<PAGE>
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. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 15
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
[X]
AMENDMENT NO. 16
(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: 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 BOX 9011
ATTENTION: THOMAS R. SMITH, JR., ESQ. PRINCETON, 08543-9011
FRANK P. BRUNO, ESQ.
----------------
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b),
or
[_] on (date) pursuant to paragraph (b), or
[_] 60 days after filing pursuant to paragraph (a), or
[_] on (date) pursuant to paragraph (a) of Rule 485.
----------------
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; Alternative Sales
Arrangements; Purchase of Shares;
Shareholder Services; Additional
Item 8. Redemption or Information; Inside Back Cover Page
Repurchase............. Fee Table; Alternative Sales
Arrangements; 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
- ----------
AUGUST 26, 1994
MERRILL LYNCH HEALTHCARE FUND, INC.
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.
----------------
The Company offers two classes of shares which may be purchased at a price
equal to the next determined net asset value per share, plus a sales charge
which, at the election of the purchaser, may be imposed (i) at the time of
purchase (the "Class A shares") or (ii) on a deferred basis (the "Class B
shares"). The original sales charges to which the Class B shares are subject
shall consist of a contingent deferred sales charge which may be imposed on
redemptions made within four years of purchase and an ongoing account
maintenance fee and distribution fee. These alternatives permit an investor to
choose the method of purchasing shares that is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the shares and
other circumstances. Investors should understand that the purpose and function
of the deferred sales charges with respect to the Class B shares are the same
as those of the initial sales charge with respect to the Class A shares.
Investors should also understand that over time the deferred sales charges
related to Class B shares may exceed the initial sales charge with respect to
Class A shares. See "Alternative Sales Arrangements" on page 3.
Each Class A and Class B share represents identical interests in the
investment portfolio of the Company and has the same rights, except that Class
B shares bear the expenses of the account maintenance fee and distribution fee
and certain other costs resulting from the deferred sales charge arrangement,
which will cause Class B shares to have a higher expense ratio and to pay lower
dividends than Class A shares and that Class B shares have exclusive voting
rights with respect to the account maintenance fee and distribution fee. The
two classes also have different exchange privileges.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), 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 $250, 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 August 26, 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 Class A shares and Class B shares follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
INITIAL SALES DEFERRED SALES
CHARGE CHARGE
ALTERNATIVE ALTERNATIVE
--------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price).................. 6.50%(a) None
Sales Charge Imposed on Dividend
Reinvestments.................... None None
Deferred Sales Charge (as a per-
centage of original purchase
price or redemption proceeds,
whichever is lower).............. None(f) 4.0% during the first
year, decreasing
1.0% annually to 0%
after the fourth
year(b)
Exchange Fee...................... None None
ANNUAL FUND OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE NET AS-
SETS) FOR THE FISCAL YEAR ENDED
APRIL 30, 1994:
Investment Advisory Fees(c)....... 1.00% 1.00%
Rule 12b-1 Fees................... None 1.00%(d)
Other Expenses
Shareholder Servicing Costs(e).. 0.26% 0.27%
Custodian Fees.................. 0.04% 0.04%
Other........................... 0.25% 0.25%
------- -----
Total Other Expenses.......... 0.55% 0.56%
----- -----
Total Company Operating Expenses... 1.55% 2.56%
===== =====
</TABLE>
- --------
(a) Reduced for purchases of $10,000 and over, decreasing to 0.75% for
purchases of $1,000,000 and over. Certain investors making purchases of
$1,000,000 and over may, however, pay a contingent deferred sales charge
ranging from a high of 1% to a low of 0.25% of amounts redeemed within the
first year after purchase in lieu of the 0.75% initial sales charge. See
"Purchase of Shares--Initial Sales Charge Alternative--Class A Shares"--
page 20.
(b)See "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares"--page 22.
(c)See "Management of the Company--Advisory and Management Arrangements"--page
17.
(d) See "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares--Distribution Plan"--page 23. This amount represents the 0.25%
account maintenance fee and the 0.75% distribution fee applicable to Class
B shares of the Company.
(e)See "Management of the Company--Transfer Agency Services"--page 18.
(f) Certain investors making purchases of $1,000,000 and over may, however,
pay a contingent deferred sales charge ranging from a high of 1.00% to a
low of 0.25% of amounts redeemed within the first year after purchase in
lieu of the 0.75% initial sales charge. See "Purchase of Shares--Initial
Sales Charge Alternative--Class A Shares"--page 20.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
----------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
An investor would pay the fol-
lowing expenses on a $1,000
investment including, for
Class A shares, the maximum
$65 front-end sales charge and
assuming (1) an operating ex-
pense ratio of 1.55% for Class
A shares and 2.56% for Class B
shares, (2) a 5% annual return
throughout the periods and (3)
redemption at the end of the
period:
Class A...................... $79.74 $110.77 $143.98 $237.55
Class B...................... $65.91 $99.65 $136.04 $289.51
An investor would pay the fol-
lowing expenses on the same
$1,000 investment assuming no
redemption at the end of the
period:
Class A...................... $79.74 $110.77 $143.98 $237.55
Class B...................... $25.91 $ 79.65 $136.04 $289.51
</TABLE>
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 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 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. 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".
2
<PAGE>
ALTERNATIVE SALES ARRANGEMENTS
Shares of the Company may be purchased at a price equal to the next
determined net asset value per share, plus a sales charge which, at the
election of the purchaser, may be imposed either (i) at the time of the
purchase (the "initial sales charge alternative") or (ii) on a deferred basis
(the "deferred sales charge alternative").
Class A Shares. An investor who elects the initial sales charge alternative
acquires Class A shares. Although Class A shares incur a sales charge when they
are purchased, they enjoy the benefit of not being subject to any ongoing
account maintenance fee or distribution fee or any sales charge when they are
redeemed. Certain purchases of Class A shares qualify for reduced initial sales
charges. See "Purchase of Shares--Initial Sales Charge Alternative--Class A
Shares".
Class B Shares. An investor who elects the deferred sales charge alternative
acquires Class B shares. Class B shares do not incur a sales charge when they
are purchased, but they are subject to ongoing account maintenance and
distribution fees and a sales charge if they are redeemed within four years of
purchase. Class B shares provide the benefit of permitting all of the
investor's dollars to work from the time the investment is made. The ongoing
account maintenance and distribution fees paid by Class B shares will cause
such shares to have a higher expense ratio and to pay lower dividends than
Class A shares. Payment of the distribution fee is subject to certain limits as
set forth under "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares".
As an illustration, investors who qualify for significantly reduced sales
charges might elect the initial sales charge alternative because similar sales
charge reductions are not available for purchases under the deferred sales
charge alternative. Moreover, shares acquired under the initial sales charge
alternative would not be subject to ongoing account maintenance and
distribution fees. However, because initial sales charges are deducted at the
time of purchase, such investors would not have all their funds invested
initially. Investors not qualifying for reduced initial sales charges who
expect to maintain their investment for an extended period of time might also
elect the initial sales charge alternative because over time the accumulated
continuing account maintenance and distribution fees may exceed the initial
sales charge. Again, however, such investors must weigh this consideration
against the fact that not all their funds will be invested initially.
Furthermore, the ongoing account maintenance and distribution fees will be
offset to the extent any return is realized on the additional funds initially
invested under the deferred sales charge alternative. However, there can be no
assurance as to the return, if any, which will be realized on such additional
funds. Certain other investors might determine it to be more advantageous to
have all their funds invested initially, although remaining subject to
continued account maintenance and distribution fees and, for a four-year period
of time, a contingent deferred sales charge.
The distribution expenses incurred by the Distributor and dealers (primarily
Merrill Lynch) in connection with the sale of the shares will be paid, in the
case of the Class A shares, from the proceeds of the initial sales charge and,
in the case of the Class B shares, from the proceeds of the ongoing account
maintenance and distribution fees and the contingent deferred sales charge
incurred upon redemption within four years of purchase. Sales personnel may
receive different compensation for selling Class A or Class B shares. Investors
should understand that the purpose and function of the deferred sales charges
and account maintenance fee with respect to the Class B shares are the same as
those of the initial sales charge with respect to the Class A shares.
3
<PAGE>
Dividends paid by the Company with respect to Class A and Class B 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 Class B shares will be borne exclusively by that class. See
"Additional Information--Determination of Net Asset Value". Class A and Class B
shareholders of the Company each have an exchange privilege for Class A and
Class B shares, respectively, of certain other mutual funds sponsored by
Merrill Lynch. Class A and Class B shareholders of the Company also may
exchange their shares for shares of certain money market funds sponsored by
Merrill Lynch. See "Shareholder Services--Exchange Privilege".
The Directors of the Company have determined that currently no conflict of
interest exists between the Class A and Class B shares. On an ongoing basis,
the Directors of the Company, pursuant to their fiduciary duties under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
state laws, will seek to assure that no such conflict arises.
THE ALTERNATIVE SALES ARRANGEMENTS PERMIT AN INVESTOR TO CHOOSE THE METHOD
OF PURCHASING SHARES THAT IS MOST BENEFICIAL GIVEN THE AMOUNT OF THE
PURCHASE, THE LENGTH OF TIME THE INVESTOR EXPECTS TO HOLD THE SHARES AND
OTHER CIRCUMSTANCES. INVESTORS SHOULD DETERMINE WHETHER UNDER THEIR
PARTICULAR CIRCUMSTANCES IT IS MORE ADVANTAGEOUS TO INCUR AN INITIAL SALES
CHARGE AND NOT BE SUBJECT TO ONGOING ACCOUNT MAINTENANCE AND DISTRIBUTION
FEES OR TO HAVE THE ENTIRE INITIAL PURCHASE PRICE INVESTED IN THE COMPANY
WITH THE INVESTMENT THEREAFTER BEING SUBJECT TO ONGOING ACCOUNT MAINTENANCE
AND DISTRIBUTION FEES. TO ASSIST INVESTORS IN MAKING THIS DETERMINATION, THE
FEE TABLE ON PAGE 2 SETS FORTH THE CHARGES APPLICABLE TO EACH CLASS OF
SHARES, AND A DISCUSSION OF FACTORS RELEVANT TO MAKING SUCH DETERMINATION IS
SET FORTH UNDER "PURCHASE OF SHARES--ALTERNATIVE SALES ARRANGEMENTS" ON PAGE
19.
4
<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. 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 FOR THE YEAR ENDED MARCH 31,
----------------- APRIL 30, NOV. 30, NOV. 30, ----------------------------------------------------------
1994+ 1993 1992*** 1991 1990++ 1990 1989 1988 1987 1986 1985
------- ------- --------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <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............ $ 3.59 $ 3.63 $ 9.19 $ 7.94 $ 9.13 $ 9.61 $ 10.55 $ 13.75 $ 11.97 $ 9.15 $ 9.86
------- ------- ------- -------- -------- -------- -------- -------- -------- -------- --------
Investment income
(loss)--net..... (.02) .02 -- .03 .05 .05 .15 .05 .07 .11 .12
Realized and
unrealized gain
(loss) on in-
vestments and
foreign currency
transactions--
net(1).......... .31 (.06) .88 2.08 (.75) .96 (.12) .11 2.34 2.83 (.70)
------- ------- ------- -------- -------- -------- -------- -------- -------- -------- --------
Total from in-
vestment opera-
tions........... .29 (.04) .88 2.11 (.70) 1.01 .03 .16 2.41 2.94 (.58)
------- ------- ------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends
and distribu-
tions:
Return of capi-
tal--net........ -- -- (3.97) -- -- -- -- -- -- -- --
Investment in-
come--net....... (.01) -- -- (.03) (.08) (.07) (.15) (.01) (.10) (.12) (.09)
Realized gain on
investments--
net............. -- -- (2.47) (.83) (.41) (1.42) (.82) (3.35) (.53) -- (.04)
------- ------- ------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends
and distribu-
tions........... (.01) -- (6.44) (.86) (.49) (1.49) (.97) (3.36) (.63) (.12) (.13)
------- ------- ------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value,
end of period... $ 3.87 $ 3.59 $ 3.63 $ 9.19 $ 7.94 $ 9.13 $ 9.61 $ 10.55 $ 13.75 $ 11.97 $ 9.15
======= ======= ======= ======== ======== ======== ======== ======== ======== ======== ========
Total Investment
Return**
Based on net as-
set value per
share........... 8.19% (1.10%) 10.96%# 29.44% (8.75%)# 11.36% 0.36% 2.02% 20.76% 32.50% (5.89%)
======= ======= ======= ======== ======== ======== ======== ======== ======== ======== ========
Ratios to Average
Net Assets:
Expenses, net of
reimbursement... 1.55% 1.85% 1.56%* 1.61% 1.77%* 1.55% 1.46% 1.41% 1.44% 1.39% 1.36%
======= ======= ======= ======== ======== ======== ======== ======== ======== ======== ========
Expenses......... 1.55% 1.85% 1.56%* 1.61% 1.77%* 1.61% 1.46% 1.41% 1.44% 1.39% 1.36%
======= ======= ======= ======== ======== ======== ======== ======== ======== ======== ========
Investment income
(loss)--net..... (.48%) .48% (.16%)* .27% .62%* .78% 1.07% .48% .50% 1.00% 1.20%
======= ======= ======= ======== ======== ======== ======== ======== ======== ======== ========
Supplemental Da-
ta:
Net assets, end
of period (in
thousands)...... $70,753 $63,528 $61,132 $125,979 $114,852 $140,635 $170,742 $238,606 $296,637 $310,023 $371,377
======= ======= ======= ======== ======== ======== ======== ======== ======== ======== ========
Portfolio Turn-
over............ 133.58% 103.06% 147.63% 206.29% 159.11% 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.
5
<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.
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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
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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.
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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
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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.
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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.
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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
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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.
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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.
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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
15
<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.
16
<PAGE>
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.; Executive Vice
President of Merrill Lynch & Co., Inc.; 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.
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 Merrill Lynch &
Co., Inc., 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 90 other registered
investment companies and provides investment advisory services to individual
and institutional accounts. As of June 30, 1994, the Investment Adviser and FAM
had a total of approximately $161.4 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
17
<PAGE>
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 Merrill Lynch & Co., Inc., 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 $7.00 per Class A shareholder account and $9.00 per
Class B shareholder account, nominal miscellaneous fees (e.g., account closing
fees) and is entitled to 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). 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
The Distributor, a subsidiary of the Investment Adviser and an affiliate of
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 $250, and the minimum subsequent purchase is $1.
18
<PAGE>
The Company is offering its shares at a public offering price equal to the
next determined net asset value per share plus sales charges which, at the
option of the purchaser, may be imposed either at the time of purchase (the
"initial sales charge alternative") or on a deferred basis (the "deferred sales
charge alternative"), 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 net asset value
on the previous day, the applicable offering price will be based on the net
asset value determined 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 by the Distributor prior to 4:30 p.m., New York time,
such orders shall be deemed received on the next business day. Any order may be
rejected by the Distributor or the Company. The Company or the Distributor may
suspend the continuous offering of the Company's shares at any time in response
to conditions in the securities markets or otherwise and may thereafter resume
such offering from time to time. Neither the Distributor nor the dealers are
permitted to withhold placing orders to benefit themselves by a price change.
Merrill Lynch may charge its customers a processing fee (presently $4.85) to
confirm a sale of shares to such customers. Purchases directly through the
Transfer Agent are not subject to the processing fee.
The Company issues two classes of shares: Class A shares are sold to
investors choosing the initial sales charge alternative, and Class B shares are
sold to investors choosing the deferred sales charge alternative. The two
classes of shares each represent interests in the same portfolio of investments
of the Company, have the same rights and are identical in all respects, except
that Class B shares bear the expenses of the deferred sales arrangements, any
expenses (including incremental transfer agency costs) resulting from such
sales arrangements and the expenses paid by the account maintenance fee, and
have exclusive voting rights with respect to the Rule 12b-1 distribution plan
pursuant to which the account maintenance and distribution fees are paid. The
two classes also have different exchange privileges. See "Shareholder
Services--Exchange Privilege". The net income attributable to Class B shares
and the dividends payable on Class B shares will be reduced by the amount of
the account maintenance and distribution fees and incremental transfer agency
costs relating to Class B shares; accordingly, the net asset value of the Class
B shares will be reduced by such amount to the extent the Company has
undistributed net income. Sales personnel may receive different compensation
for selling Class A or Class B shares. Investors are advised that only Class A
shares may be available for purchase through securities dealers, other than
Merrill Lynch, which are eligible to sell shares.
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.
ALTERNATIVE SALES ARRANGEMENTS
The alternative sales arrangements of the Company permit investors to choose
the method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares and other
relevant circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur an initial sales
charge and not be subject to ongoing charges, as discussed below, or to have
the entire initial purchase price invested in the Company with the investment
thereafter being subject to ongoing charges.
As an illustration, investors who qualify for significantly reduced sales
charges, as described below, might elect the initial sales charge alternative
because similar sales charge reductions are not available for purchases
19
<PAGE>
under the deferred sales charge alternative. Moreover, shares acquired under
the initial sales charge alternative would not be subject to an ongoing account
maintenance fee and distribution fee as described below. However, because
initial sales charges are deducted at the time of purchase, such investors
would not have all their funds invested initially.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might also elect the
initial sales charge alternative because over time the accumulated continuing
account maintenance and distribution fees may exceed the initial sales charge.
Again, however, such investors must weigh this consideration against the fact
that not all their funds will be invested initially. Furthermore, the ongoing
account maintenance and distribution fees will be offset to the extent any
return is realized on the additional funds initially invested under the
deferred alternative. Another factor that may be applicable under certain
circumstances is that the payment of the Class B distribution fee and
contingent deferred sales charge is subject to certain limits as set forth
below under "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares".
Certain other investors might determine it to be more advantageous to have
all their funds invested initially, although remaining subject to continued
account maintenance and distribution fees and, for a four-year period of time,
a contingent deferred sales charge as described below. For example, an investor
subject to the 6.50% initial sales charge will have to hold his investment at
least 6 1/2 years for the 0.25% account maintenance fee and 0.75% distribution
fee to exceed the initial sales charge. This example does not take into account
the time value of money which further reduces the impact of the ongoing account
maintenance and distribution fees on the investment, fluctuations in net asset
value, the effect of the return on the investment over this period of time or
the effect of any limits that may be imposed upon the payment of the
distribution fee and the contingent deferred sales charge.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The public offering price of Class A shares for purchasers choosing the
initial sales charge alternative is the next determined net asset value plus
varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE* OF DISCOUNT TO
SALES CHARGE AS THE NET SELECTED DEALERS
PERCENTAGE OF AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED THE OFFERING PRICE
- ------------------ --------------- --------------- ------------------
<S> <C> <C> <C>
Less than $10,000........... 6.50% 6.95% 6.25%
$10,000 but less than
$25,000.................... 6.00 6.38 5.75
$25,000 but less than
$50,000.................... 5.00 5.26 4.75
$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......... .75 .76 .65
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent.
Initial sales charges may be waived for shareholders purchasing $1 million or
more in a single transaction (other than an employer sponsored retirement or
savings plan, such as a tax qualified retirement plan under Section 401 of the
Internal Revenue Code of 1986, as amended (the "Code"), a deferred compensation
plan
20
<PAGE>
under Section 403 (b) and Section 457 of the Code, other deferred compensation
arrangements, 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"), or a purchase
by a TMASM Managed Trust, of Class A shares of the Company. In addition,
purchases of Class A shares of the Company made in connection with a single
investment of $1 million or more under the Merrill Lynch Mutual Fund Adviser
Program will not be subject to an initial sales charge. Purchases described in
this paragraph will be subject to a contingent deferred sales charge if the
shares are redeemed within one year after purchase at the following rates:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
AMOUNT OF PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
------------------------------------------- -------------------------------
<S> <C>
$1 million up to $2.5 million.............. 1.00%
Over $2.5 million up to $3.5 million....... 0.60%
Over $3.5 million up to $5 million......... 0.40%
Over $5 million............................ 0.25%
</TABLE>
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 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 to the Company of $23,817,331. The gross sales charges
for the sale of Class A shares for that period were $211,071, of which $195,475
was received by Merrill Lynch and $15,596 was received by the Distributor.
Reduced Initial Sales Charges. Sales charges are reduced under a Right of
Accumulation and a Letter of Intention. Class A shares of the Company are
offered at net asset value to Directors of the Company, to Directors of Merrill
Lynch & Co., Inc., to directors and trustees of certain other Merrill Lynch
sponsored investment companies, to participants in certain benefit plans, 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 if certain conditions set forth in the Statement of Additional
Information are met and to employees of Merrill Lynch & Co., Inc. and its
subsidiaries. Class A shares may be offered at net asset value in connection
with the acquisition of assets of other investment companies. No initial sales
charges are imposed upon Class A shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions. Class A 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 A shares of the Company with proceeds from a redemption of
shares of such other mutual fund and such fund imposed a sales charge either at
the time of purchase or on a deferred basis; second, such purchase of Class A
shares must be made within 90 days after such notice of termination. Class A
shares are offered with reduced sales charges and, in certain circumstances, at
net asset value, to participants in the Merrill Lynch BlueprintSM Program.
Class A shares are offered at net asset value to (i) certain retirement plans,
including eligible 401(k) plans, provided such plans meet the required minimum
number of eligible employees or required amount of assets advised by the
Investment Adviser or any of its affiliates and (ii) certain Employer Sponsored
Retirement or Savings Plans, provided such plans meet the required minimum
number of eligible employees or required amount of assets advised by the
Investment Adviser or any of its affiliates. Class A shares of the Company are
also offered at net asset value to shareholders of certain closed-end funds
advised by the Investment Adviser or FAM who
21
<PAGE>
wish to reinvest the net proceeds from a sale of their closed-end fund shares
of common stock in shares of the Company, provided certain conditions are met.
For example, Class A shares of the Company and certain other mutual funds
advised by the Investment Adviser or FAM 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 such funds.
Additional information concerning these reduced initial sales charges is set
forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Investors choosing the deferred sales charge alternative purchase Class B
shares at net asset value per share without the imposition of a sales charge at
the time of purchase. The Class B shares are being 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 shares at the time of purchase from its own funds. The proceeds
from the ongoing account maintenance fee are used to compensate Merrill Lynch
for providing continuing account maintenance activities.
Proceeds from the contingent deferred sales charge 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 shares, such as the payment of compensation to financial consultants
for selling Class B shares. Payments by the Company to the Distributor of the
distribution fee under the distribution plan described below also may be used
in whole or in part by the Distributor for this purpose. The combination of the
contingent deferred sales charge and the distribution fee facilitates the
ability of the Company to sell the Class B shares without a sales charge being
deducted at the time of purchase. 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 contingent
deferred sales charge schedule if such schedule is higher than the deferred
sales charge schedule relating to the Class B shares acquired as a result of
the exchange.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
four years of purchase may be subject to a contingent deferred sales charge 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
current market value or the cost of the shares being redeemed. Accordingly, no
sales charge will be imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. For the fiscal year
ended April 30, 1994, the Distributor received contingent deferred sales
charges of $161,790 with respect to the redemption of Class B shares, all of
which was paid to Merrill Lynch.
The following table sets forth the rates of the contingent deferred sales
charge:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
--------------------- -------------------
<S> <C>
0-1.................................................. 4.0%
1-2.................................................. 3.0%
2-3.................................................. 2.0%
3-4.................................................. 1.0%
4 and thereafter..................................... None
</TABLE>
22
<PAGE>
In determining whether a contingent deferred sales charge 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 purchased 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 first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to the charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge 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 contingent deferred sales charge 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 contingent deferred sales charge 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 contingent deferred sales charge 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. Additional
information concerning the waiver of the contingent deferred sales charge is
set forth in the Statement of Additional Information.
Distribution Plan. Pursuant to a distribution plan (the "Distribution Plan")
adopted by the Company as of July 7, 1993, pursuant to Rule 12b-1 under the
Investment Company Act, the Company pays the Distributor an ongoing account
maintenance fee and a 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. Pursuant to a sub-
agreement with the Distributor, Merrill Lynch also provides account maintenance
and distribution services to the Company. The ongoing account maintenance fee
compensates the Distributor and Merrill Lynch for providing account maintenance
services to Class B shareholders. The ongoing distribution fee compensates the
Distributor and Merrill Lynch for providing shareholder and distribution
services and bearing certain distribution-related expenses of the Company,
including payments to financial consultants for selling Class B shares of the
Company.
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
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 Distribution Plan (based on average net assets subject to the Prior Plan
and the Distribution Plan of approximately $50.8
23
<PAGE>
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. At June 30, 1994, the net assets of the Company subject to the
Distribution Plan aggregated approximately $59.9 million. At this asset level,
the annual fee payable pursuant to the Distribution Plan would aggregate
approximately $599,229. Both the Distribution Plan and the Prior Plan were
designed to permit an investor to purchase Class B shares through dealers
without the assessment of a front-end sales charge and at the same time permit
the dealer to compensate its financial consultants in connection with the sale
of the Class B shares. In this regard, the purpose and function of the
distribution fee under either the Distribution Plan or the Prior Plan and the
contingent deferred sales charge are the same as those of the initial sales
charge with respect to the Class A shares of the Company in that the deferred
sales charges provide for the financing of the distribution of the Company's
Class B shares.
The payments under the Distribution Plan, as was the case with the Prior
Plan, are based on a percentage of average daily net assets regardless of the
amount of expenses incurred, and accordingly, distribution-related revenues 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 Distribution Plan. 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, the distribution fees,
the contingent deferred sales charges and certain other related revenues, and
expenses consist of financial consultant compensation, branch office and
regional operation center selling and transaction processing expenses,
advertising, sales promotion and marketing expenses, corporate overhead and
interest expense. On the direct expense and revenue/cash basis, revenues
consist of the account maintenance fees, the distribution fees and contingent
deferred sales charges, 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-related expenses
incurred by the Distributor and Merrill Lynch in connection with the Class B
shares, and there is no assurance that the Board of Directors of the Company
will approve the continuance of the Distribution Plan from year to year.
However, the Distributor intends to seek annual continuation of the
Distribution Plan. In their review of the Distribution Plan, the Directors will
not be asked to take into consideration expenses incurred in connection with
the distribution of Class A shares or of shares of other funds for which the
Distributor acts as distributor. The account maintenance fee, the distribution
fee and the contingent deferred sales charge in the case of Class B shares will
not be used to subsidize the sale of Class A shares.
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 Company's distribution fee and the contingent
deferred sales charge but not the account maintenance fees. As applicable to
the Company, the maximum sales charge rule
24
<PAGE>
limits the aggregate of distribution fee payments and contingent deferred
sales charges payable by the Company to (1) 6 1/4% of eligible gross sales of
Class B shares (defined to exclude shares issued pursuant to dividend
reinvestments and exchanges) plus (2) interest on the unpaid balance 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 contingent
deferred sales charge). 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") 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 and any contingent deferred
sales charges 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.
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 fiscal period October 21, 1988
(commencement of offering of Class B shares) to April 30, 1994.
<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 $3,679 $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 the 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.
(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
The Company is required to redeem for cash all full and fractional 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 contingent deferred
sales charge which may
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<PAGE>
be applicable to Class B shares, 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 Fund 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 Fund
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.
The foregoing repurchase arrangements are for the convenience of shareholders
and do not involve a charge by the Company (other than any applicable
contingent deferred sales charge in the case of Class B shares). 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
26
<PAGE>
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 SHARES
Shareholders who have redeemed their Class A shares have a one-time privilege
to reinstate their accounts by purchasing Class A shares 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
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 its shares.
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 quarterly statements
from the Transfer Agent. These quarterly statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
quarterly 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 may also maintain their accounts through Merrill Lynch.
Upon the transfer of shares out of a Merrill Lynch brokerage account, an
Investment Account in the transferring shareholder's name will be opened
automatically, without charge, at the Transfer Agent. Shareholders considering
transferring their Class A shares from Merrill Lynch to another brokerage firm
or financial institution should be aware that, if the firm to which the Class A
shares are to be transferred will not take delivery of shares of the Company, a
shareholder either must redeem the Class A 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
shares. Shareholders interested in transferring their Class B shares from
Merrill Lynch and who do not wish to have an Investment Account maintained for
such shares at the Transfer Agent may request their new brokerage firm to
maintain such shares in an account registered in the name of the brokerage firm
for the benefit of the shareholder. If the new brokerage firm is willing to
accommodate the shareholder in this manner, the shareholder must request that
he 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.
27
<PAGE>
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
contingent deferred sales charge) 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 Withdrawals and Automatic Investment Plans. A Class A 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
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. Regular additions of Class A 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 account or in
certain related accounts in amounts of $250 or more through the CMA Automatic
Investment Program. The Automatic Investment Program is not available to
shareholders whose shares are held in a brokerage account with Merrill Lynch
(other than a CMA(R) account).
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. No contingent
deferred sales charge will be imposed on redemption of shares issued as a
result of the automatic reinvestment of dividends or capital gains
distributions. The Automatic 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. U.S. Class A and Class B shareholders of the Company each
have an exchange privilege with certain other mutual funds sponsored by Merrill
Lynch. 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. Class A shareholders
of the Company may exchange their shares ("outstanding Class A shares") for
Class A shares of another fund ("new Class A shares") on the basis of relative
net asset value per Class A share, plus an amount equal to the difference, if
any, between the sales charge previously paid on the outstanding Class A shares
and the sales charge payable at the time of the exchange on the new Class A
shares. The Company's exchange privilege is modified with respect to purchases
of Class A shares under the Merrill Lynch Mutual Fund Adviser program. First,
the initial allocation of assets is made under the program. Then, any
subsequent exchange under the program of Class A shares of a fund for Class A
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 fund and the sales charge payable on the shares of the
Company being acquired in the exchange under this program.
28
<PAGE>
Class B shareholders of the Company may exchange their shares ("outstanding
Class B shares") for Class B shares of another fund ("new Class B shares") on
the basis of relative net asset value per share without the payment of any
contingent deferred sales charge that might otherwise be due upon redemption of
the outstanding Class B shares. Class B shareholders of the Company exercising
the exchange privilege will continue to be subject to the Company's contingent
deferred sales charge schedule if such schedule is higher than the deferred
sales charge 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 contingent deferred sales charge schedule if such
schedule is higher than the deferred sales charge schedule relating to the
Class B shares of the fund from which the exchange has been made. For purposes
of computing the contingent deferred sales charge that may be payable upon a
disposition of the new Class B shares, the holding period for the outstanding
Class B shares is "tacked" to the holding period of the new Class B shares.
Class A and Class B shareholders of the Company may also exchange their shares
for shares of certain money market funds, but in the case of an exchange from
Class B shares, the period of time that shares are held in a money market fund
will not count toward satisfaction of the holding period requirement for
purposes of reducing the contingent deferred sales charge. 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.
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 and Class B 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 the maximum sales charge in the case of Class A shares and the
contingent deferred sales charge that would be applicable to a complete
redemption of the investment at the end of the specified period in the case of
Class B shares. Dividends paid by the Company with respect to Class A and Class
B 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 Class B shares will be borne exclusively by that
class. The Company will include performance data for both Class A and Class B
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
29
<PAGE>
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 shares or waiver of the contingent
deferred sales charge in the case of Class B 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 contingent
deferred sales charge and therefore may reflect greater total return since, due
to the reduced sales charges or waiver of the contingent deferred sales charge,
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, 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 Class B shares will be lower than the per share
dividends and distributions on Class A shares as a result of the account
maintenance, distribution and higher transfer agency fees applicable to the
Class B shares. 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".
30
<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 and Class B 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).
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 RIC 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.
31
<PAGE>
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 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).
If a Class A shareholder exercises the exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent the sales charge
paid to the Company reduces any sales charge the shareholder would have owed
upon purchase of the new Class A shares in the absence of the exchange
privilege. Instead, such sales charge will be treated as an amount paid for the
new Class A 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 per share is 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
and, under certain circumstances, on other days.
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<PAGE>
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 the account maintenance
and distribution fees payable to the Distributor, are accrued daily. The per
share net asset value of the Class B 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 shares. It is expected, however,
that the per share net asset value of the two 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 200,000,000 shares of Common Stock, par value $0.10
per share, divided into two classes, designated Class A and Class B Common
Stock, each of which consists of 100,000,000 shares. Both Class A and Class B
Common Stock represent an interest in the same assets of the Company and are
identical in all respects except that the Class B shares bear certain expenses
related to the account maintenance and distribution of such shares and have
exclusive voting rights with respect to matters relating to such account
maintenance and distribution expenditures. 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
33
<PAGE>
Company does not intend to hold meetings of shareholders in any year in which
the Investment Company Act does not require shareholders to act on any of the
following matters: (i) election of Directors; (ii) approval of an investment
advisory agreement; (iii) approval of a distribution agreement; and (iv)
ratification of selection of independent auditors. Voting rights for Directors
are not cumulative. Shares issued are fully paid and non-assessable and have no
preemptive or conversion rights. Each share of Class A and Class B 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 shares bear certain expenses related to the distribution of
such shares. 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: Document
Evaluation Unit P.O. Box 45290 Jacksonville, FL
32232-5290
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.
34
<PAGE>
MERRILL LYNCH HEALTHCARE FUND, INC.--AUTHORIZATION FORM
- -------------------------------------------------------------------------------
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 ....... Class A shares or .......
Class B shares (choose one) of Merrill Lynch Healthcare Fund, Inc. and
establish an Investment Account as described in the Prospectus.
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) (subsequent investments $50
or more). 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.
<TABLE>
<S> <C>
1.......................................... 4..........................................
2.......................................... 5..........................................
3.......................................... 6..........................................
</TABLE>
(Please list all Funds. Use a separate sheet of paper if necessary.)
Until you are notified by me in writing, the following options with
respect to dividends and distributions are elected:
Distribution Elect [_] reinvest dividends Elect [_] reinvest capital gains
Options One [_] pay dividends in cash One [_] pay capital
gains in cash
If no election is made, dividends and capital gains will be reinvested
automatically at net asset value without a sales charge.
----------------
(Please Print)
Name ............................................. Social Security
First Name Initial Last Name No. or Taxpayer
Identification
Name of Co-Owner (if any) ........................ No.
First NameInitialLast Name
......., 19. .
Address .......................................... Date
..................................................
(Zip Code)
Occupation .......................... Name and Address of Employer ........
.....................................
Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security No. or Taxpayer Identification No. and (2) that I
am not subject to backup withholding (as discussed in the Prospectus 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) ........
In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.
- -------------------------------------------------------------------------------
2. LETTER OF INTENTION--CLASS A SHARES ONLY (SEE TERMS AND CONDITIONS IN THE
STATEMENT OF ADDITIONAL INFORMATION)
Gentlemen: .............., 19...
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:
[_] $10,000 [_] $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 the 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 Fund, Inc., held as security.
By ...................................... ..................................
Signature of Owner Signature of Co-Owner
(If registered in joint names,
both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name ................................ (2) Name .........................
35
<PAGE>
MERRILL LYNCH HEALTHCARE FUND, INC.--AUTHORIZATION FORM
- -------------------------------------------------------------------------------
3. SYSTEMATIC WITHDRAWAL PLAN--CLASS A SHARES ONLY (SEE TERMS AND CONDITIONS
IN THE STATEMENT OF ADDITIONAL INFORMATION)
Minimum Requirements: $10,000 for monthly disbursements, $5,000 for
quarterly, of shares in Merrill Lynch Healthcare Fund, Inc. at cost or current
offering price.
Begin systematic withdrawal on .., 19. . . . Withdrawals to be made either
(date) (check one) [_] Monthly [_] Quarterly*
*Quarterly withdrawals are made on the 24th day of March,
June, September and December.
Specify withdrawal amount (check one): [_] $. or [_]..% of the current
value of Class A shares in the account.
Specify withdrawal method: [_] check or [_] direct deposit to bank account
(check one and complete part (a) or (b) below):
- -------------------------------------------------------------------------------
(a) I HEREBY AUTHORIZE PAYMENT BY (b) I HEREBY AUTHORIZE PAYMENT BY
CHECK DIRECT DEPOSIT TO BANK ACCOUNT AND (IF
Draw checks payable (check one) NECESSARY) DEBIT ENTRIES AND
[_] as indicated in item 1. ADJUSTMENTS FOR ANY CREDIT ENTRIES
MADE IN ERROR TO MY ACCOUNT.
[_] to the order of ................ Specify type of account (check one):
[_] checking [_] savings
Mail to (check one) I agree that this authorization will
[_] the address indicated in item 1. remain in effect until I provide
written notification to Financial Data
[_] Name (Please Print)............. Services, Inc. amending or terminating
Address............................... this service.
Signature of Owner.................... Name on your Account...................
Signature of Co-Owner (if any)........ Bank...................................
Bank #........... Account #............
Bank Address...........................
Signature of Depositor...... Date......
Signature of Depositor (if joint
account)...............................
NOTE: If Automatic Direct Deposit is
elected, your blank, unsigned check
marked "VOID" or a deposit slip from
your savings account should accompany
this Application.
- -------------------------------------------------------------------------------
4. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Financial Data Services, Inc. draw a check or an
automated clearing house ("ACH") debit on my checking account described below
each month to purchase . . . . Class A shares or . . . . Class B shares
(choose one) of Merrill Lynch Healthcare Fund, Inc. subject to the terms set
forth below.
- -------------------------------------------------------------------------------
FINANCIAL DATA SERVICES, INC. AUTHORIZATION TO HONOR CHECKS OR ACH
DEBITS DRAWN BY FINANCIAL DATA
SERVICES, INC.
You are hereby authorized to draw a To ...............................Bank
check or an ACH debit each month on (Investor's Bank)
my bank account for investment in Bank Address .........................
Merrill Lynch Healthcare Fund, Inc.
as indicated below:
Amount of each check or ACH
debit $ ........................
City ..... State ...... Zip Code.....
Account No. ....................
Please date and invest checks As a convenience to me, I hereby
or draw ACH debits on the 20th request and authorize you to pay and
of each month beginning ........ charge to my account checks or ACH
debits drawn on my account by and
(Month) payable to Financial Data Services,
or as soon thereafter as Inc., Transfer Agency Mutual Fund
possible. Operations, Jacksonville, Florida
32232-5289. I agree that your rights
I agree that you are preparing in respect to each such check or
these checks or drawing these debits debit shall be the same as if it were
voluntarily at my request and that a check drawn on you and signed
you shall not be liable for any loss personally by me. This authority is
arising from any delay in preparing to remain in effect until revoked
or failure to prepare any such check personally by me in writing. Until
or debit. If I change banks or desire you receive such notice, you shall be
to terminate or suspend this program, fully protected in honoring any such
I agree to notify you promptly in check or debit. I further agree that
writing. if any such check or debit be
I further agree that if a check or dishonored, whether with or without
debit is not honored upon cause and whether intentionally or
presentation, Financial Data inadvertently, you shall be under no
Services, Inc. is authorized to liability.
discontinue immediately the Automatic
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
......... ........................
....... ..................... Bank Signature of Depositor
Date Signature of Account (If joint account, both
Depositor Number must sign)
.....................
Signature of NOTE: IF AUTOMATIC INVESTMENT PLAN IS
Depositor ELECTED, YOUR BLANK, UNSIGNED CHECK
(If joint account, MARKED "VOID" SHOULD ACCOMPANY THIS
both must sign) APPLICATION.
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY We hereby authorize Merrill
Branch Office, Address, Stamp 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
mailed to:
Merrill Lynch Healthcare Fund,
Inc. c/o Financial Data
Services, Inc. Transfer Agency
Mutual Fund Operations P.O. Box
45289 Jacksonville, Florida
32232-5289
...................................
Dealer Name and Address
By ................................
Authorized Signature of Dealer
..........
Branch-Code F/C No. F/C Last
Name
Dealer's Customer A/C No.
36
<PAGE>
[This page is intentionally left blank.]
37
<PAGE>
[This page is intentionally left blank.]
38
<PAGE>
INVESTMENT ADVISER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
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:
Box 9011
Princeton, New Jersey 08543-9011
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Mutual Fund 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 Chase MetroTech Center
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
Alternative Sales Arrangements............................................. 3
Financial Highlights....................................................... 5
Risk Factors and Special Considerations.................................... 7
Investment Objective and Policies.......................................... 9
Hedging Techniques........................................................ 10
Other Investment Practices................................................ 15
Investment Restrictions................................................... 16
Management of the Company.................................................. 17
Board of Directors........................................................ 17
Advisory and Management Arrangements...................................... 17
Transfer Agency Services.................................................. 18
Purchase of Shares......................................................... 18
Alternative Sales Arrangements............................................ 19
Initial Sales Charge Alternative--
Class A Shares........................................................... 20
Deferred Sales Charge Alternative--
Class B Shares........................................................... 22
Redemption of Shares....................................................... 25
Redemption................................................................ 26
Repurchase................................................................ 26
Reinstatement Privilege--
Class A Shares........................................................... 27
Shareholder Services....................................................... 27
Performance Data........................................................... 29
Additional Information..................................................... 30
Dividends and Distributions............................................... 30
Taxes..................................................................... 31
Determination of Net Asset Value.......................................... 32
Organization of the Company............................................... 33
Shareholder Reports....................................................... 34
Shareholder Inquiries..................................................... 34
Authorization Form......................................................... 35
</TABLE>
Code # 10166-0894
PROSPECTUS
ART
- -------------------------------------------------------------------------------
MERRILL LYNCH HEALTHCARE FUND, INC.
August 26, 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.
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.
The Company offers two classes of shares which may be purchased at a price
equal to the next determined net asset value per share, plus a sales charge
which, at the election of the purchaser, may be imposed (i) at the time of
purchase (the "Class A shares") or (ii) on a deferred basis (the "Class B
shares"). These alternatives permit an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other circumstances.
Investors should understand that the purpose and function of the deferred sales
charges with respect to the Class B shares are the same as those of the initial
sales charge with respect to the Class A shares. Each Class A and Class B share
represents identical interests in the investment portfolio of the Company and
has the same rights, except that Class B shares bear the expenses of the
account maintenance fee and distribution fee and certain other costs resulting
from the deferred sales charge arrangement and have exclusive voting rights
with respect to the account maintenance and distribution fees. The two classes
also have different exchange privileges.
----------------
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
August 26, 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 August 26, 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
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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
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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
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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.
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
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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.
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 Box
9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel--President and Director(1)(2)--President of the Investment
Adviser and its predecessor since 1977 and Chief Investment Officer since 1976;
President of Fund Asset Management, L.P. ("FAM") and its predecessor 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., 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.
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
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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 and their predecessors 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 and their predecessors 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 and their predecessors since
1984; Senior Vice President, General Counsel, Director and Secretary of
Princeton Services; Secretary of the Investment Adviser and its predecessor
since 1984; Secretary of FAM and its predecessor since 1982; Director of the
Distributor.
Jordan C. Schreiber--Vice President(1)--Vice President and Portfolio Manager
of the Investment Adviser and its predecessor since 1983.
Donald C. Burke--Vice President(1)(2)--Vice President and Director of
Taxation of the Investment Adviser and its predecessor since 1990; employee of
Deloitte & Touche from 1982 to 1990.
Gerald M. Richard--Treasurer(1)(2)--Senior Vice President and Treasurer of
the Investment Adviser and FAM and their predecessors 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 and
its predecessor since 1984 and attorney associated with the Investment Adviser
and its predecessor 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.
At July 31, 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 Merrill Lynch & Co., Inc.
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 committee, which consists of
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all the non-affiliated Directors. 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 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
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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".
Merrill Lynch & Co., Inc., 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.
Duration and Termination. Unless earlier terminated as described below, 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.
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PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Company shares.
ALTERNATIVE SALES ARRANGEMENTS
The Company issues two classes of shares: Class A shares are sold to
investors choosing the initial sales charge alternative, and Class B shares are
sold to investors choosing the deferred sales charge alternative. The two
classes of shares each represent interests in the same portfolio of investments
of the Company, have the same rights and are identical in all respects, except
that Class B shares bear the expenses of the deferred sales arrangements, any
expenses (including incremental transfer agency costs) resulting from such
sales arrangements and the expenses of the account maintenance fee and have
exclusive voting rights with respect to the Rule 12b-1 distribution plan
pursuant to which the account maintenance and distribution fees are paid. The
two classes also have different exchange privileges. See "Shareholder
Services--Exchange Privilege".
The Company has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of Class A and Class B
shares of the Company (the "Distribution Agreements"). The Distribution
Agreements obligate the Distributor to pay certain expenses in connection with
the offering of the Class A and Class B 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 similar renewal requirements and termination
provisions as the Investment Advisory Agreement, described under "Management of
the Company--Advisory and Management Arrangements".
INITIAL SALES CHARGE ALTERNATIVE--CLASS A 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 $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
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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 "purchaser" shall not include purchases by
any group of individuals whose sole organizational nexus is that the
participants therein are credit cardholders of a company, policyholders of an
insurance company, customers of either a bank or broker-dealer or clients of an
investment adviser. The term "purchase" also includes purchases by employee
benefit plans not qualified under Section 401 of the Code, including purchases
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.
REDUCED INITIAL SALES CHARGES--CLASS A SHARES
Right of Accumulation. The reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
Class A shares of the Company at the offering price applicable to the total of
(a) the public offering price of the Class A 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 the Class A and Class B shares
of the Company and of any other investment company with a 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 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. The reduced sales charges are applicable to a purchase
aggregating $10,000 or more of Class A shares of the Company or any other
investment company with a sales charge or deferred sales charges for which the
Distributor acts as the distributor made within a thirteen-month period
starting with the first purchase pursuant to a Letter of Intention in the form
provided in the Prospectus. The Letter of Intention is available only to
investors whose accounts are maintained at the Company's transfer agent. The
Letter of Intention is not available to employee benefit plans for which
Merrill Lynch provides plan participant record-keeping services. The Letter of
Intention is not a binding obligation to purchase any amount of Class A 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 shares
of the Company and of other investment companies with a sales charge for which
the Distributor acts as the distributor 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
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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 $10,000), 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 shares purchased at the
reduced rate and the sales charge applicable to the shares actually purchased
through the Letter. Class A shares equal to five percent of the intended amount
will be held in escrow during the thirteen-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 Merrill Lynch Ready Assets Trust, Merrill Lynch
Retirement Reserves Money Fund, Merrill Lynch U.S. Treasury Money Fund or
Merrill Lynch U.S.A. Government Reserves 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 A shares of the Company are offered
to participants in the Merrill Lynch BlueprintSM Program ("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 shares of the Company
through Blueprint will acquire the Class A shares at net asset value plus a
sales charge calculated in accordance with the Blueprint sales charge schedule
(i.e., up to $300 at 5.5%, $300.01 up to $5,000 at 4.5% plus $3, and $5,000.01
or more at the standard sales charge rates disclosed in the Prospectus). Class
A 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 shares through Blueprint. Services, including the exchange privilege,
available to Class A investors through Blueprint, however, may differ from
those available to other investors in Class A shares.
Class A shares are offered at net asset value, with a waiver of the front-end
sales charge, 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 Eligible Retirement
Plans (see definition below) whose Trustee and/or Plan Sponsor offers the
Merrill Lynch Directed IRA Rollover Program. Eligible Retirement Plans include:
(a) plans qualified under Section 401(k) of the Code with a salary reduction
feature offering a menu of investments to plan participants, provided such plan
initially has 1,000 or more employees eligible to participate in the plan
(employees eligible to participate in retirement plans of the same sponsoring
employer or its affiliates may be aggregated); or (b) tax qualified retirement
plans within the meaning of Section 401(a) of the Code or deferred compensation
plans within the meaning of Section 403(b) of the Code, provided the plan (i)
initially invested $5 million or more in existing plan assets in portfolios,
mutual funds or trusts advised by the Investment Adviser or its subsidiaries or
(ii) has accumulated $5 million or more in existing plan assets invested in
mutual funds advised by the Investment Adviser or its subsidiaries, which
charge a front-end sales charge or contingent deferred sales charge (assets of
retirement plans with the same sponsor or an affiliated sponsor may be
aggregated).
Orders for purchases and redemptions of Class A 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
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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.
Employer Sponsored Retirement and Savings Plans. Class A 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, 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 $5 million or more in existing plan assets initially
invested in portfolios, mutual funds or trusts advised by the Investment
Adviser either directly or through an affiliate. Class A shares are being
offered at net asset value to Employer Sponsored Retirement or Savings Plans,
provided the plan has accumulated $5 million or more in existing plan assets
invested in mutual funds advised by the Investment Adviser charging a front-end
sales charge or contingent deferred sales charge. Assets of Employer Sponsored
Retirement or Savings Plans sponsored by the same sponsor or an affiliated
sponsor may be aggregated. The Class A share reduced load breakpoints also
apply to these aggregated assets. Class A shares may be offered at net asset
value to multiple plans sponsored by the same sponsor or an affiliated sponsor
provided that the addition of one or more of the multiple plans results in
aggregate assets of $5 million or more invested in portfolios, mutual funds or
trusts advised by the Investment Adviser either directly or through an
affiliate. Employer Sponsored Retirement or Savings Plans are also offered
Class A shares at net asset value, provided such plan initially has 1,000 or
more employees eligible to participate in the plan. Employees eligible to
participate in Employer Sponsored Retirement or Savings Plans of the same
sponsoring employer or its affiliates may be aggregated. Tax qualified
retirement plans within the meaning of Section 401(a) of the Code meeting any
of the foregoing requirements and which are provided specialized services
(e.g., plans whose participants may direct on a daily basis their plan
allocations among a wide range of investments including individual corporate
equities and other securities in addition to mutual fund shares) by 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
purchasing Class A shares at the sales charge schedule disclosed in the
Prospectus, or if the Employer Sponsored Retirement or Savings Plan is a
qualified retirement plan and meets the specified requirements, then it may
purchase Class B shares with a waiver of the contingent deferred sales charge
upon redemption. The minimum initial and subsequent purchase requirements are
waived in connection with all the above referenced Employer Sponsored
Retirement or Savings Plans.
Purchase Privileges of Certain Persons. Directors of the Company, directors
and trustees of certain other Merrill Lynch sponsored investment companies,
directors of Merrill Lynch & Co., Inc., employees of Merrill Lynch & Co., Inc.
and its subsidiaries 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,
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<PAGE>
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 A shares of the Company are offered at net asset value to shareholders
of certain closed-end funds advised by the Investment Adviser or FAM who wish
to reinvest the net proceeds from a sale of their closed-end fund shares of
common stock in shares of the Company. In order to exercise this investment
option, closed-end fund shareholders must (i) sell their closed-end fund shares
through Merrill Lynch and reinvest the proceeds immediately in the Company,
(ii) have acquired the shares in the closed-end fund's initial public offering
or through reinvestment of dividends earned on shares purchased in such
offering, (iii) have maintained their closed-end fund shares continuously in a
Merrill Lynch account, and (iv) purchase a minimum of $250 worth of Company
shares.
Class A 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 purchase Class A shares of
the Company with proceeds from a redemption of shares of a mutual fund that was
sponsored by the financial consultant's previous firm and imposed a sales
charge either at the time of purchase or on a deferred basis. Second, such
redemption must have been made within 60 days prior to the investment in the
Company, and the proceeds from the redemption must have been maintained in the
interim in cash or a money market fund.
Class A 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 A shares of the Company with proceeds
from a redemption of shares of such other mutual fund and such fund imposed a
sales charge either at the time of purchase or on a deferred basis; second,
such purchase of Class A shares must be made within 90 days after such notice
of termination.
Acquisition of Certain Investment Companies. The public offering price of
Class A shares may be reduced to the net asset value per Class A 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.
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.
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DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Distribution Plan. Reference is made to "Purchase of Shares--Deferred Sales
Charge Alternative--Class B Shares--Distribution Plan" in the Prospectus for
certain information with respect to the Distribution Plan of the Company (the
"Distribution Plan").
The payment of the account maintenance and distribution fees is subject to
the provisions of Rule 12b-1 under the Investment Company Act. Among other
things, the Distribution Plan provides that the Distributor shall provide and
the Directors shall review quarterly reports of the disbursement of the account
maintenance and distribution fees paid to the Distributor. In their
consideration of the Distribution Plan the Directors must consider all factors
they deem relevant, including information as to the benefits of the
Distribution Plan to the Company and to its Class B shareholders. The
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 the Distribution Plan in
accordance with Rule 12b-1, the Independent Directors concluded that there is
reasonable likelihood that the Distribution Plan will benefit the Company and
its Class B shareholders. The 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 Class B voting
securities of the Company. The Distribution Plan cannot be amended to increase
materially the amount to be spent by the Company without Class B shareholder
approval, and all material amendments are required to be approved by the vote
of Directors, including a majority of the Independent Directors who have no
direct or indirect financial interest in the Distribution Plan, cast in person
at a meeting called for that purpose. Rule 12b-1 further requires that the
Company preserve copies of the Distribution Plan and any report made pursuant
to such plan for a period of not less than six years from the date of the
Distribution Plan or such report, the first two years in an easily accessible
place.
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.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternative--Class B Shares", while Class B shares redeemed within four
years of purchase are subject to a contingent deferred
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sales charge under most circumstances, the charge is waived on redemptions of
Class B shares in connection with certain post-retirement withdrawals from an
IRA or other retirement plan or following the death or disability of a Class B
shareholder. Redemptions for which the waiver applies 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 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 contingent deferred sales charges 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 the Merrill Lynch BlueprintSM Program ("Blueprint"). Blueprint
is directed to small investors, group IRAs and participants in certain affinity
groups such as trade associations and credit unions. Class B shares of the
Company are offered through Blueprint only to members of certain affinity
groups. The contingent deferred sales charge 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 shares at net asset value has the option of purchasing
Class A 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 contingent deferred sales charge upon
redemption. The contingent deferred sales charge is waived for any Eligible
401(k) Plan redeeming Class B shares. The contingent deferred sales charge is
also waived for redemptions from 401(a) plans qualified under the Code,
provided, however, each such plan has the same or an affiliated sponsoring
employer as an Eligible 401(k) Plan purchasing Class B shares of a mutual fund
advised by the Investment Adviser or FAM ("Eligible 401(a) Plan"). The
contingent deferred sales charge is waived for any Class B shares which are
purchased by an Eligible 401(k) Plan or Eligible 401(a) Plan and are rolled
over into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and held
in such account at the time of redemption. The contingent deferred sales charge
is also 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.
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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 Fund 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.
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--Investment Restrictions".
22
<PAGE>
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
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
23
<PAGE>
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 the account maintenance
and distribution fees payable to the Distributor, are accrued daily. The per
share net asset value of the Class B 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 shares. It is expected, however,
that the per share net asset value of the two 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 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.
24
<PAGE>
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 quarterly statements from the transfer
agent. These quarterly statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gain distributions. The quarterly 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 shares from Merrill Lynch
to another brokerage firm or financial institution should be aware that, if the
firm to which the Class A shares are to be transferred will not take delivery
of shares of the Company, a shareholder either must redeem the Class A 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 shares. Shareholders interested in
transferring their Class B shares from Merrill Lynch and who do not wish to
have an Investment Account maintained for such shares at the transfer agent may
request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the
shareholder. If the new brokerage firm is willing to accommodate the
shareholder in this manner, the shareholder must request that he 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 PLAN
A U.S. shareholder may make additions to an Investment Account at any time by
purchasing 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
25
<PAGE>
have periodic investments made in the Company in amounts of $250 or more
through the CMA(R) Automatic Investment Program. The Automatic Investment
Program is not available to shareholders whose shares are held in a brokerage
account with Merrill Lynch other than a CMA(R) account.
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, without sales charge, 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 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 SHARES
A Class A 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
shares of the Company having a value, based upon cost or the current offering
price, of $5,000 or more and monthly withdrawals for shareholders with Class A
shares with such a value of $10,000 or more.
At the time of each withdrawal payment, sufficient Class A 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 shares.
Redemptions will be made at net asset value as determined at the close of
business of the New York Stock Exchange 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 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 next business day following redemption. When a
shareholder is making systematic withdrawals, dividends and distributions on
all Class A shares in the Investment Account are automatically reinvested in
the Company's Class A shares. A shareholder's Systematic Withdrawal Plan may be
terminated at any time, without charge or penalty, by the shareholder, the
Company, the transfer agent or the Distributor.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholder's original investment may be
correspondingly reduced. Purchase of additional Class A 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 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.
26
<PAGE>
A Class A shareholder whose shares are held within a CMA(R), CBA(R) or
Retirement Account may elect to have shares redeemed on a monthly, bimonthly,
quarterly, semiannual or annual basis through the Systematic Redemption
Program. 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
Class A and Class B shareholders of the Company may exchange their Class A or
Class B shares for shares of the same class of the funds that issue Class A and
Class B shares listed below. In addition, Class A shareholders of the Company
may exchange their Class A shares of the Company for the shares of the "Class A
money market funds", and Class B shareholders of the Company may exchange their
shares for shares of the "Class B money market funds", on the basis described
below. Shares with a net asset value of at least $100 are required to qualify
for the exchange privilege, and any shares utilized in an exchange must have
been held by the shareholder for at least 15 days. Certain funds into which
exchanges may be made may impose a redemption fee (not in excess of 2.00% of
the amount redeemed) on shares purchased through the exchange privilege when
such shares are subsequently redeemed, including redemption through subsequent
exchanges. Such redemption fee would be in addition to any contingent deferred
sales charge otherwise applicable to a redemption of Class B shares. It is
contemplated that the exchange privilege may be applicable to other new mutual
funds whose shares may be distributed by the Distributor.
Under the exchange privilege, each of the funds with Class A shares
outstanding offers to exchange its Class A shares ("new Class A shares") for
Class A shares ("outstanding Class A shares") of any of the other funds, on the
basis of relative net asset value per Class A share, plus an amount equal to
the difference, if any, between the sales charge previously paid on the
outstanding Class A shares and the sales charge payable at the time of the
exchange on the new Class A shares. With respect to outstanding Class A shares
as to which previous exchanges have taken place, the "sales charge previously
paid" shall include the aggregate of the sales charges paid with respect to
such Class A shares in the initial purchase and any subsequent exchange. Class
A shares issued pursuant to dividend reinvestment are sold on a no-load basis
in each of the funds offering Class A shares. For purposes of the exchange
privilege, Class A 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 shares on which the dividend was paid. Based on
this formula, Class A shares of the Company generally may be exchanged into the
Class A shares of the other funds or into shares of a money market fund advised
by the Investment Adviser or its affiliates with a reduced or without a sales
charge.
In addition, each of the funds with Class B shares outstanding offers to
exchange its Class B shares ("new Class B shares") for Class B shares
("outstanding Class B shares") of any of the other funds on the basis of
relative net asset value per Class B share, without the payment of any
contingent deferred sales charge 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 contingent
deferred sales
27
<PAGE>
charge schedule if such schedule is higher than the deferred sales charge
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 contingent
deferred sales charge schedule if such schedule is higher than the deferred
sales charge 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 shares, the holding period for the
outstanding Class B shares is "tacked" to the holding period of the new Class B
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's 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 contingent
deferred sales charge due on this redemption, since by "tacking" the two and a
half year holding period of the Company's 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 Class A shares and Class B 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 the Class B shares are held in a
money market fund will not count towards satisfaction of the holding period
requirement for purposes of reducing the contingent deferred sales charge.
However, shares of a money market fund which were acquired as a result of an
exchange for Class B shares of the Company may, in turn, be exchanged back into
Class B shares of any fund offering such shares, in which event the holding
period for Class B shares of the fund will be aggregated with previous holding
periods for purposes of reducing the contingent deferred sales charge. Thus,
for example, an investor may exchange Class B shares of the Company for shares
of Merrill Lynch Institutional Fund after having held the Class B shares for
two and a half years and three years later decide to redeem the shares of
Merrill Lynch Institutional Fund for cash. At the time of this redemption, the
2% contingent deferred sales charge that would have been due had the Class B
shares of the Company been redeemed for cash rather than exchanged for shares
of Merrill Lynch 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 contingent deferred sales charge.
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds issuing Class A and Class B 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
28
<PAGE>
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
investors with as high a level of in-
come exempt from Federal and Arizona
income taxes as is consistent with
prudent investment management.
Merrill Lynch Arkansas Municipal
Bond Fund......................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and Arkansas income taxes as
is consistent with prudent investment
management.
Merrill Lynch 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, Capital appreciation and, secondarily,
Inc.................................. 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 shareholders
with as high a
29
<PAGE>
level of income exempt from Federal
and California income taxes as is con-
sistent with prudent investment man-
agement through investment in a port-
folio primarily of intermediate-term
investment grade California Municipal
Bonds.
Merrill Lynch California Municipal
Bond Fund......................
A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide invest-
ors with as high a level of income ex-
empt from Federal and California in-
come taxes as is consistent with pru-
dent investment management.
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 as high a
level of income exempt from Federal
and Colorado income taxes as is con-
sistent with prudent investment man-
agement.
Merrill Lynch Connecticut Municipal
Bond Fund......................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
and Connecticut income taxes as is
consistent with prudent investment
management.
Merrill Lynch Corporate Bond Fund,
Inc............................. Current income from three separate 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, includ-
30
<PAGE>
ing 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 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 intan-
gible personal property taxes through
investment in a portfolio primarily of
intermediate-term investment grade
Florida Municipal Bonds.
Merrill Lynch Florida Municipal Bond
Fund................................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
income taxes as is consistent with
prudent investment management, while
seeking to offer shareholders the op-
portunity to own securities exempt
from Florida intangible personal prop-
erty taxes.
Merrill Lynch Fund For Tomorrow, Long-term growth through investment in
Inc.................................. 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.
31
<PAGE>
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
(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.
Merrill Lynch Global Resources Long-term growth and protection of cap-
Trust........................... 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.
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<PAGE>
Merrill Lynch Maryland Municipal
Bond Fund......................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
and Maryland income taxes as is con-
sistent with prudent investment man-
agement.
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 as high a level of income
exempt from Federal and Massachusetts
income taxes as is consistent with
prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade
Massachusetts Municipal Bonds.
Merrill Lynch Massachusetts
Municipal Bond Fund.................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
and Massachusetts income taxes as is
consistent with prudent investment
management.
Merrill Lynch Michigan Limited
Maturity Municipal Bond Fund...
A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal Se-
ries Trust, a series fund, whose ob-
jective is as high a level of income
exempt from Federal and Michigan in-
come taxes as is consistent with pru-
dent investment management through in-
vestment in a portfolio primarily of
intermediate-term investment grade
Michigan Municipal Bonds.
Merrill Lynch Michigan Municipal
Bond Fund...........................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
and Michigan income taxes as is con-
sistent with prudent investment man-
agement.
Merrill Lynch Minnesota Municipal
Bond Fund...........................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
and Minnesota income taxes as is con-
sistent with prudent investment man-
agement.
Merrill Lynch Municipal Bond Fund,
Inc..................................
Tax-exempt income from three separate
diversified portfolios of municipal
bonds.
33
<PAGE>
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 as high a level of income
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 as high a
level of income exempt from Federal
and New Jersey income taxes as is con-
sistent with prudent investment man-
agement.
Merrill Lynch New Mexico Municipal
Bond Fund......................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
and New Mexico income taxes as is con-
sistent with prudent investment man-
agement.
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 as high a level of income
exempt from Federal, New York State
and New York City income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of intermediate-
term investment grade New York Munici-
pal Bonds.
Merrill Lynch New York Municipal
Bond Fund...........................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal,
New York State and New York City in-
come taxes as is consistent with pru-
dent investment management.
34
<PAGE>
Merrill Lynch North Carolina
Municipal Bond Fund.................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is 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 A portfolio of Merrill Lynch Multi-
Fund................................. State Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
and Ohio income taxes as is consistent
with prudent investment management.
Merrill Lynch Oregon Municipal Bond
Fund................................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
and Oregon income taxes as is consis-
tent with prudent investment manage-
ment.
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 as high a
level of income exempt from Federal
and Pennsylvania income taxes as is
consistent with prudent investment
management.
Long-term growth of capital by invest-
Merrill Lynch Phoenix Fund, Inc...... 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.
35
<PAGE>
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.
Merrill Lynch Strategic Dividend Long-term total return from investment
Fund................................. 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 as high a
level of income exempt from Federal
income taxes as is consistent with
prudent investment management by in-
vesting 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, High current income through investment
Inc. ........................... 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, High current income by investing in a
Inc. ........................... global portfolio of fixed income secu-
rities denominated in various curren-
cies, including multinational curren-
cies.
Class A 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.
36
<PAGE>
Merrill Lynch Retirement Reserves
Money Fund (available only for
exchanges within certain retirement
plans)..........................
Currently the only portfolio of Merrill
Lynch Retirement Series Trust, a 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.
Merrill Lynch U.S. Treasury Money Preservation of capital, liquidity and
Fund................................. 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 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....................
Current income exempt from Federal in-
come taxes, preservation of capital
and liquidity available from investing
in a diversified portfolio of short-
term, high quality municipal bonds.
Merrill Lynch Treasury Fund..... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide current
income consistent with liquidity and
security of principal from investment
in direct obligations of the U.S.
Treasury and up to 10% of its total
assets in repurchase agreements 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.
37
<PAGE>
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 to the general public at any time and may
thereafter 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.
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 and Class B 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 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 between the Class A and
Class B 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 and Class B 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 RIC 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.
38
<PAGE>
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Company or who, to the Company's knowledge, have
furnished an incorrect number. When establishing an account, an investor must
certify under penalty of perjury that such number is correct and that such
investor is not otherwise subject to backup withholding.
Dividends and interest received by the Company may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Company. 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 share of such withholding taxes
in their U.S. income tax returns as gross income, treat such proportionate
share as taxes paid by them and deduct such proportionate share 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 between the Class A and
Class B shareholders according to a method similar to that described above for
the allocation of dividends eligible for the dividends received deduction.
If a Class A shareholder exercises the exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent the sales charge
paid to the Company reduces any sales charge the shareholder would have owed
upon the purchase of the new Class A shares in the absence of the exchange
privilege. Instead, such sales charge will be treated as an amount paid for the
new Class A 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.
39
<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 may 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 988 losses
exceed other investment company taxable income during a taxable year, the
Company would not
40
<PAGE>
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 shares and
Class B 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 shares and the contingent deferred sales charge that would be
applicable to a complete redemption of the investment at the end of the
specified period in the case of Class B shares.
The Company also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted
and (2) the maximum applicable sales charge will not be included with respect
to annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charges, actual annual
41
<PAGE>
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.
<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, 1.16% $1,011.60 3.25% $1,032.50
1994....................
Five Years Ended April
30, 1994................ 7.33% $1,424.60 7.71% $1,449.50
October 21, 1988, to
April 30, 1994.......... 7.88% $1,520.40
Ten Years Ended April
30, 1994................ 8.58% $2,278.60
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<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......... 145.74% $2,457.40
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.
42
<PAGE>
In order to reflect the reduced sales charges, in the case of Class A shares,
or the waiver of the contingent deferred sales charge, in the case of Class B
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 contingent deferred sales charge 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
200,000,000 shares of Common Stock, par value of $0.10 per share, divided into
two classes, designated Class A and Class B Common Stock, each of which
consists of 100,000,000 shares. Both Class A and Class B Common Stock represent
an interest in the same assets of the Company and are identical in all respects
except that the Class B shares bear certain expenses related to the account
maintenance and distribution of such shares and that they have exclusive voting
rights with respect to matters relating to such account maintenance and
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 or conversion rights. Redemption 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.
43
<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 as follows:
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: 6.50% of offering
price
(6.95% of net amount invested))*..................... $ 0.27 **
----------- -----------
Offering Price........................................ $ 4.14 $ 3.55
=========== ===========
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B shares are not subject to an initial sales charge but may be subject
to a contingent deferred sales charge on redemption of shares within four years
of purchase. See "Purchase of Shares--Deferred Sales Charge Alternative--Class
B Shares" in the Prospectus and "Redemption of Shares--Contingent Deferred
Sales Charge--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., Chase MetroTech Center, 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.
44
<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 July 31, 1994.
45
<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
46
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<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>
47
<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>
48
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
SHORT-TERM
SECURITIES Face Amount Commercial Paper**
<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%
============ ======
<FN>
*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.
Acquisition Value
Issue Date Cost (Note 1a)
Uromed Corp. Inc. 9/15/93 $1,000,005 $1,185,127
========== ==========
(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:
<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)
(1) Non-income producing security.
See Notes to Financial Statements.
</TABLE>
49
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<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>
50
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<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>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<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>
51
<PAGE>
<TABLE>
<CAPTION>
<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.
<TABLE>
FINANCIAL HIGHLIGHTS
<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 Period Year Period
financial statements For the Year Ended Ended Ended Ended For the Year Ended
April 30, April 30, Nov. 30, Nov. 30, 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 $ 3.59 $ 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 Investment Based on net asset value per share 8.19% (1.10%) 10.96%+++ 29.44% (8.75%)+++ 11.36% 0.36%
Return:** ======== ======== ======== ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement 1.55% 1.85% 1.56%* 1.61% 1.77%* 1.55% 1.46%
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%
======== ======== ======== ========= ========= ========= =========
<FN>
*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.
</TABLE>
52
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<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%
======== ======== ======== ======== ======== ======== ========
<FN>
++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.
</TABLE>
53
<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.
54
<PAGE>
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:
Class A Shares for the Year Ended Dollar
April 30, 1994 Shares Amount
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
============ ============
Class A Shares for the Year Ended Dollar
April 30, 1993 Shares Amount
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
============ ============
Class B Shares for the Year Ended Dollar
April 30, 1994 Shares Amount
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
============ ============
55
<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:
Realized Unrealized
Gains (Losses) Gains(Losses)
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
============ ============
Class B Shares for the Year Ended Dollar
April 30, 1993 Shares Amount
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
============ ============
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.
56
<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
Investment Restrictions................................................... 8
Management of the Company.................................................. 11
Directors and Officers.................................................... 11
Advisory and Management Arrangements...................................... 13
Purchase of Shares......................................................... 15
Alternative Sales Arrangements............................................ 15
Initial Sales Charge Alternative--Class A Shares.......................... 15
Reduced Initial Sales Charges--Class A Shares............................. 16
Deferred Sales Charge Alternative--Class B Shares......................... 20
Redemption of Shares....................................................... 20
Contingent Deferred Sales Charge--Class B Shares.......................... 20
Portfolio Transactions and Brokerage....................................... 22
Determination of Net Asset Value........................................... 23
Shareholder Services....................................................... 25
Investment Account........................................................ 25
Automatic Investment Plan................................................. 25
Reinvestment of Dividends and Capital Gains Distributions................. 26
Systematic Withdrawal Plans--Class A Shares............................... 26
Exchange Privilege........................................................ 27
Taxes...................................................................... 38
Tax Treatment of Options, Futures
and Forward Foreign Exchange
Transactions............................................................. 40
Special Rules for Certain Foreign Currency Transactions................... 40
Performance Data........................................................... 41
General Information........................................................ 43
Description of Shares..................................................... 43
Computation of Offering Price Per Share................................... 44
Independent Auditors...................................................... 44
Custodian................................................................. 44
Transfer Agent............................................................ 44
Legal Counsel............................................................. 45
Reports to Shareholders................................................... 45
Additional Information.................................................... 45
Security Ownership of Certain Beneficial Owners........................... 45
Independent Auditors' Report............................................... 46
Financial Statements....................................................... 48
</TABLE>
Code #10255-0894
Statement of
Additional Information
ART
- -------------------------------------------------------------------------------
MERRILL LYNCH HEALTHCARE FUND, INC.
August 26, 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.
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.
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 --Distribution Plan of Registrant.(g)
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)
</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 Pre-Effective Amendment No. 14
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 JUNE 30, 1994
-------------- -----------------
<S> <C>
Class A Common Stock, par value $0.10 per share........ 5,055
Class B Common Stock, par value $0.10 per share........ 145
</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 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.
C-2
<PAGE>
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.
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 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,
C-3
<PAGE>
Inc., Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global
Holdings, 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 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 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 and Monagle 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 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
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........... Assistant 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.
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Registrant's 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 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 25TH DAY OF AUGUST 1994.
Merrill Lynch Healthcare Fund, Inc.
(Registrant)
/s/ Arthur Zeikel
By___________________________________
(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
President and Director
/s/ Arthur Zeikel (Principal Executive August 25, 1994
- -------------------------------- Officer)
(ARTHUR ZEIKEL)
Treasurer (Principal
/s/ Gerald M. Richard Financial and August 25, 1994
- -------------------------------- Accounting Officer)
(GERALD M. RICHARD)
Donald Cecil* Director
- -------------------------------- August 25, 1994
(DONALD CECIL)
Charles C. Reilly* Director
- -------------------------------- August 25, 1994
(CHARLES C. REILLY)
Richard R. West* Director
- -------------------------------- August 25, 1994
(RICHARD R. WEST)
*By /s/ Arthur Zeikel August 25, 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. ..........................................
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. ..............................
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 --Distribution Plan of Registrant.(g).......................
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)....................................
</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 Pre-Effective Amendment No. 14
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 and Back cover of Prospectus and
circular graph paper. back cover of Statement of
Additional Information
- ----------------------
<PAGE>
EXHIBIT 99.5B
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
WITH
MERRILL LYNCH ASSET MANAGEMENT
As of January 1, 1994 Merrill Lynch Investment Management, Inc. d/b/a Merrill
Lynch Asset Management was reorganized as a limited partnership, formally known
as Merrill Lynch Asset Management, L.P. and continuing to do business under the
name Merrill Lynch Asset Management ("MLAM"). The general partner of MLAM is
Princeton Services, Inc. and the limited partners are Merrill Lynch Investment
Management, Inc. and Merrill Lynch & Co., Inc. Pursuant to Rule 202(a)(1)-1
under the Investment Advisers Act of 1940 and Rule 2a-6 under the Investment
Company Act of 1940 such reorganization did not constitute an assignment of this
investment advisory agreement since it did not involve a change of control or
management of the investment adviser. Pursuant to the requirements of Section
205 of the Investment Advisers Act of 1940, however, Merrill Lynch Asset
Management hereby supplements this investment advisory agreement by undertaking
to advise you of any change in the membership of the partnership within a
reasonable time after any such change occurs.
By /s/ Arthur Zeikel
-----------------------
Dated: January 3, 1994
<PAGE>
EXHIBIT 99.6C
September 15, 1993
Merrill Lynch Funds Distributor, Inc.
Post Office Box 9011
Princeton, New Jersey 08543-9011
Each of the undersigned open-end investment companies (the "Funds") has
entered into a Distribution Agreement with Merrill Lynch Funds Distributor, Inc.
(the "Distributor"). Under the terms of such agreements, the Distributor is
authorized to offer shares of each Fund and to purchase, as principal, such
number of shares from each of the Funds as are needed to fill unconditional
orders for shares of such Fund placed with the Distributor by investors or by
securities dealers.
This letter confirms the agreement by each Fund with the Distributor that,
in connection with the Merrill Lynch Mutual Fund Adviser program, the
Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are also authorized
<PAGE>
to offer and sell shares of such Fund, as agent for the Fund, to participants in
such program. This letter further confirms that the terms of the Distribution
Agreement between each Fund and the Distributor shall apply to such sales,
including terms as to the offering price of shares, the proceeds to be paid to
each Fund, the duties of the Distributor, the payment of expenses and
indemnification obligations of each Fund and the Distributor.
If the foregoing is consistent with your understanding of our agreement,
please sign and return one copy of the enclosed agreement.
Very truly yours,
The Investment Companies listed
on Schedule A hereto
By: /s/ Terry K. Glenn
-------------------------
Authorized Signatory
Accepted as of the date
set forth above
Merrill Lynch Funds Distributor, Inc.
By: /s/ Gerald M. Richard
--------------------------
Authorized Signatory
2
<PAGE>
The Declaration of Trust establishing each investment company listed on
Schedule A hereto which has been organized as a Massachusetts trust (each, a
"Fund"), a copy of which, together with all amendments thereto, is on file in
the office of the Secretary of the Commonwealth of Massachusetts, provides that
the name of the Fund refers to the Trustees under the Declaration collectively
as Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of the Fund shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Fund, but
the Fund estate only shall be liable.
3
<PAGE>
SCHEDULE A
----------
EQUITY FUNDS:
Merrill Lynch Balanced Fund for Investment and Retirement
Merrill Lynch Basic Value Fund, Inc.
Merrill Lynch Capital Fund, Inc.
Merrill Lynch Developing Capital Markets Fund, Inc.
Merrill Lynch Dragon Fund, Inc.
Merrill Lynch EuroFund
Merrill Lynch Fundamental Growth Fund, Inc.
Merrill Lynch Fund for Tomorrow, Inc.
Merrill Lynch Global Allocation Fund, Inc.
Merrill Lynch Global Utility Fund, Inc.
Merrill Lynch Growth Fund for Investment and Retirement
Merrill Lynch Healthcare Fund, Inc.
Merrill Lynch International Equity Fund
Merrill Lynch International Holdings, Inc.
Merrill Lynch Latin America Fund, Inc.
Merrill Lynch Natural Resources Trust
Merrill Lynch Pacific Fund, Inc.
Merrill Lynch Phoenix Fund, Inc.
Merrill Lynch Special Value Fund, Inc.
Merrill Lynch Strategic Dividend Fund
Merrill Lynch Technology Fund, Inc.
FIXED INCOME FUNDS:
Merrill Lynch Adjustable Rate Securities Fund, Inc.
Merrill Lynch Americas Income Fund, Inc.
Merrill Lynch Corporate Bond Fund, Inc.
Merrill Lynch Federal Securities Trust
Merrill Lynch Global Bond Fund for Investment and Retirement
Merrill Lynch Global Convertible Fund, Inc.
Merrill Lynch Short-Term Global Income Fund, Inc.
Merrill Lynch World Income Fund, Inc.
TAX-EXEMPT FIXED INCOME FUNDS:
Merrill Lynch Arizona Municipal Bond Fund
Merrill Lynch California Municipal Bond Fund
Merrill Lynch California Insured Municipal Bond Fund
Merrill Lynch Florida Municipal Bond Fund
Merrill Lynch Massachusetts Municipal Bond Fund
Merrill Lynch Michigan Municipal Bond Fund
Merrill Lynch Minnesota Municipal Bond Fund
Merrill Lynch Municipal Bond Fund, Inc.
A-1
<PAGE>
Merrill Lynch Municipal Income Fund
Merrill Lynch New Jersey Municipal Bond Fund
Merrill Lynch New York Municipal Bond Fund
Merrill Lynch North Carolina Municipal Bond Fund
Merrill Lynch Ohio Municipal Bond Fund
Merrill Lynch Pennsylvania Municipal Bond Fund
Merrill Lynch Texas Municipal Bond Fund
INSTITUTIONAL MONEY MARKET FUNDS:
Merrill Lynch Institutional Fund
Merrill Lynch Government Fund
Merrill Lynch Treasury Fund
Merrill Lynch Institutional Tax-Exempt Fund
A-2
<PAGE>
EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Healthcare Fund, Inc.
We consent to the use in Post-Effective Amendment No. 15 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
August 26, 1994
