<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 24, 1995
SECURITIES ACT FILE NO. 2-80150
INVESTMENT COMPANY ACT FILE NO. 811-3595
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 17 /X/
/X/AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 18 /X/
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
MERRILL LYNCH HEALTHCARE FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH HEALTHCARE FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
COUNSEL FOR THE REGISTRANT: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD MERRILL LYNCH ASSET
ONE WORLD TRADE CENTER MANAGEMENT
NEW YORK, NY 10048-0557 P.O. BOX 9011
ATTENTION: THOMAS R. SMITH, JR., ESQ. PRINCETON, NJ 08543-9011
FRANK P. BRUNO, ESQ.
</TABLE>
------------------------
It is proposed that this filing will become effective (check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
/ /this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
------------------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF 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 28, 1995.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH HEALTHCARE FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
------------- --------
<S> <C> <C>
PART A
Item 1. Cover Page............................... Cover Page
Item 2. Synopsis................................. Fee Table; Alternative Sales
Arrangements; Risk Factors and Special
Considerations
Item 3. Condensed Financial Information.......... Financial Highlights; Performance Data
Item 4. General Description of Registrant........ Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund................... Fee Table; Management of the Company;
Inside Back Cover Page
Item 5A. Management's Discussion of Fund
Performance............................ Not Applicable
Item 6. Capital Stock and Other Securities....... Cover Page; Additional Information
Item 7. Purchase of Securities Being Offered..... Cover Page; Fee Table; Merrill Lynch
Select Pricing(SM) System; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase................. Fee Table; Merrill Lynch Select
Pricing(SM) System; Shareholder Services;
Purchase of Shares; Redemption of
Shares
Item 9. Pending Legal Proceedings................ Not Applicable
PART B
Item 10. Cover Page............................... Cover Page
Item 11. Table of Contents........................ Back Cover Page
Item 12. General Information and History.......... Not Applicable
Item 13. Investment Objectives and Policies....... Investment Objective and Policies
Item 14. Management of the Fund................... Management of the Company
Item 15. Control Persons and Principal Holders of
Securities............................. Management of the Company
Item 16. Investment Advisory and Other Services... Management of the Company; Purchase of
Shares; General Information
Item 17. Brokerage Allocation..................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities....... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............... Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services; General
Information
Item 20. Tax Status............................... Dividends and Distributions; Taxes
Item 21. Underwriters............................. Purchase of Shares
Item 22. Calculation of Performance Data.......... Performance Data
Item 23. Financial Statements..................... Financial Statements
PART C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE> 3
PROSPECTUS
AUGUST 24, 1995
MERRILL LYNCH HEALTHCARE FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Healthcare Fund, Inc. (the "Company") is a non-diversified,
open-end investment company seeking long-term capital appreciation through
worldwide investment in equity securities of companies that, in the opinion of
management, derive or are expected to derive a substantial portion of their
sales from products and services in healthcare. The Company will pursue its
investment objective by investing in a global portfolio of securities of
companies in various stages of development. It is presently contemplated that
the Company's assets will be primarily invested in the United States, Japan and
Western Europe. Until the Company changed its investment objective on April 27,
1992, the Company was known as Sci/Tech Holdings, Inc. For more information on
the Company's investment objective and policies, please see "Investment
Objective and Policies" on page 13.
------------------------
Pursuant to the Merrill Lynch Select PricingSM System, the Company offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select PricingSM System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select PricingSM System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9011, Princeton, New Jersey 08543-9011 [(609)
282-2800], or from securities dealers which have entered into dealer agreements
with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000, and the
minimum subsequent purchase is $50, except that for retirement plans the minimum
initial purchase is $100, and the minimum subsequent purchase is $1. Merrill
Lynch may charge its customers a processing fee (presently $4.85) for confirming
purchases and repurchases. Purchases and redemptions directly through the
Company's transfer agent are not subject to the processing fee. See "Purchase of
Shares" and "Redemption of Shares".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
This Prospectus is a concise statement of information about the Company
that is relevant to making an investment in the Company. This Prospectus should
be retained for future reference. A statement containing additional information
about the Company, dated August 24, 1995 (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> 4
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Company follows:
<TABLE>
<CAPTION>
CLASS A(A) CLASS B(B) CLASS C CLASS D
---------- ----------------------- ------------ ----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price).... 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments.......................... None None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower).......... None(d) 4.0% during the first 1.0% for one None(d)
year, decreasing 1.0% year
annually thereafter to
0.0% after the fourth
year
Exchange Fee............................. None None None None
ANNUAL COMPANY OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)(E)
Investment Advisory Fees(f).............. 1.00% 1.00% 1.00% 1.00%
12b-1 Fees(g):
Account Maintenance Fees............... None 0.25% 0.25% 0.25%
Distribution Fees...................... None 0.75% 0.75% None
(Class B shares
convert to Class D
shares automatically
after approximately
eight years and cease
being subject to
distribution fees)
Other Expenses:
Custodial Fees...................... 0.03% 0.03% 0.03% 0.03%
Shareholder Servicing Costs(h)...... 0.37% 0.43% 0.43% 0.37%
Other............................... 0.39% 0.39% 0.39% 0.39%
------- ----- ----- -------
Total Other Expenses............ 0.79% 0.85% 0.85% 0.79%
------- ----- ----- -------
Total Company Operating Expenses......... 1.79% 2.85% 2.85% 2.04%
------- ----- ----- -------
------- ----- ----- -------
</TABLE>
---------------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and certain investment
programs. See "Purchase of Shares--Initial Sales Charge Alternatives--Class
A and Class D Shares"--page 25.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Purchase of Shares--Deferred Sales Charge
Alternatives--Class B and Class C Shares"--page 26.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. Class A or Class D purchases of $1,000,000 or more may not be
subject to an initial sales charge. See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares"--page 25.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more which
are not subject to an initial sales charge may instead be subject to a CDSC
of 1.0% of amounts redeemed within the first year after purchase.
(e) Information for Class A and Class B shares is stated for the fiscal year
ended April 30, 1995. Information under "Other Expenses" for Class C and
Class D shares is estimated for the fiscal year ending April 30, 1996.
(f) See "Management of the Company--Advisory and Management Arrangements"--page
21.
(g) See "Purchase of Shares--Distribution Plans"--page 30.
(h) See "Management of the Company--Transfer Agency Services"--page 22.
2
<PAGE> 5
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID
FOR THE PERIOD OF:
----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment including the maximum $52.50 initial sales charge
(Class A and Class D shares only) and assuming (1) the Total
Company Operating Expenses for each class set forth above; (2)
a 5% annual return throughout the periods and (3) redemption
at the end of the period:
Class A..................................................... $ 70 $ 106 $ 144 $252
Class B..................................................... $ 69 $ 108 $ 150 $300*
Class C..................................................... $ 39 $ 88 $ 150 $318
Class D..................................................... $ 72 $ 113 $ 157 $277
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A..................................................... $ 70 $ 106 $ 144 $252
Class B..................................................... $ 29 $ 88 $ 150 $300*
Class C..................................................... $ 29 $ 88 $ 150 $318
Class D..................................................... $ 72 $ 113 $ 157 $277
</TABLE>
---------------
* Assumes conversion to Class D shares approximately eight years after purchase.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Company will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission ("Commission") regulations. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL
RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and Class C
shareholders who hold their shares for an extended period of time may pay more
in Rule 12b-1 distribution fees than the economic equivalent of the maximum
front-end sales charges permitted under the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. (the "NASD"). Merrill Lynch may
charge its customers a processing fee (presently $4.85) for confirming purchases
and redemptions. Purchases and redemptions directly through the Company's
transfer agent are not subject to the processing fee. See "Purchase of Shares"
and "Redemption of Shares".
MERRILL LYNCH SELECT PRICING(SM) SYSTEM
The Company offers four classes of shares under the Merrill Lynch Select
PricingSM System. The shares of each class may be purchased at a price equal to
the next determined net asset value per share subject to the sales charges and
ongoing fee arrangements described below. Shares of Class A and Class D are sold
to investors choosing the initial sales charge alternatives, and shares of Class
B and Class C are sold to investors choosing the deferred sales charge
alternatives. The Merrill Lynch Select Pricing(SM) System is used by more than
60 mutual funds advised by Merrill Lynch Asset Management, L.P. ("MLAM" or the
"Investment Adviser") or an affiliate of MLAM, Fund Asset Management, L.P.
("FAM"). Funds advised by MLAM or FAM are referred to herein as "MLAM-advised
mutual funds".
Each Class A, Class B, Class C or Class D share of the Company represents
an identical interest in the investment portfolio of the Company and has the
same rights, except that Class B, Class C and Class D shares bear the expenses
of the ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the
3
<PAGE> 6
deferred sales charge arrangements. The deferred sales charges and account
maintenance fees that are imposed on Class B and Class C shares, as well as the
account maintenance fees that are imposed on Class D shares, are imposed
directly against those classes and not against all assets of the Company and,
accordingly, such charges will not affect the net asset value of any other class
or have any impact on investors choosing another sales charge option. Dividends
paid by the Company for each class of shares will be calculated in the same
manner at the same time and will differ only to the extent that account
maintenance and distribution fees and any incremental transfer agency costs
relating to a particular class are borne exclusively by that class. Each class
has different exchange privileges. See "Shareholder Services--Exchange
Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Company. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing(SM) System that the investor
believes is most beneficial under his particular circumstances. More detailed
information as to each class of shares is set forth under "Purchase of Shares".
<TABLE>
=============================================================================================================
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales
charge(2)(3) No No No
---------------------------------------------------------------------------------------------------------
B CDSC for a period of 4 years, at
a rate of 4.0% during the first
year, decreasing 1.0% annually B shares convert to D shares
to 0.0% 0.25% 0.75% automatically after approximately
eight years(4)
---------------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
---------------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales
charge(3) 0.25% No No
=============================================================================================================
</TABLE>
---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. Contingent deferred sales charges ("CDSCs") are imposed
if the redemption occurs within the applicable CDSC time period. The charge
will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors".
(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. Class A and Class D share purchases of $1,000,000 or more may not
be subject to an initial sales charge but instead will be subject to a 1.0%
CDSC for one year. See "Class A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Company are exchanged for Class
B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
4
<PAGE> 7
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares of the Company are offered to a limited group of investors and
also will be issued upon reinvestment of dividends on outstanding Class
A shares. Investors that currently own Class A shares in a shareholder
account are entitled to purchase additional Class A shares in that
account. Other eligible investors include certain retirement plans and
participants in certain investment programs. In addition, Class A
shares will be offered to ML & Co. and its subsidiaries (the term
"subsidiaries", when used herein with respect to ML & Co., includes
MLAM, FAM and certain other entities directly or indirectly
wholly-owned and controlled by ML & Co.) and their directors and
employees and to members of the Boards of MLAM-advised mutual funds.
The maximum initial sales charge is 5.25%, which is reduced for
purchases of $25,000 and over, and waived for purchases by certain
retirement plans in connection with certain investment programs.
Purchases of $1,000,000 or more may not be subject to an initial sales
charge but if the initial sales charge is waived, such purchases will
be subject to a CDSC of 1.0% if the shares are redeemed within one year
after purchase. Sales charges also are reduced under a right of
accumulation which takes into account the investor's holdings of all
classes of all MLAM-advised mutual funds. See "Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D Shares".
Class B: Class B shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75% of the Company's average net assets
attributable to Class B shares, and a CDSC if they are redeemed within
four years of purchase. Approximately eight years after issuance, Class
B shares will convert automatically into Class D shares of the Company,
which are subject to an account maintenance fee but no distribution
fee; Class B shares of certain other MLAM-advised mutual funds into
which exchanges may be made convert into Class D shares automatically
after approximately ten years. If Class B shares of the Company are
exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the
exchange will apply, and the holding period for the shares exchanged
will be tacked onto the holding period for the shares acquired.
Automatic conversion of Class B shares into Class D shares will occur
at least once a month on the basis of the relative net asset values of
the shares of the two classes on the conversion date, without the
imposition of any sales load, fee or other charge. Conversion of Class
B shares to Class D shares will not be deemed a purchase or sale of the
shares for Federal income tax purposes. Shares purchased through
reinvestment of dividends on Class B shares also will convert
automatically to Class D shares. The conversion period for dividend
reinvestment shares, and the conversion and holding periods for certain
retirement plans, is modified as described under "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares".
Class C: Class C shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75% of the Company's average net assets
attributable to Class C shares. Class C shares are also subject to a
CDSC if they are redeemed within one year of purchase. Although Class C
shares are subject to a 1.0% CDSC for only one year (as compared to
four years for Class B), Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject
to distribution fees that will be imposed on Class C shares for an
indefinite period subject to annual approval by the Company's Board of
Directors and regulatory limitations.
5
<PAGE> 8
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Company's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. Purchases of $1,000,000 or more may not be subject
to an initial sales charge but if the initial sales charge is waived,
such purchases will be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. The schedule of initial sales
charges and reductions for Class D shares is the same as the schedule
for Class A shares, except that there is no waiver for purchases by
retirement plans in connection with certain investment programs. Class
D shares also will be issued upon conversion of Class B shares as
described above under "Class B". See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares".
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
PricingSM System that the investor believes is most beneficial under his
particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative particularly
attractive because similar sales charge reductions are not available with
respect to the deferred sales charges imposed in connection with purchases of
Class B or Class C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or
Class C shares may exceed the initial sales charge and, in the case of Class D
shares, the account maintenance fee. Although some investors that previously
purchased Class A shares may no longer be eligible to purchase Class A shares of
other MLAM-advised mutual funds, those previously purchased Class A shares,
together with Class B, Class C and Class D share holdings, will count toward a
right of accumulation which may qualify the investor for reduced initial sales
charges on new initial sales charge purchases. In addition, the ongoing Class B
and Class C account maintenance and distribution fees will cause Class B and
Class C shares to have higher expense ratios, pay lower dividends and have lower
total returns than the initial sales charge shares. The ongoing Class D account
maintenance fees will cause Class D shares to have a higher expense ratio, pay
lower dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. The deferred sales charge alternatives may be particularly appealing to
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account maintenance fees and
distribution fees; however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return is realized on the
additional funds initially invested in Class B or Class C shares. In addition,
Class B shares will be converted into Class D shares of the Company after a
conversion period of approximately eight years, and thereafter investors will be
subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. Investors in Class B shares
should take into account whether they intend to redeem their shares within the
CDSC
6
<PAGE> 9
period and, if not, whether they intend to remain invested until the end of the
conversion period and thereby take advantage of the reduction in ongoing fees
resulting from the conversion into Class D shares. Other investors, however, may
elect to purchase Class C shares if they determine that it is advantageous to
have all their assets invested initially and they are uncertain as to the length
of time they intend to hold their assets in MLAM-advised mutual funds. Although
Class C shareholders are subject to a shorter CDSC period at a lower rate, they
forego the Class B conversion feature, making their investment subject to
account maintenance and distribution fees for an indefinite period of time. In
addition, while both Class B and Class C distribution fees are subject to the
limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See "Purchase of Shares--Limitations on the Payment of Deferred
Sales Charges".
7
<PAGE> 10
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. Financial statements and the
independent auditors' report thereon for the fiscal year ended April 30, 1995,
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 ENDED APRIL PERIOD YEAR PERIOD
30, ENDED ENDED ENDED FOR THE YEAR ENDED MARCH 31,
------------------------- APRIL 30, NOV. 30, NOV. 30, ------------------------------------------------
1995+ 1994+ 1993 1992+++ 1991 1990++ 1990 1989 1988 1987 1986
------- ------- ------- ------ -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period........... $ 3.87 $ 3.59 $ 3.63 $ 9.19 $ 7.94 $ 9.13 $ 9.61 $ 10.55 $ 13.75 $ 11.97 $ 9.15
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Investment income
(loss)--net...... (.01) (.02) .02 -- .03 .05 .05 .15 .05 .07 .11
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions--net... .22 .31 (.06) .88 2.08 (.75) .96 (.12) .11 2.34 2.83
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations....... .21 .29 (.04) .88 2.11 (.70) 1.01 .03 .16 2.41 2.94
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Return of
capital--net..... -- -- -- (3.97) -- -- -- -- -- -- --
Investment
income--net.... -- (.01) -- -- (.03) (.08) (.07) (.15) (.01) (.10) (.12)
Realized gain on
investments--net... (.27) -- -- (2.47) (.83) (.41) (1.42) (.82) (3.35) (.53) --
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Total dividends
and
distributions.... (.27) (.01) -- (6.44) (.86) (.49) (1.49) (.97) (3.36) (.63) (.12)
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Net asset value,
end of period.... $ 3.81 $ 3.87 $ 3.59 $ 3.63 $ 9.19 $ 7.94 $ 9.13 $ 9.61 $ 10.55 $ 13.75 $ 11.97
======= ======= ======= ======= ======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT
RETURN:**
Based on net asset
value per
share............ 6.47% 8.19% (1.10%) 10.96%# 29.44% (8.75%)# 11.36% 0.36% 2.02% 20.76% 32.50%
======= ======= ======= ======= ======== ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE
NET ASSETS:
Expenses, net of
reimbursement.... 1.79% 1.55% 1.85% 1.56%* 1.61% 1.77%* 1.55% 1.46% 1.41% 1.44% 1.39%
======= ======= ======= ======= ======== ======== ======== ======== ======== ======== ========
Expenses.......... 1.79% 1.55% 1.85% 1.56%* 1.61% 1.77%* 1.61% 1.46% 1.41% 1.44% 1.39%
======= ======= ======= ======= ======== ======== ======== ======== ======== ======== ========
Investment income
(loss)--net...... (.21%) (.48%) .48% (.16%)* .27% .62%* .78% 1.07% .48% .50% 1.00%
======= ======= ======= ======= ======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of
period
(in thousands)... $69,650 $70,753 $63,528 $61,132 $125,979 $114,852 $140,635 $170,742 $238,606 $296,637 $310,023
======= ======= ======= ======= ======== ======== ======== ======== ======== ======== ========
Portfolio
turnover......... 196.91% 133.58% 103.06% 147.63% 206.29% 159.11% 122.57% 113.85% 107.52% 92.42% 89.89%
======= ======= ======= ======= ======== ======== ======== ======== ======== ======== ========
</TABLE>
---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ 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.
8
<PAGE> 11
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------------------------
FOR THE FOR THE
FIVE- EIGHT- FOR THE
FOR THE MONTH FOR THE MONTH+++ FOR THE PERIOD
YEAR ENDED PERIOD++++ YEAR PERIOD YEAR OCT. 21,
APRIL 30, ENDED ENDED ENDED ENDED 1988++ TO
----------------------------- APRIL 30, NOV. 30, NOV. 30, MARCH 31, MARCH 31,
1995+ 1994+ 1993+ 1992+ 1991 1990 1990+ 1989+
------- ------- ------- ---------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET
VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 3.55 $ 3.31 $ 3.38 $ 9.01 $ 7.84 $ 9.05 $ 9.57 $ 10.24
------- ------- ------- ---------- -------- -------- --------- ---------
Investment loss--net (.04) (.05) (.01) (.02) (.03 ) (.01 ) (.06) (.02)
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions--net............... .19 .29 (.06) .83 2.03 (.75 ) .97 (.06)
------- ------- ------- ---------- -------- -------- --------- ---------
Total from investment
operations...................... .15 .24 (.07) .81 2.00 (.76 ) .91 (.08)
------- ------- ------- ---------- -------- -------- --------- ---------
Less dividends and distributions:
Return of capital--net.......... -- -- -- (3.97) -- -- -- --
Investment income--net.......... -- -- -- -- -- (.04 ) (.01) (.06)
Realized gain on
investments--net.............. (.27) -- -- (2.47) (.83 ) (.41 ) (1.42) (.53)
------- ------- ------- ---------- -------- -------- --------- ---------
Total dividends and
distributions................... (.27) -- -- (6.44) (.83 ) (.45 ) (1.43) (.59)
------- ------- ------- ---------- -------- -------- --------- ---------
Net asset value, end of period... $ 3.43 $ 3.55 $ 3.31 $ 3.38 $ 9.01 $ 7.84 $ 9.05 $ 9.57
======== ======== ======== =========== ======== =========== =========== ===========
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share........................... 5.29% 7.25% (2.07%) 10.26%# 28.30% (9.37% )# 10.23% 2.43%#
======== ======== ======== =========== ======== =========== =========== ===========
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement
and excluding distribution
fees............................ 1.85% 1.56% 1.89% 1.58%* 1.63% 1.82% * 1.60% 1.38%*
======== ======== ======== =========== ======== =========== =========== ===========
Expenses, net of reimbursement... 2.85% 2.56% 2.89% 2.58%* 2.63% 2.82% * 2.60% 2.38%*
======== ======== ======== =========== ======== =========== =========== ===========
Expenses......................... 2.85% 2.56% 2.89% 2.58%* 2.63% 2.82% * 2.68% 2.38%*
======== ======== ======== =========== ======== =========== =========== ===========
Investment loss--net............. (1.29%) (1.52%) (.41%) (1.02%)* (.79% ) (.36% )* (.31%) (.33%)*
======== ======== ======== =========== ======== =========== =========== ===========
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)...................... $79,485 $63,692 $33,071 $ 5,356 $ 6,007 $ 3,222 $ 2,412 $ 342
======== ======== ======== =========== ======== =========== =========== ===========
Portfolio turnover............... 196.91% 133.58% 103.06% 147.63% 206.29% 159.11% 122.57% 113.85%
======== ======== ======== =========== ======== =========== =========== ===========
</TABLE>
---------------
+ Calculation is based on average number of shares outstanding during the
period.
++ Commencement of Operations.
+++ 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.
# Aggregate total investment return.
9
<PAGE> 12
<TABLE>
<CAPTION>
CLASS C CLASS D
------------------- -------------------
FOR THE PERIOD FOR THE PERIOD
OCTOBER 21, 1994+ OCTOBER 21, 1994+
TO APRIL 30, 1995++ TO APRIL 30, 1995++
------------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............................................. $ 3.27 $ 3.61
------- -------
Investment income loss--net....................................................... (.04) (.02)
Realized and unrealized gain on investments and foreign currency
transactions--net................................................................ .20 .13
------- -------
Total from investment operations.................................................. .16 .11
------- -------
Net asset value, end of period.................................................... $ 3.43 $ 3.72
==================== ====================
TOTAL INVESTMENT RETURN:**
Based on net asset value per share................................................ 4.89%# 3.05%#
==================== ====================
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement.................................................... 2.28%* 2.19%*
==================== ====================
Expenses.......................................................................... 3.28%* 2.44%*
==================== ====================
Investment loss--net.............................................................. (2.13%)* (1.23%)*
==================== ====================
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).......................................... $ 1,816 $ 4,386
==================== ====================
Portfolio turnover................................................................ 196.91% 196.91%
==================== ====================
</TABLE>
---------------
+ Commencement of Operations.
++ Calculation is based on average number of shares outstanding during the
period.
* Annualized.
** Total investment returns exclude the effects of sales loads.
# Aggregate total investment return.
10
<PAGE> 13
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 (the "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 investments in securities of
healthcare related companies present certain risks that may not exist to the
same
11
<PAGE> 14
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 healthcare 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 healthcare 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 healthcare 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
15% (10% to the extent required by certain state laws) of its total 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.
12
<PAGE> 15
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 15% (10%
to the extent required by certain state laws) of its total 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 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 securities and government and money market securities, in
such proportions as, in the opinion of the Investment Adviser,
13
<PAGE> 16
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 15% (10% to the extent
required by certain state laws) of its total 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
14
<PAGE> 17
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.
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
15
<PAGE> 18
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.
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.
16
<PAGE> 19
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 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. 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 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 15% (10% to the extent
required by certain state laws) of the total assets of the Company, taken at
market value, together with all other assets of the Company which are illiquid
or are
17
<PAGE> 20
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 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.
18
<PAGE> 21
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 of 1940 (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
19
<PAGE> 22
collateral in cash or securities issued or guaranteed by the U.S. Government
which will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. 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. In addition, the Company has adopted non-fundamental restrictions which may
be changed by the Board of Directors. Among the more significant restrictions,
the Company may not:
--Invest more than 25% of its total assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S. Government
and its agencies and instrumentalities).
Other 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 15% (10% to the extent required by certain state laws) 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 15%
(10% to the extent required by certain state laws) 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" pursuant to
Rule 144A under the Securities Act, provided that the Company's Board of
Directors 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.
20
<PAGE> 23
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The Board of Directors of the Company consists of six individuals, five 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 of the Investment Adviser and FAM; President and
Director of Princeton Services, Inc. ("Princeton Services"); Executive Vice
President of ML & Co.; Executive Vice President of Merrill Lynch; Director of
the Distributor.
DONALD CECIL--Special Limited Partner of Cumberland Partners (an investment
partnership).
EDWARD H. MEYER--Chairman of the Board, President and Chief Executive
Officer of Grey Advertising Inc.
CHARLES C. REILLY--Self-employed financial consultant; former President and
Chief Investment Officer of Verus Capital, Inc.; former Senior Vice President of
Arnhold and S. Bleichroeder, Inc.
RICHARD R. WEST--Professor of Finance, and Dean from 1984 to 1993, New York
University Leonard N. Stern School of Business Administration.
EDWARD D. ZINBARG--Former Executive Vice President of The Prudential
Insurance Company of America.
---------------
* Interested person, as defined in the Investment Company Act, of the Company.
ADVISORY AND MANAGEMENT ARRANGEMENTS
MLAM acts as the investment adviser for the Company and provides the
Company with management and business advisory services. The Investment Adviser
is owned and controlled by ML & Co., a financial services holding company and
the parent of Merrill Lynch. The Investment Adviser or an affiliate, FAM, acts
as the investment adviser to more than 130 other registered investment companies
and provides investment advisory services to individual and institutional
accounts. As of July 31, 1995, the Investment Adviser and FAM had a total of
approximately $186.2 billion in investment company and other portfolio assets
under management, including accounts of certain affiliates of the Investment
Adviser.
Subject to the direction of the Directors, the Investment Adviser is
responsible for the actual management of the Company's portfolio and constantly
reviews the Company's holdings in light of its own research analysis and that
from other relevant sources. The responsibility for making decisions to buy,
sell or hold a particular security rests with the Investment Adviser. The
Investment Adviser performs certain of the other administrative services and
provides office space, facilities, equipment and personnel for management of the
Company.
Under the investment advisory agreement, as compensation for its services
to the Company, the Investment Adviser receives monthly compensation at the
annual rate of 1.0% of the Company's average daily net assets. This fee is
higher than that paid by most mutual funds, but the Company believes it is
justified by the special investment focus of the Company. For the fiscal year
ended April 30, 1995, the Investment Adviser earned investment advisory fees of
$1,323,449 (based on average net assets of approximately $133.9 million).
21
<PAGE> 24
At July 31, 1995, the Company's net assets were approximately $176.7 million. At
such level, the annual advisory fee would aggregate approximately $1.8 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, 1995, the reimbursement of the Investment
Adviser for accounting services aggregated $108,303. For the same fiscal period,
the ratio of total expenses to average net assets was 1.79% and 2.85%, for Class
A and Class B shares, respectively. For Class C and Class D shares, for the
period October 21, 1994 (commencement of operations) to April 30, 1995, the
ratio of total expenses to average net assets was 3.28% and 2.44%, respectively.
CODE OF ETHICS
The Board of Directors of the Company has adopted a Code of Ethics under
Rule 17j-1 of the Investment Company Act which incorporates the Code of Ethics
of the Investment Adviser (together, the "Codes"). The Codes significantly
restrict the personal investing activities of all employees of the Investment
Adviser and, as described below, impose additional, more onerous, restrictions
on fund investment personnel.
The Codes require that all employees of the Investment Adviser preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Investment Adviser include a ban on acquiring any securities in a "hot" initial
public offering and a prohibition from profiting on short-term trading in
securities. In addition, no employee may purchase or sell any security which at
the time is being purchased or sold (as the case may be), or to the knowledge of
the employee is being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for trading "blackout
periods" which prohibit trading by investment personnel of the Company within
periods of trading by the Company in the same (or equivalent) security (15 or 30
days depending upon the transaction).
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), which
is a wholly-owned subsidiary of ML & Co., acts as the Company's transfer agent
pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement (the "Transfer Agency Agreement"). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent receives
a fee of $11.00 per Class A or Class D shareholder account and $14.00 per Class
B or Class C shareholder account, nominal miscellaneous fees (e.g., account
closing fees) and is entitled to reimbursement for out-of-pocket expenses
incurred by it under the Transfer Agency Agreement. For the fiscal year ended
April 30, 1995, the Company paid the Transfer Agent $523,223 pursuant to the
Transfer Agency Agreement. At July 31, 1995, the Company had 22,674 Class A
shareholder accounts, 13,144 Class B shareholder accounts (including certain
subaccounts on which the standard annual transfer agency fees are assessed), 795
Class C shareholder accounts and 847 Class D shareholder accounts. At this
22
<PAGE> 25
level of accounts, the annual fee payable to the Transfer Agent would aggregate
approximately $453,877, plus miscellaneous and out-of-pocket expenses.
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
both the Investment Adviser and Merrill Lynch, acts as the distributor of the
shares of the Company. Shares of the Company are offered continuously for sale
by the Distributor and other eligible securities dealers (including Merrill
Lynch). Shares of the Company may be purchased from securities dealers or by
mailing a purchase order directly to the Transfer Agent. The minimum initial
purchase is $1,000, and the minimum subsequent purchase is $50, except that for
retirement plans, the minimum initial purchase is $100, and the minimum
subsequent purchase is $1.
The Company is offering its shares in four classes at a public offering
price equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis depending upon the
class of shares selected by the investor under the Merrill Lynch Select
PricingSM System, as described below. The applicable offering price for purchase
orders is based upon the net asset value of the Company next determined after
receipt of the purchase orders by the Distributor. As to purchase orders
received by securities dealers prior to the close of business on the New York
Stock Exchange (generally, 4:00 P.M., New York time), which includes orders
received after the close of business on the previous day, the applicable
offering price will be based on the net asset value determined as of 15 minutes
after the close of business on the New York Stock Exchange on that day provided
the Distributor in turn receives the order from the securities dealer prior to
30 minutes after the close of business on the New York Stock Exchange on that
day. If the purchase orders are not received by the Distributor prior to 30
minutes after the close of business on the New York Stock Exchange, such orders
shall be deemed received on the next business day. The Company or the
Distributor may suspend the continuous offering of the Company's shares of any
class at any time in response to conditions in the securities markets or
otherwise and may thereafter resume such offering from time to time. Any order
may be rejected by the Distributor or the Company. Neither the Distributor nor
the dealers are permitted to withhold placing orders to benefit themselves by a
price change. Merrill Lynch may charge its customers a processing fee (presently
$4.85) to confirm a sale of shares to such customers. Purchases directly through
the Transfer Agent are not subject to the processing fee.
Shares of the Company may be purchased by residents of Wisconsin only if
such investors have (i) a net worth (exclusive of home, home furnishings and
automobiles) of not less than $100,000 or (ii) a net worth (as computed above)
of not less than $30,000 and an annual gross income of not less than $30,000.
The Company issues four classes of shares under the Merrill Lynch Select
PricingSM System, which permits each investor to choose the method of purchasing
shares that the investor believes is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares and other
relevant circumstances. Shares of Class A and Class D are sold to investors
choosing the initial sales charge alternatives and shares of Class B and Class C
are sold to investors choosing the deferred sales charge alternatives. Investors
should determine whether under their particular circumstances it is more
advantageous to incur an initial sales charge or to have the entire initial
purchase price invested in the Company with the investment thereafter being
subject to a contingent deferred sales charge and ongoing distribution fees. A
discussion of the factors that investors should consider in determining the
method of purchasing shares under the Merrill Lynch Select PricingSM System is
set forth under "Merrill Lynch Select PricingSM System" on page 3.
23
<PAGE> 26
Each Class A, Class B, Class C and Class D share of the Company represents
identical interests in the investment portfolio of the Company and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges and account maintenance fees that are imposed on Class B
and Class C shares, as well as the account maintenance fees that are imposed on
Class D shares, will be imposed directly against those classes and not against
all assets of the Company and, accordingly, such charges will not affect the net
asset value of any other class or have any impact on investors choosing another
sales charge option. Dividends paid by the Company for each class of shares will
be calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect to
such class pursuant to which account maintenance and/or distribution fees are
paid. See "Distribution Plans" below. Each class has different exchange
privileges. See "Shareholder Services--Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in that
the sales charges applicable to each class provide for the financing of the
distribution of the shares of the Company. The distribution-related revenues
paid with respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised that
only Class A and Class D shares may be available for purchase through securities
dealers, other than Merrill Lynch, which are eligible to sell shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System.
<TABLE>
<CAPTION>
===============================================================================================
ACCOUNT
MAINTENANCE DISTRIBUTION
CLAS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales
charge(2)(3) No No No
-----------------------------------------------------------------------------------------------
B CDSC for a period of 4 years, at a
rate of 4.0% during the first B shares convert to D
year, decreasing 1.0% annually to shares automatically
0.0% 0.25% 0.75% after approximately
eight years(4)
-----------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
-----------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales
charge(3) 0.25% No No
===============================================================================================
</TABLE>
---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs may be imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. Class A and Class D share purchases of $1,000,000 or more may not
be subject to an initial sales charge but instead will be subject to a 1.0%
CDSC for one year.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Company are exchanged for Class
B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
24
<PAGE> 27
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible
to purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
SALES LOAD AS SALES LOAD AS DISCOUNT TO
PERCENTAGE OF PERCENTAGE* OF SELECTED DEALERS
OFFERING THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE PRICE INVESTED THE OFFERING PRICE
------------------------------------------------- ------------- -------------- ------------------
<S> <C> <C> <C>
Less than $25,000................................ 5.25% 5.54% 5.00%
$25,000 but less than $50,000.................... 4.75 4.99 4.50
$50,000 but less than $100,000................... 4.00 4.17 3.75
$100,000 but less than $250,000.................. 3.00 3.09 2.75
$250,000 but less than $1,000,000................ 2.00 2.04 1.80
$1,000,000 and over**............................ 0.00 0.00 0.00
</TABLE>
---------------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more made on or after October 21, 1994, and on Class A
purchases by certain retirement plan investors in connection with certain
investment programs. If the sales charge is waived, in connection with a
purchase of $1,000,000 or more, such purchases will be subject to a CDSC of
1.0% if the shares are redeemed within one year after purchase. Class A
purchases made prior to October 21, 1994, may be subject to a CDSC if the
shares are redeemed within one year of purchase at the following rates: 1.00%
on purchases of $1,000,000 to $2,500,000; 0.60% on purchases of $2,500,001 to
$3,500,000; 0.40% on purchases of $3,500,001 to $5,000,000; and 0.25% on
purchases of more than $5,000,000 in lieu of paying an initial sales charge.
The charge will be assessed on an amount equal to the lesser of the proceeds
of redemption or the cost of the shares being redeemed. A sales charge of
0.75% will be charged on purchases of $1,000,000 or more of Class A or Class
D shares by certain 401(k) plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the 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, 1995, the Company sold 5,713,906 Class A shares
for aggregate net proceeds of $20,654,552. The gross sales charges for the sale
of Class A shares of the Company for that year were $85,949, of which $4,857 and
$81,092 were received by the Distributor and Merrill Lynch, respectively. For
the fiscal year ended April 30, 1995, the Distributor received no CDSCs with
respect to redemption within one year after purchase of Class A shares purchased
subject to front-end sales charge waivers. During the period October 21, 1994
(commencement of operations) to April 30, 1995 the Company sold 1,239,834 Class
D shares for aggregate net proceeds of $4,397,052. The gross sales charges for
the sale of Class D shares of the Company for that period were $27,764, of which
$1,848 and $25,916 were received by the Distributor and Merrill Lynch,
respectively. For that period, the Distributor received no CDSCs with respect to
redemption within one year after purchase of Class D shares purchased subject to
front-end sales charge waivers.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares of the
Company in a shareholder account, including participants in the Merrill Lynch
Blueprint(SM)
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<PAGE> 28
Program, are entitled to purchase additional Class A shares of the Company in
that account. Certain employer sponsored retirement or savings plans, including
eligible 401(k) plans, may purchase Class A shares of the Company at net asset
value provided such plans meet the required minimum number of eligible employees
or required amount of assets advised by MLAM or any of its affiliates. Class A
shares are available at net asset value to corporate warranty insurance reserve
fund programs provided that the program has $3 million or more initially
invested in MLAM-advised mutual funds. Also eligible to purchase Class A shares
at net asset value are participants in certain investment programs including
TMA(SM) Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services and certain purchases made in connection with the
Merrill Lynch Mutual Fund Adviser program. In addition, Class A shares are
offered at net asset value to ML & Co. and its subsidiaries and their directors
and employees and to members of the Boards of MLAM-advised investment companies,
including the Company. Certain persons who acquired shares of certain
MLAM-advised closed-end funds who wish to reinvest the net proceeds from a sale
of their closed-end fund shares of common stock in shares of the Company also
may purchase Class A shares of the Company if certain conditions set forth in
the Statement of Additional Information are met. For example, Class A shares of
the Company and certain other MLAM-advised mutual funds are offered at net asset
value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. who wish
to reinvest the net proceeds from a sale of certain of their shares of common
stock of Merrill Lynch Senior Floating Rate Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges also
may be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A
investors as set forth above under "Eligible Class A Investors".
Class D shares are offered at net asset value without sales charge to an
investor who has a business relationship with a Merrill Lynch financial
consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint(SM) Program.
Additional information concerning these reduced initial sales charges,
including information regarding investments by Employee Sponsored Retirement or
Savings Plans, is set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year CDSC,
while Class C shares are subject only to a one year 1.0% CDSC. On the other
hand, approximately eight years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those
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<PAGE> 29
shares, are automatically converted into Class D shares of the Company and
thereafter will be subject to lower continuing fees. See "Conversion of Class B
Shares to Class D Shares" below. Both Class B and Class C shares are subject to
an account maintenance fee of 0.25% of net assets and a distribution fee of
0.75% of net assets as discussed below under "Distribution Plans".
Class B and Class C shares are sold without an initial sales charge so that
the Company will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Company in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for selling
Class B and Class C shares, from its own funds. The combination of the CDSC and
the ongoing distribution fee facilitates the ability of the Company to sell the
Class B and Class C shares without a sales charge being deducted at the time of
purchase. The proceeds from account maintenance fees are used to compensate
Merrill Lynch for providing continuing account maintenance activities.
Approximately eight years after issuance, Class B shares will convert
automatically into Class D shares of the Company, which are subject to an
account maintenance fee but no distribution fee; Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares of the
Company are exchanged for Class B shares of another MLAM-advised mutual fund,
the conversion period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked onto
the holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations on
the Payment of Deferred Sales Charges" below. The proceeds from the ongoing
account maintenance fee are used to compensate Merrill Lynch for providing
continuing account maintenance activities. Class B shareholders of the Company
exercising the exchange privilege described under "Shareholder
Services--Exchange Privilege" will continue to be subject to the Company's CDSC
schedule if such schedule is higher than the CDSC schedule relating to the Class
B shares acquired as a result of the exchange.
Contingent Deferred Sales Charges--Class B Shares. Class B shares which
are redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
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<PAGE> 30
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE
OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT MADE CHARGE
--------------------------------------------------------------- ----------------
<S> <C>
0-1...................................................... 4.00%
1-2...................................................... 3.00
2-3...................................................... 2.00
3-4...................................................... 1.00
4 and thereafter......................................... 0.00
</TABLE>
For the fiscal year ended April 30, 1995, the Distributor received CDSCs of
$209,909 with respect to redemptions of Class B shares, all of which were paid
to Merrill Lynch.
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over four years or shares acquired pursuant to reinvestment
of dividends or distributions and then of shares held longest during the
four-year period. The charge will not be applied to dollar amounts representing
an increase in the net asset value since the time of purchase. A transfer of
shares from a shareholder's account to another account will be assumed to be
made in the same order as a redemption.
In the event that Class B shares are exchanged by certain retirement plans
for Class A shares in connection with a transfer to the Merrill Lynch Mutual
Fund Adviser ("MFA") program, the time period that such Class A shares are held
in the MFA program will be included in determining the holding period of Class B
shares reacquired upon termination of participation in the MFA program (see
"Shareholder Services--Exchange Privilege").
To provide an example, assume an investor purchases 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase for shares purchased after
October 21, 1994).
The Conversion Period also is modified for retirement plan investors which
participate in the MFA program. While participating in the MFA program, such
investors will hold Class A shares. If these Class A shares were acquired
through exchange of Class B shares (see "Shareholder Services--Exchange
Privilege"), then the holding period for such Class A shares will be "tacked" to
the holding period of the Class B shares originally held for purposes of
calculating the Conversion Period on Class B shares acquired upon termination of
participation in the MFA program.
The exchange privilege is modified with respect to certain retirement plans
which participate in the MFA program. Such retirement plans may exchange Class
B, Class C or Class D shares that have been held for at least one year for Class
A shares of the same fund on the basis of relative net asset values in
connection with
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<PAGE> 31
the commencement of participation in the MFA program, i.e., no CDSC will apply.
The one year holding period does not apply to shares reacquired through
reinvestment of dividends. Upon termination of participation in the MFA program,
Class A shares will be re-exchanged for the class of shares originally held. For
purposes of computing any CDSC that may be payable upon redemption of Class B or
Class C shares so reacquired, or the Conversion Period for Class B shares so
reacquired, the holding period for the Class A shares will be "tacked" to the
holding period for the Class B or Class C shares originally held.
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of a shareholder. The
Class B CDSC also is waived on redemptions of shares by certain eligible 401(a)
and eligible 401(k) plans and in connection with certain group plans placing
orders through the Merrill Lynch Blueprint(SM) Program. The CDSC also is waived
for any Class B shares which are purchased by eligible 401(k) or eligible 401(a)
plans which are rolled over into a Merrill Lynch or Merrill Lynch Trust Company
custodied IRA and held in such account at the time of redemption. The Class B
CDSC also is waived for any Class B shares which are purchased by a Merrill
Lynch rollover IRA that was funded by a rollover from a terminated 401(k) plan
managed by the MLAM Private Portfolio Group and held in such account at the time
of redemption. Additional information concerning the waiver of the Class B CDSC
is set forth in the Statement of Additional Information.
Contingent Deferred Sales Charges--Class C Shares. Class C shares which
are redeemed within one year after purchase may be subject to a 1.0% CDSC
charged as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed
on increases in net asset value above the initial purchase price. In addition,
no Class C CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions. For the fiscal period October 21, 1994
(commencement of operations) to April 30, 1995, the Distributor received CDSCs
of $151 with respect to redemptions of Class C shares, all of which were paid to
Merrill Lynch.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Company. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the Company in a
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<PAGE> 32
single account will result in less than $50 worth of Class B shares being left
in the account, all of the Class B shares of the Company held in the account on
the Conversion Date will be converted to Class D shares of the Company.
Share certificates for Class B shares of the Company to be converted must
be delivered to the Transfer Agent at least one week prior to the Conversion
Date applicable to those shares. In the event such certificates are not received
by the Transfer Agent at least one week prior to the Conversion Date, the
related Class B shares will convert to Class D shares on the next scheduled
Conversion Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a ten-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("Class B Retirement Plans").
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of the
appropriate funds. Subsequent to such conversion, that Class B Retirement Plan
will be sold Class D shares of the appropriate funds at net asset value.
The Conversion Period also is modified for retirement plan investors which
participate in the MFA program. While participating in the MFA program, such
investors will hold Class A shares. If these Class A shares were acquired
through exchange of Class B shares (see "Shareholder Services--Exchange
Privilege"), then the holding period for such Class A shares will be "tacked" to
the holding period of the Class B shares originally held for purposes of
calculating the Conversion Period of Class B shares acquired upon termination of
participation in the MFA program.
DISTRIBUTION PLANS
The Company has adopted separate distribution plans for Class B, Class C
and Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each
a "Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Company to the Distributor with respect to such
classes. The Class B and Class C Distribution Plans provide for the payment of
account maintenance fees and distribution fees, and the Class D Distribution
Plan provides for the payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Company pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Company attributable to shares
of the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities.
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<PAGE> 33
The Distribution Plans for Class B and Class C shares each provide that the
Company also pays the Distributor a distribution fee relating to the shares of
the relevant class, accrued daily and paid monthly, at the annual rate of 0.75%
of the average daily net assets of the Company attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Company,
including payments to financial consultants for selling Class B and Class C
shares of the Company. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Company in that the deferred sales charges provide for the
financing of the distribution of the Company's Class B and Class C shares.
Prior to July 7, 1993, the Company paid the Distributor an ongoing
distribution fee, accrued daily and paid monthly, at the annual rate of 1.00% of
average daily net assets of the Class B shares of the Company under a
distribution plan previously adopted by the Company (the "Prior Plan") to
compensate the Distributor and Merrill Lynch for providing account maintenance
and distribution-related activities and services to Class B shareholders. The
fee rate payable and the services provided under the Prior Plan are identical to
the aggregate fee rate payable and the services provided under the Class B
Distribution Plan, the difference being that the account maintenance and
distribution services have been unbundled.
For the fiscal year ended April 30, 1995, the Company paid the Distributor
$651,774 pursuant to the Prior Plan and the Class B Distribution Plan (based on
average net assets subject to the Prior Plan and the Class B Distribution Plan
of approximately $65.4 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. During the fiscal period October 21, 1994
(commencement of operations) to April 30, 1995, the Company paid the Distributor
$3,005 pursuant to the Distribution Plan relating to Class C shares (based on
average net assets subject to such Distribution Plan of approximately $580,275),
all of which was paid to Merrill Lynch for providing account maintenance and
distribution-related activities and services in connection with Class C shares.
During the fiscal period October 21, 1994 (commencement of operations) to April
30, 1995, the Company paid the Distributor $2,385 pursuant to the Distribution
Plan relating to Class D shares (based on average net assets subject to such
Distribution Plan of approximately $1.8 million) all of which was paid to
Merrill Lynch for providing account maintenance services in connection with such
shares. At July 31, 1995, the net assets of the Company subject to the Class B
Distribution Plan aggregated approximately $87.3 million. At this asset level,
the annual fees payable pursuant to the Class B Distribution Plan would
aggregate approximately $873,212. At July 31, 1995, the net assets of the
Company subject to the Class C Distribution Plan aggregated approximately $3.0
million. At this asset level, the annual fee payable pursuant to the Class C
Distribution Plan would aggregate approximately $29,829. At July 31, 1995, the
net assets of the Company subject to the Class D Distribution Plan aggregated
approximately $5.7 million. At this asset level, the annual fee payable pursuant
to the Class D Distribution Plan would aggregate approximately $1.4 million.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred, and accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in
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<PAGE> 34
connection with their deliberations as to the continuance of the Class B and
Class C Distribution Plans. This information is presented annually as of
December 31 of each year on a "fully allocated accrual" basis and quarterly on a
"direct expense and revenue/cash" basis. On the fully allocated accrual basis,
revenues consist of the account maintenance fees, distribution fees, the CDSCs
and certain other related revenues, and expenses consist of financial consultant
compensation, branch office and regional operation center selling and
transaction processing expenses, advertising, sales promotion and marketing
expenses, corporate overhead and interest expense. On the direct expense and
revenue/cash basis, revenues consist of the account maintenance fees,
distribution fees and CDSCs, and the expenses consist of financial consultant
compensation.
At December 31, 1994, 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 $1,439,000 (2.28% of Class B net assets at that date).
Fully allocated accrual data is not yet available for Class C shares. As of
April 30, 1995, direct cash revenues for the period since commencement of the
offering of Class B shares exceeded direct cash expenses by $562,454 (0.71% of
Class B net assets at that date). For Class C shares, direct cash expenses for
the period October 21, 1994 (commencement of operations) to April 30, 1995
exceeded direct cash revenues by $3,901 (0.21% of Class C net assets at that
date).
The Company has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Directors of the Company will approve the continuance of the
Distribution Plans from year to year. However, the Distributor intends to seek
annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or distribution
of each class of shares separately. The initial sales charges, the account
maintenance fee, the distribution fee and/or the CDSCs received with respect to
one class will not be used to subsidize the sale of shares of another class.
Payments of the distribution fee on Class B shares will terminate upon
conversion of those Class B shares into Class D shares as set forth under
"Deferred Sales Charge Alternatives--Class B and Class C Shares--Conversion of
Class B Shares to Class D Shares".
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the NASD
imposes a limitation on certain asset-based sales charges such as the
distribution fee and the CDSC borne by the Class B and Class C shares but not
the account maintenance fee. The maximum sales charge rule is applied separately
to each class. As applicable to the Company, the maximum sales charge rule
limits the aggregate of distribution fee payments and CDSCs payable by the
Company to (1) 6.25% of eligible gross sales of Class B shares and Class C
shares, computed separately (defined to exclude shares issued pursuant to
dividend reinvestments and exchanges) plus (2) interest on the unpaid balance
for the respective class, computed separately, at the prime rate plus 1% (the
unpaid balance being the maximum amount payable minus amounts received from the
payment of the distribution fee and the CDSC). In connection with the Class B
shares, the Distributor has voluntarily agreed to waive interest charges on the
unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the
maximum amount payable to the Distributor (referred to as the "voluntary
maximum") in connection with the Class B shares is 6.75% of eligible gross
sales. The Distributor retains the right to stop waiving interest charges at any
time. To the extent payments would exceed the voluntary maximum, the Company
will not make further payments of the distribution fee with respect to Class B
shares, and any
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<PAGE> 35
CDSCs will be paid to the Company rather than to the Distributor; however, the
Company will continue to make payments of the account maintenance fee. In
certain circumstances the amount payable pursuant to the voluntary maximum may
exceed the amount payable under the NASD formula. In such circumstances payment
in excess of the amount payable under the NASD formula will not be made.
REDEMPTION OF SHARES
The Company is required to redeem for cash all shares of the Company on
receipt of a written request in proper form. The redemption price is the net
asset value per share next determined after the initial receipt of proper notice
of redemption. Except for any CDSC which may be applicable, there will be no
charge for redemption if the redemption request is sent directly to the Transfer
Agent. Shareholders liquidating their holdings will receive upon redemption all
dividends reinvested through the date of redemption. The value of shares at the
time of redemption may be more or less than the shareholder's cost, depending on
the market value of the securities held by the Company at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by
tendering the shares directly to the Transfer Agent, Merrill Lynch Financial
Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to Merrill
Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. Proper notice of redemption in the case of shares deposited
with the Transfer Agent may be accomplished by a written letter requesting
redemption. Proper notice of redemption in the case of shares for which
certificates have been issued may be accomplished by a written letter as noted
above accompanied by certificates for the shares to be redeemed. The notice in
either event requires the signatures of all persons in whose names the shares
are registered, signed exactly as their names appear on the Transfer Agent's
register or on the certificate, as the case may be. The 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
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<PAGE> 36
(generally, 4:00 P.M., New York time) on the day received and such request is
received by the Company from such dealer not later than 30 minutes after the
close of business on the New York Stock Exchange on the same day. Dealers have
the responsibility of submitting such repurchase requests to the Company not
later than 30 minutes after the close of business on the New York Stock Exchange
in order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Company (other than any
applicable CDSC). Securities firms which do not have selected dealer agreements
with the Distributor, however, may impose a transaction charge on the
shareholder for transmitting the notice of repurchase to the Company. Merrill
Lynch may charge its customers a processing fee (presently $4.85) to confirm a
repurchase of shares to such customers. Redemptions directly through the
Transfer Agent are not subject to the processing fee. The Company reserves the
right to reject any order for repurchase, which right of rejection might
adversely affect shareholders seeking redemption through the repurchase
procedure. A shareholder whose order for repurchase is rejected by the Company
may redeem shares as set forth above.
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
one-time privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Company at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor. The
reinstatement will be made at the net asset value per share next determined
after the notice of reinstatement is received and cannot exceed the amount of
the redemption proceeds. The reinstatement privilege is a one-time privilege and
may be exercised by the Class A or Class D shareholder only the first time such
shareholder makes a redemption.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in shares of the
Company. Certain of such services are not available to investors who place
purchase orders for the Company's shares through the Merrill Lynch BlueprintSM
Program. Full details as to such services, copies of the various plans described
below and instructions as to how to participate in the various services or
plans, or to change options with respect thereto, can be obtained from the
Company, the Distributor or Merrill Lynch. Certain of these services are
available only to U.S. investors.
Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive statements, at least
quarterly, from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
statements will also show any other activity in the account since the preceding
statement. Shareholders will receive separate transaction confirmations for each
purchase or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gain
distributions. A shareholder may make additions to his Investment Account at any
time by mailing a check directly to the Transfer Agent. Shareholders also may
maintain their accounts through Merrill Lynch. Upon the transfer of shares out
of a Merrill Lynch brokerage
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<PAGE> 37
account, an Investment Account in the transferring shareholder's name will be
opened automatically, without charge, at the Transfer Agent. Shareholders
considering transferring their Class A or Class D shares from Merrill Lynch to
another brokerage firm or financial institution should be aware that, if the
firm to which the Class A or Class D shares are to be transferred will not take
delivery of shares of the Company, a shareholder either must redeem the Class A
or Class D shares (paying any applicable CDSC) so that the cash proceeds can be
transferred to the account at the new firm or such shareholder must continue to
maintain an Investment Account at the Transfer Agent for those Class A or Class
D shares. Shareholders interested in transferring their Class B or Class C
shares from Merrill Lynch and who do not wish to have an Investment Account
maintained for such shares at the Transfer Agent may request their new brokerage
firm to maintain such shares in an account registered in the name of the
brokerage firm for the benefit of the shareholder at the Transfer Agent.
Shareholders considering transferring a tax-deferred retirement account such as
an individual retirement account from Merrill Lynch to another brokerage firm or
financial institution should be aware that, if the firm to which the retirement
account is to be transferred will not take delivery of shares of the Company, a
shareholder must either redeem the shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain a retirement account at Merrill Lynch for
those shares.
Systematic Withdrawal Plans. A Class A or Class D shareholder may elect to
receive systematic withdrawal payments from his Investment Account in the form
of payments by check or through automatic payment by direct deposit to his bank
account on either a monthly or quarterly basis. A Class A or Class D shareholder
whose shares are held within a CMA(R), CBA(R) or Retirement Account may elect to
have shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual
basis through the Systematic Redemption Program, subject to certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C
or Class D shares may be made to an investor's Investment Account by prearranged
charges of $50 or more to his regular bank account. Investors who maintain
CMA(R) accounts may arrange to have periodic investments made in the Company in
their CMA(R) accounts or in certain related accounts in amounts of $100 or more
through the CMA(R) Automated Investment Program.
Automatic Reinvestment of Dividends and Distributions. All dividends and
capital gains distributions are automatically reinvested in full and fractional
shares of the Company, without sales charge, at the net asset value per share
next determined after the close of the New York Stock Exchange on the
ex-dividend date of such dividend or distribution. A shareholder may at any
time, by written notification to Merrill Lynch if the shareholder's account is
maintained with Merrill Lynch or by written notification or telephone call
(1-800-MER-FUND) to the Transfer Agent if the shareholder's account is
maintained with the Transfer Agent, elect to have subsequent dividends, or both
dividends and capital gains distributions, paid in cash rather than reinvested,
in which event payment will be mailed on or about the payment date. Cash
payments can also be directly deposited to the shareholder's bank account. No
CDSC will be imposed on redemption of shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions. The Automated
Investment Program is not available to shareholders whose shares are held in a
brokerage account with Merrill Lynch (other than a CMA(R) account).
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Company have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may
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<PAGE> 38
exercise the exchange privilege. The exchange privilege may be modified or
terminated in accordance with the rules of the Commission.
Under the Merrill Lynch Select Pricing(SM) System, Class A shareholders may
exchange Class A shares of the Company for Class A shares of a second
MLAM-advised mutual fund if the shareholder holds any Class A shares of the
second fund in his account in which the exchange is made at the time of the
exchange or is otherwise eligible to purchase Class A shares of the second fund.
If the Class A shareholder wants to exchange Class A shares for shares of a
second MLAM-advised mutual fund, and the shareholder does not hold Class A
shares of the second fund in his account at the time of the exchange and is not
otherwise eligible to acquire Class A shares of the second fund, the shareholder
will receive Class D shares of the second fund as a result of the exchange.
Class D shares also may be exchanged for Class A shares of a second MLAM-advised
mutual fund at any time as long as, at the time of the exchange, the shareholder
holds Class A shares of the second fund in the account in which the exchange is
made or is otherwise eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Company which are subject to a CDSC are exchangeable on the
basis of relative net asset value per share without the payment of any CDSC that
might otherwise be due upon redemption of the shares of the Company. For
purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period for the previously owned
shares of the Company is "tacked" to the holding period of the newly acquired
shares of the other Company.
Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Company exercising the exchange privilege will
continue to be subject to the Company's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Company acquired through use of the exchange privilege will be
subject to the Company's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes. For further information, see "Shareholder Services--Exchange
Privilege" in the Statement of Additional Information.
The exchange privilege is modified with respect to certain retirement plans
which participate in the MFA program. Such retirement plans may exchange Class
B, Class C or Class D shares that have been held for at least one year for Class
A shares of the same fund on the basis of relative net asset values in
connection with the commencement of participation in the MFA program, i.e., no
CDSC will apply. The one year holding
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<PAGE> 39
period does not apply to shares acquired through reinvestment of dividends. Upon
termination of participation in the MFA program, Class A shares will be
reexchanged for the class of shares originally held. For purposes of computing
any CDSC that may be payable upon redemption of Class B or Class C shares so
reacquired, or the Conversion Period for Class B shares so reacquired, the
holding period for the Class A shares will be "tacked" to the holding period for
the Class B or Class C shares originally held. The Company's exchange privilege
is also modified with respect to purchases of Class A and Class D shares by
non-retirement plan investors under the MFA program. First, the initial
allocation of assets is made under the MFA program. Then, any subsequent
exchange under the MFA program of Class A or Class D shares of a MLAM-advised
mutual fund for Class A or Class D shares of the Company will be made solely on
the basis of the relative net asset values of the shares being exchanged.
Therefore, there will not be a charge for any difference between the sales
charge previously paid on the shares of the other MLAM-advised mutual fund and
the sales charge payable on the shares of the Company being acquired in the
exchange under the MFA program.
PERFORMANCE DATA
From time to time the Company may include its average annual total return
for various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with a
formula specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value of such investment at the end of each period. Average annual total return
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses,
including any CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period such as in the case of Class B and
Class C shares and the maximum sales charge in the case of Class A and Class D
shares. Dividends paid by the Company with respect to all shares, to the extent
any dividends are paid, will be calculated in the same manner at the same time
on the same day and will be in the same amount, except that account maintenance
and distribution fees and any incremental transfer agency costs relating to each
class of shares will be borne exclusively by that class. The Company will
include performance data for all classes of shares of the Company in any
advertisement or information including performance data of the Company.
The Company also may quote total return and aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that (1) the rates of return
calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return, and (2) the maximum applicable sales
charges will not be included with respect to annual or annualized rates of
return calculations. Aside from the impact on the performance data calculations
of including or excluding the maximum applicable sales charges, actual annual or
annualized total return data generally will be lower than average annual total
return data since the average annual rates of return reflect compounding;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over longer
periods of time. In advertisements distributed to investors whose purchases are
subject to reduced sales charges in the case of Class A and Class D shares or
waiver of the CDSC in the case of Class B and Class C shares (such as investors
in certain retirement plans), performance data may take into account the
reduced, and not the maximum, sales charge or may not take into
37
<PAGE> 40
account the CDSC and therefore may reflect greater total return since, due to
the reduced sales charges or waiver of the CDSC, a lower amount of expenses is
deducted. See "Purchase of Shares". The Company's total return may be expressed
either as a percentage or as a dollar amount in order to illustrate the effect
of such total return on a hypothetical $1,000 investment in the Company at the
beginning of each specified period.
Total return figures are based on the Company's historical performance and
are not intended to indicate future performance. The Company's total return will
vary depending on market conditions, the securities comprising the Company's
portfolio, the Company's operating expenses and the amount of realized and
unrealized net capital gains or losses during the period. The value of an
investment in the Company will fluctuate, and an investor's shares, when
redeemed, may be worth more or less than their original cost.
On occasion, the Company may compare its performance to the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average, or
performance data published by Lipper Analytical Services, 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
indicative of the Company's relative performance for any future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Company's intention to distribute all of its net investment
income, if any. Dividends from such net investment income will be paid at least
annually. All net realized long- or short-term capital gains, if any, will be
distributed to the Company's shareholders at least annually. The per share
dividends and distributions on each class of shares will be reduced as a result
of any account maintenance, distribution and transfer agency fees applicable to
that class. See "Additional Information--Determination of Net Asset Value".
Dividends and distributions may be reinvested automatically in shares of the
Company at net asset value without a sales charge. Shareholders may elect in
writing to receive any such dividends or distributions, or both, in cash.
Dividends and distributions are taxable to shareholders as discussed below
whether they are reinvested in shares of the Company or received in cash.
Certain gains or losses attributable to foreign currency gains or losses
from certain forward contracts may increase or decrease the amount of the
Company's income available for distribution to shareholders. If such losses
exceed other income during a taxable year, (a) the Company would not be able to
make any ordinary dividend distributions, and (b) distributions made before the
losses were realized would be recharacterized as a return of capital to
shareholders, rather than as an ordinary dividend, reducing each shareholder's
tax basis in Company shares for Federal income tax purposes. See "Additional
Information--Taxes".
TAXES
The Company intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, the Company (but not its
shareholders) will not be subject to Federal income tax on the part of its net
ordinary income and net realized capital gains which it distributes to Class A,
Class B, Class C and Class D
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<PAGE> 41
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 Company and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Company to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% U.S. withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the U.S.
withholding tax.
Dividends and interest received by the Company may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Company. If more than 50% in value of the Company's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Company will be eligible, and intends, to file an election
with the Internal Revenue Service pursuant to which shareholders of the Company
will be required to include their proportionate shares of such withholding taxes
in their U.S. income tax returns as gross income, treat such proportionate
shares as taxes paid by them, and deduct such proportionate shares in computing
their taxable incomes or, alternatively, use them as foreign tax credits against
their U.S. income taxes. No deductions for foreign taxes, however, may be
claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign corporation may
be subject to U.S. withholding tax on the income resulting from the Company's
election described in this paragraph but may not be able to claim a credit or
deduction against such U.S. tax for the foreign taxes treated as having been
paid by such shareholder. The Company will report annually to its shareholders
the amount per share of such withholding taxes.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer
39
<PAGE> 42
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
income dividend distributions, and any distributions made before the losses were
realized but in the same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing the basis of each shareholder's
Company shares, and resulting in a capital gain for any shareholder who received
a distribution greater than such shareholder's basis in Company shares (assuming
the shares were held as a capital asset).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Company on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers 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.
DETERMINATION OF NET ASSET VALUE
Net asset value of the shares of all classes of the Company are determined
once daily as of 15 minutes after the close of business on the New York Stock
Exchange (generally, 4:00 P.M., New York time), on each day during which the New
York Stock Exchange is open for trading. Any assets or liabilities initially
40
<PAGE> 43
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or dealers
on the day of valuation.
The net asset value is computed by dividing the value of the securities
held by the Company plus any cash or other assets (including interest and
dividends accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of shares outstanding at such time. Expenses,
including the fee payable to the Investment Adviser and any account maintenance
and/or distribution fees payable to the Distributor, are accrued daily. The per
share net asset value of Class A shares generally will be higher than the per
share net asset value of shares of the other classes, reflecting the daily
expense accruals of the account maintenance, distribution and higher transfer
agency fees applicable with respect to Class B and Class C shares and the daily
expense accruals of the account maintenance fees applicable with respect to
Class D shares; in addition, the per share net asset value of Class D shares
generally will be higher than the per share net asset value of Class B and Class
C shares, reflecting the daily expense accruals of the distribution and higher
transfer agency fees applicable with respect to Class B and Class C shares. It
is expected, however, that the per share net asset value of the classes will
tend to converge (although not necessarily meet) immediately after the payment
of dividends or distributions, which will differ by approximately the amount of
the expense accrual differentials between the classes.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the over-the-counter market are valued
at the last available bid price in the over-the-counter market prior to the time
of valuation. Portfolio securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. When the Company writes an option, the amount of the
premium received is recorded on the books of the Company as an asset and an
equivalent liability. The amount of the liability is subsequently valued to
reflect the current market value of the option written, based upon the last sale
price in the case of exchange-traded options or, in the case of options traded
in the over-the-counter market, the last asked price. Options purchased by the
Company are valued at their last sale price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter market, the
last bid price. Other investments, including futures contracts and related
options, are stated at market value. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors of the 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.
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<PAGE> 44
The Company was incorporated under Maryland law on October 29, 1982. As of
the date of this Prospectus, it has an authorized capital of 400,000,000 shares
of Common Stock, par value $0.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D Common Stock, each of which
consists of 100,000,000 shares. Shares of Class A, Class B, Class C and Class D
Common Stock represent interests in the same assets of the Company and are
identical in all respects except that Class B, Class C and Class D shares bear
certain expenses related to the account maintenance associated with such shares,
and Class B and Class C shares bear certain expenses related to the distribution
of such shares. Each class has exclusive voting rights with respect to matters
relating to account maintenance and distribution expenditures, as applicable.
See "Purchase of Shares". The Company has received an order from the Commission
permitting the issuance and sale of multiple classes of Common Stock. The
Directors of the Company may classify and reclassify the shares of the Company
into additional classes of Common Stock at a future date.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held and will vote on the election of
Directors and any other matters submitted to a shareholder vote. The Company
does not intend to hold meetings of shareholders in any year in which the
Investment Company Act does not require shareholders to act on any of the
following matters: (i) election of Directors; (ii) approval of an investment
advisory agreement; (iii) approval of a distribution agreement; and (iv)
ratification of selection of independent auditors. Voting rights for Directors
are not cumulative. Shares issued are fully paid and non-assessable and have no
preemptive rights. Shares have the conversion rights described in this
Prospectus. Each share of Common Stock is entitled to participate equally in
dividends and distributions declared by the Company and in the net assets of the
Company upon liquidation or dissolution after satisfaction of outstanding
liabilities, except that as noted above, the Class B, Class C and Class D shares
bear certain additional expenses. Shareholders may, in accordance with Maryland
law, cause a meeting of shareholders to be held for the purpose of voting on the
removal of Directors at the request of 25% of the outstanding shares of the
Company. A Director may be removed at a special meeting of shareholders by a
vote of a majority of the votes entitled to be cast for the election of
Directors.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts, the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this,
please call your Merrill Lynch financial consultant or Merrill Lynch Financial
Data Services, Inc. at 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.
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<PAGE> 45
MERRILL LYNCH HEALTHCARE FUND, INC. -- AUTHORIZATION FORM (PART 1)
--------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT(SM) PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT(SM)
PROGRAM APPLICATION BY CALLING (800) 637-3766.
--------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares
/ / Class D shares
of Merrill Lynch Healthcare Fund, Inc. and establish an Investment Account as
described in the Prospectus. In the event that I am not eligible to purchase
Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $.......... payable to Merrill Lynch Financial
Data Services, Inc. as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the Right of Accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of paper
if necessary.)
1. ......................... 4. .........................
2. ......................... 5. .........................
3. ......................... 6. .........................
Name............................................................................
First Name Initial Last Name
Name of Co-Owner (if any).......................................................
First Name Initial Last Name
Address.........................................................................
.......................................................... Date ................
(Zip Code)
<TABLE>
<S> <C>
Occupation ......................................... Name and Address of Employer.................................................
.............................................................................
................................................... .............................................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
(In the case of co-owner, a joint tenancy with rights of survivorship will be
presumed unless otherwise specified.)
--------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTION
<TABLE>
<S> <C> <C> <C> <C>
Ordinary Income Dividends Long-Term Capital Gains
--------------------------------- ---------------------------------
SELECT / / Reinvest SELECT / / Reinvest
ONE: / / Cash ONE: / / Cash
--------------------------------- ---------------------------------
</TABLE>
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: / / Check
or / / Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Healthcare Fund, Inc. Authorization Form.
SPECIFY TYPE OF ACCOUNT (check one): / / checking / / savings
Name on your account............................................................
Bank Name.......................................................................
Bank Number .......................... Account Number...........................
Bank Address....................................................................
I agree that this authorization will remain in effect until I provide written
notification to Merrill Lynch Financial Data Services, Inc. amending or
terminating this service.
Signature of Depositor..........................................................
Signature of Depositor .............................. Date .....................
(if joint account, both must sign)
NOTE: If direct deposit to bank account is selected, your blank, unsigned check
marked "VOID" or a deposit slip from your savings account should accompany this
application.
A-1
<PAGE> 46
MERRILL LYNCH HEALTHCARE FUND, INC. -- AUTHORIZATION FORM (PART 1) --
(CONTINUED)
--------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed under "Additional
Information--Taxes") either because I have not been notified that I am subject
thereto as a result of a failure to report all interest or dividends, or the
Internal Revenue Service ("IRS") has notified me that I am no longer subject
thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
<TABLE>
<S> <C>
............................................................. ............................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
--------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND D SHARES ONLY (See terms and conditions in
the Statement of Additional Information)
<TABLE>
<S> <C>
......................, 19 . . . .
Date of initial purchase
Dear Sir/Madam:
</TABLE>
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Healthcare Fund, Inc. or any other investment company with an initial
sales charge or deferred sales charge for which Merrill Lynch Funds Distributor,
Inc. acts as distributor over the next 13 month period which will equal or
exceed:
/ / $25,000 / / $50,000 / / $100,000 / / $250,000 / / $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Healthcare Fund,
Inc. Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Healthcare Fund, Inc. held as security.
<TABLE>
<S> <C>
By:.............................................................. ...............................................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both must sign)
</TABLE>
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
<TABLE>
<S> <C>
(1) Name ................................................... (2) Name....................................................
Account Number ............................................ Account Number..............................................
</TABLE>
--------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp
This form when completed should be mailed to:
Merrill Lynch Healthcare Fund, Inc.
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the Distributor of any purchases made under a Letter of Intention or Systematic
Withdrawal Plan. We guarantee the Shareholder's signature.
................................................................................
Dealer Name and Address
By .............................................................................
Authorized Signature of Dealer
/ / / / / / / / / ..............................
Branch-Code F/C No. F/C Last Name
/ / / / / / / / / /
Dealer's Customer A/C No.
A-2
<PAGE> 47
MERRILL LYNCH HEALTHCARE FUND, INC. -- AUTHORIZATION FORM (PART 2)
--------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL PLAN OR THE
AUTOMATIC INVESTMENT PLAN ONLY.
--------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
<TABLE>
<S> <C>
------------------------------------
Name of Owner.......................................................................
------------------------------------
Social Security No.
or Taxpayer Identification Number
Name of Co-Owner (if any)...........................................................
Address.............................................................................
.................................................................................... Account Number...........................
(if existing account)
</TABLE>
--------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND D SHARES ONLY (See terms and
conditions in the Statement of Additional Information)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of / / Class A or / / Class D shares in Merrill Lynch Healthcare
Fund, Inc. at cost or current offering price. Withdrawals to be made either
(check one) / / Monthly on the 24th day of each month, or / / Quarterly on the
24th day of March, June, September and December. If the 24th falls on a weekend
or holiday, the next succeeding business day will be utilized. Begin systematic
withdrawal on or as soon as possible thereafter.
(month)
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): / / $
or / / % of the current value of / / Class A or / / Class D shares in the
account.
SPECIFY WITHDRAWAL METHOD: / / check or / / direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a) I hereby authorize payment by check
/ / as indicated in Item 1.
/ / to the order of..........................................................
Mail to (check one)
/ / the address indicated in Item 1.
/ / Name (please print)......................................................
Address.........................................................................
...........................................................................
Signature of Owner................................... Date .....................
Signature of Co-Owner (if any)..................................................
(b) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Specify type of account (check one): / / checking / / savings
Name on your Account............................................................
Bank Name.......................................................................
Bank Number ........................... Account Number .........................
Bank Address....................................................................
......................................................................
Signature of Depositor................................ Date ....................
Signature of Depositor..........................................................
(If joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHALL ACCOMPANY THIS APPLICATION.
A-3
<PAGE> 48
MERRILL LYNCH HEALTHCARE FUND, INC.-- AUTHORIZATION FORM (PART 2) -- (CONTINUED)
--------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account described below
each month to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch Healthcare Fund, Inc. subject to the terms set forth below. In
the event that I am not eligible to purchase Class A shares, I understand that
Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Healthcare Fund, Inc., as indicated below:
Amount of each check or ACH debit $..........................................
Account Number...............................................................
Please date and invest ACH debits on the 20th of each month
beginning or as soon thereafter as possible.
(month)
I agree that you are drawing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such check or debit. If I change banks or desire to
terminate or suspend this program, I agree to notify you promptly in writing. I
hereby authorize you to take any action to correct erroneous ACH debits of my
bank account or purchases of fund shares including liquidating shares of the
fund and credit my bank account. I further agree that if a check or debit is not
honored upon presentation, Merrill Lynch Financial Data Services, Inc. is
authorized to discontinue immediately the Automatic Investment Plan and to
liquidate sufficient shares held in my account to offset the purchase made with
the returned check or dishonored debit.
................. .......................................
Date Signature of Depositor
.......................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS DRAWN
BY MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
To..........................................................................Bank
(Investor's Bank)
Bank Address....................................................................
City .......... State .......... Zip............................................
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc. I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
................. .......................................
Date Signature of Depositor
................. .......................................
Bank Account Signature of Depositor
Number (If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
A-4
<PAGE> 49
INVESTMENT ADVISER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
The Chase Manhattan Bank, N.A.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, New York 11245
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE> 50
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, 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
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table............................ 2
Merrill Lynch Select PricingSM
System............................. 3
Financial Highlights................. 8
Risk Factors and Special
Considerations..................... 11
Investment Objective and Policies.... 13
Hedging Techniques................. 14
Other Investment Practices......... 19
Investment Restrictions............ 20
Management of the Company............ 21
Board of Directors................. 21
Advisory and Management
Arrangements.................... 21
Code of Ethics..................... 22
Transfer Agency Services........... 22
Purchase of Shares................... 23
Initial Sales Charge Alternatives--
Class A and Class D Shares...... 25
Deferred Sales Charge
Alternatives--
Class B and Class C Shares...... 26
Distribution Plans................. 30
Limitations on the Payment of
Deferred Sales Charges.......... 32
Redemption of Shares................. 33
Redemption......................... 33
Repurchase......................... 33
Reinstatement Privilege--
Class A and Class D Shares...... 34
Shareholder Services................. 34
Exchange Privilege................. 35
Performance Data..................... 37
Additional Information............... 38
Dividends and Distributions........ 38
Taxes.............................. 38
Determination of Net Asset Value... 40
Organization of the Company........ 41
Shareholder Reports................ 42
Shareholder Inquiries.............. 42
Authorization Form................... A-1
Code #10166-0895
</TABLE>
(ART)
Merrill Lynch
Healthcare Fund, Inc.
PROSPECTUS
August 24, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE> 51
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH HEALTHCARE FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
-------------------------
Merrill Lynch Healthcare Fund, Inc. (the "Company") is a non-diversified,
open-end investment company seeking long-term capital appreciation through
worldwide investment in equity securities of companies that, in the opinion of
management, derive or are expected to derive a substantial portion of their
sales from products and services in healthcare. The Company will pursue its
investment objective by investing in a global portfolio of securities of
companies in various stages of development. It is presently contemplated that
the Company's assets will be primarily invested in the United States, Japan and
Western Europe. Until the Company changed its investment objective on April 27,
1992, the Company was known as Sci/Tech Holdings, Inc.
Pursuant to the Merrill Lynch Select PricingSM System, the Company offers
four classes of shares each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select PricingSM System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances.
-------------------------
This Statement of Additional Information of the Company is not a prospectus
and should be read in conjunction with the Prospectus of the Company, dated
August 24, 1995 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission and can be obtained, without charge, by calling or by
writing the 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 24, 1995
<PAGE> 52
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> 53
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 15% (10% to the extent required by certain
state laws) of its total 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 15% (10% to the extent required by certain state laws) of its total 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 of
3
<PAGE> 54
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, 1994 and 1995 the Company's portfolio turnover rate was 103.06%,
133.58% and 196.91% 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.
4
<PAGE> 55
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. 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 typically between 2% and 15% of the value of the
futures contract, 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
5
<PAGE> 56
margin. Section 18(f) of the Investment Company Act prohibits an open-end
investment company such as 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
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<PAGE> 57
to 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 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 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 redeemable on
a daily basis in U.S. dollars, the Company intends to manage its portfolio so as
to give
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<PAGE> 58
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 a number of fundamental and non-fundamental restrictions and
policies relating to the investment of its assets and its activities. The
fundamental policies set forth below may not be changed without the approval of
the holders of a majority of the 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).
Under the fundamental investment restrictions, the Company may not:
1. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control or
management.
3. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Company may invest in securities directly or
indirectly secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Company may lend its portfolio securities, provided that
the lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Company's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that (i) the Company may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Company may borrow
up to an additional 5% of its total assets for temporary purposes, (iii)
the Company may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the
Company may purchase securities on margin to the extent permitted by
applicable law. The Company may not pledge its assets other than to secure
such borrowings or, to the extent permitted by the Company's investment
policies as set forth in its Prospectus and Statement of Additional
Information, as they may be amended from time to time, in connection with
hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.
7. Underwriter securities of other issuers except insofar as the
Company technically may be deemed an underwriter under the Securities Act
of 1933, as amended (the "Securities Act"), in selling portfolio
securities.
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<PAGE> 59
8. Purchase or sell commodities or contracts on commodities, except to
the extent that the Company may do so in accordance with applicable law and
the Company's Prospectus and Statement of Additional Information, as they
may be amended from time to time, and without registering as a commodity
pool operator under the Commodity Exchange Act.
In addition, the Company has adopted non-fundamental restrictions which may
be changed by the Board of Directors. Under the non-fundamental investment
restrictions, the Company may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Company currently does not
intend to engage in short sales, except short sales "against the box".
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Company
has otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws of any
state in which the Company's shares are registered or qualified for sale
require a lower limitation, the Company will observe such limitation. As of
the date hereof, therefore, the Company will not invest more than 10% of
its total assets in securities which are subject to this investment
restriction (c). Securities purchased in accordance with Rule 144A under
the Securities Act (a "Rule 144A security") and determined to be liquid by
the Company's Board of Directors are not subject to the limitations set
forth in this investment restriction (c). Notwithstanding the fact that the
Board may determine that a Rule 144A security is liquid and not subject to
limitations set forth in this investment restriction (c), the State of Ohio
does not recognize Rule 144A securities as securities that are free of
restrictions as to resale. To the extent required by Ohio law, the Company
will not invest more than 50% of its total assets in securities of issuers
that are restricted as to disposition, including Rule 144A securities, or
in securities described in (e) below.
d. Invest in warrants if, at the time of acquisition, its investments
in warrants, valued at the lower of cost or market value, would exceed 5%
of the Company's net assets. Included within such limitation, but not to
exceed 2% of the Company's net assets, are warrants which are not listed on
the New York Stock Exchange or American Stock Exchange or a major foreign
exchange. For purposes of this restriction, warrants acquired by the
Company in units or attached to securities may be deemed to be without
value.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Company's total assets would be invested in such securities.
This restriction shall not apply to mortgage-backed securities,
asset-backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
f. Purchase or retain the securities of any issuer, if those
individual officers and directors of the Company, the officers and general
partner of the Investment Adviser, the directors of such general partner or
the officers and directors of any subsidiary thereof each owning
beneficially more than one-half of one percent of the securities of such
issuer own in the aggregate more than 5% of the securities of such issuer.
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g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs,
except that the Company may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Company's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
i. Notwithstanding fundamental investment restriction (6) above,
borrow amounts in excess of 10% of its total assets, taken at market value,
and then only from banks as a temporary measure for extraordinary or
emergency purposes such as the redemption of Company shares. In addition,
the Company will not purchase securities while borrowings are outstanding
except to exercise prior commitments and to exercise subscription rights.
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 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
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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, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Director is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (62)--President and Director(1)(2)--President of the
Investment Adviser (which term as used herein includes its corporate
predecessors) since 1977; President of Fund Asset Management, L.P. ("FAM")
(which term as used herein includes its corporate predecessors) since 1977;
President and Director of Princeton Services, Inc. ("Princeton Services") since
1993; Executive Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") since 1990 and a Senior Vice President thereof
from 1985 to 1990; Executive Vice President of Merrill Lynch & Co., Inc.
("ML&Co.") since 1990; Director of the Distributor.
DONALD CECIL (68)--Director(2)--1114 Avenue of the Americas, New York, New
York 10036. Special Limited Partner of Cumberland Partners (an investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
EDWARD H. MEYER (68)--Director(2)--777 Third Avenue, New York, New York
10017. President of Grey Advertising Inc. since 1968, Chief Executive Officer
since 1970 and Chairman of the Board of Directors since 1972; Director of The
May Department Stores Company, Bowne & Co., Inc. (financial printers), Ethan
Allen Interiors Inc. and Harman International Industries, Inc.
CHARLES C. REILLY (63)--Director(2)--9 Hampton Harbor Road, Hampton Bays,
New York 11946. Self-employed financial consultant since 1990; President and
Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; former Senior
Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business since 1990; Adjunct
Professor, Wharton School, University of Pennsylvania, 1990; Partner, Small
Cities Cablevision, Inc.
RICHARD R. WEST (57)--Director(2)--Box 604, Genoa, Nevada 89411. Professor
of Finance since 1984, and Dean from 1984 to 1993, New York University Leonard
N. Stern School of Business Administration; Director of 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).
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EDWARD D. ZINBARG (60)--Director(2)--5 Hardwell Road, Short Hills, New
Jersey 07078-2117. Executive Vice President of the Prudential Insurance Company
of America from 1988 to 1994; former Director of Prudential Reinsurance Company
and former Trustee of the Prudential Foundation.
TERRY K. GLENN (54)--Executive Vice President(1)(2)--Executive Vice
President of the Investment Adviser and FAM since 1983; Executive Vice President
and Director of Princeton Services since 1993; President and Director of the
Distributor since 1986.
NORMAN R. HARVEY (61)--Senior Vice President(1)(2)--Senior Vice President
of the Investment Adviser and FAM since 1982; Senior Vice President of Princeton
Services since 1993.
PHILIP L. KIRSTEIN (50)--Senior Vice President(1)(2)--Senior Vice President
and General Counsel of the Investment Adviser and FAM since 1984; Senior Vice
President, General Counsel, Director and Secretary of Princeton Services since
1993; Secretary of the Investment Adviser since 1984; Secretary of FAM since
1982; Director of the Distributor.
JORDAN C. SCHREIBER (65)--Vice President(1)--Vice President and Portfolio
Manager of the Investment Adviser since 1983.
DONALD C. BURKE (35)--Vice President(1)(2)--Vice President and Director of
Taxation of the Investment Adviser since 1990; employee of Deloitte & Touche LLP
from 1982 to 1990.
GERALD M. RICHARD (46)--Treasurer(1)(2)--Senior Vice President and
Treasurer of the Investment Adviser and FAM since 1984; Senior Vice President
and Treasurer of Princeton Services since 1993; Vice President of the
Distributor since 1981 and Treasurer since 1984.
ROBERT HARRIS (43)--Secretary(1)(2)--Vice President of the Investment
Adviser since 1984 and attorney associated with the Investment Adviser since
1980; Secretary of the Distributor since 1982.
---------------
(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, 1995, the Directors and officers of the Company as a group (13
persons) owned an aggregate of less than 1% of the outstanding shares of the
Company. At such date, Mr. Zeikel, a Director and officer of the Company, and
the other officers of the Company owned less than 1% of the outstanding shares
of common stock of ML&Co.
COMPENSATION OF DIRECTORS
The Company pays each Director not affiliated with the Investment Adviser a
fee of $1,750 per year plus $250 per meeting attended, together with such
Director's actual out-of-pocket expenses relating to attendance at meetings. The
Company also compensates members of its Audit and Nominating Committee (the
"Committee"), which consists of all the non-affiliated Directors, at a rate of
$250 per meeting attended. The Chairman of the Committee receives an additional
fee of $125 per meeting attended. Fees and expenses paid to the non-affiliated
Directors for the fiscal year ended April 30, 1995, aggregated $19,959.
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The following table sets forth for the fiscal year ended April 30, 1995,
compensation paid by the Company to the non-affiliated Directors and for the
calendar year ended December 31, 1994, the aggregate compensation paid by all
investment companies advised by the Investment Adviser and its affiliate, FAM
("MLAM/FAM Advised Funds") to the non-affiliated Directors:
<TABLE>
<CAPTION>
AGGREGATE
PENSION OR COMPENSATION
RETIREMENT FROM COMPANY AND
BENEFITS ACCRUED OTHER MLAM/FAM
COMPENSATION AS PART OF ADVISED FUNDS PAID
NAME OF DIRECTOR FROM COMPANY COMPANY'S EXPENSES TO DIRECTOR(1)
---------------- ------------ ------------------ ------------------
<S> <C> <C> <C>
Donald Cecil................................... $4,875 None $276,350
Edward H. Meyer................................ $4,250 None $251,600
Charles C. Reilly.............................. $4,250 None $276,900
Richard R. West................................ $4,250 None $300,900
Edward D. Zinbarg.............................. $1,875 None $125,500*
</TABLE>
---------------
* $125,500 represents the amount Mr. Zinbarg would have received if he had
been a Director for the entire calendar year ended December 31, 1994. Mr.
Zinbarg was elected to the Company's Board of Directors effective October
25, 1994.
(1) In addition to the Company, the Directors serve on the boards of other
MLAM/FAM Advised Funds as follows: Mr. Cecil (34 funds); Mr. Meyer (34
funds); Mr. Reilly (53 funds); Mr. West (53 funds) and Mr. Zinbarg (16
funds).
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.
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 years ended April 30, 1993, 1994 and
1995, the investment advisory fees paid by the Company to the Investment Adviser
aggregated $872,256, $1,200,254 and $1,323,449, respectively.
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
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<PAGE> 64
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,
1995, 1994 and 1993 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 years ended
April 30, 1994 and 1995, the amount of such reimbursement was $35,660 and
$108,303, respectively. 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, Class C and Class D 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--Distribution Plans".
The Investment Adviser is a limited partnership, the partners of which are
ML & Co. and Princeton Services. ML&Co. and Princeton Services are "controlling
persons" of the Investment Adviser as defined under the Investment Company Act
because of their ownership of its voting securities or their power to exercise a
controlling influence over its management or policies.
Duration and Termination. Unless earlier terminated as described herein,
the Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Board of Directors of the Company or by a majority
of the outstanding shares of the Company and (b) by a majority of the Directors
who are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contract is not assignable and
may be terminated without penalty on 60 days' written notice at the option of
either party thereto or by the vote of the shareholders of the Company.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Company shares.
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<PAGE> 65
The Company issues four classes of shares under the Merrill Lynch Select
PricingSM System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives, and shares of Class B and Class C are
sold to investors choosing the deferred sales charge alternatives. Each Class A,
Class B, Class C and Class D share of the Company represents identical interests
in the investment portfolio of the Company and has the same rights, except that
Class B, Class C and Class D shares bear the expenses of the ongoing account
maintenance fees, and Class B and Class C shares bear the expenses of the
ongoing distribution fees and the additional incremental transfer agency costs
resulting from the deferred sales charge arrangements. Class B, Class C and
Class D shares each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to which account
maintenance and/or distribution fees are paid. Each class has different exchange
privileges. See "Shareholder Services-- Exchange Privilege".
The Merrill Lynch Select PricingSM System is used by more than 50 mutual
funds advised by the Investment Adviser or its affiliate, FAM. Funds advised by
the Investment Adviser or FAM are referred to herein as "MLAM-advised mutual
funds".
The Company has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Company (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the offering
of each class of shares of the Company. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and investors.
The Distributor also pays for other supplementary sales literature and
advertising costs. The Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Investment Advisory Agreement
described above.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
The Company sells its Class A and Class D shares through the Distributor
and Merrill Lynch, as dealers. 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 were $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 were $211,071, of which $195,475 was received by Merrill Lynch
and $15,596 was received by the Distributor. During the fiscal year ended April
30, 1995, the Company sold 5,713,906 Class A shares for aggregate net proceeds
to the Company of $20,654,552. The gross sales charges for the sale of Class A
shares of the Company for that year were $85,949, of which $81,092 was received
by Merrill Lynch and $4,857 was received by the Distributor. During the fiscal
period October 21, 1994 (commencement of operations) to April 30, 1995, the
Company sold 1,239,834 Class D shares for aggregate net proceeds to the Company
of $4,397,052. The gross sales charges for the sale of Class D shares of the
Company for that period were $27,764, of which $25,916 was received by Merrill
Lynch and $1,848 was received by the Distributor.
The term "purchase" as used in the Prospectus and this Statement of
Additional Information refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and single
purchases by a trustee or other fiduciary purchasing shares for a single
15
<PAGE> 66
trust estate or single fiduciary account (including a pension, profit-sharing or
other employee benefit trust created pursuant to a plan qualified under Section
401 of the Code) although more than one beneficiary is involved. The term
"purchase" also includes purchases by any "company", as that term is defined in
the Investment Company Act, but does not include purchases by any such company
which has not been in existence for at least six months or which has no purpose
other than the purchase of shares of the Company or shares of other registered
investment companies at a discount. The term "purchase" shall not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit cardholders of a company, policyholders of
an insurance company, customers of either a bank or broker-dealer or clients of
an investment adviser. The term "purchase" also includes purchases by employee
benefit plans not qualified under Section 401 of the Code, including purchases
by employees or by employers on behalf of employees, by means of a payroll
deduction plan or otherwise, of shares of the Company. Purchases by such a
company or non-qualified employee benefit plan will qualify for the quantity
discounts discussed above only if the Company and the Distributor are able to
realize economies of scale in sales effort and sales related expense by means of
the company, employer or plan making the Company's Prospectus available to
individual investors or employees and forwarding investments by such persons to
the Company and by any such employer or plan bearing the expense of any payroll
deduction plan.
Closed-End Fund Investment Option. Class A shares of the Company and other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by MLAM or its
affiliate, FAM, who purchased such closed-end fund shares prior to October 21,
1994 (the date the Merrill Lynch Select Pricing(SM) System commenced operations)
and wish to reinvest the net proceeds from a sale of their closed-end fund
shares of common stock in Eligible Class A Shares, if the conditions set forth
below are satisfied. Alternatively, closed-end fund shareholders who purchased
such shares on or after October 21, 1994, and wish to reinvest the net proceeds
from a sale of their closed-end fund shares are offered Class D shares of the
Company and other MLAM-advised mutual funds ("Eligible Class D Shares"), if the
following conditions are met. First, the sale of the closed-end fund shares must
be made through Merrill Lynch, and the net proceeds therefrom must be
immediately reinvested in Eligible Class A or Class D shares. Second, the
closed-end fund shares must either have been acquired in the initial public
offering or be shares representing dividends from shares of common stock
acquired in such offering. Third, the closed-end fund shares must have been
continuously maintained in a Merrill Lynch securities account. Fourth, there
must be a minimum purchase of $250 to be eligible for the investment option.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. The reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Company subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Company and of other MLAM-advised mutual funds. For any such
right of accumulation to be made available, the Distributor must be provided at
the time of purchase, by the purchaser or the purchaser's securities dealer,
with sufficient information to permit confirmation of qualification, and
acceptance of the purchase order is subject to such confirmation. The right of
accumulation may be amended or terminated at any time. Shares held in the name
of a nominee or custodian under pension, profit-sharing, or other employee
benefit plans may not be combined with other shares to qualify for the right of
accumulation.
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<PAGE> 67
Letter of Intention. Reduced sales charges are applicable to a purchase
aggregating $25,000 or more of Class A or Class D shares of the Company or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Company's transfer agent. The Letter of Intention
is not available to employee benefit plans for which Merrill Lynch provides plan
participant record-keeping services. The Letter of Intention is not a binding
obligation to purchase any amount of Class A or Class D shares, but its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter executed within
90 days of such purchase if the Distributor is informed in writing of this
intent within such 90-day period. The value of Class A and Class D shares of the
Company and of other MLAM-advised mutual funds presently held, at cost or
maximum offering price (whichever is higher), on the date of the first purchase
under the Letter of Intention, may be included as a credit toward the completion
of such Letter, but the reduced sales charge applicable to the amount covered by
such Letter will be applied only to new purchases. If the total amount of shares
purchased does not equal the amount stated in the Letter of Intention (minimum
of $25,000), the investor will be notified and must pay, within 20 days of the
expiration of such Letter, the difference between the sales charge on the Class
A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to five percent of the intended amount will be held in escrow
during the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If a purchase
during the term of such Letter would otherwise be subject to a further reduced
sales charge based on the right of accumulation, the purchaser will be entitled
on that purchase and subsequent purchases to the reduced percentage sales charge
which would be applicable to a single purchase equal to the total dollar value
of the shares then being purchased under such Letter, but there will be no
retroactive reduction of the sales charges on any previous purchase.
Merrill Lynch BlueprintSM Program. Class D shares of the Company are
offered to participants in the Merrill Lynch BlueprintSM Program ("Blueprint").
In addition, participants in Blueprint who own Class A shares of the Company may
purchase additional Class A shares of the Company through Blueprint. Blueprint
is directed to small investors, group IRAs and participants in certain affinity
groups such as credit unions, trade associations and benefit plans. Investors
placing orders to purchase Class A or Class D shares of the Company through
Blueprint will acquire the Class A or Class D shares at net asset value plus a
sales charge calculated in accordance with the Blueprint sales charge schedule
(i.e., up to $300 at 4.25%, $300.01 up to $5,000 at 3.25% plus $3, and $5,000.01
or more at the standard sales charge rates disclosed in the Prospectus). Class A
or Class D shares of the Company are offered at net asset value plus a sales
charge of 1/2 of 1% for corporate or group IRA programs placing orders to
purchase their Class A or Class D shares through Blueprint. Services, including
the exchange privilege, available to Class A and Class D investors through
Blueprint, however, may differ from those available to other investors in Class
A or Class D shares.
Class A and Class D shares are offered at net asset value, to participants
in Blueprint through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from Employer Sponsored Retirement and Savings Plans
(see definition below) whose Trustee and/or Plan Sponsor offers the Merrill
Lynch Directed IRA Rollover Program.
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<PAGE> 68
Orders for purchases and redemptions of Class A or Class D shares of the
Company may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any fees and transaction charges, is available from Merrill
Lynch, Pierce, Fenner & Smith Incorporated, The BlueprintSM Program, P.O. Box
30441, New Brunswick, New Jersey 08989-0441.
TMASM Managed Trusts. Class A shares are offered to TMASM Managed Trusts
to which Merrill Lynch Trust Company provides discretionary trustee services at
net asset value.
Employer Sponsored Retirement and Savings Plans. Class A and Class D
shares are offered at net asset value to employer sponsored retirement or
savings plans, such as tax qualified retirement plans within the meaning of
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
deferred compensation plans within the meaning of Section 403(b) and 457 of the
Code, other deferred compensation arrangements, Voluntary Employee Benefits
Association ("VEBA") plans, and non-qualified After Tax Savings and Investment
programs, maintained on the Merrill Lynch Group Employee Services system, herein
referred to as "Employer Sponsored Retirement or Savings Plans", provided the
plan has accumulated $20 million or more in MLAM-advised mutual funds (in the
case of Class A shares) or $5 million or more in MLAM-advised mutual funds (in
the case of Class D shares). Class D shares may be offered at net asset value to
new Employer Sponsored Retirement or Savings Plans, provided the plan has $3
million or more initially invested in MLAM-advised mutual funds. Assets of
Employer Sponsored Retirement or Savings Plans sponsored by the same sponsor or
an affiliated sponsor may be aggregated. Class A shares and Class D shares also
are offered at net asset value to Employer Sponsored Retirement or Savings Plans
that have at least 1,000 employees eligible to participate in the plan (in the
case of Class A shares) or between 500 and 999 employees eligible to participate
in the plan (in the case of Class D shares). Employees eligible to participate
in Employer Sponsored Retirement or Savings Plans of the same sponsoring
employer or its affiliates may be aggregated. Tax qualified retirement plans
within the meaning of Section 401(a) of the Code meeting any of the foregoing
requirements and which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a wide
range of investments including individual corporate equities and other
securities in addition to mutual fund shares) by the Merrill Lynch BlueprintSM
Program, are offered Class A shares at a price equal to net asset value per
share plus a reduced sales charge of 0.50%. Any Employer Sponsored Retirement or
Savings Plan which does not meet the above described qualifications to purchase
Class A shares at net asset value has the option of (i) purchasing Class A
shares at the initial sales charge schedule and possible CDSC schedule disclosed
in the Prospectus if it is otherwise eligible to purchase Class A shares, (ii)
purchasing Class D shares at the initial sales charge and possible CDSC schedule
disclosed in the Prospectus, (iii) if the Employer Sponsored Retirement or
Savings Plan meets the specified requirements, purchasing Class B shares with a
waiver of the CDSC upon redemption, or if the Employer Sponsored Retirement or
Savings Plan does not qualify to purchase Class B shares with a waiver of the
CDSC upon redemption, purchasing Class C shares at the CDSC schedule disclosed
in the Prospectus. The minimum initial and subsequent purchase requirements are
waived in connection with all the above referenced Employer Sponsored Retirement
or Savings Plans.
Employee Access AccountsSM. Class A or Class D shares are offered at net
asset value to Employee Access Accounts available through employers that provide
employer sponsored retirement or savings plans
18
<PAGE> 69
that are eligible to purchase such shares at net asset value. The initial
minimum for such accounts is $500, except that the initial minimum for shares
purchased for such accounts pursuant to the Automatic Investment Program is $50.
Purchase Privilege of Certain Persons. Directors of the Company, members
of the Boards of other MLAM-advised investment companies, directors and
employees of ML & Co. and its subsidiaries (the term "subsidiaries", when used
herein with respect to ML & Co., includes MLAM, FAM and certain other entities
directly or indirectly wholly-owned and controlled by ML & Co.) and any trust,
pension, profit-sharing or other benefit plan for such persons may purchase
Class A shares of the 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.) ("Senior Floating Rate Fund") who wish to
reinvest the net proceeds from a sale of certain of their shares of common stock
of Senior Floating Rate Fund in shares of the Company. In order to exercise this
investment option, Senior Floating Rate Fund shareholders must sell their Senior
Floating Rate Fund shares to the Senior Floating Rate Fund in connection with a
tender offer conducted by the Senior Floating Rate Fund and reinvest the
proceeds immediately in the Company. This investment option is available only
with respect to the proceeds of Senior Floating Rate Fund shares as to which no
Early Withdrawal Charge (as defined in the Senior Floating Rate Fund prospectus)
is applicable. Purchase orders from Senior Floating Rate Fund shareholders
wishing to exercise this investment option will be accepted only on the day that
the related Senior Floating Rate Fund tender offer terminates and will be
effected at the net asset value of the Company at such day.
Class D shares of the Company are offered at net asset value, without sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor if the following
conditions are satisfied. First, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Company with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis; and second, the investor also must establish that such redemption had
been made within 60 days prior to the investment in the Company, and the
proceeds from the redemption had been maintained in the interim in cash or a
money market fund.
Class D shares of the Company are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated, if the following conditions are satisfied:
first, the investor must purchase Class D shares of the Company with proceeds
from a redemption of shares of such other mutual fund and such fund was subject
to a sales charge either at the time of purchase or on a deferred basis; and
second, such purchase of Class D shares must be made within 90 days after such
notice.
Class D shares of the Company will be offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: first, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Company with proceeds from the redemption of such
shares of the other mutual funds and that such shares have been outstanding for
a period of no less than six months; and second, such purchase of Class D shares
must be made within 60 days
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<PAGE> 70
after the redemption and the proceeds from the redemption must be maintained in
the interim in cash or a money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a public or private investment company. The value of the assets or company
acquired in a tax-free transaction may in appropriate cases be adjusted to
reduce possible adverse tax consequences to the Company which might result from
an acquisition of assets having net unrealized appreciation which is
disproportionately higher at the time of acquisition than the realized or
unrealized appreciation of the Company. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities which (i) meet the
investment objectives and policies of the Company; (ii) are acquired for
investment and not for resale (subject to the understanding that the disposition
of the Company's portfolio securities shall at all times remain within its
control); and (iii) are liquid securities, the value of which is readily
ascertainable, which are not restricted as to transfer either by law or
liquidity of market (except that the Company may acquire through such
transactions restricted or illiquid securities to the extent the Company does
not exceed the applicable limits on acquisition of such securities set forth
under "Investment Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Company to the Distributor with
respect to such classes.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Directors shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each Distribution Plan, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Company and its related class of shareholders. Each
Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Company, as defined in the Investment Company Act
(the "Independent Directors"), shall be committed to the discretion of the
Independent Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the Independent Directors concluded that there is
reasonable likelihood that such Distribution Plan will benefit the Company and
its related class of shareholders. Each Distribution Plan can be terminated at
any time, without penalty, by the vote of a majority of the Independent
Directors or by the vote of the holders of a majority of the outstanding related
class of voting securities of the Company. A Distribution Plan cannot be amended
to increase materially the amount to be spent by the Company without the
approval of the related class of shareholders, and all material amendments are
required to be approved by the vote of the Directors, including a majority of
the Independent Directors who have no direct or indirect financial interest in
such Distribution Plan, cast in person at a meeting called for that purpose.
Rule 12b-1 further requires that the Company preserve copies of each
Distribution
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<PAGE> 71
Plan and any report made pursuant to such plan for a period of not less than six
years from the date of such Distribution Plan or such report, the first two
years in an easily accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on certain
asset-based sales charges such as the distribution fee and the CDSC borne by the
Class B and Class C shares but not the account maintenance fee. The maximum
sales charge rule is applied separately to each class. As applicable to the
Company, the maximum sales charge rule limits the aggregate of distribution fee
payments and CDSCs payable by the Company to (1) 6.25% of eligible gross sales
of Class B shares and Class C shares, computed separately (defined to exclude
shares issued pursuant to dividend reinvestments and exchanges), plus (2)
interest on the unpaid balance for the respective class, computed separately, at
the prime rate plus 1% (the unpaid balance being the maximum amount payable
minus amounts received from the payment of the distribution fee and the CDSC).
In connection with the Class B shares, the Distributor has voluntarily agreed to
waive interest charges on the unpaid balance in excess of 0.50% of eligible
gross sales. Consequently, the maximum amount payable to the Distributor
(referred to as the "voluntary maximum") in connection with the Class B shares
is 6.75% of eligible gross sales. The Distributor retains the right to stop
waiving the interest charges at any time. To the extent payments would exceed
the voluntary maximum, the Company will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid to
the Company rather than to the Distributor; however, the Company will continue
to make payments of the account maintenance fee. In certain circumstances the
amount payable pursuant to the voluntary maximum may exceed the amount payable
under the NASD formula. In such circumstances payment in excess of the amount
payable under the NASD formula will not be made.
The following table sets forth comparative information as of April 30,
1995, with respect to the Class B and Class C shares of the Company indicating
the maximum allowable payments that can be made under the NASD maximum sales
charge rule and with respect to Class B shares the Distributor's voluntary
maximum.
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<PAGE> 72
DATA CALCULATED AS OF APRIL 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ANNUAL
DISTRIBUTION
ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
---------- --------- ---------- ------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES (FOR THE
PERIOD OCTOBER 21, 1988
(COMMENCEMENT OF
OPERATIONS) TO APRIL
30, 1995(5):
Under NASD Rule as
Adopted................ $ 88,865 $ 5,554 $ 665 $6,219 $1,525 $ 4,694 $ 596
Under Distributor's
Voluntary Waiver....... $ 88,865 $ 5,554 $ 444 $5,998 $1,525 $ 4,473 $ 596
CLASS C SHARES (FOR THE
PERIOD OCTOBER 21, 1994
(COMMENCEMENT OF
OPERATIONS) TO APRIL
30, 1995):
Under NASD Rule as
Adopted................ $ 1,354 $ 85 $ 2 $ 87 $ 2 $ 85 $ 14
</TABLE>
---------------
(1) Purchase price of all eligible Class B or Class C shares sold during period
indicated other than shares acquired through dividend reinvestment and the
exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1%, as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made with respect to Class B shares prior to July
7, 1993, under the distribution plan in effect at that time, at the 1.00%
rate, 0.75% of average daily net assets has been treated as a distribution
fee and 0.25% of average daily net assets has been deemed to have been a
service fee and not subject to the NASD maximum sales charge rule. See
"Purchase of Shares--Distribution Plans" in the Prospectus.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the NASD maximum or, with respect to Class B shares, the
voluntary maximum.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Company shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the New York Stock Exchange is restricted, as determined by the
Commission, or such Exchange is closed (other than customary weekend and holiday
closings) for any period during which an emergency exists, as defined by the
Commission, as a result of which disposal of portfolio securities or
determination of the net asset value of the Company is not reasonably
practicable, and for such other periods as the Commission may by order permit
for the protection of shareholders of the Company.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending on the market value of the securities held by the
Company at such time.
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<PAGE> 73
DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives-- Class B and Class C Shares", while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived on redemptions of Class B shares in connection with certain
post-retirement withdrawals from an Individual Retirement Account ("IRA") or
other retirement plan or following the death or disability of a Class B
shareholder. Redemptions for which the waiver applies are: (a) any partial or
complete redemption in connection with a tax-free distribution following
retirement under a tax-deferred retirement plan or attaining age 59 1/2 in the
case of an IRA or other retirement plan, or part of a series of equal periodic
payments (not less frequently than annually) made for the life or life
expectancy or any redemption resulting from the tax-free return of an excess
contribution to an IRA; or (b) any partial or complete redemption following the
death or disability (as defined in the Code) of a Class B shareholder (including
one who owns the Class B shares as joint tenant with his or her spouse) provided
the redemption is requested within one year of the death or initial
determination of disability. For the fiscal years ended April 30, 1993, 1994 and
1995, the Distributor received CDSCs with respect to redemptions of Class B
shares of $53,803, $161,790 and $209,909, respectively, all of which was paid to
Merrill Lynch. Similarly, for the fiscal period October 21, 1994 (commencement
of operations) to April 30, 1995, the Distributor received CDSCs of $151 with
respect to redemptions of Class C shares, all of which was paid to Merrill
Lynch.
Merrill Lynch BlueprintSM Program. Class B shares are offered to certain
participants in BlueprintSM. Blueprint is directed to small investors, group
IRAs and participants in certain affinity groups such as trade associations and
credit unions. Class B shares of the Company are offered through Blueprint only
to members of certain affinity groups. The CDSC is waived in connection with
purchase orders placed through Blueprint. Services, including the exchange
privilege, available to Class B investors through Blueprint, however, may differ
from those available to other investors in Class B shares. Orders for purchases
and redemptions of Class B shares of the Company will be grouped for execution
purposes which, in some circumstances, may involve the execution of such orders
two business days following the day such orders are placed. The minimum initial
purchase price is $100, with a $50 minimum for subsequent purchases through
Blueprint. There is no minimum initial or subsequent purchase requirement for
investors who are part of the Blueprint automatic investment plan. Additional
information concerning these Blueprint programs, including any annual fees or
transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith
Incorporated, The BlueprintSM Program, P.O. Box 30441, New Brunswick, New Jersey
08989-0441.
Retirement Plans. Any Retirement Plan which does not meet the
qualifications to purchase Class A or Class D shares at net asset value has the
option of purchasing Class A or Class D shares at the sales charge schedule
disclosed in the Prospectus, or if the Retirement Plan meets the following
requirements, then it may purchase Class B shares with a waiver of the CDSC upon
redemption. The CDSC is waived for any Eligible 401(k) Plan redeeming Class B
shares. "Eligible 401(k) Plan" is defined as a retirement plan qualified under
Section 401(k) of the Code with a salary reduction feature offering a menu of
investments to plan participants. The CDSC is also waived for redemptions from
401(a) plans qualified under the Code, provided, however, that each such plan
has the same or an affiliated sponsoring employer as an Eligible 401(k) Plan
purchasing Class B shares of MLAM-advised mutual funds ("Eligible 401(a) Plan").
Other tax qualified retirement plans within the meaning of Section 401(a) and
403(b) of the Code which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a menu of
investments) by independent administration firms contracted through Merrill
Lynch also may purchase Class B shares with a waiver of the CDSC. The CDSC is
also waived for any Class B shares which
23
<PAGE> 74
are purchased by an Eligible 401(k) Plan or Eligible 401(a) Plan and are rolled
over into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and held
in such account at the time of redemption. The Class B CDSC also is waived for
any Class B shares which are purchased by a Merrill Lynch rollover IRA that was
funded by a rollover from a terminated 401(k) plan managed by the MLAM Private
Portfolio Group and held in such account at the time of redemption. The minimum
initial and subsequent purchase requirements are waived in connection with all
the above referenced Retirement Plans. The CDSC is also waived for any Class B
shares that were acquired and held at the time of redemption by Employee Access
Accounts available through employers that provide Eligible 401(k) Plans. The
initial minimum for such accounts is $500, except that the initial minimum for
shares purchased for such accounts pursuant to the Automatic Investment Program
is $50.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to "Investment Objective and Policies--Other Investment
Practices" in the Prospectus.
Subject to policies established by the Board of Directors of the Company,
the Investment Adviser is primarily responsible for the execution of the
Company's portfolio transactions and the allocation of brokerage. In executing
such transactions, the Investment Adviser seeks to obtain the best net results
for the Company, taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm involved and the firm's risk in
positioning a block of securities. While the Investment Adviser generally seeks
reasonably competitive commission rates, the Company does not necessarily pay
the lowest commission or spread available. The Company has no obligation to deal
with any broker or group of brokers in the execution of transactions in
portfolio securities. Subject to obtaining the best price and execution, brokers
who provide supplemental investment research to the Investment Adviser may
receive orders for transactions by the Company. Information so received will be
in addition to and not in lieu of the services required to be performed by the
Investment Adviser under the investment advisory agreement, and the expenses of
the Investment Adviser will not necessarily be reduced as a result of the
receipt of such supplemental information. It is possible that certain of the
supplementary investment research so received will primarily benefit one or more
other investment companies or other accounts for which investment discretion is
exercised. Conversely, the Company may be the primary beneficiary of the
research or services received as a result of portfolio transactions effected for
such other accounts or investment companies. In addition, consistent with the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and policies established by the Directors of the Company, the Investment Adviser
may consider sales of shares of the Company as a factor in the selection of
brokers or dealers to execute portfolio transactions for the Company.
The Company anticipates that its brokerage transactions involving
securities of companies domiciled in countries other than the United States will
be conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions are generally higher than in the United States, although the
Company will endeavor to achieve the best net results in effecting its portfolio
transactions. There is generally less government supervision and regulation of
foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Company in the form of ADRs,
EDRs, GDRs or securities convertible into foreign equity securities. ADRs, EDRs
and GDRs may be listed on stock exchanges or traded
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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".
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. 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. For the fiscal
year ended April 30, 1995, the Company paid total brokerage commissions of
$673,208, of which $116,455, or 17.3%, was paid to Merrill Lynch for effecting
20.7% of the aggregate amount of 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 15 minutes after the close of business on the New
York Stock Exchange (generally, 4:00 P.M., New York time), on each day during
which the New York Stock Exchange is open for trading. The New York Stock
Exchange is not open on New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Any assets
or liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation.
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Net asset value is computed by dividing the value of the securities held by
the Company plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued expenses)
by the total number of shares outstanding at such time. Expenses, including the
fee payable to the Investment Adviser and any account maintenance and/or
distribution fees, are accrued daily. The per share net asset value of Class B,
Class C and Class D shares generally will be lower than the per share net asset
value of Class A shares reflecting the daily expense accruals of the account
maintenance, distribution and higher transfer agency fees applicable with
respect to the Class B and Class C shares and the daily expense accruals of the
account maintenance fees applicable with respect to Class D shares; moreover,
the per share net asset value of Class B and Class C shares generally will be
lower than the per share net asset value of Class D shares reflecting the daily
expense accruals of the distribution fees and higher transfer agency fees
applicable with respect to Class B and Class C shares of the Company. It is
expected, however, that the per share net asset value of the four classes will
tend to converge (although not necessarily meet) immediately after the payment
of dividends or distributions, which will differ by approximately the amount of
the expense accrual differentials between the classes.
Portfolio securities, including ADRs, EDRs or GDRs, 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. Portfolio securities which are traded both in the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market. When the Company writes an option, the
amount of the premium received is recorded on the books of the Company as an
asset and an equivalent liability. The amount of the liability is subsequently
valued to reflect the current market value of the option written, based upon the
last sale price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter market, the last asked price. Options
purchased by the Company are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last bid price. Other investments, including
futures contracts and related options, are stated at market value. Securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Directors of the Company.
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
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<PAGE> 77
securities as the basis of valuation (the "private market method"). The private
market method will only be used with respect to actual transactions or actual
firm offers by sophisticated, independent investors.
Generally, trading in foreign securities, as well as corporate bonds, U.S.
Government securities and money market instruments, is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the Company's
shares are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
the New York Stock Exchange which will not be reflected in the computation of
the Company's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value as determined in good faith by the Directors.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services described below which
are designed to facilitate investment in its shares. Certain of such services
are not available to investors who place orders for the Company's shares through
the Merrill Lynch BlueprintSM Program. Full details as to each of such services,
copies of the various plans described below and instructions as to how to
participate in the various services or plans, or how to change options with
respect thereto, can be obtained from the Company, the Distributor or Merrill
Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the transfer agent has an
Investment Account and will receive statements, at least quarterly, from the
transfer agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gain distributions. The statements will also show any
other activity in the account since the preceding statement. Shareholders will
receive separate transaction confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestment of ordinary
income dividends and long-term capital gain distributions.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the transfer agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the Company, a shareholder either must
redeem the Class A or Class D shares (paying any applicable CDSC) so that the
cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the transfer
agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the transfer
agent may request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the shareholder
at the transfer agent. If the new brokerage firm is willing to accommodate the
shareholder in this manner, the shareholder must request that he be issued
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<PAGE> 78
certificates for his shares, and then must turn the certificates over to the new
firm for re-registration as described in the preceding sentence.
AUTOMATIC INVESTMENT PLANS
A U.S. shareholder may make additions to an Investment Account at any time
by purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price, either through the shareholder's securities
dealer or by mail directly to the transfer agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Automatic Investment Plan whereby the Company is authorized through
preauthorized checks or automated clearing house debits of $50 or more to charge
the regular bank account of the shareholder on a regular basis to provide
systematic additions to the Investment Account of such shareholder. An investor
whose shares of the Company are held within a CMA(R) or CBA(R) account may
arrange to have periodic investments made in the Company in amounts of $100 or
more ($1 for retirement accounts) through the CMA(R)/CBA(R) Automated Investment
Program.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will automatically be reinvested in additional shares of the
Company. Such reinvestment will be at the net asset value of the shares of the
Company as of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect to receive their income dividends or
capital gains distributions, or both, in cash, in which event payment will be
mailed or direct deposited on or about the payment date.
Shareholders may, at any time, notify the transfer agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or distributions reinvested in shares of the Company or vice versa, and
commencing ten days after receipt by the transfer agent of such notice, those
instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
Class A or Class D shares of the Company having a value, based upon cost or the
current offering price, of $5,000 or more and monthly withdrawals are available
for shareholders with Class A or Class D shares with such a value of $10,000 or
more.
At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's account to
provide the withdrawal payment specified by the shareholder. The shareholder may
specify either a dollar amount or a percentage of the value of his Class A or
Class D shares. Redemptions will be made at net asset value as determined as of
15 minutes after the close of business on the New York Stock Exchange (generally
4:00 P.M., New York time) on the 24th day of each month or the 24th day of the
last month of each quarter, whichever is applicable. If the Exchange is not open
for business on such date, the Class A or Class D shares will be redeemed at the
close of business on the next business day. The check for the withdrawal payment
will be mailed, or the direct deposit of the withdrawal payment will be made, on
the next business day following redemption. When a shareholder is making
systematic withdrawals,
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dividends and distributions on all Class A or Class D shares in the Investment
Account are reinvested automatically in Class A or Class D shares of the
Company, respectively. A shareholder's Systematic Withdrawal Plan may be
terminated at any time, without charge or penalty, by the shareholder, the
Company, the Company's transfer agent or the Distributor.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholder's original investment may be
correspondingly reduced. Purchase of additional Class A or Class D shares
concurrent with withdrawals are ordinarily disadvantageous to the shareholder
because of sales charges and tax liabilities. The Company will not knowingly
accept purchase orders for Class A or Class D shares of the Company from
investors who maintain a Systematic Withdrawal Plan unless such purchase is
equal to at least one year's scheduled withdrawals or $1,200, whichever is
greater. Periodic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.
A Class A or Class D shareholder whose shares are held within a CMA(R),
CBA(R) or Retirement Account may elect to have shares redeemed on a monthly,
bimonthly, quarterly, semiannual or annual basis through the Systematic
Redemption Program. The minimum fixed dollar amount redeemable is $25. The
proceeds of systematic redemptions will be posted to the shareholder's account
five business days after the date the shares are redeemed. Monthly systematic
redemptions will be made at net asset value on the first Monday of each month,
bimonthly systematic redemptions will be made at net asset value on the first
Monday of every other month, and quarterly, semiannual or annual redemptions are
made at net asset value on the first Monday of months selected at the
shareholder's option. If the first Monday of the month is a holiday, the
redemption will be processed at net asset value on the next business day. The
Systematic Redemption Program is not available if Company shares are being
purchased within the account pursuant to the Automatic Investment Program. For
more information on the Systematic Redemption Program, eligible shareholders
should contact their Merrill Lynch financial consultant.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Company have an exchange
privilege with certain other MLAM-advised mutual funds listed below. Under the
Merrill Lynch Select PricingSM System, Class A shareholders may exchange Class A
shares of the Company for Class A shares of a second MLAM-advised mutual fund if
the shareholder holds any Class A shares of the second fund in his account in
which the exchange is made at the time of the exchange or is otherwise eligible
to purchase Class A shares of the second fund. If the Class A shareholder wants
to exchange Class A shares for shares of a second MLAM-advised mutual fund, but
does not hold Class A shares of the second fund in his account at the time of
the exchange and is not otherwise eligible to acquire Class A shares of the
second fund, the shareholder will receive Class D shares of the second fund as a
result of the exchange. Class D shares also may be exchanged for Class A shares
of a second MLAM-advised mutual fund at any time as long as, at the time of the
exchange, the shareholder holds Class A shares of the second fund in the account
in which the exchange is made or is otherwise eligible to purchase Class A
shares of the second fund. Class B, Class C and Class D shares will be
exchangeable with shares of the same class of other MLAM-advised mutual funds.
For purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period for the previously owned
shares of the Company is "tacked" to the holding period of the newly acquired
shares of the other fund as more fully described below. Class A, Class B, Class
C and Class D shares also will be exchangeable for shares of certain
MLAM-advised money market funds specifically designated below as
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available for exchange by holders of Class A, Class B, Class C or Class D
shares. Shares with a net asset value of at least $100 are required to qualify
for the exchange privilege, and any shares utilized in an exchange must have
been held by the shareholder for at least 15 days. It is contemplated that the
exchange privilege may be applicable to other new mutual funds whose shares may
be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charge paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A and Class D shares of the Company generally may
be exchanged into the Class A or Class D shares of the other funds or into
shares of the Class A and Class D money market funds with a reduced or without a
sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, of another
MLAM-advised mutual fund ("new Class B or Class C shares") on the basis of
relative net asset value per Class B or Class C share, without the payment of
any CDSC that might otherwise be due on redemption of the outstanding shares.
Class B shareholders of the Company exercising the exchange privilege will
continue to be subject to the Company's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares acquired through use
of the exchange privilege. In addition, Class B shares of the Company acquired
through use of the exchange privilege will be subject to the Company's CDSC
schedule if such schedule is higher than the CDSC schedule relating to the Class
B shares of the fund from which the exchange has been made. For purposes of
computing the sales charge that may be payable on a disposition of the new Class
B or Class C shares, the holding period for the outstanding Class B or Class C
shares is "tacked" to the holding period of the new Class B or Class C shares.
For example, an investor may exchange Class B shares of the Company for those of
Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having held
the Company Class B shares for two and a half years. The 2% CDSC that generally
would apply to a redemption would not apply to the exchange. Three years later
the investor may decide to redeem the Class B shares of Special Value Fund and
receive cash. There will be no CDSC due on this redemption, since by "tacking"
the two and a half year holding period of Company Class B shares to the three
year holding period for the Special Value Fund Class B shares, the investor will
be deemed to have held the new Class B shares for more than five years.
The exchange privilege is modified with respect to certain retirement plans
which participate in the Merrill Lynch Mutual Fund Adviser ("MFA") program. Such
retirement plans may exchange Class B, Class C or Class D shares that have been
held for at least one year for Class A shares of the same fund on the basis of
relative net asset values in connection with the commencement of participation
in the MFA program, i.e., no CDSC will apply. The one year holding period does
not apply to shares acquired through reinvestment of dividends. Upon termination
of participation in the MFA program, Class A shares will be re-exchanged for
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the class of shares originally held. For purposes of computing any CDSC that may
be payable upon redemption of Class B or Class C shares so reacquired, or the
Conversion Period for Class B shares so reacquired, the holding period for the
Class A shares will be "tacked" to the holding period for the Class B or Class C
shares originally held.
Shareholders also may exchange shares of the Company into shares of a money
market fund advised by the Investment Adviser or its affiliates, but the period
of time that Class B or Class C shares are held in a money market fund will not
count towards satisfaction of the holding period requirement for purposes of
reducing the CDSC or with respect to Class B shares, towards satisfaction of the
conversion period. However, shares of a money market fund which were acquired as
a result of an exchange for Class B or Class C shares of the Company may, in
turn, be exchanged back into Class B or Class C shares, respectively, of any
fund offering such shares, in which event the holding period for Class B or
Class C shares of the Company will be aggregated with previous holding periods
for purposes of reducing the CDSC. Thus, for example, an investor may exchange
Class B shares of the Company for shares of Merrill Lynch Institutional Fund
("Institutional Fund") after having held the Company Class B shares for two and
a half years and three years later decide to redeem the shares of Institutional
Fund for cash. At the time of this redemption, the 2% CDSC that would have been
due had the Class B shares of the Company been redeemed for cash rather than
exchanged for shares of Institutional Fund will be payable. If instead of such
redemption the shareholder exchanged such shares for Class B shares of a fund
which the shareholder continued to hold for an additional two and a half years,
any subsequent redemption will not incur a CDSC.
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds Issuing Class A, Class B, Class C and Class D Shares:
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC. ...... High current income consistent with a policy of
limiting the degree of fluctuation in net asset
value by investing primarily in a portfolio of
adjustable rate securities, consisting
principally of mortgage-backed and asset-backed
securities.
MERRILL LYNCH AMERICAS INCOME
FUND, INC. ................. A high level of current income, consistent with
prudent investment risk, by investing primarily
in debt securities denominated in a currency of
a country located in the Western Hemisphere
(i.e., North and South America and the
surrounding waters).
MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
Arizona income taxes as is consistent with
prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade Arizona
Municipal Bonds.
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MERRILL LYNCH ARIZONA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Arizona income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH ARKANSAS
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Arkansas income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH ASSET GROWTH
FUND, INC. ................. High total investment return, consistent with
prudent risk, from investment in United States
and foreign equity, debt and money market
securities the combination of which will be
varied both with respect to types of securities
and markets in response to changing market and
economic trends.
MERRILL LYNCH ASSET INCOME
FUND, INC. ................. A high level of current income through
investment primarily in United States fixed
income securities.
MERRILL LYNCH BALANCED FUND
FOR INVESTMENT AND
RETIREMENT, INC............. As high a level of total investment return as
is consistent with reasonable risk by investing
in common stock and other types of securities,
including fixed income securities and
convertible securities.
MERRILL LYNCH BASIC VALUE
FUND, INC. ................. Capital appreciation and, secondarily, income
through investment in securities, primarily
equities, that are undervalued and therefore
represent basic investment value.
MERRILL LYNCH CALIFORNIA
INSURED MUNICIPAL BOND
FUND........................ A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, whose
objective is to provide 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 Series Trust, a
series fund, whose objective is to provide
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as high a level of income exempt from Federal
and California income taxes as is consistent
with prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade California
Municipal Bonds.
MERRILL LYNCH CALIFORNIA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and California
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH CAPITAL
FUND, INC. ................. The highest total investment return consistent
with prudent risk through a fully managed
investment policy utilizing equity, debt and
convertible securities.
MERRILL LYNCH COLORADO
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Colorado income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH CONNECTICUT
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Connecticut
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH CORPORATE BOND
FUND, INC. ................. Current income from three separate diversified
portfolios of fixed income securities.
MERRILL LYNCH DEVELOPING
CAPITAL MARKETS FUND,
INC. ....................... Long-term capital appreciation through
investments in securities, principally
equities, of issuers in countries having small
capital markets.
MERRILL LYNCH DRAGON
FUND, INC. ................. Capital appreciation primarily through
investment in equity and debt securities of
issuers domiciled in developing countries
located in Asia and the Pacific Basin, other
than Japan, Australia and New Zealand.
MERRILL LYNCH EUROFUND........ Capital appreciation primarily through
investment in equity securities of corporations
domiciled in Europe.
MERRILL LYNCH FEDERAL
SECURITIES TRUST............ High current return through investments in U.S.
Government and Government agency securities,
including GNMA mortgage-
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backed certificates and other mortgage-backed
Government securities.
MERRILL LYNCH FLORIDA
LIMITED MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal
income taxes as is consistent with prudent
investment management while serving to offer
shareholders the opportunity to own securities
exempt from Florida intangible personal
property taxes through investment in a
portfolio primarily of intermediate-term
investment grade Florida Municipal Bonds.
MERRILL LYNCH FLORIDA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal income taxes as is
consistent with prudent investment management,
while seeking to offer shareholders the
opportunity to own securities exempt from
Florida intangible personal property taxes.
MERRILL LYNCH FUND FOR
TOMORROW, INC. ............. Long-term growth through investment in a
portfolio of good quality securities, primarily
common stock, potentially positioned to benefit
from demographic and cultural changes as they
affect consumer markets.
MERRILL LYNCH FUNDAMENTAL
GROWTH FUND, INC. .......... Long-term growth 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 FUNDAMENTAL
VALUE PORTFOLIO
(available only for
exchanges by certain
individual retirement
accounts for which Merrill
Lynch acts as custodian).... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide capital appreciation and income
by investing in securities, with at least 65%
of the portfolio's assets being invested in
equities.
MERRILL LYNCH GLOBAL
ALLOCATION FUND, INC. ...... High total return, consistent with prudent
risk, through a fully managed investment policy
utilizing United States and foreign equity,
debt and money market securities, the
combination of which will be varied from time
to time both with respect to the
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types of securities and markets in response to
changing market and economic trends.
MERRILL LYNCH GLOBAL BOND
FUND FOR INVESTMENT AND
RETIREMENT.................. High total investment return from investment in
a global portfolio of debt instruments
denominated in various currencies and
multinational currency units.
MERRILL LYNCH GLOBAL
CONVERTIBLE FUND, INC. ..... High total return from investment primarily in
an internationally diversified portfolio of
convertible debt securities, convertible
preferred stock and "synthetic" convertible
securities consisting of a combination of debt
securities or preferred stock and warrants or
options.
MERRILL LYNCH GLOBAL
HOLDINGS, INC.
(residents of Arizona
must meet investor
suitability standards)...... The highest total investment return consistent
with prudent risk through worldwide investment
in an internationally diversified portfolio of
securities.
MERRILL LYNCH GLOBAL
OPPORTUNITY PORTFOLIO
(available only for
exchanges by certain
individual retirement
accounts for which
Merrill Lynch acts as
custodian).................. A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a high total investment return
through an investment policy utilizing United
States and foreign equity, debt and money
market securities, the combination of which
will vary depending upon changing market and
economic trends.
MERRILL LYNCH GLOBAL
RESOURCES TRUST............. Long-term growth and protection of capital from
investment in securities of foreign and
domestic companies that possess substantial
natural resource assets.
MERRILL LYNCH GLOBAL SMALLCAP
FUND, INC. ................. Long-term growth of capital by investing
primarily in equity securities of companies
with relatively small market capitalizations
located in various foreign countries and in the
United States.
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MERRILL LYNCH GLOBAL UTILITY
FUND, INC. ................. Capital appreciation and current income through
investment of at least 65% of its total assets
in equity and debt securities issued by
domestic and foreign companies which are
primarily engaged in ownership or operation of
facilities used to generate, transmit or
distribute electricity, telecommunications, gas
or water.
MERRILL LYNCH GROWTH FUND FOR
INVESTMENT AND RETIREMENT... Growth of capital and, secondarily, income from
investment in a diversified portfolio of equity
securities placing 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 issuers located in
countries other than the United States.
MERRILL LYNCH LATIN AMERICA
FUND, INC. ................. Capital appreciation by investing primarily in
Latin American equity and debt securities.
MERRILL LYNCH MARYLAND
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Maryland income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH MASSACHUSETTS
LIMITED MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
Massachusetts income taxes as is consistent
with prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade
Massachusetts Municipal Bonds.
MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Massachusetts
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH MICHIGAN LIMITED
MATURITY MUNICIPAL BOND
FUND........................ A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
Michigan
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income taxes as is consistent with prudent
investment management through investment in a
portfolio primarily of intermediate-term
investment grade Michigan Municipal Bonds.
MERRILL LYNCH MICHIGAN
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Michigan income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH MINNESOTA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Minnesota
personal income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MUNICIPAL BOND
FUND, INC. ................. Tax-exempt income from three separate
diversified portfolios of municipal bonds.
MERRILL LYNCH MUNICIPAL
INTERMEDIATE TERM FUND...... Currently the only portfolio of Merrill Lynch
Municipal Series Trust, a series fund, whose
objective is to provide as high a level as
possible of income exempt from Federal income
taxes by investing in investment grade
obligations with a dollar weighted average
maturity of five to twelve years.
MERRILL LYNCH NEW JERSEY
LIMITED MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
New Jersey income taxes as is consistent with
prudent investment management through a
portfolio primarily of intermediate-term
investment grade New Jersey Municipal Bonds.
MERRILL LYNCH NEW JERSEY
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and New Jersey
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH NEW MEXICO
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and New Mexico
income taxes as is consistent with prudent
investment management.
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MERRILL LYNCH NEW YORK
LIMITED MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal, New
York State and New York City income taxes as is
consistent with prudent investment management
through investment in a portfolio primarily of
intermediate-term investment grade New York
Municipal Bonds.
MERRILL LYNCH NEW YORK
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal, New York State and
New York City income taxes as is consistent
with prudent investment management.
MERRILL LYNCH NORTH CAROLINA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and North Carolina
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH OHIO MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Ohio income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH OREGON
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Oregon income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH PACIFIC
FUND, INC. ................. Capital appreciation by investing in equity
securities of corporations domiciled in Far
Eastern and Western Pacific countries,
including Japan, Australia, Hong Kong and
Singapore.
MERRILL LYNCH PENNSYLVANIA
LIMITED MATURITY MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal and
Pennsylvania income taxes as is consistent with
prudent investment management through
investment in a portfolio of intermediate-term
investment grade Pennsylvania Municipal Bonds.
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MERRILL LYNCH PENNSYLVANIA
MUNICIPAL BOND FUND......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Pennsylvania
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH PHOENIX
FUND, INC. ................. Long-term growth of capital by investing in
equity and fixed income securities, including
tax-exempt securities, of issuers in weak
financial condition or experiencing poor
operating results believed to be undervalued
relative to the current or prospective
condition of such issuer.
MERRILL LYNCH QUALITY
BOND PORTFOLIO
(available only for
exchanges by certain
individual retirement
accounts for which Merrill
Lynch acts as custodian).... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a high level of current income
through investment in a diversified portfolio
of debt obligations, such as corporate bonds
and notes, convertible securities, preferred
stocks and governmental obligations.
MERRILL LYNCH SHORT-TERM
GLOBAL INCOME FUND, INC. ... As high a level of current income as is
consistent with prudent investment management
from a global portfolio of high quality debt
securities denominated in various currencies
and multinational currency units and having
remaining maturities not exceeding three years.
MERRILL LYNCH SPECIAL VALUE
FUND, INC. ................. Long-term growth of capital from investments in
securities, primarily equities, of relatively
small companies believed to have special
investment value and emerging growth companies
regardless of size.
MERRILL LYNCH STRATEGIC
DIVIDEND FUND............... Long-term total return from investment in
dividend paying common stocks which yield more
than Standard & Poor's 500 Composite Stock
Price Index.
MERRILL LYNCH TECHNOLOGY
FUND, INC. ................. Capital appreciation through worldwide
investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in technology.
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MERRILL LYNCH TEXAS MUNICIPAL
BOND FUND................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal income taxes as is
consistent with prudent investment management
by investing primarily in a portfolio of
long-term, investment grade obligations issued
by the State of Texas, its political
subdivisions, agencies and instrumentalities.
MERRILL LYNCH U.S. GOVERNMENT
SECURITIES PORTFOLIO
(available only for
exchanges by certain
individual retirement
accounts for which Merrill
Lynch acts as custodian).... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a high current return through
investments in U.S. Government and government
agency securities, including GNMA
mortgage-backed certificates and other
mortgage-backed government securities.
MERRILL LYNCH UTILITY
INCOME FUND, INC. .......... High current income through investment in
equity and debt securities issued by companies
which are primarily engaged in the ownership or
operation of facilities used to generate,
transmit or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH WORLD INCOME
FUND, INC. ................. High current income by investing in a global
portfolio of fixed income securities
denominated in various currencies, including
multinational currencies.
Class A Share Money Market Funds:
MERRILL LYNCH READY ASSETS
TRUST....................... Preservation of capital, liquidity and the
highest possible current income consistent with
the foregoing objectives from the short-term
money market securities in which the Trust
invests.
MERRILL LYNCH RETIREMENT
RESERVES MONEY FUND
(available only for
exchanges within certain
retirement plans)........... Currently the only portfolio of Merrill Lynch
Retirement Series Trust, a series fund, whose
objectives are current income, preservation of
capital and liquidity available from investing
in a diversified portfolio of short-term money
market securities.
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MERRILL LYNCH U.S.A.
GOVERNMENT RESERVES......... Preservation of capital, current income and
liquidity available from investing in direct
obligations of the U.S. Government and
repurchase agreements relating to such
securities.
MERRILL LYNCH U.S. TREASURY
MONEY FUND.................. Preservation of capital, liquidity and current
income through investment exclusively in a
diversified portfolio of short-term marketable
securities which are direct obligations of the
U.S. Treasury.
Class B, Class C and Class D Share Money Market Funds:
MERRILL LYNCH GOVERNMENT
FUND........................ A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in securities issued
or guaranteed by the U.S. Government, its
agencies and instrumentalities and in
repurchase agreements secured by such
obligations.
MERRILL LYNCH INSTITUTIONAL
FUND........................ A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide maximum current income
consistent with liquidity and the maintenance
of a high-quality portfolio of money market
securities.
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND............. A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income exempt
from Federal income taxes, preservation of
capital and liquidity available from investing
in a diversified portfolio of short-term, high
quality municipal bonds.
MERRILL LYNCH TREASURY FUND... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in direct obligations
of the U.S. Treasury and up to 10% of its total
assets in repurchase agreements secured by such
obligations.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their
Merrill Lynch financial consultant, who will advise the 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
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the rules of the Commission. The Company reserves the right to limit the number
of times an investor may exercise the exchange privilege. Certain funds may
suspend the continuous offering of their shares at any time and thereafter may
resume such offering from time to time. The exchange privilege is available only
to U.S. shareholders in states where the exchange legally may be made.
TAXES
The Company intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, the Company (but not its
shareholders) will not be subject to Federal income tax on the part of its net
ordinary income and net realized capital gains which it distributes to Class A,
Class B, Class C and Class D shareholders (together, the "shareholders"). The
Company intends to distribute substantially all of such income.
Dividends paid by the Company from its ordinary income and distributions of
the Company's net realized short-term capital gains (together referred to
hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from the Company's net realized long-term
capital gains (including long-term gains from certain transactions in futures
and options) ("capital gain dividends") are taxable to shareholders as long-term
capital gains, regardless of the length of time the shareholder has owned
Company shares. Any loss upon the sale or exchange of Company shares held for
six months or less, however, will be treated as long-term capital loss to the
extent of any capital gain dividends received by the shareholder. Distributions
in excess of the Company's earnings and profits will first reduce the adjusted
tax basis of a holder's shares, and after such adjusted tax basis is reduced to
zero, will constitute capital gains to such holder (assuming the shares are held
as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Company. Not later than 60 days after the close of its
taxable year, the Company will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. A portion of the Company's ordinary income dividends may be eligible
for the dividends received deduction allowed to corporations under the Code, if
certain requirements are met. For this purpose, the Company will allocate
dividends eligible for the dividends received deduction among the Class A, Class
B, Class C and Class D shareholders according to a method (which it believes is
consistent with the Commission's exemptive order permitting the issuance and
sale of multiple classes of stock) that is based on the gross income allocable
to Class A, Class B, Class C and Class D shareholders during the taxable year,
or such other method as the Internal Revenue Service may prescribe. If the
Company pays a dividend in January which was declared in the previous October,
November or December to shareholders of record on a specified date in one of
such months, then such dividend will be treated for tax purposes as being paid
by the Company and received by its shareholders on December 31 of the year in
which such dividend was declared.
Ordinary income dividends paid by the Company to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% U.S. withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the U.S.
withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding").
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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 shares of such withholding taxes
in their U.S. income tax returns as gross income, treat such proportionate
shares as taxes paid by them and deduct such proportionate shares in computing
their taxable incomes or, alternatively, use them as foreign tax credits against
their U.S. income taxes. No deductions for foreign taxes, however, may be
claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign corporation may
be subject to U.S. withholding tax on the income resulting from the Company's
election described in this paragraph but may not be able to claim a credit or
deduction against such U.S. tax for the foreign taxes treated as having been
paid by such shareholder. The Company will report annually to its shareholders
the amount per share of such withholding taxes. For this purpose, the Company
will allocate foreign taxes and foreign source income among the Class A, Class
B, Class C and Class D shareholders according to a method similar to that
described above for the allocation of dividends eligible for the dividends
received deduction.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Company on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The 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,
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the Company will be liable for the tax only on the amount by which it does not
meet the foregoing distribution requirements.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Company may write, purchase or sell options, futures and forward
foreign exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year. Unless
such contract is a forward foreign exchange contract, or is a non-equity option
or a regulated futures contract for a non-U.S. currency for which the Company
elects to have gain or loss treated as ordinary gain or loss under Code Section
988 (as described below), gain or loss from Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss. The mark-to-market rules
outlined above, however, will not apply to certain transactions entered into by
the Company solely to reduce the risk of changes in price or interest or
currency exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The
Company may, nonetheless, elect to treat the gain or loss from certain forward
foreign exchange contracts as capital. In this case, gain or loss realized in
connection with a forward foreign exchange contract that is a Section 1256
contract will be characterized as 60% long-term and 40% short-term capital gain
or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Company's transactions in options, futures and forward foreign
exchange contracts. Under Section 1092, the Company may be required to postpone
recognition for tax purposes of losses incurred in certain closing transactions
in options, futures and forward foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Company's gross income be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the
Company may be restricted in effecting closing transactions within three months
after entering into an option 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 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
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under Code Section 1256 unless application of Section 988 is elected by the
Company. In general, however, 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 be able to make any ordinary income dividend
distributions, and any distributions made before the losses were realized but in
the same taxable year would be recharacterized as a return of capital to
shareholders, thereby reducing the basis of each shareholder's 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.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Company.
PERFORMANCE DATA
From time to time the Company may include its average annual total return
and other total return data in advertisements or information furnished to
present or prospective shareholders. Total return figures are based on the
Company's historical performance and are not intended to indicate future
performance. Average annual total return is determined separately for Class A,
Class B, Class C and Class D shares in accordance with a formula specified by
the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.
The Company also may quote annual, average annual and annualized total
return and aggregate total return performance data, both as a percentage and as
a dollar amount based on a hypothetical $1,000 investment for various periods
other than those noted below. Such data will be computed as described above,
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
45
<PAGE> 96
performance data calculations of including or excluding the maximum applicable
sales charges, actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates of return
reflect compounding of return; aggregate total return data generally will be
higher than average annual total return data since the aggregate rates of return
reflect compounding over longer periods of time.
Set forth in the tables below is total return information for the Class A,
Class B, Class C and Class D shares of the Company for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES*
-------------------------------------- --------------------------------------
REDEEMABLE REDEEMABLE
EXPRESSED VALUE OF A EXPRESSED VALUE OF A
AS A PERCENTAGE HYPOTHETICAL AS A PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 INVESTMENT BASED ON A $1,000 INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
---------------------------------- ------------------ ----------------- ------------------ -----------------
AVERAGE ANNUAL TOTAL RETURN
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
One Year Ended April 30, 1995..... 0.88 % $1,008.80 1.38 % $1,013.80
Five Years Ended April 30, 1995... 7.42 % $1,430.40 7.45 % $1,432.00
Ten Years Ended April 30, 1995.... 10.13 % $2,623.90
Inception (October 21, 1988) to
April 30, 1995.................. 7.48 % $1,600.80
ANNUAL TOTAL RETURN
(excluding maximum applicable sales charges)
Year Ended April 30,
1995............................ 6.47 % $1,064.70 5.29 % $1,052.90
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
Inception (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, 1995.................. 162.39 % $2,623.90
Inception (October 21, 1988) to
April 30, 1995.................. 60.08 % $1,600.80
(Table continued on the following page)
</TABLE>
46
<PAGE> 97
<TABLE>
<CAPTION>
CLASS C SHARES** CLASS D SHARES**
-------------------------------------- --------------------------------------
REDEEMABLE REDEEMABLE
EXPRESSED VALUE OF A EXPRESSED VALUE OF A
AS A PERCENTAGE HYPOTHETICAL AS A PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 INVESTMENT BASED ON A $1,000 INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
---------------------------------- ------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(including maximum applicable sales charges)
Inception (October 21, 1994) to
April 30, 1995.................. 7.57 % $1,038.90 (4.46)% $ 976.40
ANNUAL TOTAL RETURN
(excluding maximum applicable sales charges)
Inception (October 21, 1994) to
April 30, 1995.................. 4.89 % $1,048.90 3.05 % $1,030.50
AGGREGATE TOTAL RETURN
(including maximum applicable sales charges)
Inception (October 21, 1994) to
April 30, 1995.................. 3.89 % $1,038.90 (2.36)% $ 976.40
</TABLE>
---------------
* Information as to Class B shares is presented only for the period October 21,
1988 to April 30, 1995. Prior to October 21, 1988, no Class B shares were
publicly issued.
** Information as to Class C and Class D shares is presented for the period
October 21, 1994 to April 30, 1995. Prior to October 21, 1994, no Class C or
Class D shares were publicly issued.
In order to reflect the reduced sales charges, in the case of Class A or
Class D shares or the waiver of the CDSC in the case of Class B or Class C
shares, applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares", respectively, the total return data quoted by the
Company in advertisements directed to such investors may take into account a
reduced, and not the maximum, sales charge or may not take into account the CDSC
and therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of sales charges, a lower amount of expenses may be
deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Company, previously known as Sci/Tech Holdings, Inc., was incorporated
under Maryland law on October 29, 1982. At the date of this Statement of
Additional Information, the Company has an authorized capital of 400,000,000
shares of Common Stock, par value of $0.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D Common Stock, each of which
consists of 100,000,000 shares. Each share of Class A, Class B, Class C and
Class D Common Stock represents an interest in the same assets of the Company
and is identical in all respects except that the Class B, Class C and Class D
shares bear certain expenses related to the account maintenance and/or
distribution of such shares and have exclusive voting rights with respect to
matters relating to such account maintenance and/or distribution expenditures.
The Company has received an order from the Commission permitting the issuance
and sale of
47
<PAGE> 98
multiple classes of Common Stock. The Board of Directors of the Company may
classify and reclassify the shares of the Company into additional classes of
Common Stock at a future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Company does not intend to
hold meetings of shareholders in any year in which the Investment Company Act
does not require shareholders to act upon any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent auditors. Generally, under Maryland law, a meeting of shareholders
may be called for any purpose on the written request of the holders of at least
25% of the outstanding shares of the Company. Voting rights for Directors are
not cumulative. Shares issued are fully paid and nonassessable and have no
preemptive rights. Redemption and conversion rights are discussed elsewhere
herein and in the Prospectus. Each share is entitled to participate equally in
dividends and distributions declared by the Company and in the net assets of the
Company upon liquidation or dissolution after satisfaction of outstanding
liabilities. Stock certificates are issued by the transfer agent only on
specific request. Certificates for fractional shares are not issued in any case.
Shareholders may cause a meeting of shareholders to be held for the purpose of
voting on the removal of Directors at the request of 25% of the outstanding
shares of the Company. A Director may be removed at a special meeting of
shareholders by a vote of a majority of the votes entitled to be cast for the
election of Directors.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of the Company based on the value of the Company's
net assets on April 30, 1995, and its shares outstanding on that date is set
forth below. Information is not provided for Class C or Class D shares since no
Class C or Class D shares were publicly offered prior to the date of this
Statement of Additional Information.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net Assets.................................... $69,649,556 $79,485,054 $1,816,306 $4,386,154
========== ========== ========= =========
Number of Shares Outstanding.................. 18,269,048 23,164,140 528,991 1,178,045
========== ========== ========= =========
Net Asset Value per Share (net assets divided
by number of shares outstanding)............ $3.81 $3.43 $3.43 $3.72
Sales Charge (Class A and Class D shares:
5.25% of offering price; 5.54% of net asset
value)*..................................... .21 ** ** .21
----- ----- ----- -----
Offering Price................................ $4.02 $3.43 $3.43 $3.93
===== ===== ===== =====
</TABLE>
---------------
*Rounded to the nearest one-hundredth percent; assumes the maximum sales charge
is applicable.
**Class B and Class C shares are not subject to an initial sales charge but may
be subject to a CDSC upon redemption. See "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares" in the Prospectus and
"Redemption of Shares--Deferred Sales Charges--Class B and Class C Shares"
herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Company. The selection of
independent auditors is subject to approval by the independent Directors of the
Company. The independent auditors are responsible for auditing the annual
financial statements of the Company.
48
<PAGE> 99
CUSTODIAN
The Chase Manhattan Bank, N.A., 4 Chase MetroTech Center, 18th Floor,
Global Securities Services, Brooklyn, New York 11245 (the "Custodian"), acts as
the custodian of the Company's assets. Under its contract with the Company, the
Custodian is authorized to establish separate accounts in foreign currencies and
to cause foreign securities owned by the Company to be held in its offices
outside the United States and with certain foreign banks and securities
depositories. The Custodian is responsible for safeguarding and controlling the
Company's cash and securities, handling the receipt and delivery of securities
and collecting interest and dividends on the Company's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 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.
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 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, 1995.
49
<PAGE> 100
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, 1995, 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, 1995 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, 1995, 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, 1995
50
<PAGE> 101
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
NORTH Value Percent of
AMERICA Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United States Biotechnology 50,000 ++Amgen, Inc. $ 2,987,500 $ 3,631,250 2.3%
120,000 ++BioCryst Pharmaceuticals, Inc. 780,000 735,000 0.5
------------ ------------ ------
3,767,500 4,366,250 2.8
Diagnostics 5,000 Diagnostic Products Corp. 180,350 193,750 0.1
560,000 ++Meris Laboratories, Inc. (a) 4,722,934 2,520,000 1.6
100,000 ++Sangstat Medical Corp. 700,000 575,000 0.4
------------ ------------ ------
5,603,284 3,288,750 2.1
Health Care Cost 100,000 Columbia/HCA Healthcare Corporation 4,308,800 4,200,000 2.7
Containment 135,000 ++Homedco Group, Inc. 7,146,878 7,661,250 4.9
140,000 ++Inphynet Medical Management, Inc. 2,251,749 2,240,000 1.4
125,000 ++Mariner Health Group, Inc. 2,312,500 1,796,875 1.2
30,000 ++Medaphis Corp. 410,500 1,702,500 1.1
100,000 ++OrNda Healthcorp. 1,643,125 1,737,500 1.1
55,000 ++Pyxis Corporation 1,278,127 1,093,125 0.7
30,000 ++Summit Care Corp. 597,400 600,000 0.4
------------ ------------ ------
19,949,079 21,031,250 13.5
Medical Specialties 50,000 Baxter International, Inc. 1,405,340 1,737,500 1.1
25,000 Becton, Dickinson & Company 1,287,750 1,393,750 0.9
100,000 ++Boston Scientific Corp. 2,690,663 2,725,000 1.8
160,000 Collagen Corporation 3,375,628 3,040,000 2.0
600,000 ++EP Technologies, Inc. (a) 4,317,502 5,625,000 3.6
78,900 ++Fresenius USA Inc. 550,530 808,725 0.5
125,000 Medtronic, Inc. 4,792,250 9,296,875 6.0
100,000 ++Ostex International, Inc. 950,000 875,000 0.6
230,000 Puritan-Bennett Corp. 5,335,624 5,635,000 3.6
219,467 ++Uromed Corp.++++ 1,000,005 1,381,270 0.9
------------ ------------ ------
25,705,292 32,518,120 21.0
Pharmaceutical-- 100,000 Abbott Laboratories 3,346,810 3,937,500 2.5
Diversified 60,000 American Home Products Corporation 4,024,225 4,627,500 3.0
180,000 IVAX Corp. 5,022,511 4,657,500 3.0
65,000 Johnson & Johnson Co. 3,885,050 4,225,000 2.7
37,100 Warner-Lambert Co. 2,877,254 2,958,725 1.9
------------ ------------ ------
19,155,850 20,406,225 13.1
Pharmaceutical-- 30,000 Lilly (Eli) & Co. 1,678,050 2,242,500 1.4
Prescription 130,000 Merck & Co., Inc. 5,006,554 5,573,750 3.6
50,000 Pfizer, Inc. 3,943,000 4,331,250 2.8
10,000 Schering-Plough Corp. 639,978 753,750 0.5
------------ ------------ ------
11,267,582 12,901,250 8.3
Investments in the United States 85,448,587 94,511,845 60.8
Total Investments in North America 85,448,587 94,511,845 60.8
</TABLE>
51
<PAGE> 102
<TABLE>
<S> <S> <C> <S> <C> <C> <C>
PACIFIC
BASIN
India Pharmaceutical-- 150,000 Ranbaxy Laboratories Ltd. (GDR)* 2,987,300 3,300,000 2.1
Prescription
Investments in India 2,987,300 3,300,000 2.1
Total Investments in the Pacific Basin 2,987,300 3,300,000 2.1
WESTERN
EUROPE
Denmark Pharmaceutical-- 17,000 Novo Nordisk A/S 1,754,411 1,755,707 1.1
Diversified
Investments in Denmark 1,754,411 1,755,707 1.1
Ireland Pharmaceutical-- 164,500 ++Elan Corporation PLC (ADR)** 5,819,813 5,819,187 3.7
Diversified
Investments in Ireland 5,819,813 5,819,187 3.7
Netherlands Pharmaceutical-- 60,000 AKZO N.V. 6,964,667 6,973,140 4.5
Prescription
Investments in the Netherlands 6,964,667 6,973,140 4.5
Sweden Medical Specialties 80,000 ++Elekta Instrument AB 'B' Free 1,571,372 2,002,118 1.3
Pharmaceutical-- 50,000 Astra AB 'B' Free 1,350,276 1,423,209 0.9
Prescription 100,000 Pharmacia Biotech AB (Class B) 1,670,411 1,883,861 1.2
------------ ------------ ------
3,020,687 3,307,070 2.1
Investments in Sweden 4,592,059 5,309,188 3.4
Switzerland Pharmaceutical-- 10,000 Ciba-Geigy AG (Registered) 6,681,526 6,859,143 4.4
Diversified 500 Roche Holdings AG 2,378,214 3,011,811 1.9
Investments in Switzerland 9,059,740 9,870,954 6.3
United Kingdom Pharmaceutical-- 20,000 SmithKline Beecham Corp. PLC (ADR)** 710,950 777,500 0.5
Diversified
Pharmaceutical-- 150,000 Glaxo PLC 3,434,125 3,543,750 2.3
Prescription 60,000 Zeneca Group PLC 876,094 872,781 0.6
------------ ------------ ------
4,310,219 4,416,531 2.9
Investments in the United Kingdom 5,021,169 5,194,031 3.4
Total Investments in Western Europe 33,211,859 34,922,207 22.4
<CAPTION>
SHORT-TERM Face
SECURITIES Amount
<S> <C> <S> <C> <C> <C>
Commercial 6,714,000 Associates Corp. of North America,
Paper*** 5.90% due 5/01/1995 6,711,799 6,711,799 4.3
Matterhorn Capital Corp.:
1,397,000 5.98% due 5/16/1995 1,393,055 1,393,055 0.9
4,000,000 5.95% due 5/26/1995 3,982,150 3,982,150 2.6
------------ ------------ ------
12,087,004 12,087,004 7.8
</TABLE>
52
<PAGE> 103
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
SHORT-TERM
SECURITIES Face Value Percent of
(concluded) Amount Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
US Government & Federal Farm Credit Bank:
Agency $ 3,000,000 5.94% due 5/04/1995 $ 2,997,525 $ 2,997,525 1.9%
Obligations*** 11,000,000 5.86% due 5/24/1995 10,955,236 10,955,236 7.1
4,000,000 5.85% due 6/02/1995 3,977,900 3,977,900 2.6
2,000,000 Federal Home Loan Bank, 5.89%
due 5/22/1995 1,992,474 1,992,474 1.3
2,000,000 Federal National Mortgage Association,
5.86% due 5/09/1995 1,996,745 1,996,745 1.3
------------ ------------ ------
21,919,880 21,919,880 14.2
Total Investments in Short-Term
Securities 34,006,884 34,006,884 22.0
Total Investments $155,654,630 166,740,936 107.3
============
Liabilities in Excess of Other Assets (11,403,866) (7.3)
------------ ------
Net Assets $155,337,070 100.0%
============ ======
<FN>
*Global Depositary Receipt (GDR).
**American Depositary Receipt (ADR).
***Commercial Paper and certain US Government & Agency Obligations are traded
on a discount basis; the interest rates shown are the discount rates paid
at the time of purchase by the Company.
(a)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 Meris Laboratories, Inc. 110,000 $400,140 --
Medical EP Technologies Inc. 70,000 670,000 --
Specialties
++Non-income producing security.
++++Restricted securities as to resale. The value of the Company's investment in
restricted securities was approximately $1,381,270, representing 0.9% of
net assets.
<CAPTION>
Acquisition Value
Issue Date Cost (Note 1a)
<S> <C> <C> <C>
Uromed Corp., Inc. 9/15/93 $1,000,005 $1,381,270
Total $1,000,005 $1,381,270
See Notes to Financial Statements.
</TABLE>
53
<PAGE> 104
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of April 30, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$155,654,630) (Note 1a) $166,740,936
Cash 4,406,479
Receivables:
Securities sold $ 2,877,187
Capital shares sold 667,091
Dividends 58,556 3,602,834
------------
Prepaid registration fees and other assets (Note 1f) 44,321
------------
Total assets 174,794,570
------------
Liabilities: Payables:
Securities purchased 18,484,055
Capital shares redeemed 648,652
Investment adviser (Note 2) 115,737
Distributor (Note 2) 60,405 19,308,849
------------
Accrued expenses and other liabilities 148,651
------------
Total liabilities 19,457,500
------------
Net Assets: Net assets $155,337,070
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized $ 1,826,905
Consist of: Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 2,316,414
Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 52,899
Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 117,805
Paid-in capital in excess of par 140,796,894
Accumulated realized capital losses on investments and foreign currency transactions--net (875,322)
Unrealized appreciation on investments and foreign currency transactions--net 11,101,475
------------
Net assets $155,337,070
============
Net Asset Class A--Based on net assets of $69,649,556 and 18,269,048 shares outstanding $ 3.81
Value: ============
Class B--Based on net assets of $79,485,054 and 23,164,140 shares outstanding $ 3.43
============
Class C--Based on net assets of $1,816,306 and 528,991 shares outstanding $ 3.43
============
Class D--Based on net assets of $4,386,154 and 1,178,045 shares outstanding $ 3.72
============
See Notes to Financial Statements.
</TABLE>
54
<PAGE> 105
<TABLE>
STATEMENT OF OPERATIONS
For the Year Ended April 30, 1995
<S> <S> <C> <C>
Investment Interest and discount earned $ 1,042,753
Income Dividends (net of $34,511 foreign withholding tax) 1,031,286
(Notes 1d & ------------
& 1e): Total income 2,074,039
------------
Expenses: Investment advisory fees (Note 2) $ 1,323,449
Distribution fees--Class B (Note 2) 651,774
Transfer agent fees--Class B (Note 2) 272,220
Transfer agent fees--Class A (Note 2) 243,845
Printing and shareholder reports 202,767
Accounting services (Note 2) 108,303
Professional fees 99,512
Registration fees (Note 1f) 86,759
Custodian fees 43,890
Directors' fees and expenses 19,959
Transfer agent fees--Class D (Note 2) 5,283
Distribution fees--Class C (Note 2) 3,005
Account maintenance fees--Class D (Note 2) 2,385
Transfer agent fees--Class C (Note 2) 1,875
Pricing fees 1,529
Other 7,837
------------
Total expenses 3,074,392
------------
Investment loss--net (1,000,353)
------------
Realized & Realized loss from:
Unrealized Investments--net (819,447)
Gain (Loss) on Foreign currency transactions--net (108) (819,555)
Investments & ------------
Foreign Change in unrealized appreciation/depreciation on:
Currency Investments--net 9,758,139
Transactions Foreign currency transactions--net 17,137 9,775,276
--Net (Notes ------------ ------------
1b, 1c, 1e Net realized and unrealized gain on investments and foreign currency transactions 8,955,721
& 3): ------------
Net Increase in Net Assets Resulting from Operations $ 7,955,368
============
See Notes to Financial Statements.
</TABLE>
55
<PAGE> 106
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended April 30,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment loss--net $ (1,000,353) $ (1,106,018)
Realized gain (loss) on investments and foreign currency transactions--net (819,555) 13,090,689
Change in unrealized appreciation/depreciation on investments and foreign currency
transactions--net 9,775,276 (4,130,488)
------------ ------------
Net increase in net assets resulting from operations 7,955,368 7,854,183
------------ ------------
Dividends & Investment income--net:
Distributions Class A -- (236,233)
to Realized gain on investments--net:
Shareholders Class A (4,761,771) --
(Note 1g): Class B (4,901,206) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions to shareholders (9,662,977) (236,233)
------------ ------------
Capital Net increase in net assets derived from capital share transactions 22,599,545 30,228,261
Share ------------ ------------
Transactions
(Note 4):
Net Assets: Total increase in net assets 20,891,936 37,846,211
Beginning of year 134,445,134 96,598,923
------------ ------------
End of year $155,337,070 $134,445,134
============ ============
See Notes to Financial Statements.
</TABLE>
56
<PAGE> 107
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
For the For the
The following per share data and ratios Five-Month For the Eight-Month For the
have been derived from information provided Period Year Period Year
in the financial statements. For the Year Ended Ended Ended Ended
Ended April 30, April 30, Nov. 30, Nov. 30, March 31,
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1993 1992 1991 1990 1990
<S> <S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 3.87 $ 3.59 $ 3.63 $ 9.19 $ 7.94 $ 9.13 $ 9.61
Operating -------- -------- -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.01) (.02) .02 -- .03 .05 .05
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .22 .31 (.06) .88 2.08 (.75) .96
-------- -------- -------- -------- -------- -------- --------
Total from investment operations .21 .29 (.04) .88 2.11 (.70) 1.01
-------- -------- -------- -------- -------- -------- --------
Less dividends and distributions:
Return of capital--net -- -- -- (3.97) -- -- --
Investment income--net -- (.01) -- -- (.03) (.08) (.07)
Realized gain on investments--net (.27) -- -- (2.47) (.83) (.41) (1.42)
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions (.27) (.01) -- (6.44) (.86) (.49) (1.49)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 3.81 $ 3.87 $ 3.59 $ 3.63 $ 9.19 $ 7.94 $ 9.13
======== ======== ======== ======== ======== ======== ========
Total Based on net asset value per share 6.47% 8.19% (1.10%) 10.96%+++ 29.44% (8.75%)+++ 11.36%
Investment ======== ======== ======== ======== ======== ======== ========
Return:**
Ratios to Expenses, net of reimbursement 1.79% 1.55% 1.85% 1.56%* 1.61% 1.77%* 1.55%
Average ======== ======== ======== ======== ======== ======== ========
Net Assets: Expenses 1.79% 1.55% 1.85% 1.56%* 1.61% 1.77%* 1.61%
======== ======== ======== ======== ======== ======== ========
Investment income (loss)--net (.21%) (.48%) .48% (.16%)* .27% .62%* .78%
======== ======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 69,650 $ 70,753 $ 63,528 $ 61,132 $125,979 $114,852 $140,635
Data: ======== ======== ======== ======== ======== ======== ========
Portfolio turnover 196.91% 133.58% 103.06% 147.63% 206.29% 159.11% 122.57%
======== ======== ======== ======== ======== ======== ========
<CAPTION>
Class B
For the For the
The following per share data and ratios Five-Month For the Eight-Month For the
have been derived from information provided Period Year Period Year
in the financial statements. For the Year Ended Ended Ended Ended
Ended April 30, April 30, Nov. 30, Nov. 30, March 31,
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1993++ 1992++ 1991 1990 1990++
<S> <S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 3.55 $ 3.31 $ 3.38 $ 9.01 $ 7.84 $ 9.05 $ 9.57
Operating -------- -------- -------- -------- -------- -------- --------
Performance: Investment loss--net (.04) (.05) (.01) (.02) (.03) (.01) (.06)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .19 .29 (.06) .83 2.03 (.75) .97
-------- -------- -------- -------- -------- -------- --------
Total from investment operations .15 .24 (.07) .81 2.00 (.76) .91
-------- -------- -------- -------- -------- -------- --------
Less dividends and distributions:
Return of capital--net -- -- -- (3.97) -- -- --
Investment income--net -- -- -- -- -- (.04) (.01)
Realized gain on investments--net (.27) -- -- (2.47) (.83) (.41) (1.42)
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions (.27) -- -- (6.44) (.83) (.45) (1.43)
-------- -------- -------- -------- -------- -------- --------
</TABLE>
57
<PAGE> 108
<TABLE>
<CAPTION>
Total
Investment
Return:**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, end of period $ 3.43 $ 3.55 $ 3.31 $ 3.38 $ 9.01 $ 7.84 $ 9.05
======== ======== ======== ======== ======== ======== ========
Based on net asset value per share 5.29% 7.25% (2.07%) 10.26%+++ 28.30% (9.37%)+++ 10.23%
======== ======== ======== ======== ======== ======== ========
Ratios to Expenses, excluding distribution fees and
Average net of reimbursement 1.85% 1.56% 1.89% 1.58%* 1.63% 1.82%* 1.60%
Net Assets: ======== ======== ======== ======== ======== ======== ========
Expenses, net of reimbursement 2.85% 2.56% 2.89% 2.58%* 2.63% 2.82%* 2.60%
======== ======== ======== ======== ======== ======== ========
Expenses 2.85% 2.56% 2.89% 2.58%* 2.63% 2.82%* 2.68%
======== ======== ======== ======== ======== ======== ========
Investment loss--net (1.29%) (1.52%) (.41%) (1.02%)* (.79%) (.36%)* (.31%)
======== ======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 79,485 $ 63,692 $ 33,071 $ 5,356 $ 6,007 $ 3,222 $ 2,412
Data: ======== ======== ======== ======== ======== ======== ========
Portfolio turnover 196.91% 133.58% 103.06% 147.63% 206.29% 159.11% 122.57%
======== ======== ======== ======== ======== ======== ========
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++++ to
April 30, 1995++
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 3.27 $ 3.61
Operating -------- --------
Performance: Investment loss--net (.04) (.02)
Realized and unrealized gain on investments and foreign currency transactions--net .20 .13
-------- --------
Total from investment operations .16 .11
-------- --------
Net asset value, end of period $ 3.43 $ 3.72
======== ========
Total Based on net asset value per share 4.89%+++ 3.05%+++
Investment ======== ========
Return:**
Ratios to Expenses, excluding account maintenance and distribution fees 2.28%* 2.19%*
Average ======== ========
Net Assets: Expenses 3.28%* 2.44%*
======== ========
Investment loss--net (2.13%)* (1.23%)*
======== ========
Supplemental Net assets, end of period (in thousands) $ 1,816 $ 4,386
Data: ======== ========
Portfolio turnover 196.91% 196.91%
======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Calculation is based on average number of shares outstanding during the period.
++++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
58
<PAGE> 109
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 management investment company. The Company offers
four classes of shares under the Merrill Lynch Select Pricing SM
System. Shares of Class A and Class D are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and
Class D Shares bear certain expenses related to the account
maintenance of such shares, and Class B and Class C Shares also
bear certain expenses related to the distribution of such shares.
Each class has exclusive voting rights with respect to matters
relating to its account maintenance and distribution expenditures.
The following is a summary of significant accounting policies
followed by the Company.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business
on the day the securities are being valued or, lacking any sales,
at the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior
to the time of valuation. In cases where securities are traded
on more than one exchange, the securities are valued on the
exchange designated by or under the authority of the Board of
Directors as the primary market. Securities which are traded both
in the over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market. Options
written are valued at the last sale price in the case of exchange-
traded options or, in the case of options traded in the over-the-
counter market, the last asked price. Options purchased are valued
at the last sale price in the case of exchange-traded options or,
in the case of options traded in the over-the-counter market, the
last bid price. Short-term securities are valued at amortized cost,
which approximates market value. Other investments, including
futures contracts and related options, are stated at market value.
Securities and assets for which market value quotations are not
available are valued at their fair value as determined in good faith
by or under the direction of the Company's Board of Directors.
(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 or 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.
(c) Derivative financial instruments--The Company may engage
in various portfolio strategies to seek to increase its return by
hedging its portfolio against adverse movements in the equity, debt
and currency markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform
under the contract.
* Financial futures contracts--The Company may purchase or sell
interest rate futures contracts and options on such futures con-
tracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific future
date and at a specific price or yield. Upon entering into a contract,
the Company deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Company agrees to receive
from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Company as
unrealized gains or losses. When the contract is closed, the
Company records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and
the value at the time it was closed.
* Options--The Company is authorized to write covered call options
and purchase put options. When the Company writes an option,
an amount equal to the premium received by the Company is
reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current
market value of the option written. When a security is purchased
or sold through an exercise of an option, the related premium paid
(or received) is added to (or deducted from) the basis of the
security acquired or deducted from (or added to) the proceeds of
the security sold. When an option expires (or the Company enters
into a closing transaction), the Company realizes a gain or loss on
the option to the extent of the premiums received or paid (or gain
or loss to the extent the cost of the closing transaction exceeds
the premium paid or received).
Written and purchased options are non-income producing
investments.
59
<PAGE> 110
* Forward foreign exchange contracts--The Company is author-
ized 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.
* Foreign currency options and futures--The Company may also
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 varia-
tions in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-US 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.
(d) 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.
(e) 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
Fund is informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid
by the Company are recorded on the ex-dividend dates.
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"). The general
partner of MLAM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with Merrill Lynch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
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. 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 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 the distribution plans (the "Distribution Plans")
adopted by the Company in accordance with Rule 12b-1 under
the Investment Company Act of 1940, the Company pays the
Distributor ongoing account maintenance and distribution fees.
The fees are accrued daily and paid monthly at annual rates based
upon the average daily net assets of the shares as follows:
Account
Maintenance Fee Distribution Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to
the Company. The ongoing account maintenance fee compensates
the Distributor and MLPF&S for providing account maintenance
services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for
providing shareholder and distribution-related services to Class B
and Class C shareholders.
60
<PAGE> 111
NOTES TO FINANCIAL STATEMENTS (concluded)
For the year ended April 30, 1995, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Company's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $4,857 $81,092
Class D $1,835 $25,102
For the six months ended April 30, 1995, MLPF&S received
contingent deferred sales charges of $209,909 and $151 relating
to transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $116,455 in commissions on the
execution of portfolio security transactions for the Company for
the year ended April 30, 1995.
Merrill Lynch Financial Data Services, Inc. ("FDS"), a wholly-
owned subsidiary of ML & Co., is the Company's transfer agent.
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 MLAM, MLPF&S, PSI, FDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the year ended April 30, 1995 were $255,464,208
and $224,601,899, respectively.
Net realized and unrealized gains (losses) as of April 30, 1995
were as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (815,218) $ 11,086,306
Short-term investments (4,229) --
Foreign currency transactions (108) 15,169
----------- ------------
Total $ (819,555) $ 11,101,475
=========== ============
As of April 30, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $11,085,681, of which $15,059,369
related to appreciated securities and $3,973,688 related to
depreciated securities. The aggregate cost of investments at
April 30, 1995 for Federal income tax purposes was $155,655,255.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $22,599,545 and $30,228,261 for the years ended April 30, 1995
and April 30, 1994, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended April 30, 1995 Shares Amount
Shares sold 5,713,906 $ 20,654,552
Shares issued to shareholders in
reinvestment of distributions 1,236,169 4,042,270
----------- ------------
Total issued 6,950,075 24,696,822
Shares redeemed (6,956,106) (25,023,035)
----------- ------------
Net decrease (6,031) $ (326,213)
=========== ============
Class A Shares for the Year Dollar
Ended 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 B Shares for the Year Dollar
Ended April 30, 1995 Shares Amount
Shares sold 14,768,466 $ 48,509,782
Shares issued to shareholders in
reinvestment of distributions 1,486,559 4,415,081
----------- ------------
Total issued 16,255,025 52,924,863
Automatic conversion of shares (334,825) (1,098,987)
Shares redeemed (10,719,834) (34,866,393)
----------- ------------
Net increase 5,200,366 $ 16,959,483
=========== ============
Class B Shares for the Year Dollar
Ended April 30, 1994 Shares Amount
Shares sold 13,579,944 $ 48,115,789
Shares redeemed (5,621,030) (19,891,238)
----------- ------------
Net increase 7,958,914 $ 28,224,551
=========== ============
Class C Shares for the Period Dollar
Oct. 21, 1994++ to April 30, 1995 Shares Amount
Shares sold 584,554 $ 1,949,867
Shares redeemed (55,563) (184,106)
----------- ------------
Net increase 528,991 $ 1,765,761
=========== ============
[FN]
++Commencement of Operations.
61
<PAGE> 112
Class D Shares for the Period Dollar
Oct. 21, 1994++ to April 30, 1995 Shares Amount
Shares sold 1,239,834 $ 4,397,052
Automatic conversion of shares 309,359 1,098,987
----------- ------------
Total issued 1,549,193 5,496,039
Shares redeemed (371,148) (1,295,525)
----------- ------------
Net increase 1,178,045 $ 4,200,514
=========== ============
[FN]
++Commencement of Operations.
5. Commitments:
At April 30, 1995, the Company had entered into forward foreign
exchange contracts under which it had agreed to buy various foreign
currencies with an approximate value of $12,351,000.
6. Capital Loss Carryforward:
At April 30, 1995, the Company had a capital loss carryforward
of approximately $819,000 all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable gains.
62
<PAGE> 113
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
Compensation of Directors............. 12
Advisory and Management
Arrangements........................ 13
Purchase of Shares...................... 14
Initial Sales Charge Alternatives--
Class A and Class D Shares.......... 15
Reduced Initial Sales Charges......... 16
Distribution Plans.................... 20
Limitations on the Payment of Deferred
Sales Charges....................... 21
Redemption of Shares.................... 22
Deferred Sales Charges--Class B and
Class C Shares...................... 23
Portfolio Transactions and Brokerage.... 24
Determination of Net Asset Value........ 25
Shareholder Services.................... 27
Investment Account.................... 27
Automatic Investment Plans............ 28
Reinvestment of Dividends and Capital
Gains Distributions................. 28
Systematic Withdrawal Plans--
Class A and Class D Shares.......... 28
Exchange Privilege.................... 29
Taxes................................... 42
Tax Treatment of Options, Futures
and Forward Foreign Exchange
Transactions........................ 44
Special Rules for Certain Foreign
Currency Transactions............... 44
Performance Data........................ 45
General Information..................... 47
Description of Shares................. 47
Computation of Offering Price
Per Share........................... 48
Independent Auditors.................. 48
Custodian............................. 49
Transfer Agent........................ 49
Legal Counsel......................... 49
Reports to Shareholders............... 49
Additional Information................ 49
Security Ownership of Certain
Beneficial Owners................... 49
Independent Auditors' Report............ 50
Financial Statements.................... 51
Code #10255-0895
</TABLE>
[Logo]
Merrill Lynch
Healthcare Fund, Inc.
STATEMENT OF
ADDITIONAL
INFORMATION
August 24, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE> 114
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission File due to ASCII-incompatibility and
cross-references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull.
<PAGE> 115
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, 1995, 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 five-year period ended March 31, 1990.
Contained in Part B:
Schedule of Investments as of April 30, 1995.
Statement of Assets and Liabilities as of April 30, 1995.
Statement of Operations for the year ended April 30, 1995.
Statements of Changes in Net Assets for the years ended April 30,
1995 and 1994.
Financial Highlights for the years ended April 30, 1995, 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
------ -----------
<S> <C>
1(a) -- Articles of Incorporation of Registrant, dated October 28, 1982.(a)
(b) -- Articles of Amendment to Articles of Incorporation of Registrant dated November
29, 1982.(a)
(c) -- Articles of Amendment to Articles of Incorporation of Registrant dated October
3, 1988.(a)
(d) -- Articles of Amendment to Articles of Incorporation of Registrant, dated April
27, 1992.(a)
(e) -- Articles of Amendment to Articles of Incorporation of Registrant, dated October
17, 1994.
(f) -- Articles Supplementary to Articles of Incorporation of Registrant, dated
October 17, 1994.
2 -- By-Laws of Registrant.(a)
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.(b)
5(a) -- Amended Investment Advisory Agreement between Registrant and Merrill Lynch
Asset Management.(a)
(b) -- Supplement to Investment Advisory Agreement between Registrant and Merrill
Lynch Asset Management, L.P., dated January 3, 1994.(d)
6(a) -- Form of Class A Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.(e)
(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.(d)
(d) -- Form of Class C Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.(e)
(e) -- Form of Class D Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.(e)
7 -- None.
</TABLE>
C-1
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
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 Merrill Lynch Financial Data Services, Inc.(a)
10 -- None.
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
12 -- None.
13 -- Certificate of Merrill Lynch Asset Management, Inc.(a)
14 -- None.
15(a) -- Class B Shares Distribution Plan and Class B Shares Distribution Plan
Sub-Agreement of the Registrant.(c)
(b) -- Form of Class C Shares Distribution Plan and Class C Shares Distribution Plan
Sub-Agreement of the Registrant.(e)
(c) -- Form of Class D Shares Distribution Plan and Class D Shares Distribution Plan
Sub-Agreement of the Registrant.(e)
16(a) -- Schedule for computation of each performance quotation provided in the
Registration Statement in response to Item 22 relating to Class A Shares.(a)
(b) -- Schedule for computation of each performance quotation provided in the
Registration Statement in response to Item 22 relating to Class B Shares.(a)
(c) -- Schedule for computation of each performance quotation provided in the
Registration Statement in response to Item 22 relating to Class C Shares.
(d) -- Schedule for computation of each performance quotation provided in the
Registration Statement in response to Item 22 relating to Class D Shares.
17(a) -- Financial Data Schedule for Class A Shares.
(b) -- Financial Data Schedule for Class B Shares.
(c) -- Financial Data Schedule for Class C Shares.
(d) -- Financial Data Schedule for Class D Shares.
18 -- Power of Attorney for Edward D. Zinbarg.
</TABLE>
-------------------------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
(EDGAR) phase-in requirements.
(b) Reference is made to Article V, Article VI (section 3), Article VII, Article
VIII and Article X of the Registrant's Articles of Incorporation, as
amended, filed as Exhibits 1(a), 1(b), 1(c), 1(d), 1(e) and 1(f) 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 filed as Exhibit 2 to the Registration Statement.
(c) Filed on August 27, 1993, as an Exhibit to Post-Effective Amendment No. 14
to Registrant's Registration Statement under the Securities Act of 1933.
(d) Filed on August 26, 1994, as an Exhibit to Post-Effective Amendment No. 15
to Registrant's Registration Statement under the Securities Act of 1933.
(e) Filed on October 11, 1994 as an Exhibit to Post-Effective Amendment No. 16
to Registrant's Registration Statement under the Securities Act of 1933.
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<PAGE> 117
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
HOLDERS AT
TITLE OF CLASS JULY 31, 1995
-------------- -------------
<S> <C>
Class A Common Stock, par value $0.10 per share................................. 22,674
Class B Common Stock, par value $0.10 per share................................. 13,144
Class C Common Stock, par value $0.10 per share................................. 795
Class D Common Stock, par value $0.10 per share................................. 847
</TABLE>
Note: The numbers of holders shown above includes holders of record plus
beneficial owners, whose shares are held of record by Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Distribution Agreements.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith or reckless disregard of the duties involved in
the conduct of his office. Absent a court determination that an officer or
director seeking indemnification was not liable on the merits or guilty of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, the decision by the Registrant to
indemnify such person must be based upon the reasonable determination of
independent counsel or non-party independent directors, after review of the
facts, that such officer or director is not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Each officer and director of the Registrant claiming indemnification within
the scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland; provided, however,
that the person seeking indemnification shall provide to the Registrant a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Registrant has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Registrant for his undertaking; (b) the Registrant is insured against losses
arising by reason of the advance; 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.
C-3
<PAGE> 118
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability, arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
In Section 9 of the Class A, Class B, Class C and Class D shares
Distribution Agreements relating to the securities being offered hereby, the
Registrant agrees to indemnify the Distributor and each person, if any, who
controls the Distributor within the meaning of the Securities Act of 1933, as
amended (the "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. ("MLAM" or the "Investment Adviser"),
acts as investment adviser for the following open-end investment companies:
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Balanced Fund for Investment and Retirement, Inc., Merrill Lynch Capital Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc.,
Merrill Lynch Fund For Tomorrow, Inc., Merrill Lynch Global Allocation Fund,
Inc., Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill
Lynch Global Convertible Fund, Inc., Merrill Lynch Global Holdings, Inc.,
Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc.,
Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for
Investment and Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Institutional Intermediate Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust, Merrill
Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch Variable
Series Funds, Inc.; and for the
C-4
<PAGE> 119
following closed-end investment companies: Convertible Holdings, Inc., Merrill
Lynch High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating
Rate Fund, Inc.
Fund Asset Management, L.P. ("FAM"), an affiliate of MLAM, acts as the
investment adviser for the following open-end investment companies: CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc., Financial Institutions Series Trust, Merrill Lynch
Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill
Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill
Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust,
Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc.,
and The Municipal Fund Accumulation Program, Inc.; and for the following
closed-end investment companies: Apex Municipal Fund, Inc., Corporate High Yield
Fund, Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc.,
Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc.,
MuniAssets Fund, Inc., MuniBond Income Fund, Inc., MuniEnhanced Fund, Inc.,
MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest
California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured
Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund,
Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc.,
Senior Strategic Income Fund, Inc. Taurus MuniCalifornia Holdings, Inc., Taurus
MuniNew York Holdings, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds
for Institutions Series and Merrill Lynch Institutional Intermediate Fund is One
Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of
the Investment Adviser, FAM, Merrill Lynch Funds Distributor, Inc. ("MLFD"),
Princeton Services, Inc. ("Princeton Services") and Princeton Administrators
L.P. is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of
Merrill Lynch, 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 Merrill Lynch Financial Data
Services, Inc. ("MLFDS") is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
C-5
<PAGE> 120
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, 1993 for his or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard
is Treasurer and Mr. Glenn is Executive Vice President of substantially all of
the investment companies described in the preceding paragraphs and Messrs.
Giordano, Harvey, Kirstein and Monagle are directors, trustees or officers of
one or more of such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION(S) WITH PROFESSION, VOCATION
NAME INVESTMENT ADVISER OR EMPLOYMENT
------------------------------ ------------------------ -------------------------------------
<S> <C> <C>
ML & Co....................... Limited Partner Financial Services Holding Company;
Limited Partner of FAM
Princeton Services............ General Partner General Partner of FAM
Arthur Zeikel................. President and Director President of FAM; President and
Director of Princeton Services;
Director of MLFD; Executive Vice
President of ML & Co.; Executive Vice
President of Merrill Lynch
Terry K. Glenn................ Executive Vice President Executive Vice President of FAM;
Executive Vice President and Director
of Princeton Services; President and
Director of MLFD; Director of MLFDS;
President of Princeton
Administrators, L.P.
Vincent R. Giordano........... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Elizabeth Griffin............. Senior Vice President Senior Vice President of FAM
Norman R. Harvey.............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
N. John Hewitt................ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Philip L. Kirstein............ Senior Vice President, Senior Vice President, General
General Counsel and Counsel and Secretary of FAM; Senior
Secretary Vice President, General Counsel,
Director and Secretary of Princeton
Services; Director of MLFD
Ronald M. Kloss............... Senior Vice President Senior Vice President and Controller
and Controller of FAM; Senior Vice President and
Controller of Princeton Services
Stephen M. M. Miller.......... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.; Senior Vice
President of Princeton Services
Joseph T. Monagle, Jr......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Richard L. Reller............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Gerald M. Richard............. Senior Vice President Senior Vice President and Treasurer
and Treasurer of FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Ronald L. Welburn............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Anthony Wiseman............... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
</TABLE>
C-6
<PAGE> 121
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each
of the open-end investment companies referred to in the first two paragraphs of
Item 28 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund,
CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund,
The Corporate Fund Accumulation Program, Inc., and the Municipal Fund
Accumulation Program, Inc., and MLFD also acts as the principal underwriter for
the following closed-end investment companies: Merrill Lynch High Income
Municipal Bond Program, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Aldrich,
Brady, Breen, Crook, Fatseas, Graczyk, and Wasel is One Financial Center, 15th
Floor, Boston, Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH MLFD WITH REGISTRANT
---- --------------------- ------------------------
<S> <C> <C>
Terry K. Glenn................ President and Director Executive Vice President
Arthur Zeikel................. Director President and Director
Philip L. Kirstein............ Director Senior Vice President
William E. Aldrich............ Senior Vice President None
Robert W. Crook............... Senior Vice President None
Kevin P. Boman................ Vice President None
Michael J. Brady.............. Vice President None
William M. Breen.............. Vice President None
Sharon Creveling.............. Vice President and Assistant
Treasurer None
Mark A. DeSario............... Vice President None
James T. Fatseas.............. Vice President None
Stanley Graczyk............... Vice President None
Michelle T. Lau............... Vice President None
Debra W. Landsman-Yaros....... Vice President None
Gerald M. Richard............. Vice President and Treasurer Treasurer
Salvatore Venezia............. Vice President None
William Wasel................. Vice President None
Robert Harris................. Secretary Secretary
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
thereunder are maintained at the offices of the Registrant, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and its transfer agent, Merrill Lynch
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
C-7
<PAGE> 122
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the
Company--Advisory and Management Arrangements" in the Prospectus constituting
Part A of the Registration Statement and under "Management of the
Company--Advisory and Management Arrangements" in the Statement of Additional
Information constituting Part B of the Registration Statement, Registrant is not
a party to any management-related service contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Registrant's latest annual report to shareholders, upon
request and without charge.
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<PAGE> 123
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF
THE REQUIREMENTS FOR EFFECTIVENESS OF THIS POST-EFFECTIVE AMENDMENT TO ITS
REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933
AND HAS DULY CAUSED THIS AMENDMENT TO ITS REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF
PLAINSBORO, AND STATE OF NEW JERSEY, ON THE 24TH DAY OF AUGUST 1995.
Merrill Lynch Healthcare Fund, Inc.
(Registrant)
By /s/ TERRY K. GLENN
---------------------------------
(Terry K. Glenn, Executive Vice
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------------------------------- --------------------------- ----------------
<C> <S> <C>
ARTHUR ZEIKEL* President and Director
--------------------------------------------- (Principal Executive
(Arthur Zeikel) Officer)
GERALD M. RICHARD* Treasurer (Principal
--------------------------------------------- Financial and Accounting
(Gerald M. Richard) Officer)
DONALD CECIL* Director
---------------------------------------------
(Donald Cecil)
EDWARD H. MEYER* Director
---------------------------------------------
(Edward H. Meyer)
CHARLES C. REILLY* Director
---------------------------------------------
(Charles C. Reilly)
RICHARD R. WEST* Director
---------------------------------------------
(Richard R. West)
EDWARD D. ZINBARG* Director
---------------------------------------------
(Edward D. Zinbarg)
*By /s/ TERRY K. GLENN August 24, 1995
---------------------------------------------
(Terry K. Glenn, Attorney-in-Fact)
</TABLE>
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<PAGE> 124
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------ ----------------------------------------------------------------- --------
<C> <C> <S> <C>
1(a) -- Articles of Incorporation of Registrant, dated October 28,
1982.(a)
(b) -- Articles of Amendment to Articles of Incorporation of Registrant,
dated November 29, 1982.(a)
(c) -- Articles of Amendment to Articles of Incorporation of Registrant,
dated October 3, 1988.(a)
(d) -- Articles of Amendment to Articles of Incorporation of Registrant,
dated April 27, 1992.(a)
(e) -- Articles of Amendment to Articles of Incorporation of Registrant,
dated October 17, 1994.
(f) -- Articles Supplementary to Articles of Incorporation of
Registrant, dated October 17, 1994.
2 -- By-Laws of Registrant.(a)
5(a) -- Amended Investment Advisory Agreement between Registrant and
Merrill Lynch Asset Management.(a)
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 Merrill Lynch
Financial Data Services, Inc.(a)
11 -- Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
13 -- Certificate of Merrill Lynch Asset Management, Inc.(a)
16(a) -- Schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 22 relating to
Class A Shares.(a)
(b) -- Schedule of computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to
Class B Shares.(a)
(c) -- Schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 22 relating to
Class C Shares.
(d) -- Schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 22 relating to
Class D Shares.
17(a) -- Financial Data Schedule for Class A Shares.
(b) -- Financial Data Schedule for Class B Shares.
(c) -- Financial Data Schedule for Class C Shares.
(d) -- Financial Data Schedule for Class D Shares.
18 -- Power of Attorney for Edward D. Zinbarg.
</TABLE>
---------------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
(EDGAR) phase-in requirements.
C-10
<PAGE> 1
EX-99. 1 (a)
ARTICLES OF INCORPORATION
OF
SCI/TECH, INC.
* * * *
ARTICLE I
THE UNDERSIGNED, Philip L. Kirstein, whose post-office
address is 633 Third Avenue, New York, New York 10017,
being at least eighteen years of age, does hereby act as
an incorporator, under and by virtue of the General Laws
of the State of Maryland authorizing the formation of
corporations and with the intention of forming a corpora-
tion
ARTICLE II
NAME
The name of the Corporation is
SCI/TECH, INC.
ARTICLE III
PURPOSES AND POWERS
The purpose or purposes for which the Corporation
is formed and the business or objects to be transacted,
carried on, and promoted by it are as follows:
(1) To conduct and carry on the business of an invest
ment company of the management type.
<PAGE> 2
(2) To hold, invest and reinvest its assets in securi-
ties, and in connection therewith to hold part or all of-
its assets in cash.
(3) To issue and sell shares of its own capital stock
in such amounts and on such terms and conditions, for such
purposes and for such amount or kind of consideration now or
hereafter permitted by the General Laws of the State of Mary-
land and by these Articles of Incorporation, as its Board of
Directors may determine; provided, however, that the value
of the consideration per share to be received by the Corpo-
ration upon the sale or other disposition of any shares of
its capital stock shall not be less than the net asset value
per share of such capital stock outstanding at the time of
such event.
(4) To redeem, purchase or otherwise acquire, hold,
dispose of, resell, transfer, reissue or cancel (all without
the vote or consent of the stockholders of the Corporation)
shares of its capital stock, in any manner and to the extent
now or hereafter permitted by the General Laws of the State
of Maryland and by these Articles of Incorporation.
(5) To do any and all such further acts or things and
to exercise any and all such further powers or rights as may
be necessary, incidental, relative, conducive, appropriate
or desirable for the accomplishment, carrying out or attain-
ment of all or any of the foregoing purposes or objects.
2.
<PAGE> 3
The Corporation shall be authorized to exercise and
enjoy all of the powers, rights and privileges granted
to, or conferred upon, corporations by the General Laws of
the State of Maryland now or hereafter in force and the
enumeration of the foregoing shall not be deemed to exclude
any powers, rights or privileges so granted or conferred.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post-office address of the principal office of
the Corporation in the State of Maryland is c/o The Cor-
poration Trust Incorporated, 32 South Street, Baltimore,,
Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust In-
corporated, a corporation of this State, and the post-office
address of the resident agent is 32 South Street, Baltimore,
Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock which
the Corporation shall have authority to issue is Two Hundred
Million (200,000,000) share, all of one class called Common
Stock, of the par value of Ten Cents ($0.10) per share and of
the aggregate par value of Twenty Million Dollars ($20,000,000).
3.
<PAGE> 4
(2) Any fractional share shall carry proportionately
all the rights of a whole share excepting any right to
receive a certificate evidencing such fractional share,
but including without limitation, the right to vote and
the right to receive dividends.
(3) All persons who shall acquire stock in the Cor-
poration shall acquire the same subject to the provisions
of these Articles of Incorporation and the By-Laws of the
Corporation.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE COR-
PORATION AND OF THE DIRECTORS AND
STOCKHOLDERS
(1) The number of directors of the Corporation shall
be three (3) which number may be increased pursuant to
the By-Laws of the Corporation but shall never be less
than three (3) The names of the directors who shall act
until the first annual meeting or until their successors
are duly elected and qualify are:
Arthur Zeikel
Robert Harris
Philip L. Kirstein
(2) The Board of Directors of the Corporation is
hereby empowered to authorize the issuance from time to
time of shares of capital stock, whether now or hereafter
4.
<PAGE> 5
authorized, for such consideration as the Board of Directors
may deem advisable subject to such limitations as may be
set forth in these Articles of Incorporation or in the
By-Laws of the Corporation or in the General Laws of the
State of Maryland.
(3) No holder of stock of the Corporation shall, as
such holder, have any right to purchase or subscribe for
any shares of the capital stock of the Corporation or any
other security of the Corporation which it may issue or sell
(whether out of the number of shares authorized by these
Articles of Incorporation, or out of any shares of the
capital stock of the Corporation acquired by it after the
issue thereof, or otherwise) other than such right, if any,
as the Board of Directors, in its discretion, may determine.
(4) Each director and each officer of the Corporation
shall be indemnified by the Corporation to the full extent
permitted by the General Laws of the State of Maryland,
subject to the requirements of the Investment Company Act of
1940, as amended.
(5) The Board of Directors of the Corporation may
make, alter or repeal from time to time any of the BY-Laws
of the Corporation except any particular By-Law which is
specified as not subject to alteration or repeal by the
Board of Directors, subject to the requirements of the
Investment Company Act of 1940, as amended.
5.
<PAGE> 6
ARTICLE VII
REDEMPTION
Each holder of shares of capital stock of the Corpora-
tion shall be entitled to require the Corporation to redeem
all or any part of the shares of capital stock of the Cor-
poration standing in the name of such holder on the books
of the Corporation, and all shares of capital stock issued
by the Corporation shall be subject to redemption by the
Corporation, at the redemption price of such shares as in
effect from time to time as may be determined by the Board
of Directors of the Corporation in accordance with the
provisions hereof, subject to the right of the Board of
Directors of the Corporation to suspend the right of re-
demption of shares of capital stock of the Corporation or
postpone the date of payment of such redemption price in
accordance with provisions of applicable law. The redemp-
tion price of shares of capital stock of the Corporation
shall be the net asset value thereof as determined by the
Board of Directors of the Corporation from time to time in
accordance with the provisions of applicable law, less such
redemption fee or other charge, if any, as may be fixed by
resolution of the Board of Directors of the Corporation.
Payment of the redemption price shall be made in cash by
the Corporation at such time and in such manner as may be
determined from time to time by the Board of Directors of
the Corporation.
6.
<PAGE> 7
ARTICLE VIII
DETERMINATION BINDING
Any determination made in good faith, so far as ac-
counting matters are involved, in accordance with accepted
accounting practice by or pursuant to the direction of
the Board of Directors, as to the amount of assets, obli-
gations or liabilities of the Corporation, as to the amount
of net income of the Corporation from dividends and interest
for any period or amounts at any time legally available for
the payment of dividends, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time
of or purpose for creating reserves or as to the use, altera-
tion or cancellation of any reserves or charges (whether or
not any obligation or liability for which such reserves or
charges shall have been created shall have been paid or dis-
charged or shall be then or thereafter required to be paid
or discharged), as to the price of any security owned by
the Corporation or as to any other matters relating to the
issuance, sale, redemption or other acquisition or disposi-
tion of securities or shares of capital stock of the Cor-
poration, and any reasonable determination made in good
faith by the Board of Directors as to whether any trans-
action constitutes a purchase of securities on "margin"
a sale of securities "short", or an underwriting of the
7.
<PAGE> 8
sale of, or a participation in any underwriting or selling
group in connection with the public distribution of, any
securities, shall be final and conclusive, and shall be
binding upon the Corporation and all holders of its capital
stock, past, present and future, and shares of the capital
stock of the Corporation are issued and sold on the condi-
tion and understanding, evidenced by the purchase of shares
of capital stock or acceptance of share certificates, that
any and all such determinations shall be binding as afore-
said. No provision of these Articles of Incorporation shall
be effective to (a) require a waiver of compliance with any
provision of the Securities Act of 1933, as amended,, or the
Investment Company Act of 1940, as amended, or of any valid
rule, regulation or order of the Securities and Exchange
Commission thereunder or (b) protect or purport to protect
any director or officer of the Corporation against any
liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross, negligence or reckless dis-
regard of the duties involved in the conduct of his office.
ARTICLE IX
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
8.
<PAGE> 9
ARTICLE X
AMENDMENT
The Corporation reserves the right from time to time
to make any amendment of its Charter, now or hereafter
authorized by law, including any amendment which alters the
contract rights, as expressly set forth in its Charter, of
any outstanding stock.
IN WITNESS WHEREOF, the undersigned incorporator of
SCI/TECH, INC. hereby executes the foregoing Articles of
Incorporation and acknowledges the same to be his act and
further acknowledges that, to the best of his knowledge, the
matters and facts set forth therein are true in all material
respects under the penalties of perjury.
Dated the 28th day of October, 1982.
/s/ PHILIP L. KIRSTSEIN
-----------------------
Philip L. Kirstsein
9 .
<PAGE> 1
EX-99. 1(b)
SCI/TECH, INC.
ARTICLES OF AMENDMENT
SCI/TECH, INC., a Maryland corporation having its
principal office c/o The Corporation Trust Incorporated,
32 South Street, Baltimore, Maryland 21202 (hereinafter
called the Corporation), hereby certifies to the State
Department of Assessments and Taxation of Maryland, that:
FIRST: The charter of the Corporation is hereby amended
by striking out Article II of the Articles of Incorporation
and inserting in lieu thereof the following:
ARTICLE II
NAME
The name of the Corporation is
SCI/TECH HOLDINGS, INC.
SECOND: The amendment to the charter of the Corporation
herein made was duly approved by unanimous written consent of
the board of directors on November 23, 1982; and that at the
time of the approval by the directors there were no shares of
stock of the Corporation entitled to vote on the matter either
outstanding or subscribed for.
IN WITNESS WHEREOF, Sci/Tech, Inc. has caused these articles
to be signed in its name and on its behalf by its President and
<PAGE> 2
2
attested by its Secretary on November 29, 1982.
SCI/TECH, INC.
By /s/ ARTHUR ZEIKEL
------------------------
Arthur Zeikel, President
Attest:
/s/ PHILIP L. KIRSTEIN
---------------------------------
Philip L. Kirstein, Secretary
THE UNDERSIGNED, President of SCI/TECH, INC., who executed
on behalf of said corporation the foregoing Articles of
Amendment, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said corporation,
the foregoing Articles of Amendment to be the corporate act
of said corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and
facts set forth therein with respect to the approval thereof
are true in all material respects, under the penalties of
perjury.
/s/ ARTHUR ZEIKEL
------------------
Arthur Zeikel
<PAGE> 1
Ex-99.1(c)
SCI/TECH HOLDINGS, INC.
Articles of Amendment
SCI/TECH HOLDINGS, INC., a Maryland corporation having
its principal office c/o The Corporation Trust Incorporated, 32
South Street, Baltimore, Maryland 21202 (hereinafter called the
"Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended
by amending ARTICLE V thereof in its entirety to read as follows:
Capital Stock
1. The total number of shares of capital stock which
the Corporation shall have authority to issue is Two Hundred
Million (200,000,000) shares of the par value of Ten Cents
($0.10) per share and of the aggregate par value of Twenty
Million Dollars ($20,000,000). The capital stock initially
is classified into two classes, consisting of One Hundred
million (100,000,000) shares of Class A Common Stock and One
Hundred Million (100,000,000) shares of Class B Common Stock.
2. The Board of Directors may classify and reclassify
any unissued shares of capital stock into one or more
additional or other classes or series as may be established
from time to time by setting or changing in any one or more
respects the designations, conversion or other rights,
restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption of such shares of stock and
pursuant to such classification or reclassification to
increase or decrease the number of authorized shares of any
existing class or series, provided, however, that no such
classification or reclassification shall result in the
creation of a class or series of capital stock having a
preference as to dividends or distributions or a preference
in the event of any liquidation, dissolution or winding up of.
the Corporation.
3. Unless otherwise expressly provided in the charter
of the Corporation, including any Articles Supplementary
creating any class or series of capital stock, the holders of
each class or series of capital stock shall be entitled to
dividends and distributions in such amounts and at such times
<PAGE> 2
as may be determined by the Board of Directors, and the
dividends and distributions paid with respect to the various
classes or series of capital stock may vary among such
classes and series. Expenses related to the distribution of,
and other identified expenses that should properly be
allocated to, the shares of a particular class or series of
capital stock may be charged to and borne solely by such
class or series and the bearing of expenses solely by a class
or series of capital stock may be appropriately reflected (in
a manner determined by the Board of Directors) and cause
differences in the net asset value attributable to, and the
dividend, redemption and liquidation rights of, the shares of
each class or series of capital stock.
4. On each matter submitted to a vote of stockholders,
each holder of a share of capital stock of the Corporation
shall be entitled to one vote for each share standing in such
holder's name on the books of the Corporation, irrespective
of the class or series thereof, and all shares of all classes
and series shall vote together as a single class; provided,
however, that (a) as to any matter with respect to which a
separate vote of any class or series is required by the
Investment Company Act of 1940, as amended, and in effect
from time to time, or any rules regulations or orders issued
thereunder, or by the Maryland General Corporation Law, such
requirement as to a separate vote by that class or series
shall apply in lieu of a general vote of all classes and
series as described above, (b) in the event that the separate
vote requirements referred to in (a) above apply with respect
to one or more classes or series, then, subject to paragraph
(c) below, the shares of all other classes and series not
entitled to a separate class vote shall vote as a single
class, and (c) as to any matter which does not affect the
interest of a particular class or series, such class or
series shall not be entitled to any vote and only the holders
of shares of the one or more affected classes and series
shall be entitled to vote.
5. Unless otherwise expressly provided in the
charter of the Corporation, including any Articles
Supplementary creating any class or series of capital stock,
in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the.
holders of all classes and series of capital stock of the
Corporation shall be entitled, after payment or provision for
payment of the debts and other liabilities of the
Corporation, to share ratably in the remaining net assets of
the Corporation.
2.
<PAGE> 3
6. Any fractional shares shall carry proportionately
all the rights of a whole share, excepting any right to
receive a certificate evidencing such fractional share, but
including, without limitation, the right to vote and the
right to receive dividends.
7. All persons who shall acquire stock in the
Corporation shall acquire the same subject to the provisions
of the charter and By-Laws of the Corporation. All shares of
Common Stock of the Corporation issued on or before October 3,
1988 shall without further act be considered Class A Common
Stock. As used in the charter of the Corporation, the terms
"charter" and "Articles of Incorporation" shall mean and
include the Articles of Incorporation of the corporation, as
amended, supplemented and restated from time to time by
Articles of Amendment, Articles Supplementary, Articles of
Restatement or otherwise.
SECOND: The foregoing amendment does not increase the
authorized capital stock of the Corporation.
THIRD: The foregoing amendment to the charter of the
Corporation has been advised by the Board of Directors and
approved by the stockholders of the Corporation.
3.
<PAGE> 4
IN WITNESS WHEREOF, Sci/Tech Holdings, Inc. has caused these
articles of Amendment to be signed in its name and on its behalf
by its President and attested by its Secretary on October 3, 1988.
ATTEST: SCI/TECH HOLDINGS, INC.
/s/ROBERT HARRIS By /s/ ARTHUR ZEIKEL
--------------------------- ----------------------------
Robert Harris, Secretary Arthur Zeikel, President
THE UNDERSIGNED, President of Sci/Tech Holdings, Inc., who
executed on behalf of said Corporation the foregoing Articles of
Amendment, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said Corporation, the
foregoing Articles of Amendment to be the corporate act of said
Corporation, and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all
material respects, under the penalties of perjury.
/s/ ARTHUR ZEIKEL
-----------------
Arthur Zeikel
4.
<PAGE> 1
Ex-99.1(d)
SCI/TECH HOLDINGS, INC.
ARTICLES 0F AMENDMENT
SCI/TECH HOLDINGS, INC., a Maryland corporation having its
principal office c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202 (hereinafter called the
Corporation), hereby certifies to the State Department of
Assessments and Taxation or Maryland, that:
FIRST: The charter of the Corporation is hereby amended
by striking out Article II of the Articles of Incorporation and
inserting in lieu thereof the following:
ARTICLE II
NAME
The name of the corporation Is
MERRILL LYNCH HEALTHCARE FUND, INC.
(the "Corporation").
SECOND: The foregoing amendment to the charter of the
Corporation has been duly approved by the Corporation in the
manner and by the vote required by its charter and the laws of
Maryland. The manner of approval by the Corporation of the
amendment set forth in these Articles is as follows. The Board
of Directors of the Corporation at a meeting thereof held on
August 15, 1991, duly adopted a resolution that declared that
said amendment was advisable and directed that it be submitted
for consideration by the stockholders at a special Meeting of
Shareholders. The amendment was duly approved by the
Corporation's stockholders In the manner and by the vote required
by law at the Special Meating of Stockholders held on March 30,
<PAGE> 2
1992, by the affirmative vote of at least two-thirds of the votes,
entitled to be cast by the holders of the corporations Class A
and Class B common stock voting as a single class.
The President acknowledges those Articles of Amendment to be
the corporate act of the Corporation and states that to the best
of his knowledge, information and belief the matters and facts
act forth in these Articles with respect to the authorization and
approval of the amendment of the Corporation's charter are true
in all material respects, and that this statement In made under
the penalties of perjury.
IN WITNESS WHEREOF, Sci/Tech Holdings, Inc. has caused these
Articles to be signed in its name and on Its behalf by its
President and attested by Its Secretary as of April 27, 1992.
SCI/TECH HOLDING, INC.
By: /s/ ARTHUR ZEIKEL
-------------------------
Arthur Zeikel, President.
Attest
By: /s/ ROBERT HARRIS, SECRETARY
-----------------------------
Robert Harris, Secretary
2
<PAGE> 1
Ex-99.1 (e)
MERRILL LYNCH HEALTHCARE FUND, INC.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
MERRILL LYNCH HEALTHCARE FUND, INC., a Maryland corporation
having its principal Maryland office c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202
(hereinafter called the "Corporation"), hereby certifies to the
State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended
by adding the following provision at the end of Article V:
(8) The Board of Directors may classify and reclassify any
issued shares of capital stock into one or more additional or
other classes or series as may be established from time to time
by setting or changing in any one or more respects the
designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of stock and
pursuant to such classification or reclassification to increase
or decrease the number of authorized shares of any existing class
or series; provided, however, that any such classification or
reclassification shall not substantially adversely affect the
rights of holders of such issued shares. The Board's authority
pursuant to this paragraph shall include, but not be limited to,
the power to vary among all the holders of a particular class or
series (a) the length of time shares must be held prior to
reclassification to shares of another class or series (the
"Holding Period(s)"), (b) the manner in which the time for such
Holding Period(s) is determined and (c) the class or series into
which the particular class or series is being reclassified;
provided, however, that, subject to the first sentence of this
section, with respect to holders of the Corporation's shares
issued on or after the date of the Corporation's first effective
prospectus which sets forth Holding Period(s) (the "First Holding
Period Prospectus"), the Holding Period(s), the manner in which
the time for such Holding Period(s) is determined and the class
or series into which the particular class or series is being
reclassified shall be disclosed in the Corporation's prospectus
or statement of additional information in effect at the time such
shares, which are the subject of the reclassification, were
issued; and provided, further, that, subject to the first
sentence of this section, with respect to holders of the
Corporation's Class B shares issued prior to the date of the
Corporation's First Holding Period Prospectus, the Holding Period
<PAGE> 2
shall be ten (10) years for retirement plan (as recognized by the
Internal Revenue Code of 1986, as amended from time to time)
holders of issued Class B shares purchased without a contingent
deferred sales charge (a "CDSC-Waived Retirement Plan") and shall
be the Holding Period set forth in the Corporation's First
Holding Period Prospectus, for all other holders of issued Class
B shares; Class B shares held by a CDSC-Waived Retirement Plan
shall be reclassified to Class D shares in the month following
the month in which the first Class B share of any mutual fund
advised by Merrill Lynch Asset Management, L.P., Fund Asset
Management, L.P., or their affiliates or successors, held by such
CDSC-Waived Retirement Plan has been held for the ten (10) year
Holding Period established by the Corporation's Board of
Directors for such CDSC-Waived Retirement Plan Class B
shareholder; and the Class B shares of every shareholder other
than CDSC-Waived Retirement Plans shall be reclassified to Class
D shares in the month following the month in which such shares
have been held for the Holding Period established by the
Corporation's Board of Directors for shareholders other than
CDSC-Waived Retirement Plans in the Corporation's First Holding
Period Prospectus.
SECOND: The foregoing Articles of Amendment have been
effected in the manner and by the vote required by the
Corporation's charter and the laws of the State of Maryland.
Pursuant to Section 2-604 of the Maryland Corporations and
Associations Code, the amendment was advised by the Board of
Directors of the Corporation and approved by the stockholders.
THIRD: Except as amended hereby, the Corporation's charter
shall remain in full force and effect.
FOURTH: The authorized capital stock of the Corporation has
not been increased by these Articles of Amendment.
FIFTH: These Articles of Amendment shall be effective at
the very beginning of the day on October 21, 1994.
The President acknowledges these Articles of Amendment to be
the corporate act of the Corporation and states that to the best
of his knowledge, information and belief, the matters set forth
in these Articles of Amendment with respect to the authorization
and approval of the amendment of the Corporation's charter are
true in all material respects, and that this statement is made
under the penalties for perjury.
2
<PAGE> 3
IN WITNESS WHEREOF, MERRILL LYNCH HEALTHCARE FUND, INC. has
caused these Articles of Amendment to be signed in its name and
on its behalf by its President, a duly authorized officer of the
Corporation, and attested by its Secretary as of the 17th day of
October, 1994.
MERRILL LYNCH HEALTHCARE FUND, INC.
/S/ ARTHUR ZEIKEL
-----------------
Arthur Zeikel
President
Attest
/s/ ROBERT HARRIS
-----------------------------
Robert Harris, Secretary
3
<PAGE> 1
EX-99. 1(f)
MERRILL LYNCH HEALTHCARE FUND, INC.
ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION
INCREASING THE AUTHORIZED CAPITAL STOCK OF THE
CORPORATION AND CREATING TWO ADDITIONAL CLASSES
OF COMMON STOCK
MERRILL LYNCH HEALTHCARE FUND, INC., a Maryland corporation
having its principal Maryland office c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202
(hereinafter called the "Corporation"), hereby certifies to the
State Department of Assessments and Taxation, that:
FIRST: The Corporation is registered as an open-end company
under the Investment Company Act of 1940, as amended, with
authority to issue TWO HUNDRED MILLION (200,000,000) shares of
capital stock. The Corporation has two classes of capital stock
consisting of ONE HUNDRED MILLION (100,000,000) shares of Class A
Common Stock and ONE HUNDRED MILLION (100,000,000) shares of
Class B Common Stock. All shares of all classes and series of
the Corporation's capital stock have a par value of Ten Cents
($.lo) per share and an aggregate par value of TWENTY MILLION
Dollars ($20, 000, 000).
SECOND: The Board of Directors of the Corporation, acting
in accordance with Section 2-105(c) of the Maryland Corporations
and Associations Code, hereby increases the total number of
authorized shares of Class B Common Stock of the Corporation by
TWO HUNDRED MILLION (200,000,000) shares.
THIRD: After this increase in the number of authorized
shares of capital stock of the Corporation, the Corporation will
have authority to issue FOUR HUNDRED MILLION (400,000,000) shares
of capital stock and the capital stock will consist of ONE
HUNDRED MILLION (100,000,000) shares of Class A Common Stock and
THREE HUNDRED MILLION (300,000,000) shares of Class B Common
Stock.
FOURTH: After this increase in the number of authorized
shares of capital stock of the Corporation, all shares of all
classes and series of the Corporation's capital stock will have a
par value of Ten Cents ($.10) per share and an aggregate par
value of FORTY MILLION Dollars ($40,000,000).
FIFTH: Pursuant to authority expressly vested in the Board
of Directors of the Corporation by its charter, the Board of
Directors has reclassified ONE HUNDRED MILLION (100,000,000)
authorized and unissued shares of the Class B Common Stock of the
Corporation as Class C Common Stock of par value of Ten Cents
<PAGE> 2
($.l0) per share and of the aggregate par value of TEN MILLION
Dollars ($10,000,000).
SIXTH: The preferences, designations, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of Class C
Common Stock are as follows:
The Class C Common Stock of the Corporation shall represent
the same interest in the Corporation and have identical
preferences, designations, conversion or other rights, voting
powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Class
B Common Stock as of the date of these Articles Supplementary,
except as otherwise set forth in the Corporation's charter and
further except that:
(i) Expenses related to the distribution of the Class C
Common Stock shall be borne solely by such class and such class
shall have exclusive voting rights with respect to matters
relating to the expenses being borne solely by such class;
(ii) Such distribution expenses borne solely by Class C
Common Stock shall be appropriately reflected (in the manner
determined by the Board of Directors) in the net asset value,
dividends, distribution and liquidation rights of the shares of
such class; and
(iii) Class C Common Stock shall not be reclassified into
Class D shares.
SEVENTH: Pursuant to authority expressly vested in the
Board of Directors of the Corporation by its charter, the Board
of Directors has reclassified ONE HUNDRED MILLION (100,000,000)
authorized and unissued shares of the Class B Common Stock of the
Corporation as Class D Common Stock of par value of Ten Cents
($.lo) per share and of the aggregate par value of TEN MILLION
Dollars ($10,000,000).
EIGHTH: The preferences, designations, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of Class D
Common Stock are as follows:
The Class D Common Stock of the Corporation shall represent
the same interest in the Corporation and have identical
preferences, designations, conversion or other rights, voting
powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Class
B Common Stock as of the date of these Articles Supplementary,
2
<PAGE> 3
except as otherwise set forth in the Corporation's charter and
further except that:
(i) Expenses related to the distribution of the Class D
Common Stock shall be borne solely by such class and such class
shall have exclusive voting rights with respect to matters
relating to the expenses being borne solely by such class; and
(ii) Such distribution expenses borne solely by Class D
Common Stock shall be appropriately reflected (in the manner
determined by the Board of Directors) in the net asset value,
dividends, distribution and liquidation rights of the shares of
such class.
3
<PAGE> 4
IN WITNESS WHEREOF, MERRILL LYNCH HEALTHCARE FUND, INC. has
caused these Articles Supplementary to be signed in its name and
on its behsalf by its President and attested by its Secretary on
October 17th, 1994.
MERRILL LYNCH HEALTHCARE FUND, INC.
By /S/ ARTHUR ZEIKEL
----------------------------------
Arthur Zeikel
President
ATTEST
/S/ ROBERT HARRIS
-------------------------
Robert Harris, Secretary
THE UNDERSIGNED, President of MERRILL LYNCH HEALTHCARE FUND,
INC., who executed on behalf of said Corporation the foregoing
Articles Supplementary, of which this certificate is made a part,
hereby acknowledges, in the name and on behalf of said
Corporation, the foregoing Articles Supplementary to be the
corporate act of said Corporation and further certifies that, to
the best of his knowledge, information and belief, the matters
and facts set forth therein with respect to the authorization and
approval thereof are true in all material respects, and that this
statement is made under the penalties for perjury.
/S/ ARTHUR ZEIKEL
-------------------
Arthur Zeikel
President
4
<PAGE> 1
Ex-99.2
BY-LAWS
OF
SCI/TECH HOLDINGS, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the.
corporation shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal
executive office of the Corporation shall be at 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.
Section 3. Other Offices. The Corporation may have such
other offices in such places as the Board of Directors may from
time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. The Corporation shall not be
required to hold an annual meeting of its stockholders in any
Year in which none of the following is required to be acted on by
the holders of the capital stock under the Investment Company Act
Of 1940, as amended: (a) election of directors, (b) approval of
the Corporation's investment advisory agreement; (c) ratification
Of the selection of independent public accountants; and (d)
<PAGE> 2
approval of the Corporation's distribution agreement. In the
event that the Corporation shall be required to hold an annual
meeting of stockholders by the Investment Company Act of 1940, as
amended, such meeting shall be held: (a) at a date and time set
by the Board of Directors in accordance with the Investment
company Act of 1940, as amended if the purpose of the meeting is
to elect directors or to approve an investment advisory agreement
or distribution agreement; and (b) on a date fixed by the board
of directors during the month of October (i) in the fiscal year
immediately following the fiscal year in which independent
accountants were appointed if the purpose of the meeting is to
ratify the selection of such independent accountants, or (ii) in
any fiscal year if an annual meeting is to be held for any reason
other than as specified in the foregoing. Any stockholders'
meeting held in accordance with the preceding sentence shall for
all purposes constitute the annual meeting of stockholders for
the fiscal year of the Corporation in which the meeting is held.
At any such meeting, the stockholders shall elect directors to
hold the offices of any directors who have held office for more
than one year or who have been elected by the board of directors
to fill vacancies which result from any cause.
Section 2. Special Meetings. Special meetings of the
stockholders, unless otherwise provided by law or by the Articles
of Incorporation, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, or on the
-2-
<PAGE> 3
written request of the holders of the outstanding capital stock
of the Corporation entitled to vote at such meeting to the extent
permitted by Maryland law and the Investment Company Act of 1940,
as amended.
Section 3. Place of Meetings. Meetings of the stockholders
shall be held at such place within the United States as the Board
of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of,Notice. Notice of
the place, date and time of the holding of each stockholders'
meeting and, if the meeting is a special meeting, the purpose or
purposes of the special meeting, shall be given personally or by
mail, not less than ten nor more than ninety days before the date
of such meeting, to each stockholder entitled to vote at such
meeting and to each other stockholder entitled to notice of the
meeting. Notice by mail shall be deemed to be duly given when
deposited in the United States mail addressed to the stockholder
at his address as it appears on the records of the Corporation,
with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived
by any stockholder who shall attend such meeting in person or by
proxy, or who shall, either before or after the meeting, submit a
signed waiver of notice which is filed with the records of the
meeting. When a meeting is adjourned to another time and place,
unless the Board of Directors, after the adjournment, shall fix a
new record date for an adjourned meeting, or the adjournment is
-3-
<PAGE> 4
for more than one hundred and twenty days after the original
record date, notice of such adjourned meeting need not be given
if the time and place to which the meeting shall be adjourned
were announced at the meeting at which the adjournment is taken.
Section 5. Quorum. At all meetings of the stockholders,
the holders of a majority of the shares of stock of the Corpora-
tion entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for the transaction of any
business, except as otherwise provided by statute or by the
Articles of Incorporation. In the absence of a quorum no busi-
ness may be transacted, except that the holders of a majority of
the shares of stock present in person or by proxy and entitled to
vote may adjourn the meeting from time to time, without notice
other than announcement thereat except as otherwise required by
these By-Laws, until the holders of the requisite amount
of shares of stock shall be so present. At any such adjourned
meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as
originally called. The absence from any meeting, in person or by
proxy, of holders of the number of shares of stock of the Corpo-
ration in excess of a majority thereof which may be required by
the laws of the State of Maryland, the Investment Company Act of
1940, as amended, or other applicable statute, the Articles of
Incorporation, or these By-Laws, for action upon any given matter
shall not prevent action at such meeting upon any other matter or
-4-
<PAGE> 5
matters which may properly come before the meeting, if there
shall be present thereat, in person or by proxy, holders of the
number of shares of stock of the Corporation required for action
in respect of such other matter or matters.
Section 6. Organization. At each meeting of the stock-
holders, the Chairman of the Board (if one has been designated by
the Board) , or in his absence or inability to act, the President,
or in the absence or inability to act of the Chairman of the
Board and the President, a Vice President, shall act as chairman
of the meeting. The Secretary, or in his absence or inability to
act, any person appointed by the chairman of the meeting, shall
act as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all
meetings of the stockholders shall be as determined by the chair-
man of the meeting.
Section 8. Voting. Except as otherwise provided by statute
or the Articles of Incorporation, each holder of record of shares
of stock of the Corporation having voting power shall be entitled
at each meeting of the stockholders to one vote for every share
of such stock standing in his name on the record of stockholders
of the Corporation as of the record date determined pursuant to
Section 9 of this Article or if such record date shall not have
been so fixed, then at the later of (i) the close of business on
the day on which notice of the meeting is mailed or (ii) the
thirtieth day before the meeting.
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Each stockholder entitled to vote at any meeting of stock-
holders may authorize another person or persons to act for him by
a proxy signed by such stockholder or his attorney-in-fact. No
proxy shall be valid after the expiration of eleven months from
the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that
it is irrevocable and whore an irrevocable proxy is permitted by
law. Except as otherwise provided by statute, the Articles of
Incorporation or these By-Laws, any corporate action to be taken
by vote of the stockholders shall be authorized by a majority of
the total votes cast at a meeting of stockholders by the holders
of shares present in person or represented by proxy and entitled
to vote on such action.
If a vote shall be taken on any question other than the
election of directors, which shall be by written ballot, then
unless required by statute or these By-Laws, or determined by the
chairman of the meeting to be advisable, any such vote need not
be by ballot. on a vote by ballot, each ballot shall be signed
by the stockholder voting, or by his proxy, if there be such
proxy, and shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors
may set a record date for the purpose of determining stockholders
entitled to vote at any meeting of the stockholders. The record
date, which may not be prior to the close of business on the day
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the record date is fixed, shall be not more than ninety nor less
than ten days before the date of the meeting of the stockholders.
All persons who were holders of record of shares at such time,
and no others, shall be entitled to vote at such meeting and any
adjournment thereof.
Section 10. Inspectors. The Board may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at
such meeting or any adjournment thereof. If the inspectors shall
not be so appointed or if any of them shall fail to appear or
act, the chairman of the meeting may, and on the request of any
stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of
inspector at such meeting with strict impartiality and according
to the best of his ability. The inspectors shall determine the
number of shares outstanding and the voting power of each, the
number of shares represented at the meeting, the existence of &
quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result,
and do such acts as are proper to conduct the election or vote
with fairness to all stockholders. On request of the chairman of
the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge,
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<PAGE> 8
request or matter determined by them and shall execute a certifi-
cate of any fact found by them. No director or candidate for the
office of director shall act as inspector of an election of
directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting.
Except as otherwise provided by statute or the Articles of Incor-
poration, any action required to be taken at any meeting of
stockholders, or any action which may be taken at any meeting of
such stockholders, may be taken without a meeting, without prior
notice and without a vote, if the following are filed with the
records of stockholders meetings: (i) a unanimous written
consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and (ii) a written
waiver of any right to dissent signed by each stockholder
entitled to notice of the meeting but not entitled to vote
thereat.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in
the Articles of Incorporation, the business and affairs of the
Corporation shall be managed under the direction of the Board of
Directors. All powers of the Corporation may be exercised by or
under authority of the Board of Directors except as conferred on
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or reserved to the stockholders by law or by the Articles of
incorporation or these By-Laws.
Section 2. Number of Directors. The number of directors
shall be fixed from time to time by resolution of the Board of
Directors adopted by a majority of the Directors then in office;
provided, however, that the number of directors shall in no event
be less than three nor more than fifteen except that the Corpora-
tion may have two directors if there is no stock outstanding, or
so long as there are less than three stockholders. Any vacancy
created by an increase in Directors may be filled in accordance
with Section 6 of this Article III. No reduction in the number
of directors shall have the effect of removing any director from
office prior to the expiration of his term unless-such director
is specifically removed pursuant to Section 5 of this Article III
at the time of such decrease. Directors need not be stock-
holders.
Section 3. Election and Term of Directors. Directors shall
be elected annually, by written ballot at a meeting of
stockholders held for that purpose; provided, however, that if no
meeting of the stockholders of the Corporation is required to be
held in a particular year pursuant to Section 1 of Article II of
these By-Laws, Directors shall be elected at the next meeting
held. The term of office of each director shall be from the
time of his election and qualification until the election of
directors next succeeding his election and until his successor
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shall-have been elected and shall have qualified, or until his
death, or until he shall have resigned, or have been removed as
hereinafter provided in these By-Laws, or as otherwise provided
by statute or the Articles of Incorporation.
Section 4. Resignation. A director of the Corporation may
resign at any time by giving written notice of his resignation to
the Board or the Chairman of the Board or the President or the
Secretary. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective
shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such
resignation shall not-be necessary to make it effective.
Section 5. Removal of Directors. Any director of the
Corporation may be removed by the stockholders by a vote of a
majority of the votes entitled to be cast for the election of
directors.
Section 6. Vacancies. Any vacancies in the Board, whether
arising from death, resignation, removal, an increase in the
number of directors or any other cause, shall be filled by a vote
of the majority of the Board of Directors then in office even
though such majority is less than a quorum, provided that no
vacancies shall be filled by action of the remaining directors,
if after the filling of said vacancy or vacancies, less than
two-thirds of the directors then holding office shall have been
elected by the stockholders of the Corporation. In the event
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that at any time there is a vacancy in any office of a director
which vacancy may not be filled by the remaining directors, a
special meeting of the stockholders shall be held as promptly as
possible and in any event within sixty days, for the purpose of
filling said vacancy or vacancies. Any directors elected or
appointed to fill a vacancy shall hold office only until the next
meeting of stockholders of the Corporation and until a successor
shall have been chosen and qualifies or until his earlier
resignation or removal.
Section 7. Place of Meetings. Meetings of the Board may be
held at such place as the Board may from time to time determine
or as shall be specified in the notice of such meeting.
Section 8. Regular Meetings. Regular meetings of the Board
may be held without notice at such time and place as may be
determined by the Board of Directors.
Section 9. Special Meetings. Special meetings of the Board
may be called by two or more directors of the Corporation or by
the Chairman of the Board or the President.
Section 10. Telephone Meetings. Members of the Board of
Directors or of any committee thereof may participate in a
meeting by means of a conference telephone or similar
communications equipment if all persons participating in the
meeting can hear each other at the same time. Subject to the
Provisions of the investment Company Act of 1940, as amended,
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participation in a meeting by these means constitutes presence in
person at the meeting.
Section 11. Notice of Special Meetings. Notice of each
special meeting of the Board shall be given by the Secretary as
hereinafter provided, in which notice shall be stated the time
and place of the meeting. Notice of each such meeting shall be
delivered to each director, either personally or by telephone or
any standard form of telecommunication, at least twenty-four
hours before the time at which such meeting is to be held, or by
first-class mail, postage prepaid, addressed to him at his resi-
dence or usual place of business, at least three days before the
day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any
special meeting need not be given to any director who shall,
either before or after the meeting, sign a written waiver of
notice which is filed with the records of the meeting or who
shall attend such meeting. Except as otherwise specifically
required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less
than two, of the members of the entire Board shall be present in
Person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and
except as otherwise expressly required by statute, the Articles
of Incorporation, these By-Laws, the Investment Company Act of
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1940, as amended, or other applicable statute, the act of a
majority of the directors present at any meeting at which a
quorum is present shall be the act of the Board. In the absence
of a quorum at any meeting of the Board, a majority of the
directors present thereat may adjourn such meeting to another
time and place until a quorum shall be present thereat. Notice
of the time and place of any such adjourned meeting shall be
given to the directors who were not present at the time of the
adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other
directors. At any adjourned meeting at which a quorum is
present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 14. Organization. The Board may, by resolution
adopted by a majority of the entire Board, designate a Chairman
of the Board, who shall preside at each meeting of the Board. in
the absence or inability of the Chairman of the Board to preside
at a meeting, the President, or, in his absence or inability to
act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside
thereat. The Secretary (or, in his absence or inability to act,
any person appointed by the Chairman) shall act as secretary of
the meeting and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a
Meeting. Subject to the provisions of the Investment Company Act
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of 1940, as amended, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes
of the proceedings of the Board or committee.
Section 16. Compensation. Directors may receive compensa-
tion for services to the Corporation in their capacities as
directors or otherwise in such manner and in such amounts as may
be fixed from time to time by the Board.
Section 17. Investment Policies. It shall be the duty of
the Board of Directors to ensure that the purchase, sale, reten-
tion and disposal of portfolio securities and the other invest-
ment practices of the Corporation are at all times consistent
with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as
recited in the current Prospectus and Statement of Additional
Information of the Corporation included in the Registration
Statement of the Corporation, as filed from time to time with the
Securities and Exchange Commission and as required by the
Investment Company Act of 1940, as amended. The Board, however,
may delegate the duty of management of the assets and the
administration of its day to day operations to an individual or
corporate management company and/or investment adviser pursuant
to a written contract or contracts which have obtained the
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requisite approvals, including the requisite approvals of
renewals thereof, of the Board of Directors and/or the stock-
holders of the Corporation in accordance with the provisions of
the Investment Company Act of 1940, as amended.
ARTICLE IV
Committees
Section 1. Executive Committee. The Board may, by resolu-
tion adopted by a majority of the entire board, designate an
Executive Committee consisting of two or more of the directors of
the Corporation, which committee shall have and may exercise all
the powers and authority of the Board with respect to all matters,
other than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles
of Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving
on the Board or on any committee of the Board, including the
Executive Committee;
(d) the approval or termination of any contract with an
investment adviser manager or principal underwriter, as such
terms are defined in the Investment Company Act of 1940, as
amended, or the taking of any other action required to be taken
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<PAGE> 16
by the Board of Directors by the Investment Company Act of 1940,
as amended;
(e) the amendment or repeal of these By-Laws or the adop-
tion of new By-Laws;
(f) the amendment or repeal of any resolution of the Board
which by its terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capi-
tal stock of the Corporation; and
(h) the approval of any merger or share exchange which does
not require stockholder approval.
The Executive Committee shall keep written minutes of its
proceedings and shall report such minutes to the Board. All such
proceedings shall be subject to revision or alteration by the
Board; provided, however, that third parties shall not be preju-
diced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of
Directors may from time to time, by resolution adopted by a
majority of the whole Board, designate one or more other commit-
tees of the Board, each such committee to consist of two or more
directors and to have such powers and duties as the Board of
Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two, of
the members of any committee shall be present in person at any
meeting of such committee in order to constitute a quorum for the
transaction of business at such meeting, and the act of a major-
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<PAGE> 17
ity present shall be the act of such committee. The Board may
designate a chairman of any committee and such chairman or any
two members of any committee may fix the time and place of its
meetings unless the Board shall otherwise provide. In the
absence or disqualification of any member of any committee, the
member or members thereof present at any meeting and not disqual-
ified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors-
to act at the meeting in the place of any such absent or disqual-
ified member. The Board shall have the power at any time to
change the membership of any committee, to fill all vacancies, to
designate alternate members to replace any absent or disqualified
member, or to dissolve any such committee. Nothing herein shall
be deemed to prevent the Board from appointing one or more com-
mittees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such
committee shall have or may exercise any authority or power of
the Board in the management of the business or affairs of the
Corporation.
ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer,
each of whom shall be elected by the Board of Directors. The
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Board of Directors may elect one or more Vice Presidents and may
also appoint such other officers, agents and employees as it may
deem necessary or proper. Any two or more offices may be held by
the same person, except the offices of President and Vice Presi-
dent, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity. Such officers shall be
elected by the Board of Directors each year at a meeting of the
Board of Directors, each to hold office for the ensuing year and
until his successor shall have been duly elected and shall have
qualified, or until his death, or until he shall have resigned,
or have been removed, as hereinafter provided in these By-Laws.
The Board may from time to time elect, or delegate to the
President the power to appoint, such officers (including one or
more Assistant Vice Presidents, one or more Assistant Treasurers
and one or more Assistant Secretaries) and such agents, as may be
uecessary or desirable for the business of the Corporation. Such
other officers and agents shall have such duties and shall hold
their offices for such terms as may be prescribed by the Board or
by the appointing authority.
Section 2. Resignations. Any officer of the Corporation
may resign at any time by giving written notice of his resigna-
tion to the Board, the Chairman of the Board, the President or
the Secretary. Any such resignation shall take effect at the
time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its
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receipt; and, unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
Section 3. Removal of officer, Agent or Employee. Any
officer, agent or employee of the Corporation may be removed by
the Board of Directors with or without cause at any time, and the
Board may delegate such power of removal as to agents and
employees not elected or appointed by the Board of Directors.
Such removal shall be without prejudice to such person's contract
rights, if any, but the appointment of any person as an officer,
agent or employee of the 'Corporation shall not of itself create
contract rights.
Section 4. Vacancies. A vacancy in any office, whether
arising from death, resignation, removal or any other cause, may
be filled for the unexpired portion of the term of the office
which shall be vacant, in the manner prescribed in these By-Laws
for the regular election or appointment to such office.
Section 5. Compensation. The compensation of the officers
of the Corporation shall be fixed by the Board of Directors, but
this power may be delegated to any officer in respect of other
officers under his control.
Section 6. Bonds or Other Security. If required by the
Board, any officer, agent or employee of the Corporation shall
give a bond or other security for the faithful performance of his
duties, in such amount and with such surety or sureties as the
Board may require.
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Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the
Chairman of the Board (or if there is none), the President shall
preside at meetings of the stockholders and the Board of Direc-
tors. The President shall have, subject to the control of the
Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and
agents of the Corporation, except such as shall be appointed by
the Board, and he may delegate these powers.
Section 8. Vice President. Each Vice President shall have
such powers and perform such duties as the Board of Directors or
the President may from time to time prescribe.
Section 9. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for, all
the funds and securities of the corporation, except those which
the Corporation has placed in the custody of a bank or trust
company or member of a national securities exchange (as that term
is defined in the Securities Exchange Act of 1934) pursuant to a
written agreement designating such bank or trust company or
member of a national securities exchange as custodian of the
property of the Corporation;
(b) keep full and accurate accounts of receipts and dis-
bursements in books belonging to the Corporation;
(c) cause all moneys and other valuable to be deposited to
the credit of the Corporation;
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(d) receive, and give receipts for, moneys due and payable
to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board,
taking proper vouchers therefor; and
(f) in general, perform all the duties incident to the
office of Treasurer and such other duties as from time to time
may be assigned to him by the Board or the President.
Section 10. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided
for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with
the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corpo-
ration and affix and attest the seal to all stock certificates of
the Corporation (unless the seal of the Corporation on such
certificates shall be a facsimile, as hereinafter provided) and
affix and attest the seal to all other documents to be executed
on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates
and other documents and records required by law to be kept and
filed are properly kept and filed; and
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(e) in general, perform all the duties incident to the
office of Secretary and such other duties as from time to time
may be assigned to him by the Board or the President.
Section 11. Delegation of Duties. In case of the absence
of any officer of the Corporation, or for any other reason that
the Board may deem sufficient, the Board may confer for the time
being the powers or duties, or any of them, of such officer upon
any other officer or upon any director.
ARTICLE VI
Indemnification
Each officer and director of the Corporation shall be indem-
nified by the Corporation 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
Corporation or any stockholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his 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 negli-
gence or reckless disregard of the duties involved in the conduct
of his office, the decision by the Corporation to indemnify such
person must be based upon the reasonable determination of inde-
pendent counsel or non-party independent directors, after review
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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.
The Corporation may purchase insurance on behalf of an
officer or director protecting such person to the full extent
permitted under the General Laws of the State of Maryland, from
liability arising from his activities as officer or director of
the Corporation. The Corporation, however, may not purchase
insurance on behalf of any officer or director of the Corporation
that protects or purports to protect such person from liability
to the Corporation or to its stockholders to which such officer
or director would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard
of the duties involved in the conduct of his office.
The Corporation may indemnify or purchase insurance to the
extent provided in this Article VI on behalf of an employee or
agent who is not an officer or director of the Corporation.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate
or certificates, in such form as shall be approved by the Board,
representing the number of shares of stock of the Corporation
owned by him, provided, however, that certificates for fractional
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shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of
the Corporation by the President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assis-
tant Treasurer and sealed with the seal of the Corporation. Any
or all of the signatures or the seal on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who
has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate shall be issued, it may be
issued by the Corporation with the same effect as if such offi-
cer, transfer agent or registrar were still in office at the date
of issue.
Section 2. Books of Account and Record of Stockholders.
There shall be kept at the principal executive office of the
Corporation correct and complete books and records of account of
all the business and transactions of the Corporation. There
shall be made available upon request of any stockholder, in
accordance with Maryland law, a record containing the number of
shares of stock issued during a specified period not to exceed
twelve months and the consideration received by the Corporation
for each such share.
Section 3. Transfers of Shares. Transfers of shares of
stock of the Corporation shall be made on the stock records of
the Corporation only by the registered holder thereof, or by his
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attorney thereunto authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer
clerk, and on surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a
duly executed stock transfer power and the payment of all taxes
thereon. Except as otherwise provided by law, the Corporation
shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stock-
holders as the owner of such share or shares for all purposes,
including, without limitation, the rights to receive dividends or
other distributions, and to vote as such owner, and the Corpora-
tion shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any
other person.
Section 4. Regulations. The Board may make such additional
rules and regulations, not inconsistent with these By-Laws, as it
may deem expedient concerning the issue, transfer and registra-
tion of certificates for shares of stock of the Corporation. It
may appoint, or authorize any officer or officers to appoint, one
or more transfer agents or one or more transfer clerks and one or
more registrars and may require all certificates for shares of
stock to bear the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated certificates. The
holder of any certificates representing shares of stock of the
Corporation shall immediately notify the Corporation of any loss,
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destruction or mutilation of such certificate, and the Corpora-
tion may issue a new certificate of stock in the place of any
certificate theretofore issued by it which the owner thereof
shall allege to have been lost or destroyed or which shall have
been mutilated, and the Board may, in its discretion, require
such owner or his legal representatives to give to the Corpora-
tion a bond in such sun, limited or unlimited, and in such form
and with such surety or sureties, as the Board in its absolute
discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged
loss or destruction of any such certificate, or issuance of a new
certificate. Anything herein to the contrary notwithstanding,
the Board, in its absolute discretion, may refuse to issue any
such new certificate, except pursuant to legal proceedings under
the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Dis-
tributions. The Board may fix, in advance, a date not more than
ninety days preceding the date fixed for the payment of-any
dividend or the making of any distribution or the allotment of
rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising
out of any change, conversion or exchange of common stock or
other securities, as the record date for the determination of the
stockholders entitled to receive any such dividend, distribution,
allotment, rights on interests, and in such case only the stock-
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holders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or inter-
ests.
Section 7. Information to Stockholders and Others. Any
stockholder of the Corporation or his agent may inspect and copy
during usual business hours the Corporation's By-Laws, minutes of
the proceedings of its stockholders, annual statements of its
affairs, and voting trust agreements on file at its principal
office.
ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and
shall bear, in addition to any other emblem or device approved by
the Board of Directors, the name of the corporation, the year of
its incorporation and the words "Corporate Seal" and "Maryland."
Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
ARTICLE IX
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of
the Corporation shall end on the 31st day of March.
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ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation
shall be deposited with such banks or other depositories as the
Board of Directors of the Corporation may from time to time
determine.
Section 2. Custodians. All securities and other invest-
ments shall be deposited in the safe keeping of such banks or
other companies as the Board of Directors of the Corporation may
from time to time determine. Every arrangement entered into with
any bank or other company for the safe keeping of the securities
and investments of the Corporation shall contain provisions
complying with the Investment Company Act of 1940, as amended,
and the general rules and regulations thereunder.
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts,etc. Checks, notes,
drafts, acceptances, bills of exchange and other orders obliga-
tions for the payment of money shall be signed by such officer or
officers or person or persons as the Board of Directors by reso-
lution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Stock certifi-
cates, bonds or other securities at any time owned by the Corpo-
ration may be held on behalf of the Corporation or sold, trans-
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ferred or otherwise disposed of subject to any limits imposed by
these By-Laws and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the Corporation or
sold, transferred or otherwise disposed of, may be transferred
from the name of the Corporation by the signature of the Presi-
dent or a Vice President or the Treasurer or pursuant to any
procedure approved by the Board of Directors, subject to applica-
ble law.
ARTICLE XII
Independent Public Accountants
The firm of independent public accountants which shall sign
or certify the financial statements of the Corporation which are
filed with the Securities and Exchange Commission shall be
selected annually by the Board of Directors and, if required by
the provisions of the Investment Company Act of 1940, as amended,
ratified by the stockholders.
ARTICLE XIII
Annual Statement
The books of account of the Corporation shall be examined by
an independent firm of public accountants at the close of each
annual period of the Corporation and at such other times as may
be directed by the Board. A report to the stockholders based
upon each such examination shall be mailed to each stockholder of
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<PAGE> 30
the corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the
same appears on the books of the Corporation. Such annual state-
ment shall also be available at the annual meeting of stock-
holders, if any, and, within 20 days after the meeting (or, in the
absence of an annual meeting, within 20 days after the end of the
month of October following the end of the fiscal year), be placed
on file at the Corporation's principal office. Each such report
shall show the assets and liabilities of the Corporation as of
the close of the annual or quarterly period covered by the report
and the securities in which the funds of the Corporation were
then invested. Such report shall also show the Corporation's
income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or
quarterly period covered by the report and any other information
required by the Investment Company Act of 1940, as amended, and
shall set forth such other matters as the Board or such firm of
independent public accountants shall determine.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or
repealed at any regular meeting of the stockholders or at any
special meeting of the stockholders at which a quorum is present
or represented, provided that notice of the proposed amendment,
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<PAGE> 31
alteration or repeal be contained in the notice of such special
meeting. These By-Laws may also be amended, altered or repealed
by the affirmative vote of a majority of the Board of Directors
at any regular or special meeting of the Board of Directors,
except any particular By-Law which is specified as not subject to
alteration or repeal by the Board of Directors, subject to the
requirements of the Investment Company Act of 1940, as amended.
-31-
<PAGE> 1
Ex-99.5(a)
AMENDED INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 1st day of April 1992, by and between SCI/TECH
HOLDINGS, INC., a Maryland corporation (hereinafter referred to as the
"Company"), and MERRILL LYNCH INVESTMENT MANAGEMENT, INC., a Delaware
corporation doing business as Merrill Lynch Asset Management ("MLAM").
WITNESSETH:
WHEREAS, the Company is engaged in business as a diversified, open-end
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter refeffed to as the "'Investment Company Act"); and
WHEREAS, MLAM is engaged principally in rendering management and
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Company desires to retain MLAM to provide management and
investment advisory services to the Company in the manner and on the terms
hereinafter set forth; and
WHEREAS, MLAM is willing to provide management and investment advisory
services to the Company of the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Company and MLAM hereby agree as follows:
ARTICLE I
Duties of MLAM
The Company hereby employs MLAM to act as manager and investment adviser
of the Company and to furnish or arrange for affiliates to furnish, the
management and investment advisory services described below, subject to the
policies of, review by and overall control of the Board of Directors of the
Company, for the period and on the terms and conditions set forth in this
Agreement. MLAM hereby accepts such employment and agrees during such period,
at its own expense, to render, or arrange for the rendering of such services
and to assume the obligations herein set forth for the compensation provided
for herein. MLAM and its affiliates shall for all purposes herein be deemed to
be independent contractors and shall, unless otherwise expressly provided or
authorized, have no authority to act for Or represent the Company in any way or
otherwise be deemed agents of the Company.
(a) Management Services. MLAM shall perform, or arrange for affiliates to
perform, the management and administrative services necessary for the
operation of the Company including administering shareholder accounts and
handling shareholder relations. MLAM shall provide the Company with office
space, facilities, equipment and necessary personnel and such other services as
MLAM, subject to reveiew by the Directors, shall from time to time determine to
be necessary or useful to perform its
1
<PAGE> 2
obligations under this Agreement. MLAM shall also, on behalf of the Company,
conduct relations with custodians, depositories, transfer agents, dividend
disbursing agents, other shareholder. servicing agents, accountants, attorneys,
underwriter brokers and dealers, corporate fiduciaries, insurers, banks and
such other persons in any such other capacity deemed to be necessary or
desirable. MLAM shall generally monitor the Company's compliance with
investment policies and restrictions as set forth in the currently effective
prospectus and statement of additional information relating to the shares of
the Company under the Securities Act of 1933, as amended (the "Prospectus" and
"Statement of Addition- a] Information," respectively). MLAM shall make
reports to the Directors of its performance of obligations hereunder and
furnish advice and recommendations with respect to such other aspects of the
business and affairs of the Company as it shall determine to be desirable.
(b) Investment Advisory Services. MLAM shall provide the Company
with such investment research, advice and supervision as the latter may from
time to time consider necessary for the proper supervision of the assets of the
Company, shall furnish continuously an investment program for the Company and
shall determine from time to time which securities shall be purchased, sold or
exchanged and what portion of the assets of the Company shall be held in the
various securities in which the Company invests or cash, subject always to the
restrictions of the Articles of Incorporation and By- Laws of the Company, as
amended from time to time, the provisions of the Investment Company Act and the
statements relating to the Company's investment objectives, investment policies
and invest- ment restrictions as the same are set forth in the Prospectus and
Statement of Additional Information. MLAM shall make decisions for the Company
as to foreign currency matters and make determinations as to foreign exchange
contracts. MLAM shall make decisions for the Company as to the manner in which
voting rights, rights to consent to corporate action and any other rights
pertaining to the Company's portfolio securities shall be exercised. Should
the Directors at any time, however, make any definite determination as to
investment policy and notify MLAM thereof in writing, MLAM shall be bound by
such determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked. MLAM shall take,
on behalf of the Company, all actions which it deems necessary to implement the
investment policies determined as provided above, and in particular to place
all orders for the purchase or sale of portfolio securities for the Company's
account with brokers or dealers selected by it, and to that end, MLAM is
authorized as the agent of the Company to give instructions to the Custodian of
the Company as to deliveries of securities and payments of cash for the account
of the Company. In connection with the selection of such brokers or dealers
and the placing of such orders with respect to assets of the Company, MLAM is
directed at all times to seek to obtain execution and prices within the policy
guidelines determined by the Directors and set forth in the Prospectus and
Statement of Additional Information. Subject to this requirement and the
provisions of the Investment Company Act, the Securities Exchange Act of 1934,
as amended, and other applicable provisions of law, MLAM may select brokers or
dealers with which it or the Company is affiliated. Subject to the policies
of, review by and overall control of the Board of Directors, MLAM is
responsible for the allocation of the Company's assets among the various
securities markets of the world.
2
<PAGE> 3
ARTICLE II
Allocation of Charges and Expenses
(a) MLAM. MLAM assumes and shall pay for maintaining the staff and
personnel necessary to perform its obligations under this Agreement, and shall
at its own expense, provide the office space, facilities, equipment and
necessary personnel which it is obligated to provide under Article I hereof,
and shall pay all compensation of officers of the Company and all Directors of
the Company who are affiliated persons of MLAM.
(b) The Company. The Company assumes and shall pay or cause to be
paid all other expenses of the Company (except for the expenses paid by the
Company's distributor (the "Distributor")), includ- ing, without limitation:
taxes, expenses for legal and auditing services, costs of printing proxies,
stock cenificates, shareholder reports, Prospectuses and Statements of
Additional Information, charges of the custodian, any sub-custodian and
transfer agent, expenses of portfolio transactions, expenses of redemption of
shares, Securities and Exchange Commission fees, expenses of resistering the
shares under Federal, state and foreign laws, fees and actual out-of-pocket
expenses of Directors who are not affiliated persons of MLAM, accounting and
pricing costs (including the daily calculation of the net asset value),
insurance, interest, brokerage costs, litigation and other extraordinaryor
non-recurring expenses, and other expenses properly payable by the Company.
The Distributor willful pay certain of the expenses of the Company, incurred in
connection with the continuous offering of shares of common stock of the
Company.
ARTICLE III
Compensation of MLAM
(a) Management and Investment Advisory Fee. For the services
rendered, the facilities furnished and expenses assumed by MLAM, the Company
shall pay to MLAM at the end of each calendar month a fee based on the average
daily value of the net assets of the Company, as determined and computed in
accordance with the description of the determination of net asset value
contained in the Prospectus and Statement of Additional Information, at the
annual rate of 1.0% of the average daily net assets of the Company, commencing
on the day following effectiveness hereof. If this Agreement becomes effective
subsequent to the first day of a month or shall terminate before the last day
of a month, compensation for that part of the month this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fee as set
forth above. Subject to the provisions of subsection (b) hereof, payment of
MLAM's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by subsection (b)
hereof During any period when the determination of net asset value is suspended
by the Directors, the net asset value of a share as of the last business day
prior to such suspension shall for this purpose be deemed to be the net asset
value at the close of each succeeding business day until it is again
determined.
(b) Expense Limitations. In the event the operating expenses of the
Company, including amounts payable to MLAM pursuant to subsection (a) hereof,
for any fiscal year ending on a date on which this Agreement is in effect
exceed the expense limitations applicable to the Company imposed by,
3
<PAGE> 4
applicable state securities laws or regulations thereunder, as such limitations
may be raised or lowered from time to time, MLAM shall reduce its management
fee by the extent of such excess and, if required pursuant to any such laws or
regulations, will reimburse the Company in the amount of such excess; provided,
however, to the extent permitted by law, there shall be excluded from such
expenses the amount of any interest, taxes, brokerage fees and commissions,
distribution fees and extraordinary expenses (including but not limited to
legal claims and liabilities and litigation costs and any indemnifi- cation
related thereto) paid or payable by the Company. Whenever the expenses of the
Company exceed a pro rata portion of the applicable annual expense limitations,
the estimated amount of reimbursement under such limitations shall be
applicable as an offset against the monthly payment of the fee due to MLAM.
Should two or more such expense limitations be applicable as at the end of the
last business day of the month, that expense limitation which results in the
largest reduction in MLAM's fee shall be applicable.
ARTICLE IV
Limitation of Liability of
MLAM shall not be liable for any error of judgement or mistake of law
or for any loss arising out of any investment or for any act or omission in the
management of the Company, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Article IV, the term
"Manager" shall include any affiliates of MLAM performing services for the
Company contemplated hereby and tors, officers and employees of MLAM and such
affiliates.
ARTICLE V
Activities of MLAM
The services of MLAM to the Company arc not to be deemed to be
exclusive, MLAM and any person controlled by or under common control with MLAM
(for purposes of this Article V referred to as "affliates") being free to
render services to others. It is understood that Directors, officers, employ-
ees and shareholders of the Company are or may become interested in MLAM and
its affiliates, directors, officers, employees, partners, and shareholders or
otherwise and that directors, officers, employees, partners, and shareholders
of MLAM and its affiliates am or may become similarly interest- ed in the
Company, and that MLAM and directors, officers, employees, partners, and
shareholders of its affiliates may become interested in the Company as
shareholders or otherwise.
ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective as of April 1, 1992 and shall
remain in force until March 31, 1994 and thereafter, but only so long as such
continuance is specifically approved at least annually by (i) the Directors, or
by the vote of a majority of the outstanding voting securities of the Company,
and (ii) a majority of those Directors who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called for the
purpose of voting on such approval.
4
<PAGE> 5
This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Company, or by MLAM, on sixty days' written notice to the
other party. This Agreement shall automatically terminate in the event of its
assignment.
ARTICLE VII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities of the Company, and (ii) a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
ARTICIE VIII
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the rules and regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.
ARTICLE IX
Governing Law
This Agreement shall be construed in accordance with the laws of the State
of New York and the applicable provisions of the Investment Company Act. To
the extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
SCI/TECH HOLDINGS, INC.
By /S/ Arthur Zeikel
-----------------------------
MERRILL LYNCH INVESTMENT MANAGE-
MENT, INC.
BY /s/ Terry K. Glenn
----------------------------
5
<PAGE> 1
Ex-99.6(b)
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 3rd day of October, 1988, between
SCI/TECH HOLDINGS, INC., a Maryland corporation (the "Fund"), and
MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation
(the "Distributor").
W I T N E S S E T H
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended to date (the "Investment Company Act"),
as an open-end investment company and it is affirmatively in the
interest of the Fund to offer its shares for sale continuously;
and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either direct-
ly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
of the Class B shares of common stock of the Fund (the "Class B
Shares") in order to promote the growth of the Fund and
facilitate the distribution of its Class B shares.
NOW, THEREFORE, the parties agree as follows:
<PAGE> 2
Section 1. Appointment of the Distributor. The Fund
hereby appoints the Distributor as the principal underwriter and
distributor of the Fund to sell Class B shares to the public and
hereby agrees during the term of this Agreement to sell Class B
shares of the Fund to the Distributor upon the terms and condi-
tions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as
principal underwriter and distributor, except that:
(a) The Fund may, upon written notice to the Distributor,
from time to time designate other principal underwriters and
distributors of its Class B shares with respect to areas other
than the United States as to which the Distributor may have
expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor
under this Agreement to sell Class B shares in the areas so
designated shall terminate, but this Agreement shall remain
otherwise in full effect until terminated in accordance with the
other provisions hereof.
(b) The exclusive rights granted to the Distributor to
purchase Class B shares from the Fund shall not apply to shares
of the Fund issued in connection with the merger or consolidation
of any other investment company or personal holding company with
2.
<PAGE> 3
the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any
such company by the Fund.
(c) Such exclusive rights also shall not apply to Class B
shares issued by the Fund pursuant to reinvestment of dividends
or capital gains distributions.
(d) Such exclusive rights also shall not apply to Class B
shares issued by the Fund pursuant to any reinstatement privilege
afforded redeeming shareholders.
Section 3. Purchase of Shares from the Fund.
(a) The Fund will commence an offering of its Class B
shares and thereafter the Distributor shall have the right to buy
from the Fund the Class B shares needed, but not 'more than the
Class B shares needed (except for clerical errors in
transmission) to fill unconditional orders for Class B shares of
the Fund placed with the Distributor by investors or securities
dealers. The price which the Distributor shall pay for the Class
B shares so purchased from the Fund shall be the net asset value,
determined as set forth in Section 3(c) hereof.
(b) The Class B shares are to be resold by the Distributor
to investors at net asset value, as set forth in Section 3(c)
hereof, or to securities dealers having agreements with the
Distributor upon the terms and conditions set forth in Section 7
hereof.
3.
<PAGE> 4
(c) The net asset value of Class B shares of the Fund
shall be determined by the Fund or any agent of the Fund in
accordance with the method set forth in the prospectus and
statement of additional information of the Fund and guidelines
established by the Board of Directors.
(d) The Fund shall have the right to suspend the sale of
its Class B shares at times when redemption is suspended pursuant
to the conditions set forth in Section 4(b) hereof. The Fund
shall also have the right to suspend the sale of its Class B
shares if trading on the New York Stock Exchange shall have been
suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some
other event, which, in the judgment of the Fund, makes it
impracticable or inadvisable to sell the Class B shares.
(e) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class B shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund
will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class B shares. The Fund
(or its agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts or
certificates for such Class B shares pursuant to the instructions
of the Distributor. Payment shall be made to the Fund in New
4.
<PAGE> 5
York Clearing House funds. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the
Fund (or its agent).
Section 4. Repurchase or Redemption of Shares by the Fund.
(a) Any of the outstanding Class B shares may be tendered
for redemption at any time, and the Fund agrees to repurchase or
redeem the Class B shares so tendered in accordance with its
obligations as set forth in Article VII of its Articles of
Incorporation, as amended from tire to time, and in accordance
with the applicable provisions set forth in the prospectus and
statement of additional information of the Fund. The price to be
paid to redeem or repurchase the Class B shares shall be equal to
the net asset value calculated in accordance with the provisions
of Section 3(c) hereof, less the redemption fee or other charge,
if any, set forth in the prospectus and statement of additional
information of the Fund. All payments by the Fund hereunder
shall be made in the manner set forth below.
The Fund shall pay the total amount of the redemption price
as defined in the above paragraph pursuant to the instructions of
the Distributor on or before the seventh business day subsequent
to its having received the notice of redemption in proper form.
The proceeds of any redemption of Class B shares shall be paid by
the Fund as follows: (i) any applicable contingent deferred
sales charge shall be paid to the Distributor and (ii) the
5.
<PAGE> 6
balance shall be paid to or for the account of the shareholder,
in each case in accordance with the applicable provisions of the
prospectus and statement of additional information.
(b) Redemption of Class B shares or payment may be
suspended at times when the New York Stock Exchange is closed,
when trading on said Exchange is closed, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange
Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of
all information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class B shares of the Fund, and this shall
include, upon request by the Distributor, one certified copy of
all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the
Distributor such number of copies of its prospectus and statement
of additional information as the Distributor shall reasonably
request.
6.
<PAGE> 7
(b) The Fund shall take, from time to time, but subject to
the necessary approval of the shareholders, all necessary action
to fix the number of authorized Class B shares and such steps as
may be necessary to register the same under the Securities Act of
1933, as amended (the "Securities Act"), to the end that there
will be available for sale such number of Class B shares as the
Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its Class
B shares for sale under the securities laws of such states as the
Distributor and the Fund may approve. Any-such qualification may
be withheld, terminated or withdrawn by the Fund at any time in
its discretion. As provided in Section 8(c) hereof, the expense
of qualification and maintenance of qualification shall be borne
by the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports
of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and
effort to effect sales of Class B shares of the Fund, but shall
not be obligated to sell any specific number of Class B shares.
The services of the Distributor to the Fund hereunder are not to
7.
<PAGE> 8
be deemed exclusive and nothing herein contained shall prevent
the Distributor from entering into like arrangements with other
investment companies-so long as the performance of its
obligations hereunder is not impaired thereby.
(b) in selling the Class B shares of the Fund, the
Distributor shall use its best efforts in all respects duly to
conform with the requirements of all Federal and state laws
relating to the sale of such securities. Neither the Distributor
nor any selected dealer nor any other person is authorized by the
Fund to give any information or to make any representations,
other than those contained in the registration statement or
related prospectus and statement of additional information and
any sales literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of
sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales,
and the cancellation of unsettled transactions, as may be neces-
sary to comply with the requirements of the National Association
of Securities Dealers, Inc. (the "NASD"), as such requirements
may from time to time exist.
8.
<PAGE> 9
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice
("selected dealers") for the sale of Class B shares; provided,
that the Fund shall approve the forms of agreements with dealers.
Shares sold to selected dealers shall be for resale by such
dealers only at net asset value determined as set forth in
Section 3(c) hereof. The initial form of agreement with selected
dealers to be used in the offering of the Class B shares is
attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer
and sell Class B shares only to such selected dealers as are
members in good standing of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the
Fund, including lees and disbursements of its counsel and audi-
tors, in connection with the preparation and filing of any re-
quired registration statements and/or prospectuses and statements
of additional information under the Investment Company Act, the
Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy mate-
rials to shareholders (including but not limited to the expense
of setting in type any such registration statements, prospec-
tuses, statements of additional information, annual or interim
reports or proxy materials).
9.
<PAGE> 10
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses
associated with payments of sales commissions to financial con-
sultants. In addition, after the prospectuses, statements of
additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs
and expenses of printing and distributing any copies thereof
which are to be used in connection with the offering of Class B
shares to selected dealers or investors pursuant to this
Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by
the Distributor or furnished by it for use by selected dealers in
connection with the offering of the Class B shares for sale to
the public and any expenses of advertising incurred by the
Distributor in connection with such offering. It is understood
and agreed that, so long as the Fund's Distribution Plan pursuant
to Rule 12b-1 under the Investment Company Act remains in effect,
any expenses incurred by the Distributor hereunder may be paid
from amounts recovered by it from the Fund under such Plan.
(c) The Fund shall bear the cost and expenses of qualifi-
cation of the Class B shares for sale pursuant to this Agreement,
and, if necessary or advisable in connection therewith, of
qualifying the Fund as a broker or dealer, in such states of the
United States or other jurisdictions as shall be selected by the
Fund and the Distributor pursuant to Section 5(c) hereof and the
10.
<PAGE> 11
cost and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distri-
butor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith) arising by reason of any
person acquiring any Class B shares, which may be based upon the
Securities Act, or on any other statute or at common law, on the
ground that the registration statement or related prospectus and
statement of additional information, as from tine to time amended
and supplemented, or an annual or interim report to shareholders
of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading,
unless such statement or omission was made in reliance upon, and
in conformity with, information furnished to the Fund in connec-
tion therewith by or on behalf of the Distributor; provided,
however, that in no case (i) is the indemnity of the Fund in
favor of the Distributor and any such controlling persons to be
deemed to protect such Distributor or any such controlling per-
sons thereof against any liability to the Fund or its security
11.
<PAGE> 12
holders to which the Distributor or any such controlling persons
would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or
by reason of the reckless disregard of their obligations and
duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with
respect to any claim made against the Distributor or any such
controlling persons, unless the Distributor or such controlling
persons, as the case may be, shall have notified the Fund, in
writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall
have been served upon the Distributor or such controlling persons
(or after the Distributor or such controlling persons shall have
received notice of such service on any designated agent), but
failure to notify the Fund of any such claim shall not relieve it
from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled
to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any
such liability, but if the Fund elects to assume the defense,
such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or
persons, defendant or defendants in the suit. In the event the
Fund elects to assume the defense of any such suit and retain
12.
<PAGE> 13
such counsel, the Distributor or such controlling person or
persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them, but, in
case the Fund does not elect to assume the defense of any such
suit, it will reimburse the Distributor or such controlling
person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them.
The Fund shall promptly notify the Distributor of the commence-
ment of any litigation or proceedings against it or any of its
officers or Directors in connection with the issuance or sale of
any of the Class B shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Directors and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage or expense described in the foregoing indemnity contained
in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on
behalf of the Distributor for use in connection with the regis-
tration statement or related prospectus and statement of addi-
tional information, as from time to time amended, or the annual
or interim reports to shareholders. In case any action shall be
brought against the Fund or any person so indemnified, in respect
of which indemnity may be sought against the Distributor, the
Distributor shall have the rights and duties given to the Fund,
13.
<PAGE> 14
and the Fund and each person so indemnified shall have the rights
and duties given to the Distributor by the provisions of sub-
section (a) of this Section 9.
Section 10. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above
written and shall remain in force until September 30, 1990 and
thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Directors, or by the vote
of a majority of the outstanding Class B voting securities of the
Fund, and (ii) by the vote of a majority of those Directors who
are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of
voting on such approval.
This Agreement nay be terminated at any tine, without the
payment of any penalty, by the Directors or by vote of a majority
of the outstanding Class B voting securities of the Fund, or by
the Distributor, on sixty days' written notice to the other
party. This Agreement shall automatically terminate in the event
of its assignment.
The terms "vote of a majority of the outstanding voting
securities". "assignment", "affiliated person" and "interested
person", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
14.
<PAGE> 15
Section 11. Amendments of this Agreement. This Agreement
may be amended by the parties only if such amendment is specifi-
cally approved by (i) the Directors, or by the vote of a majority
of outstanding Class B voting securities of the Fund, and (ii) by
the vote of a majority of those Directors of the Fund who are not
parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on
such approval.
Section 12. Governing Law. The provisions of this Agree-
ment shall be construed and interpreted in accordance with the
laws of the State of New York as at the time in effect and the
applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any
of the Provisions herein, conflict with the applicable provisions
of the Investment Company Act, the latter shall control.
15.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
SCI/TECH HOLDING, INC.
By
----------------------------------
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
----------------------------------
16.
<PAGE> 17
EXHIBIT A
SCI/TECH HOLDINGS, INC.
CLASS B SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Sci/Tech Holdings, Inc., a Maryland
corporation (the "Fund") , pursuant to which it acts as the
distributor for the sale of Class B shares of common stock, par
value $0.10 per share, of the Fund (the "Class B Shares", and as
such has the right to distribute Class B shares of the Fund for
resale. The Fund is an open-end investment company registered
under the Investment Company Act of 1940, as amended, and its
Class B shares being offered to the public are registered under
the Securities Act of 1933, as amended. You have received a copy
of the Distribution Agreement between ourself and the Fund and
reference is made herein to certain provisions of such
Distribution Agreement. The terms "Prospectus" and "Statement of
Additional Information" as used herein refer to the prospectus
and statement of additional information, respectively, on file
with the Securities and Exchange Commission which is part of the
most recent effective registration statement pursuant to the
Securities Act of 1933, as amended. As principal, we offer to
sell to you, as a member of the Selected Dealers Group, Class B
shares of the Fund upon the following terms and conditions:
1. In all sales of these Class B shares to the public you
shall act as dealer for your own account, and in no transaction
shall you have any authority to act as agent for the Fund, for us
or for any other member of the Selected Dealers Group.
2. Orders received from you will be accepted through us
only at the public offering price applicable to each order, as
set forth in the current Prospectus and Statement of Additional
Information of the Fund. The procedure relating to the handling
of orders shall be subject to Section 4 hereof and instructions
which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor
or the Fund in the sole discretion of either. The minimum ini-
tial and subsequent purchase requirements are as set forth in the
current Prospectus and Statement of Additional Information of the
Fund.
<PAGE> 18
3. You shall not place orders for any of the Class B
shares unless you have already received purchase orders for such
Class B shares at the applicable public offering prices and
subject to the terms hereof and of the Distribution Agreement.
You agree that you will not offer or sell any of the Class B
shares except under circumstances that will result in compliance
with the applicable Federal and state securities laws and that in
connection with sales and offers to sell Class B shares you will
furnish to each person to whom any such sale or offer is made a
copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will
not furnish to any person any information relating to the Class B
shares of the Fund, which is inconsistent in any respect with the
information contained in the Prospectus and Statement of
Additional Information (as then amended or supplemented) or cause
any advertisement to be published in any newspaper or posted in
any public place without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to
place orders directly with the Fund for Class B shares of the
Fund to be resold by us to you subject to the applicable terms
and conditions governing the placement of orders by us set forth
in Section 3 of the Distribution Agreement, and (ii) to tender
Class B shares directly to the Fund or its agent for redemption
subject to the applicable terms and conditions set forth in
Section 4 of the Distribution Agreement.
5. You shall not withhold placing orders received from
your customers so as to profit yourself as a result of such
withholding: e.g., by a change in the "net asset value" from
that used in determining the offering price to your customers.
6. No person is authorized to make any representations
concerning Class B shares of the Fund except those contained in
the current Prospectus and Statement of Additional Information of
the Fund and in such printed information subsequently issued by
us or the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing Class B
shares through us you shall rely solely on the representations
contained in the Prospectus and Statement of Additional
Information and supplemental information above mentioned. Any
printed information which we furnish you other than the Fund's
Prospectus, Statement of Additional Information, periodic reports
and proxy solicitation material are our sole responsibility and
not the responsibility of the Fund, and you agree that the Fund
shall have no liability or responsibility to you in these
respects unless expressly assumed in connection therewith.
2.
<PAGE> 19
7. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if
requested, the Statement of Additional Information at or prior to
the time of offering or sale and you agree thereafter to deliver
to such purchasers copies of the annual and interim reports and
proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional
copies of the Prospectus and Statement of Additional Information,
annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon re-
quest.
8. We reserve the right in our discretion, without notice,
to suspend sales or withdraw the offering of Class B shares
entirely. Each party hereto has the right to cancel this
Agreement upon notice to the other party.
9. We shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the
continuous offering. We shall be under no liability to you
except for lack of good faith and for obligations expressly
assumed by us herein. Nothing contained in this paragraph is
intended to operate as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of
compliance with any provision of the Securities Act of 1933, as
amended, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
10. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any
sales in the United States, we both hereby agree to abide by the
Rules of Fair Practice of such Association.
11. Upon application to us, we will inform you as to the
states in which we believe the Class B shares have been qualified
for sale under, or are exempt from the requirements of, the
respective securities laws of such states, but we assume no
responsibility or obligation as to your right to sell Class B
shares in any jurisdiction. We will file with the Department of
State in New York a Further State Notice with respect to the
Class B shares, if necessary.
12. All communications to us should be sent to the address
below. Any notice to you shall be duly given if mailed or tele-
graphed to you at the address specified by you below.
3.
<PAGE> 20
13. Your first order placed pursuant to this Agreement for
the purchase of Class B shares of the Fund will represent your
acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
----------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
-----------------------------------
By:
-------------------------------------------
Address:
--------------------------------------
----------------------------------------------
Date:
-----------------------------------------
4 .
<PAGE> 1
EX-99.8
CUSTODY AGREEMENT
AGREEMENT dated January 17, 1983, between THE
CHASE MANHATTAN BANK, N.A. ("Chase"), having its principal place
of business at 1 Chase Manhattan Plaza, New York, New York,
10005, and SCI/TECH HOLDINGS, INC. a Maryland Corporation having
its principal place of business at 633 Third Avenue, New York,
New York, 10017 (the "Fund").
WHEREAS, the Fund, which is registered as an investment
company under the Investment Company Act of 1940 ("Act of
1940"), wishes certain of its securities and monies to be held
in places outside of the United States for the convenience of
purchasing and selling such securities in foreign securities
markets;
WHEREAS, the Fund wishes to appoint Chase as custodian
in order to hold certain of the securities and monies Of the
Fund, and Chase is willing to act as custodian;
WHEREAS, Chase has received an order ("Exemptive
Order") from the Securities and Exchange Commission
("Commission") granting Chase an exemption pursuant to Section
6(c) of the Act of 1940 exempting Chase and any subcustodian of
Chase and any investment company registered under the Act of
1940 from the provisions of Section 17 (f) of the Act of 1940
and Rule 17f-4 thereunder, so as to permit Chase, as custodian
of the securities and other assets Of such investment companies,
as to which any other entity is acting as Custodian, and such
other entity for which Chase so acts, to deposit, or to cause or
permit the deposit Of, such securities in certain Foreign Banks
and Foreign Securities Depositories in accordance with the
arrangement prescribed in Chase's application;
WHEREAS, the Fund wishes to enter into this Agreement
with Chase (i) to evidence the appointment of Chase as its
custodian to hold certain of the securities and other assets of
the Fund, and (ii) authorizing Chase to utilize Foreign Banks
and Foreign Securities Depositories as permitted under the
Exemptive Order;
NOW, THEREFORE, the Fund and Chase, on behalf of
themselves and their respective successors and assigns, hereby
agree as follows:
<PAGE> 2
1. Appointment as Custodian. Chase agrees to act as
custodian for the Fund as provided herein. in connection with
(a) cash ("Cash") received from, or for the account of, the Fund
for credit to the Fund's deposit account or accounts
administered by Chase ("Deposit Account") and (b) all stocks,
shares, bonds, debentures, notes, mortgages, or other
obligations for the payment of money and any certificates,
receipts, warrants, or other instruments representing rights to
receive, purchase, or subscribe for the same or evidencing or
representing any other rights or interests therein and other
similar property ("Securities") from time to time received by
Chase for the account of the Fund ("Custody Account").
2. Authorization to Use Branch Offices, Foreign Banks
and Foreign Securities Depositories. Chase is hereby authorized
to appoint and utilize:
(a) Chase's foreign branch offices in Hong Kong,
Singapore, and Tokyo; (b) such other foreign branch
offices of Chase as to which Chase shall have given
prior notice to the Fund; and (c) such Foreign Banks
and Foreign Securities Depositories located in
countries approved by the Board of Directors Of the
Fund as to which Chase shall determine and shall have
given prior notice to the Fund;
to hold Securities and Cash at any time owned by the Fund, it
being understood that no such appointment or utilization shall
in any way relieve Chase Of its responsibilities as provided for
in this Agreement. Foreign branch offices Of Chase appointed
and utilized by Chase are herein referred to as "Chase
Branches." Utilization by Chase of Chase Branches, Foreign
Banks and Foreign Securities Depositories shall be in accordance
with provisions as from time to time amended, of an operating
agreement to be entered into between Chase and the Fund
("Operating Agreement").
3. Definitions. As Used in this Agreement the following
terms shall have the following meanings:
<PAGE> 3
(a) Authorized Persons. Authorized Persons of the
Fund shall mean such officers or employees Of such Fund or any
other person or persons as shall have been designated by a
resolution of the Board of Directors of the Fund , a certified
copy of which has been filed with Chase, to act as Authorized
Persons hereunder. Such persons shall continue to be Authorized
Persons Of the Fund, authorized to act either singly or together
with one or more other Of such persons as provided in such
resolution, until such time as the Fund shall have filed with
Chase a written notice of the Fund supplementing, amending, or
revoking the authority of such persons:
(b) Foreign Bank. Foreign Bank shall mean any
banking institution organized under the laws of a jurisdiction
other than the United States or of any state thereof;
(c) Foreign Securities Depository. A Foreign
Securities Depository shall mean any system for the central
handling Of securities abroad where all securities of any
particular class or series Of any issuer deposited within the
system are treated as fungible and may be transferred or pledged
by bookkeeping without physical delivery of the securities; and
(d) Written Instructions. Written instructions Of
the Fund shall include instructions in writing signed by
Authorized Persons of the Fund giving such instructions, telex
or tested telex instructions of the Fund, and such other forms
of communications (including written or oral instructions) as
from time to time shall be agreed upon between the Fund and
Chase.
4 . Responsibility of Fund to Approve Countries in which
Securities May be Held. Chase shall not cause Securities and
Cash to be held in any particular country until the Fund has
authorized the holding of its assets in such country. Chase
represents that it has been advised by the Fund that in making
such a determination the Fund shall consider, among other
factors the following:
(a) comparative operational efficiencies Of Custody;
(b) clearance and settlement and the Costs thereof;
(c) political and other risks, other than those risks
specifically assumed by Chase.
It is understood that Chase shall have no responsibility for
this determination.
<PAGE> 4
5. Responsibility of Chase to Select Custodians in
Individual Foreign Countries. The responsibility for selecting
the Chase Branch, Foreign Bank or Foreign Securities Depository
to hold the Fund's Securities and Cash in individual countries
authorized by the Fund shall be that of Chase. Chase shall
utilize Chase Branches where available. In locations where
there are no Chase Branches providing Custodial services. Chase
shall select as its agent a Foreign Bank, which may be an
affiliate or subsidiary of Chase. To facilitate the clearance
and settlement of securities transactions, Chase represents that
it intends that it may deposit Securities in a Foreign
Securities Depository in a country authorized by the Fund in
which Chase is a participant. In situations in which Chase is
not a participant in a Foreign Securities Depository, Chase may
authorize a Foreign Bank acting as its subcustodian to deposit
the Securities in a Foreign Securities Depository in which the
Foreign Bank is a participant.
6. Conditions on Selection of Foreign Bank or Foreign
Securities Depository. Chase shall authorize the holding of
Securities and Cash by a Foreign Bank or Foreign Securities
Depository only:
(i) to the extent that the Securities and Cash are not
subject to any right, charge, security interest, lien
or claim of any kind in favour of a foreign entity,
except for their safe Custody or administration, and
(ii) to the extent that the beneficial ownership of
Securities is freely transferable without the payment
of money or value other than for safe custody or
administration; provided, however, that the foregoing
shall not apply to the extent that any of the above
mentioned rights, charges, etc result from any
arrangements made by the Fund with any such Foreign
Bank or Foreign Securities Depository.
7. Foreign Banks Not Agents of Fund. Chase Branches,
Foreign Banks and Foreign Securities Depositories selected by
Chase or a Foreign Bank (as authorized by Chase pursuant to
Section 5) shall be subject to the instructions Of Chase
including Chase London or the Foreign Bank, and not to those of
the Fund except that the Fund is authorized to give instructions
to Chase London. Any Foreign Bank or Foreign Securities
Depository shall act solely as agent of Chase, or Of such
Foreign Bank.
<PAGE> 5
8. Custody Account. Securities held in the Custody
Account shall be physically segregated at all times from those
of any other person or persons except that (a) with respect to
Securities held by Chase Branches, such Securities may be placed
in an omnibus account for the customers of Chase, which Chase
shall maintain separate book entry records for each such omnibus
account, and such Securities shall be deemed for the purpose of
this Agreement to be held by Chase in the Custody Account; (b)
with respect to Securities deposited by Chase with a Foreign
Bank or a Foreign Securities Depository, Chase shall identify on
its books as belonging to the Fund the Securities shown on
Chase's account on the books Of the Foreign Bank or Foreign
Securities Depository and (c) with respect to Securities
deposited by a Foreign Bank with a Foreign Securities
Depository, Chase shall cause the Foreign Bank to identify on
its books as belonging to Chase, as agent, the Securities shown
on the Foreign Bank's account on the books Of the Foreign
Securities Depository. All Securities Of the Fund maintained by
Chase pursuant to this Agreement shall be subject only to the
instructions Of Chase, Chase Branches or their agents.
Securities deposited by Chase in accounts with a Foreign Bank
shall be deposited in accounts which include assets held by
Chase for its customers.
9. Deposit Account. Subject to the provisions of this
Agreement, the Fund authorizes Chase to establish and maintain
in each country or other jurisdiction in which the principal
trading market for any Securities is located or in which any
Securities are to be presented for payment, an account or
accounts, which may include nostro accounts with Chase Branches
and omnibus accounts of Chase at Foreign Banks, for receipt of
cash in the Deposit Account, in such currencies as directed by
written instructions of the Fund or of such other person or
persons as designated. For purposes of this Agreement. cash so,
held in any such account shall be evidenced by separate book
entries maintained by Chase at its office in London and shall be
deemed to be Cash held by Chase in the Deposit Account. Cash
received or credited by Chase or any other Chase Branch, Foreign
Bank or Foreign Securities Depository for the Deposit Account in
a currency other than United States dollars shall be maintained
in such currency and shall not be converted or remitted except
in accordance with the written instructions Of the Fund or such
other person or persons as authorized by the Fund.
<PAGE> 6
10. Settlement Procedures. Settlement procedures for
transactions in Securities delivered to, held in, or to be
delivered from the Custody Account in Chase Branches, Foreign
Banks and Foreign Securities Depositories, including receipts
and payments Of Cash held in any nostro account or omnibus
account for the Deposit Account as described in Section 9
hereof, shall be carried out in accordance with the provisions
of the Operating Agreement. It is understood that such
settlement procedures may vary, as provided in the Operating
Agreement, from securities market to securities market, to
reflect particular settlement practices in such markets.
Chase shall make or Cause the appropriate Chase Branch or
Foreign Bank to make payments of Cash held in the Deposit
Account only:
(a) in connection with the purchase of Securities for
the account of the Fund and against the delivery of such
Securities to Chase or to another appropriate Chase Branch,
Foreign Banks or Foreign Securities Depository, or otherwise as
provided in the Operating Agreement, each such payment to be
made at prices confirmed by the written instructions of the Fund
or such other person or persons as authorized by the Fund, or
(b) as directed by the Fund by written or other
appropriate instructions.
Upon the receipt of Chase of written instructions of the
Fund or such other person or persons as designated in the
Operating Agreement, specifying the Securities to be so
transferred or delivered, which instructions shall name the
person or persons to whom transfers or deliveries of such
Securities shall be made and shall indicate the time(s) for such
transfers or deliveries, Securities held in the Custody Account
shall be transferred, exchanged, or delivered by Chase, any
Chase Branch, Foreign Bank, or Foreign Securities Depository, as
the case may be, against payment in Cash or Securities, or
otherwise as provided in the Operating Agreement, only:
(a) upon sale of such Securities for the account of the
Fund and receipt Of such payment in the amount confirmed by the
written instructions of the Fund,
(b) in exchange for or upon conversion into other
Securities alone or other Securities and Cash pursuant to any
plan of merger, consolidation, reorganization, recapitalization,
readjustment, or tender offer;
(c) upon exercise of subscription, purchase, or other
similar rights represented by such Securities: or
(d) otherwise as directed by the Fund by written
instructions which shall set forth the amount and purpose of
such transfer or delivery.
<PAGE> 7
Subject to such rules and guidelines as may be communicated
in writing from times to time by the Fund to Chase, Chase is
authorized, pursuant to instructions from the Fund to loan any
Securities at any time held by it to brokers or dealers and to
permit any such loaned Securities to be transferred into the
name of and voted by the borrower or others.
Until Chase receives written instructions of the Fund to the
contrary, Chase shall or shall cause Foreign Banks or Foreign
Securities Depositories holding Securities or Cash to:
(a) present for payment all Securities in the Custody
Account which are called, redeemed, or retired or otherwise
become payable and all coupons and other other income items
which call for payment upon presentation and to receive and
credit to the Deposit Account Cash so paid for the account of
the Fund;
(b) present for exchange Securities converted pursuant
to their terms into other Securities
(c) (in respect of Securities in the Custody Account),
execute in the name of the Fund such ownership and other
certificates as may be required to obtain payments in respect
thereto; provided that the Fund, shall have furnished to Chase
any information necessary in connection with such certificates;
and
(d) exchange interim receipts or temporary Securities
in the Custody Account for definitive Securities.
11. Records. Chase hereby agrees that Chase and any
Chase Branch(es) shall create, maintain, and retain all records
relating to their activities and obligations under this
Agreement in such manner as will meet the obligations of the
Fund under the Act of 1940, particularly Section 31 thereof and
Rules 31a-1 and 31a-2 thereunder, and applicable Federal, state
and foreign tax laws and other legal or administrative rules or
procedures, in each case as currently in effect, which may be
applicable Federal, state and foreign tax laws and other law or
administrative rules or procedures, in each case as currently in
effect, which may be applicable to the Fund. All records so
maintained in connection with the performance Of its duties
under this Agreement shall remain the property of the Fund and,
in the event of termination of this Agreement, shall be
delivered in accordance with the provisions of Section 19.
<PAGE> 8
Chase hereby agrees that the books and records of
Chase, and any Chase Branch pertaining to their actions under
this Agreement shall be open to the physical, on-premises
inspection and audit at reasonable times by officers of the
independent accountants ("Accountants") employed by, or other
representatives of the Fund. Chase hereby agrees that, subject
to restrictions under applicable laws, access shall be afforded
to the Accountants to such of the books and records of any
Foreign Bank or Foreign Securities Depository with respect to
Securities and Cash as shall be required by the Accountants in
connection with their examination of the books and records
pertaining to the affairs of the Fund. Chase also agrees that
as the Fund may reasonably request from time to time, Chase
shall furnish the Accountants with reports of Chase's, and Chase
Branches' systems of internal accounting controls as they relate
to the services provided under this Agreement, and Chase shall
Use its best efforts to obtain and furnish similar reports Of
each Foreign Bank and Foreign Securities Depository holding
Securities and Cash.
12. Reports. Chase shall supply periodically upon the
reasonable request of the Fund such statements, reports, and
advices with respect to Cash in the Deposit Account and the
Securities in the Custody Account and transactions in Securities
from time to time received and/or delivered by Chase for or from
the Custody Account, as the case may be, as Chase, and the Fund
mutually shall agree. Such statements, reports, and advices
shall include an identification of the Foreign Banks and Foreign
Securities Depositories having custody of the Securities and
Cash, and descriptions thereof.
13. Pegistration of Securities. Securities in the
Custody Account which are held in registered from shal1 be
registered in the name of Chase, Chase Branches, authorized
Foreign Banks and Foreign Securities Depositories and their
nominees.
14. Standard of Care. Chase and each Chase Branch shall
be responsible for the performance of only such duties as are
set forth or contemplated herein or contained in instructions
given to it which are not contrary to the provisions of this
Agreement. Chase and any Chase Branch shall exercise, in the
performance of their obligations undertaken or reasonably
assumed with respect to this Agreement, including the selection
of Foreign banks ang Foreign Securities Depositories, reasonable
care, for which Chase shall be responsible to the same extent as
if it were performing such duties directly and holding such
Securities and Cash in New York, United States of America.
Chase, and any such Chase Branch shall be indemnified and held
harmless by the Fund from and against any loss or liability for
any action taken or omitted to be taken hereunder in good faith
<PAGE> 9
upon written instructions of the Fund or any Authorized Person
of the Fund and may rely on the genuineness Of all such written
instructions and documents as it in good faith believes to have
been validly executed. Chase shall be responsible for the
Securities and Cash held by or deposited with Chase or any other
Chase Branch to the same extent as if such Securities and Cash
were directly held by or deposited with Chase. Chase hereby
agrees that it shall indemnify and hold the Fund harmless from
and against any 1oss which shall occur as a result Of the
failure of a Foreign Bank or a Foreign Securities Depository
holding the Securities and Cash to exercise reasonable care with
respect to the safekeeping of such Securities and Cash to the
extent that Chase would be required to indemnify and hold the
Fund harmless if Chase were itself holding such Securities or
Cash in New York. It is also understood that Chase shall not
have liability for loss except by reason of Chase's, or Chase
Branches' negligence, fraud or willful misconduct, or by reason
of negligence, fraud or Willful Misconduct of the Foreign Bank
or Foreign Securities Depository holding such Securities or Cash.
Chase, and Chase Branches shall not be responsible for
any loss of the Fund, or to take any action with respect to any
attachment or lien on any omnibus account or nostro account, if
such loss, attachment or lien arises by reason of any cause or
circumstances beyond the control of Chase, Chase Branches, or
any Foreign Bank acting on behalf of Chase, including actss of
civil or military authority, expropriation, national emergency,
acts of God, insurrection, war, riots, or failure of
transportation, communication or power supply, or the failure of
any person, firm or corporation (other than Chase, any Chase
Branch and any Foreign Bank acting on behalf of Chase) to
perform any obligation if such failure results in any such loss.
15. Insurance.
a. Bankers' Blanket Bond. Chase represents and
warrants that it presently maintains and shall maintain for the
duration of this Agreement a bankers' blanket bond ("Bond")
which provides standard fidelity and non-negligent 1oss3 coverage
with respect to Securities and Cash which may be held by Chase,
or Chase Branches and Securities which may be held in the
offices of Foreign Banks and Foreign Securities Depositories
which may be utilized by Chase pursuant to this Agreement.
Chase agrees that if at any time Chase, or Chase Branches for
any reason discontinues such coverage, it shall immediately
notify the fund in writing. Chase represents that only the
named insured on the Bond, which includes Chase, and Chase
Branches but not any of Chase's Customers, is directly protected
against loss. Chase represents that while it might resist a
claim of one of its customers to recover for a 1oss not covered
by the Bond, as a practical matter , where a claim is brought and
a loss is Possibly covered by the Bond, Chase would give notice
of the claim to its insurer, and the insurer would normally
determine whether to defend the claim against Chase or to pay
the claim on behalf of Chase.
<PAGE> 10
b. Expropriation Insurance. Chase represents that it
does not intend to obtain any insurance for the benefit of the
Fund which protects against the imposition of exchange control
restrictions on the transfer from any foreign jurisdiction of
the proceeds Of Sale of any Securities or against confiscation,
expropriation or nationalization of any securities or the assets
of the issuer Of such securities by a government of any foreign
country in which the issue of such securities is organized or
in which Securities are held for safekeeping either by Chase,
Chase Branches or any Foreign Bank or Foreign Securities
Depository in such country. Chase represents that Chase has
discussed the availability of expropriation insurance with the
Fund. Chase also represents that Chase has advised the Fund as
to its understanding of the Position of the Staff of the
Commission that any investment company investing in securities
of foreign issuers has the responsibility for reviewing the
Possibility of the imposition of exchange control restrictions
which would affect the liquidity Of such investment company's
assets and the Possibility of exposure to political risk,
including the appropriateness Of insuring against such risk.
Chase represents that the Fund has acknowledged that it has the
responsibility to review the Possibility Of such risks and what,
if any, action should be taken.
16. Proxy, Notices, Reports, Etc. If Chase or any Chase
Branches, Foreign Banks or Foreign Securities Depositories shall
receive any proxies. notices, reports, or other communications
relative to any of the Securities Of the Fund in connection with
tender offers, reorganizations, mergers, consolidation, or
similar events which may have a material impact upon the issuer
thereof, Chase shall, on its behalf or on the behalf of a Chase
Branch, Foreign Bank or Foreign Securities Depository, promptly
transmit any such communication to the Fund.
As specifically requested by the Fund, Chase shall
execute or deliver or shall Cause the nominee in whose name
Securities are registered to execute and deliver to the Fund
proxies relating to Securities in the Custody Account registered
in the name of Chase or such nominee, as the case may be, but
without indicating the manner in which such proxies are to be
voted. Chase shall take such reasonable steps to vote bearer
Securities in accordance with written instructions of the Fund
timely received by Chase, or such other person or persons as
designated in or pursuant to the Operating Agreement.
Chase, and any Chase Branch shall have no liability for
any loss or liability occasioned by delay in the actual receipt
by them or any Foreign Bank or Foreign Securities Depository of
notice of any payment redemption, or other transaction regarding
Securities in the Custody Account in respect of which it has
agreed to take action as provided in Section 10 hereof, unless
such delay is a result of their own negligence, fraud, or
willful misconduct.
<PAGE> 11
17. Compensation. The Fund agrees to pay to Chase from
time to time such compensation for its services pursuant to this
Agreement as may be mutually agreed upon in writing from time to
time and Chase's out-of-pocket or incidental expenses , as from
time to time shall be mutually agreed upon by Chase and the
Fund. In the event of any advance of Cash for any purpose made
by Chase pursuant to any written instruction upon which Chase
may rely under this Agreement, or in the event that Chase or
any nominee of Chase shall incur or be assesed any taxes,
charges, expenses (including counsel fees), assessments, claims,
or liabilities in connection with the performance of this
Agreement, the Fund shall indemnify and reimburse Chase as the
case may be, therefor, except such assessment of taxes.
charges, etc., as results from the negligence, fraud, or willful
Misconduct of Chase, Chase London, Chase Branches, Foreign Banks
or Foreign Securities Depositories.
18. Agreement subject to Approval of Fund. It is
understood that this Agreement and any amendments shall be
subject to the approval of the Fund.
19. Term. This Agreement shall remain in effect for a
period of one (1) year from the date of this Agreement and shall
thereafter remain in effect until terminated by either party,.as
provided hereunder. This Agreement may be terminated by the
Fund or Chase by 60 days' written notice to the other, sent by
registered mail. Chase, upon the date this Agreement terminates
pursuant to notice which has been given in a timely fashion,
shall deliver the Securities in the Custody Account and shall
pay the Cash in the Deposit Account to the Fund unless Chase has
received from the Fund 60 days prior to the date on which this
Agreement is to be terminated written instructions of the Fund
specifying the name(s) of the person(s) to whom the Securities
in the Custody Account shall be delivered and to whom the Cash
in the Deposit Account shall be paid. Concurrently with the
delivery of such Securities, Chase shall deliver to the Fund, or
such other person as the Fund shall instruct, the records
referred to in Section 11 hereof which are in the possession or
control of Chase, Chase Branches, Foreign Bank or Foreign
Securities Depositories.
20. Authorization of Chase to Execute Necessary
Documents. In connection with the performance of its duties
hereunder, the Fund hereby authorizes and directs Chase and each
Chase Branch acting on behalf of Chase, and Chase hereby agrees,
to execute and deliver in the name of the Fund, or Cause such
other Chase Branch to execute and deliver in the name of the
Fund, such certificates, instruments, and other documents as
shall be reasonably necessary in connection with such
performance, provided that the Fund, shall have furnished to
Chase any information necessary in connection therewith.
<PAGE> 12
21. Notices. Any notice or other communication
authorized or required by this Agreement to be given to the
parties shall be sufficiently given if addressed to such
corporation and mailed Postage prepaid or delivered to it at its
office at the address set forth below:
To Chase: To the Fund
1211 Avenue of the Americas c/o Merrill Lynch Asset
New York, MY 10036 Management, Inc.
Att: David M. Mann 633 Third Avenue
New York, NY 10017
22. Non-Assignability of Agreement. This Agreement shall
not be assignable by either party hereto; provided, however,
that any corporation into which the Fund or Chase, as the case
may be , may be merged or converted or with which it may be
consolidated, or any corporation succeeding to all or
substantially all of the trust business Of Chase, shall succeed
to the respective rights and shall assume the respective duties
of the Fund or of Chase, as the Case may be, hereunder.
23. Governing Law. This Agreement shall be governed by
the laws Of the State of New York.
THE CHASE MANHATTAN BANK, N.A.
By:
------------------------------
Vice President
SCI/TECH HOLDINGS INC.
By:
------------------------------
Vice President
4 /DMCUS
<PAGE> 1
Ex-99.9
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the 1st day of August, 1987 by
and between Sci/Tech Holdings, Inc. (the "Fund") and Merrill Lynch
Financial Data Services Inc. ("MLFDS"), a New Jersey corporation.
WITNESSETH:
WBEREAS, the Fund wishes to appoint MLFDS to be the
Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent upon, and subject top the terms and provisions of
this Agreement, and MLFDS is desirous of accepting such
appointment upon, and subject to, such terms and provisions:
NOW THEREFORE, in consideration of mutual covenants
contained in this Agreement, the Fund and MLFDS agree as follows:
1. Appointment of MLFDS as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent.
(a) The Fund hereby appoints MLFDS to act as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the
Fund upon, and subject to the terms and provisions of this
Agreement.
(b) MLFDS hereby accepts the appointment as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the
Fund, and agrees to act as such upon, and subject top the terms
and provisions of the Agreement.
2. Definitions.
(a) In this Agreement:
(I) The term "Acts" means the Investment Company Act of
1940 as amended from time to time and any rule or regulation
thereunder;
(II) The term "Account" means any account of a
Shareholder, or, if the shares are held in an account in the name
of MLPF&S for benefit of an identified customer, such account,
including a Plan Account, any account under a plan (by whatever
name referred to in the Prospectus) pursuant to the Self-Employed
Individuals Retirement Act of 1962 ("Keogh Act Plan") and any plan
(by whatever name referred to in the Prospectus) in conjunction
with Section 401 of the Internal Revenue Code ("Corporation Master
Plan");
<PAGE> 2
(III) The term "application" means an application made
by a Shareholder or prospective Shareholder respecting the opening
of an Account,
(IV) The term "MLFD" means Merrill Lynch Funds
Distributor, Inc., a Delaware corporation;
(V) The term "MLPF&S" means Merrill Lynch, Pierce,
Penner & Smith Incorporated, a Delaware corporation;
(VI) The term "officer's instruction" means an
instruction in writing given on behalf of the Fund to MLFDS and
signed on behalf of the Fund by the President, any Vice President,
the Secretary or the Treasurer of the Fund;
(VII) The term "Prospectus" means the Prospectus and
the Statement of Additional Information of the Fund as from time
to time in effect;
(VIII) The term "Shares" means shares of stock or
beneficial interest as the case may be, of the Fund, irrespective
of class or series;
(IX) The term Shareholder means the holder of record
of Shares;
(X) The term "Plan Account" means an account opened
by a Shareholder or prospective Shareholder in respect to an open
account, monthly payment or withdrawal plan (in each case by
whatever name referred to in the Prospectus), and may also include
an account relating to any other Plan if and when provision is
made for such plan in the Prospectus.
3. Duties of MLFDS, as Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent.
(a) Subject to the succeeding provisions of the
Agreement, MLFDS hereby agrees to perform the following functions
as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent for the Fund;
(I) Issuing, transferring and redeeming Shares;
(II) Opening, maintaining, servicing and closing
Accounts;
-2-
<PAGE> 3
(III) Acting as agent for the Fund Shareholders and/or
customers of MLPF&S in connection with Plan Accounts, upon the
terms and subject to the conditions contained in the Prospectus
and application relating to the specific Plan Account;
(IV) Acting as agent of the Fund and/or MLPF&S,
maintaining such records as may permit the imposition of such
contingent deferred sales charges as may be described in the
Prospectus, including such reports as may be reasonably requested
by the Fund with respect to such Shares as may be subject to a
contingent deferred sales charge;
(V) Upon the redemption of Shares subject to such a
contingent deferred sales charge, calculating and deducting from
the redemption proceeds thereof the amount of such charge in the
manner set forth in the Prospectus. MLFDS shall pay, on behalf of
MLFD, to MLPF&S such deducted contingent deferred sales charges
imposed upon all Shares maintained in the name of MLPF&S, or
maintained in the name of an account identified as a customer
account of MLPF&S. Sales charges imposed upon any other Shares
shall be paid by MLFDS to MLFD.
(VI) Exchanging the investment of an investor into, or
from the shares of other open-end investment companies or other
series portfolios of the Fund, if any, if and to the extent
permitted by the Prospectus at the direction of such investor.
(VII) Processing redemptions;
(VIII) Examining and approving legal transfers;
(IX) Replacing lost, stolen or destroyed certificates
representing Shares, in accordance with, and subject to,
procedures and conditions adopted by the Fund;
(X) Furnishing such confirmations of transactions
relating to their Shares as required by applicable law;
(XI) Acting an agent for the Fund and/or MLPF&S,
furnishing such appropriate periodic statements relating to
Accounts, together with additional enclosures, including
appropriate income tax information and income tax forms duly
completed, as required by applicable law;
(XII) Acting as agent for the Fund and/or MLPF&S,
mailing annual, semi-annual and quarterly reports prepared by or
on behalf of the Fund, and mailing new Prospectuses upon their
issue to Shareholders as required by applicable law;
(XIII) Furnishing such periodic statements of
transactions effected by MLPDS, reconciliations, balances and
summaries as the Fund may reasonably request;
-3-
<PAGE> 4
(XIV) Maintaining such books and records relating to
transactions effected by MLFDS as are required by the Act, or by
any other applicable provision of law, rule or regulation, to be
maintained by the Fund or its transfer agent with respect to such
transactions, and preserving, or causing to be preserved any such
books and records for such periods as may be required by any such
law, rule or regulation and as may be agreed upon from time to
time between MLFDS and the Fund. In addition, MLFDS agrees to
maintain and preserve master files and historical computer tapes
on a daily basis in multiple separate locations a sufficient
distance apart to insure preservation of at least one copy of such
information;
(XV) Withholding taxes on non-resident alien Accounts,
preparing and filing U.S. Treasury Department Form 1099 and other
appropriate forms as required by applicable law with respect to
dividends and distributions; and
(XVI) Reinvesting dividends for full and fractional
shares and disbursing cash dividends as applicable.
(b) MLFDS agrees to act as proxy agent in connection
with the holding of annual, if any, and special meetings of
Shareholders, mailing such notices, proxies and proxy statements
in connection with the holding of such meetings as may be required
by applicable law, receiving and tabulating votes cast by proxy
and communicating to the Fund the results of such tabulation
accompanied by appropriate certifications, and preparing and
furnishing to the Fund certified lists of Shareholders as of such
date, in such form and containing such information as may be
required by the Fund.
(c) MLFDS agrees to deal with, and answer in a timely
manner, all correspondence and inquiries relating to the functions
of MLFDS under this Agreement with respect to Accounts.
(d) MLPDS agrees to furnish to the Fund such
information and at such intervals as is necessary for the Fund to
comply with the registration and/or the reporting requirements
(including applicable escheat laws) of the Securities and Exchange
Commission, Blue Sky authorities or other governmental
authorities.
-4-
<PAGE> 5
(e) MLFDS agrees to provide to the Fund such
information as may reasonably be required to enable the Fund to
reconcile the number of outstanding Shares between MLFDS's records
and the account books of the Fund.
(f) Notwithstanding anything in the foregoing
provisions of this paragraph MLFDS agrees to perform its
functions thereunder subject to such modification (whether in
respect of particular cases or in any particular class of cases)
as may from time to time be contained in an officer's Instruction.
4. Compensation.
The charges for services described in this Agreement,
including "out-of-pocket" expenses, will be set forth in the
Schedule of Fees attached hereto.
5. Right of Inspection.
MLFDS agrees that it will in a timely manner make
available too and permit, any officer, accountant, attorney or
authorized agent of the Fund to examine and make transcripts and
copies (including photocopies and computer or other electronical
information storage media and print-outs) of any and all of its
books and records which relate to any transaction or function
performed by MLFDS under or pursuant to this Agreement.
6. Confidential Relationship.
MLFDS agrees that it will on behalf of itself and its
officers and employees treat all transactions contemplated by
this Agreement, and all information germane thereto, as
confidential and not to be disclosed to any person (other than the
Shareholder concerned, or the Fund, or as may be disclosed in the
examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the
Fund by way of an Officer's instruction.
7. Indemification.
The Fund shall indemnify and hold MLFDS harmless from any
loss, costs, damage and reasonable expenses, including reasonable
attorney's fees (provided that such attorney is appointed with the
Fund's consent, which consent shall not be unreasonably withheld),
incurred by it resulting from any claim, demand, action, or suit
in connection with the performance of its duties hereunder,
-5-
<PAGE> 6
provided that this indemnification shall not apply to actions or
omissions of MLFDS in cases of willful misconduct, failure to act
in good faith or negligence by MLFDS, it's officers, employees or
agents, and further provided,.that prior to confessing any claim
against it which may be subject to this indemnification, MLFDS
shall give the Fund reasonable opportunity to defend against said
claim in its own name or in the name of MLFDS. An action taken by
MLFDS upon any Officer's Instruction reasonably believed by it to
have been properly executed shall not constitute willful
misconduct, failure to act in good faith or negligence under this
Agreement.
S. Regarding MLFDS.
(a) MLFDS hereby agrees to hire, purchaser develop and
maintain such dedicated personnel, facilities, equipment,
software, resources and capabilities as may be reasonably
determined by the Fund to be necessary for the satisfactory
performance of the duties and responsibilities of MLPDS. MLFDS
warrants and represents that its officers and supervisory
personnel charged with carrying out its functions as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent
for the Fund possess the special skill and technical knowledge
appropriate for that purpose. MLFDS shall at all times exercise
duo care and diligence in the performance of its functions as
Transfer Agent, Dividend Disbursing Agent and Shareholder
servicing Agent for the Fund. MLFDS agrees that in determining
whether it has exercised due care and diligence, its conduct shall
be measured by the standard applicable to persons possessing such
special skill and technical knowledge.
(b) MLFDS warrants and represents that is duly authorized
and permitted to act as Transfer Agent, Dividend Disbursing Agent,
and Shareholder Servicing Agent under all applicable laws and that
it will immediately notify the Fund of any revocation of such
authority or permission or of the commencement of any proceeding
or other action which may lead to such revocation.
9. Termination.
(a) This Agreement shall become effective as of the date
first above written and shall thereafter continue from year to
year. This Agreement may be terminated by the Fund or MLPDS
(without penalty to the Fund or MLPDS) provided that the
terminating party gives the other party written notice of such
termination at least sixty (60) days in advance, except that the
Fund may terminate this Agreement immediately upon written notice
to MLFDS if the authority or permission of MLPDS to act as
Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent has been revoked or if any proceeding or other
action which the Fund reasonably believes will lead to such
revocation has been commenced.
-6-
<PAGE> 7
(b) Upon termination of this Agreement, MLFDS shall deliver
all unissued and canceled stock certificates representing Shares
remaining in its possession and all Shareholder records, books,
stock ledgers, instruments and other documents (including
computerized or other electronically stored information) made or
accumulated in the performance of its duties as Transfer Agent,
Disbursing Agent and Shareholder Servicing Agent for the Fund
along with a certified locator document clearly indicating the
complete contents therein, to such successor as may be specified
in a notice of termination or Officer, instruction; and the Fund
assumes all responsibility for failure thereafter to produce any
paper, record or documents so delivered and identified in the
locator document, if and when required to be produced.
10. Amendment.
Except to the extent that the performance by MLFDS or
its functions under this Agreement may from time to time be
modified by an officer's Instruction, this Agreement may be
amended or modified only by further written Agreement between the
parties.
11. Governing Law.
This Agreement shall be governed by the laws of the
State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective duly authorized
officers and their respective corporate seals hereunto duly
affixed and attested, as of the day and year above written.
SCI/TECH HOLDINGS, INC.
By: /s/ Terry K. Glenn
---------------------
Title: Executive Vice President
-------------------------
MERRILL LYNCH FINANCIAL DATA SERVICE, INC.
By: /S/ Robert C. Doan
-----------------------------
Title: President
--------------------------
-7-
<PAGE> 1
EX-99.13
CERTIFICATE OF SOLE STOCKHOLDER
Merrill Lynch Asset Management, Inc., the holder of
10,929 shares of Common Stock, par value $0.10 per share,
of Sci/Tech Holdings, Inc., a Maryland corporation (the
"Company"), does hereby confirm to the Company its repre-
sentation that it purchased such shares for investment
purposes, with no present intention of redeeming or reselling
any portion thereof, and does further agree that if it re-
deems any portion of such shares prior to the amortization
of the Company's organizational expenses, the proceeds
thereof will be reduced by the proportionate amount that
the total unamortized balance bears to the number of shares
being redeemed.
MERRILL LYNCH ASSET MANAGEMENT, INC.
By [SIG]
------------------------------
Dated: January 17, 1983
<PAGE> 1
Exhibit 16 (a)
SCI/TECH HOLDINGS, INC.
<TABLE>
<CAPTION>
TOTAL RETURNS
Since Annual
Inception Total
1 Year 04/01/83 Return*
---------- ------------ -----------
<S> <C> <C> <C>
Initial Investment $1,000.00 $1,000.00 $1,000.00
Divided by
Maximum Offering Price 14.71 9.79
--------- ---------
Divided by Net Asset Value 13.75
Equals Shares Purchased 67.981 102.145 72.727
Plus Shares Acquired Through
Dividend Reinvestment 22,427 46,471 23,975
--------- --------- --------
Equals Shares Held
at 3/31/88 90.408 148.616 96.702
Multiplied by Net Asset
Value at 3/31/88 10.55 10.55 10.55
--------- --------- --------
Equals Ending Redeemable
Value of a $1,000
Investment (ERV)
at 3/31/88 $953.80 $1,567.90 1,020.21
Divided by $1,000 (P) .9538 1.5679 1,0202
Subtract 1 (.0462) .5679 .0202
Expressed as a percentage
equals the Aggregate Total
Return for the Period (T) (4.62%) 56.79%
---------- ----------
Expressed as a percentage
equals the Annual
Total Return (T) 2.02%
-----
ERV divided by P .9538 1.5679
Raise to the power of 1 1/5
Equals .9538 1.0941
Subtract 1 (.0462) .0941
Expressed as a percentage
equals the Average
Annualized Total Return (4.62%) 9.41%
---------- ---------
</TABLE>
*Does not include sales charge for the period.
<PAGE> 1
Ex-99.16(b)
Sci/Tech Holdings. Inc.
Class B
TotaL Return
<TABLE>
<CAPTION>
Period from
10/21/88 Annual
(Inception) Total
to 03/31/89 Return*
------------ -----------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 10.24 10.24
---------- ---------
Equal Shares Purchased 97.66 97.66
Plus Shares Acquired through
Dividend Reinvestment 9.37 9.37
---------- ---------
Equals Shares Held
at 03/31/89 107.03 107.03
Multiplied by Net Asset
Value at 03/31/89 9.57 9.57
---------- ---------
Equals Ending Value before
deduction for contingent
deferred sales charge 1,024.30 1,024.30
Less deferred sales charge (37.40) 0.00
Equals Ending Redeemable
Value of a $1,000
Investment (ERV) $986.90 $1,024.30
---------- ---------
Divided by $1,000 (P)
0.9869 1.0243
Subtract 1 (0.0131) 0.0243
Expressed as a Percentage
equals the Aggregate Total
Return for the Period (T) (1.31%)
==========
Expressed as a percentage
equals the Aggreagate Total
Return for the Period 2.43%
=========
ERV divided by P 0.9869
Raise to the power of 1 / .4411
Equals 0.9703
Subtract 1 (0.0297)
Expressed as a percentage
equals the Average
Annualized Total Return (2.97%)
==========
</TABLE>
* Does not include sales charge for the period.
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Healthcare Fund, Inc.
We consent to the use in Post-Effective Amendment No. 17 to Registration
Statement No. 2-80150 of our report dated May 31, 1995 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
Deloitte & Touche LLP
Princeton, New Jersey
August 23, 1995
<PAGE> 1
EXHIBIT 16(c)
Health Care Fund - Class C
10/21/94 - 04/30/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Dividend by Net Asset Value 3.27 3.27
--------- ---------
Equals Shares Purchased 305.810 305.810
Plus Shares Acquired through
Dividend Reinvestment 0.000 0.000
--------- ---------
Equals Shares Held at 4/30/95 305.810 305.810
Multiplied by Net Asset Value at 4/30/95 3.43 3.43
--------- ---------
Equals Ending Value before deduction for
contingent deferred sales charge 1,048.93 1,048.93
Less deferred sales charge (10.00) 0.00
--------- ---------
Equals Ending Redeemable Value at
$1000 Investment (ERV) at 4/30/95 1,038.93 1,048.93
--------- --------
Divided by $1,000 (P) 1.0389 1.0489
Subtract 1 0.0389 0.0489
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 3.89%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 4.89%
=========
ERV divided by P 1.0389
Raise to the power of 1.9110
Equals 1.0757
Subtract 1 0.0757
Expressed as a percentage equals the
Average Annualized Total Return 9.57%
=========
</TABLE>
*Does not include sales charge for the period.
<PAGE> 1
EXHIBIT 16(d)
Health Care Fund - Class D
10/21/94 - 04/30/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ----------
<S> <C> <C>
Initial Investment $1,000.000 $1,000.000
Divided by Initial Maximum Offering Price 3.81
----------
Divided by Net Asset Value 3.61
----------
Equals Shares Purchased 262.467 277.008
Plus Shares Acquired through
Dividend Reinvestment 0.000 0.000
---------- ----------
Equals Shares Held at 4/30/95 262.467 277.008
Multiplied by Net Asset Value at 4/30/95 3.72 3.72
---------- ----------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 4/30/95 976.38 1,030.47
Divided by $1,000 (P) 0.9764 1.0305
Subtract 1 -0.0236 0.0305
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) -2.36%
==========
Expressed as a percentage equals the
Aggregate Total Return for the Period 3.05%
==========
ERV divided by P 0.9764
Raise to the power of 1.9072
Equals 0.9554
Subtract 1 -0.0446
Expressed as a percentage equals the
Average Annualized Total Return -4.46%
===========
</TABLE>
*Does not include sales charge for the period.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000709140
<NAME> MERRILL LYNCH HEALTHCARE FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> CLASS A SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 155654630
<INVESTMENTS-AT-VALUE> 166740936
<RECEIVABLES> 3602834
<ASSETS-OTHER> 4450800
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 174794570
<PAYABLE-FOR-SECURITIES> 18484055
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9743445
<TOTAL-LIABILITIES> 19457500
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 145110917
<SHARES-COMMON-STOCK> 18269048
<SHARES-COMMON-PRIOR> 18275079
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (875322)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11101475
<NET-ASSETS> 69649556
<DIVIDEND-INCOME> 1031286
<INTEREST-INCOME> 1042753
<OTHER-INCOME> 0
<EXPENSES-NET> 3074392
<NET-INVESTMENT-INCOME> (1000353)
<REALIZED-GAINS-CURRENT> (819555)
<APPREC-INCREASE-CURRENT> 9775276
<NET-CHANGE-FROM-OPS> 7955368
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 4761771
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5713906
<NUMBER-OF-SHARES-REDEEMED> 6956106
<SHARES-REINVESTED> 1236169
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<PAGE> 1
Exhibit 18
POWER OF ATTORNEY
I, Edward D. Zinbarg, hereby authorize Arthur Zeikel, Terry K.
Glenn, Gerald M. Richard, Mark B. Goldfus, Robert Harris or Michael J.
Hennewinkel, or any of them, as attorney-in-fact, to sign on my behalf any
amendments to the Registration Statement for each of the following registered
investment companies and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission: Emerging Tigers Fund, Inc.; Merrill Lynch
Americas Income Fund, Inc.; Merrill Lynch Developing Capital Markets Fund,
Inc.; Merrill Lynch Dragon Fund, Inc.; Merrill Lynch EuroFund; Merrill Lynch
Global Allocation Fund, Inc.; Merrill Lynch Global Bond Fund for Investment and
Retirement; Merrill Lynch Global Holdings, Inc.; Merrill Lynch Global SmallCap
Fund, Inc.; Merrill Lynch Healthcare Fund, Inc.; Merrill Lynch International
Equity Fund; Merrill Lynch Latin America Fund, Inc.; Merrill Lynch Middle
East/Africa Fund, Inc.; Merrill Lynch Pacific Fund, Inc.; Merrill Lynch
Short-Term Global Income Fund, Inc.; Merrill Lynch Technology Fund, Inc.; and
Worldwide DollarVest Fund, Inc.
Dated: February 21, 1995 /s/ Edward D. Zinbarg
----------------------------------
Edward D. Zinbarg
(Director of each above referenced
Maryland corporation and Trustee
of each above referenced
Massachusetts business trust)
