obligates FAM 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 pro rata 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, which 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 main-tenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C shareholders.
For the year ended June 30, 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 $88,037 $1,499,145
Class D $73,718 $1,165,652
For the year ended June 30, 1995, MLPF&S received contingent
deferred sales charges of $1,951,585 and $13,126 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $81,150 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
June 30, 1995.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, MLPF&S, MLFDS, MLFD and/or ML & Co.
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended June 30, 1995 were $1,009,368,845 and
$437,599,359, respectively.
Net realized and unrealized gains as of June 30, 1995 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $66,820,215 $1,282,751,931
----------- --------------
Total $66,820,215 $1,282,751,931
=========== ==============
As of June 30, 1995, net unrealized appreciation for Federal income
tax purposes aggregated $1,279,455,098, of which $1,308,447,655
related to appreciated securities and $28,992,557 related to
depreciated securities. At June 30, 1995, the aggregate cost of
investments for Federal income tax purposes was $4,281,172,314.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $894,346,339 and $639,523,156 for the years ended June 30, 1995
and June 30, 1994, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended June 30, 1995 Shares Amount
Shares sold 19,425,436 $466,205,455
Shares issued to shareholders
in reinvestment of dividends
and distributions 5,782,037 130,723,601
----------- ------------
Total issued 25,207,473 596,929,056
Shares redeemed (16,105,392) (384,011,079)
----------- ------------
Net increase 9,102,081 $212,917,977
=========== ============
Class A Shares for the Year Dollar
Ended June 30, 1994 Shares Amount
Shares sold 22,051,928 $518,481,972
Shares issued to shareholders
in reinvestment of dividends
and distributions 4,979,090 114,208,364
----------- ------------
Total issued 27,031,018 632,690,336
Shares redeemed (15,739,255) (370,180,112)
----------- ------------
Net increase 11,291,763 $262,510,224
=========== ============
Class B Shares for the Year Dollar
Ended June 30, 1995 Shares Amount
Shares sold 34,461,582 $815,962,756
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,848,516 86,346,162
----------- ------------
Total issued 38,310,098 902,308,918
Automatic conversion of
shares (4,721,916) (109,837,782)
Shares redeemed (15,381,764) (361,976,739)
----------- ------------
Net increase 18,206,418 $430,494,397
=========== ============
Class B Shares for the Year Dollar
Ended June 30, 1994 Shares Amount
Shares sold 25,498,592 $594,651,037
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,969,021 67,552,341
----------- ------------
Total issued 28,467,613 662,203,378
Shares redeemed (12,261,811) (285,190,446)
----------- ------------
Net increase 16,205,802 $377,012,932
=========== ============
Class C Shares for the Period
October 21, 1994++ to Dollar
June 30, 1995 Shares Amount
Shares sold 3,236,903 $ 77,339,209
Shares issued to shareholders
in reinvestment of dividends
and distributions 6,576 142,631
----------- ------------
Total issued 3,243,479 77,481,840
Shares redeemed (382,714) (9,161,923)
----------- ------------
Net increase 2,860,765 $ 68,319,917
=========== ============
++Commencement of Operations.
Class D Shares for the Period
October 21, 1994++ to Dollar
June 30, 1995 Shares Amount
Shares sold 3,673,107 $ 88,800,325
Automatic conversion of
shares 4,666,859 109,837,782
Shares issued to shareholders
in reinvestment of dividends
and distributions 55,369 1,215,335
----------- ------------
Total issued 8,395,335 199,853,442
Shares redeemed (707,505) (17,239,394)
----------- ------------
Net increase 7,687,830 $182,614,048
=========== ============
++Commencement of Operations.
59
<PAGE>
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60
<PAGE>
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61
<PAGE>
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62
<PAGE>
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63
<PAGE>
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...................... 16
Redemption of Shares....................................................... 17
Deferred Sales Charges--Class B and Class C Shares........................ 18
Portfolio Transactions and Brokerage....................................... 19
Determination of Net Asset Value........................................... 20
Shareholder Services....................................................... 22
Investment Account........................................................ 22
Automatic Investment Plans................................................ 22
Automatic Reinvestment of Dividends and Capital Gains Distributions....... 23
Systematic Withdrawal Plans--Class A and
Class D Shares........................................................... 23
Retirement Plans.......................................................... 24
Exchange Privilege........................................................ 24
Dividends, Distributions and Taxes......................................... 38
Dividends and Distributions............................................... 38
Taxes..................................................................... 38
Tax Treatment of Options Transactions..................................... 40
Special Rules for Certain Foreign Currency Transactions................... 41
Performance Data........................................................... 42
General Information........................................................ 44
Description of Shares..................................................... 44
Computation of Offering Price per Share................................... 45
Independent Auditors...................................................... 45
Custodian................................................................. 45
Transfer Agent............................................................ 45
Legal Counsel............................................................. 45
Reports to Shareholders................................................... 46
Additional Information.................................................... 46
Independent Auditors' Report............................................... 47
Financial Statements....................................................... 48
</TABLE>
Code #10124-1095
LOGO MERRILL LYNCH
Merrill Lynch Basic Value Fund
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
[ART]
STATEMENT OF
ADDITIONAL
INFORMATION
October 26, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
[C/R/C]
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A)FINANCIAL STATEMENTS
Contained in Part A:
Financial Highlights for each of the periods in the ten-year period
ended June 30, 1995.
Contained in Part B:
Schedule of Investments as of June 30, 1995.
Statement of Assets and Liabilities as of June 30, 1995.
Statement of Operations for the year ended June 30, 1995.
Statements of Changes in Net Assets for the years ended June 30, 1995
and 1994.
Financial Highlights for each of the years in the five-year period
ended June 30, 1995.
(B)EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1(a) --Articles of Incorporation of Registrant, dated March 22, 1977.(a)
--Articles of Amendment, dated October 3, 1988, to Articles of
(b) Incorporation of Registrant.(a)
--Articles of Amendment, dated October 17, 1994, to Articles of
(c) Incorporation of Registrant.(a)
--Articles Supplementary, dated October 17, 1994, to Articles of
(d) Incorporation of Registrant.(a)
--Articles Supplementary, dated March 17, 1995, to Articles of
(e) Incorporation of Registrant.(a)
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)
--Investment Advisory Agreement between Registrant and Fund Asset
5(a) Management.(a)
(b) --Supplement to Investment Advisory Agreement between Registrant and
Fund 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. (including Form of Selected Dealers
Agreement).(a)
(c) --Form of Class C Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Form of Selected
Dealers Agreement).(c)
(d) --Form of Class D Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Form of Selected
Dealers Agreement).(c)
(e) --Letter Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund
Adviser Program.(e)
7 --None.
--Custodian Agreement between Registrant and National Westminster Bank
8 NJ.(a)
9 --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial Data
Services, Inc.(a)
10 --None.
--Consent of Deloitte & Touche llp, independent auditors for
11 Registrant.
12 --None.
13 --None.
14 --None.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
15(a) --Amended and Restated Class B Distribution Plan and Class B
Distribution Plan Sub-Agreement of Registrant.(e)
(b) --Form of Class C Distribution Plan and Class C Distribution Plan Sub-
Agreement of Registrant.(c)
(c) --Form of Class D Distribution Plan and Class D Distribution Plan Sub-
Agreement of Registrant.(c)
16(a) --Schedule for computation of each performance quotation for Class A
shares provided in the Registration Statement in response to Item
22.(a)
(b) --Schedule for computation of each performance quotation for Class B
shares provided in the Registration Statement in response to Item
22.(a)
(c) --Schedule for computation of each performance quotation for Class C
shares provided in the Registration Statement in response to Item 22.
(d) --Schedule for computation of each performance quotation for Class D
shares 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.
(b) Reference is made to Article III, Article V, Article VI (sections 2, 3, 4
and 5), Article VII, Article VIII, and Article X of the Registrant's
Articles of Incorporation, previously filed as Exhibit (1), to the
Registration Statement; and to Article II, Article III (sections 1, 3, 5, 6
and 17), Article VI, Article VII, Article XII, Article XIII, Article XIV
and Article XV of the Registrant's By-Laws filed as Exhibit (2) to the
Registration Statement.
(c) Filed on EDGAR as an exhibit to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A, filed September 7, 1994.
(d) Filed on EDGAR as an exhibit to Post-Effective Amendment No. 23 to
Registrant's Registration Statement on Form N-1A, filed October 11, 1994.
(e) Filed on EDGAR as an exhibit to Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A, filed October 28, 1993.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled by or under common control with any other
person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS SEPTEMBER 30, 1995
-------------- ------------------
<S> <C>
Class A Shares of Common Stock, par value $0.10 per
share.................................................. 209,767
Class B Shares of Common Stock, par value $0.10 per
share.................................................. 208,553
Class C Shares of Common Stock, par value $0.10 per
share.................................................. 12,514
Class D Shares of Common Stock, par value $0.10 per
share.................................................. 24,093
</TABLE>
- --------
Note: The number of holders shown above includes holders of record plus
beneficial owners whose shares are held of record by Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Class A, Class B, Class C and Class D
Distribution Agreements.
C-2
<PAGE>
Insofar as the conditional advancing of indemnification moneys for actions
based on the Investment Company Act of 1940, as amended (the "1940 Act") may be
concerned, Article VI of the Registrant's 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 receipt by
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 (the "Act"),
against certain types of civil liabilities arising in connection with the
Registration Statement or Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer, or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF MANAGER.
Fund Asset Management, L.P. ("FAM" or the "Investment Adviser") acts as the
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 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.
Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of 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
C-3
<PAGE>
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.
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 Advisor, MLAM, Princeton Services, Inc. ("Princeton
Services"), Merrill Lynch Funds Distributor, Inc. ("MLFD") and Princeton
Administrators, L.P. 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. ("FDS"), is
4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
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 or entity has been engaged
since July 1, 1993, for his or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard
is Treasurer and Mr. Glenn is Executive Vice President of substantially all of
the investment companies described in the preceding paragraphs, and Messrs.
Giordano, Harvey, Kirstein and Monagle are directors, trustees or officers of
one or more of such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION(S) WITH THE PROFESSION, VOCATION
NAME INVESTMENT ADVISER OR EMPLOYMENT
---- -------------------- ---------------------------
<C> <C> <S>
ML & Co................. Limited Partner Financial Services Holding
Company; Limited Partner of
MLAM
Princeton Services, Inc.
("Princeton Services"). General Partner General Partner of MLAM
Arthur Zeikel........... President President of MLAM; President
and Director of Princeton
Services; Director of MLFD;
Executive Vice President of
ML & Co.; Executive Vice
President of Merrill Lynch
Terry K. Glenn.......... Executive Vice Executive Vice President of
President MLAM; 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 MLAM;
Senior Vice President of
Princeton Services
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION(S) WITH THE PROFESSION, VOCATION
NAME INVESTMENT ADVISER OR EMPLOYMENT
---- -------------------- ---------------------------
<C> <C> <S>
Elizabeth Griffin....... Senior Vice President Senior Vice President of MLAM
Norman R. Harvey........ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
N. John Hewitt.......... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Philip L. Kirstein...... Senior Vice Senior Vice President, General
President, General Counsel and Secretary of
Counsel and MLAM; Senior Vice President,
Secretary General Counsel, Director and
Secretary of Princeton
Services; Director of MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and
and Controller Controller of MLAM; 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 MLAM;
Senior Vice President of
Princeton Services
Richard L. Reller....... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Gerald M. Richard....... Senior Vice President Senior Vice President and
and Treasurer Treasurer of MLAM; Senior
Vice President and Treasurer
of Princeton Services; Vice
President and Treasurer of
MLFD
Ronald L. Welburn....... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of MLAM;
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 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 9081,
Princeton, New Jersey 08543-9081, except that the address of Messrs. Crook,
Aldrich, Brady, Breen, Graczyk, Fatseas, and Wasel is One Financial Center,
Boston, Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
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>
C-5
<PAGE>
<TABLE>
<CAPTION>
(2) (3)
(1) POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH MLFD WITH REGISTRANT
---- ------------------------- -------------------------
<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
Sharon Creveling........ Vice President and Assistant None
Treasurer
Mark A. DeSario......... Vice President None
James T. Fatseas........ Vice President None
Stanley Graczyk......... Vice President None
Michelle T. Lau......... Vice President None
Debra W. Landsman-Yaros. Vice President None
Gerald M. Richard....... Vice President and Treasurer Treasurer
Salvatore Venezia....... Vice President None
William Wasel........... Vice President None
Robert Harris........... Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act, and the rules thereunder are maintained at the offices
of the Registrant, 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and
its transfer agent, Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Fund--Management
and Advisory Arrangements" in the Prospectus constituting Part A of the
Registration Statement and under "Management of the Fund--Management and
Advisory Arrangements" in the Statement of Additional Information constituting
Part B of the Registration Statement, the Registrant is not a party to any
management-related service contract.
ITEM 32. UNDERTAKINGS.
(a) 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>
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 its
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 the State of New Jersey, on the 26th day of
October, 1995.
Merrill Lynch Basic Value Fund, Inc.
(Registrant)
/s/ Terry K. Glenn
By: _________________________________
(TERRY K. GLENN, EXECUTIVE VICE
PRESIDENT)
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 date(s) indicated.
SIGNATURE TITLE DATE
President and
Arthur Zeikel* Director
- ------------------------------------- (Principal Executive Officer)
(ARTHUR ZEIKEL)
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)
/s/ Terry K. Glenn October 26,
1995
*By: ___________________________
(TERRY K. GLENN, ATTORNEY-IN-FACT)
C-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
--Articles of Incorporation of Registrant, dated March 22,
1(a) 1977. (a)....................................................
(b) --Articles of Amendment, dated October 3, 1988, to Articles of
Incorporation of Registrant. (a).............................
(c) --Articles of Amendment, dated October 17, 1994, to Articles
of Incorporation of Registrant. (a)..........................
(d) --Articles Supplementary, dated October 17, 1994, to Articles
of Incorporation of Registrant. (a)..........................
(e) --Articles Supplementary, dated March 17, 1995, to Articles of
Incorporation of Registrant. (a).............................
5(a) --Investment Advisory Agreement between Registrant and Fund
Asset Management, L.P. (a)...................................
6(b) --Class B Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (Including Form of
Selected Dealers Agreement). (a).............................
8 --Custodian Agreement between Registrant and National
Westminster Bank NJ. (a).....................................
9 --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Merrill
Lynch Financial Data Services, Inc. (a)......................
11 --Consent of Deloitte & Touche LLP, independent auditors for
the Registrant...............................................
16(a) --Schedule for computation of each performance quotation for
Class A Shares provided in the Registration Statement in
response to Item 22. (a).....................................
(b) --Schedule for computation of each performance quotation for
Class B shares provided in the Registration Statement in
response to Item 22. (a).....................................
(c) --Schedule for computation of each performance quotation for
Class C shares provided in the Registration Statement in
response to Item 22. ........................................
(d) --Schedule for computation of each performance quotation for
Class D shares provided in the Registration Statement in
response to Item 22. ........................................
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.
<PAGE>
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>
Ex-99.1(a)
ARTICLES OF INCORPORATION
OF
MERRILL LYNCH BASIC VALUE FUND, INC.
* * * *
ARTICLE I
THE UNDERSIGNED, STEPHEN M. M. MILLER, whose post-
office address is One Liberty Plaza, 165 Broadway, New
York, New York 10006, 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 BASIC VALUE 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 invest-
ment company of the management type.
<PAGE>
(2) To hold, invest and reinvest its assets in se-
curities, 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 with-
out 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 desirable for the accomplishment, carrying out or attain-
ment of all or any of the foregoing purposes or objects.
2.
<PAGE>
The Corporation shall be authorized to exercise and
enjoy all of the powers, rights and privileges granted to,
or conferred upon, corporations by the General Laws of the
State of Maryland now or hereafter in force, and the enumbera-
tion 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, First Maryland Building, 25 South Charles
Street, Baltimore, Maryland 21201. 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 First Maryland
Building, 25 South Charles Street, Baltimore, Maryland
21201.
ARTICLE V
CAPITAL STOCK
-------------
(1) The total number of shares of capital stock which
the Corporation shall have authority to issue ss One Hundred
Million (100,000,000) shares, all of one class called Common
Stock, of the par value of Ten Cents ($0.10) per share and
of the aggregate par value of Ten Million Dollars ($10,000,000).
3.
<PAGE>
(2) Any fractional share shall carry proportionately
all the rights of a whole share, excepting any right to
receive a certificate evidencing such fractional share, but
including, without 1imitation, the right to vote and the
right to receive dividends.
(3) All persons who shall acquire stock in the Cor-
poration shall acquire the same subject to the provisions of
these Articles of Incorporation and the by-laws of the
Corporation.
ARTICLE VI
PROVISIONS FOR DEPINING, LIMITING
AND REGULATING CERTAIN POWERS OF
THE CORPORATION 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:
Arthur Zeikel
William W. Hewitt, Jr.
Stephen M. M. Miller
(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 author-
ized, for such consideration as the Board of Directors may
4.
<PAGE>
deem advisable, subject to such limitations as may be set
forth in these Articles of Incorporation or in the by-laws
of the Corporation or in the General Laws of the State of
Maryland.
(3) No holder of stock of the Corporation shall, as
such holder, have any right to purchase or subscribe for
any shares of the capital stock of the Corporation or any
other security of the Corporation which it may issue or
sell (whether out of the number of shares authorized by
these Articles of Incorporation, or out of any shares of
the capital stock of the Corporation acquired by it after
the issue thereof, or otherwise) other than such right,
if any, as the Board of Directors, in its discretion, may
determine.
(4) Each director and each officer of the Corporation
shall be indemnified by the Corporation to the full extent
permitted by the General Laws of the State of Maryland.
(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 In-
vestment Company Act of 1940, as amended.
5.
<PAGE>
ARTICLE VII
REDEMPTION
----------
Each holder of shares of capital stock of the Cor-
poration shall be entitled to require the Corporation to
redeem all or any part of the shares of capital stock of the
Corporation standing in the name of such holder on the books
of the Corporation, and all shares of capital stock issued
by the Corporation shall be subject to redemption by the
Corporation, at the redemption price of such shares as in
effect from time to time as may be determined by the Board
of Directors of the Corporation in accordance with the
provisions hereof, subject to the right of the Board of
Directors of the Corporation to suspend the right of re-
demption of shares of capital stock of the Corporation or
Postpone the date of payment of such redemption price in
accordance with provisions of applicable law. The redemption
price of shares of capital stock of the Corporation shall be
the net asset value thereof as determined by the Board of
Directors of the Corporation from time to time in accordance
with the provisions of applicable law, less such redemption
fee or 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.
6.
<PAGE>
ARTICLE VIII
DETERMINATION BINDING
---------------------
Any determination made in good faith, so far as ac-
counting matters are involved, in accordance with accepted
accounting practice by or pursuant to the direction of the
Board of Directors, as to the amount of assets, obligations
or liabilities of the Corporation, as to the amount of net
income of the Corporation from dividends and interest for
any period or amounts at any time legally available for the
payment of dividends, as to the amount of any reserves or
charges set up and the propriety thereof, as to the time of
or purpose for creating reserves or as to the use, alteration
or cancellation of any reserves or charges (whether or not
any obligation or liability for which such reserves or
charges shall have been created shall have been paid or
discharged or shall be then or thereafter required to be
paid or discharged), as to the price of any security owned
by the Corporation or as to any other matters relating to
the issuance, sale, redemption or other acquisition or
disposition of securities or shares of capital stock of the
Corporation, and any reasonable determination made in good
faith by the Board of Directors as to whether any transaction
constitutes a purchase of securities on "margin", a sale of
securities "short", or an underwriting of the sale of, or a
participation in any underwriting or selling group in con-
nection with the public distribution of, any securities,
7.
<PAGE>
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 under-
standing, 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 pro-
vision of these Articles of Incorporation shall be effective
to (a) require a waiver of compliance with any provision of the
Securities Act of 1933, as amended, or the Investment Company
Act of 1940, as amended, or of any valid rule, regulation or
order of the Securities and Exchange Commission thereunder
or (b) protect or purport to protect any director or officer
of the Corporation against any liability to the Corporation
or Its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in
the conduct of his office.
ARTICLE IX
PERPETUAL EXISTENCE
-------------------
The duration of the Corporation shall be perpetual.
ARTICLE X
AMENDMENT
---------
The Corporation reserves the right from time to time
to make any amendment Of its charter, now or hereafter
8.
<PAGE>
authorized by law, including any amendment which alters
the contract rights, as expressly set forth in its charter,
of any outstanding stock.
IN WITNESS WHEREOF, the undersigned incorporator of
MERRILL LYNCH BASIC VALUE FUND, INC. hereby executes the
foregoing Articles of Incorporation and acknowledges the
same to be his act and further acknowledges that, to the
beat of his knowledge, the matters and facts set forth
therein are true in all material respects under the penal-
ties of perjury.
Dated the 22nd day of March, 1977.
/s/ Stephen M. M. Miller
------------------------
Stephen M. M. Miller
9.
<PAGE>
EX.99-1(b)
MERRILL LYNCH BASIC VALUE FUND, INC.
Articles of Amendment
---------------------
MERRILL LYNCH BASIC VALUE 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 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 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>
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 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 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>
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 the By-Laws of the
Corporation. All shares of common stock of the Corporation issued on or before
October 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>
IN WITNESS WHEREOF, Merrill Lynch Basic Value 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 BASIC VALUE FUND, INC.
/s/ Mark B. Goldfus By /s/ Arthur Zeikel
- -------------------------- ------------------------------
Mark B. Goldfus, Secretary Arthur Zeikel, President
THE UNDERSIGNED, President of Merrill Lynch Basic Value 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
------------------------
Arthur Zeikel, President
4
<PAGE>
EXHIBIT 99.1(c)
MERRILL LYNCH BASIC VALUE FUND, INC.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
MERRILL LYNCH BASIC VALUE 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>
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 the State 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>
IN WITNESS WHEREOF, MERRILL LYNCH BASIC VALUE 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 BASIC VALUE FUND, INC.
/S/ Arthur Zeikel
----------------------
Arthur Zeikel
President
Attest:
/S/ Mark B. Goldfus
- --------------------------
Mark B. Goldfus, Secretary
3
<PAGE>
Ex-99.1(d)
MERRILL LYNCH BASIC VALUE 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 BASIC VALUE 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
($20,000,000).
<PAGE>
SIXTH: The preferences, designations, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of Class C Common Stock are as follows:
The Class C Common Stock of the Corporation shall represent the same
interest in the Corporation and have identical preferences, designations,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption as the Class B
Common Stock as of the date of these Articles Supplementary, except as
otherwise set forth in the Corporation's charter and further except that:
(i) Expenses related to the distribution of the Class C Common Stock
shall be borne solely by such class and such class shall have exclusive voting
rights with respect to matters relating to the expenses being borne solely by
such class;
(ii) Such distribution expenses borne solely by Class C Common Stock
shall be appropriately reflected (in the manner determined by the Board of
Directors) in the net asset value, dividends, distribution and liquidation
rights of the shares of such class; and
(iii) Class C Common Stock shall not be reclassified into Class D
shares.
SEVENTH: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by its charter, the Board of Directors has
reclassified TWO HUNDRED MILLION (200,000,000) authorized and unissued shares of
the Class B Common Stock of the Corporation as Class D Common Stock of par value
of Ten Cents ($.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>
(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>
IN WITNESS WHEREOF, MERRILL LYNCH BASIC VALUE 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, 1994.
MERRILL LYNCH BASIC VALUE FUND, INC.
By /s/ Arthur Zeikel
-------------------
Arthur Zeikel
President
Attest:
/S/ Mark B. Goldfus
- --------------------------
Mark B. Goldfus, Secretary
THE UNDERSIGNED, President of MERRILL LYNCH BASIC VALUE FUND, INC., who
executed 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
-----------------
Arthur Zeikel
President
4
<PAGE>
Ex-99.1(e)
MERRILL LYNCH BASIC VALUE FUND, INC.
ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION
INCREASING THE AUTHORIZED CAPITAL STOCK OF THE
CORPORATION
MERRILL LYNCH BASIC VALUE 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 ($80,000,000).
SECOND: The Board of Directors of the Corporation, acting in accordance
with Section 2-105(c) of the Maryland Corporations and Associations Code,
hereby increases the total number of authorized shares of Class A Common Stock
of the Corporation by ONE HUNDRED MILLION (100,000,000) shares and increases
the total number of authorized shares of Class B Common Stock of the
Corporation by ONE HUNDRED MILLION (100,000,000) shares.
THIRD: After this increase in the number of authorized shares of capital
stock of the Corporation, the Corporation will have authority to issue ONE
BILLION (1,000,000,000) shares of capital stock and the capital stock will
consist of THREE HUNDRED MILLION (300,000,000) shares of Class A Common Stock,
THREE HUNDRED MILLION (300,000,000) shares of Class B Common Stock, TWO HUNDRED
MILLION (200,000,000) shares of Class C Common Stock and TWO HUNDRED MILLION
(200,000,000) shares of Class D Common Stock.
FOURTH: After this increase in the number of authorized shares of
capital stock of the Corporation, all shares of all classes and series of the
Corporation's capital stock will have a par value of Ten Cents ($.10) per share
and an aggregate par value of ONE HUNDRED MILLION Dollars ($100,000,000).
<PAGE>
IN WITNESS WHEREOF, MERRILL LYNCH BASIC VALUE 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 BASIC VALUE FUND, INC.
By /S/ Terry K. Glenn
----------------------
Name: Terry K. Glenn
Title: Executive Vice President
Attest:
/S/ Mark B. Goldfus
- --------------------------
Mark B. Goldfus, Secretary
THE UNDERSIGNED officer of MERRILL LYNCH BASIC VALUE FUND, INC., who
executed 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/ Terry K. Glenn
_______________________________
Name: Terry K. Glenn
Title: Executive Vice President
2
<PAGE>
Ex-99.5(a)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 27th day of May, 1977, by and
between MERRILL LYNCH BASIC VALUE FUND, INC., a Maryland
corporation (the "Fund"), and FUND ASSET MANAGEMENT, INC.,
a Delaware corporation (the "Adviser");
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 reg-
istered as such under the Investment Company Act of 1940
(the "Investment Company Act");
WHEREAS, the Adviser is engaged principally in render-
ing advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940; and
WHEREAS, the Fund desires to retain the Adviser to
render investment supervisory and corporate administrative
services to the Fund in the manner and on the terms here-
inafter set forth;
NOW, THEREFORE, in consideration of the premises and
the covenants hereinafter contained, the Fund and the
Adviser hereby agree as follows:
ARTICLE 1. Duties of the Adviser. The Fund hereby
---------------------
employs the Adviser to act as the investment adviser to
<PAGE>
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 Adviser
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 com-
pensation provided for herein. The Adviser shall for all
purposes herein be deemed to be an independent contractor
and shall, unless otherwise expressly provided or autho-
rized, have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the
Fund.
(a) Investment Advisory Services. In acting as in-
----------------------------
vestment adviser to the Fund, the Adviser shall regularly
provide the Fund with such investment research, advice and
supervision as the latter may from time to time consider
necessary for the proper supervision of its funds and
shall furnish continuously an investment program and shall
determine from time to time what securities shall be pur-
chased, sold or exchanged and what portion of the assets of
the Fund shall be held in the various securities in which
the Fund may invests subject always to the restrictions of
2.
<PAGE>
its Articles of Incorporation and By-Laws, as amended from
time to time, the provisions of the Investment Company Act,
and the statements relating to the Fund's investment objec-
tives, investment policies and investment restrictions as
the same are set forth in the currently effective prospectus
of the Fund under the Securities Act of 1933 (the "Prospectus").
The Adviser shall also make recommendations as to the manner
In which voting rights, rights to consent to corporate
action and any other rights pertaining to the Fund's portfolio
securities shall be exercised. Should the Board of Directors
of the Fund at any time, however, make any definite determina-
tion as to investment policy and notify the Adviser thereof,
the Adviser shall be bound by such determination for the
period, if any, specified in such notice or until similarly
notified that such determination has been revoked. The
Adviser shall take, on behalf of the Fund, all actions which
it deems necessary to implement the investment policies
determined as provided above, and in particular to place all
orders for the purchase or sale of portfolio securities for
the Fund's account with brokers or dealers selected by it.
In connection with the selection of such brokers or dealers
and the placing of such orders, the Adviser is directed at
all times to seek to obtain for the Fund the most favorable
execution and price within the meaning of such terms as
determined by the Board of Directors and set forth in the
Prospectus.
3.
<PAGE>
Subject to this requirement and the provisions of the
Investment Company Act, the Securities Exchange Act of
1934, and other applicable provisions of law, nothing
shall prohibit the Adviser from selecting brokers or dealers
with which it or the Fund is affiliated.
(b) Administrative Services. In addition to the
-----------------------
performance of investment advisory services, the Adviser
shall perform, or supervise the performance of, adminis-
trative services in connection with the management of the
Fund. In this connection, the Adviser agrees to (i) as-
sist in supervising all aspects of the Fund's operations,
including the co-ordination of all matters relating to
the functions of the custodian, transfer agent, other
shareholder service agent, accountants, attorneys and
other parties performing services or operational functions
for the Fund, (ii) provide the Fund, at the Adviser's
expense, with services of persons competent to perform
such administrative and clerical functions as are neces-
sary in order to provide effective administration of the
Fund, including duties in connection with shareholder re-
lations, reports, redemption requests and account adjust-
ments and the maintenance of certain books and records of
the Fund, (iii) provide the Fund, at the Adviser's expense,
with adequate office space and related services necessary
for its operations as contemplated in this Agreement, and
4.
<PAGE>
(iv) supervise and administer the operation of the Exchange
Privilege referred to in the Prospectus. The Fund acknowl-
edges that the Adviser intends to arrange for the provision
of services and the performance of functions referred to in
this subsection (b) by Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Administrator") pursuant to an Adminis-
tration Agreement between the Adviser and the Administrator.
ARTICLE 2. Allocation of Charges and Expenses.
----------------------------------
(a) The Adviser. The Adviser assumes and shall pay
-----------
for maintaining the staff and personnel, and shall at its
own expense provide the equipment, office space and facil-
ities, necessary to perform its obligations under this Agree-
ment, and shall pay all compensation of officers of the Fund
and the fees of all directors of the Fund who are "affiliated
persons" (as defined in the Investment Company Act) of
Merrill Lynch & Co., Inc. or its subsidiaries.
(b) The Fund. The Fund assumes and shall pay all
--------
expenses of the Fund, including, without limitation:
organization costs, taxes, expenses for legal and auditing
services, costs of printing proxies, stock certificates,
shareholder reports and prospectuses (except to the extent
paid by the Distributor), chareges of the Custodian and
Transfer Agent, expenses of redemption of shares, Securities
5.
<PAGE>
and Exchange Commission fees, expenses of registering the
shares under Federal and state securities laws, fees and
expenses of directors who are not affiliated persons of
Merrill Lynch & Co., Inc. or its subsidiaries, accounting
and pricing costs (including the daily calculation of net
asset value), insurance, interest, brokerage costs, lit-
igation and other extraordinary or non-recurring expenses,
and other expenses properly payable by the Fund.
ARTICLE 3. Compensation of the Adviser
---------------------------
(a) Investment Advisory Fee. For the services ren-
-----------------------
dered, the facilities furnished and expenses assumed by
the Adviser, the Fund shall pay to the Adviser 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 which such Exchange is open for trading
during such month, as determined and computed in accor-
dance with the answer to Item 30(a) to the Form N-8B-1
of the Fund on file with the Securities and Exchange Com-
mission at the following annual rates: 0.60% of that
portion of the average net assets of the Fund not exceed-
ing $100 million; 0.50% of that portion of the average
net assets of the Fund in excess of $100 million but not
exceeding $200 million; and 0.40% of that portion of the
6.
<PAGE>
average net assets of the Fund in excess of $200 million.
During any period when the determination of net asset value
is suspended by the Board of Directors of the Fund, the net
asset value of a share as of the last business day prior to
such suspension shall for this purpose be deemed to be the
net asset value at the close of each succeeding business day
until it is again determined.
(b) Expense Limitations. In the event the operat-
-------------------
ing expenses of the Fund, including the investment advisory
fee payable to the Adviser pursuant to subsection (a) hereof,
for any fiscal year ending on a date on which this Agreement
is in effect exceed the expense limitations applicable to
the Fund imposed by state securities laws or regulations
thereunder, as such limitations may be raised or lowered
from time to time, the Adviser shall reduce its investment
advisory fee by the extent of such excess and, if required
pursuant to any such laws or regulations, will reimburse the
Fund in the amount of such excess; provided, however, to the
extent permitted by law, there shall be excluded from such
expenses the amount of any interest, taxes, brokerage com-
missions and extraordinary expenses (including but not
limited to legal claims and liabilities and litigation costs
and any indemnification related thereto) paid or payable by
the Fund. Whenever the expenses of the Fund exceed a pro
rata portion of the applicable annual expense limitations,
7.
<PAGE>
the estimated amounts of reimbursement under such limita-
tions shall be applicable as an offset against the monthly
payment of the advisory fee due to the Adviser. Should two
or more such expense limitations be applicable as at the end
of the last business day of the month, that expense limita-
tion which results in the largest reduction in the Adviser's
fee shall be applicable.
ARTICLE 4. Limitation of Liability of the Adviser.
--------------------------------------
The Adviser 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
Adviser. Nothing herein contained shall be construed to
protect the Adviser against any liability to the Fund or its
security holders to which the Adviser shall otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence in the performance of its duties on behalf of the
Fund, reckless disregard of the Adviser's obligations and
duties under this Agreement or the violation of any appli-
cable law.
ARTICLE 5. Activities of the Adviser. The services of
-------------------------
the Adviser under this Agreement are not to be deemed exclu-
sive, and the Adviser shall be free to render similar services
to others so long as its services hereunder are not impaired
thereby. It is understood that directors, officers, employees
8.
<PAGE>
and shareholders of the Fund are or may become interested in
the Adviser, as directors, officers, employees or shareholders
or otherwise and that directors, officers, employees or
shareholders of the Adviser are or may become similarly
interested in the Fund, and that the Adviser is or may
become interested in the Fund as shareholder or otherwise.
ARTICLE 6. Duration and Termination of this Agreement.
------------------------------------------
This Agreement shall become effective as of the date first
above written and shall remain in force until December 31,
1978 and thereafter, but only so long as such continuance is
specifically approved at least annually by (i) the Board of
Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Fund, and (ii) a major-
ity 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 Board of Directors of the
Fund or by vote of a majority of the outstanding voting
securities of the Fund, or by the Adviser, 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 "in-
9.
<PAGE>
terested person", when used in this Agreement, shall have
the respective meanings specified in the Investment Company
Act.
ARTICLE 7. Amendments of this Agreement. This Agree-
----------------------------
ment may be amended by the parties only if such amendment is
specifically approved by (i) the Board of Directors of the
Fund, or by the vote of a majority of outstanding voting
securities of the Fund, and (ii) a majority of those direc-
tors 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.
ARTICLE 8. Governing Law. The provisions of this
-------------
Agreement 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.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
MERRILL LYNCH BASIC VALUE FUND, INC.
By /s/ Arthur Zeikel
---------------------------------
President
Attest:
By /s/ Stephen M. M. Miller
-------------------------
Secretary
10.
<PAGE>
FUND ASSET MANAGEMENT,
By /s/
-------------------------
President
Attest:
/s/ Stephen M. M. Miller
-------------------------
Secretary
11.
<PAGE>
EXHIBIT 99.6(b)
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 3rd day of October, 1988, between
MERRILL LYNCH BASIC VALUE 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 directly 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>
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>
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>
(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>
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>
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>
(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>
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>
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>
(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>
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>
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>
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>
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>
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>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MERRILL LYNCH BASIC VALUE FUND, INC.
By /S/ Norman R. Harvey
-----------------------------------
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /S/ Terry K. Glenn
-----------------------------------
16.
<PAGE>
EXHIBIT A
---------
MERRILL LYNCH BASIC VALUE 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 Basic Value 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>
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>
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>
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 FUNDS DISTRIBUTORS, INC.
By /S/ Terry K. Glenn
---------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
-----------------------------------------------
By:
-------------------------------------------------------
Address:
--------------------------------------------------
-----------------------------------------------------------
Date:
-----------------------------------------------------
4.
<PAGE>
EXHIBIT 99.8
CUSTODY AGREEMENT
-----------------
Agreement made as of this 10th day of November, 1994,
between MERRILL LYNCH BASIC VALUE FUND, INC., a corporation
organized and existing under the laws of the State of Maryland
having its principal office and place of business at
(hereinafter
called the "Fund"), and THE BANK OF NEW YORK, a New York corporation
authorized to do a banking business, having its principal office and
place of business at 48 Wall Street, New York, New York 10286
(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:
ARTICLE 1.
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the
following meanings:
1. "Book-Entry System" shall mean the Federal
Reserve/Treasury book-entry system for United States and federal
agency securities, its successor or successors and its nominee
or nominees.
2. "Call Option" shall mean an exchange traded option
with respect to Securities other than Stock Index Options,
Futures Contracts, and Futures Contract Options entitling the
holder, upon timely exercise and payment of the exercise price,
as specified therein, to purchase from the writer thereof the
specified underlying Securities.
3. "Certificate" shall mean any notice, instruction, or
other instrument in writing,, authorized or required by this
Agreement to be given to the Custodian which is actually
received by the Custodian and signed on behalf of the Fund by
any two Officers, and the term Certificate shall also include
instructions by the Fund to the Custodian communicated by a
Terminal Link.
4. "Clearing Member" shall mean a registered
broker-dealer which is a clearing member under the rules of
O.C.C. And a member of a national securities exchange qualified
to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such a
clearing member.
<PAGE>
5. "Collateral Account" shall mean a segregated account
so denominated which is specifically allocated to a Series and
pledged to the Custodian as security for, and in consideration
of, the Custodian's issuance of (a) any Put Option guarantee
letter or similar document described in paragraph 8 of Article V
herein, or (b) any receipt described in Article V or VIII
herein.
6. "Covered Call Option" shall mean an exchange traded
option entitling the holder, upon timely exercise and payment of
the exercise price, as specified therein, to purchase from the
writer thereof the specified underlying Securities (excluding
Futures Contracts) which are owned by the writer thereof and
subject to appropriate restrictions.
7. "Depository" shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and
Exchange Commission, its successor or successors and its nominee
or nominees. The term "Depository" shall further mean and
include any other person authorized to act as a depository under
the Investment Company Act of 1940, its successor or successors
and its nominee or nominees, specifically identified in a certi-
fied copy of a resolution of the Fund's Board of Directors
specifically approving deposits therein by the Custodian.
8. "Financial Futures Contract" shall mean the firm
commitment to buy or sell fixed income securities including,
without limitation, U.S. Treasury Bills, U.S. Treasury Notes,
U.S. Treasury Bonds, domestic bank certificates of deposit, and
Eurodollar certificates of deposit, during a specified month at
an agreed upon price.
9. "Futures Contract" shall mean a Financial Futures
Contract and/or Stock Index Futures Contracts.
10. "Futures Contract option" shall mean an option with
respect to a Futures Contract.
11. "Margin Account" shall mean a segregated account in
the name of a broker, dealer, futures commission merchant, or a
Clearing Member, or in the name of the Fund for the benefit of a
broker, dealer, futures commission merchant, or Clearing Member,
or otherwise, in accordance with an agreement between the Fund,
the Custodian and a broker, dealer, futures commission merchant
or a Clearing Member (a "Margin Account Agreement"), separate
and distinct from the custody account, in which certain Securi-
ties and/or money of the Fund shall be deposited and withdrawn
from time to time in connection with such transactions as the
Fund may from time to time determine. Securities held in the
Book-Entry System or the Depository shall be deemed to have been
deposited in, or withdrawn from, a Margin Account upon the
Custodian's effecting an appropriate entry in its books and
records.
- 2 -
<PAGE>
12. "Money Market Security" shall be deemed to include,
without limitation, certain Reverse Repurchase Agreements, debt
obligations issued or guaranteed as to interest and principal by
the government of the United States or agencies or
instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public
authority, commercial paper, certificates of deposit and bank-
ers' acceptances, repurchase agreements with respect to the same
and bank time deposits, where the purchase and sale of such
securities normally requires settlement in federal funds on the
same day as such purchase or sale.
13. "O.C.C." shall mean the Options Clearing Corpora-
tion, a clearing agency registered under Section 17A of the
Securities Exchange Act of 1934, its successor or successors,
and its nominee or nominees.
14. "Officers" shall be deemed to include the President,
any Vice President, the Secretary, the Treasurer, the Control-
ler, any Assistant Secretary, any Assistant Treasurer, and any
other person or persons, whether or not any such other person is
an officer of the Fund, duly authorized by the Board of Direc-
tors of the Fund to execute any Certificate, instruction, notice
or other instrument on behalf of the Fund and listed in the
Certificate annexed hereto as Appendix A or such other
Certificate as may be received by the Custodian from time to
time.
15. "Option" shall mean a Call Option, Covered Call Op-
tion, Stock Index Option and/or a Put Option.
16. "Oral Instructions" shall mean verbal instructions
actually received by the Custodian from an Officer or from a
person reasonably believed by the Custodian to be an Officer.
17. "Put Option" shall mean an exchange traded option
with respect to Securities other than Stock Index Options,
Futures Contracts, and Futures Contract Options entitling the
holder, upon timely exercise and tender of the specified
underlying Securities, to sell such Securities to the writer
thereof for the exercise price.
18. "Reverse Repurchase Agreement" shall mean an agree-
ment pursuant to which the Fund sells Securities and agrees to
repurchase such Securities at a described or specified date and
price.
19. "Security" shall be deemed to include, without
limitation, Money Market Securities, Call Options, Put Options,
Stock Index Options, Stock Index Futures Contracts, Stock Index
Futures Contract Options, Financial Futures Contracts, Financial
Futures Contract Options, Reverse Repurchase Agreements, common
stocks and other securities having characteristics similar to
common stocks, preferred stocks, debt obligations issued by
state or municipal governments and by public authorities,
- 3 -
<PAGE>
(including, without limitation, general obligation bonds,
revenue bonds, industrial bonds and industrial development
bonds), bonds, debentures, notes, mortgages or other obliga-
tions, and any certificates, receipts, warrants or other instru-
ments representing rights to receive, purchase, sell or
subscribe for the same, or,evidencing or representing any other
rights or interest therein, or any property or assets.
20. "Senior Security Account" shall mean an account
maintained and specifically allocated to a Series under the
terms of this Agreement as a segregated account, by recordation
or otherwise, within the custody account in which certain
Securities and/or other assets of the Fund specifically al-
located to such Series shall be deposited and withdrawn from
time to time in accordance with Certificates received by the
Custodian in connection with such transactions as the Fund may
from time to time determine.
21. "Series" shall mean the various portfolios, if any,
of the Fund as described from time to time in the current and
effective prospectus for the Fund.
22. "Shares" shall mean the shares of capital stock of
the Fund, each of which is, in the case of a Fund having Series,
allocated to a particular Series.
23. "Stock Index Futures Contract" shall mean a
bilateral agreement pursuant to which the parties agree to take
or make delivery of an amount of cash equal to a specified dol-
lar amount times the difference between the value of a
particular stock index at the close of the last business day of
the contract and the price at which the futures contract is
originally struck.
24. "Stock Index Option" shall mean an exchange traded
option entitling the holder, upon timely exercise, to receive an
amount of cash determined by reference to the difference between
the exercise price and the value of the index on the date of
exercise.
25. "Terminal Link" shall mean an electronic data
transmission link between the Fund and the Custodian requiring
in connection with each use of the Terminal Link by or on behalf
of the Fund use of an authorization code provided by the
Custodian and at least two access codes established by the Fund.
ARTICLE 11.
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the
Custodian as custodian of the Securities and moneys at any time
owned by the Fund during the period of this Agreement.
- 4 -
<PAGE>
2. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as
hereinafter set forth.
ARTICLE III.
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, the Fund will deliver or cause to
be delivered to the Custodian all Securities and all moneys
owned by it, at any time during the period of this Agreement,
and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated. The
Custodian shall segregate, keep and maintain the assets of the
Series separate and apart. The Custodian will not be
responsible for any Securities and moneys not actually received
by it. The Custodian will be entitled to reverse any credits
made on the Fund's behalf where such credits have been previ-
ously made and moneys are not finally collected. The Fund shall
deliver to the Custodian a certified resolution of the Board of
Directors of the Fund, substantially in the form of Exhibit A
hereto, approving, authorizing and instructing the Custodian on
a continuous and on-going basis to deposit in the Book-Entry
System all Securities eligible for deposit therein, regardless
of the Series to which the same are specifically allocated and
to utilize the Book-Entry System to the extent possible in con-
nection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and
sales of Securities, loans of Securities and deliveries and
returns of Securities collateral. Prior to a deposit of Securi-
ties specifically allocated to a Series in the Depository, the
Fund shall deliver to the Custodian a certified resolution of
the Board of Directors of the Fund, substantially in the form of
Exhibit B hereto, approving, authorizing and instructing the
Custodian on a continuous and ongoing basis until instructed to
the contrary by a Certificate actually received by the Custodian
to deposit in the Depository all Securities specifically al-
located to such Series eligible for deposit therein, and to
utilize the Depository to the extent possible with respect to
such Securities in connection with its performance hereunder,
including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and
moneys deposited in either the Book-Entry System or the
Depository will be represented in accounts which include only
assets held by the Custodian for customers, including, but not
limited to, accounts in which the Custodian acts in a fiduciary
or representative capacity and will be specifically allocated on
the Custodian's books to the separate account for the applicable
Series. Prior to the Custodian's accepting, utilizing and act-
ing with respect to Clearing Member confirmations for options
and transactions in Options for a Series as provided in this
- 5 -
<PAGE>
Agreement, the Custodian shall have received a certified resolu-
tion of the Fund's Board of Directors, substantially in the form
of Exhibit C hereto, approving, authorizing and instructing the
Custodian on a continuous and on-going basis, until instructed
to the contrary by a Certificate actually received by the
Custodian, to accept, utilize and act in accordance with such
confirmations as provided in this Agreement with respect to such
Series.
2. The Custodian shall establish and maintain separate
accounts, in the name of each Series, and shall credit to the
separate account for each Series all moneys received by it for
the account of the Fund with respect to such Series. Money
credited to a separate account for a Series shall be disbursed
by the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, the
Series account from which payment is to be made and the purpose
for which payment is to be made; or
(c) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian attributable to such
Series.
3. Promptly after the close of business on each day,
the Custodian shall furnish the Fund with confirmations and a
summary, on a per Series basis, of all transfers to or from the
account of the Fund for a Series, either hereunder or with any
co-custodian or sub-custodian appointed in accordance with this
Agreement during said day. Where Securities are transferred to
the account of the Fund for a Series, the Custodian shall also
by book-entry or otherwise identify as belonging to such Series
a quantity of Securities in a fungible bulk of Securities
registered in the name of the Custodian (or its nominee) or
shown on the Custodian's account on the books of the Book-Entry
System or the Depository. At least monthly and from time to
time, the custodian shall furnish the Fund with a detailed
statement, on a per Series basis, of the Securities and moneys
held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, all Securities held by the
Custodian hereunder, which are issued or issuable only in bearer
form, except such Securities as are held in the Book-Entry
System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the
Fund, in the name of any duly appointed registered nominee of
the Custodian as the Custodian may from time to time determine,
or in the name of the Book-Entry System or the Depository or
their successor or successors, or their nominee or nominees.
The Fund agrees to furnish to the Custodian appropriate instru-
ments to enable the Custodian to hold or deliver in proper form
- 6 -
<PAGE>
for transfer, or to register in the name of its registered
nominee or in the name of the Book-Entry System or the
Depository any Securities which it may hold hereunder and which
may from time to time be registered in the name of the Fund.
The Custodian shall hold all such Securities specifically al-
located to a Series which are not held in the Book-Entry System
or in the Depository in a separate account in the name of such
Series physically segregated at all times from those of any
other person or persons.
5. Except as otherwise provided in this Agreement and
unless otherwise instructed to the contrary by a Certificate,
the Custodian by itself, or through the use of the Book-Entry
System or the Depository with respect to Securities held
hereunder and therein deposited, shall with respect to all
Securities held for the Fund hereunder in accordance with
preceding paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable
upon such Securities which are called, but only if either (i)
the Custodian receives a written notice of such call, or (ii)
notice of such call appears in one or more of the publications
listed in Appendix B annexed hereto, which may be amended at any
time by the Custodian without the prior notification or consent
of the Fund;
(c) Present for payment and collect the amount payable
upon all Securities which mature;
(d) Surrender Securities in temporary form for definitive
Securities;
(e) 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; and
(f) Hold directly, or through the Book-Entry System or
the Depository with respect to Securities therein deposited, for
the account of a Series, all rights and similar securities
issued with respect to any Securities held by the Custodian for
such Series hereunder.
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry System
or the Depository, shall:
(a) Execute and deliver to such persons as may be
designated in such Certificate proxies, consents, authoriza-
tions, and any other instruments whereby the authority of the
Fund as owner of any Securities held by the Custodian hereunder
for the Series specified in such Certificate may be exercised;
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<PAGE>
(b) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate in
exchange for other Securities or cash issued or paid in con-
nection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege and receive and hold
hereunder specifically allocated to such Series any cash or
other Securities received in exchange;
(c) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate 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 hereunder specifically al-
located to such Series 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 Series specified in such Certificate, and take such other
steps as shall be stated in such Certificate to be for the
purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the
Fund; and
(e) Present for payment and collect the amount payable
upon Securities not described in preceding paragraph 5(b) of
this Article which may be called as specified in the
Certificate.
7. Notwithstanding any provision elsewhere contained
herein, the Custodian shall not be required to obtain possession
of any instrument or certificate representing any Futures
Contract, any Option, or any Futures Contract Option until after
it shall have determined, or shall have received a Certificate
from the Fund stating, that any such instruments or certificates
are available. The Fund shall deliver to the Custodian such a
Certificate no later than the business day preceding the avail-
ability of any such instrument or certificate. Prior to such
availability, the Custodian shall comply with Section 17(f) of
the Investment Company Act of 1940, as amended, in connection
with the purchase, sale, settlement, closing out or writing of
Futures Contracts, Options, or Futures Contract Options by mak-
ing payments or deliveries specified in Certificates received by
the Custodian in connection with any such purchase, sale, writ-
ing, settlement or closing out upon its receipt from a broker,
dealer, or futures commission merchant of a statement or
confirmation reasonably believed by the Custodian to be in the
form customarily used by brokers, dealers, or future commission
merchants with respect to such Futures Contracts, Options, or
Futures Contract Options, as the case may be, confirming that
such Security is held by such broker, dealer or futures com-
mission merchant, in book-entry form or otherwise, in the name
of the Custodian (or any nominee of the Custodian) as custodian
- 8 -
<PAGE>
for the Fund, provided, however, that notwithstanding the
foregoing, payments to or deliveries from the Margin Account,
and payments with respect to Securities to which a Margin Ac-
count relates, shall be made in accordance with the terms and
conditions of the Margin Account Agreement. Whenever any such
instruments or certificates are available, the Custodian shall,
notwithstanding any provision in this Agreement to the contrary,
make payment for any Futures Contract, Option, or Futures
Contract Option for which such instruments or such certificates
are available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Futures
Contract, Option or Futures Contract Option for which such
instruments or such certificates are available only against
receipt by the Custodian of payment therefor. Any such instru-
ment or certificate delivered to the Custodian shall be held by
the Custodian hereunder in accordance with, and subject to, the
provisions of this Agreement.
ARTICLE IV.
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the
Fund, other than a purchase of an Option, a Futures Contract, or
a Futures Contract Option, the Fund shall deliver to the
Custodian (i) with respect to each purchase of Securities which
are not Money Market Securities, a Certificate, and (ii) with
respect to each. purchase of Money Market Securities, a
Certificate or Oral Instructions, specifying with respect to
each such purchase: (a) the Series to which such Securities are
to be specifically allocated; (b) the name of the issuer and the
title of the Securities; (c) the number of shares or the
principal amount purchased and accrued interest, if any; (d) the
date of purchase and settlement; (e) the purchase price per
unit; (f) the total amount payable upon such purchase; (g) the
name of the person from whom or the broker through whom the
purchase was made, and the name of the clearing broker, if any;
and (h) the name of the broker to whom payment is to be made.
The Custodian shall, upon receipt of Securities purchased by or
for the Fund, pay to the broker specified in the Certificate out
of the moneys held for the account of such Series the total
amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such
Certificate or Oral Instructions.
2. Promptly after each sale of Securities by the Fund,
other than a sale of any option, Futures Contract, Futures
Contract Option, or any Reverse Repurchase Agreement, the Fund
shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a
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<PAGE>
Certificate or oral Instructions, specifying with respect to
each such sale: (a) the Series to which such Securities were
specifically allocated; (b) the name of the issuer and the title
of the Security; (c) the number of shares or principal amount
sold, and accrued interest, if any; (d) the date of sale; (e)
the sale price per unit; (f) the total amount payable to the
Fund upon such sale; (g) the name of the broker through whom or
the person to whom the sale was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom
the Securities are to be delivered. The Custodian shall deliver
the Securities specifically allocated to such Series to the
broker specified in the Certificate against payment of the total
amount payable to the Fund upon such sale, provided that the
same conforms to the total amount payable as set forth in such
Certificate or Oral Instructions.
ARTICLE V.
OPTIONS
1. Promptly after the purchase of any option by the
Fund, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each option purchased: (a) the Series
to which such Option is specifically allocated; (b) the type of
option (put or call); (c) the name of the issuer and the title
and number of shares subject to such option or, in the case of a
Stock Index Option, the stock index to which such option relates
and the number of Stock Index Options purchased; (d) the expira-
tion date; (e) the exercise price; (f) the dates of purchase and
settlement; (g) the total amount payable by the Fund in connec-
tion with such purchase; (h) the name of the Clearing Member
through whom such Option was purchased; and (i) the name of the
broker to whom payment is to be made. The Custodian shall pay,
upon receipt of a Clearing Member's statement confirming the
purchase of such Option held by such Clearing Member for the
account of the Custodian (or any duly appointed and registered
nominee of the Custodian) as custodian for the Fund, out of
moneys held for the account of the Series to which such Option
is to be specifically allocated, the total amount payable upon
such purchase to the Clearing Member through whom the purchase
was made, provided that the same conforms to the total amount
payable as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall deliver
to the Custodian a Certificate specifying with respect to each
such sale: (a) the Series to which such Option was specifically
allocated; (b) the type of Option (put or call); (c) the name of
the issuer and the title and number of shares subject to such
Option or, in the case of a stock Index Option, the stock index
to which such option relates and the number of Stock Index Op-
tions sold; (d) the date of sale; (e) the sale price; (f) the
date of settlement; (g) the total amount payable to the Fund
upon such sale; and (h) the name of the Clearing Member through
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<PAGE>
whom the sale was made. The Custodian shall consent to the
delivery of the option sold by the Clearing Member which previ-
ously supplied the confirmation described in preceding paragraph
1 of this Article with respect to such Option against payment to
the Custodian of the total amount payable to the Fund, provided
that the same conforms to the total amount payable as set forth
in such Certificate.
3. Promptly after the exercise by the Fund of any Call
option purchased by the Fund pursuant to paragraph 1 hereof, the
Fund shall deliver to the Custodian a Certificate specifying
with respect to such Call Option: (a) the Series to which such
Call Option was specifically allocated; (b) the name of the is-
suer and the title and number of shares subject to the Call Op-
tion; (c) the expiration date; (d) the date of exercise and
settlement; (e) the exercise price per share; (f) the total
amount to be paid by the Fund upon such exercise; and (g) the
name of the Clearing Member through whom such Call option was
exercised. The Custodian shall, upon receipt of the Securities
underlying the Call Option which was exercised, pay out of the
moneys held for the account of the Series to which such Call
option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised,
provided that the same conforms to the total amount payable as
set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put
Option purchased by the Fund pursuant to paragraph 1 hereof, the
Fund shall deliver to the Custodian a Certificate specifying
with respect to such Put Option: (a) the Series to which such
Put Option was specifically allocated; (b) the name of the is-
suer and the title and number of shares subject to the Put Op-
tion; (c) the expiration date; (d) the date of exercise and
settlement; (e) the exercise price per share; (f) the total
amount to be paid to the Fund upon such exercise; and (g) the
name of the Clearing Member through whom such Put Option was
exercised. The Custodian shall, upon receipt of the amount pay-
able upon the exercise of the Put Option, deliver or direct the
Depository to deliver the Securities specifically allocated to
such Series, provided the same conforms to the amount payable to
the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock
Index Option purchased by the Fund pursuant to paragraph 1
hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to such Stock Index Option: (a) the
Series to which such Stock Index Option was specifically al-
located; (b) the type of Stock Index Option (put or call); (c)
the number of Options being exercised; (d) the stock index to
which such option relates; (e) the expiration date; (f) the
exercise price; (g) the total amount to be received by the Fund
in connection with such exercise; and (h) the Clearing Member
from whom such payment is to be received.
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<PAGE>
6. Whenever the Fund writes a Covered Call Option, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Covered Call Option: (a) the
Series for which such Covered Call Option was written; (b) the
name of the issuer and the title and number of shares for which
the Covered Call Option was written and which underlie the same;
(c) the expiration date; (d) the exercise price; (e) the premium
to be received by the Fund; (f) the date such Covered Call Op-
tion was written; and (g) the name of the Clearing Member
through whom the premium is to be received. The Custodian shall
deliver or cause to be delivered, in exchange for receipt of the
premium specified in the Certificate with respect to such
Covered Call Option, such receipts as are required in accordance
with the customs prevailing among Clearing Members dealing in
Covered Call Options and shall impose, or direct the Depository
to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restric-
tions as may be required by such receipts. Notwithstanding the
foregoing, the Custodian has the right, upon prior written
notification to the Fund, at any time to refuse to issue any
receipts for Securities in the possession of the Custodian and
not deposited with the Depository underlying a Covered Call Op-
tion.
7. Whenever a Covered Call Option written by the Fund
and described in the preceding paragraph of this Article is
exercised, the Fund shall promptly deliver to the Custodian a
Certificate instructing the Custodian to deliver, or to direct
the Depository to deliver, the Securities subject to such
Covered Call Option and specifying: (a) the Series for which
such Covered Call Option was written; (b) the name of the issuer
and the title and number of shares subject to the Covered Call
Option; (c) the Clearing Member to whom the underlying Securi-
ties are to be delivered; and (d) the total amount payable to
the Fund upon such delivery. Upon the return and/or cancella-
tion of any receipts delivered pursuant to paragraph 6 of this
Article, the Custodian shall deliver, or direct the Depository
to deliver, the underlying Securities as specified in the
Certificate against payment of the amount to be received as set
forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying
with respect to such Put Option: (a) the Series for which such
Put Option was written; (b) the name of the issuer and the title
and number of shares for which the Put Option is written and
which underlie the same; (c) the expiration date; (d) the
exercise price; (e) the premium to be received by the Fund; (f)
the date such Put Option is written; (g) the name of the Clear-
ing Member through whom the premium is to be received and to
whom a Put Option guarantee letter is to be delivered; (h) the
amount of cash, and/or the amount and kind of Securities, if
any, specifically allocated to such Series to be deposited in
the Senior Security Account for such Series; and (i) the amount
of cash and/or the amount and kind of Securities specifically
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<PAGE>
allocated to such Series to be deposited into the Collateral
Account for such Series. The Custodian shall, after making the
deposits into the Collateral Account specified in the
Certificate, issue a Put Option guarantee letter substantially
in the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the
Certificate against receipt of the premium specified in said
Certificate. Notwithstanding the foregoing, the Custodian shall
be under no obligation to issue any Put Option guarantee letter
or similar document if it is unable to make any of the
representations contained therein.
9. Whenever a Put Option written by the Fund and
described in the preceding paragraph is exercised, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing: (a) the Series to which such Put Option was written; (b)
the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying
Securities are to be received; (d) the total amount payable by
the Fund upon such delivery; (e) the amount of cash and/or the
amount and kind of Securities specifically allocated to such
Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of
Securities, specifically allocated to such Series, if any, to be
withdrawn from the Senior Security Account. Upon the return
and/or cancellation of any Put Option guarantee letter or
similar document issued by the Custodian in connection with such
Put Option, the Custodian shall pay out of the moneys held for
the account of the Series to which such Put Option was
specifically allocated the total amount payable to the Clearing
Member specified in the Certificate as set forth in such
Certificate against delivery of such Securities, and shall make
the withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Stock Index Option: (a) the
Series for which such Stock Index Option was written; (b)
whether such Stock Index Option is a put or a call; (c) the
number of options written; (d) the stock index to which such
option relates; (e) the expiration date; (f) the exercise price;
(g) the Clearing Member through whom such option was written;
(h) the premium to be received by the Fund; (i) the amount of
cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the
Senior Security Account for such Series; (j) the amount of cash
and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Collateral Ac-
count for such Series; and (k) the amount of cash and/or the
amount and kind of Securities, if any, specifically allocated to
such Series to be deposited in a Margin Account, and the name in
which such account is to be or has been established. The
Custodian shall, upon receipt of the premium specified in the
Certificate, make the deposits, if any, into the Senior Security
Account specified in the Certificate, and either (1) deliver
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<PAGE>
such receipts, if any, which the Custodian has specifically
agreed to issue, which are in accordance with the customs
prevailing among Clearing Members in Stock Index Options and
make the deposits into the Collateral Account specified in the
Certificate, or (2) make the deposits into the Margin Account
specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund
and described in the preceding paragraph of this Article is
exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to such Stock Index Option:
(a) the Series for which such Stock Index Option was written;
(b) such information as may be necessary to identify the Stock
Index Option being exercised; (c) the Clearing Member through
whom such Stock Index Option is being exercised; (d) the total
amount payable upon such exercise, and whether such amount is to
be paid by or to the Fund; (e) the amount of cash and/or amount
and kind of Securities, if any, to be withdrawn from the Margin
Account; and (f) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Senior Security
Account for such Series; and the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from the
Collateral Account for such Series. Upon the return and/or
cancellation of the receipt, if any, delivered pursuant to the
preceding paragraph of this Article, the Custodian shall pay out
of the moneys held for the account of the Series to which such
Stock Index Option was specifically allocated to the Clearing
Member specified in the Certificate the total amount payable, if
any, as specified therein.
12. Whenever the Fund purchases any option identical to
a previously written Option described in paragraphs, 6, 8 or 10
of this Article in a transaction expressly designated as a
"Closing Purchase Transaction" in order to liquidate its posi-
tion as a writer of an Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to the
option being purchased: (a) that the transaction is a Closing
Purchase Transaction; (b) the Series for which the option was
written; (c) the name of the issuer and the title and number of
shares subject to the option, or, in the case of a Stock Index
option, the stock index to which such Option relates and the
number of Options held; (d) the exercise price; (e) the premium
to be paid by the Fund; (f) the expiration date; (g) the type of
option (put or call); (h) the date of such purchase; (i) the
name of the Clearing Member to whom the premium is to be paid;
and (j) the amount of cash and/or the amount and kind of Securi-
ties, if any, to be withdrawn from the Collateral Account, a
specified Margin Account, or the Senior Security Account for
such Series. Upon the Custodian's payment of the premium and
the return and/or cancellation of any receipt issued pursuant to
paragraphs 6, 8 or 10 of this Article with respect to the option
being liquidated through the Closing Purchase Transaction, the
Custodian shall remove, or direct the Depository to remove, the
previously imposed restrictions on the Securities underlying the
Call Option.
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<PAGE>
13. Upon the expiration, exercise or consummation of a
Closing Purchase Transaction with respect to any Option
purchased or written by the Fund and described in this Article,
the Custodian shall delete such Option from the statements
delivered to the Fund pursuant to paragraph 3 Article III
herein, and upon the return and/or cancellation of any receipts
issued by the Custodian, shall make such withdrawals from the
Collateral Account, and the Margin Account and/or the Senior
Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
ARTICLE VI.
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures
Contract, the Fund shall deliver to the Custodian a Certificate
specifying with respect to such Futures Contract, (or with
respect to any number of identical Futures Contract(s)): (a) the
Series for which the Futures Contract is being entered; (b) the
category of Futures Contract (the name of the underlying stock
index or financial instrument); (c) the number of identical
Futures Contracts entered into; (d) the delivery or settlement
date of the Futures Contract(s); (e) the date the Futures
Contract(s) was (were) entered into and the maturity date; (f)
whether the Fund is buying (going long) or selling (going short)
on such Futures Contract(s); (g) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in the
Senior Security Account for such Series; (h) the name of the
broker, dealer, or futures commission merchant through whom the
Futures Contract was entered into; and (i) the amount of fee or
commission, if any, to be paid and the name of the broker,
dealer, or futures commission merchant to whom such amount is to
be paid. The Custodian shall make the deposits, if any, to the
Margin Account in accordance with the terms and conditions of
the Margin Account Agreement. The Custodian shall make payment
out of the moneys specifically allocated to such Series of the
fee or commission, if any, specified in the Certificate and
deposit in the Senior Security Account for such Series the
amount of cash and/or the amount and kind of Securities
specified in said Certificate.
2. (a) Any variation margin payment or similar payment
required to be made by the Fund to a broker, dealer, or futures
commission merchant with respect to an outstanding Futures
Contract, shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from
a broker, dealer, or futures commission merchant to the Fund
with respect to an outstanding Futures Contract, shall be
received and dealt with by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
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<PAGE>
3. Whenever a Futures Contract held by the Custodian
hereunder is retained by the Fund until delivery or settlement
is made on such Futures Contract, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the Futures Contract and
the Series to which the same relates; (b) with respect to a
Stock Index Futures Contract, the total cash settlement amount
to be paid or received, and with respect to a Financial Futures
Contract, the Securities and/or amount of cash to be delivered
or received; (c) the broker, dealer, or futures commission
merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be
withdrawn from the Senior Security Account for such Series. The
Custodian shall make the payment or delivery specified in the
Certificate, and delete such Futures Contract from the state-
ments delivered to the Fund pursuant to paragraph 3 of Article
III herein.
4. Whenever the Fund shall enter into a Futures
Contract to offset a Futures Contract held by the Custodian
hereunder, the Fund shall deliver to the Custodian a Certificate
specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b)
the Futures Contract being offset. The Custodian shall make
payment out of the money specifically allocated to such Series
of the fee or commission, if any, specified in the Certificate'
and delete the Futures Contract being offset from the statements
delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Ac-
count for such Series as may be specified in such Certificate.
The withdrawals, if any, to be made from the Margin Account
shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
ARTICLE VII.
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract
option by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to such Futures
Contract Option: (a) the Series to which such option is
specifically allocated; (b) the type of Futures Contract Option
(put or call); (c) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option purchased; (d) the
expiration date; (e) the exercise price; (f) the dates of
purchase and settlement; (g) the amount of premium to be paid by
the Fund upon such purchase; (h) the name of the broker or
futures commission merchant through whom such option was
purchased; and (i) the name of the broker, or futures commission
merchant, to whom payment is to be made. The Custodian shall
pay out of the moneys specifically allocated to such Series, the
total amount to be paid upon such purchase to the broker or
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<PAGE>
futures commissions merchant through whom the purchase was made,
provided that the same conforms to the amount set forth in such
Certificate.
2. Promptly after the sale of any Futures Contract Op-
tion purchased by the Fund pursuant to paragraph 1 hereof, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) Series to which
such Futures Contract Option was specifically allocated; (b) the
type of Future Contract Option (put or call); (c) the type of
Futures Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Contract
Option; (d) the date of sale; (e) the sale price; (f) the date
of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the broker of futures commission
merchant through whom the sale was made. The Custodian shall
consent to the cancellation of the Futures Contract Option being
closed against payment to the Custodian of the total amount pay-
able to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the
Fund pursuant to paragraph 1 is exercised by the Fund, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Op-
tion (put or call) being exercised; (c) the type of Futures
Contract underlying the Futures Contract Option; (d) the date of
exercise; (e) the name of the broker or futures commission
merchant through whom the Futures Contract Option is exercised;
(f) the net total amount, if any, payable by the Fund; (g) the
amount, if any, to be received by the Fund; and (h) the amount
of cash and/or the amount and kind of Securities to be deposited
in the Senior Security Account for such Series. The Custodian
shall make, out of the moneys and Securities specifically al-
located to such Series, the payments, if any, and the deposits,
if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option,
the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Futures Contract Option: (a) the
Series for which such Futures Contract Option was written; (b)
the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be neces-
sary to identify the Futures Contract underlying the Futures
Contract Option; (d) the expiration date; (e) the exercise
price; (f) the premium to be received by the Fund; (g) the name
of the broker or futures commission merchant through whom the
premium is to be received; and (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in the
Senior Security Account for such Series. The Custodian shall,
upon receipt of the premium specified in the Certificate, make
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out of the moneys and Securities specifically allocated to such
Series the deposits into the Senior Security Account, if any, as
specified in the Certificate. The deposits, if any, to be made
to the Margin Account shall be made by the Custodian in ac-
cordance with the terms and conditions of the Margin Account
Agreement.
5. Whenever a Futures Contract Option written by the
Fund which is a call is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying: (a) the
Series to which such Futures Contract Option was specifically
allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract
option; (d) the name of the broker or futures commission
merchant through whom such Futures Contract Option was
exercised; (e) the net total amount, if any, payable to the Fund
upon such exercise; (f) the net total amount, if any, payable by
the Fund upon such exercise; and (g) the amount of cash and/or
the amount and kind of Securities to be deposited in the Senior
Security Account for such Series. The Custodian shall, upon its
receipt of the net total amount payable to the Fund, if any,
specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified
in the Certificate. The deposits, if any, to be made to the
Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written
by the Fund and which is a put is exercised, the Fund shall
promptly deliver to the Custodian a Certificate specifying: (a)
the Series to which such option was specifically allocated; (b)
the particular Futures Contract Option exercised; (c) the type
of Futures Contract underlying such Futures Contract Option; (d)
the name of the broker or futures commission merchant through
whom such Futures Contract Option is exercised; (e) the net
total amount, if any, payable to the Fund upon such exercise;
(f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash
to be withdrawn from or deposited in, the Senior Security Ac-
count for such Series, if any. The Custodian shall, upon its
receipt of the net total amount payable to the Fund, if any,
specified in the Certificate, make out of the moneys and Securi-
ties specifically allocated to such Series, the payments, if
any, and the deposits, if any, into the Senior Security Account
as specified in the Certificate. The deposits to and/or
withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract
Option identical to a previously written Futures Contract Option
described in this Article in order to liquidate its position as
a writer of such Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with
respect to the Futures Contract Option being purchased: (a) the
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Series to which such option is specifically allocated; (b) that
the transaction is a closing transaction; (c) the type of Future
Contract and such other information as may be necessary to
identify the Futures Contract underlying the Futures Option
Contract; (d) the exercise price; (e) the premium to be paid by
the Fund; (f) the expiration date; (g) the name of the broker or
futures commission merchant to whom the premium is to be paid;
and (h) the amount of cash and/or the amount and kind of Securi-
ties, if any, to be withdrawn from the Senior Security Account
for such Series. The Custodian shall effect the withdrawals
from the Senior Security Account specified in the Certificate.
The withdrawals, if any, to be made from the Margin Account
shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a
closing transaction with respect to, any Futures Contract Option
written or purchased by the Fund and described in this Article,
the Custodian shall (a) delete such Futures Contract Option from
the statements delivered to the Fund pursuant to paragraph 3 of
Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security
Account as may be specified in a Certificate. The deposits to
and/or withdrawals from the Margin Account, if any, shall be
made by the Custodian in accordance with the terms and condi-
tions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the
exercise of a Futures Contract Option described in this Article
shall be subject to Article VI hereof.
ARTICLE VIII.
SHORT SALES
1. Promptly after any short sales by any Series of the
Fund, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series for which such short sale
was made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold, and
accrued interest or dividends, if any; (d) the dates of the sale
and settlement; (e) the sale price per unit; (f) the total
amount credited to the Fund upon such sale, if any, (g) the
amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in
which such Margin Account has been or is to be established; (h)
the amount of cash and/or the amount and kind of Securities, if
any, to be deposited in a Senior Security Account, and (i) the
name of the broker through whom such short sale was made. The
Custodian shall upon its receipt of a statement from such broker
confirming such sale and that the total amount credited to the
Fund upon such sale, if any, as specified in the Certificate is
held by such broker for the account of the Custodian (or any
nominee of the Custodian) as custodian of the Fund, issue a
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receipt or make the deposits into the Margin Account and the
Senior Security Account specified in the Certificate.
2. In connection with the closing-out of any short
sale, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to each such closing out:
(a) the Series for which such transaction is being made; (b) the
name of the issuer and the title of the Security; (c) the number
of shares or the principal amount, and accrued interest or
dividends, if any, required to effect such closing-out to be
delivered to the broker; (d) the dates of closing-out and
settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fun upon such closing-out; (g) the net
total amount payable to the broker upon such closing-out; (h)
the amount of cash and the amount and kind of Securities to be
withdrawn, if any, from the Margin Account; (i) the amount of
cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account; and (j) the name of
the broker through whom the Fund is effecting such closing-out.
The Custodian shall, upon receipt of the net total amount pay-
able to the Fund upon such closing-out, and the return and/ or
cancellation of the receipts, if any, issued by the Custodian
with respect to the short sale being closed-out, pay out of the
moneys held for the account of the Fund to the broker the net
total amount payable to the broker, and make the withdrawals
from the Margin Account and the Senior Security Account, as the
same are specified in the Certificate.
ARTICLE IX.
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase
Agreement with respect to Securities and money held by the
Custodian hereunder, the Fund shall deliver to the Custodian a
Certificate, or in the event such Reverse Repurchase Agreement
is a Money Market Security, a Certificate or Oral Instructions
specifying: (a) the Series for which the Reverse Repurchase
Agreement is entered; (b) the total amount payable to the Fund
in connection with such Reverse Repurchase Agreement and
specifically allocated to such Series; (c) the broker or dealer
through or with whom the Reverse Repurchase Agreement is
entered; (d) the amount and kind of Securities to be delivered
by the Fund to such broker or dealer; (e) the date of such
Reverse Repurchase Agreement; and (f) the amount of cash and/or
the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Senior Security
Account for such Series in connection with such Reverse
Repurchase Agreement. The Custodian shall, upon receipt of the
total amount payable to the Fund specified in the Certificate,
Oral Instructions, or Written Instructions make the delivery to
the broker or dealer, and the deposits, if any, to the Senior
Security Account, specified in such Certificate or Oral
Instructions.
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<PAGE>
2. Upon the termination of a Reverse Repurchase Agree-
ment described in preceding paragraph 1 of this Article, the
Fund shall promptly deliver a Certificate or, in the event such
Reverse Repurchase Agreement is a Money Market Security, a
Certificate or Oral Instructions to the Custodian specifying:
(a) the Reverse Repurchase Agreement being terminated and the
Series for which same was entered; (b) the total amount payable
by the Fund in connection with such termination; (c) the amount
and kind of Securities to be received by the Fund and
specifically allocated to such Series in connection with such
termination; (d) the date of termination; (e) the name of the
broker or dealer with or through whom the Reverse Repurchase
Agreement is to be terminated; and (f) the amount of cash and/or
the amount and kind of Securities to be withdrawn from the
Senior Securities Account for such Series. The Custodian shall,
upon receipt of the amount and kind of Securities to be received
by the Fund specified in the Certificate or Oral Instructions,
make the payment to the broker or dealer, and the withdrawals,
if any, from the Senior Security Account, specified in such
Certificate or Oral Instructions.
ARTICLE X.
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities
specifically allocated to a Series held by the Custodian
hereunder, the Fund shall deliver or cause to be delivered to
the Custodian a Certificate specifying with respect to each such
loan: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the title
of the Securities, (c) the number of shares or the principal
amount loaned, (d) the date of loan and delivery, (e) the total
amount to be delivered to the Custodian against the loan of the
Securities, including the amount of cash collateral and the
premium, if any, separately identified, and (f) the name of the
broker, dealer, or financial institution to which the loan was
made. The Custodian shall deliver the Securities thus
designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount
designated as to be delivered against the loan of Securities.
The Custodian may accept payment in connection with a delivery
otherwise than through the Book-Entry System or Depository only
in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clear-
ing House funds and may deliver Securities in accordance with
the customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of
Securities by the Fund, the Fund shall deliver or cause to be
delivered to the Custodian a Certificate specifying with respect
to each such loan termination and return of Securities: (a) the
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Series to which the loaned Securities are specifically al-
located; (b) the name of the issuer and the title of the Securi-
ties to be returned, (c) the number of shares or the principal
amount to be returned, (d) the date of termination, (e) the
total amount to be delivered by the Custodian (including the
cash collateral for such Securities minus any offsetting credits
as described in said Certificate), and (f) the name of the
broker, dealer, or financial institution from which the Securi-
ties will be returned. The Custodian shall receive all securi-
ties returned from the broker, dealer, or financial institution
to which such Securities were loaned and upon receipt thereof
shall pay, out of the moneys held for the account of the Fund,
the total amount payable upon such return of Securities as set
forth in the Certificate.
ARTICLE XI.
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such
deposits to, or withdrawals from, a Senior Security Account as
specified in a Certificate received by the Custodian. Such
Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such
Series to be deposited in, or withdrawn from, such Senior
Security Account for such Series. In the event that the Fund
fails to specify in a Certificate the Series, the name of the
issuer, the title and the number of shares or the principal
amount of any particular Securities to be deposited by the
Custodian into, or withdrawn from, a Senior Securities Account,
the Custodian shall be under no obligation to make any such
deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from
a Margin Account to the broker, dealer, futures commission
merchant or Clearing Member in whose name, or for whose benefit,
the account was established as specified in the Margin Account
Agreement.
3. Amounts received by the Custodian as payments or
distributions with respect to Securities deposited in any Margin
Account shall be dealt with in accordance with the terms and
conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and
security interest in and to any property at any time held by the
Custodian in any Collateral Account described herein. In ac-
cordance with applicable law the Custodian may enforce its lien
and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter
or similar document or any receipt issued hereunder by the
Custodian. In the event the Custodian should realize on any
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<PAGE>
such property net proceeds which are less than the Custodian's
obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed
the Custodian by the Fund within the scope of Article XIV
herein.
5. On each business day the Custodian shall furnish the
Fund with a statement with respect to each Margin Account in
which money or Securities are held specifying as of the close of
business on the previous business day: (a) the name of the
Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The
Custodian shall make available upon request to any broker,
dealer, or futures commission merchant specified in the name of
a Margin Account a copy of the statement furnished the Fund with
respect to such Margin Account.
6. Promptly after the close of business on each busi-
ness day in which cash and/or Securities are maintained in a
Collateral Account for any Series, the Custodian shall furnish
the Fund with a statement with respect to such Collateral Ac-
count specifying the amount of cash and/or the amount and kind
of Securities held therein. No later than the close of business
next succeeding the delivery to the Fund of such statement, the
Fund shall furnish to the Custodian a Certificate or Written
Instructions specifying the then market value of the Securities
described in such statement. In the event such then market
value is indicated to be less than the Custodian's obligation
with respect to any outstanding Put Option guarantee letter or
similar document, the Fund shall promptly specify in a
Certificate the additional cash and/or Securities to be
deposited in such Collateral Account to eliminate such
deficiency.
ARTICLE XII.
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of
the resolution of the Board of Directors of the Fund, certified
by the Secretary or any Assistant Secretary, either (i) setting
forth with respect to the Series specified therein the date of
the declaration of a dividend or distribution, the date of pay-
ment thereof, the record date as of which shareholders entitled
to payment shall be determined, the amount payable per Share of
such Series to the shareholders of record as of that date and
the total amount payable to the Dividend Agent and any
sub-dividend agent or co-dividend agent of the Fund on the pay-
ment date, or (ii) authorizing with respect to the Series
specified therein the declaration of dividends and distributions
on a daily basis and authorizing the Custodian to rely on oral
Instructions or a Certificate setting forth the date of the
declaration of such dividend or distribution, the date of
payment thereof, the record date as of which shareholders
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entitled to payment shall be determined, the amount payable per
Share of such Series to the shareholders of record as of that
date and the total amount payable to the Dividend Agent on the
payment date.
2. Upon the payment date specified in such resolution,
Oral Instructions or Certificate, as the case may be, the
Custodian shall pay out of the moneys held for the account of
each Series the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
ARTICLE XIII.
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall
deliver to the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date,
and price; and
(b) The amount of money to be received by the Custodian
for the sale of such Shares and specifically allocated to the
separate account in the name of such Series.
2. Upon receipt of such money from the Transfer Agent,
the Custodian shall credit such money to the separate account in
the name of the Series for which such money was received.
3. Upon issuance of any Shares of any Series described
in the foregoing provisions of this Article, the Custodian shall
pay, out of the money held for the account of such Series, all
original issue or other taxes required to be paid by the Fund in
connection with such issuance upon the receipt of a Certificate
specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund
desires the Custodian to make payment out of the money held by
the Custodian hereunder in connection with a redemption of any
Shares, it shall furnish to the Custodian a Certificate specify-
ing:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice
setting forth the Series and number of Shares received by the
Transfer Agent for redemption and that such Shares are in good
form for redemption, the Custodian shall make payment to the
Transfer Agent out of the moneys held in the separate account in
the name of the Series the total amount specified in the
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Certificate issued pursuant to the foregoing paragraph 4 of this
Article.
6. Notwithstanding the above provisions regarding the
redemption of any Shares, whenever any Shares are redeemed
pursuant to any check redemption privilege which may from time
to time be offered by the Fund, the Custodian, unless otherwise
instructed by a Certificate, shall, upon receipt of an advice
from the Fund or its agent setting forth that the redemption is
in good form for redemption in accordance with the check redemp-
tion procedure, honor the check presented as part of such check
redemption privilege out of the moneys held in the separate ac-
count of the Series of the Shares being redeemed.
ARTICLE XIV.
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion
advance funds on behalf of any Series which results in an
overdraft because the moneys held by the Custodian in the
separate account for such Series shall be insufficient to pay
the total amount payable upon a purchase of Securities
specifically allocated to such Series, as set forth in a
Certificate or Oral Instructions, or which results in an
overdraft in the separate account of such Series for some other
reason, or if the Fund is for any other reason indebted to the
Custodian with respect to a Series, including any indebtedness
to The Bank of New York under the Fund's Cash Management and
Related Services Agreement, (except a borrowing for investment
or for temporary or emergency purposes using Securities as
collateral pursuant to a separate agreement and subject to the
provisions of paragraph 2 of this Article), such overdraft or
indebtedness shall be deemed to be a loan made by the Custodian
to the Fund for such Series 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's 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, the Fund
hereby agrees that the Custodian shall have a continuing lien
and security interest in and to any property specifically
allocated to such Series at any time held by it for the benefit
of such Series or in which the Fund may have an interest which
is then in the Custodian's possession or control or in posses-
sion or control of any third party acting in the Custodian's
behalf. The Fund authorizes the Custodian, in its sole discre-
tion, at any time to charge any such overdraft or indebtedness
together with interest due thereon against any balance of ac-
count standing to such Series' credit on the Custodian's books.
In addition, the Fund hereby covenants that on each Business Day
on which either it intends to enter a Reverse Repurchase Agree-
ment and/or otherwise borrow from a third party, or which next
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<PAGE>
succeeds a Business Day on which at the close of business the
Fund had outstanding a Reverse Repurchase Agreement or such a
borrowing, it shall prior to 9 a.m., New York City time, advise
the Custodian, in writing, of each such borrowing, shall specify
the Series to which the same relates, and shall not incur any
indebtedness not so specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian
by any bank (including, if the borrowing is pursuant to a
separate agreement, the Custodian) from which it borrows money
for investment or for temporary or emergency purposes using
Securities held by the Custodian hereunder as collateral for
such borrowings, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such
bank will loan to the Fund against delivery of a stated amount
of collateral. The Fund shall promptly deliver to the Custodian
a Certificate specifying with respect to each such borrowing:
(a) the Series to which such borrowing relates; (b) the name of
the bank, (c) the amount and terms of the borrowing, which may
be set forth by incorporating by reference an attached promis-
sory note, duly endorsed by the Fund, or other loan agreement,
(d) the time and date, if known, on which the loan is to be
entered into, (e) the date on which the loan becomes due and
payable, (f) the total amount payable to the Fund on the borrow-
ing date, (g) the market value of Securities to be delivered as
collateral for such loan, including the name of the issuer, the
title and the number of shares or the principal amount of any
particular Securities, and (h) a statement specifying whether
such loan is for investment purposes or for temporary or
emergency purposes and that such loan is in conformance with the
Investment Company Act of 1940 and the Fund's prospectus. The
Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory
note, if any, against delivery by the lending bank of the total
amount of the loan payable, provided that the same conforms to
the total amount payable as set forth in the Certificate. The
Custodian may, at the option of the lending bank, keep such col-
lateral in its possession, but such collateral shall be subject
to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. The Custodian shall deliver
such Securities as additional collateral as may be specified in
a Certificate to collateralize further any transaction described
in this paragraph. The Fund shall cause all Securities released
from collateral status to be returned directly to the Custodian,
and the Custodian shall receive from time to time such return of
collateral as may be tendered to it. In the event that the Fund
fails to specify in a Certificate the Series, the name of the
issuer, the title and number of shares or the principal amount
of any particular Securities to be delivered as collateral by
the Custodian, the Custodian shall not be under any obligation
to deliver any Securities.
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<PAGE>
ARTICLE XV.
TERMINAL LINK
1. At no time and under no circumstances shall the Fund
be obligated to have or utilize the Terminal Link, and the
provisions of this Article shall apply if, but only if, the
Fund in its sole and absolute discretion elects to utilize the
Terminal Link to transmit Certificates to the Custodian.
2. The Terminal Link shall be utilized by the Fund only
for the purpose of the Fund providing Certificates to the
Custodian with respect to transactions involving Securities or
for the transfer of money to be applied to the payment of
dividends, distributions or redemptions of Fund Shares, and
shall be utilized by the Custodian only for the purpose of
providing notices to the Fund. Such use shall commence only
after the Fund shall have delivered to the Custodian a
Certificate substantially in the form of Exhibit D and shall
have established access codes. Each use of the Terminal Link by
the Fund shall constitute a representation and warranty that the
Terminal Link is being used only for the purposes permitted
hereby, that at least two officers have each utilized an access
code, that such safekeeping procedures have been established by
the Fund, and that such use does not contravene the Investment
Company Act of 1940, as amended, or the rules or regulations
thereunder.
3. The Fund shall obtain and maintain at its own cost
and expense all equipment and services, including, but not
limited to communications services, necessary for it to utilize
the Terminal Link, and the Custodian shall not be responsible
for the reliability or availability of any such equipment or
services.
4. The Fund acknowledges that any data' bases made
available as part of, or through the Terminal Link and any
proprietary data, software, processes, information and docu-
mentation (other than any such which are or become part of the
public domain or are legally required to be made available to
the public) (collectively, the "Information"), are the exclusive
and confidential property of the Custodian. The Fund shall, and
shall cause others to which it discloses the Information, to
keep the Information confidential by using the same care and
discretion it uses with respect to its own confidential property
and trade secrets, and shall neither make nor permit any
disclosure without the express prior written consent of the
Custodian.
5. Upon termination of this Agreement for any reason,
the Fund shall return to the Custodian any and all copies of the
Information which are in the Fund's possession or under its
control, or which the Fund distributed to third parties. The
provisions of this Article shall not affect the copyright status
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<PAGE>
of any of the Information which may be copyrighted and shall
apply to all Information whether or not copyrighted.
6. The Custodian reserves the right to modify the Ter-
minal Link from time to time without notice to the Fund except
that the Custodian shall give the Fund notice not less than 75
days in advance of any modification which would materially
adversely affect the Fund's operation, and the Fund agrees that
the Fund shall not modify or attempt to modify the Terminal Link
without the Custodian's prior written consent. The Fund
acknowledges that any software or procedures provided the Fund
as part of the Terminal Link are the property of the Custodian
and, accordingly, the Fund agrees that any modifications to the
Terminal Link, whether by the Fund, or by the Custodian and
whether with or without the Custodian's consent, shall become
the property of the Custodian.
7. Neither the Custodian nor any manufacturers and
suppliers it utilizes or the Fund utilizes in connection with
the Terminal Link makes any warranties or representations,
express or implied, in fact or in law, including but not limited
to warranties of merchantability and fitness for a particular
purpose.
8. The Fund will cause its Officers and employees to
treat the authorization codes and the access codes applicable to
Terminal Link with extreme care, and irrevocably authorizes the
Custodian to act in accordance with and rely on Certificates
received by it through the Terminal Link. The Fund acknowledges
that it is its responsibility to assure that only its Officers
use the Terminal Link on its behalf, and that a Custodian shall
not be responsible nor liable for use of the Terminal Link on
the Fund's behalf by persons other than such persons or
officers, or by only a single officer, nor for any alteration,
omission, or failure to promptly forward.
9(a). Except as otherwise specifically provided in Section
9(b) of this Article, the Custodian shall have no liability for
any losses, damages, injuries, claims, costs or expenses arising
out of or in connection with any failure, malfunction or other
problem relating to the Terminal Link except for money damages
suffered as the direct result of the negligence of the Custodian
in an amount not exceeding for any incident $25,000 provided,
however, that the Custodian shall have no liability under this
Section 9 if the Fund fails to comply with the provisions of
Section 11.
9(b). The Custodian's liability for its negligence in
executing or failing to execute in accordance with a Certificate
received through Terminal Link shall be only with respect to a
transfer of funds which is not made in accordance with such
Certificate after such Certificate shall have been duly
acknowledged by the Custodian, and shall be contingent upon the
Fund complying with the provisions of Section 12 of this
Article, and shall be limited to (i) restoration of the
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<PAGE>
principal amount mistransferred, if and to the extent that the
Custodian would be required to make such restoration under
applicable law, and (ii) the lesser of (A) a Fund's actual
pecuniary loss incurred by reason of its loss of use of the
mistransferred funds or the funds which were not transferred, as
the case may be, or (B) compensation for the loss of the use of
the mistransferred funds or the funds which were not
transferred, as the case may be, at a rate per annum equal to
the average federal funds rate as computed from the Federal
Reserve Bank of New York's daily determination of the effective
rate for federal funds, for the period during which a Fund has
lost use of such funds. In no event shall the Custodian have
any liability for failing to execute in accordance with a
Certificate a transfer of funds where the Certificate is
received by the Custodian through Terminal Link other than
through the applicable transfer module for the particular
instructions contained in such Certificate.
10. Without limiting the generality of the foregoing, in
no event shall the Custodian or any manufacturer or supplier of
its computer equipment, software or services relating to the
Terminal Link be responsible for any special, indirect,
incidental or consequential damages which the Fund may incur or
experience by reason of its use of the Terminal Link even if the
Custodian or any manufacturer or supplier has been advised of
the possibility of such damages, nor with respect to the use of
the Terminal Link shall the Custodian or any such manufacturer
or supplier be liable for acts of God, or with respect to the
following to the extent beyond such person's reasonable control:
machine or computer breakdown or malfunction, interruption or
malfunction of communication facilities, labor difficulties or
any other similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors,
omissions or interruptions in, or delay or unavailability of,
the Terminal Link as promptly as practicable, and in any event
within 24 hours after the earliest of (i) discovery thereof,
(ii) the Business Day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of
any error, the date of actual receipt of the earliest notice
which reflects such error, it being agreed that discovery and
receipt of notice may only occur on a business day. The
Custodian shall promptly advise the Fund whenever the Custodian
learns of any errors, omissions or interruption in, or delay or
unavailability of, the Terminal Link.
12. The Custodian shall verify to the Fund, by use of
the Terminal Link, receipt of each Certificate the Custodian
receives through the Terminal Link, and in the absence of such
verification the Custodian shall not be liable for any failure
to act in accordance with such Certificate and the Fund may not
claim that such Certificate was received by the Custodian. Such
verification, which may occur after the Custodian has acted upon
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<PAGE>
such Certificate, shall be accomplished on the same day on which
such Certificate is received.
ARTICLE XVI.
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to
employ, as sub-custodian for each Series' Foreign Securities (as
such term is defined in paragraph (c)(1) of Rule 17f-5 under the
Investment Company Act of 1940, as amended) and other assets,
the foreign banking institutions and foreign securities
depositories and clearing agencies designated on Schedule I
hereto ("Foreign Sub-Custodians") to carry out their respective
responsibilities in accordance with the terms of the sub-
custodian agreement between each such Foreign Sub-Custodian and
the Custodian, copies of which have been previously delivered to
the Fund and receipt of which is hereby acknowledged (each such
agreement, a "Foreign Sub-Custodian Agreement"). The Custodian
shall be liable for the acts and omissions of each Foreign Sub-
Custodian constituting negligence or willful misconduct in the
conduct of its responsibilities under the terms of the Foreign
Sub-Custodian Agreement. Upon receipt of a Certificate,
together with a certified resolution substantially in the form
attached as Exhibit E of the Fund's Board of Directors, the Fund
may designate any additional foreign sub-custodian with which
the Custodian has an agreement for such entity to act as the
Custodian's agent, as its sub-custodian and any such additional
foreign sub-custodian shall be deemed added to Schedule I. Upon
receipt of a Certificate from the Fund, the Custodian shall
cease the employment of any one or more Foreign Sub-Custodians
for maintaining custody of the Fund's assets and such Foreign
Sub-Custodian shall be deemed deleted from Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be
substantially in the form previously delivered to the Fund and
will not be amended in a way that materially adversely affects
the Fund without the Fund's prior written consent.
3. The Custodian shall identify on its books as
belonging to each Series of the Fund the Foreign Securities of
such Series held by each Foreign Sub-Custodian. At the election
of the Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claims by the Fund or any
Series against a Foreign Sub-Custodian as a consequence of any
loss, damage, cost, expense, liability or claim sustained or
incurred by the Fund or any Series if and to the extent that the
Fund or such Series has not been made whole for any such loss,
damage, cost, expense, liability or claim.
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<PAGE>
4. Upon request of the Fund, the Custodian will,
consistent, with the terms of the applicable Foreign Sub-
Custodian Agreement, use reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to the
books and records of any Foreign Sub-Custodian insofar as such
books and records relate to the performance of such Foreign Sub-
Custodian under its agreement with the Custodian on behalf of
the Fund.
5. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the
securities and other assets of each Series held by Foreign Sub-
Custodians, including but not limited to, an identification of
entities having possession of each Series' Foreign Securities
and other assets, and advices or notifications of any transfers
of Foreign Securities to or from each custodial account
maintained by a Foreign Sub-Custodian for the Custodian on
behalf of the Series.
6. The Custodian shall furnish annually to the Fund, as
mutually agreed upon, information concerning the Foreign Sub-
Custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in
connection with the Fund's initial approval of such Foreign Sub-
Custodians and, in any event, shall include information
pertaining to (i) the Foreign Custodians, financial strength,
general reputation and standing in the countries in which they
are located and their ability to provide the custodial services
required, and (ii) whether the Foreign Sub-Custodians would
provide a level of safeguards for safekeeping and custody of
securities not materially different form those prevailing in the
United States. The Custodian shall monitor the general
operating performance of each Foreign Sub-Custodian, and at
least annually obtain and review the annual financial report
published by such Foreign Sub-Custodian to determine that it
meets the financial criteria of an "Eligible Foreign Custodian"
under Rule 17f-5(c)(2)(i) or (ii). The Custodian will promptly
inform the Fund in the event that the Custodian learns that a
Foreign Sub-Custodian no longer satisfies the financial criteria
of an "Eligible Foreign Custodian" under such Rule. The
Custodian agrees that it will use reasonable care in monitoring
compliance by each Foreign Sub-Custodian with the terms of the
relevant Foreign Sub-Custodian Agreement and that if it learns
of any breach of such Foreign Sub-Custodian Agreement believed
by the Custodian to have a material adverse effect on the Fund
or any Series it will promptly notify the Fund of such breach.
The Custodian also agrees to use reasonable and diligent efforts
to enforce its rights under the relevant Foreign Sub-Custodian
Agreement.
7. The Custodian shall transmit promptly to the Fund
all notices, reports or other written information received
pertaining to the Fund's Foreign Securities, including without
limitation, notices of corporate action, proxies and proxy
solicitation materials.
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<PAGE>
8. Notwithstanding any provision of this Agreement to
the contrary, settlement and payment for securities received for
the account of any Series and delivery of securities maintained
for the account of such Series may be effected in accordance
with the customary or established securities trading or
securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs,
including, without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser
or dealer.
ARTICLE XVII.
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in
Article XVI 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, either
hereunder or under any Margin Account Agreement, except for any
such loss or damage arising out of its own negligence or willful
misconduct. In no event shall the Custodian be liable to the
Fund or any third party for special, indirect or consequential
damages or lost profits or loss of business, arising under or in
connection with this Agreement, even if previously informed of
the possibility of such damages and regardless of the form of
action. The Custodian may, with respect to questions of law
arising hereunder or under any Margin Account Agreement, 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. The
Custodian shall be liable to the Fund for any loss or damage
resulting from the use of the Book-Entry System or any
Depository arising by reason of any negligence or willful
misconduct on the part of the Custodian or any of its employees
or agents.
2. Without limiting the generality of the foregoing,
the Custodian shall be under no obligation to inquire into, and
shall not be liable for:
(a) The validity of the issue of any Securities
purchased, sold, or written by or for the Fund, the legality of
the purchase, sale or writing thereof, or the propriety of the
amount paid or received therefor;
(b) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid
therefor;
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<PAGE>
(c) The legality of the declaration or payment of any
dividend by the Fund;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
(e) The legality of any loan of portfolio Securities,
nor shall the Custodian be under any duty or obligation to see
to it that any cash collateral delivered to it by a broker,
dealer, or financial institution or held by it at any time as a
result of such loan of portfolio Securities of the Fund is
adequate collateral for the Fund against any loss it might
sustain as a result of such loan. The Custodian specifically,
but not by way of limitation, shall not be under any duty or
obligation periodically to check or notify the Fund that the
amount of such cash collateral held by it for the Fund is suf-
ficient collateral for the Fund, but such duty or obligation
shall be the sole responsibility of the Fund. In addition, the
Custodian shall be under no duty or obligation to see that any
broker, dealer or financial institution to which portfolio
Securities of the Fund are lent pursuant to Article XIV of this
Agreement makes payment to it of any dividends or interest which
are payable to or for the account of the Fund during the period
of such loan or at the termination of such loan, provided,
however, that the Custodian shall promptly notify the Fund in
the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of money
and/or Securities held in any Margin Account, Senior Security
Account or Collateral Account in connection with transactions by
the Fund. In addition, the Custodian shall be under no duty or
obligation to see that any broker, dealer, futures commission
merchant or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may
be entitled to receive from such broker, dealer, futures
commission merchant or Clearing member, to see that any payment
received by the Custodian from any broker, dealer, futures
commission merchant or Clearing Member is the amount the Fund is
entitled to receive, or to notify the Fund of the Custodian's
receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered
to be the Custodian of, any money, whether or not represented by
any check, draft, or other instrument for the payment of money,
received by it on behalf of the Fund until the Custodian actu-
ally receives and collects such money directly or by the final
crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall
not be liable for ascertaining or acting upon any calls, conver-
sions, exchange offers, tenders, interest rate changes or
similar matters relating to Securities held in the Depository,
unless the Custodian shall have actually received timely notice
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<PAGE>
from the Depository. In no event shall the Custodian have any
responsibility or liability for the failure of the Depository to
collect, or for the late collection or late crediting by the
Depository of any amount payable upon Securities deposited in
the Depository which may mature or be redeemed, retired, called
or otherwise become payable. However, upon receipt of a
Certificate from the Fund of an overdue amount on Securities
held in the Depository the Custodian shall make a claim against
the Depository on behalf of the Fund, except that the Custodian
shall not be under any obligation to appear in, prosecute or
defend any action suit or proceeding in respect to any Securi-
ties held by the Depository which in its opinion may involve it
in expense or liability, unless indemnity satisfactory to it
against all expense and liability be furnished as often as may
be required.
5. The Custodian shall not be under any duty or obliga-
tion 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.
6. The Custodian shall not be under any duty or obliga-
tion 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 and (ii) it shall be assured to its satisfaction of
reimbursement of its costs and expenses in connection with any
such action.
7. The Custodian may in addition to the employment of
Foreign Sub-Custodians pursuant to Article XVI appoint one or
more banking institutions as Depository or Depositories, as
Sub-Custodian or Sub-Custodians, or as Co-Custodian or
Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and
moneys at any time owned by the Fund, upon such terms and
conditions as may be approved in a Certificate or contained in
an agreement executed by the Custodian, the Fund and the
appointed institution.
8. The Custodian shall not be under any duty or obliga-
tion (a) to ascertain whether any Securities at any time
delivered to, or held by it or by any Foreign Sub-Custodian,
for the account of the Fund and specifically allocated to a
Series are such as properly may be held by the Fund or such
Series under the provisions of its then current prospectus, or
(b) to ascertain whether any transactions by the Fund, whether
or not involving the Custodian, are such transactions as may
properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the
Fund agrees to pay to the Custodian all out-of-pocket expenses
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<PAGE>
and 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 expenses with respect to a Series
incurred by the Custodian in the performance of its duties
pursuant to such agreement against any money specifically al-
located to such Series. Unless and until the Fund instructs the
Custodian by a Certificate to apportion any loss, damage, li-
ability or expense among the Series in a specified manner, the
Custodian shall also be entitled to charge against any money
held by it for the account of a Series such Series, pro rata
share (based on such Series net asset value at the time of the
charge to the aggregate net asset value of all Series at that
time) of 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. The
expenses for which the Custodian shall be entitled to reimburse-
ment hereunder shall include, but are not limited to, the
expenses of sub-custodians and foreign branches of the Custodian
incurred in settling outside of New York City transactions
involving the purchase and sale of Securities of the Fund.
10. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by
the Custodian and reasonably believed by the Custodian to be a
Certificate. The Custodian shall be entitled to rely upon any
Oral Instructions actually received by the Custodian hereinabove
provided for. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming such Oral
Instructions in such manner so that such Certificate or
facsimile thereof is received by the Custodian, whether by hand
delivery, telecopier or other similar device, or otherwise, by
the close of business of the same day that such Oral Instruc-
tions are given to the Custodian. The Fund agrees that the fact
that such confirming instructions are not received by the
Custodian shall in no way affect the validity of the transac-
tions or enforceability of the transactions hereby authorized by
the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions given to
the Custodian hereunder concerning such transactions provided
such instructions reasonably appear to have been received from
an Officer.
11. The Custodian shall be entitled to rely upon any
instrument, instruction or notice received by the Custodian and
reasonably believed by the Custodian to be given in accordance
with the terms and conditions of any Margin Account Agreement.
Without limiting the generality of the foregoing, the Custodian
shall be under no duty to inquire into, and shall not be liable
for, the accuracy of any statements or representations contained
in any such instrument or other notice including, without
limitation, any specification of any amount to be paid to a
broker, dealer, futures commission merchant or Clearing Member.
12. The books and records pertaining to the Fund which
are in the possession of the Custodian shall be the property of
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<PAGE>
the Fund. Such books and records shall be prepared and
maintained as required by the Investment Company Act of 1940, as
amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representa-
tives, shall have access to such books and records during the
Custodian's normal business hours. Upon the reasonable request
of the Fund, copies of any such books and records shall be
provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the Custodian its
expenses of providing such copies. Upon reasonable request of
the Fund, the Custodian shall provide in hard copy or on micro-
film, whichever the Custodian elects, any records included in
any such delivery which are maintained by the Custodian on a
computer disc, or are similarly maintained, and the Fund shall
reimburse the Custodian for its expenses of providing such hard
copy or micro-film.
13. The Custodian shall provide the Fund with any report
obtained by the Custodian on the system of internal accounting
control of the Book-Entry System, the Depository or O.C.C., and
with such reports on its own systems of internal accounting
control as the Fund may reasonably request from time to time.
14. The Fund agrees to indemnify the Custodian against
and save the Custodian harmless from all liability, claims,
losses and demands whatsoever, including attorney's fees,
howsoever arising or incurred because of or in connection with
this Agreement, including the Custodian's payment or non-payment
of checks pursuant to paragraph 6 of Article XIII as part of any
check redemption privilege program of the Fund, except for any
such liability, claim, loss and demand arising out of the
Custodian's own negligence or willful misconduct.
15. Subject to the foregoing provisions of this Agree-
ment, including, without limitation, those contained in Article
XVI the Custodian may deliver and receive Securities, and
receipts with respect to such Securities, and arrange for pay-
ments to be made and received by the Custodian in accordance
with the customs prevailing from time to time among brokers or
dealers in such Securities. When the Custodian is instructed to
deliver Securities against payment, delivery of such Securities
and receipt of payment therefor may not be completed
simultaneously. The Fund assumes all responsibility and li-
ability for all credit risks involved in connection with the
Custodian's delivery of Securities pursuant to instructions of
the Fund, which responsibility and liability shall continue
until final payment in full has been received by the Custodian.
16. The Custodian shall have no duties for
responsibilities whatsoever except such duties and
responsibilities as are specifically set forth in this Agree-
ment, and no covenant or obligation shall be implied in this
Agreement against the Custodian.
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<PAGE>
ARTICLE XVIII.
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 ninety (90) days after the date of giving of such notice.
In the event such notice is given by the Fund, it shall be ac-
companied 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 a resolu-
tion of the Board of Directors of the Fund, 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.
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.
2. If a successor custodian is not designated by the
Fund or the Custodian in accordance with the preceding
paragraph, 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 (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) 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, other than the duty
with respect to Securities held in the Book Entry System which
cannot be delivered to the Fund to hold such Securities
hereunder in accordance with this Agreement.
ARTICLE XIX.
MISCELLANEOUS
1. 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
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<PAGE>
the event that other or additional Officers are elected or ap-
pointed. Until such new Certificate shall be received, the
Custodian shall be fully protected in acting under the provi-
sions of this Agreement upon the signatures of the Officers as
set forth in the last delivered Certificate.
2. 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 offices at 90
Washington Street, New York, New York 10286, or at such other
place as the Custodian may from time to time designate in writ-
ing.
3. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the Fund
shall be sufficiently given if addressed to the Fund and mailed
or delivered to it at its office at the address for the Fund
first above written, or at such other place as the Fund may from
time to time designate in writing.
4. 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 approved by a
resolution of the Board of Directors of the Fund.
5. 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 the Fund's
Board of Directors.
6. This Agreement shall be construed in accordance with
the laws of the State of New York without giving effect to
conflict of laws principles thereof. Each party hereby consents
to the jurisdiction of a state or federal court situated in New
York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
7. 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.
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<PAGE>
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 writ-
ten.
MERRILL LYNCH BASIC VALUE
FUND,INC.
By: /S/ Gerald M. Richard
----------------------
Attest:
/s/
- --------------------
THE BANK OF NEW YORK
By: /s/
[SEAL] ----------------------
Attest:
/s/ Majorie McLaughlin
- ----------------------
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<PAGE>
APPENDIX A
I, , and I, of
Merrill Lynch Basic Value Fund, Inc., a Maryland corporation
(the "Fund"), do hereby certify that:
The following individuals serve in the following positions
with the Fund and each has been duly elected or appointed by the
Board of Directors of the Fund 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:
Name Position Signature
---------------- ------------------ -----------------
<PAGE>
APPENDIX B
I, Jorge Ramos, a Vice President with THE BANK OF NEW YORK
do hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies that
he or she is the duly elected and acting of Merrill
Lynch Basic Value Fund, Inc., a Maryland corporation (the
"Fund"), and further certifies that the following resolution was
adopted by the Board of Directors of the Fund at a meeting duly
held on , 1994, at which a quorum was at all times
present and that such resolution has not been modified or
rescinded and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the Fund
dated as of , 1994, (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis to
deposit in the Book-Entry System, as defined in the Custody
Agreement, all securities eligible for deposit therein, regard-
less of the Series to which the same are specifically allocated,
and to utilize the Book-Entry System to the extent possible in
connection with its performance thereunder, including, without
limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and
returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of Merrill Lynch Basic Value Fund, Inc. as of the day
of 1994.
----------------------------
[SEAL]
<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned, hereby certifies that
he or she is the duly elected and acting of
Merrill Lynch Basic Value Fund, Inc., a Maryland corporation
(the "Fund"), and further certifies that the following
resolution was adopted by the Board of Directors of the Fund at
a meeting duly held on , 1994, at which a quorum
was at all times present and that such resolution has not been
modified or rescinded and is in full force and effect as of the
date hereof.
IN RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the Fund
dated as of , 1994, (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis
until such time as it receives a Certificate, as defined in the
Custody Agreement, to the contrary to deposit in the Depository,
as defined in the Custody Agreement, all securities eligible for
deposit therein, regardless of the Series to which the same are
specifically allocated, and to utilize the Depository to the
extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of
purchases and sales of securities, loans of securities, and
deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of Merrill Lynch Basic Value Fund, Inc. as of the day
of ,1994.
---------------------------
[SEAL]
<PAGE>
EXHIBIT B-1
CERTIFICATION
The undersigned, hereby
certifies that he or she is the duly elected and acting
of Merrill Lynch Basic Value Fund, Inc., 'a
Maryland corporation (the "Fund"), and further certifies that
the following resolution was adopted by the Board of Trustees of
the Fund at a meeting duly held on , 1994, at
which a quorum was at all times present and that such resolution
has not been modified or rescinded and is in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of ,1994, (the
"Custody Agreement") is authorized and instructed on a
continuous and ongoing basis until such time as it receives
a Certificate, as defined in the Custody Agreement, to the
contrary to deposit in the Participants Trust Company as
Depository, as defined in the Custody Agreement, all
securities eligible for deposit therein, regardless of the
series to which the same are specifically allocated, and to
utilize the Participants Trust Company to the extent
possible in connection with its performance thereunder,
including, without limitation, in connection with
settlements of purchases and sales of securities, loans of
securities, and deliveries and returns of securities
collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of Merrill Lynch Basic Value Fund, Inc., as of the day
of ,1994.
---------------------
[SEAL]
<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned, ,hereby certifies that
he is the duly elected and acting of
Merrill Lynch Basic Value Fund, Inc., a Maryland corporation
(the "Fund"), and further certifies that the following resolu-
was adopted by the Board of Directors of the Fund at a
meeting duly held on , 1994, at which a quorum
was at all times present and that such resolution has not been
modified or rescinded and is in full force and effect as of the
date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the Fund
dated as of , 1994, (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis
until such time as it receives a Certificate, as defined in the
Custody Agreement, to the contrary, to accept, utilize and act
with respect to Clearing Member confirmations for options and
transaction in Options, regardless of the Series to which the
same are specifically allocated, as such terms are defined in
the Custody Agreement, as provided in the Custody Agreement.
IN WITENESS WHEREOF, I have hereunto set my hand and the
seal of Merrill Lynch Basic Value Fund, Inc. as of the day
of ,1994.
-------------------------
[SEAL]
<PAGE>
EXHIBIT D
The undersigned, , hereby certifies that
he or she is the duly elected and acting of Merrill Lynch Basic
Value Fund, Inc., a Maryland corporation (the "Fund"), further certifies that
the following resolutions were adopted by the Board of Directors of the Fund at
a meeting duly held on , 1994, at which a quorum was at all times
present and that such resolutions have not been modified or rescinded and are in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to the
Custody Agreement between The Bank of New York and the Fund dated as of
, 1994 (the "Custody Agreement") is authorized and instructed on a
continuous and ongoing basis to act in accordance with, and to rely on
Certificates (as defined in the Custody Agreement) given by the Fund to the
Custodian by a Terminal Link (as defined in the Custody Agreement).
RESOLVED, that the Fund shall establish access codes and grant use of
such access codes only to Officers of the Fund as defined in the Custody
Agreement, shall establish internal safekeeping procedures to safeguard and
protect the confidentiality and availability of such access codes, shall limit
its use of the Terminal Link to those purposes permitted by the Custody
Agreement, shall require at least two such Officers to utilize their respective
access codes in connection with each such Certificate, and shall use the
Terminal Link only in a manner that does not contravene the Investment Company
Act of 1940, as amended, or the rules and regulations thereunder.
RESOLVED, that Officers of the Fund shall, following the establishment
of such access codes and such internal safekeeping procedures, advise the
Custodian that the same have been established by delivering a Certificate, as
defined in the Custody Agreement, and the Custodian shall be entitled to rely
upon such advice.
IN WITNESS WHEREOF, I hereunto set my hand and the seal of Merrill Lynch
Basic Value Fund, Inc., as of the day of , 1994.
-------------------
[SEAL]
<PAGE>
EXHIBIT E
The undersigned, , hereby cer-
tifies that he or she is the duly elected and acting
of Merrill Lynch Basic Value Fund, Inc., a
Maryland corporation (the "Fund"), further certifies that the
following resolutions were adopted by the Board of Directors of
the Fund at a meeting duly held on , 1994,
at which a quorum was at all times present and that such
resolutions have not been modified or rescinded and are in full
force and effect as of the date hereof.
RESOLVED, that the maintenance of the Fund's assets in each
country listed in Schedule I hereto be, and hereby is, approved
by the Board of Directors as consistent with the best interests
of the Fund and its shareholders; and further
RESOLVED, that the maintenance of the Fund's assets with
the foreign branches of The Bank of New York (the "Bank") listed
in Schedule I located in the countries specified therein, and
with the foreign subcustodians and despositories listed in
Schedule I located in the countries specified therein be, and
hereby is, approved by the Board of Directors as consistent with
the best interest of the Fund and its shareholders; and further
RESOLVED, that the Subcustodian Agreements presented to
this meeting between the Bank and each of the foreign
subcustodians and depositories listed in Schedule I providing
for the maintenance of the Fund's assets with the applicable
entity, be and hereby are, approved by the Board of Directors as
consistent with the best interests of the Fund and its
shareholders; and further
RESOLVED, that the appropriate officers of the Fund are
hereby authorized to place assets of the Fund with the
aforementioned foreign branches and foreign subcustodians and
depositories as hereinabove provided; and further
RESOLVED, that the appropriate officers of the Fund, or any
of them, are authorized to do any and all other acts, in the
name of the Fund and on its behalf, as they, or any of them, may
determine to be necessary or desirable and proper in connection
with or in furtherance of the foregoing resolutions.
IN WITNESS WHEREOF, I hereunto set my hand and the seal of
Merrill Lynch Basic Value Fund, Inc., as of the day of
, 1994.
----------------------
[SEAL]
<PAGE>
EX-99.9
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the 1st day of September, 1987
by and between Merrill Lynch Basic Value Fund, Inc. (the "Fund")
and Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a New
Jersey corporation.
WITNESSETH:
WHEREAS, the Fund wishes to appoint MLPDS 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:
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 the 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 at 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>
(III) The term application means an application made
by a Shareholder or Prospective Shareholder respecting the opening
of an 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, any 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 MLPDS as Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent.
(a) Subject to the succeeding provisions of the
Agreement,MLPDS 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>
(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 and/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 charger 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 Merrill Lynch 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 MLF&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 tbe 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 applicalbe 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 agenat for athe FUnd and/or MLPF&S,
mailing annual, semi0annual and quarterly reports prepared by or
on behalf of the Fund, and mailing new Prospectuses upon their
issue to Shreholders as requries 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>
(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 meetings 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
and 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 inquiries relating to the functions
of MLFS under this Agreement with respect to Accounts.
(d) MLFDS agrees to furnish to thee 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>
(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 MLPDS'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 under 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 herelunder.
- 5 -
<PAGE>
provided that this indemnification shall not apply to actions or
omissions of MLFDS in cases of willful misconducted, 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 Officet'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 personnelp 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. MLPDS shall at all times 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 terminated this Agreement immediately upon written notice
to MLFDS if the authority of permission of MLFDS of MLFDS to act as
Transfer Agent, Dividend disbursing Agnet and Shareholder
Servicing Agent has been revoked or if any proceeding or other
action which the Fund reasonalby believes will lead to such
revocation has been commenced.
- 6 -
<PAGE>
(b) Upon termination of this Agreement, MLFDS shall deliver
all unissued and canceled 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 above written.
MERIILL LYNCH BASIC VALUE FUND INC.
By: /s/ Gerald M. Richard
---------------------
Title: Treasurer
-------------------
MERRILL LYNCH FINANCIAL DATA SERVICE, INC.
By: /s/ Robert C. Doan
---------------------
Title: President
------------------
- 7 -
<PAGE>
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.
- 8 -
<PAGE>
EXHIBIT 99.16(a)
Merrill Lynch Basic Value Fund, Inc.
Class A
Total Return
<TABLE>
<CAPTION>
Annual
Total
1 Year 5 Years 10 Years 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 21.67 15.87 11.06
--------- --------- ---------
Divided by Net Asset Value 20.26
---------
Equals Shares Purchased 46.147 63.012 90.416 49.358
Plus Shares Acquired Through
Dividend Reinvestment 5.073 45.880 187.788 5.424
--------- --------- --------- ---------
Equals Shares Held
at 6/30/88 51.220 108.892 278.204 54.782
---------
Multiplied by Net Asset
Value at 6/30/88 18.60 18.60 18.60 18.60
--------- --------- --------- ---------
Equals Ending Redeemable
Value of a $1,000
Investment (ERV)
at 6/30/88 $ 952.69 $2,025.39 $5,174.59 $1,018.95
Divided by $1,000 (P) .9527 2.0254 5.1746 1.019
Subtract 1 (.0473) 1.0254 4.1746 .0190
Expressed as a percentage
equals the Annual
Total Return (T) 1.90%
---------
ERV divided by P .9527 2.0254 5.1746
Raise to the power of 1 1/5 1/10
Equals .9527 1.1516 1.1787
Subtract 1 (.0473) .1516 .1787
Expressed as a percentage
equals the Average
Annualized Total Return (4.73%) 15.16% 17.87%
--------- --------- ---------
</TABLE>
*Does not include sales charge for the period.
<PAGE>
Exhibit 16(b)
Merrill Lynch Basic Value Fund, Inc.
Class B
Total Return
<TABLE>
<CAPTION>
Period from
10/21/88 Annual
(inception) Total
to 06/30/89 Return*
----------- -------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 18.79 18.79
--------- ---------
Equals Shares Purchased 53.22 53.22
Plus Shares Acquired through
Dividend Reinvestment 2.14 2.14
--------- ---------
Equals Shares Hold
at 06/30/89 55.36 55.36
Multiplied by Net Asset
Value at 06/30/89 19.92 19.92
--------- ---------
Equals Ending Value before
deduction for contingent
deferred sales charge 1,102.70 1,102.70
Less deferred sales charge (40.00) 0.00
--------- ---------
Equals Ending Redeemable
Value of a $1,000
Investment (ERV) $1,062.70 $1.102.70
--------- ---------
Divided by $1,000 1.0627 1.1027
Subtract 1 0.0627 0.1027
Expressed as a percentage
equals the Aggregate Total
Return for the Period (T) 6.27%
=========
Expressed an a percentage
equals the Aggregate Total
Return for the Period 10.27%
=========
ERV divided by P 1.0627
Raise to the power of 1/ .6988
Equals 1.0909
Subtract 1 0.0909
Expressed an a percentage
equals the Average
Annualized Total Return 9.09%
=========
</TABLE>
* Does not include sales charge for the period.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MERRILL LYNCH BASIC VALUE FUND, INC. CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 4277875481
<INVESTMENTS-AT-VALUE> 5560627412
<RECEIVABLES> 30205842
<ASSETS-OTHER> 6545710
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5597378964
<PAYABLE-FOR-SECURITIES> 7164999
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13946866
<TOTAL-LIABILITIES> 21111865
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4181322849
<SHARES-COMMON-STOCK> 107197900
<SHARES-COMMON-PRIOR> 98095819
<ACCUMULATED-NII-CURRENT> 63306430
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 48885889
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1282751931
<NET-ASSETS> 2834652321
<DIVIDEND-INCOME> 126654908
<INTEREST-INCOME> 44476505
<OTHER-INCOME> 0
<EXPENSES-NET> 47494967
<NET-INVESTMENT-INCOME> 123636446
<REALIZED-GAINS-CURRENT> 66820215
<APPREC-INCREASE-CURRENT> 718977808
<NET-CHANGE-FROM-OPS> 909434469
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 68596425
<DISTRIBUTIONS-OF-GAINS> 77560878
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19425436
<NUMBER-OF-SHARES-REDEEMED> 16105392
<SHARES-REINVESTED> 5782037
<NET-CHANGE-IN-ASSETS> 1558580249
<ACCUMULATED-NII-PRIOR> 45703737
<ACCUMULATED-GAINS-PRIOR> 121232479
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18443250
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 47494967
<AVERAGE-NET-ASSETS> 2451947030
<PER-SHARE-NAV-BEGIN> 23.17
<PER-SHARE-NII> .74
<PER-SHARE-GAIN-APPREC> 4.01
<PER-SHARE-DIVIDEND> .69
<PER-SHARE-DISTRIBUTIONS> .79
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.44
<EXPENSE-RATIO> .59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> MERRILL LYNCH BASIC VALUE FUND, INC. CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 4277875481
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<RECEIVABLES> 30205842
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<ACCUMULATED-NET-GAINS> 48885889
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<DIVIDEND-INCOME> 126654908
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<DISTRIBUTIONS-OF-GAINS> 61276834
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<NUMBER-OF-SHARES-SOLD> 34461582
<NUMBER-OF-SHARES-REDEEMED> 20103680
<SHARES-REINVESTED> 3848516
<NET-CHANGE-IN-ASSETS> 1558580249
<ACCUMULATED-NII-PRIOR> 45703737
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<GROSS-ADVISORY-FEES> 18443250
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<GROSS-EXPENSE> 47494967
<AVERAGE-NET-ASSETS> 1987972606
<PER-SHARE-NAV-BEGIN> 22.87
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> 3.93
<PER-SHARE-DIVIDEND> .46
<PER-SHARE-DISTRIBUTIONS> .79
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.08
<EXPENSE-RATIO> 1.61
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> MERRILL LYNCH BASIC VALUE FUND, INC. CLASS C
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> OCT-21-1994
<PERIOD-END> JUN-30-1995
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 125803
<DISTRIBUTIONS-OF-GAINS> 37759
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<NUMBER-OF-SHARES-SOLD> 3236903
<NUMBER-OF-SHARES-REDEEMED> 382714
<SHARES-REINVESTED> 6576
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<ACCUMULATED-NII-PRIOR> 45703737
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<AVERAGE-NET-ASSETS> 30607945
<PER-SHARE-NAV-BEGIN> 22.92
<PER-SHARE-NII> .44
<PER-SHARE-GAIN-APPREC> 3.05
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<PER-SHARE-DISTRIBUTIONS> .10
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<PER-SHARE-NAV-END> 25.98
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> MERRILL LYNCH BASIC VALUE FUND, INC. CLASS D
<S> <C>
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<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> OCT-21-1994
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<INVESTMENTS-AT-COST> 4277875481
<INVESTMENTS-AT-VALUE> 5560627412
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<NET-ASSETS> 203032993
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1039403
<DISTRIBUTIONS-OF-GAINS> 291335
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<NUMBER-OF-SHARES-SOLD> 8339966
<NUMBER-OF-SHARES-REDEEMED> 707505
<SHARES-REINVESTED> 55369
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<ACCUMULATED-NII-PRIOR> 45703737
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> 47494967
<AVERAGE-NET-ASSETS> 108284429
<PER-SHARE-NAV-BEGIN> 23.19
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> 3.17
<PER-SHARE-DIVIDEND> .35
<PER-SHARE-DISTRIBUTIONS> .10
<RETURNS-OF-CAPITAL> 0
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<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Basic Value Fund, Inc.:
We consent to the use in Post-Effective Amendment No. 24 to Registration
Statement No. 2-58521 of our report dated June 30, 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.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Princeton, New Jersey
October 25, 1995
<PAGE>
EXHIBIT 16(c)
Basic Value Fund - Class C
10/21/94 - 06/30/95
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 22.92 22.92
--------- ---------
Equals Shares Purchased 43.630 43.630
Plus Shares Acquired through
Divided Reinvestment 0.861 0.861
--------- ---------
Equals Shares Held at 06/30/95 44.491 44.491
Multiplied by Net Asset Value at 06/30/95 25.98 25.98
--------- ---------
Equals Ending Value before deduction for
contingent deferred sales charge 1,155.88 1,155.88
Less deferred sales charge (10.00) 0.00
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 06/30/95 1,145.88 1,155.88
--------- ---------
Divided by $1,000 (P) 1.1459 1.1559
Subtract 1 0.1459 0.1559
Expresses as a percentage equals the
Aggregate Total Return for the Period (T) 14.59%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 15.59%
==========
ERV divided by P 1.1459
Raise to the power of 1.4484
Equals 1.2180
Subtract 1 0.2180
Expressed as a percentage equals the
Average Annualized Total Return 21.80%
=========
*Does not include sales charge for the period.
<PAGE>
EXHIBIT 16(d)
Basic Value Fund - Class D
10/21/94 - 06/30/95
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 24.47
---------
Divided by Net Asset Value 23.19
---------
Equals Shares Purchased 40.858 43.122
Plus Shares Acquired through
Dividend Reinvestment 0.840 0.887
--------- ---------
Equals Shares Held at 06/30/95 41.698 44.009
Multiplied by Net Asset Value at 06/30/95 26.41 26.41
--------- ---------
Equals Ending Redeemable Value at
$1000 Investment (ERV) at 06/30/95 1,101.25 1,162.27
Divided by $1,000 (P) 1.1013 1.1623
Subtract 1 0.1013 0.1623
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 10.13%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 16.23%
==========
ERV divided by P 1.1013
Raise to the power of 1.4484
Equals 1.1499
Subtract 1 0.1499
Expressed as a percentage equals the
Average Annualized Total Return 14.99%
=========
*Does not include sales charge for the period.
