<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1994
SECURITIES ACT FILE NO. 2-80150
INVESTMENT COMPANY ACT FILE NO. 811-3595
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 16 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 17 [X]
(CHECK APPROPRIATE BOX OR BOXES)
----------------
MERRILL LYNCH HEALTHCARE FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH HEALTHCARE 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 COMPANY: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD MERRILL LYNCH ASSET
ONE WORLD TRADE CENTER MANAGEMENT
NEW YORK, NY 10048-0557 P.O. BOX 9011
ATTENTION: THOMAS R. SMITH, JR., ESQ. PRINCETON, NJ 08543-9011
FRANK P. BRUNO, ESQ.
----------------
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on (October 21, 1994) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)
[_] on (date) pursuant to paragraph (a)(i)
[_] 75 days after filing pursuant to paragraph (a)(ii)
[_] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
----------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF STOCK
UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT
COMPANY ACT OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S MOST
RECENT FISCAL YEAR WAS FILED ON JUNE 27, 1994.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH HEALTHCARE 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; Alternative Sales
Arrangements; Risk Factors and Special
Considerations
Item 3. Condensed Financial
Information............ Financial Highlights; Performance Data
Item 4. General Description of
Registrant............. Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund.. Fee Table; Management of the Company;
Inside Back Cover Page
Item 5A. Management's Discussion
of Fund Performance.... Not Applicable
Item 6. Capital Stock and Other
Securities............. Cover Page; Additional Information
Item 7. Purchase of Securities
Being Offered.......... Cover Page; Fee Table; Merrill Lynch
Select Pricing SM System; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or
Repurchase............. Fee Table; Merrill Lynch Select
Pricing SM System; Shareholder
Services; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal
Proceedings............ Not Applicable
Part B
Item 10. Cover Page.............. Cover Page
Item 11. Table of Contents....... Back Cover Page
Item 12. General Information and
History................ Not Applicable
Item 13. Investment Objectives
and Policies........... Investment Objective and Policies
Item 14. Management of the Fund.. Management of the Company
Item 15. Control Persons and
Principal Holders of
Securities............. Management of the Company
Item 16. Investment Advisory and
Other Services......... Management of the Company; Purchase of
Shares; General Information
Item 17. Brokerage Allocation.... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other
Securities............. General Information
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered.......... Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services; General
Information
Item 20. Tax Status.............. Dividends and Distributions; Taxes
Item 21. Underwriters............ Purchase of Shares
Item 22. Calculation of
Performance 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 21, 1994
MERRILL LYNCH HEALTHCARE FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Healthcare Fund, Inc. (the "Company") is a non-diversified,
open-end investment company seeking long-term capital appreciation through
worldwide investment in equity securities of companies that, in the opinion of
management, derive or are expected to derive a substantial portion of their
sales from products and services in healthcare. The Company will pursue its
investment objective by investing in a global portfolio of securities of
companies in various stages of development. It is presently contemplated that
the Company's assets will be primarily invested in the United States, Japan and
Western Europe. Until the Company changed its investment objective on April 27,
1992, the Company was known as Sci/Tech Holdings, Inc.
----------------
Pursuant to the Merrill Lynch Select PricingSM System, the Company offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select PricingSM System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares and other relevant circumstances.
See "Merrill Lynch Select PricingSM System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9011, Princeton, New Jersey 08543-9011 [(609)
282-2800], or from 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 Company'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 Company that
is relevant to making an investment in the Company. This Prospectus should be
retained for future reference. A statement containing additional information
about the Company, dated October 21, 1994 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and
is available, without charge, by calling or by writing the Company at the above
telephone number or address. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
----------------
MERRILL LYNCH ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Company follows:
<TABLE>
<CAPTION>
CLASS A (A) CLASS B (B) CLASS C (C) CLASS D (C)
----------- ---------------------- ------------ -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price)....... 5.25%(d) None None 5.25%(d)
Sales Charge Imposed
on Dividend Reinvest-
ments................. None None None None
Deferred Sales Charge
(as a percentage of
original purchase None(e) 4.0% during the first 1.0% for one None(e)
price or redemption year, decreasing 1.0% year
proceeds, annually thereafter to
whichever is lower)... 0.0% after the fourth
year
Exchange Fee........... None None None None
ANNUAL COMPANY OPERATING
EXPENSES (AS A PERCENT-
AGE OF AVERAGE NET AS-
SETS) (F)
Investment Advisory
Fees(g)............... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees(h):
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....... 0.04% 0.04% 0.04% 0.04%
Shareholder Servicing
Costs(i)............ 0.26% 0.27% 0.27% 0.26%
Other................ 0.25% 0.25% 0.25% 0.25%
----- ----- ----- -----
Total Other Ex-
penses............ 0.55% 0.56% 0.56% 0.55%
----- ----- ----- -----
Total Company Operat-
ing Expenses.......... 1.55% 2.56% 2.56% 1.80%
===== ===== ===== =====
</TABLE>
- --------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and investment programs.
See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and
Class D Shares"--page 23.
(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 24.
(c) Prior to the date of this Prospectus, the Company has not offered its
Class C or Class D shares to the public.
(d) Reduced for purchases of $25,000 and over. 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 23
(e) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that 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.
(f) Information for Class A and Class B shares is stated for the fiscal year
ended April 30, 1994. Information under "Other Expenses" for Class C and
Class D shares is estimated for the fiscal year ending April 30, 1995.
(g) See "Management of the Company--Advisory and Management Arrangements"--
page 20.
(h) See "Purchase of Shares--Distribution Plans" page 27.
(i) See "Management of the Company--Transfer Agency Services"--page 20.
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID
FOR THE PERIOD OF:
EXAMPLE: -------------------------------
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 To-
tal Company 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..................................... $67 $ 99 $133 $227
Class B..................................... $66 $100 $136 $271*
Class C..................................... $36 $ 80 $136 $290
Class D..................................... $70 $106 $145 $253
An investor would pay the following expenses
on the same $1,000 investment assuming no re-
demption at the end of the period:
Class A..................................... $67 $ 99 $133 $227
Class B..................................... $26 $ 80 $136 $271*
Class C..................................... $26 $ 80 $136 $290
Class D..................................... $70 $106 $145 $253
</TABLE>
- --------
* Assumes conversion to Class D shares approximately eight years after
purchase.
2
<PAGE>
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Company will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
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
Company's transfer agent are not subject to the processing fee. See "Purchase
of Shares" and "Redemption of Shares".
MERRILL LYNCH SELECT PRICINGSM SYSTEM
The Company offers four classes of shares under the Merrill Lynch Select
PricingSM System. The shares of each class may be purchased at a price equal to
the next determined net asset value per share subject to the sales charges and
ongoing fee arrangements described below. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives, and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. The Merrill Lynch Select PricingSM System is used by more than 50
mutual funds advised by Merrill Lynch Asset Management, L.P. ("MLAM" or the
"Investment Adviser") or an affiliate of MLAM, Fund Asset Management, L.P.
("FAM"). Funds advised by MLAM or FAM are referred to herein as "MLAM-advised
mutual funds".
Each Class A, Class B, Class C or Class D share of the Company represents an
identical interest in the investment portfolio of the Company and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
The 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, will be imposed directly against those classes
and not against all assets of the Company and, accordingly, such charges will
not affect the net asset value of any other class or have any impact on
investors choosing another sales charge option. Dividends paid by the Company
for each class of shares will be calculated in the same manner at the same time
and will differ only to the extent that account maintenance and distribution
fees and any incremental transfer agency costs relating to a particular class
are borne exclusively by that class. Each class has different exchange
privileges. See "Shareholder Services--Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the 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 Company. The distribution-
related revenues paid with respect to a class will not be used to finance the
distribution expenditures of another class. Sales personnel may receive
different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements for
each class of shares under the Merrill Lynch Select PricingSM System, followed
by a more detailed description of each class and a
3
<PAGE>
discussion of the factors that investors should consider in determining the
method of purchasing shares under the Merrill Lynch Select PricingSM System
that the investor believes is most beneficial under his particular
circumstances. More detailed information as to each class of shares is set
forth under "Purchase of Shares".
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial No No No
sales charge(2)(3)
- -----------------------------------------------------------------------------------------
B CDSC for periods of 4 0.25% 0.75% B shares convert to D
years, at a rate of 4.0% shares automatically after
during the first year, approximately eight
decreasing 1.0% annually years(4)
to 0.0%
- -----------------------------------------------------------------------------------------
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. Contingent deferred sales charges ("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. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead 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 certain
retirement plans is modified. Also, Class B shares of certain other MLAM-
advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Company are exchanged for
Class B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares.
Investors that currently own Class A shares in a shareholder account
are entitled to purchase additional Class A shares in that account.
Other eligible investors include certain retirement plans and
participants in certain investment programs. In addition, Class A
shares will be offered to directors and employees of Merrill Lynch &
Co., Inc. and its subsidiaries (the term "subsidiaries", when used
herein with respect to Merrill Lynch & Co., Inc., includes MLAM, FAM
and certain other entities directly or indirectly wholly-owned and
controlled by Merrill Lynch & Co., Inc.) 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. 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. Sales charges also are reduced under a right of
accumulation which takes into account the investor's holdings of all
classes of all MLAM-advised mutual funds. See "Purchase of Shares--
Initial Sales Charge Alternatives--Class A and Class D Shares".
Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%,
an ongoing distribution fee of 0.75% of the Company's
4
<PAGE>
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 share of the Company, which are subject to an account
maintenance fee but no distribution fee; Class B shares of certain
other MLAM-advised mutual funds into which exchanges may be made
convert into Class D shares automatically after approximately ten
years. If Class B shares of the Company are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply,
and the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired. Automatic conversion of Class B
shares into Class D shares will occur at least once a month on the
basis of the relative net asset values of the shares of the two classes
on the conversion date, without the imposition of any sales load, fee
or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax
purposes. Shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The
conversion period for dividend reinvestment shares and for certain
retirement plans is modified as described under "Purchase of Shares--
Deferred Sales Charge Alternatives--Class B and Class C Shares--
Conversion of Class B Shares to Class D Shares".
Class C: Class C shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.75% of the Company's average net
assets attributable to Class C shares. Class C shares are also subject
to a 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
Company's Board of Directors and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Company's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. 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. Class D shares also will be issued upon conversion
of Class B shares as described above under "Class B". See "Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D
Shares".
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
PricingSM System that the investor believes is most beneficial under his
particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because of the 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
5
<PAGE>
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 Company after a conversion period of approximately eight years,
and thereafter investors will be subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend
to hold their shares for an extended period of time. Investors in Class B
shares should take into account whether they intend to redeem their shares
within the CDSC period and, if not, whether they intend to remain invested
until the end of the conversion period and thereby take advantage of the
reduction in ongoing fees resulting from the conversion into Class D shares.
Other investors, however, may elect to purchase Class C shares if they
determine that it is advantageous to have all their assets invested initially
and they are uncertain as to the length of time they intend to hold their
assets in MLAM-advised mutual funds. Although Class C shareholders are subject
to a shorter CDSC period at a lower rate, they forego the Class B conversion
feature, making their investment subject to account maintenance and
distribution fees for an indefinite period of time. In addition, while both
Class B and Class C distribution fees are subject to the limitations on asset-
based sales charges imposed by the NASD, the Class B distribution fees are
further limited under a voluntary waiver of asset-based sales charges. See
"Purchase of Shares--Limitations on the Payment of Deferred Sales Charges".
6
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Company by Deloitte &
Touche LLP, independent auditors. THE INFORMATION BEFORE APRIL 27, 1992,
RELATES TO THE COMPANY'S OPERATIONS WHILE IT WAS PURSUING A DIFFERENT
INVESTMENT OBJECTIVE AND BEFORE A REORGANIZATION IN WHICH A PORTION OF ITS
ASSETS WERE TRANSFERRED TO MERRILL LYNCH TECHNOLOGY FUND, INC., ANOTHER
INVESTMENT COMPANY. CONSEQUENTLY, THAT INFORMATION MAY NOT NECESSARILY BE
INDICATIVE OF CURRENT OR FUTURE OPERATIONS. Financial statements and the
independent auditors' report thereon for the fiscal year ended April 30, 1994,
are included in the Statement of Additional Information. Financial information
is not presented for Class C or Class D shares, since no shares of those
classes are publicly issued as of the date of this Prospectus. Further
information about the performance of the Company is contained in the Company's
most recent annual report to shareholders which may be obtained, without
charge, by calling or by writing the Company at the telephone number or address
on the front cover of this Prospectus.
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Class A
--------------------------------------------------
FOR THE FOR THE
FIVE- EIGHT-
MONTH FOR THE MONTH
FOR THE YEAR PERIOD+++ YEAR PERIOD
ENDED APRIL 30, ENDED ENDED ENDED
----------------- APRIL 30, NOV. 30, NOV. 30,
1994+ 1993 1992*** 1991 1990++
------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
INCREASE (DE-
CREASE) IN NET
ASSET VALUE:
PER SHARE OPERAT-
ING PERFORMANCE:
Net asset value,
beginning of pe-
riod............ $ 3.59 $ 3.63 $ 9.19 $ 7.94 $ 9.13
------- ------- ------- -------- --------
Investment income
(loss)--net..... (.02) .02 -- .03 .05
Realized and
unrealized gain
(loss) on in-
vestments and
foreign currency
transactions--
net(1).......... .31 (.06) .88 2.08 (.75)
------- ------- ------- -------- --------
Total from in-
vestment opera-
tions........... .29 (.04) .88 2.11 (.70)
------- ------- ------- -------- --------
Less dividends
and distribu-
tions:
Return of capi-
tal--net........ -- -- (3.97) -- --
Investment in-
come--net....... (.01) -- -- (.03) (.08)
Realized gain on
investments--
net............. -- -- (2.47) (.83) (.41)
------- ------- ------- -------- --------
Total dividends
and distribu-
tions........... (.01) -- (6.44) (.86) (.49)
------- ------- ------- -------- --------
Net asset value,
end of period... $ 3.87 $ 3.59 $ 3.63 $ 9.19 $ 7.94
======= ======= ======= ======== ========
Total Investment
Return**
Based on net as-
set value per
share........... 8.19% (1.10%) 10.96%++ 29.44% (8.75%)++
======= ======= ======= ======== ========
Ratios to Average
Net Assets:
Expenses, net of
reimbursement... 1.55% 1.85% 1.56%* 1.61% 1.77%*
======= ======= ======= ======== ========
Expenses......... 1.55% 1.85% 1.56%* 1.61% 1.77%*
======= ======= ======= ======== ========
Investment income
(loss)--net..... (.48%) .48% (.16%)* .27% .62%*
======= ======= ======= ======== ========
Supplemental Da-
ta:
Net assets, end
of period (in
thousands)...... $70,753 $63,528 $61,132 $125,979 $114,852
======= ======= ======= ======== ========
Portfolio Turn-
over............ 133.58% 103.06% 147.63% 206.29% 159.11%
======= ======= ======= ======== ========
<CAPTION>
Class A
------------------------------------------------------------
FOR THE YEAR ENDED MARCH 31,
------------------------------------------------------------
1990*** 1989 1988 1987 1986 1985
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DE-
CREASE) IN NET
ASSET VALUE:
PER SHARE OPERAT-
ING PERFORMANCE:
Net asset value,
beginning of pe-
riod............ $ 9.61 $ 10.55 $ 13.75 $ 11.97 $ 9.15 $ 9.86
--------- --------- --------- --------- --------- ----------
Investment income
(loss)--net..... .05 .15 .05 .07 .11 .12
Realized and
unrealized gain
(loss) on in-
vestments and
foreign currency
transactions--
net(1).......... .96 (.12) .11 2.34 2.83 (.70)
--------- --------- --------- --------- --------- ----------
Total from in-
vestment opera-
tions........... 1.01 .03 .16 2.41 2.94 (.58)
--------- --------- --------- --------- --------- ----------
Less dividends
and distribu-
tions:
Return of capi-
tal--net........ -- -- -- -- -- --
Investment in-
come--net....... (.07) (.15) (.01) (.10) (.12) (.09)
Realized gain on
investments--
net............. (1.42) (.82) (3.35) (.53) -- (.04)
--------- --------- --------- --------- --------- ----------
Total dividends
and distribu-
tions........... (1.49) (.97) (3.36) (.63) (.12) (.13)
--------- --------- --------- --------- --------- ----------
Net asset value,
end of period... $ 9.13 $ 9.61 $ 10.55 $ 13.75 $ 11.97 $ 9.15
========= ========= ========= ========= ========= ==========
Total Investment
Return**
Based on net as-
set value per
share........... 11.36% 0.36% 2.02% 20.76% 32.50% (5.89%)
========= ========= ========= ========= ========= ==========
Ratios to Average
Net Assets:
Expenses, net of
reimbursement... 1.55% 1.46% 1.41% 1.44% 1.39% 1.36%
========= ========= ========= ========= ========= ==========
Expenses......... 1.61% 1.46% 1.41% 1.44% 1.39% 1.36%
========= ========= ========= ========= ========= ==========
Investment income
(loss)--net..... .78% 1.07% .48% .50% 1.00% 1.20%
========= ========= ========= ========= ========= ==========
Supplemental Da-
ta:
Net assets, end
of period (in
thousands)...... $140,635 $170,742 $238,606 $296,637 $310,023 $371,377
========= ========= ========= ========= ========= ==========
Portfolio Turn-
over............ 122.57% 113.85% 107.52% 92.42% 89.89% 105.92%
========= ========= ========= ========= ========= ==========
</TABLE>
- --------
* Annualized.
** Total investment returns exclude the effects of sales loads.
*** On February 1, 1990 and April 1, 1992, certain of the Company's investment
advisory relationships changed. See "Management of the Company--Advisory and
Management Arrangements" in the Statement of Additional Information.
+ Calculation is based on average number of shares outstanding during the
period.
++ The Company changed its fiscal year from March 31 to November 30.
+++ The Company changed its fiscal year from November 30 to April 30.
++ Aggregate total investment return.
(1) Foreign currency transaction amounts have been reclassified to conform to
1994 presentation.
7
<PAGE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------------------
FOR THE
FOR THE EIGHT- FOR THE
FIVE-MONTH FOR THE MONTH+++ FOR THE PERIOD
FOR THE YEAR PERIOD++++ YEAR PERIOD YEAR OCT. 21,
ENDED APRIL 30, ENDED ENDED ENDED ENDED 1988+ TO
----------------- APRIL 30, NOV. 30, NOV. 30, MARCH 31, MARCH 31,
1994++ 1993++ 1992++*** 1991 1990 1990++*** 1989++
------- ------- ---------- -------- -------- --------- ---------
<S> <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......... $ 3.31 $ 3.38 $ 9.01 $ 7.84 $ 9.05 $ 9.57 $ 10.24
------- ------- ------- ------- ------- ------- -------
Investment loss--net.... (.05) (.01) (.02) (.03) (.01) (.06) (.02)
Realized and unrealized
gain (loss) on invest-
ments and foreign cur-
rency transactions
--net(1)... .29 (.06) .83 2.03 (.75) .79 (.06)
------- ------- ------- ------- ------- ------- -------
Total from investment
operations............. .24 (.07) .81 2.00 (.76) .73 (.08)
------- ------- ------- ------- ------- ------- -------
Less dividends and dis-
tributions:
Return of capital--net.. -- -- (3.97) -- -- -- --
Investment income--net.. -- -- -- -- (.04) (.01) (.06)
Realized gain on in-
vestments--net......... -- -- (2.47) (.83) (.41) (1.24) (.53)
------- ------- ------- ------- ------- ------- -------
Total dividends and dis-
tributions............. -- -- (6.44) (.83) (.45) (1.25) (.59)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period................. $ 3.55 $ 3.31 $ 3.38 $ 9.01 $ 7.84 $ 9.05 $ 9.57
======= ======= ======= ======= ======= ======= =======
Total Investment Re-
turn**
Based on net asset
value per share ...... 7.25% (2.07%) 10.26%++ 28.30% (9.37%)++ 10.23% 2.43%++
======= ======= ======= ======= ======= ======= =======
Ratios to Average Net
Assets:
Expenses, net of reim-
bursement and excluding
distribution fees...... 1.56% 1.89% 1.58%* 1.63% 1.82%* 1.60% 1.38%*
======= ======= ======= ======= ======= ======= =======
Expenses, net of reim-
bursement.............. 2.56% 2.89% 2.58%* 2.63% 2.82%* 2.60% 2.38%*
======= ======= ======= ======= ======= ======= =======
Expenses................ 2.56% 2.89% 2.58%* 2.63% 2.82%* 2.68% 2.38%*
======= ======= ======= ======= ======= ======= =======
Investment income
(loss)--net............ (1.52%) (.41%) (1.02%)* (.79%) (.36%)* (.31%) (.33%)*
======= ======= ======= ======= ======= ======= =======
Supplemental Data:
Net assets, end of pe-
riod (in thousands).... $63,692 $33,071 $ 5,356 $ 6,007 $ 3,222 $ 2,412 $ 342
======= ======= ======= ======= ======= ======= =======
Portfolio Turnover...... 133.58% 103.06% 147.63% 206.29% 159.11% 122.57% 113.85%
======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
+ Class B shares commenced operations on October 21, 1988.
++ Calculation is based on average number of shares outstanding during the
period.
+++ The Company changed its fiscal year from March 31 to November 30.
++++ The Company changed its fiscal year from November 30 to April 30.
* Annualized.
** Total investment returns exclude the effects of sales loads.
*** On February 1, 1990 and April 1, 1992, certain of the Company's investment
advisory relationships changed. See "Management of the Company--Advisory
and Management Arrangements" in the Statement of Additional Information.
++ Aggregate total investment return.
(1) Foreign currency transaction amounts have been reclassified to conform to
1994 presentation.
8
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
International Investments. Investments on an international basis involve
certain risks not typically involved in domestic investments, including
fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions applicable to such investments. Securities
prices in different countries are subject to different economic, financial,
political and social factors. Since the Company may invest heavily in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates may affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. Changes in foreign currency exchange
rates relative to the U.S. dollar will affect the U.S. dollar value of the
Company's assets denominated in that currency and the Company's yield on such
assets. The rates of exchange between the dollar and other currencies are
determined by forces of supply and demand in the foreign exchange markets.
These forces are, in turn, affected by the international balance of payments,
the level of interest and inflation rates and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. Also, many of the securities held by the Company will not be
registered with the Securities and Exchange Commission nor will the issuers
thereof be subject to the reporting requirements of such agency.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investments in those countries.
There may be less publicly available information about foreign companies than
about U.S. companies, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to those
to which U.S. companies are subject. In addition, certain foreign investments
may be subject to foreign withholding taxes. See "Additional Information--
Taxes".
Foreign financial markets, while generally growing in trading volume,
typically have substantially less volume than U.S. markets, and securities of
many foreign companies are less liquid and their prices more volatile than
securities of comparable domestic companies. The foreign markets also have
different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the
Company are uninvested and no return is earned thereon. The inability of the
Company to make intended security purchases due to settlement problems could
cause the Company to miss attractive investment opportunities. Inability to
dispose of a portfolio security due to settlement problems either could result
in losses to the Company due to subsequent declines in value of the portfolio
security or, if the Company has entered into a contract to sell the security,
could result in possible liability to the purchaser. Brokerage commissions and
other transaction costs on foreign securities exchanges are generally higher
than in the United States. There is generally less governmental supervision and
regulation of exchanges, brokers and issuers in foreign countries than there is
in the United States.
Investments in Healthcare. Healthcare oriented investment companies such as
the Company, as with other sector funds, may be subject to rapidly changing
asset inflows and outflows. Moreover, the Company's
9
<PAGE>
investments in securities of healthcare related companies present certain risks
that may not exist to the same degree as in other types of investments. While
the Company will invest in the securities of entities in several different
industries considered by management of the Company to be healthcare related,
many of those entities share common characteristics which may affect an
investment in the Company. For example, industries throughout the healthcare
field include many smaller and less seasoned companies. These types of
companies may present greater opportunities for capital appreciation, but may
also involve greater risks. Such companies may have limited product lines,
markets, or financial resources, or may depend on a limited management group.
In addition, the securities of smaller companies may be subject to more
volatile market movements than the securities of larger, more established
companies. The companies in which the Company invests are also strongly
affected by worldwide scientific or technological developments and are
companies whose products may rapidly fall into obsolescence. Even though such
companies may be involved in different aspects of the more general healthcare
area, the Company's focus on this area increases the degree to which it may be
affected by new developments. Many of such companies may offer products or
services that are subject to governmental regulation and may, therefore, be
affected adversely by governmental policies.
A number of legislative proposals concerning health care have been introduced
in the U.S. Congress in recent years or have been reported to be under
consideration. In addition, the Clinton administration has indicated that
reform of the health care system in the United States is a top priority. These
proposals span a wide range of topics, including cost controls, national health
insurance, incentives for competition in the provision of health care services,
tax incentives and penalties related to health care insurance premiums, and
promotion of prepaid health care plans. The Company is unable to predict the
effect of any of these proposals, if enacted.
Other Considerations. The operating expense ratio of the Company can be
expected to be higher than that of an investment company investing exclusively
in U.S. securities since the expenses of the Company, such as custodial costs
and advisory fees, are higher. The Company operates as a non-diversified
investment company. See "Investment Objective and Policies--Other Investment
Practices--Non-Diversified Status". To the extent that the Company assumes
large positions in the securities of a small number of issuers, the Company's
total return may fluctuate to a greater degree than that of a diversified
company as a result of changes in the financial condition or in the market's
assessment of the issuers. Other special considerations are that the Company
may invest up to 10% of its assets in illiquid securities (including venture
capital investments), that certain foreign investments may be subject to
foreign withholding taxes and that the Company may invest more than 5% of its
assets in securities issued or guaranteed by certain foreign governments.
10
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek long-term capital
appreciation through worldwide investment in equity securities of companies
that, in the opinion of management, derive or are expected to derive a
substantial portion of their sales from products and services in healthcare.
The Company will pursue this objective by investing in a global portfolio of
securities of companies in various stages of development. The Company may,
however, for defensive purposes, invest in non-convertible fixed income
securities, including money market securities. Current income from dividends
and interest will not be an important consideration in selecting portfolio
securities. There can be no assurance that the investment objective of the
Company will be realized. The investment objective of the Company described in
the first sentence of this paragraph is a fundamental policy of the Company and
may not be changed without the approval of the holders of a majority of the
Company's outstanding voting securities.
The investment objective of the Company is based upon the belief that
advances in healthcare are providing companies throughout the world with
opportunities to develop innovative products and services and that investment
in such companies offers significant long-term growth possibilities. While the
Company will seek investments that have a healthcare orientation, it will
maintain a flexible approach as to the types of industries in which it will
invest, and it will not invest more than 25% of its total assets in any one
industry. The Company will invest in companies that are substantially engaged
in the design, manufacture or sale of products or services used for or in
connection with healthcare or medicine. Such companies may be in a variety of
industries and may include pharmaceutical companies; companies that design,
manufacture, sell or supply medical, dental and optical products, hardware or
services; companies involved in biotechnology, medical, diagnostic and
biochemical research and development; and companies involved in the ownership
and/or operation of healthcare facilities. The Company may invest up to 10% of
its assets (together with all other illiquid investments) in venture capital
investments in new and early stage companies whose securities are illiquid. The
Company will not, however, invest in securities of issuers having a record,
together with predecessors, of less than three years of continuous operation if
more than 10% (or, to the extent required by applicable state law, 5%) of the
Company's total assets, taken at market value, would be invested in such
securities.
The Company will invest in a global portfolio of securities of companies
located throughout the world. While there are no prescribed limits on
geographic asset distribution, based upon the public market values and
anticipated scientific innovations, it is presently contemplated that a
majority of the Company's assets will be invested at all times in the
securities of issuers domiciled in the United States, Japan and Western Europe.
Western European countries include, among others, the United Kingdom, Germany,
The Netherlands, Switzerland, Sweden, France, Italy, Belgium, Norway, Denmark,
Finland, Portugal, Austria and Spain. Under certain adverse investment
conditions, the Company may restrict the securities markets in which its assets
will be invested and may increase the proportion of assets invested in the U.S.
securities markets.
Investment emphasis will be on equities, primarily common stocks and, to a
lesser extent, securities convertible into common stocks and rights to
subscribe for common stocks. The Company anticipates that under normal
conditions at least 65% of its total assets will be invested in healthcare
companies. The Company reserves the right, as a temporary defensive measure and
to provide for redemptions, to hold cash or cash equivalents (in U.S. dollars
or foreign currencies) and other types of securities, the issuers of which may
not be involved in healthcare, including non-convertible preferred stocks and
investment grade debt
11
<PAGE>
securities and government and money market securities, in such proportions as,
in the opinion of the Investment Adviser, prevailing market or economic
conditions warrant. The Company also may invest in securities subject to
repurchase agreements with banks or securities firms if the underlying
securities are those which otherwise qualify for investment by the Company and
if, as a result thereof, not more than 10% of its net assets would be invested
in illiquid securities, including repurchase agreements maturing in more than
seven days. The Company may invest in the securities of foreign issuers in the
form of American Depositary Receipts (ADRs), European Depositary Receipts
(EDRs), Global Depositary Receipts (GDRs) or other securities convertible into
securities of foreign issuers. The Company may invest in unsponsored ADRs. The
issuers of unsponsored ADRs are not obligated to disclose material information
in the United States, and therefore, there may not be a correlation between
such information and the market value of such ADRs.
HEDGING TECHNIQUES
The Company may engage in various portfolio strategies to hedge its portfolio
against investment, interest rate and currency risks. These strategies include
the use of options on portfolio securities, stock index options, stock index
futures, financial futures, currency futures, options on such futures and
forward foreign exchange transactions. The Company may enter into such
transactions only in connection with its hedging strategies. While the net
asset value of the Company's shares will fluctuate and no assurance can be
given that the Company's hedging transactions will be effective, the Investment
Adviser believes that the ability of the Company to engage in these hedging
transactions will enhance the Company's ability to reduce the volatility of the
net asset value of its shares. Furthermore, the Company will only engage in
hedging activities from time to time and may not necessarily be engaging in
hedging activities when movements in the equity markets, interest rates or
currency exchange rates occur. Reference is made to the Statement of Additional
Information for further information concerning these strategies.
Although certain risks are involved in options and futures transactions (as
discussed below in "Risk Factors in Option, Futures and Currency
Transactions"), the Investment Adviser believes that, because the Company will
only engage in these transactions for hedging purposes, the options and futures
portfolio strategies of the Company will not subject the Company to the risks
frequently associated with the speculative use of options and futures
transactions. Tax requirements may limit the Company's ability to engage in the
hedging transactions and strategies described below.
Set forth below is a description of the hedging instruments that the Company
may utilize with respect to investment, interest rate and currency risks.
Writing Covered Call Options. The Company is authorized to purchase and write
(i.e., sell) covered call options on the securities in which it may invest and
to enter into closing purchase transactions with respect to certain of such
options. A covered call option is an option where the Company, in return for a
premium, gives another party a right to buy specified securities owned by the
Company at a specified future date and price set at the time of the contract.
By writing covered call options, the Company gives up the opportunity, while
the option is in effect, to profit from any price increase in the underlying
security above the option exercise price.
In addition, the Company's ability to sell the underlying security will be
limited while the option is in effect unless the Company effects a closing
purchase transaction. A closing purchase transaction cancels out the Company's
position as the writer of an option by means of an offsetting purchase of an
identical option prior to the expiration of the option it has written. Covered
call options serve as a partial hedge against the price of the underlying
security declining.
12
<PAGE>
Purchasing Put Options. The Company is authorized to purchase put options to
hedge against a decline in the market value of its securities. By buying a put
option the Company has a right to sell the underlying security at the stated
exercise price, thus limiting the Company's risk of loss through a decline in
the market value of the security until the put expires. The amount of any
appreciation in the value of the underlying security will be partially offset
by the amount of the premium paid for the put option and any related
transaction costs. Prior to its expiration, a put option may be sold in a
closing sale transaction and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs. A closing sale transaction cancels
out the Company's position as the purchaser of an option by means of an
offsetting sale of an identical option prior to the expiration of the option it
has purchased. The Company will not purchase put options on securities
(including stock index options discussed below) if as a result of such
purchase, the aggregate cost of all outstanding options on securities held by
the Company would exceed 5% of the market value of the Company's total assets.
Stock Index Options and Futures and Financial Futures. The Company is
authorized to engage in transactions in stock index options and futures and
financial futures and related options on such futures. The Company may purchase
or write put and call options on stock indices to hedge against the risks of
market-wide stock price movements in the securities in which the Company
invests. Options on indices are similar to options on securities except that on
exercise or assignment, the parties to the contract pay or receive an amount of
cash equal to the difference between the closing value of the index and the
exercise price of the option times a specified multiple. The Company may invest
in stock index options based on a broad market index, e.g., the S&P 500 Index,
or on a narrow index representing an industry or market segment, e.g., the AMEX
Oil & Gas Index.
The Company may also purchase and sell stock index futures contracts and
financial futures contracts ("futures contracts") as a hedge against adverse
changes in the market value of its portfolio securities as described below. A
futures contract is an agreement between two parties which obligates the
purchaser of the futures contract to buy and the seller of a futures contract
to sell a security for a set price on a future date. Unlike most other futures
contracts, a stock index futures contract does not require actual delivery of
securities but results in cash settlement based upon the difference in value of
the index between the time the contract was entered into and the time of its
settlement. The Company may effect transactions in stock index futures
contracts in connection with equity securities in which it invests and in
financial futures contracts in connection with the debt securities in which it
invests. Transactions by the Company in stock index futures and financial
futures are subject to limitations as described below under "Restrictions on
the Use of Futures Transactions".
The Company is authorized to sell futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of
the Company's securities portfolio that might otherwise result. When the
Company is not fully invested in the securities markets and anticipates a
significant market advance, it would be able to purchase futures in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that the Company intends to purchase. As such purchases are
made, an equivalent amount of futures contracts will be terminated by
offsetting sales. The Company does not consider purchases of futures contracts
to be a speculative practice under these circumstances. It is anticipated that,
in a substantial majority of these transactions, the Company will purchase such
securities upon termination of the long futures position, whether the long
position is the purchase of a futures contract or the purchase of a call option
or the writing of a put option on a future, but under unusual circumstances
(e.g., the Company experiences a significant amount of redemptions), a long
futures position may be terminated without the corresponding purchase of
securities.
13
<PAGE>
The Company also is authorized to purchase and write call and put options on
futures contracts and stock indices in connection with its hedging activities.
Generally, these strategies would be utilized under the same market and market
sector conditions (i.e., conditions relating to specific types of investments)
in which the Company enters into futures transactions. The Company may purchase
put options or write call options on futures contracts and stock indices rather
than selling the underlying futures contract in anticipation of a decrease in
the market value of its securities. Similarly, the Company can purchase call
options, or write put options on futures contracts and stock indices, as a
substitute for the purchase of such futures to hedge against the increased cost
resulting from an increase in the market value of securities which the Company
intends to purchase.
The Company is also authorized to engage in options and futures transactions
on U.S. and foreign exchanges and in options in the over-the-counter markets
("OTC options"). In general, exchange traded contracts are third-party
contracts (i.e., performance of the parties' obligations is guaranteed by an
exchange or clearing corporation) with standardized strike prices and
expiration dates. OTC options transactions are two-party contracts with prices
and terms negotiated by the buyer and seller. See "Restrictions on OTC Options"
below for information as to restrictions on the use of OTC options.
The Company is authorized to purchase or sell listed or over-the-counter
foreign currency options, foreign currency futures and related options on
foreign currency futures as a short or long hedge against possible variations
in foreign exchange rates. Such transactions could be effected with respect to
hedges on non-U.S. dollar denominated securities owned by the Company, sold by
the Company but not yet delivered, or committed or anticipated to be purchased
by the Company. As an illustration, the Company may use such techniques to
hedge the stated value in U.S. dollars of an investment in a yen denominated
security. In such circumstances, for example, the Company can purchase a
foreign currency put option enabling it to sell a specified amount of yen for
dollars at a specified price by a future date. To the extent the hedge is
successful, a loss in the value of the yen relative to the dollar will tend to
be offset by an increase in the value of the put option. To offset, in whole or
in part, the cost of acquiring such a put option, the Company may also sell a
call option which, if exercised, requires it to sell a specified amount of yen
for dollars at a specified price by a future date (a technique called a
"straddle"). By selling such a call option in this illustration, the Company
gives up the opportunity to profit without limit from increases in the relative
value of the yen to the dollar. The Investment Adviser believes that
"straddles" of the type which may be utilized by the Company constitute hedging
transactions and are consistent with the policies described above.
Certain differences exist between these foreign currency hedging instruments.
Foreign currency options provide the holder thereof the right to buy or sell a
currency at a fixed price on a future date. A futures contract on a foreign
currency is an agreement between two parties to buy and sell a specified amount
of a currency for a set price on a future date. Futures contracts and options
on futures contracts are traded on boards of trade or futures exchanges. The
Company will not speculate in foreign currency options, futures or related
options. Accordingly, the Company will not hedge a currency substantially in
excess of the market value of securities which it has committed or anticipates
to purchase which are denominated in such currency, and in the case of
securities which have been sold by the Company but not yet delivered, the
proceeds thereof in its denominated currency. The Company will not incur
potential net liabilities of more than 20% of its total assets from foreign
currency options, futures or related options.
Forward Foreign Exchange Transactions. The Company has authority to deal in
forward foreign exchange between currencies of the different countries in which
it will invest and multinational currency units
14
<PAGE>
as a hedge against possible variations in the foreign exchange rates between
these currencies. This is accomplished through contractual agreements to
purchase or sell a specified currency at a specified future date and price set
at the time of the contract. The Company's dealings in forward foreign exchange
will be limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward foreign
currency with respect to specific receivables or payables of the Company
accruing in connection with the purchase and sale of its portfolio securities,
the sale and redemption of shares of the Company or the payment of dividends
and distributions by the Company. Position hedging is the sale of forward
foreign currency with respect to portfolio security positions denominated or
quoted in such foreign currency. The Company will not attempt to hedge all of
its foreign portfolio positions. The Company may not commit more than 15% of
its assets, taken at market value, to position hedging. If the Company enters
into a position hedging transaction, its custodian will place cash or liquid
debt securities in a separate account of the Company in an amount equal to the
value of the Company's total assets committed to the consummation of such
forward contract. If the value of the securities placed in the separate account
declines, additional cash or securities will be placed in the account so that
the value of the account will equal the amount of the Company's commitment with
respect to such contracts.
Restrictions on the Use of Futures Transactions. Regulations of the Commodity
Futures Trading Commission ("CFTC") applicable to the Company provide that the
futures trading activities described herein will not result in the Company
being deemed a "commodity pool" as defined under such regulations if the
Company adheres to certain restrictions. In particular, the Company may
purchase and sell futures contracts and options thereon (i) for bona fide
hedging purposes and (ii) for non-hedging purposes, if the aggregate initial
margin and premiums required to establish positions in such contracts and
options does not exceed 5% of the liquidation value of the Company's portfolio,
after taking into account unrealized profits and unrealized losses on any such
contracts and options.
When the Company purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash and cash equivalents will be
deposited in a segregated account with the Company's custodian so that the
amount so segregated, plus the amount of initial and variation margin held in
the account of its broker, equals the market value of the futures contract,
thereby ensuring that the use of such futures is unleveraged.
Restrictions on OTC Options. The Company will engage in OTC options,
including over-the-counter stock index options, over-the-counter foreign
currency options and options on foreign currency futures, only with member
banks of the Federal Reserve System and primary dealers in U.S. Government
securities or with affiliates of such banks or dealers which have capital of at
least $50 million or whose obligations are guaranteed by an entity having
capital of at least $50 million.
The staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased OTC options and the assets used as cover for
written OTC options are illiquid securities. Therefore, the Company has adopted
an investment policy pursuant to which it will not purchase or sell OTC options
(including OTC options on futures contracts) if, as a result of such
transaction, the sum of the market value of OTC options currently outstanding
which are held by the Company, the market value of the underlying securities
covered by OTC call options currently outstanding which were sold by the
Company and margin deposits on the Company's existing OTC options on futures
contracts exceeds 10% of the net assets of the Company, taken at market value,
together with all other assets of the Company which are illiquid or are not
otherwise readily marketable. However, if the OTC option is sold by the Company
to a primary U.S.
15
<PAGE>
Government securities dealer recognized by the Federal Reserve Bank of New York
and the Company has the unconditional contractual right to repurchase such OTC
option from the dealer at a predetermined price, then the Company will treat as
illiquid such amount of the underlying securities as is equal to the repurchase
price less the amount by which the option is "in-the-money" (i.e., current
market value of the underlying security minus the option's strike price). The
repurchase price with the primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option, plus the
amount by which the option is "in-the-money". This policy as to OTC options is
not a fundamental policy of the Company and may be amended by the Board of
Directors of the Company without the approval of the Company's shareholders.
However, the Company will not change or modify this policy prior to the change
or modification by the Commission staff of its position.
Risk Factors in Option, Futures and Currency Transactions. Utilization of
options and futures transactions to hedge the portfolio involves the risk of
imperfect correlation in movements in the price of options and futures and
movements in the price of the securities or currencies which are the subject of
the hedge. If the price of the options or futures moves more or less than the
price of the hedged securities or currencies, the Company will experience a
gain or loss which will not be completely offset by movements in the price of
the subject of the hedge. The successful use of options and futures also
depends on the Investment Adviser's ability to predict correctly price
movements in the market involved in a particular options or futures
transaction. To compensate for imperfect correlations, the Company may purchase
or sell stock index options or futures contracts in a greater dollar amount
than the hedged securities if the volatility of the hedged securities is
historically greater than the volatility of the stock index options or futures
contracts. Conversely, the Company may purchase or sell fewer stock index
options or futures contracts if the volatility of the price of the hedged
securities is historically less than that of the stock index options or futures
contracts. The risk of imperfect correlation generally tends to diminish as the
maturity date of the stock index option or futures contract approaches.
The Company intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a
liquid secondary market for such options or futures. However, there can be no
assurance that a liquid secondary market will exist at any specific time. Thus,
it may not be possible to close an options or futures position. The inability
to close options and futures positions also could have an adverse impact on the
Company's ability to effectively hedge its portfolio. There is also the risk of
loss by the Company of margin deposits or collateral in the event of bankruptcy
of a broker with whom the Company has an open position in an option, a futures
contract or related option.
The exchanges on which options on portfolio securities and currency options
are traded have generally established limitations governing the maximum number
of call or put options on the same underlying security or currency (whether or
not covered) which may be written by a single investor, whether acting alone or
in concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written in one or more accounts or
through one or more brokers). "Trading limits" are imposed on the maximum
number of contracts which any person may trade on a particular trading day. The
Investment Adviser does not believe that these trading and position limits will
have any adverse impact on the portfolio strategies for hedging the Company's
portfolio.
Because the Company will engage in the options and futures transactions
described above solely in connection with its hedging activities, the
Investment Adviser does not believe that such options and futures transactions
necessarily will have any significant effect on the Company's portfolio
turnover.
16
<PAGE>
OTHER INVESTMENT PRACTICES
Portfolio Transactions. In executing portfolio transactions, the Investment
Adviser seeks to obtain the best net results for the Company, taking into
account such factors as price (including the applicable brokerage commission or
dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved and the firm's risk in positioning a block of
securities. While the Investment Adviser generally seeks reasonably competitive
commission rates, the Company does not necessarily pay the lowest commission or
spread available. The Company has no obligation to deal with any broker or
group of brokers in execution of transactions in portfolio securities.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions are generally higher than in the United States, although the
Company will endeavor to achieve the best net results in effecting its
portfolio transactions. The Company may pay brokerage commissions to a broker
(i) which is an affiliated person of the Company, (ii) to a broker which is an
affiliated person of such an affiliated person and (iii) to a broker an
affiliated person of which is an affiliated person of the Company, its
Investment Adviser or the Distributor. The Investment Adviser may allocate
brokerage transactions in a manner that takes into account the sale of
investment company securities.
Portfolio Turnover. Generally, the Company does not purchase securities for
short-term trading profits. However, the Company may dispose of securities
without regard to the time they have been held when such actions, for defensive
or other reasons, appear advisable to the Investment Adviser. While it is not
possible to predict portfolio turnover rates with any certainty, at present it
is anticipated that the Company's annual portfolio turnover rate, under normal
circumstances, will be less than 150%. (The portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the particular fiscal year by the monthly average of the value of the
portfolio securities owned by the Company during the particular fiscal year.)
High portfolio turnover involves correspondingly greater transaction costs in
the form of dealer spreads and brokerage commissions, which are borne directly
by the Company.
Non-Diversified Status. The Company is classified as non-diversified within
the meaning of the Investment Company Act, which means that the Company is not
limited by such Act in the proportion of its assets that it may invest in the
securities of a single issuer. The Company's investments will be limited,
however, in order to qualify as a "regulated investment company" for purposes
of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify, the
Company must comply with certain requirements, including limiting its
investments so that at the close of each quarter of the taxable year (i) not
more than 25% of the market value of the Company's total assets will be
invested in the securities of a single issuer and (ii) with respect to 50% of
the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer, and the
Company will not own more than 10% of the outstanding voting securities of a
single issuer. Foreign government securities (unlike U.S. Government
securities) are not exempt from the diversification requirements of the Code
and are considered obligations of a single issuer. A fund which elects to be
classified as "diversified" under the Investment Company Act must satisfy the
foregoing 5% and 10% requirements with respect to 75% of its total assets. To
the extent that the Company assumes large positions in the securities of a
small number of issuers, the Company's net asset value may fluctuate to a
greater extent than that of a diversified company as a result of changes in the
financial condition or in the market's assessment of the issuers, and the
Company may be more susceptible to any single economic, political or regulatory
occurrence than a diversified company.
Lending of Portfolio Securities. The Company may from time to time lend
securities from its portfolio, with a value not exceeding 10% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government
which will be maintained
17
<PAGE>
at all times in an amount equal to at least 100% of the current market value of
the loaned securities. During the period of such a loan, the Company receives
the income on both the loaned securities and the collateral and thereby
increases its yield.
INVESTMENT RESTRICTIONS
The Company has adopted the following restrictions and policies relating to
the investment of its assets and its activities, which are fundamental policies
and may not be changed without the approval of the holders of a majority of the
Company's outstanding voting securities as defined in the Investment Company
Act. Among the more significant restrictions, the Company may not:
--Invest in the securities of any single issuer, if immediately after and
as a result of such investment, the Company owns more than 10% of the
outstanding securities, or more than 10% of the outstanding voting
securities, of such issuer; or
--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.
Other fundamental policies include policies which limit investments in
securities which cannot be readily resold because of legal or contractual
restrictions or which are not otherwise readily marketable if, regarding all
such securities, more than 10% of the Company's total assets, taken at market
value, would be invested in such securities. While the Company will not
purchase illiquid securities in an amount exceeding 10% of its total assets,
the Company may purchase, without regard to that limitation, securities that
are not registered under the Securities Act of 1933, as amended (the
"Securities Act"), but that can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act, provided that the Company's
Board of Directors continuously determines, based on the trading markets for
the specific Rule 144A security, that it is liquid. The Board of Directors has
determined to treat as liquid Rule 144A securities which are freely tradeable
in their primary markets offshore. The Board of Directors may adopt guidelines
and delegate to the Investment Adviser the daily function of determining and
monitoring liquidity of other restricted securities. The Board of Directors,
however, will retain sufficient oversight and be ultimately responsible for the
determinations.
Notwithstanding the above, because of certain state law requirements, the
Company may presently be precluded from purchasing restricted securities sold
and offered under Rule 144A, together with securities which are illiquid, in
excess of 10% of the Company's net assets. In addition, since it is not
possible to predict with assurance exactly how the market for restricted
securities sold and offered under Rule 144A will develop, the Board of
Directors will carefully monitor the Company's investments in these securities,
focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Company to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
Nothing in the foregoing investment restrictions shall be deemed to prohibit
the Company from purchasing the securities of any issuer pursuant to the
exercise of subscription rights distributed to the Company by the issuer,
except that no such purchase may be made if as a result the Company will fail
to meet the diversification requirements of the Code.
18
<PAGE>
The Board of Directors of the Company, at a meeting held on August 4, 1994,
approved certain changes to the fundamental and non-fundamental investment
restrictions of the Company. These changes were proposed in connection with the
creation of a set of standard fundamental and non-fundamental investment
restrictions that would be adopted, subject to shareholder approval, by all of
the non-money market mutual funds advised by MLAM or FAM. The proposed uniform
investment restrictions are designed to provide each of these funds, including
the Company, with as much investment flexibility as possible under the
Investment Company Act and applicable state securities regulations, help
promote operational efficiencies and facilitate monitoring of compliance. The
investment objective and policies of the Company will be unaffected by the
adoption of the proposed investment restrictions.
The full text of the proposed investment restrictions is set forth under
"Investment Objective and Policies -- Proposed Uniform Investment Restrictions"
in the Statement of Additional Information. Shareholders of the Company are
currently considering whether to approve the proposed revised investment
restrictions. If such shareholder approval is obtained, the Company's current
investment restrictions will be replaced by the proposed restrictions, and the
Company's Prospectus and Statement of Additional Information will be
supplemented to reflect such change.
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The Board of Directors of the Company consists of five individuals, four of
whom are not "interested persons" of the Company as defined in the Investment
Company Act. The Board of Directors of the Company is responsible for the
overall supervision of the operations of the Company and performs the various
duties imposed on the directors of investment companies by the Investment
Company Act.
The Directors of the Company are:
Arthur Zeikel*--President and Chief Investment Officer of the Investment
Adviser; President and Director of Princeton Services, Inc. ("Princeton
Services"); Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.");
Executive Vice President of Merrill Lynch; Director of the Distributor.
Donald Cecil--Special Limited Partner of Cumberland Partners (an investment
partnership).
Edward H. Meyer--Chairman of the Board, President and Chief Executive Officer
of Grey Advertising Inc.
Charles C. Reilly--Self-employed financial consultant; former President and
Chief Investment Officer of Verus Capital, Inc.; former Senior Vice President
of Arnhold and S. Bleichroeder, Inc.; Adjunct Professor, Columbia University
Graduate School of Business.
Richard R. West--Professor of Finance, and Dean from 1984 to 1993, New York
University Leonard N. Stern School of Business Administration.
- --------
* Interested person, as defined in the Investment Company Act, of the Company.
19
<PAGE>
ADVISORY AND MANAGEMENT ARRANGEMENTS
The Company's investment adviser is Merrill Lynch Asset Management, L.P.,
which does business as Merrill Lynch Asset Management (the "Investment
Adviser"). The Investment Adviser is owned and controlled by ML & Co., a
financial services holding company and the parent of Merrill Lynch. The
Investment Adviser or an affiliate, Fund Asset Management, L.P. ("FAM"), acts
as the investment adviser to more than 100 other registered investment
companies and provides investment advisory services to individual and
institutional accounts. As of August 31, 1994, the Investment Adviser and FAM
had a total of approximately $165.7 billion in investment company and other
portfolio assets under management, including accounts of certain affiliates of
the Investment Adviser.
Subject to the direction of the Directors, the Investment Adviser is
responsible for the actual management of the Company's portfolio and constantly
reviews the Company's holdings in light of its own research analysis and that
from other relevant sources. The responsibility for making decisions to buy,
sell or hold a particular security rests with the Investment Adviser. The
Investment Adviser performs certain of the other administrative services and
provides office space, facilities, equipment and personnel for management of
the Company.
Under the investment advisory agreement, as compensation for its services to
the Company, the Investment Adviser receives monthly compensation at the annual
rate of 1.0% of the Company's average daily net assets. This fee is higher than
that paid by most mutual funds, but the Company believes it is justified by the
special investment focus of the Company. For the fiscal year ended April 30,
1994, the Investment Adviser earned investment advisory fees of $1,200,254
(based on average net assets of approximately $120.4 million). At June 30,
1994, the Company's net assets were approximately $123.7 million. At such
level, the annual advisory fee would aggregate approximately $1.2 million.
Jordan C. Schreiber, Vice President of the Company, is the Company's
Portfolio Manager. Mr. Schreiber has been a Vice President and Portfolio
Manager of the Investment Adviser and its predecessor since 1983. Mr. Schreiber
has been primarily responsible for the management of the Company's portfolio
since 1983.
The Company pays certain expenses incurred in its operations, including,
among other things, taxes; expenses for legal and auditing services; and costs
of printing proxies, stock certificates, shareholder reports, prospectuses and
statements of additional information. Also, accounting services are provided to
the Company by the Investment Adviser, and the Company reimburses the
Investment Adviser for its costs in connection with such services on a semi-
annual basis. For the fiscal year ended April 30, 1994, the reimbursement of
the Investment Adviser for accounting services aggregated $35,660. For the same
fiscal period, the ratio of total expenses to average net assets for Class A
shares was 1.55%, the ratio of total expenses excluding account maintenance and
distribution fees to average net assets for Class B shares was 1.56%, and the
ratio of total expenses including account maintenance and distribution fees to
average net assets for Class B shares was 2.56%.
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the "Transfer Agent"), which is a wholly-owned
subsidiary of ML & Co., acts as the Company's transfer agent pursuant to a
Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer Agency
Agreement, the Transfer Agent is responsible for the issuance, transfer and
redemption of shares and the opening and maintenance of shareholder accounts.
Pursuant to the Transfer Agency Agreement, the Transfer Agent receives a fee of
$11.00 per Class A or Class D shareholder account and $14.00 per Class B or
Class C shareholder account, nominal miscellaneous fees (e.g., account closing
fees) and is entitled to
20
<PAGE>
reimbursement for out-of-pocket expenses incurred by it under the Transfer
Agency Agreement. For the fiscal year ended April 30, 1994, the Company paid
the Transfer Agent $318,195 pursuant to the Transfer Agency Agreement. At June
30, 1994, the Company had 24,151 Class A shareholder accounts and 10,066 Class
B shareholder accounts (including certain subaccounts on which the standard
annual transfer agency fees are assessed), no Class C shareholder accounts and
no Class D shareholder accounts. At this level of accounts, the annual fee
payable to the Transfer Agent would aggregate approximately $259,651, plus
miscellaneous and out-of-pocket expenses.
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
both the Investment Adviser and Merrill Lynch, acts as the distributor of the
shares of the Company. Shares of the Company are offered continuously for sale
by the Distributor and other eligible securities dealers (including Merrill
Lynch). Shares of the Company may be purchased from securities dealers or by
mailing a purchase order directly to the Transfer Agent. The minimum initial
purchase is $1,000, and the minimum subsequent purchase is $50, except that for
retirement plans, the minimum initial purchase is $100, and the minimum
subsequent purchase is $1.
The Company is offering its shares in four classes at a public offering price
equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis depending upon
the class of shares selected by the investor under the Merrill Lynch Select
PricingSM System, as described below. The applicable offering price for
purchase orders is based upon the net asset value of the Company next
determined after receipt of the purchase orders by the Distributor. As to
purchase orders received by securities dealers prior to 4:15 p.m., New York
time, which includes orders received after the determination of the net asset
value on the previous day, the applicable offering price will be based on the
net asset value as of 4:15 p.m., New York time, on the day the orders are
placed with the Distributor, provided the orders are received by the
Distributor prior to 4:30 p.m., New York time, on that day. If the purchase
orders are not received prior to 4:30 p.m., New York time, such orders shall be
deemed received on the next business day. The Company or the Distributor may
suspend the continuous offering of the Company's shares of any class at any
time in response to conditions in the securities markets or otherwise and may
thereafter resume such offering from time to time. Any order may be rejected by
the Distributor or the Company. Neither the Distributor nor the dealers are
permitted to withhold placing orders to benefit themselves by a price change.
Merrill Lynch may charge its customers a processing fee (presently $4.85) to
confirm a sale of shares to such customers. Purchases directly through the
Transfer Agent are not subject to the processing fee.
Shares of the Company may be purchased by residents of Wisconsin only if such
investors have (i) a net worth (exclusive of home, home furnishings and
automobiles) of not less than $100,000 or (ii) a net worth (as computed above)
of not less than $30,000 and an annual gross income of not less than $30,000.
The Company issues four classes of shares under the Merrill Lynch Select
PricingSM System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Shares of Class A and Class D are sold
to investors choosing the initial sales charge alternatives and shares of Class
B and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Company 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 PricingSM System is set forth under "Merrill Lynch Select PricingSM
System" on page 3.
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<PAGE>
Each Class A, Class B, Class C and Class D share of the Company represents
identical interests in the investment portfolio of the Company and has the
same rights, except that Class B, Class C and Class D shares bear the expenses
of the ongoing account maintenance fees, and Class B and Class C shares bear
the expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
The 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, will be imposed directly against those classes and
not against all assets of the Company and, accordingly, such charges will not
affect the net asset value of any other class or have any impact on investors
choosing another sales charge option. Dividends paid by the Company for each
class of shares will be calculated in the same manner at the same time and
will differ only to the extent that account maintenance and distribution fees
and any incremental transfer agency costs relating to a particular class are
borne exclusively by that class. Class B, Class C and Class D shares each have
exclusive voting rights with respect to the Rule 12b-1 distribution plan
adopted with respect to such class pursuant to which account maintenance
and/or distribution fees are paid. See "Distribution Plans" below. Each class
has different exchange privileges. See "Shareholder Services--Exchange
Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in
that the sales charges applicable to each class provide for the financing of
the distribution of the shares of the Company. The distribution-related
revenues paid with respect to a class will not be used to finance the
distribution expenditures of another class. Sales personnel may receive
different compensation for selling different classes of shares. Investors are
advised that only Class A and Class D shares may be available for purchase
through securities dealers, other than Merrill Lynch, which are eligible to
sell shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM System.
<TABLE>
<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 periods of 4 years, 0.25% 0.75% B shares convert to D shares
at a rate of 4.0% during the first automatically after approximately
year, decreasing 1.0% annually to eight years(4)
0.0%
- ------------------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- ------------------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales 0.25% No No
charge(3)
</TABLE>
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs may be imposed if the redemption occurs
within the applicable CDSC time period. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other MLAM-
advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Company are exchanged for
Class B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
22
<PAGE>
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible to
purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
SALES LOAD AS DISCOUNT TO
SALES LOAD AS PERCENTAGE* OF SELECTED DEALERS
PERCENTAGE OF THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED THE OFFERING PRICE
- ------------------ -------------- -------------- ------------------
<S> <C> <C> <C>
Less than $25,000............. 5.25% 5.54% 5.00%
$25,000 but less than $50,000. 4.75 4.99 4.50
$50,000 but less than
$100,000..................... 4.00 4.17 3.75
$100,000 but less than
$250,000..................... 3.00 3.09 2.75
$250,000 but less than
$1,000,000................... 2.00 2.04 1.80
$1,000,000 and over**......... 0.00 0.00 0.00
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more made on or after October 21, 1994. If the sales charge is
waived, such purchases will be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. Class A purchases made prior to
October 21, 1994, may be subject to a CDSC if the shares are redeemed within
one year of purchase at the following rates: 1.00% on purchases of
$1,000,000 to $2,500,000; 0.60% on purchases of $2,500,001 to $3,500,000;
0.40% on purchases of $3,500,001 to $5,000,000; and 0.25% on purchases of
more than $5,000,000 in lieu of paying an initial sales charge. The charge
will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. A sales charge of 0.75%
will be charged on purchases of $1 million or more of Class A or Class D
shares by certain 401(k) plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and
Class D shares of the Company will receive a concession equal to most of the
sales charge, they may be deemed to be underwriters under the Securities Act.
During the fiscal year ended April 30, 1994, the Company sold 6,174,049 Class A
shares for aggregate net proceeds of $23,817,331. The gross sales charges for
the sale of Class A shares of the Fund for that year were $211,071, of which
$15,596 and $195,475 were received by the Distributor and Merrill Lynch,
respectively. For the fiscal year ended April 30, 1994, the Distributor
received no CDSCs with respect to redemption within one year after purchase of
Class A 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 in a shareholder
account, including participants in the Merrill Lynch BlueprintSM Program, are
entitled to purchase additional Class A shares in that account. Certain
employer sponsored retirement or savings plans, including eligible 401(k)
plans, may purchase Class A shares at net asset value provided such plans meet
the required minimum number of eligible employees or required amount of assets
advised by MLAM or any of its affiliates. Class A shares are available at net
asset value to corporate warranty insurance reserve fund programs 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
23
<PAGE>
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
Company. 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 and
fund shares of common stock in shares of the Company also may purchase Class A
shares of the Company if certain conditions set forth in the Statement of
Additional Information are met. For example, Class A shares of the Company and
certain other MLAM-advised mutual funds are offered at net asset value to
shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. who wish to
reinvest the net proceeds from a sale of certain of their shares of common
stock of Merrill Lynch Senior Floating Rate Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges
also may be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A
investors as set forth above under "Eligible Class A Investors".
Class D shares are offered at net asset value without sales charge to an
investor who has a business relationship with a 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,
including information regarding investments by Employee Sponsored Retirement or
Savings Plans, is set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net
asset value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year CDSC,
while Class C shares are subject only to a one year 1.0% CDSC. On the other
hand, approximately eight years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those shares, are automatically converted into Class D shares of the Company
and thereafter will be subject to lower continuing fees. See "Conversion of
Class B Shares to Class D Shares" below. Both Class B and Class C shares are
subject to an account maintenance fee of 0.25% of net assets and a distribution
fee of 0.75% of net assets as discussed below under "Distribution Plans". The
proceeds from the account maintenance fees are used to compensate Merrill Lynch
for providing continuing account maintenance activities.
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<PAGE>
Class B and Class C shares are sold without an initial sales charge so that
the Company will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Company in connection with the sale of 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 its own funds. The combination of the
CDSC and the ongoing distribution fee facilitates the ability of the Company to
sell the Class B and Class C shares without a sales charge being deducted at
the time of purchase. Approximately eight years after issuance, Class B shares
will convert automatically into Class D shares of the Company, which are
subject to an account maintenance fee but no distribution fee; Class B shares
of certain other MLAM-advised mutual funds into which exchanges may be made
convert into Class D shares automatically after approximately ten years. If
Class B shares of the Company are exchanged for Class B shares of another MLAM-
advised mutual fund, the conversion period applicable to the Class B shares
acquired in the exchange will apply, and the holding period for the shares
exchanged will be tacked onto the holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C shares
is limited by the NASD asset-based sales charge rule. See "Limitations on the
Payment of Deferred Sales Charges" below. The proceeds from the ongoing account
maintenance fee are used to compensate Merrill Lynch for providing continuing
account maintenance activities. Class B shareholders of the Company exercising
the exchange privilege described under "Shareholder Services--Exchange
Privilege" will continue to be subject to the Company's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the Class B shares
acquired as a result of the exchange.
Contingent Deferred Sales Charges--Class B Shares. Class B shares which are
redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE
OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT MADE CHARGE
------------------- ----------------
<S> <C>
0-1....................................................... 4.00%
1-2....................................................... 3.00
2-3....................................................... 2.00
3-4....................................................... 1.00
4 and thereafter.......................................... 0.00
</TABLE>
For the fiscal year ended April 30, 1994, the Distributor received CDSCs of
$161,790 with respect to redemptions of Class B shares, all of which were paid
to Merrill Lynch.
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<PAGE>
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).
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of a shareholder. The
Class B CDSC also is waived on redemptions of shares by certain eligible 401(a)
and eligible 401(k) plans and in connection with certain group plans placing
orders through the Merrill Lynch BlueprintSM Program. The CDSC also is waived
for any Class B shares which are purchased by eligible 401(k) or eligible
401(a) plans which are rolled over into a Merrill Lynch or Merrill Lynch Trust
Company custodied IRA and held in such account at the time of redemption. The
Class B CDSC also is waived for any Class B shares which are purchased by
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 distribution.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Company. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution
26
<PAGE>
fee that is borne by Class B shares. Automatic conversion of Class B shares
into Class D shares will occur at least once each month (on the "Conversion
Date") on the basis of the relative net asset values of the shares of the two
classes on the Conversion Date, without the imposition of any sales load, fee
or other charge. Conversion of Class B shares to Class D shares will not be
deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class
D shares of the Company in a single account will result in less than $50 worth
of Class B shares being left in the account, all of the Class B shares of the
Company held in the account on the Conversion Date will be converted to Class D
shares of the Company.
Share certificates for Class B shares of the Company to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert
approximately ten years after initial purchase. If, during the Conversion
Period, a shareholder exchanges Class B shares with an eight-year Conversion
Period for Class B shares with a ten-year Conversion Period, or vice versa, the
Conversion Period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked onto
the holding period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares ("Class B Retirement
Plans"). When the first share of any MLAM-advised mutual fund purchased by a
Class B Retirement Plan has been held for ten years (i.e., ten years from the
date the relationship between MLAM-advised mutual funds and the Class B
Retirement Plan was established), all Class B shares of all MLAM-advised mutual
funds held in that Class B Retirement Plan will be converted into Class D
shares of the appropriate funds. Subsequent to such conversion, that Class B
Retirement Plan will be sold Class D shares of the appropriate funds at net
asset value.
DISTRIBUTION PLANS
The Company has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
"Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Company to the Distributor with respect to such
classes. The Class B and Class C Distribution Plans provide for the payment of
account maintenance fees and distribution fees, and the Class D Distribution
Plan provides for the payment of account maintenance fees.
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<PAGE>
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Company pays the Distributor an account maintenance fee relating to
the shares of the relevant class, accrued daily and paid monthly, at the annual
rate of 0.25% of the average daily net assets of the Company attributable to
shares of the relevant class in order to compensate the Distributor and Merrill
Lynch (pursuant to a sub-agreement) in connection with account maintenance
activities.
The Distribution Plans for Class B and Class C shares each provide that the
Company also pays the Distributor a distribution fee relating to the shares of
the relevant class, accrued daily and paid monthly, at the annual rate of 0.75%
of the average daily net assets of the Company attributable to the shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Company,
including payments to financial consultants for selling Class B and Class C
shares of the Company. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C
shares through dealers without the assessment of an initial sales charge and at
the same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Company in that the deferred sales charges provide for the
financing of the distribution of the Company's Class B and Class C shares.
Prior to July 7, 1993, the Company paid the Distributor an ongoing
distribution fee, accrued daily and paid monthly, at the annual rate of 1.00%
of average daily net assets of the Class B shares of the Company under a
distribution plan previously adopted by the Company (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 April 30, 1994, the Company paid the Distributor
$506,887 pursuant to the Prior Plan and the Class B Distribution Plan (based on
average net assets subject to the Prior Plan and the Class B Distribution Plan
of approximately $50.8 million), all of which was paid to Merrill Lynch for
providing account maintenance and distribution-related activities and services
in connection with Class B shares. The Company did not begin to offer shares of
Class C or Class D publicly until the date of this Prospectus. Accordingly, no
payments have been made pursuant to the Class C or Class D Distribution Plans
prior to the date of this Prospectus. At June 30, 1994, the net assets of the
Company subject to the Class B Distribution Plan aggregated approximately $59.9
million. At this asset level, the annual fee payable pursuant to the Class B
Distribution Plan would aggregate approximately $599,229.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred, and accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSCs and certain other
28
<PAGE>
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, 1993, the fully allocated accrual expenses incurred by the
Distributor and Merrill Lynch for the period since the commencement of the
offering of Class B shares exceeded fully allocated accrual revenues for such
period by approximately $1,141,000 (2.06% of Class B net assets at that date).
As of December 31, 1993, direct cash expenses for the period since commencement
of the offering of Class B shares exceeded direct cash revenues by $14,704
(0.26% of net assets at that date). As of May 31, 1994, direct cash revenues
for the period since commencement of the offering of Class B shares exceeded
direct cash expenses by $109,700 (0.17% of Class B net assets at that date).
The Company has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Directors of the Company will approve the continuance of the
Distribution Plans from year to year. However, the Distributor intends to seek
annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or
distribution of each class of shares separately. The initial sales charges, the
account maintenance fee, the distribution fee and/or the CDSCs received with
respect to one class will not be used to subsidize the sale of shares of
another class. Payments of the distribution fee on Class B shares will
terminate upon conversion of those Class B shares into Class D shares as set
forth under "Deferred Sales Charge Alternatives -- Class B and Class C
Shares --Conversion of Class B Shares to Class D Shares".
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the 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 Company, the maximum sales
charge rule limits the aggregate of distribution fee payments and CDSCs payable
by the Company to (1) 6 1/4% 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 interest charges
at any time. To the extent payments would exceed the voluntary maximum, the
Company will not make further payments of the distribution fee with respect to
Class B shares, and any CDSCs will be paid to the Company rather than to the
Distributor; however, the Company will continue to make payments of the account
maintenance fee. In certain circumstances the amount payable pursuant to the
voluntary maximum 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.
29
<PAGE>
REDEMPTION OF SHARES
The Company is required to redeem for cash all shares of the Company on
receipt of a written request in proper form. The redemption price is the net
asset value per share next determined after the initial receipt of proper
notice of redemption. Except for any CDSC 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 Company at
such time.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by tendering
the shares directly to the Transfer Agent, Financial Data Services, Inc.,
Transfer Agency Mutual Funds Operations, P.O. Box 45289, Jacksonville, Florida
32232-5289. Redemption requests delivered other than by mail should be
delivered to Financial Data Services, Inc., Transfer Agency Mutual Funds
Operations, 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 signatures on the notice must be guaranteed by an
"eligible guarantor institution" (including, for example, Merrill Lynch branch
offices and certain other financial institutions) as such term is defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, the
existence and validity of which may be verified by the Transfer Agent through
the use of industry publications. Notarized signatures are not sufficient. In
certain instances, the Transfer Agent may require additional documents, such
as, but not limited to, trust instruments, death certificates, appointments as
executor or administrator, or certificates of corporate authority. For
shareholders redeeming directly with the Transfer Agent, payment will be mailed
within seven days of receipt of a proper notice of redemption.
At various times the Company may be requested to redeem shares for which it
has not yet received good payment. The Company may delay or cause to be delayed
the mailing of a redemption check until such time as good payment (e.g., cash
or certified check drawn on a U.S. bank) has been collected for the purchase of
such shares. Normally, this delay will not exceed 10 days.
REPURCHASE
The Company also will repurchase shares through a shareholder's listed
securities dealer. The Company normally will accept orders to repurchase shares
by wire or telephone from dealers for their customers at the net asset value
next computed after receipt of the orders 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 on the day received and such request is received
by the Company from such dealer not later than 4:30 p.m., New York time, on the
same day. Dealers have the responsibility of submitting such repurchase
requests to the Company not later than 4:30 p.m., New York time, in order to
obtain that day's closing price.
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<PAGE>
The foregoing repurchase arrangements are for the convenience of shareholders
and do not involve a charge by the Company (other than any applicable CDSC).
Securities firms 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 Company. 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 Company 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 Company 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 Company at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor. 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 Company offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in shares of the
Company. Certain of such services are not available to investors who place
purchase orders for the Company's shares through the Merrill Lynch BlueprintSM
Program. Full details as to such services, copies of the various plans
described below and instructions as to how to participate in the various
services or plans, or to change options with respect thereto, can be obtained
from the Company, the Distributor or Merrill Lynch. Certain of these services
are available only to U.S. investors.
Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive statements, at least
quarterly, from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
statements will also show any other activity in the account since the preceding
statement. Shareholders will receive separate transaction confirmations for
each purchase or sale transaction other than automatic investment purchases and
the reinvestment of ordinary income dividends and long-term capital gain
distributions. A shareholder may make additions to his Investment Account at
any time by mailing a check directly to the Transfer Agent. Shareholders also
may maintain their accounts through Merrill Lynch. Upon the transfer of shares
out of a Merrill Lynch brokerage account, an Investment Account in the
transferring shareholder's name will be opened automatically, without charge,
at the Transfer Agent. Shareholders considering transferring their Class A or
Class D shares from Merrill Lynch to another brokerage firm or financial
institution should be aware that, if the firm to which the Class A or Class D
shares are to be transferred will not take delivery of shares of the Company, a
shareholder either must redeem the Class A or Class D shares (paying any
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<PAGE>
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. 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 Company, a shareholder must either
redeem the shares (paying any applicable CDSC) so that the cash proceeds can be
transferred to the account at the new firm or such shareholder must continue to
maintain a retirement account at Merrill Lynch for those shares.
Systematic Withdrawal Plans. A 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 prearranged
charges of $50 or more to his regular bank account. Investors who maintain
CMA(R) accounts may arrange to have periodic investments made in the Company in
their CMA(R) accounts or in certain related accounts in amounts of $100 or more
through the CMA(R) Automated Investment Program.
Automatic Reinvestment of Dividends and Distributions. All dividends and
capital gains distributions are automatically reinvested in full and fractional
shares of the Company, without sales charge, at the net asset value per share
next determined after the close of the New York Stock Exchange on the ex-
dividend date of such dividend or distribution. A shareholder may at any time,
by written notification to Merrill Lynch if the shareholder's account is
maintained with Merrill Lynch or by written notification or telephone call (1-
800-MER-FUND) to the Transfer Agent if the shareholder's account is maintained
with the Transfer Agent, elect to have subsequent dividends, or both dividends
and capital gains distributions, paid in cash rather than reinvested, in which
event payment will be mailed on or about the payment date. Cash payments can
also be directly deposited to the shareholder's bank account. No CDSC will be
imposed on redemption of shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions. The Automated
Investment Program is not available to shareholders whose shares are held in a
brokerage account with Merrill Lynch (other than a CMA(R) account).
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Company have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated in accordance
with the rules of the Commission.
Under the Merrill Lynch Select PricingSM System, Class A shareholders may
exchange Class A shares of the Company for Class A shares of a second MLAM-
advised mutual fund if the shareholder holds any Class A shares of the second
fund in his account in which the exchange is made at the time of the exchange
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<PAGE>
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 account at the time of the exchange and is not otherwise
eligible to acquire Class A shares of the second fund, the shareholder will
receive Class D shares of the second fund as a result of the exchange. Class D
shares also may be exchanged for Class A shares of a second MLAM-advised mutual
fund at any time as long as, at the time of the exchange, the shareholder holds
Class A shares of the second fund in the account in which the exchange is made
or is otherwise eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the relative
net asset values per Class A or Class D share, respectively, plus an amount
equal to the difference, if any, between the sales charge previously paid on
the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares will be exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Company which are subject to a CDSC will be exchangeable on the
basis of relative net asset value per share without the payment of any CDSC
that might otherwise be due upon redemption of the shares of the Company. For
purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period for the previously owned
shares of the Company is "tacked" to the holding period of the newly acquired
shares of the other Company.
Class A, Class B, Class C and Class D shares also will be 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 ar
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Company exercising the exchange privilege will
continue to be subject to the Company's CDSC schedule if such schedule is
higher than the CDSC schedule relating to the new Class B shares. In addition,
Class B shares of the Company acquired through use of the exchange privilege
will be subject to the Company's CDSC schedule if such schedule is higher than
the CDSC schedule relating to the Class B shares of the MLAM-advised mutual
fund from which the exchange has been made.
Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes. For further information, see "Shareholder Services--Exchange
Privilege" in the Statement of Additional Information.
The Company's exchange privilege is modified with respect to purchases of
Class A and Class D shares under the Merrill Lynch Mutual Fund Adviser ("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
Company 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
Company being acquired in the exchange under the MFA program.
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<PAGE>
PERFORMANCE DATA
From time to time the Company may include its average annual total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with
a formula specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value of such investment at the end of each period. Average annual total return
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses,
including any CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period such as in the case of Class B
and Class C shares and the maximum sales charge in the case of Class A and
Class D shares. Dividends paid by the Company with respect to all shares, to
the extent any dividends are paid, will be calculated in the same manner at the
same time on the same day and will be in the same amount, except that account
maintenance and distribution fees and any incremental transfer agency costs
relating to each class of shares will be borne exclusively by that class. The
Company will include performance data for all classes of shares of the Company
in any advertisement or information including performance data of the Company.
The Company also may quote total return and aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that (1) the rates of
return calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return, and (2) the maximum applicable sales
charges will not be included with respect to annual or annualized rates of
return calculations. Aside from the impact on the performance data calculations
of including or excluding the maximum applicable sales charges, actual annual
or annualized total return data generally will be lower than average annual
total return data since the average annual rates of return reflect compounding;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over longer
periods of time. In advertisements distributed to investors whose purchases are
subject to reduced sales charges in the case of Class A and Class D shares or
waiver of the CDSC in the case of Class B and Class C shares (such as investors
in certain retirement plans), performance data may take into account the
reduced, and not the maximum, sales charge or may not take into account the
CDSC and therefore may reflect greater total return since, due to the reduced
sales charges or waiver of the CDSC, a lower amount of expenses is deducted.
See "Purchase of Shares". The Company's total return may be expressed either as
a percentage or as a dollar amount in order to illustrate the effect of such
total return on a hypothetical $1,000 investment in the Company at the
beginning of each specified period.
Total return figures are based on the Company's historical performance and
are not intended to indicate future performance. The Company's total return
will vary depending on market conditions, the securities comprising the
Company's portfolio, the Company's operating expenses and the amount of
realized and unrealized net capital gains or losses during the period. The
value of an investment in the Company will fluctuate, and an investor's shares,
when redeemed, may be worth more or less than their original cost.
On occasion, the Company may compare its performance to the Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average, or
performance data published by Lipper Analytical Services,
34
<PAGE>
Inc., Morningstar Publications, Inc., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., Forbes Magazine, Fortune
Magazine or other industry publications. In addition, from time to time the
Company may include the Company's risk-adjusted performance ratings assigned by
Morningstar Publications, Inc. in advertising or supplemental sales literature.
As with other performance data, performance comparisons should not be
considered representative of the Company's relative performance for any future
period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Company's intention to distribute all of its net investment income,
if any. Dividends from such net investment income will be paid at least
annually. All net realized long- or short-term capital gains, if any, will be
distributed to the Company's shareholders at least annually. The per share
dividends and distributions on each class of shares will be reduced as a result
of any account maintenance, distribution and transfer agency fees applicable to
that class. See "Additional Information--Determination of Net Asset Value".
Dividends and distributions may be reinvested automatically in shares of the
Company at net asset value without a sales charge. Shareholders may elect in
writing to receive any such dividends or distributions, or both, in cash.
Dividends and distributions are taxable to shareholders as discussed below
whether they are reinvested in shares of the Company or received in cash.
Certain gains or losses attributable to foreign currency gains or losses from
certain forward contracts may increase or decrease the amount of the Company's
income available for distribution to shareholders. If such losses exceed other
income during a taxable year, (a) the Company would not be able to make any
ordinary dividend distributions, and (b) distributions made before the losses
were realized would be recharacterized as a return of capital to shareholders,
rather than as an ordinary dividend, reducing each shareholder's tax basis in
Company shares for Federal income tax purposes. See "Additional Information--
Taxes".
TAXES
The Company 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 Company (but not
its shareholders) will not be subject to Federal income tax on the part of its
net ordinary income and net realized capital gains which it distributes to
Class A, Class B, Class C and Class D shareholders (together, the
"shareholders"). The Company intends to distribute substantially all of such
income.
Dividends paid by the Company from its ordinary income and distributions of
the Company'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 Company's net realized long-term
capital gains (including long-term gains from certain transactions in futures
and options) ("capital gain dividends") are taxable to shareholders as long-
term capital gains, regardless of the length of time the shareholder has owned
Company shares. Distributions in excess of the Company's earnings and profits
will first reduce the adjusted tax basis of a holder's shares, and after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset).
35
<PAGE>
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Company. Not later than 60 days after the close of its
taxable year, the Company will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. A portion of the Company's ordinary income dividends may be eligible
for the dividends received deduction allowed to corporations under the Code, if
certain requirements are met. If the Company pays a dividend in January which
was declared in the previous October, November or December to shareholders of
record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Company and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Company to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% U.S.
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
U.S. withholding tax.
Dividends and interest received by the Company may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Company. If more than 50% in value of the Company's
total assets at the close of its taxable year consists of securities of foreign
corporations, the Company will be eligible, and intends, to file an election
with the Internal Revenue Service pursuant to which shareholders of the Company
will be required to include their proportionate shares of such withholding
taxes in their U.S. income tax returns as gross income, treat such
proportionate shares as taxes paid by them, and deduct such proportionate
shares in computing their taxable incomes or, alternatively, use them as
foreign tax credits against their U.S. income taxes. No deductions for foreign
taxes, however, may be claimed by noncorporate shareholders who do not itemize
deductions. A shareholder that is a nonresident alien individual or a foreign
corporation may be subject to U.S. withholding tax on the income resulting from
the Company's election described in this paragraph but may not be able to claim
a credit or deduction against such U.S. tax for the foreign taxes treated as
having been paid by such shareholder. The Company will report annually to its
shareholders the amount per share of such withholding taxes.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Company or who, to the Company's knowledge, have
furnished an incorrect number. When establishing an account, an investor must
certify under penalty of perjury that such number is correct and that such
investor is not otherwise subject to backup withholding.
Under Code Section 988, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are
not "regulated futures contracts", and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the Company's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, the Company would not be able to make any
ordinary dividend distributions, and any distributions made before the losses
were realized but in the same
36
<PAGE>
taxable year would be recharacterized as a return of capital to shareholders,
thereby reducing the basis of each shareholder's Company shares, and resulting
in a capital gain for any shareholder who received a distribution greater than
such shareholder's basis in Company shares (assuming the shares were held as a
capital asset).
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class D shares. A shareholder's basis in the Class
D shares acquired will be the same as such shareholder's basis in the Class B
shares converted, and the holding period of the acquired Class D shares will
include the holding period for the converted Class B shares.
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 the sales charge paid to the
Company reduces any sales charge the shareholder would have owed upon purchase
of the new shares in the absence of the exchange privilege. Instead, such sales
charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action
either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs which
are derived from interest on U.S. Government obligations. State law varies as
to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers as to Federal, foreign,
state or local taxes. Foreign investors should consider applicable foreign
taxes in their evaluation of an investment in the Company.
DETERMINATION OF NET ASSET VALUE
Net asset value of the shares of all classes of the Company are determined
once daily as of 4:15 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 is computed by dividing the value of the securities held
by the Company plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of shares outstanding at such time. Expenses,
including the fee payable to the Investment Adviser and any account maintenance
and/or distribution fees payable to the Distributor, are accrued daily. The per
share net asset value of Class A shares generally will be higher than
37
<PAGE>
the per share net asset value of shares of the other classes, reflecting the
daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to Class B and Class C shares and
the daily expense accruals of the account maintenance fees applicable with
respect to Class D shares; in addition, the per share net asset value of Class
D shares generally will be higher than the per share net asset value of Class
B and Class C shares, reflecting the daily expense accruals of the
distribution and higher transfer agency fees applicable with respect to Class
B and Class C shares. It is expected, however, that the per share net asset
value of the classes will tend to converge 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. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by
or under the direction of the Board of Directors of the Company.
ORGANIZATION OF THE COMPANY
Until April 27, 1992, the Company was known as Sci/Tech Holdings, Inc.
("Sci/Tech"), a Merrill Lynch sponsored diversified, open-end investment
company. Sci/Tech invested primarily in the equity securities of companies
engaged in science and technology. After receiving the approval of its
shareholders, Sci/Tech transferred all of its technology oriented securities
and certain other assets (and certain of its liabilities) in exchange for all
the shares of Merrill Lynch Technology Fund, Inc. ("Technology Fund") (other
than shares held by Technology Fund's investment adviser representing
Technology Fund's seed capital), which Sci/Tech distributed pro rata to its
shareholders (the "Reorganization"). As part of the Reorganization, Sci/Tech
shareholders approved a change in its investment objective and certain other
matters.
The Company was incorporated under Maryland law on October 29, 1982. It has
an authorized capital of 400,000,000 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, each of which consists of 100,000,000 shares. Shares of
Class A, Class B, Class C and Class D Common Stock represent interests in the
same assets of the Company and are identical in all respects except that Class
B, Class C and Class D shares bear certain expenses 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 Company has received an order from the Commission permitting the
issuance and sale of multiple classes of Common Stock. The Directors of the
Company may classify and reclassify the shares of the Company into additional
classes of Common Stock at a future date.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held and will vote on the election of
Directors and any other matters submitted to a shareholder vote. The Company
does not intend to hold meetings of shareholders in any year in which the
Investment Company Act does not require shareholders to act on any of the
following matters: (i) election of Directors; (ii) approval of an investment
advisory agreement; (iii) approval of a distribution agreement; and (iv)
ratification of
38
<PAGE>
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 Company and in the net assets of
the Company upon liquidation or dissolution after satisfaction of outstanding
liabilities, except that as noted above, the Class B, Class C and Class D
shares bear certain additional expenses. Shareholders may, in accordance with
Maryland law, cause a meeting of shareholders to be held for the purpose of
voting on the removal of Directors at the request of 25% of the outstanding
shares of the Company. A Director may be removed at a special meeting of
shareholders by a vote of a majority of the votes entitled to be cast for the
election of Directors.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts, the shareholder should notify in writing:
Financial Data Services, Inc. Attn: TAMFO 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 Financial Data Services,
Inc. at 1-800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Company at the address or
telephone number set forth on the cover page of this Prospectus.
39
<PAGE>
[This page is intentionally left blank.]
40
<PAGE>
MERRILL LYNCH HEALTHCARE FUND, INC.--AUTHORIZATION FORM (PART 1)
- -------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINTSM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINTSM PROGRAM
APPLICATION BY CALLING (800) 637-3766.
- -------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class C shares [_] Classs D shares
of Merrill Lynch Healthcare 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 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-owner, a joint tenancy with rights of survivorship will be
presumed unless otherwise specified.)
- -------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTION
Ordinary Income Dividends Long-Term Capital Gains
++++++++++++++++++++++++++++++ ++++++++++++++++++++++++++++++
+ Select [_] Reinvest + + Select [_] Reinvest +
+ One: [_] Cash + + One: [_] Cash +
++++++++++++++++++++++++++++++ ++++++++++++++++++++++++++++++
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU:
[_] CHECK OR [_] DIRECT DEPOSIT TO BANK ACCOUNT
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by
direct deposit to my bank account and, if necessary, debit entries and
adjustments for any credit entries made to my account in accordance with the
terms I have selected on the Merrill Lynch Healthcare 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 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.
41
<PAGE>
MERRILL LYNCH HEALTHCARE 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 UNDERREPORTING AND
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS
BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS
CERTIFICATION TO OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
................................... ..........................................
Signature of Owner Signature of Co-Owner (if any)
- -------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
Dear Sir/Madam:
............................, 19......
Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Healthcare 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 Healthcare 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 Healthcare Funds, 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.
+ +
+++ +++ .....................................
This form when completed should be Dealer Name and Address
mailed to:
By...................................
Merrill Lynch Healthcare Fund, Inc. Authorized Signature of Dealer
c/o Financial Data Services, Inc.
Transfer Agency Mutual Funds [_][_][_] [_][_][_][_] .............
Operations Branch-Code F/C No. F/C Last Name
P.O. Box 45289 [_][_][_] [_][_][_][_][_]
Jacksonville, Florida 32232-5289 Dealer's Customer A/C No.
42
<PAGE>
MERRILL LYNCH HEALTHCARE FUND, INC.--AUTHORIZATION FORM (PART 2)
- -------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR
AUTOMATIC INVESTMENT PLANS ONLY.
- -------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION +++++++++++++++++++++++++++++++++
+ +
Name of Owner........................ +++++++++++++++++++++++++++++++++
Social Security No.
Name of Co-Owner (if any)............ or Taxpayer Identification Number
Address.............................. Account Number ......................
(if existing account)
..............................
- -------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND CLASS 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 Healthcare
Fund, Inc., at cost or current offering price. Withdrawals to 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 . . . . . . . . . .(month) or as soon as possible
thereafter.
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 FINANCIAL DATA SERVICES, INC. AMENDING OR TERMINATING
THIS SERVICE.
Specify type of account (check one): [_] checking [_] savings
Name of your Account...........................................................
Bank Name......................................................................
Bank Number................... Account Number..............................
Bank Address...................................................................
...............................................................................
Signature of Depositor............................ Date....................
Signature of Depositor.........................................................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID"
OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHALL ACCOMPANY THIS APPLICATION.
43
<PAGE>
- -------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Financial Data Services, Inc. draw an automated
clearing house ("ACH") debit on my checking account described below each month
to purchase: (choose one)
[_] Class A shares [_] Classs B shares [_] Classs C shares [_] Classs D shares
of Merrill Lynch Healthcare 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.
FINANCIAL DATA SERVICES, INC. AUTHORIZATION TO
HONOR ACH DEBITS
DRAWN BY FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an
ACH debit each month on my bank
account for investment in Merrill
Lynch Healthcare Fund, Inc. as
indicated below: To................................Bank
(Investor's Bank)
Amount of each check or ACH
debit $............................ Bank Address..........................
Account Number ..................... City....... State...... Zip Code......
Please date and invest ACH debits on As a convenience to me, I hereby
the 20th of each month beginning request and authorize you to pay and
charge to my account ACH debits
..................................... drawn on my account by and payable
to Financial Data Services, Inc., I
............................ (month) agree that your rights in respect to
each such debit shall be the same as
or as soon thereafter as possible. if it were a check drawn on you and
signed personally by me. This
authority is to remain in effect
I agree that you are drawing these until revoked by me in writing.
ACH debits voluntarily at my request Until you receive such notice, you
and that you shall not be liable for shall be fully protected in honoring
any loss arising from any delay in any such debit. I further agree that
preparing or failure to prepare any if any such debit be dishonored,
such check or debit. If I change whether with or without cause and
banks or desire to desire to whether intentionally or
terminate or suspend this program, I inadvertently, you shall be under no
agree to notify you promptly in liability.
writing. I hereby authorize you to
take any action to correct erroneous ...... .........................
ACH debits of my bank account or Date Signature of Depositor
purchases of fund shares including
liquidating shares of the Fund and
credit my bank account. I further
agree that if a check or debit is not .............. .........................
honored upon presentation, Financial Bank Account Signature of Depositor
Data Services, Inc. is authorized to Number (If joint account,
discontinue immediately the Automatic both must sign)
Investment Plan and to liquidate
sufficient shares held in my account
to offset the purchase made with the
returned check or dishonored debit.
...... ...............................
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.
44
<PAGE>
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45
<PAGE>
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46
<PAGE>
INVESTMENT ADVISER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Mutual Funds Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
The Chase Manhattan Bank, N.A.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, New York 11245
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE INVESTMENT ADVISER OR THE DISTRIBU-
TOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 2
Merrill Lynch Select PricingSM System...................................... 3
Financial Highlights....................................................... 7
Risk Factors and Special Considerations.................................... 9
Investment Objective and Policies.......................................... 11
Hedging Techniques........................................................ 12
Other Investment Practices................................................ 17
Investment Restrictions................................................... 18
Management of the Company.................................................. 19
Board of Directors........................................................ 19
Advisory and Management Arrangements...................................... 20
Transfer Agency Services.................................................. 20
Purchase of Shares......................................................... 21
Initial Sales Charge Alternatives--
Class A and Class D Shares............................................... 23
Deferred Sales Charge Alternatives--
Class B and Class C Shares............................................... 24
Distribution Plans........................................................ 27
Limitations on the Payment of Deferred Sales Charges...................... 29
Redemption of Shares....................................................... 30
Redemption................................................................ 30
Repurchase................................................................ 30
Reinstatement Privilege--
Class A and Class D Shares............................................... 31
Shareholder Services....................................................... 31
Exchange Privilege........................................................ 32
Performance Data........................................................... 34
Additional Information..................................................... 35
Dividends and Distributions............................................... 35
Taxes..................................................................... 35
Determination of Net Asset Value.......................................... 37
Organization of the Company............................................... 38
Shareholder Reports....................................................... 39
Shareholder Inquiries..................................................... 39
Authorization Form......................................................... 41
</TABLE>
Code # 10166-1094
Prospectus
ART
=======================
MERRILL LYNCH
HEALTHCARE FUND, INC.
October 21, 1994
Distributor: Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH HEALTHCARE FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Healthcare Fund, Inc. (the "Company") is a non-diversified,
open-end investment company seeking long-term capital appreciation through
worldwide investment in equity securities of companies that, in the opinion of
management, derive or are expected to derive a substantial portion of their
sales from products and services in healthcare. The Company will pursue its
investment objective by investing in a global portfolio of securities of
companies in various stages of development. It is presently contemplated that
the Company's assets will be primarily invested in the United States, Japan and
Western Europe. Until the Company changed its investment objective on April 27,
1992, the Company was known as Sci/Tech Holdings, Inc.
Pursuant to the Merrill Lynch Select PricingSM System, the Company offers
four classes of shares each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select PricingSM System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares and other relevant circumstances.
----------------
This Statement of Additional Information of the Company is not a prospectus
and should be read in conjunction with the Prospectus of the Company, dated
October 21, 1994 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission and can be obtained, without charge, by calling or by
writing the Company at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
----------------
MERRILL LYNCH ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
----------------
The date of this Statement of Additional Information is October 21, 1994
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek long-term capital
appreciation through worldwide investment in equity securities of companies
that, in the opinion of management, derive or are expected to derive a
substantial portion of their sales from products and services in healthcare.
Reference is made to "Investment Objective and Policies" in the Prospectus for
a discussion of the investment objective and policies of the Company.
HEALTHCARE
The Company will invest in companies that are substantially engaged in the
design, manufacture or sale of products or services used for or in connection
with healthcare or medicine. Such companies may be in a variety of industries
and may include pharmaceutical companies; companies that design, manufacture,
sell or supply medical, dental and optical products, hardware or services;
companies involved in biotechnology, medical diagnostic, and biochemical
research and development; and companies involved in the ownership and/or
operation of healthcare facilities. While rapid changes in healthcare present
attractive opportunities for investment in companies in this field, such
companies may face the risk that their products or services may not prove to be
commercially successful or may be rendered obsolete by further scientific and
technological developments. The value of the Company's investment in a company
whose products are not commercially successful or are rendered obsolete may
decrease substantially. See "Risk Factors and Special Considerations" in the
Prospectus.
INTERNATIONAL DIVERSIFICATION
The securities markets of many countries have at times in the past moved
relatively independently of one another due to different economic, financial,
political and social factors. When such lack of correlation, or negative
correlation, in movements of these securities markets occurs, it may reduce
risk for the Company's portfolio as a whole. This negative correlation also may
offset unrealized gains the Company has derived from movements in a particular
market. To the extent the various markets move independently, total portfolio
volatility is reduced when the various markets are combined into a single
portfolio. Of course, movements in the various securities markets may be offset
by changes in foreign currency exchange rates. Exchange rates frequently move
independently of securities markets in a particular country. As a result, gains
in a particular securities market may be affected by changes in exchange rates.
TYPES OF PORTFOLIO COMPANIES
The Company will attempt to maximize opportunity and reduce risk by investing
in a portfolio of companies in different stages of development. Portfolio
companies will range from large, well-established companies to medium-sized
companies and smaller, less seasoned companies in an earlier stage of
development.
Investments in larger companies present certain advantages attributable to
their greater financial resources: more extensive research and development,
manufacturing, marketing and service capabilities, more stability and greater
depth of management and technical personnel. Investments in smaller, less
seasoned companies may present greater opportunities for growth but also
involve greater risks than customarily are associated with more established
companies. The securities of smaller companies may be subject to more abrupt or
erratic market movements than larger, more established companies. These
companies may have
2
<PAGE>
limited product lines, markets or financial resources, or they may be dependent
upon a limited management group. Their securities may be traded only in the
over-the-counter market or on a regional securities exchange and may not be
traded every day or in the volume typical of trading on a national securities
exchange. As a result, the disposition by the Company of portfolio securities
to meet redemptions or otherwise may require the Company to sell these
securities at a discount from market prices or during periods when such
disposition is not desirable or to make many small sales over a lengthy period
of time.
The Company may invest up to 10% of its assets (together with all other
illiquid investments) in venture capital investments in new and early-stage
companies whose securities are not publicly traded. Venture capital investments
may present significant opportunities for capital appreciation but involve a
high degree of business and financial risk that can result in substantial
losses and should be considered as speculative investments. The Company's
venture capital investments may include limited partnership interests. The
disposition of U.S. venture capital investments normally will be restricted
under Federal securities laws. Generally, restricted securities may be sold
only in privately negotiated transactions or in public offerings registered
under the Securities Act of 1933, as amended (the "Securities Act"). The
Company also may be subject to restrictions contained in the securities laws of
other countries in disposing of portfolio securities. As a result, the Company
may be unable to dispose of such investments at times when such disposition
ordinarily would be deemed appropriate due to investment or liquidity
considerations. Alternatively, the Company may be forced to dispose of such
investments at less than their fair market value. Where registration is
required, the Company may be obligated to pay part or all of the expenses of
such registration. Market quotations may not be readily available for such
securities and, for purposes of determining the offering and redemption prices
of Company shares, these investments will be valued at fair value. See
"Determination of Net Asset Value".
OTHER FACTORS
The Company may invest in securities subject to repurchase agreements with
banks or securities firms, which are instruments under which the purchaser
(i.e., the Company) acquires a debt security and the seller agrees, at the time
of sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the purchaser's holding period. The
underlying securities are limited to those which otherwise qualify for
investment by the Company. In the event of default by the seller under a
repurchase agreement, the Company may suffer time delays and incur costs or
losses in connection with the disposition of the underlying securities. The
Company will not enter into a repurchase agreement if, as a result thereof,
more than 10% of its net assets would be invested in illiquid securities,
including repurchase agreements maturing in more than seven days.
The Company may invest in the securities of foreign issuers in the form of
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs),
Global Depositary Receipts (GDRs) or other securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. GDRs are receipts issued globally, typically by banking
institutions, and evidence a similar ownership arrangement. Generally, ADRs, in
registered form, are designed for use in the U.S. securities markets and EDRs,
in bearer form, are designed for use in European securities markets. GDRs are
tradeable both in the U.S. and Europe and are designed for use throughout the
world. The Company may invest in unsponsored ADRs. The issuers
3
<PAGE>
of unsponsored ADRs are not obligated to disclose material information in the
U.S. and, therefore, there may not be a correlation between such information
and the market value of such ADRs.
While it is the policy of the Company generally not to engage in trading for
short-term gains, the Investment Adviser will effect portfolio transactions
without regard to holding period if, in its judgment, such transactions are
advisable in light of a change in circumstances of a particular company or
within a particular industry or in general market, economic or financial
conditions. As a result of the investment policies described in the Prospectus,
under certain market conditions the Company's portfolio turnover may be higher
than that of other investment companies; however, it is extremely difficult to
predict portfolio turnover rates with any degree of accuracy. The portfolio
turnover rate is calculated by dividing the lesser of the Company's annual
sales or purchases of portfolio securities (exclusive of purchases or sales of
U.S. Government securities and of all other securities whose maturities at the
time of acquisition were one year or less) by the monthly average value of the
securities in the portfolio during the year. During the fiscal years ended
April 30, 1993 and 1994, the Company's portfolio turnover rates were 103.06%
and 133.58%, respectively. The Company is subject to the Federal income tax
requirement that less than 30% of the Company's gross income be derived from
gains from the sale or other disposition of securities held for less than three
months. See "Investment Objective and Policies--Other Investment Practices--
Portfolio Turnover" in the Prospectus.
HEDGING TECHNIQUES
Reference is made to the discussion under the caption "Investment Objective
and Policies--Hedging Techniques" in the Prospectus for information with
respect to various portfolio strategies involving options and futures. The
Company may seek to hedge its portfolio against movements in the equity
markets, interest rates and exchange rates between currencies through the use
of options and futures transactions and forward foreign exchange transactions.
The Company has authority to write (i.e., sell) covered call options on its
portfolio securities, purchase put options on securities and engage in
transactions in stock index options, stock index futures and financial futures,
and related options on such futures. The Company may also deal in forward
foreign exchange transactions and forward currency options and futures and
related options on such futures. The Company is authorized to enter into such
options and futures transactions either on exchanges or in the over-the-counter
("OTC") markets. Each of such portfolio strategies is described in the
Prospectus. Although certain risks are involved in options and futures
transactions (as discussed in the Prospectus and below), the Investment Adviser
believes that, because the Company will only engage in these transactions for
hedging purposes, the options and futures portfolio strategies of the Company
will not subject the Company to the risks frequently associated with the
speculative use of options and futures transactions. While the Company's use of
hedging strategies is intended to reduce the volatility of the net asset value
of its shares, the net asset value of the Company's shares will fluctuate.
There can be no assurance that the Company's hedging transactions will be
effective. The following is further information relating to portfolio
strategies involving options and futures the Company may utilize.
Hedging Investment and Interest Rate Risks. The Company may write (i.e.,
sell) covered call options on the equity securities in which it may invest and
may enter into closing purchase transactions with respect to certain of such
options. Covered call options serve as a partial hedge against the decline in
price of the underlying security. A covered call option is an option where the
Company, in return for a premium, gives another party a right to buy specified
securities owned by the Company at a specified future date and price set at the
time of the contract. By writing covered call options, the Company gives up the
opportunity, while the option is in effect, to profit from any price increase
in the underlying security above the option exercise price. In addition, the
Company's ability to sell the underlying security will be limited while the
option is in
4
<PAGE>
effect unless the Company effects a closing purchase transaction. A closing
purchase transaction cancels out the Company's position as the writer of an
option by means of an offsetting purchase of an identical option prior to the
expiration of the option it has written. The writer of a covered call option
has no control over when he may be required to sell his securities since he may
be assigned an exercise notice at any time prior to the termination of his
obligation as a writer. If an option expires unexercised, the writer realizes a
gain in the amount of the premium. Such a gain, of course, may be offset by a
decline in the market value of the underlying security during the option
period. If a call option is exercised, the writer realizes a gain or loss from
the sale of the underlying security.
The Company may also purchase put options to hedge against a decline in the
market value of its equity holdings. By buying a put, the Company has a right
to sell the underlying security at the exercise price, thus limiting the
Company's risk of loss through a decline in the market value of the security
until the put option expires. The amount of any appreciation in the value of
the underlying security will be offset partially by the amount of the premium
paid for the put option and any related transaction costs. Prior to its
expiration, a put option may be sold in a closing sale transaction and profit
or loss from the sale will depend on whether the amount received is more or
less than the premium paid for the put option plus the related transaction
cost. A closing sale transaction cancels out the Company's position as the
purchaser of an option by means of an offsetting sale of an identical option
prior to the expiration of the option it has purchased.
The Company also may engage in transactions in stock index options and
futures, financial futures in U.S. and foreign agency and government securities
and corporate debt securities, and related options on such futures. A futures
contract is an agreement between two parties to buy and sell a security or, in
the case of an index-based futures contract, to make and accept a cash
settlement for a set price on a future date. A majority of transactions in
futures contracts, however, do not result in the actual delivery of the
underlying instrument or cash settlement, but are settled through liquidation,
i.e., by entering into an offsetting transaction. Futures contracts have been
designed by boards of trade which have been designated "contracts markets" by
the Commodity Futures Trading Commission ("CFTC").
The purchase or sale of a futures contract differs from the purchase or sale
of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is generally about 5% of the contract amount, must be
deposited with the broker. This amount is known as "initial margin" and
represents a "good faith" deposit assuring the performance of both the
purchaser and seller under the futures contract. Subsequent payments to and
from the broker, called "variation margin", are required to be made on a daily
basis as the price of the futures contracts fluctuates, making the long and
short positions in the futures contracts more or less valuable, a process known
as "mark to market". At any time prior to the settlement date of the futures
contract, the position may be closed out by taking an opposite position which
will operate to terminate the position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker, and the purchaser realizes a loss or
gain. In addition, a nominal commission is paid on each completed sale
transaction.
The Company has received an order from the Securities and Exchange Commission
exempting it from the provisions of Section 17(f) and Section 18(f) of the
Investment Company Act of 1940, as amended (the "Investment Company Act"), in
connection with its strategy of investing in futures contracts. Section 17(f)
relates to the custody of securities and other assets of an investment company
and may be deemed to prohibit certain arrangements between the Company and
commodities brokers with respect to initial and variation margin. Section 18(f)
of the Investment Company Act prohibits an open-end investment company such as
5
<PAGE>
the Company from issuing a "senior security" other than a borrowing from a
bank. The staff of the Securities and Exchange Commission has in the past
indicated that a futures contract may be a "senior security" under the
Investment Company Act.
Risk Factors in Options and Futures Transactions. Utilization of options and
futures transactions involves the risk of imperfect correlation in movements in
the prices of options and futures contracts and movements in the prices of the
securities or currencies which are the subject of the hedge. If the price of
the options and futures contract moves more or less than the prices of the
hedged securities or currencies, the Company will experience a gain or loss
which will not be completely offset by movements in the prices of the
securities or currencies which are the subject of the hedge. The successful use
of options and futures also depends on the Investment Adviser's ability to
predict correctly price movements in the market involved in a particular
options or futures transaction.
Prior to exercise or expiration, an exchange-traded option position can only
be terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange for call or put options of the same
series. The Company will enter into an option or futures transaction on an
exchange only if there appears to be a liquid secondary market for such options
or futures. However, there can be no assurance that a liquid secondary market
will exist for any particular call or put option or futures contract at any
specific time. Thus, it may not be possible to close an option or futures
position. In the case of a futures position or an option on a futures position
written by the Company, in the event of adverse price movements, the Company
would continue to be required to make daily cash payments of variation margin.
In such situations, if the Company has insufficient cash, it may have to sell
portfolio securities to meet daily variation margin requirements at a time when
it may be disadvantageous to do so. In addition, the Company may be required to
take or make delivery of the currency underlying futures contracts it holds.
The inability to close options and futures positions also could have an adverse
impact on the Company's ability to effectively hedge its portfolio. There is
also the risk of loss by the Company of margin deposits in the event of
bankruptcy of a broker with whom the Company has an open position in a futures
contract or related option. The risk of loss from investing in futures
transactions is theoretically unlimited.
The exchanges on which the Company intends to conduct options transactions
have generally established limitations governing the maximum number of call or
put options on the same underlying currency (whether or not covered) which may
be written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). "Trading limits" are imposed on the maximum number of contracts which
any person may trade on a particular trading day. An exchange may order the
liquidation of positions found to be in violation of these limits, and it may
impose other sanctions or restrictions. The Investment Adviser does not believe
that these trading and position limits will have any adverse impact on the
portfolio strategies for hedging the Company's portfolio.
Hedging Foreign Currency Risks. Generally, the foreign exchange transactions
of the Company will be conducted on a spot, i.e., cash, basis at the spot rate
then prevailing for purchasing or selling currency in the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than 1/10 of 1% due to the costs of
converting from one currency to another. However, the Company has authority to
deal in forward foreign exchange between currencies of Far Eastern, European
and Western Pacific countries and the dollar as a hedge against possible
variations in the foreign exchange rate between these currencies. This is
accomplished through contractual agreements to purchase or to sell a specified
currency at a specified future date and price set at the time of the contract.
The Company's
6
<PAGE>
dealings in forward foreign exchange will be limited to hedging involving
either specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward foreign currency with respect to specific
receivables or payables of the Company accruing in connection with the purchase
and sale of its portfolio securities, the sale and redemption of shares of the
Company or the payment of dividends and distributions by the Company. Position
hedging is the sale of forward foreign currency with respect to portfolio
security positions denominated or quoted in such foreign currency. The Company
will not speculate in forward foreign exchange. All dealings in forward
exchange will be limited to contracts involving currencies of Far Eastern,
European and Western Pacific countries and the dollar. The Company may not
position hedge with respect to the currency of a particular country to an
extent greater than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or quoted in that
particular foreign currency. If the Company enters into a position hedging
transaction, its custodian will place cash or liquid equity or debt securities
in a separate account of the Company in an amount equal to the value of the
Company's total assets committed to the consummation of such forward contract.
If the value of the securities placed in the separate account declines,
additional cash or securities will be placed in the account so that the value
of the account will equal the amount of the Company's commitment with respect
to such contracts. The Company will not attempt to hedge all of its portfolio
positions and will enter into such transaction only to the extent, if any,
deemed appropriate by the Investment Adviser. The Company will not enter into a
position hedging commitment if, as a result thereof, the Company would have
more than 15% of the value of its assets committed to such contracts. The
Company will not enter into a forward contract with a term of more than one
year.
As discussed in the Prospectus, the Company may also purchase or sell listed
or OTC foreign currency options, foreign currency futures and related options
on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the price of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Company to hedge against a devaluation that is
so generally anticipated that the Company is not able to contract to sell the
currency at a price above the devaluation level it anticipates. It is possible
that, under certain circumstances, the Company may have to limit its currency
transactions to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"); in this regard, the Company
presently intends to limit its gross income from currency hedging transactions
to less than 10% of its gross income in any taxable year until such time as the
Company determines that income from the transaction is not subject to this
restriction. The cost to the Company of engaging in foreign currency
transactions varies with such factors as the currencies involved, the length of
the contract period and the market conditions then prevailing. Since
transactions in foreign currency exchange usually are conducted on a principal
basis, no fees or commissions are involved.
The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such
as the Company. If such restrictions should be reinstituted, it might become
necessary for the Company to invest all or substantially all of its assets in
U.S. securities. In such event, the Company would review its investment
objective and investment policies to determine whether changes are appropriate.
The Company's ability and decisions to purchase or sell portfolio securities
may be affected by laws or regulations relating to the convertibility and
repatriation of assets. Because the shares of the Company are
7
<PAGE>
redeemable on a daily basis in U.S. dollars, the Company intends to manage its
portfolio so as to give reasonable assurance that it will be able to obtain
U.S. dollars to the extent necessary to meet anticipated redemptions. Under
present conditions, it is not believed that these considerations will have any
significant effect on its portfolio strategy.
CURRENT INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the Prospectus, the
Company has adopted the following restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies and
may not be changed without the approval of the holders of a majority of the
Company's outstanding voting securities (which for this purpose and under the
Investment Company Act means the lesser of (i) 67% of the shares represented at
a meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares). The Company may not:
1. Make investments for the purpose of exercising control or management.
2. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies where no underwriter or dealer's commission or profit, other than
customary broker's commission, is involved and only if immediately
thereafter not more than 10% of the Company's total assets, taken at market
value, would be invested in such securities.
3. Purchase or sell real estate, provided that the Company may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that the
Company may deal in forward foreign exchange between currencies of the
different countries in which it may invest and the Company may purchase or
sell stock index and currency options, stock index futures, financial
futures and currency futures contracts and related options on such futures.
5. Purchase any securities on margin, except that the Company may obtain
such short-term credit as may be necessary for the clearance of purchase
and sales of portfolio securities, or make short sales of securities or
maintain a short position. The payment by the Company of initial or
variation margin in connection with futures or related options
transactions, if applicable, shall not be considered the purchase of a
security on margin. Also, engaging in futures transactions and related
options will not be deemed a short sale or maintenance of a short position
in securities.
6. Make loans to other persons (except as provided in (7) below);
provided that for purposes of this restriction the acquisition of bonds,
debentures, or other corporate debt securities and investment in Government
obligations, short-term commercial paper, certificates of deposit, bankers'
acceptances and repurchase agreements shall not be deemed to be the making
of a loan.
7. Lend its portfolio securities in excess of 10% of its total assets,
taken at market value, provided that such loans shall be made in accordance
with the guidelines set forth below.
8. Borrow amounts in excess of 10% of its total assets, taken at market
value, and then only from banks as a temporary measure for extraordinary or
emergency purposes such as the redemption of Company shares. Utilization of
borrowings may exaggerate increases or decreases in an investment company's
net asset value. However, the Company will not purchase securities while
borrowings are outstanding except to exercise prior commitments and to
exercise subscription rights. (See restriction (9) below regarding the
exclusion from this restriction of arrangements with respect to options,
futures contracts and options on futures contracts.)
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9. Mortgage, pledge, hypothecate or in any manner transfer (except as
provided in (7) above), as security for indebtedness, any securities owned
or held by the Company except as may be necessary in connection with
borrowings mentioned in (8) above, and then such mortgaging, pledging or
hypothecating may not exceed 10% of the Company's total assets, taken at
market value. (In order to comply with certain state statutes, the Company
will not, as a matter of operating policy, mortgage, pledge or hypothecate
its portfolio securities to the extent that at any time the percentage of
the value of pledged securities plus the maximum sales charge will exceed
10% of the value of the Company's shares at the maximum offering price.)
(For the purpose of this restriction and restriction (8) above, collateral
arrangements with respect to the writing of options, futures contracts,
options on futures contracts, and collateral arrangements with respect to
initial and variation margin are not deemed to be a pledge of assets, and
neither such arrangements nor the purchase and sale of options, futures or
related options are deemed to be the issuance of a senior security.)
10. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which are not otherwise readily marketable
if, regarding all such securities, more than 10% of its total assets, taken
at market value, would be invested in such securities.
11. Underwrite securities of other issuers, except insofar as the Company
may be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities.
12. Purchase or sell interests in oil, gas or other mineral exploration
or development programs.
Subject to investment restriction (7) above, the Company may from time to
time lend securities from its portfolio to brokers, dealers and financial
institutions such as banks and trust companies and receive collateral in cash
or securities issued or guaranteed by the U.S. Government which will be
maintained in an amount equal to at least 100% of the current market value of
the loaned securities. Such cash will be invested in short-term securities,
which will increase the current income of the Company. Such loans will not be
for more than 30 days and will be terminable at any time. The Company will have
the right to regain ownership of loaned securities to exercise beneficial
rights such as voting rights, subscription rights and rights to dividends,
interest or other distributions. The Company may pay reasonable fees to persons
unaffiliated with the Company for services in arranging such loans. With
respect to the lending of portfolio securities, there is the risk of failure by
the borrower to return the securities involved in such transactions.
With respect to investment restriction (10) above, while the Company will not
purchase illiquid securities in an amount exceeding 10% of its assets, the
Company may purchase, without regard to that limitation, and to the extent
permitted by applicable state law, securities that are not registered under the
Securities Act but that can be offered and sold to "qualified institutional
buyers" under Rule 144A under that Act, provided that the Company's Board of
Directors continuously determines, based on the trading markets for the
specific Rule 144A security, that it is liquid. The Board of Directors may
adopt guidelines regarding such securities which may be held by the Company and
delegate to the Investment Adviser the daily function of determining and
monitoring liquidity of such securities. The Board of Directors, however, will
retain oversight and is ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how this market
for restricted securities sold and offered under Rule 144A will develop, the
Board of Directors will carefully monitor the Company's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the
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Company to the extent that qualified institutional buyers became for a time
uninterested in purchasing these securities.
The Board of Directors has established a non-fundamental policy that the
Company will not purchase or retain the securities of any issuer if those
individual officers and directors of the Company, the officers and general
partner of the Investment Adviser, the directors of such general partner or the
officers and directors of Merrill Lynch Funds Distributor, Inc. (the
"Distributor"), each owning beneficially more than one-half of 1% of the
securities of such issuer, own in the aggregate more than 5% of the securities
of such issuer. Portfolio securities of the Company may not be purchased from,
sold or loaned to the Investment Adviser or its affiliates or any of their
directors, general partners, officers or employees, acting as principal.
The Company has adopted a non-fundamental policy pursuant to which it will
not invest in securities of issuers having a record, together with
predecessors, of less than three years of continuous operation if more than 10%
of the Company's total assets, taken at market value, would be invested in such
securities. To the extent required by any applicable state law, however, as is
presently the case, the Company intends to limit such investments to 5% of its
total assets. In addition, the Company has adopted a non-fundamental policy
pursuant to which it will not invest in warrants if, at the time of
acquisition, its investment in warrants, valued at the lower of cost or market
value, would exceed 5% of the Company's net assets; included within such
limitation, but not to exceed 2% of the Company's net assets, are warrants
which are not listed on the New York or American Stock Exchanges. For purposes
of this policy, warrants acquired by the Company in units or attached to
securities may be deemed to be without value. The Company has also adopted a
non-fundamental policy pursuant to which it will not invest in real estate
limited partnerships. The policies set forth in this paragraph may be amended
without the approval of the Company's shareholders.
The staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased OTC options and the assets used as cover for
written OTC options are illiquid securities. Therefore, the Company has adopted
an investment policy pursuant to which it will not purchase or sell OTC options
if, as a result of such transaction, the sum of the market value of OTC options
currently outstanding which are held by the Company, the market value of the
underlying securities covered by OTC call options currently outstanding which
were sold by the Company and margin deposits on the Company's existing OTC
options on futures contracts exceeds 10% of the net assets of the Company,
taken at market value, together with all other assets of the Company which are
illiquid or are not otherwise readily marketable. However, if the OTC option is
sold by the Company to a primary U.S. Government securities dealer recognized
by the Federal Reserve Bank of New York and the Company has the unconditional
contractual right to repurchase such OTC option from the dealer at a
predetermined price, then the Company will treat as illiquid such amount of the
underlying securities as is equal to the repurchase price less the amount by
which the option is "in-the-money" (i.e., current market value of the
underlying securities minus the option's strike price). The repurchase price
with the primary dealers is typically a formula price which is generally based
on a multiple of the premium received for the option, plus the amount by which
the option is "in-the-money". This policy as to OTC options is not a
fundamental policy of the Company and may be amended by the Board of Directors
of the Company without the approval of the Company's shareholders. However, the
Company will not change or modify this policy prior to the change or
modification by the Commission staff of its position.
Because of the affiliation of the Investment Adviser with the Company, the
Company is prohibited from engaging in certain transactions involving such firm
or its affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Portfolio Transactions
10
<PAGE>
and Brokerage". Without such an exemptive order, the Company would be
prohibited from engaging in portfolio transactions with the Investment Adviser
or any of its affiliates acting as principal and from purchasing securities in
public offerings which are not registered under the Securities Act in which
such firm or any of its affiliates participate as an underwriter or dealer.
The investment restrictions set forth in the Prospectus contain an exception
that permits the Company to purchase securities pursuant to the exercise of
subscription rights, subject to the condition that such purchase will not
result in the Company ceasing to be a diversified investment company within the
meaning of the Code. Japanese and European corporations frequently issue
additional capital stock by means of subscription rights offerings to existing
shareholders at a price substantially below the market price of the shares. The
failure to exercise such rights would result in the Company's interest in the
issuing company being diluted. The market for such rights is not well
developed, and accordingly, the Company may not always realize full value on
the sale of rights. Therefore, the exception applies in cases where the limits
set forth in the investment restrictions in the Prospectus would otherwise be
exceeded by exercising rights or have already been exceeded as a result of
fluctuations in the market value of the Company's portfolio securities with the
result that the Company would otherwise be forced either to sell securities at
a time when it might not otherwise have done so or to forego exercising the
rights.
Proposed Uniform Investment Restrictions. As discussed in the Prospectus
under "Investment Objective and Policies--Investment Restrictions", the Board
of Directors of the Company has approved the replacement of the Company's
existing investment restrictions with the fundamental and non-fundamental
investment restrictions set forth below. These uniform investment restrictions
have been proposed for adoption by all of the non-money market mutual funds
advised by Fund Asset Management, L.P. ("FAM") or its affiliate, Merrill Lynch
Asset Management, L.P. ("MLAM" or the "Investment Adviser"). The investment
objective and policies of the Company will be unaffected by the adoption of the
proposed investment restrictions.
Shareholders of the Company are currently considering whether to approve the
proposed revised investment restrictions. If such shareholder approval is
obtained, the Company's current investment restrictions will be replaced by the
proposed restrictions, and the Company's Prospectus and Statement of Additional
Information will be supplemented to reflect such change.
Under the proposed fundamental investment restrictions, the Company may not:
1. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control or management.
3. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Company may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Company may lend its portfolio securities, provided that
the lending of portfolio securities may be made only in accordance with
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<PAGE>
applicable law and the guidelines set forth in the Company's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that (i) the Company may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Company may borrow
up to an additional 5% of its total assets for temporary purposes, (iii)
the Company may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the
Company may purchase securities on margin to the extent permitted by
applicable law. The Company may not pledge its assets other than to secure
such borrowings or, to the extent permitted by the Company's investment
policies as set forth in its Prospectus and Statement of Additional
Information, as they may be amended from time to time, in connection with
hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.
7. Underwrite securities of other issuers except insofar as the Company
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act"), in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to
the extent that the Company may do so in accordance with applicable law and
the Company's Prospectus and Statement of Additional 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 proposed non-fundamental investment restrictions, the Company may
not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except to
the extent permitted by applicable law. The Company currently does not
intend to engage in short sales, except short sales "against the box".
c. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which cannot otherwise be marketed, redeemed
or put to the issuer or a third party, if at the time of acquisition more
than 15% of its total assets would be invested in such securities. This
restriction shall not apply to securities which mature within seven days or
securities which the Board of Directors of the Company has otherwise
determined to be liquid pursuant to applicable law. Notwithstanding the 15%
limitation herein, to the extent the laws of any state in which the
Company's shares are registered or qualified for sale require a lower
limitation, the Company will observe such limitation. As of the date
hereof, therefore, the Company 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
(a "Rule 144A security") and determined to be liquid by the Company's Board
of Directors are not subject to the limitations set forth in this
investment restriction (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 if
restrictions as to resale. To the extent required by Ohio law, the Company
will not invest more than 5% of its total assets in securities of issuers
that are restricted as to disposition, including Rule 144A securities.
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<PAGE>
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 Company's net assets. Included within such limitation, but not to
exceed 2% of the Company'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
Company 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 Company'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 Company, the officers and general partner of
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 Company 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 Company's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
i. Notwithstanding fundamental investment restriction (6) above, borrow
amounts in excess of 10% of its total assets, taken at market value, and
then only from banks as a temporary measure for extraordinary or emergency
purposes such as the redemption of Company shares. In addition, the Company
will not purchase securities while borrowings are outstanding except to
exercise prior commitments and to exercise subscription rights.
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
The Directors and executive officers of the Company 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--President and Director(1)(2)--President of the Investment
Adviser (which term as used herein includes its corporate predecessors) since
1977 and Chief Investment Officer since 1976; President of Fund Asset
Management, L.P. ("FAM") (which term as used herein includes its corporate
predecessors) since 1977 and Chief Investment Officer since 1976; President and
Director of Princeton Services, Inc. ("Princeton Services") since 1993;
Executive Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") since 1990 and a Senior Vice President thereof from 1985 to
1990; Executive Vice President of Merrill Lynch & Co., Inc. ("ML&Co.") since
1990; Director of the Distributor.
Donald Cecil--Director(2)--1114 Avenue of the Americas, New York, New York
10036. Special Limited Partner of Cumberland Partners (an investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
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Edward H. Meyer--Director(2)--777 Third Avenue, New York, New York 10017.
President of Grey Advertising Inc. since 1968, Chief Executive Officer since
1970 and Chairman of the Board of Directors since 1972; Director of The May
Department Stores Company, Bowne & Co., Inc. (financial printers), Ethan Allen
Interiors Inc. and Harman International Industries, Inc.
Charles C. Reilly--Director(2)--9 Hampton Harbor Road, Hampton Bays, New York
11946. Self-employed financial consultant since 1990; President and Chief
Investment Officer of Verus Capital, Inc. from 1979 to 1990; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business since 1990; Adjunct
Professor, Wharton School, University of Pennsylvania, 1990; Director, Harvard
Business School Alumni Association.
Richard R. West--Director(2)--482 Tepi Drive, Southbury, Connecticut 06488.
Professor of Finance since 1984, and Dean from 1984 to 1993, New York
University Leonard N. Stern School of Business Administration; Director of Re
Capital Corp. (reinsurance holding company), Bowne & Co., Inc. (financial
printers), Vornado, Inc. (real estate holding company), Smith-Corona
Corporation (manufacturer of typewriters and word processors) and Alexander's,
Inc. (real estate company).
Terry K. Glenn--Executive Vice President(1)(2)--Executive Vice President of
the Investment Adviser and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President and Director of the
Distributor since 1986.
Norman R. Harvey--Senior Vice President(1)(2)--Senior Vice President of the
Investment Adviser and FAM since 1982; Senior Vice President of Princeton
Services since 1993.
Philip L. Kirstein--Senior Vice President(1)(2)--Senior Vice President and
General Counsel of the Investment Adviser and FAM since 1984; Senior Vice
President, General Counsel, Director and Secretary of Princeton Services;
Secretary of the Investment Adviser since 1984; Secretary of FAM since 1982;
Director of the Distributor.
Jordan C. Schreiber--Vice President(1)--Vice President and Portfolio Manager
of the Investment Adviser since 1983.
Donald C. Burke--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--Treasurer(1)(2)--Senior Vice President and Treasurer of
the Investment Adviser and FAM since 1984; Senior Vice President and Treasurer
of Princeton Services since 1993; Vice President of the Distributor since 1981
and Treasurer since 1984.
Robert Harris--Secretary(1)(2)--Vice President of the Investment Adviser
since 1984 and attorney associated with the Investment Adviser since 1980;
Secretary of the Distributor since 1982.
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(1) Interested person, as defined in the Investment Company Act, of the
Company.
(2) Such Director or officer is a director, trustee or officer of one or more
additional investment companies for which the Investment Adviser or its
affiliate, FAM, acts as investment adviser or manager.
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At September 30, 1994, the Directors and officers of the Company as a group
(12 persons) owned an aggregate of less than 1% of the outstanding shares of
the Company. At such date, Mr. Zeikel, a Director of the Company, and the other
officers of the Company owned less than 1% of the outstanding shares of common
stock of ML & Co.
The Company pays each Director not affiliated with the Investment Adviser a
fee of $1,750 per year plus $250 per meeting attended, together with such
Director's actual out-of-pocket expenses relating to attendance at meetings.
The Company also compensates members of its Audit and Nominating Committee (the
"Committee"), which consists of all the non-affiliated Directors at a rate of
$250 per meeting attended. The Chairman of the Committee receives an additional
fee of $125 per meeting attended. Fees and expenses paid to the unaffiliated
Directors for the fiscal year ended April 30, 1994, aggregated $15,398.
ADVISORY AND MANAGEMENT ARRANGEMENTS
Reference is made to "Management of the Company--Advisory and Management
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Company.
Securities held by the Company also may be held by other funds or investment
advisory clients for which the Investment Adviser or its affiliates act as an
adviser. Securities may be held by, or be appropriate investments for, the
Company as well as other clients of the Investment Adviser or its affiliates.
Because of different objectives or other factors, a particular security may be
bought for one or more clients when one or more clients are selling the same
security. If purchases or sales of securities by the Investment Adviser for the
Company or other funds for which it acts as investment adviser or for its other
advisory clients arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all. To the extent
that transactions on behalf of more than one client of the Investment Adviser
or its affiliates during the same period may increase the demand for securities
being purchased or supply of securities being sold, there may be an adverse
effect on price.
From February 1, 1990, through March 31, 1992, the Company had entered into
an investment advisory agreement with the Investment Adviser pursuant to which
the Company paid the Investment Adviser a fee for its services at the annual
rate of 1.0% of the Company's average daily net assets, and the Investment
Adviser compensated Nomura Capital Management, Inc. ("NCM") and Lombard Odier
International Portfolio Management Limited ("LOIPM") for investment research,
pursuant to separate investment research agreements between the Investment
Adviser and NCM and LOIPM (the "Investment Research Agreements"), at the annual
rates of 0.20% and 0.25%, respectively, of the Company's average daily net
assets. The Investment Research Agreement between the Investment Adviser and
NCM recognized that NCM might enter into a separate investment research
agreement with Nomura Investment Management Co., Ltd. ("NIMCO") under which NCM
might compensate NIMCO for investment research in an amount determined by NCM
and NIMCO but not in excess of the amount of compensation NCM received from the
Investment Adviser. That agreement was replaced with the present agreement
effective April 1, 1992 (the "Investment Advisory Agreement"). The Investment
Adviser currently provides the Company with management, advisory and
administrative services pursuant to the Investment Advisory Agreement which
does not provide for sub-advisory or investment research agreements with others
with respect to the
15
<PAGE>
management of the Company's portfolio investments; the Investment Adviser
receives as compensation for its services to the Company monthly compensation
at the annual rate of 1.00% of the Company's average daily net assets.
For the fiscal year ended November 30, 1991, the Investment Adviser earned
investment advisory fees of $1,342,351, of which $335,588 was paid to LOIPM and
$268,470 was paid to NCM under the terms of their Investment Research
Agreements; NCM paid NIMCO $134,235 from the amount earned by NCM. For the
fiscal period December 1, 1991, to April 30, 1992, the Investment Adviser
earned investment advisory fees of $621,231, of which $127,547 was paid to
LOIPM and $102,038 was paid to NCM under the terms of their Investment Research
Agreements; NCM paid NIMCO $51,019 from the amount earned by NCM. For the
fiscal year ended April 30, 1993, the investment advisory fee paid by the
Company to the Investment Adviser aggregated $872,256. For the fiscal year
ended April 30, 1994, the investment advisory fee paid by the Company to the
Investment Adviser aggregated $1,200,254.
California imposes limitations on the expenses of the Company. These expense
limitations require that the Investment Adviser reimburse the Company in an
amount necessary to prevent the ordinary operating expenses of the Company
(excluding interest, taxes, distribution fees, brokerage fees and commissions
and extraordinary charges such as litigation costs) from exceeding 2.5% of the
Company'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 Company is limited
to the amount of the investment advisory fee. No fee payment will be made to
the Investment Adviser during any fiscal year which will cause such expenses to
exceed the most restrictive expense limitation applicable at the time of such
payment. For the fiscal years ended April 30, 1994 and 1993, the five month
period ended April 30, 1992, and the fiscal year ended November 30, 1991, no
such reimbursement was necessary.
The Investment Adviser provides investment advisory services and pays
compensation of and furnishes space for officers and employees of the Company
connected with investment and economic research, trading and investment
management of the Company, as well as the fees of all Directors of the Company
who are affiliated persons of the Investment Adviser or any of its affiliates.
The Company pays all other expenses incurred in its operation including, among
other things, taxes; expenses for legal and auditing services; costs of
printing proxies, stock certificates, shareholders' reports and prospectuses
and statements of additional information (except to the extent paid by the
Distributor); charges of the custodian, any sub-custodian and transfer agent;
expenses of redemption of shares; Commission fees; expenses of registering the
shares under Federal, state or foreign laws; fees and expenses of unaffiliated
Directors; accounting and pricing costs (including the daily calculation of net
asset value); insurance; interest; brokerage costs; litigation and other
extraordinary or non-recurring expenses; and other expenses properly payable by
the Company. Accounting services are provided to the Company by the Investment
Adviser, and the Company reimburses the Investment Adviser for its costs in
connection with such services on a semiannual basis. For the fiscal year ended
April 30, 1994, the amount of such reimbursement was $35,660. As required by
the Company's distribution agreements, its underwriters will pay certain
promotional expenses of the Company incurred in connection with the offering of
its shares. Certain expenses in connection with the distribution of Class B
shares will be financed by the Company pursuant to a distribution plan in
compliance with Rule 12b-1 under the Investment Company Act. See "Purchase of
Shares--Deferred Sales Charge Alternative--Class B Shares--Distribution Plan".
ML&Co., Merrill Lynch Investment Management, Inc. and Princeton Services are
"controlling persons" of the Investment Adviser as defined under the Investment
Company Act because of their ownership of its voting securities or their power
to exercise a controlling influence over its management or policies.
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Duration and Termination. Unless earlier terminated as described herein, the
Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Board of Directors of the Company or by a majority
of the outstanding shares of the Company and (b) by a majority of the Directors
who are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contract is not assignable and
may be terminated without penalty on 60 days' written notice at the option of
either party thereto or by the vote of the shareholders of the Company.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Company shares.
The Company issues four classes of shares under the Merrill Lynch Select
PricingSM System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives, and shares of Class B and Class C are
sold to investors choosing the deferred sales charge alternatives. Each Class
A, Class B, Class C and Class D shares of the Company represents identical
interests in the investment portfolio of the Company and has the same rights,
except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
Class B, Class C and Class D shares each have exclusive voting rights with
respect to the Rule 12b-1 distribution plan adopted with respect to such class
pursuant to which account maintenance and/or distribution fees are paid. Each
class has different exchange privileges. See "Shareholder Services--Exchange
Privilege".
The Merrill Lynch Select PricingSM System is used by more than 50 mutual
funds advised by the Investment Adviser or its affiliate, FAM. Funds advised by
the Investment Adviser or FAM are referred to herein as "MLAM-advised mutual
funds".
The Company has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Company (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the
offering of each class of shares of the Company. After the prospectuses,
statements of additional information and periodic reports have been prepared,
set in type and mailed to shareholders, the Distributor pays for the printing
and distribution of copies thereof used in connection with the offering to
dealers and investors. The Distributor also pays for other supplementary sales
literature and advertising costs. The Distribution Agreements are subject to
the same renewal requirements and termination provisions as the Investment
Advisory Agreement described above.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
The Company sells its Class A shares through the Distributor and Merrill
Lynch, as dealers. During the fiscal year ended November 30, 1991, the Company
sold 522,759 Class A shares for aggregate net proceeds to the Company of
$4,679,733. The gross sales charges for the sale of Class A shares for that
period were
17
<PAGE>
$41,172, of which $39,631 was received by Merrill Lynch and $1,541 was received
by the Distributor. During the five month period ended April 30, 1992, the
Company sold 465,523 Class A shares for aggregate net proceeds to the Company
of $4,335,929. The gross sales charges for the sale of Class A shares for that
period were $3,055, of which $2,896 was received by Merrill Lynch and $159 was
received by the Distributor. During the fiscal year ended April 30, 1993, the
Company sold 3,591,847 Class A shares for aggregate net proceeds to the Company
of $13,574,662. The gross sales charges for the sale of Class A shares for that
period was $346,988, of which $340,875 was received by Merrill Lynch and $6,113
was received by the Distributor. During the fiscal year ended April 30, 1994,
the Company sold 6,174,049 Class A shares for aggregate net proceeds to the
Company of $23,817,331. The gross sales charges for the sale of Class A shares
for that period was $211,071, of which $195,475 was received by Merrill Lynch
and $15,596 was received by the Distributor.
The term "purchase" as used in the Prospectus and this Statement of
Additional Information refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account (including a pension, profit-sharing or
other employee benefit trust created pursuant to a plan qualified under Section
401 of the Code) although more than one beneficiary is involved. The term
"purchase" also includes purchases by any "company", as that term is defined in
the Investment Company Act, but does not include purchases by any such company
which has not been in existence for at least six months or which has no purpose
other than the purchase of shares of the Company or shares of other registered
investment companies at a discount. The term "purchase" shall not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit cardholders of a company, policyholders of
an insurance company, customers of either a bank or broker-dealer or clients of
an investment adviser. The term "purchase" also includes purchases by employee
benefit plans not qualified under Section 401 of the Code, including purchases
by employees or by employers on behalf of employees, by means of a payroll
deduction plan or otherwise, of shares of the Company. Purchases by such a
company or non-qualified employee benefit plan will qualify for the quantity
discounts discussed above only if the Company and the Distributor are able to
realize economies of scale in sales effort and sales related expense by means
of the company, employer or plan making the Company's Prospectus available to
individual investors or employees and forwarding investments by such persons to
the Company and by any such employer or plan bearing the expense of any payroll
deduction plan.
Closed-End Fund Investment Option. Class A shares of the Company and other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by MLAM or the
Investment Adviser who purchased such closed-end fund shares prior to October
21, 1994, and wish to reinvest the net proceeds from a sale of their closed-end
fund shares of common stock in Eligible Class A Shares, if the conditions set
forth below are satisfied. Alternatively, closed-end fund shareholders who
purchased such shares on or after October 21, 1994, and wish to reinvest the
net proceeds from a sale of their closed-end fund shares are offered Class D
shares of the Company and other MLAM-advised mutual funds ("Eligible Class D
Shares"), if the following conditions are met. First, the sale of the closed-
end fund shares must be made through Merrill Lynch, and the net proceeds
therefrom must be immediately reinvested in Eligible Class A or Class D shares.
Second, the closed-end fund shares must either have been acquired in the
initial public offering or be shares representing dividends from shares of
common stock acquired in such offering. Third, the closed-end fund shares must
have been continuously maintained in a Merrill Lynch securities account.
Fourth, there must be a minimum purchase of $250 to be eligible for the
investment option.
18
<PAGE>
REDUCED INITIAL SALES CHARGES
Right of Accumulation. The reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Company subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Company and of other MLAM-advised mutual funds. For any such
right of accumulation to be made available, the Distributor must be provided at
the time of purchase, by the purchaser or the purchaser's securities dealer,
with sufficient information to permit confirmation of qualification, and
acceptance of the purchase order is subject to such confirmation. The right of
accumulation may be amended or terminated at any time. Shares held in the name
of a nominee or custodian under pension, profit-sharing, or other employee
benefit plans may not be combined with other shares to qualify for the right of
accumulation.
Letter of Intention. Reduced sales charges are applicable to a purchase
aggregating $25,000 or more of Class A or Class D shares of the Company or any
other MLAM-advised mutual funds made within a 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 Company's transfer agent. The Letter of
Intention is not available to employee benefit plans for which Merrill Lynch
provides plan participant record-keeping services. The Letter of Intention is
not a binding obligation to purchase any amount of Class A or Class D shares,
but its execution will result in the purchaser paying a lower sales charge at
the appropriate quantity purchase level. A purchase not originally made
pursuant to a Letter of Intention may be included under a subsequent Letter
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A and
Class D shares of the Company and of other MLAM-advised mutual funds presently
held, at cost or maximum offering price (whichever is higher), on the date of
the first purchase under the Letter of Intention, may be included as a credit
toward the completion of such Letter, but the reduced sales charge applicable
to the amount covered by such Letter will be applied only to new purchases. If
the total amount of shares purchased does not equal the amount stated in the
Letter of Intention (minimum of $25,000), the investor will be notified and
must pay, within 20 days of the expiration of such Letter, the difference
between the sales charge on the Class A or Class D shares purchased at the
reduced rate and the sales charge applicable to the shares actually purchased
through the Letter. Class A or Class D shares equal to five percent of the
intended amount will be held in escrow during the 13-month period (while
remaining registered in the name of the purchaser) for this purpose. The first
purchase under the Letter of Intention must be at least five percent of the
dollar amount of such Letter. If a purchase during the term of such Letter
would otherwise be subject to a further reduced sales charge based on the right
of accumulation, the purchaser will be entitled on that purchase and subsequent
purchases to the reduced percentage sales charge which would be applicable to a
single purchase equal to the total dollar value of the shares then being
purchased under such Letter, but there will be no retroactive reduction of the
sales charges on any previous purchase. The value of any shares redeemed or
otherwise disposed of by the purchaser prior to termination or completion of
the Letter of Intention will be deducted from the total purchases made under
such Letter. An exchange from a MLAM-advised money market fund into the Fund
that creates a sales charge will count toward completing a new or existing
Letter of Intention from the Company.
Merrill Lynch BlueprintSM Program. Class D shares of the Company are offered
to participants in the Merrill Lynch BlueprintSM Program ("Blueprint"). In
addition, participants in Blueprint who own Class A
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<PAGE>
shares of the Company may purchase additional Class A shares of the Company
through Blueprint. Blueprint is directed to small investors, group IRAs and
participants in certain affinity groups such as credit unions, trade
associations and benefit plans. Investors placing orders to purchase Class A or
Class D shares of the Company through Blueprint will acquire the Class A Class
D shares at net asset value plus a sales charge calculated in accordance with
the Blueprint sales charge schedule (i.e., up to $300 at 4.25%, $300.01 up to
$5,000 at 3.25% plus $3, and $5,000.01 or more at the standard sales charge
rates disclosed in the Prospectus). Class A or Class D shares of the Company
are 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 participants in
Blueprint through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from Employer Sponsored Retirement and Savings Plans
(see definition below) whose Trustee and/or Plan Sponsor offers the Merrill
Lynch Directed IRA Rollover Program.
Orders for purchases and redemptions of Class A or Class D shares of the
Company may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum
initial or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The BlueprintSM Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMASM Managed Trusts. Class A shares are offered 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 Internal Revenue Code of 1986, as amended (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 of 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
20
<PAGE>
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 the Merrill
Lynch BlueprintSM Program, are offered Class A 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 shares at net asset value has the option of
(i) purchasing Class A shares at the initial sales charge schedule and possible
CDSC schedule disclosed in the Prospectus if it is otherwise eligible to
purchase Class A shares, (ii) purchasing Class D shares at the initial sales
charge and possible CDSC schedule disclosed in the Prospectus, (iii) if the
Employer Sponsored Retirement or Savings Plan meets the specified requirements,
purchasing Class B shares with a waiver of the CDSC upon redemption, or if the
Employer Sponsored Retirement or Savings Plan does not qualify to purchase
Class B shares with a waiver of the CDSC upon redemption, purchasing Class C
shares at the CDSC schedule disclosed in the Prospectus. The minimum initial
and subsequent purchase requirements are waived in connection with all the
above referenced Employer Sponsored Retirement or Savings Plans.
Purchase Privilege of Certain Persons. Directors of the Company, members of
the Boards of other MLAM-advised investment companies, directors and employees
of ML&Co., Inc. and its subsidiaries (the term "subsidiaries", when used herein
with respect to Merrill Lynch & Co., Inc., includes MLAM, FAM and certain other
entities directly or indirectly wholly-owned and controlled by Merrill Lynch &
Co., Inc.) and any trust, pension, profit-sharing or other benefit plan for
such persons may purchase Class A shares of the Company at net asset value.
Class A shares of the Company are offered at net asset value to shareholders
of Merrill Lynch Senior Floating Rate Fund, Inc. (formerly known as Merrill
Lynch Prime 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 the Company. In order to exercise this investment
option, Merrill Lynch Senior Floating Rate Fund, Inc. shareholders must sell
their Merrill Lynch Senior Floating Rate Fund, Inc. shares to the Merrill Lynch
Senior Floating Rate Fund, Inc. in connection with a tender offer conducted by
the Merrill Lynch Senior Floating Rate Fund, Inc. and reinvest the proceeds
immediately in the Company. This investment option is available only with
respect to the proceeds of Merrill Lynch Senior Floating Rate Fund, Inc. shares
as to which no Early Withdrawal Charge (as defined in the Merrill Lynch Senior
Floating Rate Fund, Inc. prospectus) is applicable. Purchase orders from
Merrill Lynch Senior Floating Rate Fund, Inc. shareholders wishing to exercise
this investment option will be accepted only on the day that the related
Merrill Lynch Senior Floating Rate Fund, Inc. tender offer terminates and will
be effected at the net asset value of the Company at such day.
Class D shares of the Company 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 firm within six
months prior to the date of purchase by such investor if the following
conditions are satisfied. First, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Company with proceeds from a redemption of
a mutual fund that was sponsored by the financial consultant's previous firm
and was subject to a sales charge either at the time of purchase or on a
deferred basis. Second, the investor
21
<PAGE>
also must establish that such redemption had been made within 60 days prior to
the investment in the Company, and the proceeds from the redemption had been
maintained in the interim in cash or a money market fund.
Class D shares of the Company are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated, if the following conditions are satisfied:
first, the investor must purchase Class D shares of the Company with proceeds
from a redemption of shares of such other mutual fund and such fund was subject
to a sales charge either at the time of purchase or on a deferred basis;
second, such purchase of Class D shares must be made within 90 days after such
notice.
Class D shares of the Company will be offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: First, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Company with proceeds from the redemption of
such shares of other mutual funds and that such shares have been outstanding
for a period of no less than six months. Second, such purchase of Class D
shares must be made within 60 days after the redemption and the proceeds from
the redemption must be maintained in the interim in cash or a money market
fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation
with a public or private investment company. The value of the assets or company
acquired in a tax-free transaction may in appropriate cases be adjusted to
reduce possible adverse tax consequences to the Company 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 Company. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations,
statutory mergers or other acquisitions of portfolio securities which (i) meet
the investment objectives and policies of the Company; (ii) are acquired for
investment and not for resale (subject to the understanding that the
disposition of the Company's portfolio securities shall at all times remain
within its control); and (iii) are liquid securities, the value of which is
readily ascertainable, which are not restricted as to transfer either by law or
liquidity of market (except that the Company may acquire through such
transactions restricted or illiquid securities to the extent the Company does
not exceed the applicable limits on acquisition of such securities set forth
under "Investment Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.
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
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<PAGE>
12b-1 under the Investment Company Act (each a "Distribution Plan") with
respect to the account maintenance and/or distribution fees paid by the Company
to the Distributor with respect to such classes.
Payments of the account maintenance fees and/or distribution fees are subject
to the provisions of Rule 12b-1 under the Investment Company Act. Among other
things, each Distribution Plan provides that the Distributor shall provide and
the Directors shall review quarterly reports of the disbursement of the account
maintenance fees and/or distribution fees paid to the Distributor. In their
consideration of each Distribution Plan, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Company and its related class of shareholders. Each
Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Company, as defined in the Investment Company Act
(the "Independent Directors"), shall be committed to the discretion of the
Independent Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the Independent Directors concluded that there is
reasonable likelihood that such Distribution Plan will benefit the Company and
its related class of shareholders. Each Distribution Plan can be terminated at
any time, without penalty, by the vote of a majority of the Independent
Directors or by the vote of the holders of a majority of the outstanding
related class of voting securities of the Company. A Distribution Plan cannot
be amended to increase materially the amount to be spent by the Company without
the approval of the related class of shareholders, and all material amendments
are required to be approved by the vote of the Directors, including a majority
of the Independent Directors who have no direct or indirect financial interest
in such Distribution Plan, cast in person at a meeting called for that purpose.
Rule 12b-1 further requires that the Company preserve copies of each
Distribution Plan and any report made pursuant to such plan for a period of not
less than six years from the date of such Distribution Plan or such report, the
first two years in an easily accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the 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 Company, the maximum sales charge rule limits the aggregate
of distribution fee payments and CDSCs payable by the Company to (1) 6.25% of
eligible gross sales of Class B shares and Class C shares, computed separately
(defined to exclude shares issued pursuant to dividend reinvestments and
exchanges), plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Company will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSCs will be paid to the Company rather than to the Distributor;
however, the Company will continue to make payments of the account maintenance
fee. In certain circumstances the amount payable pursuant to the voluntary
maximum 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.
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<PAGE>
The following table sets forth comparative information as of April 30, 1994,
with respect to the Class B shares of the Company indicating the maximum
allowable payments that can be made under the NASD maximum sales charge rule
and the Distributor's voluntary maximum for the period October 21, 1988
(commencement of the public issuance of Class B shares) to April 30, 1994.
Since Class C shares of the Company had not been publicly issued prior to the
date of this Statement of Additional Information, information concerning Class
C shares is not yet provided below.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF APRIL 30, 1994
- -------------------------------------------------------------------------------------------------------
ANNUAL
ALLOWABLE ALLOWABLE AMOUNTS DISTRIBUTION
ELIGIBLE AGGREGATE INTEREST ON MAXIMUM PREVIOUSLY AGGREGATE FEE AT CURRENT
GROSS SALES UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
-------- --------- ----------- ------- -------------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Under NASD Rule
As Adopted............. $66,747 $4,172 $290 $4,462 $826 $3,636 $478
Under Distributor's
Voluntary Waiver....... $66,747 $4,172 $334 $4,506 $826 $3,680 $478
</TABLE>
- --------
(1) Purchase price of all eligible Class B shares sold since October 21, 1988
other than shares acquired through dividend reinvestment and the exchange
privilege.
(2) Interest is computed on a monthly basis based upon the average prime rate,
as reported in The Wall Street Journal, plus 1%, as permitted under the
NASD Rule.
(3) Consists of contingent deferred sales charge payments, distribution fee
payments and accruals. Of the distribution fee payments made prior to July
7, 1993, under a prior plan at the 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 contingent deferred sales
charge payments) is amortizing the unpaid balance. No assurance can be
given that payments of the distribution fee will reach either the
voluntary maximum or the NASD maximum.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Company shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the 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 Company is not reasonably
practicable, and for such other periods as the Commission may by order permit
for the protection of shareholders of the Company.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending on the market value of the securities held by
the Company at such time.
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<PAGE>
DEFERRED SALES CHARGES--CLASS B SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B Shares 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 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 tax-free
distribution following retirement under a tax-deferred retirement plan or
attaining age 59 1/2 in the case of an IRA or other retirement plan, or part
of a series of equal periodic payments (not less frequently than annually)
made for the life or life expectancy or any redemption resulting from the tax-
free return of an excess contribution to an IRA; or (b) any partial or
complete redemption following the death or disability (as defined in the Code)
of a Class B shareholder (including one who owns the Class B shares as joint
tenant with his or her spouse) provided the redemption is requested within one
year of the death or initial determination of disability. For the fiscal year
ended November 30, 1991, the five month period ended April 30, 1992, the
fiscal year ended April 30, 1993, and the fiscal year ended April 30, 1994,
the Distributor received CDSCs of $20,381, $30,285, $53,803 and $161,790,
respectively, all of which was paid to Merrill Lynch.
Merrill Lynch BlueprintSM Program. Class B shares are offered to certain
participants in BlueprintSM . Blueprint is directed to small investors, group
IRAs and participants in certain affinity groups such as trade associations
and credit unions. Class B shares of the Company are offered through Blueprint
only to members of certain affinity groups. The CDSC is waived in connection
with purchase orders placed through Blueprint. Services, including the
exchange privilege, available to Class B investors through Blueprint, however,
may differ from those available to other investors in Class B shares. Orders
for purchases and redemptions of Class B shares of the Company will be grouped
for execution purposes which, in some circumstances, may involve the execution
of such orders two business days following the day such orders are placed. The
minimum initial purchase price is $100, with a $50 minimum for subsequent
purchases through Blueprint. There is no minimum initial or subsequent
purchase requirement for investors who are part of the Blueprint automatic
investment plan. Additional information concerning these Blueprint programs,
including any annual fees or transaction charges, is available from Merrill
Lynch, Pierce, Fenner & Smith Incorporated, The 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
401(a) plans 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 independent administration firms contracted
through Merrill Lynch also may purchase Class B shares with a waiver of the
CDSC. The CDSC is also 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
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<PAGE>
custodied IRA and held in such account at the time of redemption. The Class B
CDSC also is waived for any Class B shares which are purchased by a Merrill
Lynch rollover IRA that was funded by a rollover from a terminated 401(k) plan
managed by the MLAM Private Portfolio Group and held in such account at the
time of redemption. The minimum initial and subsequent purchase requirements
are waived in connection with all the above referenced Retirement Plans.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to "Investment Objective and Policies--Other Investment
Practices" in the Prospectus.
Subject to policies established by the Board of Directors of the Company, the
Investment Adviser is primarily responsible for the execution of the Company's
portfolio transactions and the allocation of brokerage. In executing such
transactions, the Investment Adviser seeks to obtain the best net results for
the Company, taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm involved and the firm's risk
in positioning a block of securities. While the Investment Adviser generally
seeks reasonably competitive commission rates, the Company does not necessarily
pay the lowest commission or spread available. The Company has no obligation to
deal with any broker or group of brokers in the execution of transactions in
portfolio securities. Subject to obtaining the best price and execution,
brokers who provide supplemental investment research to the Investment Adviser
may receive orders for transactions by the Company. Information so received
will be in addition to and not in lieu of the services required to be performed
by the Investment Adviser under the investment advisory agreement, and the
expenses of the Investment Adviser will not necessarily be reduced as a result
of the receipt of such supplemental information. It is possible that certain of
the supplementary investment research so received will primarily benefit one or
more other investment companies or other accounts for which investment
discretion is exercised. Conversely, the Company may be the primary beneficiary
of the research or services received as a result of portfolio transactions
effected for such other accounts or investment companies. In addition,
consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and policies established by the Directors of the
Company, the Investment Adviser may consider sales of shares of the Company as
a factor in the selection of brokers or dealers to execute portfolio
transactions for the Company.
The Company anticipates that its brokerage transactions involving securities
of companies domiciled in countries other than the United States will be
conducted primarily on the principal stock exchanges of such
countries. Brokerage commissions and other transaction costs on foreign stock
exchange transactions are generally higher than in the United States, although
the Company will endeavor to achieve the best net results in effecting its
portfolio transactions. There is generally less government supervision and
regulation of foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Company in the form of ADRs,
EDRs, GDRs or securities convertible into foreign equity securities. ADRs, EDRs
and GDRs may be listed on stock exchanges or traded in OTC markets. ADRs, like
other securities traded in the United States, as well as GDRs traded in the
United States, will be subject to negotiated commission rates.
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<PAGE>
The Company may invest in securities traded in the OTC markets and intends to
deal directly with the dealers who make markets in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Under the Investment Company Act, persons affiliated with the
Company are prohibited from dealing with the Company as principal in the
purchase and sale of securities. Since transactions in the OTC market usually
involve transactions with dealers acting as principal for their own account,
the Company will not deal with affiliated persons, including Merrill Lynch and
its affiliates, in connection with such transactions. See "Investment Objective
and Policies--Current Investment Restrictions".
For the fiscal year ended November 30, 1991, the Company paid brokerage
commissions of $499,266. Merrill Lynch and its affiliates received $57,662, or
11.5%, of such amount for effecting transactions involving 9.2% of the
aggregate dollar amount of transactions in which the Company paid brokerage
commissions. Neither NCM and its affiliates, nor LOIPM and its affiliates,
effected any transactions in which the Company paid brokerage commissions.
For the five month period ended April 30, 1992, the Company paid brokerage
commissions of $298,800. Merrill Lynch and its affiliates received $50,629, or
16.94%, of such amount for effecting 37 transactions involving 9.52% of the
aggregate dollar amount of transactions in which the Company paid brokerage
commissions. Neither NCM and its affiliates, nor LOIPM and its affiliates,
effected any transactions in which the Company paid brokerage commissions.
For the fiscal year ended April 30, 1993, the Company paid total brokerage
commissions of $132,979, of which $13,260, or 10.0%, was paid to Merrill Lynch
for effecting 9.4% of the aggregate amount of transactions in which the Company
paid brokerage commissions. Neither NCM and its affiliates, nor LOIPM and its
affiliates, effected any transactions in which the Company paid brokerage
commissions.
For the fiscal year ended April 30, 1994, the Company paid total brokerage
commissions of $326,782, of which $39,566, or 12.1%, was paid to Merrill Lynch
for effecting 19.3% of the aggregate amount of transactions in which the
Company paid brokerage commissions. Neither NCM and its affiliates, nor LOIPM
and its affiliates, effected any transactions in which the Company paid
brokerage commissions.
The Board of Directors has considered the possibility of seeking to recapture
for the benefit of the Company brokerage commissions and other expenses of
possible portfolio transactions by conducting portfolio transactions through
affiliated entities. For example, brokerage commissions received by affiliated
brokers could be offset against the advisory fee paid by the Company. After
considering all factors deemed relevant, the Board of Directors made a
determination not to seek such recapture. The Board will reconsider this matter
from time to time.
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 disclosing the aggregate compensation received by the
member in effecting such transactions, and (iii) complies with any rules the
Commission has prescribed with respect to the requirements of clauses (i) and
(ii). To the extent Section 11(a) would apply to Merrill Lynch acting as a
broker for the Company in any of its portfolio transactions executed on any
such securities exchange of which it is a member, appropriate consents have
27
<PAGE>
been obtained from the Company, and annual statements as to aggregate
compensation will be provided to the Company.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Company is determined once daily
Monday through Friday as of 4:15 p.m., New York time, on each day during which
the New York Stock Exchange is open for trading. The New York Stock Exchange is
not open on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation.
Net asset value is computed by dividing the value of the securities held by
the Company plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of shares outstanding at such time. Expenses,
including the fee payable to the Investment Adviser and any account maintenance
and/or distribution fees, are accrued daily. The per share net asset value of
the Class B, Class C and Class D shares generally will be lower than the per
share net asset value of the Class A shares reflecting the daily expense
accruals of the account maintenance, distribution and higher transfer agency
fees applicable with respect to the Class B and Class C shares and the daily
expense accruals of the account maintenance fees applicable with respect to the
Class D shares; moreover, the per share net asset value of the Class B and
Class C shares generally will be lower than the per share net asset value of
its 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 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, including ADRs, EDRs or GDRs, 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 OTC
market are valued at the last available bid price in the OTC market prior to
the time of valuation.
Securities and assets for which market quotations are not readily available
(including venture capital investments, which are subject to limitations as to
their sale) are valued at fair value as determined in good faith by or under
the direction of the Board of Directors of the Company. Such valuations and
procedures will be reviewed periodically by the Board of Directors. The fair
market value for venture capital investments for which no market exists cannot
be precisely determined. There is a range of values which is reasonable for
such investments at any particular time. In the early stages of development,
venture capital investments will typically be valued based upon their original
cost to the Company (the "cost method"). The cost method will be utilized until
significant developments affecting the portfolio company provide a basis for
use of an appraisal valuation (the "appraisal method"). The appraisal method
will be based upon such factors affecting the portfolio company as earnings and
net worth, the market prices for similar securities of comparable companies and
an assessment of the company's future prospects. In the case of unsuccessful
operations, the appraisal may be based upon liquidation value. Valuations based
on the appraisal method are necessarily
28
<PAGE>
subjective. The Company will also use third party transactions (actual or
proposed) in the portfolio company's securities as the basis of valuation (the
"private market method"). The private market method will only be used with
respect to actual transactions or actual firm offers by sophisticated,
independent investors.
Generally, trading in foreign securities, as well as corporate bonds, U.S.
Government securities and money market instruments, is substantially completed
each day at various times prior to the close of the New York Stock Exchange.
The values of such securities used in computing the net asset value of the
Company's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and the
close of the New York Stock Exchange which will not be reflected in the
computation of the Company's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by the
Directors.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services described below which are
designed to facilitate investment in its shares. Certain of such services are
not available to investors who place orders for the Company's shares through
the Merrill Lynch BlueprintSM Program. Full details as to each of such
services, copies of the various plans described below and instructions as to
how to participate in the various services or plans, or how to change options
with respect thereto, can be obtained from the Company, the Distributor or
Merrill Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the transfer agent has an
Investment Account and will receive statements, at least quarterly, from the
transfer agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gain distributions. The statements will also
show any other activity in the account since the preceding statement.
Shareholders will receive separate transaction confirmations for each purchase
or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gain
distributions.
Share certificates are issued only for full shares and only upon the specific
request of the shareholder. Issuance of certificates representing all or only
part of the full shares in an Investment Account may be requested by a
shareholder directly from the transfer agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Company, a shareholder
either must redeem the Class A or Class D shares so that the cash proceeds can
be transferred to the account at the new firm or such shareholder must continue
to maintain an Investment Account at the transfer agent for those Class A or
Class D shares. Shareholders interested in transferring their Class B or Class
C shares from Merrill Lynch and who do not wish to have an Investment Account
maintained for such shares at the transfer agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder. If the new brokerage
firm is willing to accommodate the
29
<PAGE>
shareholder in this manner, the shareholder must request that he be issued
certificates for his shares and then must turn the certificates over to the new
firm for re-registration as described in the preceding sentence.
AUTOMATIC INVESTMENT PLANS
A U.S. shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price, either through the shareholder's securities
dealer or by mail directly to the transfer agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Automatic Investment Plan whereby the Company is authorized
through preauthorized checks or automated clearing house debits of $50 or more
to charge the regular bank account of the shareholder on a regular basis to
provide systematic additions to the Investment Account of such shareholder. An
investor whose shares of the Company are held within a CMA(R) account may
arrange to have periodic investments made in the Company in amounts of $100 or
more ($1 for retirement accounts) through the CMA(R) Automated Investment
Program.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will automatically be reinvested in additional shares of the
Company. Such reinvestment will be at the net asset value of the shares of the
Company as of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect to receive their income dividends or
capital gains distributions, or both, in cash, in which event payment will be
mailed or direct deposited on or about the payment date.
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 distributions reinvested in shares of the Company or vice versa, and
commencing ten days after receipt by the transfer agent of such notice, those
instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
Class A or Class D shares of the Company having a value, based upon cost or the
current offering price, of $5,000 or more and monthly withdrawals are available
for shareholders with 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 Class A or Class D
shares. Redemptions will be made at net asset value as determined at the close
of business of the New York Stock Exchange (currently 4:00 p.m., New York time)
on the 24th day of each month or the 24th day of the last month of each
quarter, whichever is applicable. If the 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 next business day. The check for the withdrawal payment will be
mailed, or the direct deposit of the withdrawal payment will be made, on the
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<PAGE>
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 Company, respectively. A shareholder's Systematic Withdrawal Plan
may be terminated at any time, without charge or penalty, by the shareholder,
the Company, the Company's transfer agent or the Distributor.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholder's original investment may be
correspondingly reduced. Purchase of additional Class A or Class D shares
concurrent with withdrawals are ordinarily disadvantageous to the shareholder
because of sales charges and tax liabilities. The Company will not knowingly
accept purchase orders for Class A or Class D shares of the Company from
investors who maintain a Systematic Withdrawal Plan unless such purchase is
equal to at least one year's scheduled withdrawals or $1,200, whichever is
greater. Periodic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.
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. The minimum fixed dollar amount redeemable is $25. The
proceeds of systematic redemptions will be posted to the 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
Systematic Redemption Program is not available if Company shares are being
purchased within the account pursuant to the Automatic Investment Program. For
more information on the Systematic Redemption Program, eligible shareholders
should contact their Financial Consultant.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Company have an exchange
privilege with certain other MLAM-advised mutual funds listed below. Under the
Merrill Lynch Select PricingSM System, Class A shareholders may exchange Class
A shares of the Company for Class A shares of a second MLAM-advised mutual fund
if the shareholder holds any Class A shares of the second fund in his 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
account at the time of the exchange and is not otherwise eligible to acquire
Class A shares of the second fund, the shareholder will receive Class D shares
of the second fund as a result of the exchange. Class D shares also may be
exchanged for Class A shares of a second MLAM-advised mutual fund at any time
as long as, at the time of the exchange, the shareholder holds Class A shares
of the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund. Class B, Class C and
Class D shares will be 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 Company 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 will be
exchangeable for shares of certain MLAM-advised money market funds specifically
designated below
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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 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 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 share 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 Company
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 Company exercising the exchange privilege will continue to
be subject to the Company's CDSC schedule if such schedule is higher than the
CDSC schedule relating to the new Class B shares acquired through use of the
exchange privilege. In addition, Class B shares of the Company acquired
through use of the exchange privilege will be subject to the Company's CDSC
schedule if such schedule is higher than the CDSC schedule relating to the
Class B shares of the fund from which the exchange has been made. For purposes
of computing the sales charge that may be payable on a disposition of the new
Class B or Class C shares, the holding period for the outstanding Class B or
Class C shares is "tacked" to the holding period of the new Class B or Class C
shares. For example, an investor may exchange Class B shares of the Company
for those of Merrill Lynch Special Value Fund, Inc. ("Special Value Fund")
after having held the Company Class B shares for two and a half years. The 2%
sales charge that generally would apply to a redemption would not apply to the
exchange. Three years later the investor may decide to redeem the Class B
shares of Special Value Fund and receive cash. There will be no CDSC due on
this redemption, since by "tacking" the two and a half year holding period of
Company Class B shares to the three year holding period for the Special Value
Fund Class B shares, the investor will be deemed to have held the new Class B
shares for more than five years.
Shareholders also may exchange shares of the Company 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 Company may, in turn, be exchanged back into Class B or Class C shares,
respectively, of any fund
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<PAGE>
offering such shares, in which event the holding period for Class B or Class C
shares of the Company 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 Company for shares of Merrill Lynch Institutional Fund
("Institutional Fund") after having held the Company Class B shares for two and
a half years and three years later decide to redeem the shares of Institutional
Fund for cash. At the time of this redemption, the 2% CDSC that would have been
due had the Class B shares of the Company been redeemed for cash rather than
exchanged for shares of Institutional Fund will be payable. If instead of such
redemption the shareholder exchanged such shares for Class B shares of a fund
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 fluc-
tuation in net asset value by invest-
ing primarily in a portfolio of ad-
justable rate securities, consisting
principally of mortgage-backed and as-
set-backed securities.
Merrill Lynch Americas Income Fund,
Inc................................. A high level of current income, consis-
tent 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 Se-
ries Trust, a series fund, whose ob-
jective is to provide as high a level
of income exempt from Federal and Ari-
zona income taxes as is consistent
with prudent investment management
through investment in a portfolio pri-
marily of intermediate-term investment
grade Arizona Municipal Bonds.
Merrill Lynch Arizona Municipal Bond
Fund................................ A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and Arizona income taxes as is
consistent with prudent investment
management.
Merrill Lynch Arkansas Municipal
Bond Fund........................... A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to pro-
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<PAGE>
vide as high a level of income exempt
from Federal and Arkansas income taxes
as is consistent with prudent invest-
ment management.
Merrill Lynch Asset Growth Fund,
Inc. .......................... High total investment return, consis-
tent with prudent risk, from invest-
ment in United States and foreign eq-
uity, debt and money market securities
the combination of which will be var-
ied both with respect to types of se-
curities and markets in response to
changing market and economic trends.
Merrill Lynch Asset Income Fund,
Inc. .......................... A high level of current income through
investment primarily in United States
fixed income securities.
Merrill Lynch Balanced Fund for
Investment and Retirement........... As high a level of total investment re-
turn as is consistent with reasonable
risk by investing in common stock and
other types of securities, including
fixed income securities and convert-
ible securities.
Merrill Lynch Basic Value Fund,
Inc................................. Capital appreciation and, secondarily,
income through investment in securi-
ties, primarily equities, that are un-
dervalued and therefore represent ba-
sic investment value.
Merrill Lynch California Insured
Municipal Bond Fund................. A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide
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 consisting primarily of
insured California Municipal Bonds.
Merrill Lynch California Limited
Maturity Municipal Bond Fund........ A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal Se-
ries Trust, a series fund, whose ob-
jective is to provide as high a level
of income exempt from Federal and Cal-
ifornia income taxes as is consistent
with prudent investment management
through investment in a portfolio pri-
marily of intermediate-term investment
grade California Municipal Bonds.
Merrill Lynch California Municipal
Bond Fund.......................... A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and California income taxes as is con-
sistent with prudent investment man-
agement.
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<PAGE>
Merrill Lynch Capital Fund, Inc...... The highest total investment return
consistent with prudent risk through a
fully managed investment policy util-
izing equity, debt and convertible se-
curities.
Merrill Lynch Colorado Municipal
Bond Fund........................... A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and Colorado income taxes as
is consistent with prudent investment
management.
Merrill Lynch Connecticut Municipal
Bond Fund........................... A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and Connecticut income taxes
as is consistent with prudent invest-
ment management.
Merrill Lynch Corporate Bond Fund,
Inc................................. Current income from three separate di-
versified portfolios of fixed income
securities.
Merrill Lynch Developing Capital
Markets Fund, Inc................... Long-term appreciation through invest-
ments in securities, principally equi-
ties, of issuers in countries having
small capital markets.
Merrill Lynch Dragon Fund, Inc....... Capital appreciation primarily through
investment in equity and debt securi-
ties of issuers domiciled in develop-
ing countries located in Asia and the
Pacific Basin, other than Japan, Aus-
tralia and New Zealand.
Merrill Lynch EuroFund............... Capital appreciation primarily through
investment in equity securities of
corporations domiciled in Europe.
Merrill Lynch Federal Securities
Trust............................... High current return through investments
in U.S. Government and Government
agency securities, including GNMA
mortgage-backed certificates and other
mortgage-backed Government securities.
Merrill Lynch Florida Limited
Maturity Municipal Bond Fund....... A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal Se-
ries Trust, a series fund, whose ob-
jective is to provide as high a level
of income exempt from Federal income
taxes as is consistent with prudent
investment management while serving to
offer shareholders the opportunity to
own securities exempt from Florida in-
tangible personal property taxes
through investment in a portfolio pri-
marily of intermediate-term investment
grade Florida Municipal Bonds.
35
<PAGE>
Merrill Lynch Florida Municipal Bond
Fund................................ A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal income taxes as is consistent
with prudent investment management,
while seeking to offer shareholders
the opportunity to own securities ex-
empt from Florida intangible personal
property taxes.
Merrill Lynch Fund For Tomorrow,
Inc................................. Long-term growth through investment in
a portfolio of good quality
securities, primarily common stock,
potentially positioned to benefit from
demographic and cultural changes as
they affect consumer markets.
Merrill Lynch Fundamental Growth
Fund, Inc........................... Long-term growth through investment in
a diversified portfolio of equity
securities placing particular emphasis
on companies that have exhibited
above-average growth rates in
earnings.
Merrill Lynch Global Allocation
Fund, Inc........................... High total return, consistent with pru-
dent risk, through a fully managed in-
vestment policy utilizing United
States and foreign equity, debt and
money market securities, the combina-
tion of which will be varied from time
to time both with respect to the types
of securities and markets in response
to changing market and economic
trends.
Merrill Lynch Global Bond Fund for
Investment and Retirement........... High total investment return from in-
vestment 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 pri-
marily in an internationally diversi-
fied portfolio of convertible debt se-
curities, convertible preferred stock
and "synthetic" convertible securities
consisting of a combination of debt
securities or preferred stock and war-
rants 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 interna-
tionally diversified portfolio of se-
curities.
36
<PAGE>
Merrill Lynch Global Resources
Trust............................... Long-term growth and protection of cap-
ital 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 invest-
ing 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 for-
eign companies which are primarily en-
gaged in ownership or operation of fa-
cilities used to generate, transmit or
distribute electricity, telecommunica-
tions, gas or water.
Merrill Lynch Growth Fund for
Investment and Retirement........... Growth of capital and, secondarily, in-
come from investment in a diversified
portfolio of equity securities placing
principal emphasis on those securities
which management of the Fund believes
to be undervalued.
Merrill Lynch International Equity
Fund................................ Capital appreciation and, secondarily,
income by investing in a diversified
portfolio of equity securities of is-
suers located in countries other than
the United States.
Merrill Lynch Latin America Fund,
Inc................................. Capital appreciation by investing pri-
marily in Latin American equity and
debt securities.
Merrill Lynch Maryland Municipal
Bond Fund.......................... A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income 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 Se-
ries Trust, a series fund, whose ob-
jective is to provide as high a level
of income exempt from Federal and Mas-
sachusetts income taxes
37
<PAGE>
as is consistent with prudent invest-
ment management through investment in
a portfolio primarily of intermediate-
term investment grade Massachusetts
Municipal Bonds.
Merrill Lynch Massachusetts
Municipal Bond Fund................. A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and Massachusetts income taxes
as is consistent with prudent invest-
ment management.
Merrill Lynch Michigan Limited
Maturity Municipal Bond Fund........ A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal Se-
ries Trust, a series fund, whose ob-
jective is to provide as high a level
of income exempt from Federal and
Michigan income taxes as is consistent
with prudent investment management
through investment in a portfolio pri-
marily of intermediate-term investment
grade Michigan Municipal Bonds.
Merrill Lynch Michigan Municipal
Bond Fund........................... A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and Michigan income taxes as
is consistent with prudent investment
management.
Merrill Lynch Minnesota Municipal
Bond Fund........................... A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and Minnesota personal income
taxes as is consistent with prudent
investment management.
Merrill Lynch Municipal Bond Fund,
Inc................................. Tax-exempt income from three separate
diversified portfolios of municipal
bonds.
Merrill Lynch Municipal Intermediate
Term Fund........................... Currently the only portfolio of Merrill
Lynch Municipal Series Trust, a series
fund, whose objective is to provide as
high a level as possible of income ex-
empt from Federal income taxes by in-
vesting in investment grade obliga-
tions 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 Se-
ries Trust, a series fund, whose ob-
jective is to provide as high a level
of income
38
<PAGE>
exempt from Federal and New Jersey in-
come taxes as is consistent with pru-
dent investment management through a
portfolio primarily of intermediate-
term investment grade New Jersey Mu-
nicipal Bonds.
Merrill Lynch New Jersey Municipal
Bond Fund........................... A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and New Jersey income taxes as
is consistent with prudent investment
management.
Merrill Lynch New Mexico Municipal
Bond Fund........................... A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and New Mexico income taxes as
is consistent with prudent investment
management.
Merrill Lynch New York Limited
Maturity Municipal Bond Fund........ A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal Se-
ries Trust, a series fund, whose ob-
jective is to provide as high a level
of income exempt from Federal, New
York State and New York City income
taxes as is consistent with prudent
investment management through invest-
ment in a portfolio primarily of in-
termediate-term investment grade New
York Municipal Bonds.
Merrill Lynch New York Municipal
Bond Fund........................... A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal, New York State and New York
City income taxes as is consistent
with prudent investment management.
Merrill Lynch North Carolina
Municipal Bond Fund................. A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and North Carolina income
taxes as is consistent with prudent
investment management.
Merrill Lynch Ohio Municipal Bond
Fund................................ A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and Ohio income taxes as is
consistent with prudent investment
management.
39
<PAGE>
Merrill Lynch Oregon Municipal Bond
Fund................................ A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and Oregon income taxes as is
consistent with prudent investment
management.
Merrill Lynch Pacific Fund, Inc...... Capital appreciation by investing in
equity securities of corporations dom-
iciled in Far Eastern and Western Pa-
cific countries, including Japan, Aus-
tralia, Hong Kong and Singapore.
Merrill Lynch Pennsylvania Limited
Maturity Municipal Bond Fund........ A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal Se-
ries Trust, a series fund, whose ob-
jective is to provide as high a level
of income exempt from Federal and
Pennsylvania income taxes as is con-
sistent with prudent investment man-
agement through investment in a port-
folio of intermediate-term investment
grade Pennsylvania Municipal Bonds.
Merrill Lynch Pennsylvania Municipal
Bond Fund........................... A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and Pennsylvania income taxes
as is consistent with prudent invest-
ment management.
Merrill Lynch Phoenix Fund, Inc...... Long-term growth of capital by invest-
ing in equity and fixed income securi-
ties, including tax-exempt securities,
of issuers in weak financial condition
or experiencing poor operating results
believed to be undervalued relative to
the current or prospective condition
of such issuer.
Merrill Lynch 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 denomi-
nated in various currencies and multi-
national currency units and having re-
maining maturities not exceeding three
years.
Merrill Lynch Special Value Fund,
Inc................................. Long-term growth of capital from in-
vestments in securities, primarily eq-
uities, of relatively small companies
believed to have special investment
value and emerging growth companies
regardless of size.
40
<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, Inc... Capital appreciation through worldwide
investment in equity securities of
companies that derive or are expected
to derive a substantial portion of
their sales from products and services
in technology.
Merrill Lynch Texas Municipal Bond
Fund................................ A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal income taxes as is consistent
with prudent investment management by
investing primarily in a portfolio of
long-term, investment grade obliga-
tions issued by the State of Texas,
its political subdivisions, agencies
and instrumentalities.
Merrill Lynch Utility Income Fund,
Inc. ............................... High current income through investment
in equity and debt securities issued
by companies which are primarily en-
gaged in the ownership or operation of
facilities used to generate, transmit
or distribute electricity, telecommu-
nications, gas or water.
Merrill Lynch World Income Fund,
Inc. ............................... High current income by investing in a
global portfolio of fixed income secu-
rities denominated in various curren-
cies, including multinational curren-
cies.
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 objec-
tives from the short-term money market
securities in which the Trust invests.
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 se-
ries fund, whose objectives are cur-
rent 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. Gov-
ernment and repurchase agreements re-
lating to such securities.
41
<PAGE>
Merrill Lynch U.S. Treasury Money
Fund................................ Preservation of capital, liquidity and
current income through investment ex-
clusively in a diversified portfolio
of short-term marketable securities
which are direct obligations of the
U.S. Treasury.
Class B, Class C and Class D Share
Money Market Funds:
Merrill Lynch Government Fund........ A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide current
income consistent with liquidity and
security of principal from investment
in securities issued or guaranteed by
the U.S. Government, its agencies and
instrumentalities and in repurchase
agreements secured by such obliga-
tions.
Merrill Lynch Institutional Fund..... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide maximum
current income consistent with liquid-
ity and the maintenance of a high-
quality portfolio of money market se-
curities.
Merrill Lynch Institutional Tax-
Exempt Fund........................ A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide current
income exempt from Federal income tax-
es, preservation of capital and li-
quidity available from investing in a
diversified portfolio of short-term,
high quality municipal bonds.
Merrill Lynch Treasury Fund.......... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide current
income consistent with liquidity and
security of principal from investment
in direct obligations of the U.S.
Treasury and up to 10% of its total
assets in repurchase agreements se-
cured 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 Company of the exchange.
Shareholders of the Company, 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 Company
reserves the right to require a properly completed Exchange Application. This
exchange privilege may be modified or terminated in accordance with the rules
of the Commission. The Company reserves the right to limit the number of times
an investor may exercise the exchange privilege. Certain funds may suspend the
continuous offering of their shares at any time and thereafter may resume such
offering from time to time. The exchange privilege is available only to U.S.
shareholders in states where the exchange legally may be made.
42
<PAGE>
TAXES
The Company 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 Company (but not
its shareholders) will not be subject to Federal income tax on the part of its
net ordinary income and net realized capital gains which it distributes to
Class A, Class B, Class C and Class D shareholders (together, the
"shareholders"). The Company intends to distribute substantially all of such
income.
Dividends paid by the Company from its ordinary income and distributions of
the Company'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 Company's net realized long-term
capital gains (including long-term gains from certain transactions in futures
and options) ("capital gain dividends") are taxable to shareholders as long-
term capital gains, regardless of the length of time the shareholder has owned
Company shares. Any loss upon the sale or exchange of Company shares held for
six months or less, 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 Company's earnings and profits will first reduce the adjusted
tax basis of a holder's shares, and after such adjusted tax basis is reduced to
zero, will constitute capital gains to such holder (assuming the shares are
held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Company. Not later than 60 days after the close of its
taxable year, the Company will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. A portion of the Company's ordinary income dividends may be eligible
for the dividends received deduction allowed to corporations under the Code, if
certain requirements are met. For this purpose, the Company will allocate
dividends eligible for the dividends received deduction among the Class A,
Class B, Class C and Class D shareholders according to a method (which it
believes is consistent with the Securities and Exchange Commission 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 Company pays a dividend in January which
was declared in the previous October, November or December to shareholders of
record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Company and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Company to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% U.S.
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Company or who, to the Company's knowledge, have
furnished an incorrect number. When establishing an account, an investor must
certify under penalty of perjury that such number is correct and that such
investor is not otherwise subject to backup withholding.
43
<PAGE>
Dividends and interest received by the Company may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Company. If more than 50% in value of the Company's
total assets at the close of its taxable year consists of securities of foreign
corporations, the Company will be eligible, and intends, to file an election
with the Internal Revenue Service pursuant to which shareholders of the Company
will be required to include their proportionate shares of such withholding
taxes in their U.S. income tax returns as gross income, treat such
proportionate shares as taxes paid by them and deduct such proportionate shares
in computing their taxable incomes or, alternatively, use them as foreign tax
credits against their U.S. income taxes. No deductions for foreign taxes,
however, may be claimed by noncorporate shareholders who do not itemize
deductions. A shareholder that is a nonresident alien individual or a foreign
corporation may be subject to U.S. withholding tax on the income resulting from
the Company's election described in this paragraph but may not be able to claim
a credit or deduction against such U.S. tax for the foreign taxes treated as
having been paid by such shareholder. The Company will report annually to its
shareholders the amount per share of such withholding taxes. For this purpose,
the Company will allocate foreign taxes and foreign source income among the
Class A, Class B, Class C and Class D shareholders according to a method
similar to that described above for the allocation of dividends eligible for
the dividends received deduction.
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares for 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 exchanged, and the holding period of the acquired Class D shares will
include the holding period for the exchanged 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 the sales charge paid to the
Company reduces any sales charge the shareholder would have owed upon the
purchase of the new shares in the absence of the exchange privilege. Instead,
such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Company intends to distribute its income
and capital gains in the manner necessary to avoid imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Company's taxable
income and capital gains will be distributed to avoid entirely the imposition
of the tax. In such event, the Company will be liable for the tax only on the
amount by which it does not meet the foregoing distribution requirements.
44
<PAGE>
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Company may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the
end of each taxable year, i.e., each such option or futures contract will be
treated as sold for its fair market value on the last day of the taxable year.
Unless such contract is a forward foreign exchange contract, or is a non-equity
option or a regulated futures contract for a non-U.S. currency for which the
Company elects to have gain or loss treated as ordinary gain or loss under Code
Section 988 (as described below), gain or loss from Section 1256 contracts will
be 60% long-term and 40% short-term capital gain or loss. The mark to market
rules outlined above, however, will not apply to certain transactions entered
into by the Company solely to reduce the risk of changes in price or interest
or currency exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The
Company may, nonetheless, elect to treat the gain or loss from certain forward
foreign exchange contracts as capital. In this case, gain or loss realized in
connection with a forward foreign exchange contract that is a Section 1256
contract will be characterized as 60% long-term and 40% short-term capital gain
or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Company's transactions in options, futures and forward foreign
exchange contracts. Under Section 1092, the Company may be required to postpone
recognition for tax purposes of losses incurred in certain closing transactions
in options, futures and forward foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Company's gross income be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the
Company may be restricted in effecting closing transactions within three months
after entering into an options or futures 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 Company 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 Company.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts", and from unlisted options will be treated as ordinary
income or loss under Code Section 988. In certain circumstances, the Company
may elect capital gain or loss treatment for such transactions. Regulated
futures contracts, as described above, will be taxed under Code Section 1256
unless application of Section 988 is elected by the Company. In general, Code
Section 988 gains or losses will increase or decrease the amount of the
Company's investment company taxable income available to be distributed to
shareholders as ordinary income. Additionally, if Code Section
45
<PAGE>
988 losses exceed other investment company taxable income during a taxable
year, the Company would not be able to make any ordinary 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 Company shares
and resulting in a capital gain for any shareholder who received a distribution
greater than such shareholder's basis in Company shares (assuming the shares
were held as a capital asset). These rules and the mark-to-market rules
described above, however, will not apply to certain transactions entered into
by the Company solely to reduce the risk of currency fluctuations with respect
to its investments. These rules and the mark to market rules described above,
however, will not apply to certain transactions entered into by the Company
solely to reduce the risk of currency fluctuations with respect to its
investments.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action
either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs which
are derived from interest on U.S. Government obligations. State law varies as
to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Company.
PERFORMANCE DATA
From time to time the Company may include its average annual total return and
other total return data in advertisements or information furnished to present
or prospective shareholders. Total return figures are based on the Company's
historical performance and are not intended to indicate future performance.
Average annual total return is determined separately for Class A, Class B,
Class C and Class D shares in accordance with a formula specified by the
Commission.
Average annual total return quotations for the specified periods are computed
by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including the maximum sales charge in the case of
Class A and Class D shares and the CDSC that would be applicable to a complete
redemption of the investment at the end of the specified period in the case of
Class B and Class C shares.
The Company also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment for various periods
other than those noted below. Such data will be computed as described above,
46
<PAGE>
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted
and (2) the maximum applicable sales charge will not be included with respect
to annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the
average rates of return reflect compounding of return; aggregate total return
data generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over longer periods of time.
Set forth below is total return information for the Class A shares and Class
B shares of the Company for the periods indicated. Since Class C and Class D
shares have not been issued prior to the date of this Statement of Additional
Information, performance information concerning Class C and Class D shares is
not yet provided.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES*
----------------------------------- -----------------------------------
REDEEMABLE
VALUE OF A REDEEMABLE VALUE
EXPRESSED AS A HYPOTHETICAL EXPRESSED AS A OF A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END OF THE ON A HYPOTHETICAL AT THE END OF THE
$1,000 INVESTMENT PERIOD $1,000 INVESTMENT PERIOD
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<CAPTION>
PERIOD
- ------
<S> <C> <C> <C> <C>
One Year Ended April 30, 2.51% $1,025.10 3.25% $1,032.50
1994....................
Five Years Ended April
30, 1994................ 7.62% $1,443.70 7.71% $1,449.50
October 21, 1988, to
April 30, 1994.......... 7.88% $1,520.40
Ten Years Ended April
30, 1994................ 8.73% $2,309.00
</TABLE>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
- --------------------
<S> <C> <C> <C> <C>
1994....................................... 8.19 % $1,081.90 7.25 % $1,072.50
1993....................................... (1.10)% $ 989.00 (2.07)% $ 979.30
1992....................................... 13.17 % $1,131.70 11.88 % $1,118.80
1991....................................... 17.10 % $1,171.00 15.75 % $1,157.50
1990....................................... 7.46 % $1,074.60 6.57 % $1,065.70
1989....................................... (0.25)% $ 997.50
1988....................................... 3.20 % $1,032.00
1987....................................... 14.36 % $1,143.60
1986....................................... 45.01 % $1,450.10
1985....................................... (6.31)% $ 936.90
1984....................................... 6.00 % $1,060.00
October 21, 1988, to April 30, 1989........ 4.89 % $1,048.90
Inception (April 1, 1983) to
April 30, 1983............................ 1.75 % $1,017.50
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (April 1, 1983) to
April 30, 1994............................ 149.03 % $2,490.30
October 21, 1988, to April 30, 1994........ 52.04 % $1,520.40
</TABLE>
- --------
* Information as to Class B shares is presented only for the period October
21, 1988 to April 30, 1994. Prior to October 21, 1988, no Class B shares
were publicly issued.
47
<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 Company in advertisements directed to such investors may take into
account a reduced, and not the maximum, sales charge or may not take into
account the CDSC and therefore may reflect greater total return since, due to
the reduced sales charges or the waiver of sales charges, a lower amount of
expenses may be deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Company, previously known as Sci/Tech Holdings, Inc., was incorporated
under Maryland law on October 29, 1982. It has an authorized capital of
400,000,000 shares of Common Stock, par value of $0.10 per share, divided into
four classes, designated Class A, Class B, Class C and Class D Common Stock,
each of which consists of 100,000,000 shares. Class A, Class B, Class C and
Class D Common Stock represent an interest in the same assets of the Company
and are identical in all respects except that the Class B, Class C and Class D
shares bear certain expenses related to the account maintenance and/or
distribution of such shares and that they have exclusive voting rights with
respect to matters relating to such account maintenance and/or distribution
expenditures. The Company has received an order from the Commission permitting
the issuance and sale of multiple classes of Common Stock. The Board of
Directors of the Company may classify and reclassify the shares of the Company
into additional classes of Common Stock at a future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Company does not intend
to hold meetings of shareholders in any year in which the Investment Company
Act does not require shareholders to act upon any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent auditors. Generally, under Maryland law, a meeting of shareholders
may be called for any purpose on the written request of the holders of at least
25% of the outstanding shares of the Company. Voting rights for Directors are
not cumulative. Shares issued are fully paid and nonassessable and have no
preemptive rights. Redemption and conversion rights are discussed elsewhere
herein and in the Prospectus. Each share is entitled to participate equally in
dividends and distributions declared by the Company and in the net assets of
the Company upon liquidation or dissolution after satisfaction of outstanding
liabilities. Stock certificates are issued by the transfer agent only on
specific request. Certificates for fractional shares are not issued in any
case. Shareholders may cause a meeting of shareholders to be held for the
purpose of voting on the removal of Directors at the request of 25% of the
outstanding shares of the Company. A Director may be removed at a special
meeting of shareholders by a vote of a majority of the votes entitled to be
cast for the election of Directors.
48
<PAGE>
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A and
Class B shares of the Company based on the value of the Company's net assets
on April 30, 1994, and its shares outstanding on that date is set forth below.
Information is not provided for Class C or Class D shares since no Class C or
Class D shares were publicly offered prior to the date of this Statement of
Additional Information.
TABLE*
<TABLE>
<CAPTION>
CLASS A CLASS B
----------- -----------
<S> <C> <C>
Net Assets............................................ $70,753,048 $63,692,086
=========== ===========
Number of Shares Outstanding.......................... 18,275,079 17,963,774
=========== ===========
Net Asset Value Per Share (net assets divided by num-
ber of shares outstanding)............................ $ 3.87 $ 3.55
Sales Charge (for Class A shares: 5.25% of offering
price (5.54% of net amount invested))*................ $ 0.21 **
----------- -----------
Offering Price........................................ $ 4.08 $ 3.55
=========== ===========
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption. See "Purchase of Shares--Deferred
Sales Charge Alternatives--Class B and Class C Shares" in the Prospectus and
"Redemption of Shares--Deferred Sales Charges--Class B Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche llp, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Company. The selection of
independent auditors is subject to ratification by the shareholders of the
Company. The independent auditors are responsible for auditing the annual
financial statements of the Company.
CUSTODIAN
The Chase Manhattan Bank, N.A., 4 Chase MetroTech Center, 18th Floor, Global
Securities Services, Brooklyn, New York 11245 (the "Custodian"), acts as the
custodian of the Company's assets. Under its contract with the Company, the
Custodian is authorized to establish separate accounts in foreign currencies
and to cause foreign securities owned by the Company to be held in its offices
outside the United States and with certain foreign banks and securities
depositories. The Custodian is responsible for safeguarding and controlling
the Company's cash and securities, handling the receipt and delivery of
securities and collecting interest dividends on the Company's investments.
TRANSFER AGENT
Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484, acts as the Company's
transfer agent (the "Transfer Agent"). The Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening, maintenance
and servicing of shareholder accounts. See "Management of the Company--
Transfer Agency Services" in the Prospectus.
49
<PAGE>
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Company.
REPORTS TO SHAREHOLDERS
The fiscal year of the Company ends on April 30 of each year. The Company
sends to its shareholders at least semi-annually reports showing the Company's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each year.
After the end of each year shareholders will receive Federal income tax
information regarding dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Company has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act, to which reference is hereby made.
Categories in the Schedule of Investments contained in the Financial
Statements herein have been adopted by the Investment Adviser and are deemed
appropriate with respect to a specialized sector fund such as the Company.
Under a separate agreement, Merrill Lynch has granted the Company the right
to use the "Merrill Lynch" name and has reserved the right to withdraw its
consent to the use of such name by the Company at any time or to grant the use
of such name to any other company, and the Company has granted Merrill Lynch,
under certain conditions, the use of any other name it might assume in the
future, with respect to any corporation organized by Merrill Lynch.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the knowledge of the Company, no person or entity owned beneficially 5% or
more of the Company's common stock on September 30, 1994.
50
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders, Merrill Lynch Healthcare Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Healthcare Fund, Inc. as of April
30, 1994, the related statements of operations for the year then ended and
changes in net assets and the financial highlights for the periods presented.
These financial statements and the financial highlights are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at April
30, 1994 by correspondence with the custodians 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
Healthcare Fund, Inc. as of April 30, 1994, the results of its operations, the
changes in its net assets, and the financial highlights for the periods
presented in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey May 31, 1994
51
<PAGE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1994
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
NORTH Value Percent of
AMERICA Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
United Biotechnology 270,000 ++Aphton Corp. $ 5,425,581 $ 4,320,000 3.2%
States 150,000 ++BioCryst Pharmaceuticals, Inc. 975,000 806,250 0.6
310,000 ++Bio-Technology General Corp. 1,754,699 1,007,500 0.7
20,000 ++British Bio-Technology Group PLC (ADR)* 260,000 255,000 0.2
20,000 ++Chiron Corp. 1,248,333 1,295,000 1.0
5,000 ++Genentech, Inc. 173,740 249,375 0.2
95,000 ++Matrix Pharmaceuticals Inc. 890,625 1,068,750 0.8
80,000 ++Perseptive Biosystems, Inc. 1,372,500 2,140,000 1.6
420,000 ++Scios Nova, Inc. 4,804,322 3,202,500 2.4
------------ ------------ ------
16,904,800 14,344,375 10.7
Diagnostics 235,000 ++Aprogenex Inc. (c) 2,080,398 2,820,000 2.1
450,000 ++Meris Laboratories, Inc. (c) 4,322,794 1,462,500 1.1
140,000 ++Quidel Corp. 655,505 560,000 0.4
100,000 ++Sangstat Medical Corp. 700,000 687,500 0.5
------------ ------------ ------
7,758,697 5,530,000 4.1
Healthcare Cost 50,000 ++Caremark International, Inc. 997,750 850,000 0.6
Containment 122,500 ++Coventry Corp. 6,276,063 5,880,000 4.4
70,000 ++Health Management Systems, Inc. 1,142,967 1,592,500 1.2
50,000 ++HEALTHSOUTH Rehabilitation Corporation 1,503,000 1,618,750 1.2
10,000 ++Integrated Health Services, Inc. 360,600 318,750 0.2
30,000 ++Medaphis Corp. 410,500 1,027,500 0.8
75,000 ++Mid Atlantic Medical Services, Inc. 1,828,163 3,834,375 2.8
10,000 Oxford Health Plans, Inc. 315,703 577,500 0.4
20,000 ++Quantum Health Resources, Inc. 718,125 640,000 0.5
30,000 ++Sierra Health Services, Inc. 900,999 765,000 0.6
190,000 ++Systemed, Inc. 975,000 973,750 0.7
10,000 ++Value Health Inc. 248,100 387,500 0.3
------------ ------------ ------
15,676,970 18,465,625 13.7
Medical Specialties 41,000 ++Argus Pharmaceuticals, Inc. 244,975 184,500 0.2
30,000 Arrow International, Inc. 737,875 562,500 0.4
65,000 ++Cordis Corp. 2,450,626 2,990,000 2.2
530,000 ++EP Technologies Inc. (c) 3,647,502 4,372,500 3.2
247,500 ++Life Medical Sciences Inc. (c) 1,875,710 1,485,000 1.1
30,000 Life Medical Sciences Inc. (Warrants) (a) 80,252 63,750 0.0
50,000 Medtronic, Inc. 3,390,500 3,768,750 2.8
100,000 ++North American Vaccine Inc., NVX 1,087,479 1,012,500 0.8
30,000 ++Scimed Life Systems, Inc. 1,155,000 885,000 0.7
219,468 ++++Uromed Corp. Inc. 1,000,005 1,185,127 0.9
------------ ------------ ------
15,669,924 16,509,627 12.3
Pharmaceutical-- 180,000 Carter-Wallace, Inc. 5,062,667 3,892,500 2.9
Diversified 209,300 ++IVAX Corp. 5,847,883 5,075,525 3.7
65,000 ++Penederm Inc. 756,250 812,500 0.6
110,000 Warner-Lambert Co. 7,251,425 7,466,250 5.6
------------ ------------ ------
18,918,225 17,246,775 12.8
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Pharmaceutical-- 100,000 ++Merck & Co., Inc. 3,103,500 2,962,500 2.2
Prescription
Investments in the United States 78,032,116 75,058,902 55.8
Total Investments in North America 78,032,116 75,058,902 55.8
PACIFIC
BASIN
Australia Biotechnology 300,000 Biota Holdings, Ltd. 1,812,417 1,765,170 1.3
Investments in Australia 1,812,417 1,765,170 1.3
Japan Pharmaceutical-- 25,000 Taisho Pharmaceutical Co., Ltd. 489,152 498,674 0.4
Diversified
Investments in Japan 489,152 498,674 0.4
Total Investments in the Pacific Basin 2,301,569 2,263,844 1.7
WESTERN
EUROPE
Germany Pharmaceutical-- 1,600 Schering AG 683,876 1,068,597 0.8
Diversified
Investments in Germany 683,876 1,068,597 0.8
Nether- Pharmaceutical-- 68,000 AKZO N.V. 5,621,687 8,169,495 6.1
lands Prescription
Investments in the Netherlands 5,621,687 8,169,495 6.1
Sweden Pharmaceutical-- 100,000 Pharmacia Biotech AB (Class B) 1,668,203 1,476,159 1.1
Prescription
Investments in Sweden 1,668,203 1,476,159 1.1
Switzer- Pharmaceutical-- 1,000 Ciba-Geigy AG (Registered) 399,717 594,841 0.4
land Diversified 500 Roche Holdings AG--PC 948,926 2,387,890 1.8
------------ ------------ ------
1,348,643 2,982,731 2.2
Pharmaceutical-- 400 Sandoz AG (Registered) 1,177,760 1,057,494 0.8
Prescription
Investments in Switzerland 2,526,403 4,040,225 3.0
United Biotechnology 140,000 ++British Bio-Technology Group PLC 838,541 886,578 0.7
Kingdom 11,666 ++British Bio-Technology Group PLC
(Rights) (b) 0 36,762 0.0
------------ ------------ ------
838,541 923,340 0.7
Investments in the United Kingdom 838,541 923,340 0.7
Total Investments in Western Europe 11,338,710 15,677,816 11.7
</TABLE>
53
<PAGE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1994
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
SHORT-TERM Value Percent of
SECURITIES Face Amount Commercial Paper** Cost (Note la) Net Assets
<S> <C> <C> <C> <C> <C>
$ 5,377,000 American Express Credit Corp., $ 5,375,999 $ 5,375,999 4.0%
3.35% due 5/02/1994
3,000,000 Banc One Diversified, 2,982,970 2,982,970 2.2
3.93% due 6/21/1994
7,000,000 Ciesco L.P., 3.60% due 5/26/1994 6,981,800 6,981,800 5.2
4,000,000 Daimler-Benz AG, 3.78% due 5/31/1994 3,986,980 3,986,980 3.0
3,000,000 Delaware Funding Corp., 2,988,438 2,988,438 2.2
3.75% due 6/06/1994
3,000,000 First Boston, Inc., 3.73% due 6/03/1994 2,989,432 2,989,432 2.2
Hertz Corp.:
1,000,000 3.85% due 6/03/1994 996,364 996,364 0.7
2,000,000 3.85% due 6/06/1994 1,992,086 1,992,086 1.5
Matterhorn Capital Corp.:
3,000,000 3.60% due 5/10/1994 2,997,000 2,997,000 2.2
3,000,000 3.61% due 5/13/1994 2,996,089 2,996,089 2.2
4,000,000 National Australia Funding, 3,992,560 3,992,560 3.0
3.72% due 5/18/1994
4,000,000 Preferred Receivable Funding Corp., 3,993,422 3,993,422 3.0
3.70% due 5/16/1994
5,000,000 USL Capital Corp., 3.62% due 5/24/1994 4,987,933 4,987,933 3.7
Total Investments in Short-Term
Securities 47,261,073 47,261,073 35.1
Total Investments $138,933,468 140,261,635 104.3
============
Liabilities in Excess of Other Assets (5,816,501) (4.3)
------------ ------
Net Assets $134,445,134 100.0%
============ ======
</TABLE>
*American Depositary Receipt (ADR).
**Commercial Paper is traded on a discount basis; the interest rates
shown are the discount rates paid at the time of purchase by the
Company.
++Non-income producing security.
++++Restricted securities as to resale. The value of the Company's
investment in restricted securities was approximately $1,185,000,
representing 0.9% of net assets.
<TABLE>
<CAPTION>
Acquisition Value
Issue Date Cost (Note 1a)
<S> <C> <C> <C>
Uromed Corp. Inc. 9/15/93 $1,000,005 $1,185,127
========== ==========
</TABLE>
(a) Warrants entitle the Company to purchase a predetermined number of
shares of common stock. The purchase price and number of shares are
subject to adjustment under certain conditions until the expiration
date.
(b) The rights may be exercised until May 9, 1994.
(c) Investment in companies 5% or more of whose outstanding securities
are held by the Company (such companies are defined as "Affiliated
Companies" in section 2(a)(3) of the Investment Company Act of 1940)
are as follows:
<TABLE>
<CAPTION>
Net Share Dividend
Industry Affiliate Activity Net Cost Income
<S> <S> <C> <C> <C>
Diagnostics Aprogenex Inc. 235,000 $2,080,399 (1)
Medical EP Technologies Inc. 530,000 3,647,502 (1)
Specialties Life Medical Sciences Inc. 247,500 1,875,710 (1)
Diagnostics Meris Laboratories, Inc. 20,000 190,000 (1)
</TABLE>
(1) Non-income producing security.
See Notes to Financial Statements.
54
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of April 30, 1994
<S> <C> <C>
Assets: Investments, at value (identified cost--$138,933,468) (Note 1a) $140,261,635
Cash 801,582
Receivables:
Securities sold $ 3,468,408
Capital shares sold 1,036,732
Dividends 196,743 4,701,883
------------
Prepaid registration fees and other assets (Note 1e) 37,388
------------
Total assets 145,802,488
------------
Liabilities: Payables:
Securities purchased 10,679,970
Capital shares redeemed 385,613
Investment adviser (Note 2) 106,285
Distributor (Note 2) 50,167 11,222,035
------------
Accrued expenses and other liabilities 135,319
------------
Total liabilities 11,357,354
------------
Net Assets: Net assets $134,445,134
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized $ 1,827,508
Consist of: Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 1,796,377
Paid-in capital in excess of par 119,887,839
Undistributed realized capital gains on investments and foreign currency
transactions--net (Note 6) 9,607,211
Unrealized appreciation on investments and foreign currency transactions--net 1,326,199
------------
Net assets $134,445,134
============
Net Asset Class A--Based on net assets of $70,753,048 and 18,275,079 shares outstanding $ 3.87
Value: ============
Class B--Based on net assets of $63,692,086 and 17,963,774 shares outstanding $ 3.55
============
See Notes to Financial Statements.
</TABLE>
55
<PAGE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1994
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended April 30, 1994
<S> <C> <C>
Investment Dividends (net of $74,124 foreign withholding tax) $ 806,105
Income Interest and discount earned 459,926
(Notes 1c & ------------
1d) Total income 1,266,031
------------
Expenses: Investment advisory fees (Note 2) $ 1,200,254
Distribution fees--Class B (Note 2) 506,887
Transfer agent fees--Class A (Note 2) 177,207
Transfer agent fees--Class B (Note 2) 140,988
Printing and shareholder reports 117,930
Registration fees (Note 1e) 61,608
Professional fees 55,913
Custodian fees 51,791
Accounting services (Note 2) 35,660
Directors' fees and expenses 15,398
Other 8,413
------------
Total expenses 2,372,049
------------
Investment loss--net (1,106,018)
------------
Realized & Realized gain (loss) from:
Unrealized Investments--net $ 13,188,771
Gain(Loss) on Foreign currency transactions--net (98,082) 13,090,689
Investments ------------
& Foreign Change in unrealized appreciation/depreciation on:
Currency Investments--net (4,128,298)
Transactions Foreign currency transactions--net (2,190) (4,130,488)
Net (Notes ------------ ------------
1b, 1d & 3): Net realized and unrealized gain on investments and foreign currency transactions 8,960,201
------------
Net Increase in Net Assets Resulting from Operations $ 7,854,183
============
See Notes to Financial Statements.
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended April 30,
---------------------------
Increase (Decrease) in Net Assets: 1994 1993
<S> <C> <C>
Operations: Investment income (loss)--net $ (1,106,018) $ 263,018
Realized gain (loss) on investments and foreign currency transactions--net 13,090,689 (3,552,405)
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net (4,130,488) 781,081
------------ -----------
Net increase (decrease) in net assets resulting from operations 7,854,183 (2,508,306)
------------ -----------
Dividends Investment income--net:
to Share- Class A (236,233) --
holders ------------ -----------
(Note 1f): Net decrease in net assets resulting from dividends to shareholders (236,233) --
------------ -----------
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C>
Capital Net increase in net assets derived from capital share transactions 30,228,261 32,619,216
Share ------------ -----------
Transactions
(Note 4):
Net Assets: Total increase in net assets 37,846,211 30,110,910
Beginning of year 96,598,923 66,488,013
------------ -----------
End of year $134,445,134 $96,598,923
============ ===========
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------------------
The following per share data and For the For the
ratios have been derived from Five-Month For the Eight-Month
information provided in the For the Year Ended Period Year Period For the Year Ended
financial statements April 30, Ended Ended Ended March 31,
------------------ April 30, Nov. 30, Nov. 30, ------------------
Increase (Decrease) in Net Asset Value: 1994++ 1993 1992 1991 1990 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 3.59 $ 3.63 $ 9.19 $ 7.94 $ 9.13 $ 9.61 $ 10.55
Operating -------- -------- -------- --------- --------- --------- ---------
Performance: Investment income (loss)--net (.02) .02 -- .03 .05 .05 .15
Realized and unrealized gain
(loss) on investments and foreign
currency transactions--net(1) .31 (.06) .88 2.08 (.75) .96 (.12)
-------- -------- -------- --------- --------- --------- ---------
Total from investment operations .29 (.04) .88 2.11 (.70) 1.01 .03
-------- -------- -------- --------- --------- --------- ---------
Less dividends and distributions:
Return of capital--net -- -- (3.97) -- -- -- --
Investment income--net (.01) -- -- (.03) (.08) (.07) (.15)
Realized gain on investments--net -- -- (2.47) (.83) (.41) (1.42) (.82)
-------- -------- -------- --------- --------- --------- ---------
Total dividends and distributions (.01) -- (6.44) (.86) (.49) (1.49) (.97)
-------- -------- -------- --------- --------- --------- ---------
Net asset value, end of period $ 3.87 $ 3.59 $ 3.63 $ 9.19 $ 7.94 $ 9.13 $ 9.61
======== ======== ======== ========= ========= ========= =========
Total Based on net asset value per share 8.19% (1.10%) 10.96%+++ 29.44% (8.75%)++ + 11.36% 0.36%
Investment ======== ======== ======== ========= ========= ========= =========
Return:**
Ratios to Expenses, net of reimbursement 1.55% 1.85% 1.56%* 1.61% 1.77%* 1.55% 1.46%
Average ======== ======== ======== ========= ========= ========= =========
Net Assets:
Expenses 1.55% 1.85% 1.56%* 1.61% 1.77%* 1.61% 1.46%
======== ======== ======== ========= ========= ========= =========
Investment income (loss)--net (.48%) .48% (.16%)* .27% .62%* .78% 1.07%
======== ======== ======== ========= ========= ========= =========
Supplemental Net assets, end of period
Data: (in thousands) $ 70,753 $ 63,528 $ 61,132 $ 125,979 $ 114,852 $ 140,635 $ 170,742
======== ======== ======== ========= ========= ========= =========
Portfolio turnover 133.58% 103.06% 147.63% 206.29% 159.11% 122.57% 113.85%
======== ======== ======== ========= ========= ========= =========
</TABLE>
*Annualized.
**Total investment returns exclude the effects of
sales loads.
++Calculation is based on average number of shares
outstanding during the period.
+++Aggregate total investment return.
(1)Foreign currency transaction amounts have been
reclassified to conform to 1994 presentation.
See Notes to Financial Statements.
57
<PAGE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1994
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------------------
The following per share data and For the For the For the
ratios have been derived from Five-Month For the Eight-Month For the Period
information provided in the Period Year Period Year Oct. 21,
financial statements For the Year Ended Ended Ended Ended Ended 1988++ to
April 30, April 30, Nov. 30, Nov. 30, March 31, March 31
--------------------
Increase (Decrease) in Net Asset Value: 1994++++ 1993++++ 1992++++ 1991 1990 1990++++ 1989++++
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 3.31 $ 3.38 $ 9.01 $ 7.84 $ 9.05 $ 9.57 $ 10.24
Operating -------- -------- -------- -------- -------- -------- --------
Performance Investment loss--net (.05) (.01) (.02) (.03) (.01) (.06) (.02)
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net .29 (.06) .83 2.03 (.75) .79 (.06)
-------- -------- -------- -------- -------- -------- --------
Total from investment operations .24 (.07) .81 2.00 (.76) .73 (.08)
-------- -------- -------- -------- -------- -------- --------
Less dividends and distributions:
Return of capital--net -- -- (3.97) -- -- -- --
Investment income--net -- -- -- -- (.04) (.01) (.06)
Realized gain on investments--net -- -- (2.47) (.83) (.41) (1.24) (.53)
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions -- -- (6.44) (.83) (.45) (1.25) (.59)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 3.55 $ 3.31 $ 3.38 $ 9.01 $ 7.84 $ 9.05 $ 9.57
======== ======== ======== ======== ======== ======== ========
Total
Investment Based on net asset value per share 7.25% (2.07%) 10.26%+++ 28.30% (9.37%)+++ 10.23% 2.43%+++
Return:** ======== ======== ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement and
Average Net excluding distribution fees 1.56% 1.89% 1.58%* 1.63% 1.82%* 1.60% 1.38%*
Assets: ======== ======== ======== ======== ======== ======== ========
Expenses, net of reimbursement 2.56% 2.89% 2.58%* 2.63% 2.82%* 2.60% 2.38%*
======== ======== ======== ======== ======== ======== ========
Expenses 2.56% 2.89% 2.58%* 2.63% 2.82%* 2.68% 2.38%*
======== ======== ======== ======== ======== ======== ========
Investment income (loss)--net (1.52%) (.41%) (1.02%)* (.79%) (.36%)* (.31%) (.33%)*
======== ======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 63,692 $ 33,071 $ 5,356 $ 6,007 $ 3,222 $ 2,412 $ 342
======== ======== ======== ======== ======== ======== ========
Portfolio turnover 133.58% 103.06% 147.63% 206.29% 159.11% 122.57% 113.85%
======== ======== ======== ======== ======== ======== ========
</TABLE>
++Commencement of Operations.
++++Calculation is based on average number of shares outstanding
during the period.
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
(1)Foreign currency transaction amounts have been reclassified
to conform to 1994 presentation.
See Notes to Financial Statements.
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Healthcare Fund, Inc. (the "Company") is registered
under the Investment Company Act of 1940 as a non-diversified,
open-end investment management company. The Company offers
both Class A and Class B Shares. Class A Shares are sold with a
front-end sales charge. Class B Shares may be subject to a contin-
gent deferred sales charge. Both classes of shares have identical
voting, dividend, liquidation and other rights and the same terms
and conditions, except that Class B Shares bear certain expenses
related to the distribution of such shares and have exclusive
voting rights with respect to matters relating to such distribution
expenditures. The following is a summary of significant account-
ing policies followed by the Company.
(a) Valuation of securities--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the
exchange on which such securities are traded, as of the close of
business on the day the securities are being valued or, lacking any
sales, at the last available bid price. 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. Short-term
investments are valued at amortized cost, which approximates
market. Securities and assets for which market quotations are not
readily available, including venture capital investments, are val-
ued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Company.
(b) 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 and liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains
or losses from investments include the effects of foreign exchange
rates on investments.
The Company is authorized to enter into forward foreign exchange
contracts as a hedge against either specific transactions or
portfolio positions. Such contracts are not entered on the Company's
records. However, the effect on operations is recorded from the
date the Company enters into such contracts. Premium or discount
is amortized over the life of the contracts.
(c) Income taxes--It is the Company's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required. Under the applicable foreign tax law,
a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
(d) Security transactions and investment income--Security trans-
actions 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
funds are 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.
(e) Deferred organization expenses and prepaid registration fees--
Costs related to the organization of the second class of shares
are charged to expense over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(f) Dividends and Distributions--Dividends and distributions paid
by the Company are recorded on the ex-dividend dates.
(g) Reclassification--Accumulated investment loss--net, in the
amount of $1,179,578, has been reclassified to undistributed
realized capital gains--net and paid-in capital in excess of par,
as appropriate.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Company has entered into an Investment Advisory Agreement
with Merrill Lynch Asset Management, L.P. ("MLAM"). Effective
January 1, 1994, the investment advisory business of MLAM was
reorganized from a corporation to a limited partnership. Both
prior to and after the reorganization, ultimate control of MLAM
was vested with Merrill Lynch & Co., Inc. ("ML & Co."). The
general partner of MLAM is Princeton Services, Inc., an indirect
wholly-owned subsidiary of ML & Co. The limited partners are
ML & Co. and Merrill Lynch Investment Management, Inc.
("MLIM"), which is also an indirect wholly-owned subsidiary
of ML & Co.
59
<PAGE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1994
NOTES TO FINANCIAL STATEMENTS (concluded)
MLAM is responsible for the management of the Company's
portfolio and provides, or arranges for affiliates to provide, the
administrative services necessary for the operation of the Company.
As compensation for its services to the Company, the Investment
Adviser receives monthly compensation at the annual rate of 1.0%
of the average daily net assets of the Company.
Certain states in which shares of the Company are qualified for
sale impose limitations on the expenses of the Company. The most
restrictive annual expense limitation requires that the Investment
Adviser reimburse the Company to the extent that expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Com-
pany's first $30 million of average daily net assets, 2.0% of the
Company'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 MLAM during any fiscal year
which will cause such expenses to exceed the most restrictive
expense limitation at the time of such payment.
Pursuant to a distribution plan (the "Distribution Plan") adopted
by the Company in accordance with Rule 12b-1 under the Investment
Company Act, the Company pays the Distributor an ongoing
account maintenance fee and distribution fee, which are accrued
daily and paid monthly, at the annual rates of 0.25% and 0.75%,
respectively, of the average daily net assets of the Class B Shares
of the Company to compensate the Distributor for services pro-
vided and the expenses borne by it under the Plan. As authorized
by the Plan, the Distributor has entered into an agreement with
Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), an
affiliate of MLIM, which provides for the compensation of MLPF&S
for providing distribution-related services to the Company.
For the year ended April 30, 1994, MLFD earned $506,887 under
the Plan, all of which was paid to MLPF&S pursuant to the
agreement.
For the year ended April 30, 1994, MLFD earned underwriting
discounts of $15,596, and MLPF&S earned dealer concessions of
$195,475 on sales of the Company's Class A Shares. MLPF&S
also received contingent deferred sales charges of $161,790 from
the redemption of Class B Shares and $39,566 in commissions
on the execution of portfolio security transactions for the Company
during the year.
Financial Data Services, Inc. ("FDS"), a wholly owned subsidiary
of ML & Co., is the Company's transfer agent.
As of April 30, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $1,328,167, of which $12,156,977
related to appreciated securities and $10,828,810 related to
depreciated securities. The aggregate cost of investments at
April 30, 1994 for Federal income tax purposes was $138,933,468.
4. Capital Shares Transactions:
Net increase in net assets derived from capital share transactions
was $30,228,261 and $32,619,216 for the years ended April 30, 1994
and April 30, 1993, respectively.
Transactions in capital shares for Class A and Class B Shares were
as follows:
<TABLE>
<CAPTION>
Class A Shares for the Year Ended Dollar
April 30, 1994 Shares Amount
<S> <C> <C>
Shares sold 6,174,049 $ 23,817,331
Shares issued to shareholders in
reinvestment of dividends 52,729 194,042
---------- ------------
Total issued 6,226,778 24,011,373
Shares redeemed (5,667,645) (22,007,663)
---------- ------------
Net increase 559,133 $ 2,003,710
========== ============
</TABLE>
<TABLE>
<CAPTION>
Class A Shares for the Year Ended Dollar
April 30, 1993 Shares Amount
<S> <C> <C>
Shares sold 3,591,847 $ 13,574,622
Shares issued to shareholders
in reinvestment of dividends
and distributions -- --
---------- ------------
Total issued 3,591,847 13,574,622
Shares redeemed (2,704,889) (10,155,727)
---------- ------------
Net increase 886,958 $ 3,418,895
========== ============
</TABLE>
<TABLE>
<CAPTION>
Class B Shares for the Year Ended Dollar
April 30, 1994 Shares Amount
<S> <C> <C>
Shares sold 13,579,944 $ 48,115,789
Shares issued to shareholders
in reinvestment of dividends
and distributions -- --
---------- ------------
Total issued 13,579,944 48,115,789
Shares redeemed (5,621,030) (19,891,238)
---------- ------------
Net increase 7,958,914 $ 28,224,551
========== ============
</TABLE>
60
<PAGE>
Accounting services are provided to the Company by MLAM at cost.
Certain officers and/or directors of the Company are officers and/or
directors of MLIM, MLPF&S, FDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the year ended April 30, 1994 were $141,230,504
and $139,172,668, respectively.
Net realized and unrealized gains (losses) as of April 30, 1994
were as follows:
<TABLE>
<CAPTION>
Realized Unrealized
Gains (Losses) Gains(Losses)
<S> <C> <C>
Long-term investments $ 13,188,842 $ 1,328,167
Short-term investments (71) --
Foreign currency transactions (98,082) (1,968)
------------ ------------
Total $ 13,090,689 $ 1,326,199
============ ============
</TABLE>
<TABLE>
<CAPTION>
Class B Shares for the Year Ended Dollar
April 30, 1993 Shares Amount
<S> <C> <C>
Shares sold 10,420,756 $ 36,099,073
Shares issued to shareholders
in reinvestment of dividends
and distributions -- --
---------- ------------
Total issued 10,420,756 36,099,073
Shares redeemed (1,998,946) (6,898,752)
---------- ------------
Net increase 8,421,810 $ 29,200,321
========== ============
</TABLE>
5. Commitments:
At April 30, 1994, the Company had entered into forward exchange
contracts under which it had agreed to buy and sell various
foreign currencies with an approximate value of $489,000 and
$2,773,000, respectively.
61
<PAGE>
[THIS PAGE IS INTENTIONALLY LEFT BLANK.]
62
<PAGE>
[THIS PAGE IS INTENTIONALLY LEFT BLANK.]
63
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies.......................................... 2
Healthcare................................................................ 2
International Diversification............................................. 2
Types of Portfolio Companies.............................................. 2
Other Factors............................................................. 3
Hedging Techniques........................................................ 4
Current Investment Restrictions........................................... 8
Management of the Company.................................................. 13
Directors and Officers.................................................... 13
Advisory and Management Arrangements...................................... 15
Purchase of Shares......................................................... 17
Initial Sales Charge Alternatives--Class A and Class D Shares............. 17
Reduced Initial Sales Charges............................................. 19
Distribution Plans........................................................ 22
Limitations on the Payment of Deferred Sales Charges...................... 23
Redemption of Shares....................................................... 24
Deferred Sales Charges--Class B Shares.................................... 25
Portfolio Transactions and Brokerage....................................... 26
Determination of Net Asset Value........................................... 28
Shareholder Services....................................................... 29
Investment Account........................................................ 29
Automatic Investment Plan................................................. 30
Reinvestment of Dividends and Capital Gains Distributions................. 30
Systematic Withdrawal Plans--Class A and Class D Shares................... 30
Exchange Privilege........................................................ 31
Taxes...................................................................... 43
Tax Treatment of Options, Futures
and Forward Foreign Exchange
Transactions............................................................. 45
Special Rules for Certain Foreign Currency Transactions................... 45
Performance Data........................................................... 46
General Information........................................................ 48
Description of Shares..................................................... 48
Computation of Offering Price Per Share................................... 49
Independent Auditors...................................................... 49
Custodian................................................................. 49
Transfer Agent............................................................ 49
Legal Counsel............................................................. 50
Reports to Shareholders................................................... 50
Additional Information.................................................... 50
Security Ownership of Certain Beneficial Owners........................... 50
Independent Auditors' Report............................................... 51
Financial Statements....................................................... 52
</TABLE>
Code #10255-1094
Statement of
Additional Information
ART
- -------------------------------------------------------------------------------
MERRILL LYNCH HEALTHCARE FUND, INC.
October 21, 1994
Distributor: Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for the years ended April 30, 1994 and 1993, the
five-month period ended April 30, 1992, the year ended November 30,
1991, the eight-month period ended November 30, 1990 and each of the
periods in the six-year period ended March 31, 1990.
Contained in Part B:
Schedule of Investments as of April 30, 1994.
Statement of Assets and Liabilities as of April 30, 1994.
Statement of Operations for the year ended April 30, 1994.
Statements of Changes in Net Assets for the years ended April 30, 1994
and 1993.
Financial Highlights for the years ended April 30, 1994 and 1993, the
five-month period ended April 30, 1992, the year ended November 30,
1991, the eight-month period ended November 30, 1990 and each of the
periods in the two-year period ended March 31, 1990.
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1(a) --Articles of Incorporation of Registrant, as amended.(a)
(b) --Articles of Amendment to Articles of Incorporation of
Registrant.(b)
(c) --Articles of Amendment to Articles of Incorporation of
Registrant.(f)
2 --By-Laws of Registrant.(b)
3 --None.
4 --Portions of the Articles of Incorporation and the By-Laws of
the Registrant defining the rights of holders of shares of the
Registrant.(g)
5(a) --Amended Investment Advisory Agreement between Registrant and
Merrill Lynch Asset Management.(f)
(b) --Supplement to Investment Advisory Agreement between Registrant
and Merrill Lynch Asset Management, L.P., dated January 3,
1994.(h)
6(a) --Class A Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.(a)
(b) --Class B Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.(b)
(c) --Letter Agreement between the Registrant and Merrill Lynch
Funds Distributor, Inc. with respect to the Merrill Lynch
Mutual Fund Advisor Program.(h)
(d) --Form of New Class A Shares Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor, Inc.
(e) --Form of Class C Shares Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor, Inc.
(f) --Form of Class D Shares Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor, Inc.
7 --None.
8 --Custody Agreement between Registrant and The Chase Manhattan
Bank, N.A.(a)
9 --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial
Data Services, Inc.(c)
10 --None.
11 --Consent of Deloitte & Touche llp, independent auditors for the
Registrant.
12 --None.
13 --Certificate of Merrill Lynch Asset Management, Inc.(a)
14 --None.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
15(a) --Class B Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(g)
(b) --Form of Class C Shares Distribution Plan and Class C Shares
Distribution Plan Sub-Agreement of the Registrant.
(c) --Form of Class D Shares Distribution Plan and Class D Shares
Distribution Plan Sub-Agreement of 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.(b)
(b) --Schedule of computation of each performance quotation for
Class B shares provided in the Registration Statement in
response to Item 22.(d)
17(a) --Financial Data Schedule for Class A Shares.
(b) --Financial Data Schedule for Class B Shares.
</TABLE>
- --------
(a) Filed on January 17, 1983, as an Exhibit to Pre-Effective Amendment No. 1
to Registrant's Registration Statement under the Securities Act of 1933.
(b) Filed on October 7, 1988, as an Exhibit to Post-Effective Amendment No. 8
to Registrant's Registration Statement under the Securities Act of 1933.
(c) Filed on July 29, 1988, as an Exhibit to Post-Effective Amendment No. 7 to
Registrant's Registration Statement under the Securities Act of 1933.
(d) Filed on July 28, 1989, as an Exhibit to Post-Effective Amendment No. 9 to
Registrant's Registration Statement under the Securities Act of 1933.
(e) Reference is made to Article V, Article VI (section 3), 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 XIII and Article XIV of the Registrant's By-Laws previously
filed as Exhibit (2) to the Registration Statement.
(f) Filed on August 28, 1992, as an Exhibit to Post-Effective Amendment No. 13
to Registrant's Registration Statement under the Securities Act of 1933.
(g) Filed on August 27, 1993, as an Exhibit to Post-Effective Amendment No. 14
to Registrant's Registration Statement under the Securities Act of 1933.
(h) Filed on August 26, 1994, as an Exhibit to Post-Effective Amendment No. 15
to Registrant's Registration Statement under the Securities Act of 1933.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by or under common control with any other
person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS AT
TITLE OF CLASS SEPTEMBER 30, 1994
-------------- ------------------
<S> <C>
Class A Common Stock, par value $0.10 per share....... 4,960
Class B Common Stock, par value $0.10 per share....... 163
Class C Common Stock, par value $0.10 per share....... 0
Class D Common Stock, par value $0.10 per share....... 0
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Distribution Agreement.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or
any stockholder thereof to which such person would otherwise be subject by
reason of willful misfeasance, bad faith or reckless
C-2
<PAGE>
disregard of the duties involved in the conduct of his office. Absent a court
determination that an officer or director seeking indemnification was not
liable on the merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, the decision by the Registrant to indemnify such person must be based
upon the reasonable determination of independent counsel or non-party
independent directors, after review of the facts, that such officer or director
is not guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Each officer and director of the Registrant claiming indemnification within
the scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland; provided, however,
that the person seeking indemnification shall provide to the Registrant a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Registrant has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Registrant for his undertaking; (b) the Registrant is insured against losses
arising by reason of the advance; or (c) a majority of a quorum of non-party
independent directors, or independent legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the Registrant at
the time the advance is proposed to be made, that there is reason to believe
that the person seeking indemnification will ultimately be found to be entitled
to indemnification.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability, arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or
purports to protect such person from liability to the Registrant or to its
stockholders to which such officer or director would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
In Section 9 of the Class A and B Distribution Agreements relating to the
securities being offered hereby, the Registrant agrees to indemnify the
Distributor and each person, if any, who controls the Distributor within the
meaning of the Securities Act of 1933, as amended (the "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.
C-3
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Merrill Lynch Asset Management, L.P., doing business as Merrill Lynch Asset
Management (the "Investment Adviser"), acts as investment adviser for the
following registered investment companies: Convertible Holdings, Inc., Merrill
Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income
Fund, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Balanced Fund for Investment and Retirement, Merrill
Lynch Capital Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Fundamental Growth Fund, Inc., Merrill Lynch Fund for Tomorrow, Inc., Merrill
Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Convertible Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Global SmallCap Fund, Inc.,
Merrill Lynch Growth Fund for Investment and Retirement, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch High Income Municipal Bond Fund, Inc.,
Merrill Lynch Institutional Intermediate Fund, Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets
Trust, Merrill Lynch Retirement Series Trust, Merrill Lynch Senior Floating
Rate Fund, Inc., 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. Fund Asset Management, L.P. ("FAM"),
an affiliate of the Investment Adviser, acts as the investment adviser for the
following registered investment companies: Apex Municipal Fund, Inc., 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., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Emerging Tigers Fund, Inc., Financial Institutions Series
Trust, Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., 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., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The
Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured
Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California
Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund,
Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc.,
MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield
Arizona Fund II, Inc., MuniYield California Fund, Inc., MuniYield California
Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield
Florida Fund, MuniYield Florida Insured Fund, Inc., MuniYield Fund, Inc.,
MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New
Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York
Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New
York Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality
Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc., Senior High Income Portfolio II, Inc., Senior Strategic Income Fund,
Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc.,
and Worldwide DollarVest Fund, Inc. The address of each of these investment
companies is P.O. Box 9011, Princeton, New Jersey 08543-9011, except that the
address of Merrill Lynch Funds for Institutions Series and Merrill Lynch
Institutional Intermediate Fund is One Financial Center, 15th Floor, Boston,
Massachusetts 02111-2646. The address of the Investment Adviser and FAM is also
P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co.,
Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281. The address of Financial Data Services, Inc. is 4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484.
C-4
<PAGE>
Set forth below is a list of each executive officer and director 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 May 1, 1992 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 paragraph and Messrs.
Durnin, Giordano, Harvey, Hewitt, Kirstein, Monagle and Ms. Griffin are
directors, trustees or officers of one or more of such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL
POSITION(S) WITH BUSINESS, PROFESSION,
NAME INVESTMENT ADVISER VOCATION OR EMPLOYMENT
---- ------------------ ----------------------
<S> <C> <C>
ML & Co. ............... Limited Partner Financial Services Holding Company
Merrill Lynch Investment
Management, Inc. ...... Limited Partner Investment Advisory Services; Limited
Partner of FAM
Princeton Services, Inc.
("Princeton Services"). General Partner General Partner of FAM
Arthur Zeikel........... President and Director President of FAM; President and
Director of Princeton Services;
Director of Merrill Lynch Funds
Distributor, Inc. ("MLFD"); Executive
Vice President of ML & Co.; Executive
Vice President of Merrill Lynch
Terry K. Glenn.......... Executive Vice Executive Vice President of FAM;
President Executive Vice President and Director
of Princeton Services; President and
Director of MLFD; Director of
Financial Data Services, Inc. ("FDS");
President of Princeton Administrators,
L.P.
Bernard J. Durnin....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Elizabeth Griffin....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Vincent R. Giordano..... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Norman R. Harvey........ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
N. John Hewitt.......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Philip L. Kirstein...... Senior Vice President, Senior Vice President, General Counsel
General Counsel and and Secretary of FAM; Senior Vice
Secretary President, General Counsel, Director
and Secretary of Princeton Services;
Director of MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and Controller of
and Controller FAM; Senior Vice President and
Controller of Princeton Services
Stephen M. M. Miller.... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.; Senior Vice
President of Princeton Services
Joseph T. Monagle, Jr... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of
and Treasurer FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Richard L. Rufener...... Senior Vice President Senior Vice President of FAM; Vice
President of MLFD; Senior Vice
President of Princeton Services
Ronald L. Welburn....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of Princeton
Services
</TABLE>
C-5
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each of
the investment companies referred to in the first paragraph of Item 28 except
Apex Municipal Fund, Inc., 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., Corporate High Yield Fund, Inc., Corporate High Yield Fund II,
Inc., Emerging Tigers Fund, Inc., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., MuniAssets Fund, Inc., MuniBond Income Fund,
Inc., The Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc.,
MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest
California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured
Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund,
Inc., MuniVest Pennsylvania Fund, MuniYield Arizona Fund, MuniYield Arizona
Fund II, Inc., MuniYield California Fund, Inc., MuniYield California Insured
Fund, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield
Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc.,
MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield
New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New
York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield
New York Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality
Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc., Senior High Income Portfolio II, Inc., Senior Strategic Income Fund,
Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc.
and Worldwide DollarVest Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Crook,
Aldrich, Breen, Graczyk, Fatseas and Wasel is One Financial Center, Boston,
Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITION(S) AND OFFICES POSITION(S) AND OFFICES
NAME WITH MLFD WITH REGISTRANT
---- ----------------------- ------------------------
<S> <C> <C>
Terry K. Glenn ......... President and Director Executive Vice President
Arthur Zeikel .......... Director President and Director
Philip L. Kirstein ..... Director Senior Vice President
William E. Aldrich ..... Senior Vice President None
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 Treasurer None
Mark A. DeSario ........ Vice President None
James T. Fatseas ....... Vice President None
Stanley Graczyk ........ Vice President None
Michelle T. Lau ........ Vice President None
Debra W. Landsman-Yaros. Vice President None
Gerald M. Richard ...... Vice President and Treasurer Treasurer
Richard L. Rufener ..... Vice President None
Salvatore Venezia....... Vice President None
William Wasel........... Vice President None
Robert Harris........... Secretary Secretary
</TABLE>
(c) Not applicable.
C-6
<PAGE>
ITEM 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended, and the Rules
thereunder are maintained at the offices of the Registrant, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and 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 Company--
Advisory and Management Arrangements" in the Prospectus constituting Part A of
the Registration Statement and under "Management of the Company--Advisory and
Management Arrangements" in the Statement of Additional Information
constituting Part B of the Registration Statement, 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-7
<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 AMENDMENT TO ITS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF
PLAINSBORO, AND STATE OF NEW JERSEY, ON THE 10TH DAY OF OCTOBER 1994.
Merrill Lynch Healthcare Fund, Inc.
(Registrant)
By /s/ Arthur Zeikel
-----------------------------------
(ARTHUR ZEIKEL, PRESIDENT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
ITS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATE(S) INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Arthur Zeikel President and Director October 10, 1994
- -------------------------------- (Principal Executive
(ARTHUR ZEIKEL) Officer)
/s/ Gerald M. Richard Treasurer (Principal October 10, 1994
- -------------------------------- Financial and
(GERALD M. RICHARD) Accounting Officer)
Donald Cecil* Director October 10, 1994
- --------------------------------
(DONALD CECIL)
Charles C. Reilly* Director October 10, 1994
- --------------------------------
(CHARLES C. REILLY)
Richard R. West* Director October 10, 1994
- --------------------------------
(RICHARD R. WEST)
*By /s/ Arthur Zeikel October 10, 1994
------------------------------
(ARTHUR ZEIKEL, ATTORNEY-IN-
FACT)
C-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
1(a) --Articles of Incorporation of Registrant, as amended.(a)....
(b) --Articles of Amendment to Articles of Incorporation of
Registrant.(b).............................................
(c) --Articles of Amendment to Articles of Incorporation of
Registrant.(f).............................................
2 --By-Laws of Registrant.(b)..................................
3 --None.......................................................
4 --Portions of the Articles of Incorporation and the By-Laws
of the Registrant defining the rights of holders of shares
of the Registrant.(g)......................................
5(a) --Amended Investment Advisory Agreement between Registrant
and Merrill Lynch Asset Management.(f).....................
(b) --Supplement to Investment Advisory Agreement between
Registrant and Merrill Lynch Asset Management, L.P., dated
January 3, 1994.(h)........................................
6(a) --Class A Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.......................
(b) --Class B Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.(b)...................
(c) --Letter Agreement between the Registrant and Merrill Lynch
Funds Distributor, Inc. with respect to the Merrill Lynch
Mutual Fund Advisor Program.(h)............................
(d) --Form of New Class A Shares Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor, Inc.
(e) --Form of Class C Shares Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor, Inc........
(f) --Form of Class D Shares Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor, Inc........
7 --None.......................................................
8 --Custody Agreement between Registrant and The Chase
Manhattan Bank, N.A.(a)....................................
9 --Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between Registrant
and Financial Data Services, Inc.(c).......................
10 --None.......................................................
11 --Consent of Deloitte & Touche llp, independent auditors
for the Registrant.........................................
12 --None.......................................................
13 --Certificate of Merrill Lynch Asset Management, Inc.(a).....
14 --None.......................................................
15(a) --Class B Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(g)......
(b) --Form of Class C Shares Distribution Plan and Class C
Shares Distribution Plan Sub-Agreement of the Registrant...
(c) --Form of Class D Shares Distribution Plan and Class D
Shares Distribution Plan Sub-Agreement of 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.(b).................................
(b) --Schedule of computation of each performance quotation for
Class B shares provided in the Registration Statement in
response to Item 22.(d)....................................
17(a) --Financial Data Schedule for Class A Shares. ...............
(b) --Financial Data Schedule for Class B Shares. ...............
</TABLE>
<PAGE>
- --------
(a) Filed on January 17, 1983, as an Exhibit to Pre-Effective Amendment No. 1
to Registrant's Registration Statement under the Securities Act of 1933.
(b) Filed on October 7, 1988, as an Exhibit to Post-Effective Amendment No. 8
to Registrant's Registration Statement under the Securities Act of 1933.
(c) Filed on July 29, 1988, as an Exhibit to Post-Effective Amendment No. 7 to
Registrant's Registration Statement under the Securities Act of 1933.
(d) Filed on July 28, 1989, as an Exhibit to Post-Effective Amendment No. 9 to
Registrant's Registration Statement under the Securities Act of 1933.
(e) Reference is made to Article V, Article VI (section 3), 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 XIII and Article XIV of the Registrant's By-Laws previously
filed as Exhibit (2) to the Registration Statement.
(f) Filed on August 28, 1992, as an Exhibit to Post-Effective Amendment No. 13
to Registrant's Registration Statement under the Securities Act of 1933.
(g) Filed on August 27, 1993, as an Exhibit to Post-Effective Amendment No. 14
to Registrant's Registration Statement under the Securities Act of 1933.
(h) Filed on August 26, 1994, as an Exhibit to Post-Effective Amendment No. 15
to Registrant's Registration Statement under the Securities Act of 1933.
<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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1994
<PERIOD-START> MAY-01-1993
<PERIOD-END> APR-30-1994
<INVESTMENTS-AT-COST> 138,933,468
<INVESTMENTS-AT-VALUE> 140,261,635
<RECEIVABLES> 4,701,883
<ASSETS-OTHER> 838,970
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 145,802,488
<PAYABLE-FOR-SECURITIES> 10,679,970
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 677,384
<TOTAL-LIABILITIES> 11,357,354
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 123,511,724
<SHARES-COMMON-STOCK> 18,275,079
<SHARES-COMMON-PRIOR> 17,715,946
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,607,211
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,326,199
<NET-ASSETS> 70,753,048
<DIVIDEND-INCOME> 806,105
<INTEREST-INCOME> 459,926
<OTHER-INCOME> 0
<EXPENSES-NET> 2,372,049
<NET-INVESTMENT-INCOME> (1,106,018)
<REALIZED-GAINS-CURRENT> 13,090,689
<APPREC-INCREASE-CURRENT> (4,130,488)
<NET-CHANGE-FROM-OPS> 7,854,183
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 236,233
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,174,049
<NUMBER-OF-SHARES-REDEEMED> 5,667,645
<SHARES-REINVESTED> 52,729
<NET-CHANGE-IN-ASSETS> 37,846,211
<ACCUMULATED-NII-PRIOR> 162,673
<ACCUMULATED-GAINS-PRIOR> (3,525,610)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,200,254
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,372,049
<AVERAGE-NET-ASSETS> 69,527,143
<PER-SHARE-NAV-BEGIN> 3.59
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> .31
<PER-SHARE-DIVIDEND> .01
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 3.87
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1994
<PERIOD-START> MAY-01-1993
<PERIOD-END> APR-30-1994
<INVESTMENTS-AT-COST> 138,933,468
<INVESTMENTS-AT-VALUE> 140,261,635
<RECEIVABLES> 4,701,883
<ASSETS-OTHER> 838,970
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 145,802,488
<PAYABLE-FOR-SECURITIES> 10,679,970
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 677,384
<TOTAL-LIABILITIES> 11,357,354
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 123,511,724
<SHARES-COMMON-STOCK> 17,963,774
<SHARES-COMMON-PRIOR> 10,004,860
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,607,211
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,326,199
<NET-ASSETS> 63,692,086
<DIVIDEND-INCOME> 806,105
<INTEREST-INCOME> 459,926
<OTHER-INCOME> 0
<EXPENSES-NET> 2,372,049
<NET-INVESTMENT-INCOME> (1,106,018)
<REALIZED-GAINS-CURRENT> 13,090,689
<APPREC-INCREASE-CURRENT> (4,130,488)
<NET-CHANGE-FROM-OPS> 7,854,183
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 236,233
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,579,944
<NUMBER-OF-SHARES-REDEEMED> 5,621,030
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 37,846,211
<ACCUMULATED-NII-PRIOR> 162,673
<ACCUMULATED-GAINS-PRIOR> (3,525,610)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,200,254
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,372,049
<AVERAGE-NET-ASSETS> 50,827,999
<PER-SHARE-NAV-BEGIN> 3.31
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> .29
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 3.55
<EXPENSE-RATIO> 2.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of October 1994 between MERRILL LYNCH
HEALTHCARE 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 (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 A shares of
common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
------------------------------
Distributor as the principal underwriter and distributor of the Fund to sell
Class A shares of common stock in the Fund (sometimes herein referred to as
"Class A shares") to eligible investors (as defined below) and hereby agrees
during
<PAGE>
the term of this Agreement to sell Class A shares of the Fund to the Distributor
upon the terms and conditions 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 Class A 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 A 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 right granted to the Distributor to purchase Class A
shares from the Fund shall not apply to Class A shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding Class A shares of any such
company by the Fund.
(c) Such exclusive right also shall not apply to Class A shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2
<PAGE>
(d) Such exclusive right also shall not apply to Class A shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class A shares as shall be
agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class A shares from the Fund.
----------------------------------------
(a) The Distributor shall have the right to buy from the Fund the Class A
shares needed, but not more than the Class A shares needed (except for clerical
errors in transmission) to fill unconditional orders for Class A shares of the
Fund placed with the Distributor by eligible investors or securities dealers.
Investors eligible to purchase Class A shares shall be those persons so
identified in the currently effective prospectus and statement of additional
information of the Fund (the "prospectus" and "statement of additional
information", respectively) under the Securities Act of 1933, as amended (the
"Securities Act"), relating to such Class A shares ("eligible investors"). The
price which the Distributor shall pay for the Class A shares so purchased from
the Fund shall be the net asset value, determined as set forth in Section 3(d)
hereof, used in determining the public offering price on which such orders were
based.
(b) The Class A shares are to be resold by the Distributor to eligible
investors at the public offering price, 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 public offering price(s) of the Class A shares, i.e., the price
- -
per share at which the Distributor or selected dealers may sell Class A shares
to eligible investors, shall be the public offering price as set forth in the
prospectus and statement of additional information relating to such Class A
shares, but not to exceed the net asset value at which the Distributor is to
purchase the Class A shares, plus a sales charge not to exceed ____% of the
public offering price (____% of the net amount invested), subject to reductions
for volume purchases. Class A shares may be sold to certain Directors, officers
and employees of the Fund, directors and employees of Merrill Lynch & Co., Inc.
and its subsidiaries, and to certain other persons described in the prospectus
and statement of additional information, without a sales charge or at a reduced
sales charge, upon terms and conditions set forth in the prospectus and
statement of additional information. If the public offering price does not
equal an even cent, the public offering price may be adjusted to the nearest
cent. All payments to the Fund hereunder shall be made in the manner set forth
in Section 3(f).
(d) The net asset value of Class A shares 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 Directors.
4
<PAGE>
(e) The Fund shall have the right to suspend the sale of its Class A
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 A 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 A shares.
(f) The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class A 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 A shares from eligible investors. 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 A shares
pursuant to the instructions of the Distributor. Payment shall be made to the
Fund in New 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 Class A shares by the Fund.
------------------------------------------------------
5
<PAGE>
(a) Any of the outstanding Class A shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class A 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. The price to be paid to redeem or repurchase the Class
A shares shall be equal to the net asset value calculated in accordance with the
provisions of Section 3(d) hereof, less any contingent deferred sales charge
("CDSC"), redemption fee or other charge(s), 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 redemption or
repurchase by the Fund of any of the Class A shares purchased by or through the
Distributor will not affect the sales charge secured by the Distributor or any
selected dealer in the course of the original sale, except that if any Class A
shares are tendered for redemption or repurchase within seven business days
after the date of the confirmation of the original purchase, the right to the
sales charge shall be forfeited by the Distributor and the selected dealer which
sold such Class A shares.
The Fund shall pay the total amount of the redemption price as defined in
the above paragraph pursuant to the instructions of the Distributor in New York
Clearing House funds on or before the seventh business day subsequent to its
having received the notice
6
<PAGE>
of redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Fund as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the 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 A shares or payment may be suspended at times when
the New York Stock Exchange is closed, when trading on said Exchange is
suspended, 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 A 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 the prospectus and statement of additional information as the
Distributor shall reasonably request.
7
<PAGE>
(b) The Fund shall take, from time to time, but subject to any necessary
approval of the Class A shareholders, all necessary action to fix the number of
authorized Class A shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be available for sale
such number of Class A shares as the Distributor may reasonably 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 A 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.
8
<PAGE>
Section 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class A shares of the Fund but shall not be obligated to sell any
specific number of Class A shares. The services of the Distributor to the Fund
hereunder are not to 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 A 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, as defined in Section 7 hereof, 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 eligible investors and
selected dealers, the collection of amounts payable by eligible investors and
selected dealers on such sales, and the cancellation of unsettled transactions,
as may be necessary to comply with the requirements of the National
9
<PAGE>
Association of Securities Dealers, Inc. (the "NASD"), as such requirements may
from time to time exist.
Section 7. Selected Dealers Agreements.
---------------------------
(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class A shares and fix therein the portion of the sales charge which may
be allocated to the selected dealers; provided that the Fund shall approve the
forms of agreements with dealers and the dealer compensation set forth therein.
Class A shares sold to selected dealers shall be for resale by such dealers only
at the public offering price(s) set forth in the prospectus and statement of
additional information. The form of agreement with selected dealers to be used
during the continuous offering of the Class A shares is attached hereto as
Exhibit A.
(b) Within the United States, the Distributor shall offer and sell Class A
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 auditors, in connection with the
preparation and filing of any required 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
10
<PAGE>
materials to Class A shareholders (including but not limited to the expense of
setting in type any such registration statements, prospectuses, statements of
additional information, annual or interim reports or proxy materials).
(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 consultants. 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 A shares to selected dealers or eligible 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 A shares for sale to eligible investors and any
expenses of advertising incurred by the Distributor in connection with such
offering.
(c) The Fund shall bear the cost and expenses of qualification of the
Class A 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 cost and
expenses payable to each such state for continuing
11
<PAGE>
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 Distributor 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), as incurred, arising by reason of any
person acquiring any Class A 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 connection 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 persons thereof against any
liability to the Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of
12
<PAGE>
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 such counsel, the Distributor or such controlling person or persons,
defendant or defendants in the suit shall bear the fees and expenses of any
13
<PAGE>
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 commencement 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 A 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 registration statement or related prospectus and
statement of additional information, as from time to time amended, or the annual
or interim reports to Class A 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, and the Fund and each person so indemnified shall have
the rights and duties given to the Distributor by the provisions of subsection
(a) of this Section 9.
14
<PAGE>
Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection with
------------------------------------------
the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized to
offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such sales, including
terms as to the offering price of shares, the proceeds to be paid to the Fund,
the duties of the Distributor, the payment of expenses and indemnification
obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall become effective as of the date first above written and shall remain in
force until October __, 1995 and thereafter, but only for 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 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 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.
15
<PAGE>
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.
Section 12. Amendments of this Agreement. This Agreement may be amended
----------------------------
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding 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 13. 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.
Section 14. This Agreement supersedes the prior Distribution Agreement
entered into by the parties hereto with respect to the Class A shares of the
Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
16
<PAGE>
MERRILL LYNCH HEALTHCARE FUND, INC.
By_____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
17
<PAGE>
EXHIBIT A
MERRILL LYNCH HEALTHCARE FUND, INC.
CLASS A SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
--------------------------
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement
with Merrill Lynch Healthcare Fund, Inc., a Maryland Corporation (the "Fund"),
pursuant to which it acts as the distributor for the sale of Class A shares of
common stock, par value $0.10 per share (herein referred to as "Class A
shares"), of the Fund and as such has the right to distribute Class A 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 A shares are
registered under the Securities Act of 1933, as amended. You have received a
copy of the Class A shares Distribution Agreement (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" 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. We offer to sell to you, as
a member of the Selected Dealers Group, Class A shares of the Fund for resale to
investors identified in the Prospectus and Statement of Additional Information
as eligible to purchase Class A shares ("eligible investors") upon the following
terms and conditions:
1. In all sales of these Class A shares to eligible investors, 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, except in connection with the Merrill Lynch Mutual Fund
Adviser program and such other special programs as we from time to time agree,
in which case you shall have authority to offer and sell shares, as agent for
the Fund, to participants in such program.
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
1
<PAGE>
of orders shall be subject to Section 5 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 initial and subsequent purchase requirements are as set
forth in the current Prospectus and Statement of Additional Information of the
Fund.
3. The sales charges for sales to eligible investors, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
- ------------------ -------------- -------------- -----------
<S> <C> <C> <C>
Less than $10,000 % % %
$10,000 but less
than $25,000..........
$25,000 but less
than $50,000.......... % % %
$50,000 but less
than $100,000......... % % %
$100,000 but less
than $250,000......... % % %
$250,000 but less
than $1,000,000....... % % %
$1,000,000 and over**.. % % %
</TABLE>
___________________
* Rounded to the nearest one-hundredth percent.
** Initial sales charges may be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of the
Fund. Such purchases may be subject to a contingent deferred sales charge as
set forth in the current Prospectus and Statement of Additional Information.
2
<PAGE>
The term "purchase" 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 Class A shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class A shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act of 1940, as
amended, 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 Class A shares of the Fund or Class A shares of other registered
investment companies at a discount; provided, however, that it shall not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit cardholders of a company, policyholders of
an insurance company, customers of either a bank or broker-dealer or clients of
an investment adviser.
The reduced sales charges are applicable through a right of accumulation
under which certain eligible investors are permitted to purchase Class A shares
of the Fund 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 Class A, Class B, Class C and Class D shares of
the Fund and of any other investment company with an initial sales charge for
which the Distributor acts as the distributor. For any such right of
accumulation to be made available, the Distributor must be provided at the time
of purchase, by the purchaser or you, with sufficient information to permit
confirmation of qualification, and acceptance of the purchase order is subject
to such confirmation.
The reduced sales charges are applicable to purchases aggregating $10,000
or more of Class A shares or of Class D shares of any other investment company
with an initial sales charge for which the Distributor acts as the distributor
made through you within a thirteen-month period starting with the first purchase
pursuant to a Letter of Intention in the form provided in the Prospectus. A
purchase not originally made pursuant to a Letter of Intention may be included
under a subsequent letter executed within 90 days of such purchase if the
Distributor is informed in writing of this intent within such 90-day period. If
the intended amount of shares is not purchased within the thirteen-month period,
an appropriate price adjustment will be made pursuant to the terms of the Letter
of Intention.
You agree to advise us promptly at our request as to amounts of any sales
made by you to eligible investors qualifying for reduced sales charges. Further
information as to the reduced sales charges pursuant
3
<PAGE>
to the right of accumulation or a Letter of Intention is set forth in the
Prospectus and Statement of Additional Information.
4. You shall not place orders for any of the Class A shares unless you
have already received purchase orders for such Class A 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 A 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 A 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 A 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.
5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class A 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 subject to the
compensation provisions of Section 3 hereof and (ii) to tender Class A 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.
6. 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.
7. If any Class A shares sold to you under the terms of this Agreement are
repurchased by the Fund or by us for the account of the Fund or are tendered for
redemption within seven business days after the date of the confirmation of the
original purchase by you, it is agreed that you shall forfeit your right to, and
refund to us, any discount received by you on such Class A shares.
8. No person is authorized to make any representations concerning Class A
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 A
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
4
<PAGE>
Prospectus, Statement of Additional Information, periodic reports and proxy
solicitation material is 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.
9. 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 request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class A shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this agreement upon notice to the other party.
11. 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.
12. 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.
13. Upon application to us, we will inform you as to the states in which we
believe the Class A 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 A shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class A shares, if necessary.
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
5
<PAGE>
15. Your first order placed pursuant to this Agreement for the purchase of
Class A shares of the Fund will represent your acceptance of this Agreement.
16. This Agreement supersedes any prior Selected Dealers Agreement entered
into by the parties hereto with respect to the Class A shares of the Fund.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
----------------------------------
(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: Merrill Lynch, Pierce, Fenner & Smith Inc.
--------------------------------------------
By:
---------------------------------------------------
Address: 800 Scudders Mill Road
----------------------------------------------
Plainsboro, New Jersey 08536
------------------------------------------------------
Date: , 1994
------------------------------------------------
6
<PAGE>
CLASS C SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ______ day of October 1994, between MERRILL LYNCH
HEALTHCARE 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 (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 Fund's Class C shares
in order to promote the growth of the Fund and facilitate the distribution of
its Class C shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
------------------------------
Distributor as the principal underwriter and distributor of the Fund to sell
Class C shares of common stock in the Fund (sometimes herein referred to as
"Class C shares") to
<PAGE>
the public and hereby agrees during the term of this Agreement to sell shares of
the Fund to the Distributor upon the terms and conditions 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 of the Class C shares, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class C 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 C 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 right granted to the Distributor to purchase Class C
shares from the Fund shall not apply to Class C shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding Class C
shares of any such company by the Fund.
2
<PAGE>
(c) Such exclusive right also shall not apply to Class C shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
(d) Such exclusive right also shall not apply to Class C shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class C shares as shall be
agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class C Shares from the Fund.
----------------------------------------
(a) It is contemplated that the Fund will commence an offering of its
Class C shares, and thereafter the Distributor shall have the right to buy from
the Fund the Class C shares needed, but not more than the Class C shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Class C shares of the Fund placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class C shares shall be
those persons so identified in the currently effective prospectus and statement
of additional information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class C shares. The price which
the Distributor shall pay for the Class C shares so purchased from the Fund
shall be the net asset value, determined as set forth in Section 3(c) hereof.
3
<PAGE>
(b) The Class C 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.
(c) The net asset value of Class C 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 and guidelines
established by the Board of Directors.
(d) The Fund shall have the right to suspend the sale of its Class C
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 C 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 C 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 C 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 C shares. The Fund
4
<PAGE>
(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 C shares pursuant
to the instructions of the Distributor. Payment shall be made to the Fund in
New 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 Class C Shares by the Fund.
--------------------------------------------- --------
(a) Any of the outstanding Class C shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class C 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 C shares shall be equal to the net asset value calculated
in accordance with the provisions of Section 3(c) hereof, less any contingent
deferred sales charge ("CDSC"), redemption fee or other charge(s), 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.
5
<PAGE>
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 shares shall be
paid by the Fund as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the 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 C shares or payment may be suspended at times when
the New York Stock Exchange is closed, when trading on said Exchange is
suspended, 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 C shares of the
Fund, and this shall include, upon request by the Distributor, one certified
copy of all
6
<PAGE>
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.
(b) The Fund shall take, from time to time, but subject to any necessary
approval of the shareholders, all necessary action to fix the number of
authorized shares and such steps as may be necessary to register the same under
the Securities Act to the end that there will be available for sale such number
of Class C 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 C 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.
7
<PAGE>
Section 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class C shares of the Fund but shall not be obligated to sell any
specific number of shares. The services of the Distributor to the Fund
hereunder are not to 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 C 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, as defined in Section 7 hereof, 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 necessary
to comply with the requirements of the National Association
8
<PAGE>
of Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
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 C shares; provided, that the Fund shall approve the forms of
agreements with dealers. Class C 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 form of agreement with selected dealers to be used
during the continuous offering of the shares is attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell Class C
shares only to such selected dealers that 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 auditors, in connection with the
preparation and filing of any required 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 materials to Class C
shareholders (including but not limited to the expense of setting in type any
such registration statements,
9
<PAGE>
prospectuses, statements of additional information, annual or interim reports or
proxy materials).
(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 consultants. 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 C 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 C 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 Class C Shares 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 qualification of the
Class C shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of quali-
10
<PAGE>
fying 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 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 Distributor 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), as incurred, arising by reason of any
person acquiring any Class C 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 Class C
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 connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i)
11
<PAGE>
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 persons thereof against any liability to the Fund or its security
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
12
<PAGE>
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 such
counsel, the Distributor or such controlling person or persons, defendant or
defendants in the suit shall bear the fees and expenses, as incurred, 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, as incurred, of any counsel retained by them. The
Fund shall promptly notify the Distributor of the commencement 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 C 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, as incurred, 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 registration statement or related
prospectus and statement of additional information, as from time to time
amended, or the
13
<PAGE>
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, and the Fund and each person so indemnified shall have
the rights and duties given to the Distributor by the provisions of subsection
(a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection with
------------------------------------------
the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized to
offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such sales, including
the terms as to the offering price of shares, the proceeds to be paid to the
Fund, the duties of the Distributor, the payment of expenses and indemnification
obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall become effective as of the date first above written and shall remain in
force until October __, 1995 and thereafter, but only for 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 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
14
<PAGE>
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 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.
Section 12. Amendments of this Agreement. This Agreement may be amended
----------------------------
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding 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 13. 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
15
<PAGE>
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 HEALTHCARE FUND, INC.
By ____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By ____________________________________
Title:
16
<PAGE>
EXHIBIT A
MERRILL LYNCH HEALTHCARE FUND, INC.
CLASS C SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
-------------------------
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement
with Merrill Lynch Healthcare Fund, Inc., a Maryland corporation (the "Fund"),
pursuant to which it acts as the distributor for the sale of Class C shares of
common stock, par value $0.10 per share (herein referred to as the "Class C
shares"), of the Fund and as such has the right to distribute Class C 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 C shares
being offered to the public are registered under the Securities Act of 1933, as
amended. You have received a copy of the Class C Shares Distribution Agreement
(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. We offer to sell to you, as a member of the Selected Dealers Group,
Class C shares of the Fund upon the following terms and conditions:
1. In all sales of these Class C 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, except in connection with the Merrill Lynch Mutual Fund Adviser
program and such other special programs as we from time to time agree, in which
case you shall have authority to offer and sell shares, as agent for the Fund,
to participants in such program.
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-
1
<PAGE>
tial and subsequent purchase requirements are as set forth in the current
Prospectus and Statement of Additional Information of the Fund.
3. You shall not place orders for any of the Class C shares unless you
have already received purchase orders for such Class C 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 C 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 C 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 C 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 C 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 C 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 C
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 C
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 is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall
2
<PAGE>
have no liability or responsibility to you in these respects unless expressly
assumed in connection therewith.
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 request.
8. We reserve the right in our discretion, without notice, to suspend sales
or withdraw the offering of Class C shares entirely or to certain persons or
entities in a class or classes specified by us. 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 C 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 C shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class C 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 telegraphed 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 C shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
----------------------------------
(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: Merrill Lynch, Pierce, Fenner & Smith Inc.
--------------------------------------------
By:
---------------------------------------------------
Address: 800 Scudders Mill Road
-------------------------------------------------------
Plainsboro, New Jersey 08536
-------------------------------------------------------
Date: , 1994
-------------------------------------------------
4
<PAGE>
CLASS D SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of October 1994 between MERRILL LYNCH
HEALTHCARE 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 (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 D shares of
common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
------------------------------
Distributor as the principal underwriter and distributor of the Fund to sell
Class D shares of common stock in the Fund (sometimes herein referred to as
"Class D shares") to the
<PAGE>
public and hereby agrees during the term of this Agreement to sell Class D
shares of the Fund to the Distributor upon the terms and conditions 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 Class D 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 D 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 right granted to the Distributor to purchase Class D
shares from the Fund shall not apply to Class D shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding Class D shares of any such
company by the Fund.
(c) Such exclusive right also shall not apply to Class D shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2
<PAGE>
(d) Such exclusive right also shall not apply to Class D shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class D shares as shall be
agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class D Shares from the Fund.
----------------------------------------
(a) It is contemplated that the Fund will commence an offering of its
Class D shares, and thereafter the Distributor shall have the right to buy from
the Fund the Class D shares needed, but not more than the Class D shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Class D shares of the Fund placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class D shares shall be
those persons so identified in the currently effective prospectus and statement
of additional information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class D shares. The price which
the Distributor shall pay for the Class D shares so purchased from the Fund
shall be the net asset value, determined as set forth in Section 3(d) hereof,
used in determining the public offering price on which such orders were based.
(b) The Class D shares are to be resold by the Distributor to investors at
the public offering price, as set forth in Section 3(c) hereof, or to securities
dealers having agreements
3
<PAGE>
with the Distributor upon the terms and conditions set forth in Section 7
hereof.
(c) The public offering price(s) of the Class D shares, i.e., the price
- -
per share at which the Distributor or selected dealers may sell Class D shares
to the public, shall be the public offering price as set forth in the prospectus
and statement of additional information relating to such Class D shares, but not
to exceed the net asset value at which the Distributor is to purchase the Class
D shares, plus a sales charge not to exceed ____% of the public offering price
(____% of the net amount invested), subject to reductions for volume purchases.
Class D shares may be sold to certain Directors, officers and employees of the
Fund, directors and employees of Merrill Lynch & Co., Inc. and its subsidiaries,
and to certain other persons described in the prospectus and statement of
additional information, without a sales charge or at a reduced sales charge,
upon terms and conditions set forth in the prospectus and statement of
additional information. If the public offering price does not equal an even
cent, the public offering price may be adjusted to the nearest cent. All
payments to the Fund hereunder shall be made in the manner set forth in Section
3(f).
(d) The net asset value of Class D shares 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
4
<PAGE>
information of the Fund and guidelines established by the Directors.
(e) The Fund shall have the right to suspend the sale of its Class D
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 D 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 D shares.
(f) The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class D 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 D 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 D shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Fund (or its agent).
5
<PAGE>
Section 4. Repurchase or Redemption of Class D Shares by the Fund.
------------------------------------------------------
(a) Any of the outstanding Class D shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class D 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. The price to be paid to redeem or repurchase the Class
D shares shall be equal to the net asset value calculated in accordance with the
provisions of Section 3(d) hereof, less any contingent deferred sales charge
("CDSC"), redemption fee or other charge(s), 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 redemption or
repurchase by the Fund of any of the Class D shares purchased by or through the
Distributor will not affect the sales charge secured by the Distributor or any
selected dealer in the course of the original sale, except that if any Class D
shares are tendered for redemption or repurchase within seven business days
after the date of the confirmation of the original purchase, the right to the
sales charge shall be forfeited by the Distributor and the selected dealer which
sold such Class D shares.
The Fund shall pay the total amount of the redemption price as defined in
the above paragraph pursuant to the instructions of
6
<PAGE>
the Distributor in New York Clearing House funds 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 shares shall be paid by the Fund
as follows: (i) any applicable CDSC shall be paid to the Distributor, and (ii)
the 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 D shares or payment may be suspended at times when
the New York Stock Exchange is closed, when trading on said Exchange is
suspended, 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 D 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
7
<PAGE>
such number of copies of the prospectus and statement of additional information
as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to any necessary
approval of the Class D shareholders, all necessary action to fix the number of
authorized Class D shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be available for sale
such number of Class D shares as the Distributor may reasonably 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 D 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 D shares of the Fund but shall not be obligated to sell any
specific number of Class D shares. The
8
<PAGE>
services of the Distributor to the Fund hereunder are not to 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 D 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, as defined in Section 7 hereof, 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 necessary
to comply with the requirements of the National Association of Securities
Dealers, Inc. (the "NASD"), as such requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
---------------------------
(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice
9
<PAGE>
("selected dealers") for the sale of Class D shares and fix therein the portion
of the sales charge which may be allocated to the selected dealers; provided
that the Fund shall approve the forms of agreements with dealers and the dealer
compensation set forth therein. Class D shares sold to selected dealers shall
be for resale by such dealers only at the public offering price(s) set forth in
the prospectus and statement of additional information. The form of agreement
with selected dealers to be used during the continuous offering of the Class D
shares is attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell Class D
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 auditors, in connection with the
preparation and filing of any required 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 materials to Class D
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
10
<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 consultants. 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 D 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 D 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 Class D Shares Distribution Plan pursuant
to Rule 12b-1 under the Investment Company Act remains in effect, any expenses
incurred by the Distributor hereunder in connection with account maintenance
activities may be paid from amounts recovered by it from the Fund under such
plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class D 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
11
<PAGE>
and the Distributor pursuant to Section 5(c) hereof and the 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 Distributor 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), as incurred, arising by reason of any
person acquiring any Class D 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 connection 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 persons thereof against any
liability to the
12
<PAGE>
Fund or its security 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 such counsel, the
13
<PAGE>
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
commencement 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 D
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 registration statement or related prospectus and
statement of additional information, as from time to time amended, or the annual
or interim reports to Class D 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, and the Fund and each person so indemnified
14
<PAGE>
shall have the rights and duties given to the Distributor by the provisions of
subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection with
------------------------------------------
the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized to
offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such shares, including
terms as to the offering price of shares, the proceeds to be paid to the Fund,
the duties of the Distributor, the payment of expenses and indemnification
obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall become effective as of the date first above written and shall remain in
force until October __, 1995 and thereafter, but only for 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 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 voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This
15
<PAGE>
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.
Section 12. Amendments of this Agreement. This Agreement may be amended
----------------------------
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding 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 13. 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 HEALTHCARE FUND, INC.
16
<PAGE>
By_____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
17
<PAGE>
EXHIBIT A
MERRILL LYNCH HEALTHCARE FUND, INC.
CLASS D SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
--------------------------
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement
with Merrill Lynch Healthcare Fund, Inc., a Maryland corporation (the "Fund"),
pursuant to which it acts as the distributor for the sale of Class D shares of
common stock, par value $0.10 per share (herein referred to as "Class D
shares"), of the Fund and as such has the right to distribute Class D 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 D shares
being offered to the public are registered under the Securities Act of 1933, as
amended. You have received a copy of the Class D Shares Distribution Agreement
(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" 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. We offer to sell to you, as a member of the Selected Dealers Group,
Class D shares of the Fund upon the following terms and conditions:
1. In all sales of these Class D 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, except in connection with the Merrill Lynch Mutual Fund Adviser
program and such other special programs as we from time to time agree, in which
case you shall have authority to offer and sell shares, as agent for the Fund,
to participants in such program.
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 5 hereof and instructions
which we or the Fund shall forward from time to time to you. All
1
<PAGE>
orders are subject to acceptance or rejection by the Distributor or the Fund in
the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.
3. The sales charges for sales to the public, computed as percentages of
the public offering price and the amount invested, and the related discount to
Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
- ------------------ -------------- -------------- -----------
<S> <C> <C> <C>
Less than $10,000...... % % %
$10,000 but less
than $25,000.......... % % %
$25,000 but less
than $50,000.......... % % %
$50,000 but less
than $100,000......... % % %
$100,000 but less
than $250,000......... % % %
$250,000 but less
than $1,000,000....... % % %
$1,000,000 and over**.. % % %
</TABLE>
___________________
* Rounded to the nearest one-hundredth percent.
** Initial sales charges will be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of the
Fund. Such purchases may be subject to a contingent deferred sales charge as
set forth in the current Prospectus and Statement of Additional Information.
2
<PAGE>
The term "purchase" 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 Class D shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class D shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act of 1940, as
amended, 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 Class D shares of the Fund or Class D shares of other registered
investment companies at a discount; provided, however, that it shall not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit cardholders of a company, policyholders of
an insurance company, customers of either a bank or broker-dealer or clients of
an investment adviser.
The reduced sales charges are applicable through a right of accumulation
under which eligible investors are permitted to purchase Class D shares of the
Fund 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 Class A, Class B, Class C and Class D shares of the Fund
and of any other investment company with an initial sales charge for which the
Distributor acts as the distributor. For any such right of accumulation to be
made available, the Distributor must be provided at the time of purchase, by the
purchaser or you, with sufficient information to permit confirmation of
qualification, and acceptance of the purchase order is subject to such
confirmation.
The reduced sales charges are applicable to purchases aggregating $10,000
or more of Class A shares or of Class D shares of any other investment company
with an initial sales charge for which the Distributor acts as the distributor
made through you within a thirteen-month period starting with the first purchase
pursuant to a Letter of Intention in the form provided in the Prospectus. A
purchase not originally made pursuant to a Letter of Intention may be included
under a subsequent letter executed within 90 days of such purchase if the
Distributor is informed in writing of this intent within such 90-day period. If
the intended amount of shares is not purchased within the thirteen-month period,
an appropriate price adjustment will be made pursuant to the terms of the Letter
of Intention.
You agree to advise us promptly at our request as to amounts of any sales
made by you to the public qualifying for reduced sales charges. Further
information as to the reduced sales charges pursuant to the
3
<PAGE>
right of accumulation or a Letter of Intention is set forth in the Prospectus
and Statement of Additional Information.
4. You shall not place orders for any of the Class D shares unless you
have already received purchase orders for such Class D 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 D 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 D 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 D 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.
5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class D 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 subject to the
compensation provisions of Section 3 hereof and (ii) to tender Class D 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.
6. 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.
7. If any Class D shares sold to you under the terms of this Agreement
are repurchased by the Fund or by us for the account of the Fund or are tendered
for redemption within seven business days after the date of the confirmation of
the original purchase by you, it is agreed that you shall forfeit your right to,
and refund to us, any discount received by you on such Class D shares.
8. No person is authorized to make any representations concerning Class D
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 D
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
4
<PAGE>
Prospectus, Statement of Additional Information, periodic reports and proxy
solicitation material is 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.
9. 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 request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class D shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this agreement upon notice to the other party.
11. 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.
12. 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.
13. Upon application to us, we will inform you as to the states in which
we believe the Class D 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 D shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class D shares, if necessary.
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
5
<PAGE>
15. Your first order placed pursuant to this Agreement for the purchase of
Class D shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
----------------------------------
(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: Merrill Lynch, Pierce, Fenner & Smith Inc.
--------------------------------------------
By:
---------------------------------------------------
Address: 800 Scudders Mill Road
------------------------------------------------------
Plainsboro, New Jersey 08536
------------------------------------------------------
Date: , 1994
-------------------------------------------------
6
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
MERRILL LYNCH HEALTHCARE FUND, INC.
We consent to the use in Post-Effective Amendment No. 16 to Registration
Statement No. 2-80150 of our report dated May 31, 1994 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
Deloitte & Touche llp
Princeton, New Jersey
October 10, 1994
<PAGE>
CLASS C DISTRIBUTION PLAN
OF
MERRILL LYNCH HEALTHCARE FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the day of October 1994, by and between
Merrill Lynch Healthcare Fund, Inc., a Maryland corporation (the "Fund"), and
Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H:
-------------------
WHEREAS, the Fund is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund proposes to enter into a Class C Shares Distribution
Agreement with MLFD, pursuant to which MLFD will act as the exclusive
distributor and representative of the Fund in the offer and sale of Class C
shares of common stock, par value $0.10 per share (the "Class C shares"), of the
Fund to the public; and
WHEREAS, the Fund desires to adopt this Class C Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Fund will pay an account maintenance fee and a distribution fee to
MLFD with respect to the Fund's Class C shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the terms
of, the Plan in accordance with Rule 12b-1 under the Investment Company Act on
the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan at
the end of each month at the annual rate of 0.25% of average daily net assets of
the Fund relating to Class C shares to compensate MLFD and securities firms with
which MLFD enters
<PAGE>
into related agreements pursuant to Paragraph 3 hereof ("Sub-Agreements") for
providing account maintenance activities with respect to Class C shareholders of
the Fund. Expenditures under the Plan may consist of payments to financial
consultants for maintaining accounts in connection with Class C shares of the
Fund and payment of expenses incurred in connection with such account
maintenance activities including the costs of making services available to
shareholders including assistance in connection with inquiries related to
shareholder accounts.
2. The Fund shall pay MLFD a distribution fee under the Plan at the end of
each month at the annual rate of ____% of average daily net assets of the Fund
relating to Class C shares to compensate MLFD and securities firms with which
MLFD enters into related Sub-Agreements for providing sales and promotional
activities and services. Such activities and services will relate to the sale,
promotion and marketing of the Class C shares of the Fund. Such expenditures
may consist of sales commissions to financial consultants for selling Class C
shares of the Fund, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its sales and
promotional activities, including advertising expenditures related to the Fund
and the costs of preparing and distributing promotional materials. The
distribution fee may also be used to pay the financing costs of carrying the
unreimbursed expenditures described in this Paragraph 2. Payment of the
distribution fee described in this Paragraph 2 shall be subject to any
limitations set forth in any applicable regulation of the National Association
of Securities Dealers, Inc.
3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities and services of the type referred to in Paragraphs 1 and 2
hereof. MLFD may reallocate all or a portion of its account maintenance fee or
distribution fee to such Securities Firms as compensation for the above-
mentioned activities and services. Such Sub-Agreement shall provide that the
Securities Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting requirements set forth in
Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of Directors, and
the Directors shall review, at least quarterly, a written report complying with
the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period.
2
<PAGE>
5. This Plan shall not take effect until it has been approved by a vote of
at least a majority, as defined in the Investment Company Act, of the
outstanding Class C voting securities of the Fund.
6. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors of
the Fund and (b) those Directors of the Fund who are not "interested persons" of
the Fund, as defined in the Investment Company Act, and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on the Plan and such related
agreements.
7. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 6.
8. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class C voting
securities of the Fund.
9. The Plan may not be amended to increase materially the rate of payments
provided for herein unless such amendment is approved by at least a majority, as
defined in the Investment Company Act, of the outstanding Class C voting
securities of the Fund, and by the Directors of the Fund in the manner provided
for in Paragraph 6 hereof, and no material amendment to the Plan shall be made
unless approved in the manner provided for approval and annual renewal in
Paragraph 6 hereof.
10. While the Plan is in effect, the selection and nomination of Directors
who are not interested persons, as defined in the Investment Company Act, of the
Fund shall be committed to the discretion of the Directors who are not
interested persons.
11. The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Paragraph 4 hereof, for a period of not less
than six years from the date of the Plan, or the agreements or such report, as
the case may be, the first two years in an easily accessible place.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Distribution Plan
as of the date first above written.
MERRILL LYNCH HEALTHCARE FUND, INC.
By_____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
4
<PAGE>
CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the day of October 1994, by and between Merrill
Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD"), and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation ("Securities
Firm").
W I T N E S S E T H :
--------------------
WHEREAS, MLFD has entered into an agreement with Merrill Lynch Healthcare
Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which it acts as
the exclusive distributor for the sale of Class C shares of common stock, par
value $0.10 per share (the "Class C shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class C Shares Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "Act"), pursuant to which MLFD receives an account
maintenance fee from the Fund at the annual rate of 0.25% of average daily net
assets of the Fund relating to Class C shares for account maintenance activities
related to Class C shares of the Fund and a distribution fee from the Fund at
the annual rate of ____% of average daily net assets of the Fund relating to
Class C shares for providing sales and promotional activities and services
related to the distribution of Class C shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services for the
Fund's Class C shareholders and the Securities Firm is willing to perform such
activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities and
services with respect to the Class C shares of the Fund and incur expenditures
in connection with such activities and services of the types referred to in
Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional activities and
services with respect to the sale of the Class C shares of the Fund, and incur
distribution expenditures, of the types referred to in Paragraph 2 of the Plan.
<PAGE>
3. As compensation for its activities and services performed under this
Agreement, MLFD shall pay the Securities Firm an account maintenance fee and a
distribution fee at the end of each calendar month in an amount agreed upon by
the parties hereto.
4. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period referred to in
Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan, this Agreement or any agreements related to the Plan or this
Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings
called for the purpose of voting on this Agreement.
6. This Agreement shall continue in effect for as long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 6.
7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By_____________________________________
Title:
2
<PAGE>
CLASS D DISTRIBUTION PLAN
OF
MERRILL LYNCH HEALTHCARE FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the day of October 1994, by and between
Merrill Lynch Healthcare Fund, Inc., a Maryland corporation (the "Fund"), and
Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H :
--------------------
WHEREAS, the Fund is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund proposes to enter into a Class D Shares Distribution
Agreement with MLFD, pursuant to which MLFD will act as the exclusive
distributor and representative of the Fund in the offer and sale of Class D
shares of common stock, par value $0.10 per share (the "Class D shares"), of the
Fund to the public; and
WHEREAS, the Fund desires to adopt this Class D Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Fund will pay an account maintenance fee to MLFD with respect to the
Fund's Class D shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the terms
of, the Plan in accordance with Rule 12b-1 under the Investment Company Act on
the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan at
the end of each month at the annual rate of 0.25% of average daily net assets of
the Fund relating to Class D shares to compensate MLFD and securities firms with
which MLFD enters
<PAGE>
into related agreements ("Sub-Agreements") pursuant to Paragraph 2 hereof for
providing account maintenance activities with respect to Class D shareholders of
the Fund. Expenditures under the Plan may consist of payments to financial
consultants for maintaining accounts in connection with Class D shares of the
Fund and payment of expenses incurred in connection with such account
maintenance activities including the costs of making services available to
shareholders including assistance in connection with inquiries related to
shareholder accounts.
2. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities of the type referred to in Paragraph 1. MLFD may reallocate all
or a portion of its account maintenance fee to such Securities Firms as
compensation for the above-mentioned activities. Such Sub-Agreement shall
provide that the Securities Firms shall provide MLFD with such information as is
reasonably necessary to permit MLFD to comply with the reporting requirements
set forth in Paragraph 3 hereof.
3. MLFD shall provide the Fund for review by the Board of Directors, and
the Directors shall review, at least quarterly, a written report complying with
the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee during such period.
4. This Plan shall not take effect until it has been approved by a vote of
at least a majority, as defined in the Investment Company Act, of the
outstanding Class D voting securities of the Fund.
5. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors of
the Fund and (b) those Directors of the Fund who are not "interested persons" of
the Fund, as defined in the Investment Company Act, and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on the Plan and such related
agreements.
6. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 5.
7. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class D voting
securities of the Fund.
2
<PAGE>
8. The Plan may not be amended to increase materially the rate of payments
provided for in Paragraph 1 hereof unless such amendment is approved by at least
a majority, as defined in the Investment Company Act, of the outstanding Class D
voting securities of the Fund, and by the Directors of the Fund in the manner
provided for in Paragraph 5 hereof, and no material amendment to the Plan shall
be made unless approved in the manner provided for approval and annual renewal
in Paragraph 5 hereof.
9. While the Plan is in effect, the selection and nomination of Directors
who are not interested persons, as defined in the Investment Company Act, of the
Fund shall be committed to the discretion of the Directors who are not
interested persons.
10. The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Paragraph 3 hereof, for a period of not less
than six years from the date of the Plan, or the agreements or such report, as
the case may be, the first two years in an easily accessible place.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Distribution Plan
as of the date first above written.
MERRILL LYNCH HEALTHCARE FUND, INC.
By_____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
4
<PAGE>
CLASS D SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the day of October 1994, by and between Merrill
Lynch Funds Distributor, Inc. a Delaware corporation ("MLFD"), and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation ("Securities
Firm").
W I T N E S S E T H :
--------------------
WHEREAS, MLFD has entered into an agreement with Merrill Lynch Healthcare
Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which it acts as
the exclusive distributor for the sale of Class D shares of common stock, par
value $0.10 per share (the "Class D shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class D Shares Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "Act"), pursuant to which MLFD receives an account
maintenance fee from the Fund at the annual rate of 0.25% of average daily net
assets of the Fund relating to Class D shares for providing account maintenance
activities and services with respect to Class D shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and services, including assistance in connection with
inquiries related to shareholder accounts, for the Fund's Class D shareholders
and the Securities Firm is willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities and
services with respect to the Class D shares of the Fund and incur expenditures
in connection with such activities and services, of the types referred to in
Paragraph 1 of the Plan.
2. As compensation for its services performed under this Agreement, MLFD
shall pay the Securities Firm a fee at the end of each calendar month in an
amount agreed upon by the parties hereto.
3. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule
<PAGE>
12b-1 regarding the disbursement of the fee during such period referred to in
Paragraph 3 of the Plan.
4. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan, this Agreement or any agreements related to the Plan or this
Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings
called for the purpose of voting on this Agreement.
5. This Agreement shall continue in effect for as long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 5.
6. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By_____________________________________
2
